MANILA, Philippines - The Bureau of Internal Revenue (BIR) has appealed the ruling of the Court of Tax Appeals that condominium dues, membership fees and other charges are not subject to income tax and withholding tax.
“The decision is a decision of a division of the CTA and which will be appealed by the BIR to the Court en banc by way of a motion for reconsideration,†the BIR said.
The ruling was issued by the CTA’s third division pursuant to the case filed by Officemetro Philippines (formerly Regus Centres Inc.), contesting the deficiency expanded withholding tax assessed by the BIR.
In its petition, Officemetro alleged that a portion of the rentals were payments of condominium dues that do not form part of the taxable income of the condominium corporation and should not therefore be subject to withholding tax.
The CTA agreed with Officemetro, saying association dues, membership fees and other charges collected by condominium corporations must not be included in Officemetro’s gross income and are exempt from income tax and withholding tax.
However, Internal Revenue commissioner Kim Henares,said the case did not touch the issue of value-added tax (VAT).
Henares said the CTA division likewise did not rule on the validity of Revenue Memorandum Circular 065-2012, which subjected association dues, membership fees and other charges paid by unit owners and beneficial users to income tax, withholding tax and 12-percent VAT.
“Therefore, RMC 065-2012 is the prevailing rule today and all concerned taxpayers are required to comply with the provisions of RMC 065-2012,†the BIR said.
“The BIR rulings cited in the CTA Decision are in contrast with BIR Revenue Memorandum Circular (RMC) 065-2012,†the BIR added.
The BIR stressed that the amounts paid as dues or fees by members and tenants of a condominium corporation form part of the gross income of the latter subject to income tax.
According to the BIR, since a condominium corporation is subject to income tax, income payments made to it are subject to applicable withholding taxes under existing regulations.
The BIR previously exempted condominium and homeowners associations from the payment of income tax and VAT. This was premised on the notion that the money collected was merely held in trust to be used for administrative expenses incurred in servicing members and does not constitute any sale of goods or rendition of service.