Non profit clubs
THE Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular No. 35-2012 clarifying the taxability of clubs organized exclusively for pleasure, recreation, and other non-profit purposes.
Section 26(H) of Presidential Decree No. 1158, otherwise known as the National Internal Revenue Code of 1977, provides that clubs which are organized and operated exclusively for pleasure, recreation, and other non-profit purposes (hereinafter referred to as “recreational clubs”) were exempt from income tax.
This provision however was deleted in the National Internal Revenue Code of 1997, as amended. According to the doctrine of casus omissus pro omisso habendus est, a person, object, or thing omitted from an enumeration must be held to have been omitted intentionally.
Accordingly, 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 of 1997, as amended.
The provision in the National Internal Revenue Code of 1977 which granted income tax exemption to such recreational clubs was omitted in the current list of tax exempt corporations under National Internal Revenue Code of 1997, as amended. Hence, the income of recreational clubs from whatever source, including but not limited to membership fees, assessment dues, rental income, and service fees are subject to income tax.
Under Section 105 of the National Internal Revenue Code of 1997, as amended, even a non-stock, non-profit organization or government entity is liable to pay the Value Added Tax (VAT) on the sale of goods or services.
This was confirmed by the Supreme Court in Commissioner of Internal Revenue vs. Court of Appeals and Commonwealth Management and Services Corporation, GR No. 125355, March 30, 2000. The gross receipts of recreational clubs including but not limited to membership fees, assessment dues, rental income, and service fees are therefore subject to the VAT.
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