Primary Lien

Article 60 of the Code reads:

Notwithstanding the provisions of
any law to the contrary, a
cooperative shall have a primary
lien upon the capital, deposits or
interest of a member for any debt
due to the cooperative from such
a member.

In public discussions on tax exemptions for

cooperatives, there had been opinions
expressed that cooperatives are no longer
tax-exempt because the Tax Reorganization
Law of 1997, a later law, effectively took
away the exemption given in the Cooperative
Code of 1990. To avoid arguments similar
to this, it is advisable to put in the loan
application form that the loan sought is
a lien on the borrowers deposits, other
interests, and finally share capital. This
will transform the loan into a transaction
under the coverage of Art.58.

Taxation and Cooperatives

The main determination of the tax
status of a cooperative depends on
whether the cooperative transacts
business even to nonmembers. For
those transacting business with
nonmembers, the consideration is
whether the accumulation of reserves
and undivided net savings has reached
10,000,000.00 or not.

The general rule is that CDAregistered cooperatives which do

not transact any business with
nonmembers or the general public
are not subject to any government
taxes or fees imposed under the
interval revenue laws and other tax
laws.

Cooperatives transacting business with

members as well as nonmembers are
not subject to tax on their transactions
to members.

However, all tax-free importation,

under this category, shall not be
transferred to any person until five
years; otherwise, the cooperative and
the transferee or assignee shall be
solidarily liable to pay twice the
amount of the tax and or duties
thereon.

Cooperatives dealing with

nonmembers, with accumulated
reserves and undivided net savings of
more than 10,000,000.00 shall pay
the following taxes at the full rate:

A. Income tax on the amount allocated

for interest on capital, so long as the
same tax is not imposed on interest
individually received by members
B. Sales tax on sales(i.e., revenues
from) nonmembers
C. All other taxes unless otherwise
provided by the Cooperative Code

In case of taxable cooperatives, their

donations to charitable, research and
educational institutions and
reinvestment to socioeconomic
projects within the area of operation of
the cooperative may be tax
deductible.

All cooperatives, regardless of the

amount of accumulated reserves and
undivided net savings are exempt from
payment of local taxes on transactions
with the banks and insurance
companies.

Even if cooperatives are given tax

exemptions, nothing can prevent the
examination of the books of accounts
or other accounting records of the
cooperative by duly authorized internal
revenue officers for internal revenue
tax purposes only, after previous
authorization by the CDA.