Association dues, membership fees, and other assessments/charges collected by a condominium corporation are not subject to income tax, VAT, and withholding tax.
Case Title: Bureau of Internal Revenue (BIR) v. First E-Bank Tower Condominium Corp.
Date of Promulgation: January 15, 2020 | G.R. No. 215801/G.R. No. 218924
FACTS: The First E-Bank Tower Condominium Corp. (First E-Bank) filed a petition to declare as invalid BIR Revenue Memorandum Circular No. 65-2012 (RMC No. 65-2012) dated October 2012 entitled "Clarifying the Taxability of Association Dues, Membership Fees and Other Assessments/ Charges Collected by Condominium Corporations".
First E-Bank in its Petition alleged that: it is a non-stock non-profit condominium corporation; RMC No. 65-2012 burdened the owners of the condominium units with income tax and Value-Added Tax (VAT) on their own money which they exclusively used for the maintenance and preservation of the building and its premises; RMC No. 65-2012 was oppressive and confiscatory because it required condominium unit owners to produce additional amounts for the thirty-two percent (32%) income tax and twelve percent (12%) VAT.
ISSUE: Is RMC No. 65-2012 valid?
a) Is a condominium corporation engaged in trade or business?
b) Are association dues, membership fees, and other assessments/charges subject to income tax, value-added tax, and withholding tax?
RULING: No, RMC No. 65-2012 is invalid.
a) A condominium corporation is not engaged in trade or business. Even though the Corporation is empowered to levy assessments or dues from the unit owners, these amounts collected are not intended for the incurrence of profit by the Corporation or its members, but to shoulder the multitude of necessary expenses that arise from the maintenance of the Condominium Project.[1] More, a condominium corporation is especially formed for the purpose of holding title to the common area and exists only for the benefit of the condominium owners. Nothing more.
b) Association dues, membership fees, and other assessments/charges are not subject to income tax, VAT and withholding tax.
They are not subject to income tax because they do not constitute profit or gain. To repeat, they are collected purely for the benefit of the condominium owners and are the incidental consequence of a condominium corporation's responsibility to effectively oversee, maintain, or even improve the common areas of the condominium as well as its governance.
Further, association dues, membership fees, and other assessments/charges do not arise from transactions involving the sale, barter, or exchange of goods or property. Nor are they generated by the performance of services. As such, they are not subject to VAT which is a burden 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, so much so that even a non-stock, non-profit organization or government entity, is liable to pay value-added tax on the sale of goods or services.
[1] Yamane v. BA Lepanto Condominium Corp., G.R. No. 154993, October 25, 2005.