Aligning the taxability of membership fees, association dues and the like

TOP OF MIND - Mary Armi G. Milanes (The Philippine Star) - September 3, 2019 - 12:00am

On Aug. 13, 2019, the Supreme Court (SC) in the case of Association of Non-Profit Clubs Inc. v. CIR (G.R. No. 228539) declared that membership fees, assessment dues, and fees of similar nature collected by recreational clubs, which are organized and operated exclusively for pleasure, recreation and other nonprofit purposes, are not necessarily subject to income tax as well value-added tax (VAT).

A brief history: Prior to the enactment of the National Internal Revenue Code (NIRC) of 1997, Section 26 (H) of Presidential Decree No. 1158, otherwise known as the NIRC of 1997, provided that recreational clubs, or those which are organized and operated exclusively for pleasure, recreation, and other non-profit purposes, were exempt from income tax. The issue on the taxability of recreational clubs thus set in after the club’s income tax exemption was deleted under the NIRC of 1997.

In order to provide guidance and clarification on the issues surrounding such deletion, the BIR in Revenue Memorandum Circular No. (RMC) 35-2012 said that recreational clubs were no longer granted income tax exemption pursuant to the doctrine of casus omissus pro omisso habendus est (which means a person, object or thing omitted from an enumeration must be held to have been omitted intentionally). Considering that recreational clubs were omitted from the list of tax-exempt corporations, the BIR concluded that the income of recreational clubs from whatever source, including but not limited to membership fees, assessment dues, rental income, and service should be subjected to income tax. The RMC further clarified that “gross receipts of recreational clubs including but not limited to membership fees, assessment dues, rental income and service fees are subject to value-added tax (VAT).

So as far as the SC is concerned, however, “RMC No. 35-2012 erroneously foisted a sweeping interpretation that membership fees and assessment dues are sources of income of recreational clubs from which income tax liability may accrue.” The SC started off by referring to the oft-cited case of Madrigal v. Rafferty and explained the distinction between “capital” and “income”. The Court reiterated that where capital pertains to wealth, income pertains to the service of wealth. Since membership fees, assessment dues and similar fees are contributions to or replenishment of the club’s funds for the maintenance and operations of the facilities offered to members, these funds are merely held in trust for purposes of covering relevant maintenance expenses. Sewn up, the Court stated that the aforementioned fees are merely infusions of capital, and not income. Thus, the Court concluded that the said fees of recreational clubs are not subject to income tax as long as they are treated as collections for their membership, and are, by nature, intended for maintenance, preservation, and upkeep of the club’s general operations and facilities.

Sounds familiar, doesn’t it?

In fact, the taxability of membership fees and association dues has long been a bone of contention.  If you will recall, condominium dues and homeowner’s association dues have likewise been a topic of discourse in more recent years, particularly with the issuance of RMC Nos. 65-2012 and 9-2013. Similar to club membership fees, condominium dues and homeowner’s association dues are ordinarily funds held in trust and used by associations in defraying administrative expenses. There are even several rulings exempting the said dues from income tax and VAT. However, with the issuance of RMC Nos. 65-2012 and 9-2013, the BIR eventually considered such contributions to be part of gross income subject to income taxes as they have been interpreted to be payments for furnishing members with benefits, advantages and privileges.

With the recently released SC decision, however, the High Court not only clarified the income tax treatment of membership fees, but they likewise affirmed that such membership fees, association dues and fees of similar nature are not subject to VAT because these fees are merely collection of fees rather than sale of service to members. Since members are not buying services from the club when dues are paid, there is no economic or commercial activity which may be construed as a sale, barter or exchange of goods or properties or sale of service subject to VAT.

The object of RMC Nos. 35-2012, 65-2012 and 9-2013 are similar as these all involve payments made by members which are held in trust by a corporation or association for purposes of defraying expenses related to maintenance and upkeep. Ordinarily, then, these payments should not be considered as income so long as they are utilized for the aforementioned purpose. It is also worth noting that all of these payments have already been declared exempt from VAT (The TRAIN Law included condominium dues and homeowner’s association dues in the list of VAT exempt transactions while the Supreme Court declared membership fees as not subject to VAT).

Notwithstanding the foregoing, in the March 2016 appealed case of Office metro Philippines Inc. v. CIR, the Court of Tax Appeals (CTA) did not unequivocally state that condominium association dues do not constitute income which are not subject to income and withholding taxes. Instead, the CTA ruled that the taxpayer’s condominium association dues are not subject to income and withholding taxes because the BIR’s reversal of its prior position that condominium dues are not subject to income and withholding taxes will cause undue injury to the taxpayer. This considered, the question that now arises is this – may the Supreme Court’s reasoning in Association of Non-Profit Clubs Inc. v. CIR be invoked for purposes of declaring the exemption of condominium association dues from income and withholding taxes also? Further, may taxpayers expect the BIR to use the High Court’s decision as an opportunity to craft an issuance that finally clarifies the taxability of these dues which are paid merely for maintenance and upkeep? Since the tax implications of said dues are embodied in different administrative issuances and court decisions, it may, to a certain degree, cause confusion among taxpayers. A singular issuance aligning the tax treatment of membership fees, association dues, condominium dues, and the like will certainly aid taxpayers in ensuring compliance with the relevant rules on income, value added, and withholding taxes.

Mary Armi G. Milanes is a Supervisor from the Tax Group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice and Tier 1 transfer pricing practice by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email or

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