June 19, 2002

REGIONAL REVENUE MEMORANDUM CIRCULAR NO. 02-02 *(1)

TO

SUBJECT :

All Internal Revenue Officers and Others Concerned

Condominium Corporations Are Not Exempt From Corporate
Income Tax Under Section 30 of The Code, Hence, Subject To
Income Tax; Sale of Service, Also Subject To 10% Vat

SECTION 1.
Scope. Some of our revenue officers have verbally
consulted the undersigned whether or not a "condominium corporation" may be
treated exempt from corporate income tax under Section 30, NIRC of 1997 and, also,
whether its sale of service is subject to the value added tax under Section 108 of the
said Code.
SECTION 2.
A Condominium Corporation is Not a Civic League for the
Promotion of Social Welfare; Not Exempt from Corporate Income Tax. For the
information and guidance of all concerned, a condominium corporation has been held
not entitled to exemption from corporate income tax. Its claim for exemption from
corporate income tax, allegedly as a "Civic league or organization not organized for
profit but operated exclusively for the promotion of social welfare," even if it is
organized as a non-stock, non-profit entity pursuant to R.A. No. 4726, otherwise
known as the Condominium Act, has been denied in the unnumbered BIR RULING,
dated November 22, 1978, issued by Justice Efren I. Plana, in his capacity as former
Commissioner of Internal Revenue, the dispositive portion of which reads:
"From the foregoing powers and purposes for which the Corporation
was organized, it is obvious that the services rendered by the Corporation
benefit only the common areas of the condominium project as well as the
members thereof who are the owners of the condominium units. Said services
do not benefit the community as a whole, and therefore, it cannot be
considered a civic league or organization operated exclusively for the
promotion of social welfare, for the promotion of social welfare covers
activities that advance the common good and general welfare of the people of
the community [34 Am Jur. 2d., 1976 Ed., p. 689] and since the activities of
the corporation are for the benefit of the unit owners of the condominium it
cannot be considered a civic league or social welfare organization. It has been
Copyright 1994-2011

CD Technologies Asia, Inc.

Taxation 2010

PDF created with pdfFactory Pro trial version www.pdffactory.com

held that an association formed by the unit owners of a condominium project

to provide for the arrangement, maintenance and care of the common areas of
the project is not a tax exempt social welfare organization. (Am Jur. 2d, 1976
Ed., p. 586)
"In view thereof, the Second Midland Park Manor Condominium,
cannot be considered an organization operated exclusively for the promotion
of social welfare as contemplated under Section 27 (g) 1(2) of the Tax Code.
Consequently, it should file an income tax return and pay income tax on its
net income."
TaDCEc

That, a condominium corporation is not exempt from corporate income tax has
been consistently reiterated in the following cases, as follows:
BIR RULING No. 277-86, Dec. 18, 1986
"Documentary evidence submitted shows that the Corporation is duly
registered with the Securities and Exchange Commission; that it is organized
under the provisions of the Condominium Act of the Philippines (R.A. No.
4726); and that the purposes for which that Corporation is formed are to hold
title to the common areas in the condominium project known and identified as
'ODC International Plaza.'
"It should be noted that as gleaned in your articles of incorporation, the
services to be rendered by your condominium corporation benefit only the
common areas of the condominium project as well as the members thereof
who are the owners of the condominium units; and that the services to be
rendered do not benefit the community as a whole.
"In view of the foregoing, and since the activities of the ODC
International Plaza Condominium Corporation benefit only the unit owners of
the corporation, it cannot be considered a civic league organization operated
exclusively for the promotion of social welfare as contemplated under Section
27(g) of the Tax Code, for the promotion of social welfare covers activities
that advance the common good and general welfare of the people of the
community (34 Am. Jur. 2d, 1976 Ed. p. 586). Moreover, an association
formed by the unit owners of a condominium project to provide for the
management, maintenance and care of all areas and elements in their
condominium was denied exemption as a social welfare organization (34 Am.
Jur. 2d., 1976 Ed., p. 690). Consequently, that corporation should file an
income tax return and pay income tax on its net income."

Copyright 1994-2011

CD Technologies Asia, Inc.

Taxation 2010

PDF created with pdfFactory Pro trial version www.pdffactory.com

BIR RULING No. 042-89, March 22, 1989

"An association formed by the unit owners of a condominium project
to provide for the management, maintenance and care of all areas in their
condominium project was denied exemption as a social welfare organization
(34 Am. Jur. 2d: 1976 Ed., p. 690). Consequently, you should file an income
tax return and pay income tax on your net income. (BIR) Ruling No.
027-g-277-86 dated December 18, 1986)"
BIR RULING No. 193-93, May 5, 1993
"Such being the case, the Union Square One Condominium
Corporation, cannot be considered an organization operated exclusively for
the promotion of social welfare as contemplated under Section 26(g) of the
Tax Code, for the promotion of social welfare covers activities that advance
the common good and general welfare of the people of the community (34
Am. Jur. 2d 1976 Ed.); and since the activities of Union Square One
Condominium Corporation are primarily for the benefit of the unit owners of
said corporation, it cannot be considered a civic league or social welfare
organization. It has been held that an association formed by the unit owners of
a condominium project to provide for the arrangement, maintenance and care
of the common areas of the project is not a tax-exempt social welfare
organization (34 Am. Jur. 2d, 1976 Ed., p. 586).
"Consequently, the Union Square One Condominium Corporation
should file an income tax return and pay income tax."

SECTION 2. *(3) Normal Revenues of a Condominium Corporation. The

normal revenue of a condominium corporation are the "dues and assessments" paid by
the unit owners of the condominium building. In addition, some condominium
corporation also derive business income, e.g., rental income, revenue from restaurant
operations, etc. The aforementioned "dues and assessments" have been treated
embraced by the term "income," as follows:
"Thus, amounts paid in as dues by members of non-exempt
organizations have been held to be income to the organization so long as the
organization furnishes the members with benefits and advantages in return
for such payments. Voluntary 'contributions' not required of members are not,
however, taxable to the corporation." (MERTENS, 5.14, Vol. 1, p. 206)

There is also no dispute that the aforementioned other revenues of a

condominium corporation, definitely, fall under the term "income."
Copyright 1994-2011

CD Technologies Asia, Inc.

Taxation 2010

PDF created with pdfFactory Pro trial version www.pdffactory.com

SECTION 3.
Sale of Service, Even if Made by a Non-Stock, Non-Profit
Organization, Regardless of Whether Made with a View to Profit, is Subject to the
10% VAT.
The pertinent portion of the Supreme Court decision in the case of
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF
APPEALS and COMMONWEALTH MANAGEMENT AND SERVICES
CORPORATION, respondents. [G.R. No. 125355. March 30, 2000.], where it was
held that, upon effectivity of the Expanded VAT Law under R.A. No. 7716, (i.e.,
implemented beginning January 1, 1996, pursuant to Revenue Regulations No. 6-95)
sale of service is subject to VAT, regardless of whether or not the same is made by a
non-stock, non-profit entity and regardless of whether or not made with a view to
profit, is hereby disseminated for the proper guidance of all concerned, this being
relevant to the issue in the case of condominium corporations.
HDacIT

"Commonwealth
Management
and
Services
Corporation
(COMASERCO, for brevity), is a corporation duly organized and existing
under the laws of the Philippines. It is an affiliate of Philippine American Life
Insurance Co. (Philamlife), organized by the latter to perform collection,
consultative and other technical services, including functioning as an internal
auditor, of Philamlife and its other affiliates.
xxx

xxx

xxx

"COMASERCO contends that the term 'in the course of trade or

business' requires that the 'business' is carried on with a view to profit or
livelihood. It avers that the activities of the entity must be profit-oriented.
COMASERCO submits that it is not motivated by profit, as defined by its
primary purpose in the articles of incorporation, stating that it is operating
'only on reimbursement-of-cost basis, without any profit.' Private respondent
argues that profit motive is material in ascertaining who to tax for purposes
of determining liability for VAT.
"We disagree.
"On May 28, 1994, Congress enacted Republic Act No. 7716, the
Expanded VAT Law (EVAT), amending among other sections, Section 99 of
the Tax Code. On January 1, 1998, Republic Act 8424, the National Internal
Revenue Code of 1997, took effect. The amended law provides that:
'SECTION 105.
Copyright 1994-2011

CD Technologies Asia, Inc.

Persons Liable. Any person

Taxation 2010

PDF created with pdfFactory Pro trial version www.pdffactory.com

who, in the course of trade or business, sells, barters,

exchanges, leases goods or properties, renders services, and
any person who imports goods shall be subject to the
value-added tax (VAT) imposed in Sections 106 and 108 of
this Code.
'The value-added tax is an indirect tax and the amount
of tax may be shifted or passed on to the buyer, transferee or
lessee of the goods, properties or services. This rule shall
likewise apply to existing sale or lease of goods, properties or
services at the time of the effectivity of Republic Act No. 7716.
'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 (irrespective of
the disposition of its net income and whether or not it sells
exclusively to members of their guests), or government entity.
'The rule of regularity, to the contrary notwithstanding,
services as defined in this Code rendered in the Philippines by
nonresident foreign persons shall be considered as being
rendered in the course of trade or business.'
"Contrary to COMASERCO'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 transactions,
imposed at every stage of the distribution process on the sale, barter, exchange
of goods or property, and on the performance of services, even in the absence
of profit attributable thereto. The term 'in the course of 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.
"The definition of the term 'in the course of trade or business'
incorporated in the present law applies to all transactions even to those made
prior to its enactment. Executive Order No. 273 stated that any person who, in
the course of trade or business, sells, barters or exchanges goods and services,
was already liable to pay VAT. The present law merely stresses that even a
nonstock, nonprofit organization or government entity is liable to pay VAT for
the sale of goods and services.
"Section 108 of the National Internal Revenue Code of 1997 defines
Copyright 1994-2011

CD Technologies Asia, Inc.

Taxation 2010

PDF created with pdfFactory Pro trial version www.pdffactory.com

the phrase 'sale of services' as the 'performance of all kinds of services for
others 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.'
"On February 5, 1998, the Commissioner of Internal Revenue issued
BIR Ruling No. 010-98 emphasizing that a domestic corporation that provided
technical, research, management and technical assistance to its affiliated
companies and received payments on a reimbursement-of-cost basis, without
any intention of realizing profit, was subject to VAT on services rendered. In
fact, even if such corporation was organized without any intention of realizing
profit, any income or profit generated by the entity in the conduct of its
activities was subject to income tax.
"Hence, it is immaterial whether the primary purpose of a corporation
indicates that it receives payments for services rendered to its affiliates on a
reimbursement-of-cost basis only, without realizing profit, for purposes of
determining liability for VAT on services rendered. As long as the entity
provides service for a fee, remuneration or consideration, then the service
rendered is subject to VAT.
"At any rate, it is a rule that because taxes are the lifeblood of the
nation, statutes that allow exemptions are construed strictly against the grantee
and liberally in favor of the government. Otherwise stated, any exemption
from the payment of a tax must be clearly stated in the language of the law; it
cannot be merely implied therefrom. In the case of VAT, Section 109,
Republic Act 8424 clearly enumerates the transactions exempted from VAT.
The services rendered by COMASERCO do not fall within the exemptions.
"Both the Commissioner of Internal Revenue and the Court of Tax
Appeals correctly ruled that the services rendered by COMASERCO to
Philamlife and its affiliates are subject to VAT. As pointed out by the
Commissioner, the performance of all kinds of services for others for a fee,
remuneration or consideration is considered as sale of services subject to
VAT. As the government agency charged with the enforcement of the law, the
opinion of the Commissioner of Internal Revenue, in the absence of any
showing that it is plainly wrong, is entitled to great weight. Also, it has been
the long standing policy and practice of this Court to respect the conclusions
of quasi-judicial agencies, such as the Court of Tax Appeals which, by the
nature of its functions, is dedicated exclusively to the study and consideration
of tax cases and has necessarily developed an expertise on the subject, unless
Copyright 1994-2011

CD Technologies Asia, Inc.

Taxation 2010

PDF created with pdfFactory Pro trial version www.pdffactory.com

there has been an abuse or improvident exercise of its authority.

DHSaCA

"There is no merit to respondent's contention that the Court of

Appeals' decision in CA-G.R. No. 34042, declaring the COMASERCO as not
engaged in business and not liable for the payment of fixed and percentage
taxes, binds petitioner. The issue in CA-G.R. No. 34042 is different from the
present case, which involves COMASERCO's liability for VAT. As
heretofore stated, every person who sells, barters, or exchanges goods and
services, in the course of trade or business, as defined by law, is subject to
VAT"

SECTION 4.
Revenue Procedures. All Revenue District Officers are
hereby instructed to immediately undertake the following measures in order to
enhance our revenue generation effort and thus attain our awesome tax collection
target for the year 2002:
1.

Determine all existing condominium corporations under their respective

area of jurisdiction;

2.

Determine whether or not these condominium corporations have filed

corporate income tax returns and paid their respective income taxes for
the period from its inception up to the present.

3.

Determine whether or not these condominium corporations have paid

VAT on their respective taxable revenues for the period from January 1,
1996 up to the present.

4.

Submit a report thereon, to this Office, within fifteen (15) days from
receipt of this RRMC.

SECTION 5.

Strict compliance herewith is enjoined.

(SGD.) ANTONIO I. ORTEGA

Regional Director
Footnotes
*
1.

RRMC 02-2002 is deemed void under BIR Ruling No. 18-2005 (September 16, 2005)
for having been issued ultra vires.
Now Sec. 30 (G), NIRC, as renumbered by R.A. No. 8424.

Copyright 1994-2011

CD Technologies Asia, Inc.

Taxation 2010

PDF created with pdfFactory Pro trial version www.pdffactory.com

Endnotes
1 (Popup - Popup)
*

RRMC 02-2002 is deemed void under BIR Ruling No. 18-2005 (September 16, 2005)
for having been issued ultra vires.

2 (Popup - Popup)
1.

Now Sec. 30 (G), NIRC, as renumbered by R.A. No. 8424.

3 (Popup - Popup)
*
Note from the Publisher: Copied verbatim from the official copy. Duplication of
Section 2.

Copyright 1994-2011

CD Technologies Asia, Inc.

Taxation 2010

PDF created with pdfFactory Pro trial version www.pdffactory.com