RMC No. 40-2015 — Clarifies the nature and extent of the agricultural cooperative being the producer of sugar for exemption from advance VAT and Percentage Tax purposes pursuant to Section 5(b)(c) of RR No. 8-2015

REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE SUREAU OF INTERNAL REVRNJUE RECORDS MGT. DIVISION Ju5205 H: rD A.M.

BUREAU OF INTERNAL REVENUE Uno N

RECEIVED

15 July 2015

REVENUE MEMORANDUM CIRCULAR NO L{ - 2D15

SUBJECT : Ciarifying the Nature and Extent of the Agricultural Cooperative Being the

in reiation to Section 4(a) of RR No. 13-2008, and in line with Section Producer of Sugar for Exemption from Advance VAT and Percentage Tax Purposes Pursuant to Section 5(b)(c) of Revenue Regulations (RR) No. 8-2015,

8(b.2.1.2) of the Joint Rules and Regulations implementing Articies 60, 61 and 144 of Republic Act (RA) No. 9520, or the Cooperative Code of 2008.

TO : All Internal Revenue Officers and Others Concerned.

Section 1. BACKGROUND:

exempts from Value-Added Tax (VAT) saie by agriculturai cooperatives duly registered with Section 109 (1)(L) of the National internal Revenue Code (NiRC), as amended,

the Cooperative Development Authority (CDA) of their_produce, whether in its original state or processed form, to non-members.

Section 5(b) of Revenue Regulations (RR) No. 8-2015 (dated 22 May 2015),1 on the other hand, provides that the withdrawals of Sugar? for saie to non-members is subject to payment of advance VAT or percentage tax if the_agricultural cooperativeis not_the producer of Sugar. Section 5(c) of RR 8-2015 likewise provides that if the seller-cooperative is not_an agricultural producer but merely purchases the Sugar from planter, whether members or non-members, or transfer the Sugar to cooperative through assignment, its sale of the resulting Sugar to another agricuitural cooperative shall be subject to VAT and its withdrawals from the Sugar Refinery/Mill will only be allowed upon payment of the advance VAT or Percentage Tax.

Sugar - refers to sugar other than Raw Cane Sugar as defined in the preceding paragraph. This includes sugar Amending Revenue Regulations No. 6-2015 on the Definition of Raw Cane Sugar for Purposes of the Imposition of Advance Business Tax (Value-Added Tax or Percentage Tax) and for Other Purposes whose content of sucrose by weight, in the dry state corresponds to a polarimeter reading of 99.5" and above and/or whose color is 800 ICU or less BUREAU OF INTERNAL REVENUE INTERNAL COMMUNICATIONS DIVISION 05S

JUL 2015

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Finally, Section 8(b.2.1.2) of the Joint Rules and Reguiations implementing Articles 60, 61 and 144 of Republic Act (RA) No. 9520, or the Cooperative Code of 2008, states that sale by agricultural cooperatives to non-members can only be exempted from VAT if the producer of the agricultural products sold is the cooperative itself. If the cooperative is not the producer (e.g. trader), only those sales to its members shall be exempted from VAT.

From the aforesaid provisions of iaws and revenue issuances, it is, thus, clear that in order that withdrawals of Sugar by agricultural cooperative for sale to non-members or to another agricultural cooperative be exempt from advance VAT or Percentage Tax, the agriculturai cooperative must be the producer of Sugar.

Under Section 4(a) of RR No. 13-2008 (dated 19 September 2008),3 "a cooperative is said to be the producer of the sugar if it is the tiller of the land it owns, or leases, incurs cost of agricultural production of the sugar and produces the sugar cane to be refined". This definition is consistent with the definition of "producer's cooperative" under Article 23[c] of R.A. No. 9520, which is one that undertakes joint_production whether agricultural or industrial. It is formed and operated by its members to undertake the production and processing of raw materiais or goods produced by its members into finished or processed products for sale by the cooperative to its members and non-members. Any end product or its derivative arising from the raw materials produced by its members, sold in the name and for the account of the cooperative, shall be deemed a product of the cooperative and its members.

In fact, Section 8(b.2.1.2) of the Joint Rules and Regulations Implementing Articies 60, 61 and 144 of RA 9520 provides - following the aforesaid definition of "producer's cooperative" - that the exempt transactions pursuant to Section 109(1)(L) of the N!Rc, as amended, shall inciude sales made by a duly registered agricuiturai cooperative organized and operated by its members to undertake the production and processing of raw materials or of goods produced by its members inio finished or processed products for sale by said cooperative to its members and non-members: Provided, finally, That any processed product or its derivative arising from the raw materials produced by its members, sold in the name and for the account of the cooperative, shall be deemed the product of the cooperative

SeCtion 2. PURPOSE/OBJECTIVE:

To avoid confusion and to give full effect to the provisions of Section 5(b)(c) of RR No. 8-2015, in relation to Section 4(a) of RR No. 13-2008, and in line with Section 8(b.2.1.2) of the Joint Rules and Regulations Implementing Articles 60, 61 and 144 of RA 9520, this

Consolidated Regulations on Advance Value Added Tax on the Sale of Refined Sugar; Amending and/or Revoking All Revenue Issuances Issued to this Effect, and for Other Related Purposes.

DUREAU OF INTERNAL RETNE RECORDS MGT. DIVIION 5205 11:0AM Ua

RECEIVED

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the producer of Sugar for sale to non-members or another agricultural cooperative for Circular is being issued to clarify the nature and extent of the agricultural cooperative being

exemption from advance VAT or Percentage Tax purposes.

Section 3. CLARIFICATION

It is hereby clarified that a duly registered agricultura! cooperative is said to be the producer of Sugar - consistent with the concept of a producer's cooperative being a joint production wherein raw materials or goods are produced by its members for processing into finished or processed products - if the following requisites are present:

(a) it is the tiller, thru its members, of the land it owns, or ieases; and

(b) it incurs cost of agricultural production of the sugar and produces the sugar cane

to be refined.

The aforesaid requisites must concur, In the absence of any one of these requisites, an agricuiturai cooperative cannot be considered a producer of Sugar and, thus, its withdrawals of Sugar for sale to non-members or another agricultural cooperative are subject to advance VAT or Percentage Tax.

Section 4. EFFECTIVITY:

All revenue officers and employees are hereby enjoined to give this Circular as wide a publicity as possible.

This circular shall take effect immediately.

HSCORD MS+ REYSTON BUREAU OF INTERNAL REVENUE Commissioner of internal Revenue KIM S JACINTO-HENARES

152 MN 033805

RECEIVED