BIR: Country clubs subject to VAT, other taxes
Organizations that were established for recreation and other non-profit purposes such as country clubs must pay income tax and value-added tax (VAT), according to the Bureau of Internal Revenue.
Internal Revenue Commissioner Kim S. Henares has issued Revenue Memorandum Circular No. 35-2012 to clarify the tax treatment on such clubs following conflicting BIR rulings.
Henares said that the Tax Code of 1977 or Presidential Decree No. 1158 provided that clubs organized and operated exclusively for pleasure, recreation or other non-profit purposes were exempt from the income tax.
However, this provision was dropped and was no longer available in the prevailing Tax Code of 1997 or Republic Act No. 8424.
“Despite this, several BIR rulings were issued declaring that recreational clubs are exempt from income tax and VAT,” she said.
The BIR chief was referring to three BIR Rulings that favored Club Punta Fuego Inc. (issued in 2005), Baguio Country Club Corp. (2007) and Caliraya Resort Club Inc. (2009).
Henares said that under the current Tax Code, as amended, the income of recreational clubs from whatever source—including but not limited to membership fees, assessment dues, rental income and service fees—were subject to income tax.
Citing a legal doctrine, she said that the omission of recreational clubs from the list of income tax-exempt entities must be intentional—the new law meant to strip such clubs of the exemption.
As for the VAT, Henares said Section 105 of the current Tax Code clearly mentioned that even a non-stock, non-profit organization or government entity was subject to the levy.
“This conclusion was affirmed by the Supreme Court in a decision issued in 2000,” she said, citing a case brought by a previous BIR commissioner against the Court of Appeals and Commercial Management and Services Corp.
“Clearly, the gross receipts of recreational clubs, including but not limited to membership fees, assessment dues, rental income and service fees are subject to VAT,” Henares said.
