ASSOCIATION OF NONPROFIT CLUBS, INC. (ANPC) v.

BIR
G.R. No. 228539. June 26, 2019.
Perlas-Bernabe, J.
Case Digest by Raya Risha D. Gacula

TOPIC: Income v. Capital, Membership Fees

FACTS:
 August 3, 2012 – BIR issued RMC No. 35-2012, entitled "Clarifying the Taxability of Clubs Organized and
Operated Exclusively for Pleasure, Recreation, and Other Non-Profit Purposes." 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 1997 NIRC. It also states 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."
 ANPC submitted a position paper to Atty. Quimosing, Chief of Staff, Operations Group of the BIR requesting
for the non-application of the Circular for income tax and VAT liability on membership fees, association
dues, and fees of similar nature collected by the exclusive membership clubs from their members which are
used to defray the expenses of the said clubs.
 Despite the lapse of 2 years, the BIR has not acted upon the request, and all the member clubs of ANPC
were subjected to income tax and VAT on all membership fees, assessment dues, and service fees.
 September 17, 2014 – ANPC, on behalf of its club members, filed a petition for declaratory relief before the
RTC seeking to declare RMC No. 35-2012 invalid. ANPC argued that in issuing the Circular, the BIR acted
beyond its rule-making authority in interpreting that payments of membership fees, assessment dues, and
service fees are considered as income subject to income tax, as well as a sale of service that is subject to
VAT. ANPC argued that these only constitute capital and hence, not subject to tax.
 The OSG, on behalf of the BIR, contended that the Circular explained that, by removing recreational clubs
from the list of tax exempt entities or corporations, Congress intended to subject them to income tax and
VAT under the 1997 NIRC.

ISSUE: WON membership fees and assessment dues and fees of similar nature are sources of income of recreational
clubs from which income tax liability may accrue

HELD: No!
The Court declared that membership fees, assessment dues, and fees of similar nature collected by clubs
which are organized and operated exclusively for pleasure, recreation, and other non-profit purposes do not
constitute as:
(a) "the income of recreational clubs from whatever source" that are "subject to income tax"; and
(b) part of the gross receipts of recreational clubs that are subject to VAT.
Accordingly, Revenue Memorandum Circular No. 35-2012 should be interpreted in accordance with this Decision.
The essential difference between capital and income is that capital is a fund; income is a flow. Capital is
wealth, while income is the service of wealth. Case law provides that in order to constitute income, there must be
realized gain otherwise, such may not be subject to income tax. An income tax is then arbitrary and confiscatory if it
taxes capital because capital is not income.
As correctly argued by ANPC, membership fees, assessment dues, and other fees of similar nature only
constitute contributions to the funds for the maintenance and operations of the facilities offered by recreational
clubs to their exclusive members. They represent funds "held in trust" by these clubs to defray their operating and
general costs and hence, only constitute infusion of capital. Clearly these may not be subject to income tax because
nothing is to be gained from their collection.
As to the VAT component, it is a basic principle that before a transaction is imposed VAT, a sale, barter or
exchange of goods or properties, or sale of a service is required. The membership fees, assessment dues, and the
like are not subject to VAT because in collecting such fees, the club is not selling its service to the members. The
members are not buying services from the club when dues are paid; hence, there is no economic or commercial
activity to speak of as these dues are devoted for the operations or maintenance of the organization.
 CIR v. SECRETARY OF JUSTICE and PAGCOR
G.R. No. 177387. November 9, 2016.
Bersamin, J.
Case Digest by Raya Risha D. Gacula

TOPIC: Membership Fees

FACTS:
 BIR issued several assessments against PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR)
for alleged deficiency VAT, final withholding tax (FWT) on fringe benefits, and expanded withholding tax.
 The fringe benefits consist of the following:
1. A car plan extended by PAGCOR to its qualified officers
 PAGCOR asserted that the car plan was granted "not only because it was necessary to the nature of
the trade of PAGCOR but it was also granted for its convenience."
2. Payment of the membership dues and fees of PAGCOR to golf clubs and other organizations

 The assessments protested by PAGCOR are summarized in the table below.

ASSESSMENT DATE ISSUED PERIOD TOTAL AMOUNT

COVERED DUE
No. 33-1996/1997/1998 (for deficiency November 14, 2002 1996/1997 ₱4,078,476,977.26
VAT) /1998
No. 33-99 (for deficiency VAT, final November 25, 2002 1999 ₱6,678,346,966.49
withholding tax on fringe benefits, and
expanded withholding tax)
No. 33-2000 (for deficiency VAT and final March 18, 2003 2000 ₱2,953,321,685.92
withholding tax on fringe benefits)
TOTAL ₱13,710,145,629.67

 PAGCOR filed a letter-protest with the BIR against Assessment Notice No. 33-1996/1997 /1998 and
Assessment Notice No. 33-99. PAGCOR also filed a letter-protest against Assessment Notice No. 33-2000,
in which it reiterated the assertions made in its first letter-protest.

ISSUE: WON the abovementioned benefits are fringe benefits subject to FBT

HELD: Yes as regards the car plan but no as to the membership dues and fees.
The Court finds that the payment of the membership dues and fees is not considered a fringe benefit that
is subject to FBT and which holds PAGCOR liable for FWT. According to PAGCOR, the membership dues and fees are
“expenses borne by [respondent] to cover various memberships in social, athletic clubs and similar organizations.”
PAGCOR’s nature of business is casino operations and it derives business from its customers who play at
the casinos. In furtherance of its business, PAGCOR usually attends its VIP customers, amenities such as playing rights
to golf clubs. The membership of PAGCOR to these golf clubs and other organizations are intended to benefit
respondent's customers and not its employees. Aside from this, the membership is under the name of PAGCOR, and
as such, cannot be considered as fringe benefits because it is the customers and not the employees of PAGCOR who
benefit from such memberships.
Considering that the payments of membership dues and fees are not borne by PAGCOR for its employees,
they cannot be considered as fringe benefits which are subject to FBT under Section 33 of the NIRC. Hence, PAGCOR
is not liable to withhold FBT from its employees.
As for the car plan extended by PAGCOR to its qualified officers, this is evidently considered a fringe
benefit as defined under Section 33 of the NIRC. To avoid the imposition of the FBT on the benefit received by the
employee, and, consequently, to avoid the withholding of the payment thereof by the employer, PAGCOR must
sufficiently establish that the fringe benefit is required by the nature of, or is necessary to the trade, business or
profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer.
PAGCOR asserted that the car plan was granted "not only because it was necessary to the nature of the
trade of PAGCOR but it was also granted for its convenience." However, the records are lacking in proof as to
whether such benefit granted to PAGCOR's officers were, in fact, necessary for PAGCOR's business or for its
convenience and advantage. Accordingly, PAGCOR should have withheld the FBT from the officers who have availed
themselves of the benefits of the car plan and remitted the same to the BIR.