BIR Clarification On The Effect Of The CTA Decision On Liabilities With Regard To Condominiums

It has come to the attention of the Bureau of Internal Revenue that there is ongoing misinformation as with regard to the effect of the  decision of Officemetro Philippines, Inc. with regard to condominiums.  The decision is a decision of an division of the Court of Tax Appeal and which will be appealed by the Bureau of Internal Revenue to the Court En Banc by way of a motion for reconsideration. It is not a decision of the Supreme Court as some quarters would like people to believe.

In the case of Officemetro Philippines, Inc. (formerly Regus Centres, Inc.) vs. Commissioner of Internal Revenue, CTA Case No. 8382, June 3, 2014, the Court of Tax Appeals – Third Division (CTA) ruled that condominium dues billed to Officemetro in 2005 are not subject to expanded withholding tax (EWT). The case does not in anyway involved the issue of value added tax.

In support of the said decision, the CTA cited several BIR Rulings, issued from 2004 to 2009, wherein the BIR held that “association/condominium dues, membership fees and other assessment/charges collected from the members, which are merely held in trust and which are to be used solely for administrative expenses in implementing their purpose(s), viz., to protect and safeguard the welfare of the owners, lessees and occupants; provide utilities and amenities for their members, and from which the corporation could not realize any gain or profit as a result of their receipt thereof, must not be included in said corporation’s gross income. This means that the same are not subject to income tax and to withholding tax.”

The BIR rulings cited in the CTA Decision are in contrast with BIR Revenue Memorandum Circular (RMC) 065-2012 wherein the BIR pronounced that since the association dues, membership fees, and other assessments/charges collected by a condominium corporation constitute income payments or compensation for beneficial services it provides to its members and tenants, then the gross receipts of condominium corporations including association dues, membership fees, and other assessments/charges are subject to VAT, income tax and EWT.The CTA Decision is now the subject of a pending Motion for Reconsideration filed by the BIR before the same CTA division.

However, the CTA Division did not rule on the validity of RMC 065-2012.  Therefore, RMC 065-2012 is the prevailing rule today andall concerned taxpayers are required to comply with the provisions of RMC 065-2012.

source:  Department of Finance