REVENUE MEMORANDUM CIRCULAR NO.

35-2012

- issued to clarify the taxability of clubs organized and operated exclusively for pleasure, recreation,
and other non-profit purposes.

INCOME TAX OF RECREATIONAL CLUBS

The income tax applies to the income of recreational clubs from whatever source, including but not
limited to:

* membership fees;

* assessment dues;

* rental income; and

* service fees

Recreational clubs used to be exempted from income tax under the Tax Code of 1977 but said
exemption was intentionally omitted in the current Tax Code.

VALUE- ADDED TAX OF RECREATIONAL CLUBS (12% VAT)

Section 105 states:

xxxx

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 private
organization (irrespective of the disposition of its net income and whether or not it sells
exclusively members or their guests), or government entity.

Even a non-stock, non-profit organization or government entity is liable to pay VAT on the sale of
goods or services.

Section 108 defines the phrase 'sale of services' as the 'performance of all kinds of services for
others for a fee, remuneration or consideration.

It is immaterial whether the primary purpose of a corporation indicates that it receives payments for
services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for
purposes of determining liability for VAT on services rendered. As long as the entity provides services
for a fee, remuneration or consideration, then the service rendered is subject to VAT (CIR vs CA and
COMSERCO).
Clearly, the gross receipts of recreational clubs including but not limited to membership fees,
assessment dues, rental income, and service fees are subject to VAT.

-- end of RMC 35-2012 --

COMMENTS:

VAT is imposed upon the nature of the activity and has nothing to do with the structure as non-stock
and non-profit activities. Recreational services are VATable as a sale of service.

Source: (http://taxacctgcenter.org/taxation-of-recreational-clubs-in-the-philippines)

HISTORY:

The Tax Code of 1977 provided that clubs organized and operated exclusively for pleasure,
recreation or other non-profit purposes were exempt from the income tax. Such provision was
removed from the Tax Code of 1997.

Despite this, several BIR Rulings were issued declaring that recreational clubs were exempt from
income tax and VAT. These BIR rulings were issued in favor of Club Punta Fuego Inc. (issued in 2005),
Baguio Country Club Corp. (2007) and Caliraya Resort Club Inc. (2009).

The omission of recreational clubs from the list of income tax-exempt entities must be intentional
the new law meant to strip such clubs of the exemption.

Source: http://business.inquirer.net/76151/bir-country-clubs-subject-to-vat-other-taxes
REVENUE MEMORANDUM CIRCULAR NO. 65-2012

- issued to clarify the taxability of association dues, membership fees, and other
assessments/charges collected by condominium corporations from its members and tenants.

INCOME TAX OF CONDOMINIUM CORPORATIONS

- Amounts paid in as dues or fees by members and tenants of a condominium corporation shall form
part of the latter's gross income and is subject to income tax.

WHY? because a condominium corporation furnishes its members and tenants with benefits,
advantages, and privileges in return for such payments. For tax purposes, the following constitute a
condominium corporation's income payments (subject to applicable withholding taxes):

* association dues

* membership fees; and

* other assessments/charges

The previous interpretation that the assessment dues are funds which are merely held in trust by a
condominium corporation lacks legal basis and is hereby abandoned.

VALUE-ADDED TAX OF CONDOMINIUM CORPORATIONS

- same reason as above

- fees and dues collected are subject to VAT since they constitute a condominium's income payment
or compensation for the beneficial services it provides to its members.

Refer to Sections 105 and 108 again and the CIR vs. COMSERCO case.

COMMENTS:

RMC 65-2012 and RMC 35-2012 seem to be alike-inasmuch as the BIR already clarified that
membership fees and association dues collected primarily to cover administrative expenses (i.e.
related to the maintenance of the facilities and improvements and security in the premises) for the
common benefit of the members are subject to income tax and VAT.

Source: (http://www.bworldonline.com/content.php?section=Economy&title=membership-fees-
and-tax-issues&id=61666 )
REVENUE MEMORANDUM CIRCULAR NO. 64-2012

This circular was issued to clarify the imposition of business taxes on services performed by persons
engaged in the practice of profession or calling.

Who is a professional?

- an individual or group, classified as self-employed, practicing his or their profession or calling, with
or without license under a regulatory board or body. Apart from applicable income taxes and
withholding taxes, he or they are subject to VAT and percentage taxes.

VALUE-ADDED TAX

Requisite: gross receipts/professional fees for the past 12 months is more than P1,919,500 [WHAT'S
WITH THIS AMOUNT? WHY SO BUNGKIG?] OR if there are reasonable grounds that his gross
receipts/professional fees for the next 12 months will exceed said amount. IMPORTANT:
REGARDLESS of whether or not he registers as a VAT person.

For this requisite, see Section 108.

For purposes of threshold amount, husband and wife are considered separate taxpayers
and the aggregation rule applies for each taxpayer.

AGGREGATION RULE

If a professional, aside from the practice of his profession, also derives revenue from other lines of
business which are otherwise subject to VAT, the same shall be combined for purposes of
determining the threshold.

FAILURE TO REGISTER AS VAT PERSON

- liable to pay 12% output tax under Section 108 but without the benefit of input tax credits for the
period in which he was not properly registered. [does this mean that a VAT-registered person,
properly registered, has the benefit of input tax credits for the period that he was not registered? i
don't understand. lol]

PERCENTAGE TAX (3%)

Requisites:

1) gross receipts/professional fees for the past 12 months is equal to or is below P1,919,500.00;
AND
2) NOT a VAT-registered person

TAKE NOTE:

* If the professional REGISTERS as a VAT-person, he is liable to VAT and not to percentage tax,
irrespective of his gross receipts/professional fees.

* Even if he does not register as a VAT-person, he is liable to VAT if his gross receipts/professional
fees exceed P1,919,500

MAY A PROFESSIONAL NOT REQUIRED TO REGISTER FOR VAT BE VAT-REGISTERED?

Yes. He may elect to be VAT-registered but he shall not be allowed to cancel such registration for the
next 3 years counted from the quarter when the election was made.

[yearly ba ang pag pa register as VAT person?]

EXAMPLE:

http://www.rappler.com/business/features/65421-askthetaxwhiz-vat-professionals

Additional info:

http://www.bworldonline.com/content.php?section=Economy&title=stricter-rules-for-self-
employed-professionals&id=85926
RR 13-2012

COMMENTS:

Some sellers of adjacent real estate properties document the sale as sale of separate units even
when both properties are sold to and will be used by the same buyer.

The purpose behind this is to avoid the 12% value-added tax (VAT) since separate sales would more
likely guarantee a price below the VAT exempt threshold amount than a combined sale of the
adjacent properties.

Look at it this way. On the part of the seller who prices the property below the VAT exempt
threshold, the property is easier to sell because of reduced costs. While on the part of the buyer, its
more likely he can afford to pay for the property without the VAT.

In short, buyers and sellers want to do away with the VAT by banking on loopholes in the system.

But the BIR has noted of this practice. And to address this complication, the BIR issued a VAT update:
Revenue Regulation (RR) No. 13-2012. This is an amendment of the provisions in the Consolidated
VAT Regulations of 2005, which relate to the sale of real estate properties in the Philippines.

Source: https://philpropertyexpert.com/vat-update-rr-13-2012-concerns-and-implications-for-the-
condominium-sector/

REVENUE REGULATIONS NO. 13-2012

VAT Treatment on Sale of Adjacent Residential Lots, House and Lots or other Residential Dwellings

Amendment to Section 4.106-3 of RR No. 16-2005

xxx

"...sale, transfer or disposal within a 12-month period of two or more adjacent residential
lots, house and lots or other residential dwellings in favor of one buyer from the same seller,
for the purpose of utilizing the lots, house and lots or other residential dwellings as one
residential area wherein the aggregate value of the adjacent properties exceeds P1,919,500
for residential lots and P3,199,200 for residential house and lots or other residential
dwellings" xxxx

shall be subject to the 12% VAT.

There is a presumption that the sale of two or more adjacent residential lots, house and lots or other
residential dwellings will be deemed as a single sale although covered by separate titles and/or
separate tax declarations if sold or disposed to one and the same buyer, whether covered by one or
separate deed/s of conveyance.
It is important to remember that RR 13-2012 has an exemption. The sale of two or more adjacent
residential lots, house and lots or other residential dwellings shall be exempt from VAT only if the
aggregate value of the said properties does not exceed P1,919,500 for residential lots, and
P3,199,200 for residential house and lots or other residential dwellings. The value of the said
properties plays a big role in determining whether the sale, transfer or disposal is exempt from VAT.

It is also important to note that the sale of parking lot, which may or may not be included in the sale
of condominium units, is not considered a sale of a residential unit and is not covered by the rules on
threshold amount. Consequently, it is subject to VAT regardless of the amount of selling price.

Source: http://www.bworldonline.com/content.php?section=Economy&title=vat-on-sale-of-
adjacent-real-properties&id=60957