Interest on Share, Subject to Income Tax But not Subject to Withholding Tax and VAT

(BIR Ruling DA 075-05, dated March 19, 2005)

The share of the owner-members in the net surplus of the cooperative is income and subject to income tax . However, the share of its members in the net surplus is not subject to withholding tax because it is not one of those income payments subject to withholding tax under RR 2-98, as amended. furthermore it is not compensation income and is, therefore, not subject to withholding tax on compensation, because it does not represent remuneration for services performed by an employee for his employer under an employer-employee relationship. It is also not a professional or talent fee and the owner-member of the cooperative are not contractors. Neither is it one of those income payments subject to final withholding tax. Moreover, the share of the owner-members in the service surplus does not constitute a sale, barter or exchange of goods or services and is therefore, not subject to value added tax"