Tax Law for Business

investors getting burned by premature bets on Fed rate cuts that would sink the dollar. That was the case early this year, when the currency seemed to be on the verge of a protracted downtrend only to stabilize as US economic data drove home that the Fed wasn’t about to stop hiking.

IT is now undisputed that association dues, membership fees, and other charges collected by a condominium corporation from members are not subject to income tax and value added tax. This was the clear ruling by the Supreme Court in the First E-Bank Tower case (GR 215801). In fact, it is now clear under the amended provisions of the Tax Code that association dues, membership fees, and other assessments and charges collected by homeowners associations and condominium corporations are exempt from VAT.

The Bureau of Local Government Finance had in fact opined in one occasion that from the definition of gross sales or receipts in the LGC, passive income such as interest income from savings and time deposits are not subject to LBT.

poration is not selling its service to the condominium owners nor are the condominium owners buying goods and/or services from the condominium corporation when the dues are paid.

For the bears, the threat is that dynamic repeats itself, especially with the Fed likely to tighten further as soon as this month.

As regards the imposition of local business tax (LBT), the Supreme Court in another case (GR 154993) has long declared that condominium corporations are generally exempt from local business taxation under the Local Government Code (LGC), irrespective of any local ordinance that seeks to declare otherwise.

“Our call for the dollar to enter a multi-year downtrend is partly based on the fact that the Fed’s tightening cycle will morph into an easing cycle, and this will pull the dollar down even as other central banks cut as well,” Steven Barrow, head of G-10 strategy at Standard Bank, said in a note on Friday.

The Bloomberg dollar gauge was little changed in early Asian trading Monday. It tanked 2 percent last week, the biggest weekly drop since the five days through November 11.

It’s hard to overstate the potential ripple effects from a long-term greenback slide. It would reduce import prices for developing nations, helping ease their inflation pressures. A greenback reversal also stands to bolster currencies like the yen, which has been tumbling for months, and upend popular trading strategies tied to a weaker yen. More broadly, a softer US currency would tend to boost American firms’ exports at the expense of their counterparts in Europe, Asia and elsewhere.

The Bloomberg dollar index’s 2 percent decline last week also contributed to gains in greenback-priced commodities such as oil and gold.

Many investors have been waiting for a downtrend in the dollar for months and the selloff has fund managers from M&G Investments to UBS Asset Management bracing for an outperformance in the likes of the yen and emerging-market currencies.

“The most likely path forward is the dollar remains weak throughout the coming months,” said Peter Vassallo, a fund manager at BNP Paribas Asset Management. He’s betting on gains for the Australian dollar, New Zealand dollar and Norwegian krone.

“The prevailing downwards trend in the dollar is primed to remain intact while the real yield curve flattens. One of the best leading indicators for the dollar, for instance, is the real yield curve. The intuition is the dollar is driven at the margin by the real return of foreign investors into US yields,” said Simon White, Bloomberg macro strategist. Of course, there’s a long history of

At Invesco Asset Management, Georgina Taylor isn’t prepared to reduce her dollar exposure just yet. Still firmly in data-watching mode, she’s not ready to conclude the battle to tame inflation is over.

“The interest-rate differential story is wavering but I wouldn’t give up on the dollar,” she said, given that the absolute difference in real yields remains high.

US economic resilience is the reason Michael Cahill at Goldman Sachs Group Inc. expects any dollar downturn will likely be shallower than in past cycles. Dollar support could crumble, however, if the Fed calls an end to its inflation fight even as the European Central Bank is compelled to keep rates higher for longer.

“The biggest risk that could lead to more dollar downside is that the inflation picture diverges,” said Cahill, a G-10 FX strategist. The bank forecasts the dollar will weaken to $1.15 per euro in 2024, from about $1.12 now, and that the yen will strengthen to 125 per dollar, from roughly 139 now.

Dollar bears can also lean on valuation measures. The currency’s strength has been particularly pronounced against the yen, to the point where the real effective exchange rate has Japan’s currency trading near its lowest level in decades.

“From a valuation perspective, the dollar is still very overvalued,” said Paresh Upadhyaya, director of currency strategy at Amundi Asset Management. “I think markets are going to start to fade that.”

He points to the US’s twin deficits—its trade and budgetary shortfalls—as structural headwinds. But he also has in mind another dynamic that market watchers often cite, the dollar smile theory.

The thinking there is that the greenback typically gains when the US is either in a severe slump or a robust expansion—and falters in times of moderate growth.

“If the US engineers a soft landing, that is probably the best case for a weaker dollar you can ask for,” Upadhyaya said. With assistance from Nour Al Ali / Bloomberg taxpayer’s gross sales or receipts for the preceding calendar year. And as defined under the LGC, gross sales or receipts for local business tax purposes, refers to the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged or materials supplied with the services and deposits or advance payments received for the services performed or to be performed.

However, to date, some local government units (LGUs) still attempt to collect LBT from association dues collected by condominium corporations.

It is undisputed that a condominium corporation is not engaged in trade or business. A condominium corporation is not designed to engage in activities that generate income or profit. While a condominium corporation is allowed to collect association dues, the same is purely for the benefit of the condominium owners. It is necessary to effectively oversee, maintain, or even improve the common areas of the condominium. Association dues, fees, and other charges do not constitute profit or gain. The expenditures incurred by the condominium corporation on behalf of the condominium owners are not intended to generate revenue nor equate to the cost of doing business.

However, it is not unthinkable that the unit owners of a condominium corporation would band together to engage in activities for profit under the shelter of the condominium corporation. If said fact is established such as when portions of the condominium project are leased out as barber shops, drug stores, beauty shops, or other corner enterprises, then the condominium corporation may already be subjected to LBT (CTA EB 2404). Housing shortage is a big problem in this country. The non-imposition of tax on association dues is certainly a great sigh of relief to condominium dwellers.

The Local Government Code of 1991, which is the mother of local tax laws in the Philippines, authorizes the imposition of LBT based on the

From this definition, it is apparent that only receipts representing income from business activity may be subjected to LBT. Absent any business activity geared for profit, there is no basis for the imposition of LBT.

Clearly then, association dues do not arise from performance of trade or business. When a condominium corporation manages, maintains, and preserves the common areas of the building, it only does so for the benefit of the condominium owners. It cannot be said to be engaged in trade or business. In collecting such fees, the condominium cor-