Household Development Corp.

February 29, 2008 BIR RULING [DA-115-08] EO 226; DA-456-2007; DA-630-2006; DA-048-97 Household Development Corp. Las Pias Business Center, Alabang-Zapote Road Talon, Las Pias City Attention: Atty. Cecilia A. Ramilo Tax Department Head Gentlemen : This refers to your letter dated February 7, 2008 requesting for a ruling on the tax consequences of the Income Tax Holiday (ITH) granted to PALMERA HOMES, INC. and/or its successor-in-interest HOUSEHOLD DEVELOPMENT CORP. ("HDC") 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. From the documents submitted, it appears on May 18, 2007, the Board of Investment ("BOI") issued in favor of PALMERA HOMES, INC. (the "Corporation") a Certificate of Registration as a New Developer of Mass Housing Project for its subdivision project " Camella Cerritos " located in Molino, Bacoor, Cavite in accordance with the Omnibus Investment Code of 1987. Pursuant thereto, the project has been granted an Income Tax Holiday for a period of four (4) years commencing from May 18, 2007, the date of approval of the BOI, and until May 17, 2011. The Corporation offers financing scheme to its buyers through PAG-IBIG, Banks and Installment, with a loan term ranging from 5 to 15 years to pay. Accordingly, the Corporation will receive full payment for the house and lot units from the financing institutions upon submission of complete documentary requirements which necessarily includes the Contract to Sell and the Deed of Absolute Sale. On the other hand, for the sale of units under the installment scheme, the Contract to Sell will be executed by the parties upon contracting while the Deed of Absolute Sale in favor of the buyer will be executed only upon the buyer's full payment of the installment price, which may be after 5 to 15 years. In either of the cases mentioned above, the sale transaction shall be recognized in the books of the Corporation and the corresponding income therefrom shall be reported in its income tax return in the taxable year when the sale was recorded, in order to avail of the tax holiday granted by the BOI. cEISAD Meanwhile on October 9, 2007, the Corporation entered into a corporate merger with Household Development Corporation ("HDC"), Ridgewood Estates, Inc. and Eastridge Estates, Inc., with HDC as the surviving entity. The Articles of Merger and the Plan of Merger was approved by the Securities and Exchange Commission on October 30, 2007. Consequently, all the rights and obligations of the Corporation with respect to the above-mentioned subdivision project were assumed by HDC, the surviving entity in the said Merger. In reply, please be informed that under Section 2.57.5 (B) (2) of Revenue Regulations No. 2-98, as amended, 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-630-2006 dated October 23, 2006) Accordingly, since Palmera Homes, Inc. and/or its successor-in-interest Household Development Corporation 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, 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, as amended, on income payments received by it 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. 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, the this ruling shall be considered as null and void. CAacTH Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service