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September 16, 2005


BIR RULING NO. 018-05
000-00
Forbes Park Association, Inc.
Pandan corner Kawayan Road
Forbes Park, Makati City
Attention: Mr. Stephen D. Sy
Tower One and Exchange Plaza Condominium Corporation
c/o Ayala Property Management Corporation
5th Level Glorietta IV, Ayala Center
Makati City
Attention: Mr. Adolfo M. Duarte
Ayala Life-FGU Center Condominium Corporation
c/o Ayala Property Management Corporation
5th Level Glorietta IV, Ayala Center
Makati City
Attention: Ms. Carmela K. Ignacio
Universal Condominium Corporation Tower One
and Exchange Plaza Condominium Corporation
c/o Ayala Property Management Corporation
5th Level Glorietta IV, Ayala Center
Makati City
Attention: Mr. Edilberto D. Ibasco
One Salcedo Place Condominium Corporation
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c/o Ayala Property Management Corporation


5th Level Glorietta IV, Ayala Center
Makati City
Attention: Mr. Gerardo Javellana
Two Salcedo Place Condominium Corporation
c/o Ayala Property Management Corporation
5th Level Glorietta IV, Ayala Center
Makati City
Attention: Dr. Rafael Sison
Three Salcedo Place Condominium Corporation
c/o Ayala Property Management Corporation
5th Level Glorietta IV, Ayala Center
Makati City
Attention: Mr. Nathaniel Kho
Regency at Salcedo Condominium Corporation
c/o Ayala Property Management Corporation
5th Level Glorietta IV, Ayala Center
Makati City
Attention: Ms. Dinna Bayangos
Asia Tower Condominium Corporation
c/o Ayala Property Management Corporation
5th Level Glorietta IV, Ayala Center
Makati City
Attention: Mr. William W. Yang
Twin Towers Condominium Corporation
c/o Ayala Property Management Corporation
5th Level Glorietta IV, Ayala Center
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Makati City
Attention: Mr. Rafael Sison
Roxas Triangle Tower Condominium Corporation
c/o Ayala Property Management Corporation
5th Level Glorietta IV, Ayala Center
Makati City
Attention: Mr. Ariston Estrada, Jr.
Avignon Tower Condominium Corporation
c/o Ayala Property Management Corporation
5th Level Glorietta IV, Ayala Center
Makati City
Attention: Ms. Josephine Turalba
Gentlemen :
This refers to your letter dated November 13, 2002 requesting for a
clarification on the validity of Regional Revenue Memorandum Circular No. 2-2002
(RRMC-2-2002 for brevity) issued on June 19, 2002 by Regional Director Antonio I
.
Ortega of Revenue Region 8, Makati City.
The facts, as you represent, are as follows:
RRMC-2-2002 covers the taxability of condominium corporations, particularly
their liability for payment of income tax and value-added tax (VAT fo
r brevity) on
the sale of service.
Section 2 of RRMC-2-2002 provides that a condominium corporation is not a
civic league for the promotion of social welfare, hence not exempt fr
om corporate
income tax. For this purpose, it cites various Bureau of Internal Rev
enue (BIR for
brevity) Rulings which essentially state that the association or corporation for
med by
unit owners to provide for the arrangement, maintenance and care of t
he common
areas of the condominium project benefit only the members thereof, who
are the
owners of the condominium units. They do not benefit the community as a whole, a
nd
therefore, cannot be considered civic leagues or organizations operated
exclusively
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for the promotion of social welfare.
The succeeding section provides that the normal revenue of a condomini
um
corporation comes in the form of "dues and assessments" paid by the unit owners
of
the condominium building, although some condominiums also derive income through
other means, like revenue from restaurant operations. Citing Mertens wh
ich states,
"amounts paid in as dues by members of non exempt organizations have been held t
o
be income to the organization so long as the organization furnishes the members
with
benefits and advantages in return for such payments," RRMC-2-2002 decla
res that
"dues and assessments" are embraced by the term income.
RRMC-2-2002 cites the case of Commissioner of Internal Revenue vs. Cou
rt
of Appeals and Commonwealth Management and Services Corporation (GR No.

125355, March 30, 2000) (COMASERCO case for brevity) in declaring that
even a
nonstock nonprofit organization or entity is liable to pay VAT on the sale of go
ods or
services, quoting the following Tax Code provision on VAT, viz:
"SECTION 105.
Persons Liable.
Any person who, in the course
of trade or business, sells, barters, exchanges, leases goods or prope
rties,
renders services, and any person who imports goods shall be subject t
o the
value-added tax (VAT) imposed in Sections 106 and 108 of this Code.
xxx
xxx
xxx
"The phrase 'in the course of trade or business' means the regular
conduct or pursuit of a commercial or an economic activity, including
transactions incidental thereto, by any person regardless of whether or not the
person engaged therein is a nonstock, nonprofit organization (irrespecti
ve of
the disposition of its net income and whether it sells exclusively to members
or their guests), or government entity."
All Revenue District Officers (RDOs) of Revenue Region 8 were, therefo
re,
instructed to immediately undertake the following measures in order to
enhance
revenue generation:
a.
Determine all existing condominium corporations under their respect
ive
areas of jurisdiction;
b.
Determine whether these condominium corporations have filed
corporate income tax returns and paid income tax from their inception
up to the present; SDHAcI
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c.
Determine whether these condominium corporations have paid VAT on
their respective taxable revenues from January 1, 1996 up to the
present; and
d.
Submit a report within fifteen (15) days from the issuance
of
RRMC-2-2002.
As a result of the issuance of RRMC-2-2002, various condominium
corporations and homeowners associations in Revenue Region 8 received n
otices
from RDOs requiring the payment of deficiency income tax and VAT within ten (10)
days from receipt of the notices.
You believe that RRMC 2-2002 is without legal basis, and should therefore be
rendered without force and effect because it runs counter to prevailin
g laws,
regulations, rulings, and jurisprudence.
The issues, therefore, presented before this Office are:
1.
Whether or not the Regional Director has jurisdiction to i
ssue RRMC
2-2002; and
2.
Assuming that the Regional Director has jurisdiction to iss
ue RRMC
2-2002, whether or not RRMC 2-2002 is in accordance with existing
laws, regulations, rulings, and jurisprudence.
In reply, please be informed of the following:
As to Issue No. I:
Section 4 of the 1997 Tax Code vests on the Commissioner of Internal
Revenue the power to interpret tax laws, subject to review by the Se

cretary of
Finance. The power is exclusive and original. Thus, Section 4 states that:
"Sec. 4. Power of the Commissioner to Interpret Tax Laws and to
Decide Tax Cases.
The power to interpret the provisions of this Code and
other tax laws shall be under the exclusive and original jurisdiction
of the
Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties imposed in relation thereto, o
r other
matters arising under this Code or other laws or portions thereof administered
by the Bureau of Internal Revenue is vested in the Commissioner, subj
ect to
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the exclusive appellate jurisdiction of the Court of Tax Appeals."
Evidently, the Regional Director imposed upon himself this exclusive an
d
original jurisdiction when he issued RRMC-2-2002, to wit:
"Section 1. Scope.
Some of our revenue officers have verbally
consulted the undersigned whether or not 'condominium corporation' may
be
treated exempt from corporate income tax under Section 30, NIRC of 19
97
and, also, whether its sale of service is subject to the value added
tax under
Section 108 of the said Code."
Undoubtedly, the Regional Director formalized his interpretation of Section 30
and 108 of the Tax Code through RRMC-2-2002 in view of the queries
directed to
him by revenue officers. Unfortunately, the law itself prohibits the Regional Di
rector
from doing so, the power to interpret tax laws having been vested so
lely in the
Commissioner of Internal Revenue.
Further, Sections 7(a) and 10 of the 1997 Tax Code provide that:
"Sec. 7.
Authority of the Commissioner to delegate powers.
The Commissioner may delegate the powers vested in him under the pertinent
provisions of this Code to any or such subordinate officials with the
rank
equivalent to a division chief or higher, subject to such limitations
and
restrictions as may be imposed under rules and regulations to be promulgated
by the Secretary of Finance, upon recommendation of the Commissioner;
provided, however, that the following powers of the Commissioner shall
not
be delegated:
(a)
The power to recommend the promulgation of rules and
regulations by the Secretary of Finance;
xxx
xxx
xxx
Sec. 10
Revenue Regional Director.
Under rules and
regulations, policies and standards formulated by the Commissioner, with the
approval of the Secretary of Finance, the Revenue Regional Director sh
all,
within the region and district offices under his jurisdiction, among others:
(a)
Implement laws, policies, plans, programs, rules and regulations
of the department or agencies in the regional area;
(b)
Administer and enforce internal revenue laws, and rules and
regulations, including the assessment and collection of all internal re

venue
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taxes, charges and fees;
(c)
Issue Letters of Authority for the examination of taxpayers
within the region;
(d)
Provide economical, efficient and effective service to the people
in the area;
(e)
Coordinate with regional offices or other departments, bureaus
and agencies in the area;
(f)
Coordinate with local government units in the area;
(g)
Exercise control and supervision over the officers and employees
within the region; and
(h)
Perform such other functions as may be provided by law and as
may be delegated by the Commissioner."(Emphasis supplied.)
Thus, the Commissioner of Internal Revenue issued Revenue Memorandum
Circular No. 3-01 dated January 13, 2001, entitled "Delegation of Auth
ority to
Regional Directors to Issue Certain Rulings with Established Precedents"
, which
authorizes all Regional Directors to sign the following rulings:
(a)
Tax exemption on sale or disposition of principal residence
under Section 24 (D)(2) of the Tax Code of 1997 . . .;
(b)
Tax exemption under Section 30 of the Tax Code of 1997,
including tax exemption of non-stock, non-profit educational institutions;
(c)
Tax exemption of cooperatives under R.A. No. 6938, as
amended by R.A. 7716 and R.A. 8241; cDTSHE
(d)
Tax exemption of senior citizens under R.A. No. 7432;
(e)
Tax exemption of NHA and private sector participating in
socialized housing, including participants in Community Mortgage Program
under R.A. No. 7279, as implemented . . .;
(f)
Request for change of accounting period (except change of
accounting method) under Section 46 of the Tax Code of 1997;
(g)
Extension of time for the filing of estate tax return under Section
90 (C) of the Tax Code of 1997 and payment of the estate tax under Section
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91 thereof;
(h)
Exemption from donor's tax under Section 101 of the Tax Code
of 1997;
(i)
Tax exemption of separation benefits of employees for any cause
beyond their control under Section 23 (B)(6)(b) of the Tax Code of 1997 . . .;
(j)
Exemption from income tax and, consequently, from
withholding tax of "De Minimis Benefits" as defined and discussed in
RR
2-98, RR 3-98, RR 8-98, and RR 10-2000 . . .;
(k)
Tax treatment of transfer to the condominium corporation of the
common areas of a condominium under R.A. 4726, otherwise known as "The
Condominium Act";
(l)
Use of loose-leaf invoices/receipts and books of account
(manual).
From the foregoing enumerations, it is evident that a Regional Directo
r does
not have the authority to promulgate the subject revenue regional memo
randum
circular since the subject matter is not one of those delegated. As
such, RRMC
2-2002 should be considered void, the same being considered ultra vires.

It is well settled that while an administrative agency has rule makin


g powers,
the same must be confined to the limits of the law. Anything beyond
that should be
assailed as unlawful and therefore, void. Precisely, the courts have c
onsistently held
that:
"Quasi-legislative or rule making power is the power to make rules
and regulations which result in delegated legislation that is within t
he
confines of the granting statute and the doctrine of nondelegability a
nd
separability of powers.
An interpretative rule, one of the three (3) types of quasi-legislative or
rule making powers of an administrative agency (the other two being
supplementary or detailed legislation, and contingent legislation), is
promulgated by the administrative agency to interpret, clarify or expla
in
statutory regulations under which the administrative body operates. The
purpose or objective of an interpretative rule is merely to construe the statute
being administered. It purports to do no more than interpret the stat
ue.
Simply, the rule tries to say what the statute means" (Commissioner O
f
Internal Revenue vs. Court Of Appeals, Court Of Tax Appeals and Fortu
ne
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Tobacco Corporation, G.R. No. 119761, August 29, 1996).
"The rule-making power of a public administrative body is a delegated
legislative power, which it may not use either to abridge the authority given it
by Congress or the Constitution or to enlarge its power beyond the s
cope
intended. Constitutional and statutory provisions control what rules and
regulations may be promulgated by such a body, as well as with respe
ct to
what fields are subject to regulation by it. Indeed, where the legisl
ature has
delegated to an executive or administrative officers and boards authori
ty to
promulgate rules to carry out an express legislative purpose, the rule
s of
administrative officers and boards, which have the effect of extending,
or
which conflict with the authority-granting statute, do not represent a
valid
exercise of the rule-making power but constitute an attempt by an
administrative body to legislate." (Commissioner of Internal Revenue vs.
Bicolandia Drug Corporation, CA-G.R. SP No. 63446, September 20, 2001).
Thus, the RRMC, being issued outside the scope of the legal authority
of the
Regional Director, is ultra vires, and thus, null and void. The Supreme Court he
ld:
". . . Ultra vires acts or acts which are clearly beyond the scope
of
one's authority are null and void and cannot be given any effect. The doctrine
of estoppel cannot operate to give effect to an act which is otherwise null and
void or ultra vires." (Acebedo Optical Company, Inc. vs. CA, et. al, G.R. No.
100152, March 31, 2000).

As to Issue No. 2:
Although this particular issue is considered moot by reason of the
pronouncement made above, this Office deems it fit to discuss the same to clarif
y the
prevailing ruling on this matter.
RRMC 2-2002 made mention of several rulings (Unnumbered BIR Ruling
dated November 22, 1978, BIR Ruling Nos. 227-86 dated December 18, 19
86,
042-89 dated March 22, 1989 and 193-93 dated May 5, 1993) as basis
for not
exempting condominium corporations from corporate income tax in view of
the fact
that such corporations are not considered civic league for the promoti
on of social
welfare nor a social welfare organization.
To repeat, the Regional Director has no power to overrule, review or
modify
current rulings of the BIR. In issuing the RRMC contravening existing rulings of
the
BIR, the Regional Director acted arbitrarily.
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The current administrative position of the BIR on the issue of whethe
r or not
condominium corporations are subject to income tax and VAT remains as follows:
1)
Condominium dues and assessments are not taxable income of th
e
Condominium Corporations;
2)
Condominium Corporations are not subject to VAT when they col
lect
association dues from unit owners pursuant to their corporate purpose as
trustees of the fund (BIR DA-362-10-23-00, VAT Ruling No. 334-88,
VAT Ruling 078-01;
3)
Unless the Condominium Corporation engages in activities for profit, i
t
is not subject to VAT;
Condominium Corporations are organized for a limited purpose. Sections
2
and 10 of the Condominium Act (Republic Act No. 4726) provide in part: ISHCcT
"SECTION 2.
. . . Title to the common areas, including the land,
or the appurtenant interests in such areas, may be held by a corpora
tion
specially formed for the purpose (hereinafter known as the "condominium
corporation") in which the holders of separate interest shall automatic
ally be
members or shareholders, to the exclusion of others, in proportion to
the
appurtenant interest of their respective units in the common areas.
xxx
xxx
xxx
"SECTION 10.
Whenever the common areas in a condominium
project are held by a condominium corporation, such corporation shall
constitute the management body of the project. The corporate purposes
of
such a corporation shall be limited to the holding of the common areas, either
in ownership or any other interest in real property recognized by law
, to the
management of the project, and to such other purposes as may be nece
ssary,
incidental or convenient to the accomplishment of said purposes. . . ."

Thus, condominium corporations and homeowners' associations are organized


as nonstock, nonprofit entities, essentially for any or all of the fo
llowing
representative purposes:
1.
To promote the best interests and well-being, as well as
safeguard the welfare of the residents and owners of property within
their
respective areas or project;
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2.
To adopt measures, as may be necessary for the protection and
safeguard of their respective members consistent with laws, and to provide for
community police or guards and fire prevention;
3.
To adopt rules and regulations concerning the use, enjoyment
and occupancy of all the property within their territory or project;
4.
To supervise and approve the plans, schemes and specifications
of buildings and improvements that may be constructed or introduced in their
respective areas or project;
5.
To improve, light, provide for, beautify, equip, operate,
supervise and maintain streets, parks, playgrounds and recreational area
s for
public use or for the general use of the owners of the lots in thei
r respective
areas or project.
And in order to sustain the expenses attributable to these functions,
condominium corporations and homeowners' associations are constrained to
assess
obligatory fees and dues from their members or owners, which are comp
uted
proportionately. The assessed amount is basically an estimate of the e
xpenses of the
corporation or association to pay for common expenses like real proper
ty taxes,
insurance premiums, utilities charges, and fees for the management, ope
ration,
control, possession, repair, improvement; replacement, maintenance, recons
truction,
restoration, replacement, addition improvement or alteration of the project or s
pecific
areas found therein, which includes the costs and expenses for providi
ng security
guard, janitorial, landscaping, general administrative, technical, archite
ctural,
construction, pest control and such other special contractual services.
Membership dues, fees, and assessments do not constitute income
but are funds held in trust for owners or members
Section 2 of RRMC 2-2002 treats condominium "dues and assessments" paid
by unit owners as taxable "income". It has been repeatedly opined by
this Office,
however, that the membership dues, fees and assessments collected by condominium
corporations and homeowners' associations do not constitute income subje
ct to
income tax, but are funds held by them in trust for their unit owners or members
.
The "trust fund" doctrine was applied by the BIR in Ruling DA 593-10-07-99
and DA-470-11-43-98, to wit:
"In connection therewith, you now request for a ruling to the effect
that the receipts of the Regular Assessment billed to the unit owners
of the

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condominium building which are used solely for administrative expenses,
utilities and maintenance of the common areas do not form part of th
e . . .
Homeowner's Association's taxable income subject to income tax and
consequently exempt from withholding tax.
In reply, please be informed that the . . . . Homeowner's Associatio
n
receipts of the Regular Assessment from the unit owners which are mer
ely
held in trust and which are to be used solely for administrative exp
enses,
utilities and maintenance of the common areas for the benefit of the said unit
owners and which the . . . Homeowner's Association could not realize
any
gain or profit as a result of its receipt thereof are not includible
in said
Corporation's gross income. Hence, the same is not subject to income tax and
consequently to the expanded withholding tax."
In fact, Section 36 of the Income Tax Regulations (RR No. 2 for bre
vity)
defines "income" as:
The tax imposed by law is
"Section 36. Meaning of net income.
upon income. In the computation of the tax, various classes of income must be
considered:
(a)
Income, in the broad sense, meaning all wealth which flows into
the taxpayer other than a mere return of capital: It includes the fo
rms of
income specifically described as gains and profits, including gains der
ived
from the sale or other disposition of capital assets. Income cannot b
e
determined merely by reckoning cash receipts, for the statute recognize
s as
income determining factor other items, among which are inventories, accounts
receivable, property exhaustion, and accounts payable for expenses incurred.
(b)
Gross income, meaning income (in the broad sense) less income
which is by statutory provision or otherwise exempt from the tax imposed by
law. caEIDA
(c)
Net income, meaning gross income less statutory deductions . . ."
In BIR Ruling No. 029-98 dated March 19, 1998, this Office stated th
at the
following must exist for income to be taxable:
1.
There must be gain or profit;
2.
The gain must be realized or received, actually or constructively;
and
3.
The gain must not be excluded by law or treaty from taxation.
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The above-mentioned conditions are not fulfilled by the mere act of collecting
dues, fees, and assessments, as these amounts are collected solely to
fund
administrative, utilities, and maintenance expenses of the common areas of a bui
lding,
a condominium, or a housing project.
Furthermore, in BIR Ruling DA-008-01-05-00 dated January 5, 2000, this
Office, was confronted with the issue of whether or not Bonifacio Global City Es

tate
Association (BGCEA for brevity) is liable for income tax on the association dues
or
other assessments collected from its unit owners.
We ruled that BGCEA's receipt of association dues and other
assessments/charges collected, from the members, which are merely held in trust
and
which are to be used solely for administrative expenses in implementing the purp
oses
of BGCEA, and which it could not realize any gain or profit as a result of its r
eceipt
thereof, are not includible in said corporation's gross income, thus n
ot subject to
income tax and consequently, to the expanded withholding tax.
In BIR Ruling DA-126-02-24-00 dated February 24, 2000, it was the tax
exemption of Wack Wack Condominium Corporation, another nonstock, nonpro
fit
organization, which was presented to the BIR for resolution. The BIR
denied its
request for tax exemption for lack of legal basis since a condominium corporatio
n or
homeowners association is not those enumerated as exempt from payment of income
tax under Section 30 of the Tax Code. This Office, nonetheless, opined that:
"In this connection, you are further advised that the collections bein
g
paid by your tenants for the maintenance of common areas of the
condominium building is not subject to income tax since no income was
generated. However, the sale of janitorial services and other related
services
shall be subject to value-added tax but the act of 'collection' by the associati
on
from the tenants of their respective shares in the payment of said s
ervices is
not itself subject to VAT."
Furthermore, in BIR Ruling No. 303-88 dated July 8, 1988, this Office
confirmed that common area charges are not subject to the expanded withholding t
ax
on rental fees since they cannot properly be considered as payment for the conti
nued
use or possession of the leased property but are used to pay for el
ectricity, air
conditioning, security guards, janitorial services and maintenance of hallways.
Membership dues, fees, and assessments are not subject to VAT
the same being considered not payments for the sale of services
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RRMC-2-2002, citing the COMASERCO case, also declared that a
condominium corporation is engaged in the sale of service, hence subject to the
10%
VAT. It characterized dues, fees, and assessments as payments for services rende
red
by condominium corporations and homeowners associations rather than as
funds
pooled and held in trust by them for the benefit of their unit owners or members
.
It bears to emphasize that there is a patent difference between the
factual
circumstances of the COMASERCO case and the collection of dues, fees,
and

assessments by the condominium corporation.


COMASERCO is an affiliate of Philippine American Life Insurance Co.
(Philamlife for brevity) and was organized to perform collection, consu
ltative and
other technical services, including functioning as an internal auditor to Philam
life and
its other affiliates, on a reimbursement of cost basis. It was assessed deficien
cy VAT
by the BIR. In contesting the assessment, COMARSECO asserted that the services i
t
rendered to Philamlife and its affiliates, were on a "no profit, reim
bursement-of-cost
only" basis, that it was established to ensure operational orderliness
and
administrative efficiency to Philamlife and its affiliates, and not to engage in
the sale
of services. The Supreme Court held that COMARSECO was liable to pay VAT and
held that:
"Contrary to COMARSECO's contention the above provision clarifies
that even a non-stock, non-profit organization or government entity, is
liable
to pay VAT on the sale of goods or services. VAT is a tax on tran
sactions,
imposed at every stage of the distribution process on the sale, barte
r,
exchange of goods or property, and on the performance of services, ev
en in
the absence of profit attributable thereto. The term 'in the course o
f trade or
business' requires the regular conduct or pursuit of a commercial or
an
economic activity, regardless of whether or not the entity is profit-oriented.
xxx
xxx
xxx
Section 108 of the National Internal Revenue Code of 1997 defines the
phrase 'sale of .services' as the 'performance of all kinds of services for othe
rs
for a fee, remuneration or consideration.' It includes 'the supply of
technical
advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial
undertaking or project."
xxx
xxx
xxx
Hence, it is immaterial whether the primary purpose of a corporation
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indicates that it receives payments for services rendered to its affil
iates on a
reimbursement-of cost basis only, without realizing profit, for purposes
of
determining liability for VAT on services rendered. As long as the en
tity
provides service for a fee, remuneration or consideration, then the se
rvice
rendered is subject to VAT."
Unlike COMARSECO, the collection of dues, fees, and assessments do
constitute the payment of fees for services rendered. Condominium corpo
rations
clearly collect fluids in trust for unit owners, members, and occupants, to be d
isbursed

maintenance and utilities expenses. acEHSI


The COMARSECO ruling is not squarely applicable to Condominium
Corporations because said case does not involve a Condominium Corporati
on, and
the factual circumstances are different from COMARSECO, an affiliate of
a life
insurance company. In the case of Condominium Corporations, these are
organized
by the owners themselves, and not the condominium developers. They are
not
affiliates of any corporations.
Secondly; COMARSECO was organized by the latter to perform collection,
consultation and other technical services, including functioning as internal aud
itor of
the life insurance company. As discussed above, condominium corporations
are
organized for limited purposes, which essentially are: to hold title t
o the common
areas, to manage the project and to such other purposes as may be n
ecessary,
incidental or convenient to the accomplishment of said purposes.
Thirdly, COMARSECO is a domestic corporation organized under the
Corporation Code. While Condominium Corporations are registered with the
SEC,
they are governed primarily by the Condominium Act, particularly on th
e matter
relating to its organization, formation, management, dissolution and den
ial of
appraisal rights from its stockholders. These statutory limitations are
important
factors in determining whether or not Condominium Corporations, "in the
course of
trade or business", render services to their unit members, which they manage and
act
as trustee for. (See VAT Ruling No. 334-88 and VAT Ruling 78-01).
In several rulings, this Office has recognized that the activities underta
ken by
condominium corporations and homeowners associations for which they collect dues
,
fees, and assessments from their unit owners and members do not give rise to a s
ale of
service.
In VAT Ruling No. 078-2001 dated October 29, 2001, Pacific Star Build
ing
Condominium Corporation, a nonstock, nonprofit condominium corporation, s
ought
Copyright 1994-2006
CD Technologies Asia, Inc.
Taxation 20
05
16
the issuance of a non-VAT/VAT-exempt taxpayer certificate. It represente
d that its
primary purpose is to hold in ownership the common areas of Pacific Star Buildin
g, to
manage, administer, maintain and preserve the same in good and habitable conditi
on,
and to promote the welfare and safety of all occupants therein. Thus,
"Considering that the Pacific Star Building Condominium Corporation
will not sell, barter, exchange, lease any good or property and will not render
service for a fee but merely implements the administration of the req
uired

services to collect the association dues from the unit owners pursuant
to its
corporate purpose/s as 'trustee' of the fund thereof, it is not subject to VAT .
.
." (Emphasis supplied.)
In BIR Ruling DA-008-01-05-00, supra, involving the Bonifacio Global Ci
ty
Estate Association or BGCEA, the BIR likewise affirmed that since BGCEA does not
sell, barter, exchange, nor lease any good or property and neither do
es it render
service for a fee but merely implements the administration of the required servi
ces to
collect the association dues from the unit owners pursuant to its cor
porate purpose/s
as 'trustee' of the fund therefore, it is not subject to VAT on such activity.
In view of all the foregoing, it is the pronouncement of this Office that:
1.
Regional Directors do not have the delegated power and jurisdiction
to
issue Revenue Memorandum Circulars, the same lies within the
exclusive jurisdiction of the Office of the Commissioner of Internal
Revenue; and
2.
RRMC-2-2002 is void for being contrary to existing laws, r
egulations,
rulings, and jurisprudence.
This ruling is being issued on the basis of the foregoing facts as
represented.
However, if upon investigation, it will be ascertained that the facts are differ
ent, then
this ruling shall be considered void.
Very truly yours,
(SGD.) JOSE MARIO C. BU AG
OIC Commissioner of Internal Revenue