Recreational club fees not subject to taxes – SC

The Supreme Court building on Padre Faura Street in Manila. (File photo by CATHY MIRANDA / INQUIRER.net)

MANILA, Philippines – The Supreme Court has ruled that membership fees, assessment dues and other fees collected by clubs organized for “pleasure, recreation and other non-profit purposes” are not subject to income and value-added taxes.

In a decision by the high court’s 2nd division, it set aside the ruling of the Makati City Regional Trial Court that affirmed the legality of Revenue Memorandum Circular (RMC) No. 35-2012 of the Bureau of Internal Revenue (BIR).

The circular provides that “clubs which are organized and operated exclusively for pleasure, recreation, and other non-profit purposes are subject to income tax under the National Internal Revenue Code (NIRC) of 1997, as amended.”

With regards to the value-added tax (VAT), the circular provides that “the gross receipts of recreational clubs including but not limited to membership fees, assessment dues, rental income, and service fees are subject to VAT.”

But the high court, through Associate Justice Estela Perlas-Bernabe said such dues and fees “do not constitute as ‘the income of recreational clubs from whatever source’ that are ‘subject to income tax’ and part of the ‘gross receipts of recreational clubs’ that are subject to value-added tax.”

The Court said what is being collected is considered contributions to and/or replenishment of the funds for the maintenance and operations of the facilities offered by recreational clubs to their members.

“In fine. for as long as these membership fees, assessment dues, and the like are treated as collections by recreational clubs from their members as an inherent consequence of their membership, and are, by nature, intended for the maintenance, preservation, and upkeep of the clubs’ general operations and facilities, then these fees cannot be classified as ‘the income of recreational clubs from whatever source’ that are ‘subject to income tax’,” the Court said.

“Instead, they only form part of the capital from which no income tax may’ be collected or imposed,” the ruling stated.

The high court, in granting the petition of the Association of Non-Profit Clubs, Inc. (ANPC) ordered the BIR to re-align its Aug. 3, 2012 Memorandum Circular No. 35-2012 in accordance with its decision.