Basic Housing Solutions, Inc.

February 13, 2008 BIR RULING [DA-090-08] 57 (B), 196, 106; DA-056-2003 Basic Housing Solutions, Inc. Asiatic Bldg., Phoenix Sun Business Park E. Rodriguez, Jr. Avenue Libis, Quezon City Attention: Mr. Emiliano C. Estrella SVP-Comptroller Gentlemen : This refers to your letter dated July 9, 2007 requesting for a ruling on the tax consequence of the Income Tax Holiday (ITH) granted to Basic Housing Solutions, Inc. (Basic for brevity) by the Board of Investments (BOI) under Executive Order (EO) No. 226 otherwise known as the Omnibus Investments Code of 1987, for a period of four (4) years from start of commercial operations/selling. It appears that Basic is a real estate developer and is registered with the BOI as a New Developer of Mass Housing Project on a Non-Pioneer status. It is the developer of three hundred forty five (345) Low-Cost/Economic Housing Units of Jordan Estates Subdivision in Noveleta, Cavite whose Certificate of Registration No. 2007-103 was issued on June 26, 2007 by the BOI. Pursuant to the Specific Terms and Conditions of its Certificate of Registration, it is entitled to an ITH for a period of four (4) years from May 2007 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of registration. Its housing units shall be marketed and sold mainly through the Home Development Mutual Fund (HDMF) or PAG-IBIG Fund, the Government Service Insurance System (GSIS) or through banks with a term range of 5 to 10 years to pay and up to 30 years for PAG-IBIG. During the 4-year period, it will receive the full payment of the housing units from the financing institutions and must recognize the sale in its books to avail of the tax holiday granted by the BOI. DISaEA In reply, please be informed that under Section 2.57.5 (B) (2) of Revenue Regulations (RR) No. 2-98, implementing Section 57 (B) of the Tax Code of 1997, the withholding tax prescribed in the said Regulations shall not apply to income payments to persons enjoying exemption from the income tax provided by Republic Act No. 7916 and the Omnibus Investments Code of 1987. (BIR Ruling No. DA-072-98 dated March 11, 1998) Accordingly, since Basic is a BOI-registered enterprise, enjoying exemption from payment of income taxes pursuant to the provisions of Section 39 (a) (1) of the Omnibus Investments Code of 1987 for a period of 4 years from May 2007 or actual start of commercial operations or selling, whichever is earlier, but in no case earlier than the date of registration, this Office is of the opinion, as it hereby holds, that it is exempt from the payment of the creditable withholding tax imposed under Revenue Regulations No. 2-98, on income payments received by it from its registered project (Jordan Estates Subdivision-Noveleta, Cavite) during the aforementioned period with respect to its registered activity, subject however to the condition that both the BOI General and Specific Terms and Conditions for the grant of ITH are met during the said period. In addition, ITH is an exemption from income tax on income payments received by a company for the duration of the period thus indicated in the Terms and Conditions of the Certificate of Registration. Documentary stamp tax is not a tax on income but is in the nature of an "excise tax" ( CIR vs. Herald Lumber Co., 10 SCRA 372) imposed either upon the transaction or document. In view of the fact, that Basic enjoys an ITH at the time of its sales transaction, it is therefore exempt only from income tax but not from documentary stamp tax though its transaction refers to any of its registered activity. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. IDATCE Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service