Cooperatives rising

(Second of three parts) Examination of books of account

After the BIR effects the compromise settlement of the cooperatives unpaid assessments, how will the BIR proceed with future audit investigations?

The authority of the Commissioner to examine any taxpayer’s books of account and accounting records, and make an assessment of the correct amount of tax is provided for under Section 6 of the NIRC, as amended. However, it would appear that this power has now been qualified, as far as cooperatives are concerned. Article 61 of the PCC of 2008, entitled “Tax and Other Exemptions”, states the majority of the tax incentives available to cooperatives. Paragraph 3 of said Article goes on to state that “nothing in this article shall preclude the examination of the books of accounts or other accounting records of the cooperative by duly authorized internal revenue officers for internal revenue tax purposes only, after previous authorization by the Authority.” The Authority, as defined under Article 5(8) of the RA No. 9520 is the Cooperative Development Authority (CDA), which is responsible for the registration and regulation of cooperatives.

Congress has taken the complaints of several cooperatives with regard to improper taxation and audits seriously. The most ordinary interpretation of this provision in the PCC of 2008 is that the CDA has the authority to approve, and conversely, disapprove the examination of books of account of a cooperative, notwithstanding the authority of the Commissioner to issue Letters of Authority for the audit examination of taxpayers. Note that the law does not just require notification of the CDA by the BIR of an audit investigation to be conducted on a cooperative, it requires “previous authorization” by the CDA. Thus the BIR may have to come to some form of agreement with the CDA with regard to the latter’s authority to approve audit examinations of cooperatives. As far as we know, this constitutes the first instance where the Commissioner of Internal Revenue actually has to seek approval from another entity before conducting an audit investigation. It would be interesting, to say the least, to see how the BIR and the CDA harmonize their respective powers under this provision of the PCC of 2008.

After having gone through the concessions granted cooperatives under RA No. 9520, also known as the “Philippine Cooperative Code of 2008”, we now move on to the procedural aspects of availment of tax incentives by cooperatives, before we tackle the incentives themselves.

Article 144 of the Philippine Cooperative Code of 2008, hereinafter referred to as the PCC of 2008, states that before a cooperative may secure its Certificate of Exemption (from taxes), which the BIR issues in the form of a BIR Ruling, the cooperative must first present its new certificate of registration at the nearest BIR Office. The nearest BIR Office shall also be responsible for the issuance of the Certificate of Exemption. Hence, even the procedure for the issuance of Certificates of Exemption by the BIR would appear to be subject to an overhaul, as cooperatives exist throughout the country, and the BIR National Office is definitely not the nearest BIR Office for any cooperative located outside of Quezon City. Actually, under Section 2.1.4 of Revenue Delegated Authority Order (RDAO) No. 3-2009, dated 15 May 2009, the Regional Directors of the various Revenue Regions, concurrent with the Assistant Commissioner of Internal Revenue (ACIR) - Legal Service have the authority to issue the Certificates of Tax Exemption for cooperatives, citing the old Cooperative Code of the Philippines. Said RDAO further states that given the concurrent jurisdiction of the ACIR-Legal Service and the Regional Directors, the taxpayer has the option as to where to file its request for the issuance of the Certificate of Exemption (to the exclusion of the other office with concurrent jurisdiction). That having been said, the BIR should issue some form of revenue regulation to formalize the procedure, inclusive of the requirements, to be adopted by either the Regional Directors and/or the ACIR-Legal Service with regard the issuance of said certificates.

Can the BIR refuse to issue a Certificate of Exemption to a cooperative? Under Section 6 of RR No. 20-2001 (regulations implementing the old Cooperative Code of the Philippines), the BIR required the submission of at least eight documents accompanying the letter-request for the issuance of a Certificate of Exemption. The regulations likewise provided that only certain types of cooperatives could avail of the tax incentives, as provided for in the old Cooperative Code of the Philippines. [Notably, with the inclusion of all types of cooperatives in the PCC of 2008 as being qualified for tax incentives, practically all cooperatives can apply for said incentives. Further, it should also be noted that Article 143 of the PCC of 2008 expressly states that any provision of RR No. 20-2001 that is inconsistent with the PCC of 2008 is considered as repealed, amended, or modified accordingly.

All things considered, it appears that the BIR cannot refuse to issue a Certificate of Exemption to a duly registered cooperative. The only qualification stated in the PCC of 2008 for the issuance of the Certificate is that the cooperative has its new certificate of registration. On the other hand, Sections 60 and 61 of the PCC of 2008 require that cooperatives, primarily those which deal with both members and non-members, have to meet certain conditions in order to avail of the tax incentives. If the new certificate of registration actually certifies that the cooperatives have met the conditions necessary for the availment of the incentives, then the BIR should issue the corresponding Certificate of Exemption without the need for any other documentation. If however, the certificate of registration cannot state with clarity that the cooperative has qualified under Sections 60 and 61 of the PCC of 2008, then the BIR should be allowed to require the submission of other supporting documents confirming the qualification of a cooperative for the tax incentives. The required documents under the now repealed RR No. 20-2001 are actually documents which will confirm that the cooperative has complied, or will comply, with the qualifications for tax incentives under Articles 61 and 62 of the old Cooperative Code of the Philippines. Further, these qualifications are basically the same as those now enumerated under Section 60 and 61 of the PCC of 2008. Hence, arguably, there is no reason to change or lessen the documents considered by the BIR as necessary to determine the qualification of a cooperative for tax incentives.

(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 [email protected]).