Cooperatives rising

(Conclusion)

Now, do the tax incentives of a cooperative expire? The same Article of the PCC of 2008 which provides for the issuance of Certificates of Exemption states that “such exemptions shall be valid for a period of five (5) years” from their date of issuance. Previously, Certificates of Exemption (BIR Rulings) were valid for the period that such cooperative was in good standing with the CDA, as ascertained by the CDA on an annual basis. Obviously, the cooperative then did not need to continue to secure a Certificate on an annual basis, so long as it remained in good standing with the CDA. This actually also meant that the BIR, unless it was undertaking an audit investigation of the particular cooperative, would not be able to ascertain whether said cooperative was still in good standing with the CDA, unless the CDA provided said information to the BIR. And as previously mentioned, we have already raised the issue as to how the BIR may have to secure the Authority of the CDA to conduct an audit investigation of cooperatives under the PCC of 2008.

In the same vein, the PCC of 2008 does not provide for the expiration of the tax incentives of a cooperative. Essentially, as long as the cooperative remains duly registered, the law allows the tax incentives. One way to interpret this is that the tax incentives are inherent in the cooperatives. However, the fact that there are certain requirements in the law itself for the availment of the tax incentives, means that the tax incentives may be denied a cooperative, if the requirements are not met. Hence, the previous statement should be that the tax incentives are inherent in qualified cooperatives. Therefore, the tax incentives of a cooperative do not expire.

So, what is the effect of giving a Certificate of Exemption a shelf life of five years? What is the knee-jerk reaction of the BIR regarding any certificate that it has issued, which has subsequently expired? The certificate is no longer honored, and the transaction for which the said certificate was secured, or the benefit which said Certificate represents, cannot be undertaken or realized unless the Certificate has been revalidated; much like an expired Certificate Authorizing Registration (CAR) or Tax Credit Certificate (TCC), which both require revalidation. Now the PCC of 2008 expressly provides for the five-year period of validity of a Certificate of Exemption. More importantly, the PCC of 2008 did not provide for the manner by which a Certificate of Exemption may be revalidated.

Given the position that the tax incentives do not expire, even when the Certificate of Exemption does, then the logical conclusion is that the Certificate of Exemption can, and should be, revalidated. And if the PCC of 2008 does not provide for the manner of revalidation of the Certificate of Exemption, then it is up to the office that issues the Certificate to come up with the rules for revalidation. Effectively, the BIR is given the chance to monitor the performance of a cooperative, albeit every five years (in relation to the life of a Certificate of Exemption), and, as previously mentioned, subject to the authority of the CDA (with regard audit investigations).

This is when the BIR may carry out its mandate to assess and collect all national internal revenue taxes vis-à-vis cooperatives. And this is another situation where the cooperation between the CDA and the BIR has to be decisively established. The BIR should be allowed to set its requirements, within reason, for the revalidation of Certificates of Exemption. This would ensure that the cooperatives applying for revalidation have met the qualifications for the availment of the tax incentives during the period of validity of the Certificate. The requirements for revalidation may probably include, among others, an audit investigation of the cooperative prior applying for revalidation. Perhaps not so far as that the resulting audit investigation should be completed prior to the revalidation of the Certificate, but at least that a letter of Authority has been issued to the cooperative applying for revalidation. The fact that a cooperative is given substantial tax incentives does not mean it should not be monitored by the tax authorities. If at all, cooperatives should be monitored so as to negate the possibility of abuse with regard the incentives. Thus, it is only proper that the BIR have the means to monitor cooperatives with regard their observance of the proper requirements for availing of tax incentives.

The function of the BIR, in relation to the CDA, should thus be understood as that of an authority to monitor, and enforce the adherence of cooperatives to the requisites that allow them tax incentives. The BIR aids the CDA in making sure that the cooperatives comply with these conditions, since compliance therewith is also a yardstick by which the performance of a cooperative is determined. The function of the CDA, in relation to the BIR, should be understood as that of the primary authority to govern the proper administration and management of cooperatives in relation to the goal of using these entities to attain social justice and sustainable economic development. What the CDA should bear in mind is that both social justice and sustainable economic development require the proper payment of the correct amount of taxes.

(Andrew Ruiz is a Senior Manager for Tax & Corporate Services of Manabat Sanagustin & Co., CPAs, a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.

The views and opinions expressed herein are those of Andrew Ruiz and do not necessarily represent the views and opinions of KPMG in the Philippines. For comments or inquiries, please email [email protected] or a[email protected]).