SC Ruling on First E-Bank (Part 1) Tower Condominium Corp. v. BIR, G.R. Nos. 215801 & 218924

 

Q:  Can you discuss the following case in relation to its applicability to all condominium corporations such as ours:

"First E-Bank Tower Condominium Corp. v. Bureau of Internal Revenue, G.R. Nos. 215801 & 218924, January 15, 2020, First Division"

Yes. First E-Bank Tower Condominium Corp. v. BIR, G.R. Nos. 215801 & 218924, January 15, 2020 is highly relevant to a condominium corporation like The Eastwood Lafayette III Condominium Corporation (TEL3).

The important point, however, is that the case should not be read as saying "condominium corporations are tax-exempt." The Supreme Court's ruling is considerably more specific.

1. What was the case about?

The dispute arose from BIR Revenue Memorandum Circular (RMC) No. 65-2012, which declared that association dues, membership fees and other assessments collected by condominium corporations constituted taxable income and were subject to:

• Income tax
• VAT
• Withholding tax

The BIR's theory was essentially:

The condominium corporation provides services to its members and tenants, and the dues are consideration for those services.

The Supreme Court rejected that characterization.

{ Me: This is where most people get confused.  The Condo Corp gets association dues from its member unit owners to cover for the upkeep of the condominium. The member unit owners are not "customers" of the association...  THEY ARE THE ASSOCIATION. While unit owners may rent out their property, the benefit of the owner gets transferred to the tenant.  The tenants are not customers of the association, they are customers of the unit owners. }

The Court held that a condominium corporation established under the Condominium Act (RA 4726) is fundamentally different from an ordinary business corporation.

Its purpose is to hold/manage the common areas and administer the condominium project for the benefit of the unit owners. The association dues are collected to fund that function—not to generate profit.

2. The central principle

This is probably the most important passage for TEL3:

A condominium corporation is not engaged in trade or business.

The Supreme Court relied heavily on its earlier decision in Yamane v. BA Lepanto Condominium Corp.

It explained that condominium corporations:

• collect assessments because they need money to operate;
• use those funds for maintenance, repairs, utilities, employees, insurance, professional services, etc.;
• do not collect them with the objective of generating profit; and
• exist for the benefit of the condominium owners.

The Court therefore rejected the BIR's characterization of association dues as payment for services.

That distinction is critical. { Me: Generate infographic to differentiate relationship of payee to payor

Think of it this way:

Business corporation

Customer → pays company → company provides service → company earns revenue

versus

Condominium corporation

Unit owners → contribute funds → condominium corporation administers those funds → common property is maintained for the owners

The latter is fundamentally a common-property administration mechanism, rather than a commercial transaction.

3. What does this mean for TEL3?

ZZZZ

TEL3 collection	First E-Bank principle
Monthly association dues	Generally not income
Special assessment for waterproofing	Generally not income
Assessment for repainting building	Generally not income
Assessment for fire-safety improvements	Generally not income
Assessment for elevator modernization	Generally not income
Assessment for common-area repairs	Generally not income
Contributions for insurance	Generally not income
Funds for utilities/common areas	Generally not income
Funds for building employees	Generally not income
Reserve/maintenance assessments	Generally not income, assuming they retain their condominium-purpose character

The Court specifically recognized that RA 4726 contemplates assessments for things such as insurance, utilities, gardening, employees, professional services, materials, reconstruction and other authorized expenditures.

That sounds very much like the ordinary financial operations of a condominium such as TEL3.

4. But here's the important limitation

First E-Bank does NOT mean every peso received by a condominium corporation is automatically tax-free.

This is where I would be particularly careful if we are applying this to TEL3.

The Supreme Court's reasoning is based upon the nature and purpose of the collection.

The Court contrasted condominium assessments with genuine income-generating activities.

For example, if a condominium corporation earns money from an activity that is genuinely commercial—rather than simply collecting owners' contributions to maintain the condominium—that revenue can have a different tax treatment.

The Court itself referred to the distinction between maintenance-type contributions and income from facilities or activities that actually generate revenue.

So:

Association assessment

Owners → TEL3 → building/common-area expenses

This is the First E-Bank situation.

Commercial income

Third party/customer → TEL3 → payment for commercial service/use

This requires separate analysis.

5. A very important distinction for TEL3: tenants

This is particularly interesting because the BIR's RMC expressly referred to collections from members, tenants and other entities.

The Supreme Court nevertheless invalidated the BIR's blanket treatment of condominium association dues, membership fees and assessments as taxable income.

The key question isn't simply:

"Who paid the money?"

The more important question is:

"What is the legal and economic nature of the payment?"

If a tenant's payment is simply an owner's condominium assessment being passed through to the tenant under a lease arrangement, that is very different from TEL3 operating a commercial business and charging the tenant for a service.

That distinction would need to be examined in the actual documents and accounting treatment.

6. What exactly did the Supreme Court invalidate?

This is another important point.

The Court didn't merely say:

"First E-Bank doesn't have to pay."

It declared RMC No. 65-2012 invalid insofar as it imposed income tax, VAT and withholding-tax consequences on condominium association dues, membership fees and assessments.

The Court concluded:

"RMC No. 65-2012 is invalid"

for declaring condominium association dues and similar assessments subject to VAT, income tax and withholding tax.

That's why the case has significance beyond First E-Bank itself.

7. Is the ruling applicable to ALL condominium corporations?

Generally, yes—but with an important qualification.

The Supreme Court itself recognized that the issue had far-reaching ramifications among condominium corporations throughout the country and expressly discussed condominium corporations generally, not merely First E-Bank's particular building.

More importantly, its reasoning rests on RA 4726, the Condominium Act.

The Court said that RA 4726 limits the purposes of a condominium corporation to:

• holding the common areas;
• management of the project; and
• purposes necessary, incidental or convenient to those functions.

Therefore, a condominium corporation having essentially that statutory character is within the reasoning of First E-Bank.

So for a typical condominium corporation:

Yes, First E-Bank is highly applicable.

But I would not formulate the rule as:

"All condominium corporations are exempt from tax."

The safer and more legally accurate formulation is:

Association dues, membership fees and assessments collected by a condominium corporation for the maintenance, administration and preservation of the condominium project, as contemplated by RA 4726, do not constitute taxable income or VATable consideration merely because the condominium corporation collects and spends those funds for the benefit of its members.

That's much closer to what the Supreme Court actually decided.

8. Why this matters to TEL3's accounting

This case gives TEL3 a very useful conceptual framework.

Suppose TEL3 collects ₱10 million during a year:

A. Association dues

₱8.5M

→ security

→ salaries

→ electricity

→ water

→ repairs

→ insurance

→ maintenance

→ administrative expenses

B. Special assessments

₱1.0M

→ exterior waterproofing/repainting

C. Commercial/other receipts

₱500K

→ parking income, rental of facilities, advertising, etc.

You shouldn't automatically treat the entire ₱10M as one homogeneous category called "income."

First E-Bank strongly supports distinguishing:

Owner assessments / condominium funds

from

actual income-generating activities.

That distinction is potentially very important for TEL3's financial statements and BIR treatment.

9. Another important point: "non-stock, non-profit" isn't actually the decisive argument

This is a subtle but important aspect of the decision.

It would be easy to say:

"TEL3 is non-stock/non-profit, therefore it doesn't pay income tax."

That is not the reasoning of First E-Bank.

The Supreme Court's reasoning is much stronger:

What matters is the nature of the condominium corporation and the nature of the particular receipts.

The Court relied on RA 4726, Yamane and the purpose of the assessments.

This is important because being "non-stock/non-profit" does not, by itself, make an organization immune from all taxation.

Indeed, the Court acknowledged that even a non-stock, non-profit organization can be subject to VAT when it actually engages in taxable sales of goods or services.

The difference is that ordinary condominium assessments aren't sales or payments for services.

10. One particularly useful sentence for TEL3

The Supreme Court said:

"It cannot be said to be engaged in trade or business..."

when a condominium corporation manages, maintains and preserves the common areas for the benefit of the owners.

That is potentially very useful when looking at some of the issues we've been discussing concerning TEL3's administration.

For example, the corporation hiring:

• security personnel,
• maintenance contractors,
• engineers,
• accountants,
• lawyers,
• elevator contractors,
• waterproofing contractors,
• fire-safety contractors,

doesn't turn TEL3 itself into a commercial service provider.

TEL3 is purchasing services to fulfill its statutory condominium-management function.

That is quite different from TEL3 selling those services commercially to its members.

11. But First E-Bank does NOT eliminate TEL3's other tax obligations

This is where I would draw a very clear line.

The case does not mean:

"Condominium corporations don't have to deal with BIR."

TEL3 can still have tax obligations arising from other activities and transactions.

For example, depending on the circumstances:

• compensation/payroll withholding;
• expanded withholding tax obligations;
• taxes associated with suppliers/contractors;
• taxes on actual income-producing activities;
• taxes relating to property transactions;
• documentary stamp taxes;
• other statutory filing/reporting obligations.

The First E-Bank decision is specifically powerful against the proposition that the association dues themselves become taxable income/VAT simply because TEL3 administers the condominium and provides benefits to its owners.

12. One more thing I would investigate for TEL3

Given your situation, I think there is a very interesting follow-up question:

What happened to BIR's position after First E-Bank?

Because RMC 65-2012 was the BIR issuance that First E-Bank invalidated, we should look at the post-2020 BIR issuances, rulings and tax regulations to determine whether the BIR subsequently issued anything modifying its treatment of condominium corporations.

That matters because we're talking about TEL3's current 2026 tax compliance, not merely what the Supreme Court said in 2020.

The Supreme Court decision itself is very strong authority, but for an actual TEL3 compliance position, I would want to establish the complete chain:

RA 4726 → Yamane → RMC 65-2012 → First E-Bank → subsequent BIR issuances/rulings → current Tax Code

That would let us determine precisely:

"What taxes is TEL3 legally required to pay today, and which collections should NOT be treated as taxable income?"

And that, in my view, is the more useful question for TEL3 than simply saying "First E-Bank says condo dues aren't taxable."

The Supreme Court's original decision is available from Lawphil — First E-Bank Tower Condominium Corp. v. BIR and the Supreme Court E-Library copy is also available.

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