Rationale for the imposition of taxes

Under BIR RMC 9-2013, Homeowners' associations are now subject to VAT and income tax
First, one of the basic premises in tax law is that taxes are the lifeblood of the nation. Taxation, being
one of the major powers of a sovereign, should be respected. Being the price of a civilized society, as a
general rule, the collection of taxes cannot be stopped.

Another major principle in tax is that exemptions are construed strictissimi juris or strictly against the
taxpayer. On the flipside, if the tax on a particular transaction or person is not specifically spelled out,
no tax is due.

In the case of associations, they are treated like a corporation for tax purposes. Thus, the income of a
homeowners association from all sources should be taxable, in the absence of an exemption which is
specifically granted by law.

In the past, homeowners associations were considered as mutual aid associations exempt from income
tax pursuant to Section 30 (c) of the Tax Code. The amounts they collected were considered as held in
trust by the association for the third-party suppliers, for example, the security agency which provides
security services. The association was a mere pass-through entity and payments were coursed through it
for practical purposes only.

With RMC 9-2013, however, the BIR abandoned its previous position that homeowners associations are
mutual aid associations exempt from income tax and held that the association dues collected by
homeowners associations are payments for the beneficial services that they render.

Thus, homeowners associations are subject to income tax and also to VAT (provided that the gross
receipts exceed the P1,919,500.00 threshold within a year) or percentage tax.

How can homeowners association dues be exempt from income tax?
Unlike condominium associations, homeowners associations may be exempt from certain taxes
provided the conditions under Republic Act (R.A.) No. 9904 or the Magna Carta for Homeowners and
Homeowners Associations are complied with, namely:

1. The homeowners association must be a duly constituted Association as defined under Section 3(b)
of RA 9904;

2. The local government unit having jurisdiction over the homeowners association must issue a
certification identifying the basic services being rendered by the homeowners association and therein
stating its lack of resources to render such services notwithstanding its clear mandate under applicable
laws, rules, and regulations. Provided further, that such services must fall within the purview of the
basic community services and facilities which is defined under Section 3(d) of RA 9904 as those
referring to services and facilities that redound to the benefit of all homeowners and from which, by
reason of practicality, no homeowner may be excluded such as, but not limited to: security; street and
vicinity lights; maintenance, repairs, and cleaning of streets; garbage collection and disposal; and other
similar services and facilities;

3. The homeowners association must present proof (i.e. financial statements) that the income and dues
are used for the cleanliness, safety, security, and other basic services needed by the members, including
the maintenance of the facilities of their respective subdivisions or villages.


As a taxable entity, the homeowners associations will also need to file Expanded Withholding Tax (EWT)
returns and Value-Added Tax (VAT) or Percentage Tax returns (whichever is applicable), plus the
quarterly and annual income tax returns. It is advisable for the officers of homeowners associations to
consult with the Revenue District Officer of the BIR Revenue District Office where the subdivisions and
villages are located. It would be good for the homeowners associations to comply with the
requirements of RA 9904 and its IRR and avail of the income tax exemption.

Source: http://www.foreclosurephilippines.com/2013/02/homeowners-association-dues-subject-to-
income-tax-and-vat-rmc-no-9-2013.html#ixzz2tj3YqqZg

REVENUE REGULATIONS NO. 17-2013 issued on September 27, 2013 clarifies the
retention period and prescribes the guidelines on the preservation of books of accounts and other
accounting records.
All taxpayers are required to preserve their books of accounts, including subsidiary books
and other accounting records for a period of ten (10) years reckoned from the day following the
deadline in filing a return or if filed after the deadline, from the date of filing of the return, for
the taxable year when the last entry was made in the books of accounts.
If the taxpayer has any pending protest or claim for tax credit/refund of taxes, and the
books and records concerned are material to the case, the taxpayer is required to preserve his/its
books of accounts and other accounting records until the case is finally resolved.
Unless a longer period of retention is required under the National Internal Revenue Code
(NIRC) or other relevant laws, the independent Certified Public Accountant who audited the
records and certified the financial statements of the taxpayer, equally as the taxpayer, has the
responsibility to maintain and preserve copies of the audited and certified financial statements
for a period of 10 years from the due date of filing the annual Income Tax return or the actual
date of filing thereof, whichever comes later.
All books, registers and other records, and vouchers and other supporting papers required
by the BIR shall be kept at all times at the place of business of the taxpayer, subject to inspection
by any internal revenue officer, and upon demand, the same must be immediately produced and
submitted for inspection. They may be examined and inspected for purposes of regular audit or
extraordinary audit, requests for exchange of information by a foreign tax authority under
Sections 6 and 71 of the NIRC, and in the exercise of the Commissioners power to obtain
information under Section 5 of the NIRC, among others.
Examination and inspection of books of accounts and other accounting records shall be
done in the taxpayers office or place of business or in the office of the BIR.
Any violation of the provisions of these regulations shall be subject to penalties provided
in Sections 266, 275 and, other pertinent provisions of the NIRC; and Section 6 of Republic Act
No. 10021 (the Exchange of Information on Tax Matters Act of 2009).

ftp://ftp.bir.gov.ph/webadmin1/pdf/79052rr13_18.pdf (RMC 18-2013)

REVENUE REGULATIONS NO. 18-2013 issued on November 28, 2013 amends certain
sections of Revenue Regulations (RR) No. 12-99 relative to the due process requirement in the
issuance of a deficiency tax assessment.
Section 3 of RR No. 12-99 was amended by deleting Section 3.1.1 thereof, which
provides for the preparation of a Notice of Informal Conference, thereby renumbering other
provisions thereof, and prescribing other provisions for the assessment of tax liabilities.
If after review and evaluation by the Commissioner or his duly authorized representative,
as the case may be, it is determined that there exists sufficient basis to assess the taxpayer for any
deficiency tax or taxes, the said office shall issue to the taxpayer a Preliminary Assessment
Notice (PAN) for the proposed assessment. It shall show in detail the facts and the law, rules
and regulations, or jurisprudence on which the proposed assessment is based.
If the taxpayer fails to respond within 15 days from date of receipt of the PAN, he shall
be considered in default, in which case, a Formal Letter of Demand and Final Assessment Notice
(FLD/FAN) shall be issued calling for payment of the taxpayer's deficiency tax liability,
inclusive of the applicable penalties.
If the taxpayer, within 15 days from date of receipt of the PAN, responds that he/it
disagrees with the findings of deficiency tax or taxes, an FLD/FAN shall be issued within 15
days from filing/submission of the taxpayers response, calling for payment of the taxpayer's
deficiency tax liability, inclusive of the applicable penalties.
Pursuant to Section 228 of the Tax Code, as amended, a PAN shall not be required in any
of the following cases:
a. When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax appearing on the face of the tax return filed by the taxpayer; or
b. When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or
c. When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax liabilities
for the taxable quarter or quarters of the succeeding taxable year; or
d. When the Excise Tax due on excisable articles has not been paid; or
e. When an article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold,
traded or transferred to non-exempt persons.
In the above-cited cases, a FLD/FAN shall be issued outright by the Commissioner or
his duly authorized representative. The FLD/FAN calling for payment of the taxpayer's
deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on
which the assessment is based; otherwise, the assessment shall be void.
The taxpayer or its authorized representative or tax agent may protest
administratively against the aforesaid FLD/FAN within 30 days from date of receipt thereof.
The taxpayer protesting an assessment may file a written request for reconsideration or
reinvestigation, which was defined in the Regulations.
The taxpayer shall state in his protest (i) the nature of protest, whether reconsideration
or reinvestigation, specifying newly discovered or additional evidence he intends to present if
it is a request for reinvestigation; (ii) date of the assessment notice; and (iii) the applicable
law, rules and regulations, or jurisprudence on which his protest is based; otherwise, his
protest shall be considered void and without force and effect.
If there are several issues involved in the FLD/FAN but the taxpayer only disputes or
protests against the validity of some of the issues raised, the assessment attributable to the
undisputed issue or issues shall become final, executory and demandable. The taxpayer shall
then be required to pay the deficiency tax or taxes attributable thereto, in which case, a collection letter
shall be issued to the taxpayer calling for payment of the said deficiency tax
or taxes, inclusive of the applicable surcharge and/or interest.
If there are several issues involved in the disputed assessment and the taxpayer fails
to state the facts, the applicable law, rules and regulations, or jurisprudence in support of his
protest against some of the several issues on which the assessment is based, the same shall be
considered undisputed issue or issues, in which case, the assessment attributable thereto shall
become final, executory and demandable. The taxpayer shall then be required to pay the
deficiency tax or taxes attributable thereto and a collection letter shall be issued to the
taxpayer calling for payment of the said deficiency tax, inclusive of the applicable surcharge
and/or interest.
For requests for reinvestigation, the taxpayer shall submit all relevant supporting
documents in support of his protest within 60 days from date of filing of his letter of protest,
otherwise, the assessment shall become final. The 60-day period for the submission of all
relevant supporting documents shall not apply to requests for reconsideration. The term the
assessment shall become final shall mean the taxpayer is barred from disputing the
correctness of the issued assessment by introduction of newly discovered or additional
evidence, and the FDDA shall consequently be denied.
If the taxpayer fails to file a valid protest against the FLD/FAN within 30 days from
date of receipt thereof, the assessment shall become final, executory and demandable. No
request for reconsideration or reinvestigation shall be granted on tax assessments that have
already become final, executory and demandable.
If the protest is denied, in whole or in part, by the Commissioners duly authorized
representative, the taxpayer may either: (i) appeal to the Court of Tax Appeals (CTA) within
30 days from date of receipt of the said decision; or (ii) elevate his protest through request for
reconsideration to the Commissioner within 30 days from date of receipt of the said decision.
No request for reinvestigation shall be allowed in administrative appeal and only issues
raised in the decision of the Commissioners duly authorized representative shall be
entertained by the Commissioner.
If the protest is not acted upon by the Commissioners duly authorized representative
within 180 days counted from the date of filing of the protest in case of a request
reconsideration; or from date of submission by the taxpayer of the required documents within
60 days from the date of filing of the protest in case of a request for reinvestigation, the
taxpayer may either: (i) appeal to the CTA within 30 days after the expiration of the 180-day
period; or (ii) await the final decision of the Commissioners duly authorized representative
on the disputed assessment.
If the protest or administrative appeal, as the case may be, is denied, in whole or in
part, by the Commissioner, the taxpayer may appeal to the CTA within 30 days from date of
receipt of the said decision. Otherwise, the assessment shall become final, executory and
demandable. A motion for reconsideration of the Commissioners denial of the protest or
administrative appeal, as the case may be, shall not toll the 30-day period to appeal to the
CTA.
If the protest or administrative appeal is not acted upon by the Commissioner within
180 days counted from the date of filing of the protest, the taxpayer may either: (i) appeal to
the CTA within 30 days from after the expiration of the 180-day period; or (ii) await the final
decision of the Commissioner on the disputed assessment and appeal such final decision to
the CTA 30 days after the receipt of a copy of such decision.
It must be emphasized, however, that in case of inaction on protested assessment
within the 180-day period, the option of the taxpayer to either: (1) file a petition for review
with the CTA within 30 days after the expiration of the 180-day period; or (2) await the final
decision of the Commissioner or his duly authorized representative on the disputed assessment and
appeal such final decision to the CTA within 30 days after the receipt of a
copy of such decision, are mutually exclusive and the resort to one bars the application of the
other.
The decision of the Commissioner or his duly authorized representative shall state the
(i) facts, the applicable law, rules and regulations, or jurisprudence on which such decision is
based; otherwise, the decision shall be void, and (ii) that the same is his final decision.
The notice (PAN/FLD/FAN/FDDA) to the taxpayer herein required may be served by
the Commissioner or his duly authorized representative through several modes specified in
the Regulations.
Section 5 of RR No. 12-99 was amended by modifying Section 5.5 thereof which
provides for modes of procedures in computing for the tax and/or applicable surcharge. In
cases of late payment of a deficiency tax assessed, the taxpayer shall be liable for the
delinquency interest provided under Section 249 (C)(3) of the 1997 National Internal
Revenue Code, as amended. Section 5.5 of RR No. 12-99 shall now read as follows:
5.5 Late payment of a deficiency tax assessed. In general, the
deficiency tax assessed shall be paid by the taxpayer within the time
prescribed in the notice and demand, otherwise, such taxpayer shall be liable
for the delinquency interest incident to late payment.