Ms. Felisa A. Capulong

September 11, 2007 BIR RULING [DA-481-07] 22 (B); DA-047-2004 Ms. Felisa A. Capulong Niugan, Cabuyao Laguna M a d a m : This refers to your letter dated March 6, 2007 requesting for exemption from the payment of taxes relative to the Joint Venture Contract entered into by and between Felisa A. Capulong (landowner) and New San Jose Builders, Inc. (developer). Documents submitted disclosed that Landowner is the absolute and registered owner of a parcel of land situated at Cabuyao, Laguna, with an aggregate area of twenty two thousand two hundred seven (22,207) square meters, more or less, covered by Original Certificate of Title No. T-643396 of the Registry of Deeds Calamba, Laguna; that the landowner warrants and represents that the land is free of all debts, obligations, and the transfer certificate of titles are free and clear of all liens and encumbrances and that the technical description thereof really pertains to the land; that the developer has offered to purchase the land from the landowner and the landowner agreed to sell, transfer and convey the land with an area of 22,207 sq. m. to the developer for and in consideration of P350.00 per square meter or for the total sum of seven million seven hundred seventy two thousand four hundred fifty pesos (P7,772,450.00); that both parties have agreed on the payment of the total purchase price under the following terms and conditions: a. Upon signing of the Memorandum of Agreement down payment of P3,886,225.00 or fifty percent (50%) of the total purchase price; DSCIEa b. For a period of six (6) months monthly payment of the balance of P3,886,225.00 in the amount of P647,704.17 starting from one month of the receipt of the down payment of the landowner from the developer; that the landowner, upon receipt of the fifty percent down payment will authorize the developer to process all documents/permits required by the Government for subdivision development up to the issuance of the License to Sell in favor of the developer; and that the said parcels of Land shall be developed and shall be utilized as relocation component of the Southrail Development Project in coordination/arrangement with the National Housing Authority. SCEHaD In reply, please be informed that Section 20 of Republic Act No. 7279 reads: "Sec. 20. Incentives for Private Sector Participating in Socialized Housing . To encourage greater participation in socialized housing, and further reduce the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sector: ETaHCD "xxx xxx xxx "(d) Exemption from the payment of the following: "(1) . . . "(2) Capital gains tax on raw lands used for the project;" The owners of the raw lands are exempt from the payment of capital gains tax on the conveyance of the said properties for use in the aforestated socialized housing project. Upon application for exemption, a lien on the titles of the lands shall be annotated by the Register of Deeds having jurisdiction over the properties, to the effect that the same are being applied to socialized housing project pursuant to RA No. 7270. However, the sale is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, based on the consideration or the fair market value, whichever is higher. Furthermore, under Revenue Regulations No. 11-97, within six (6) months after this issuance of tax exemption from the capital gains tax or creditable withholding tax, the buyer/developer of raw land shall apply with the HLURB or Local Government Unit (LGU) concerned for a permit to develop the property and shall start the development Permit and issuance of permit. Otherwise, the exemption from the capital gains tax or creditable withholding tax becomes automatically null and void, and the buyer/developer shall be held liable for the payment of taxes that should otherwise have been paid, plus the penalties incident to late payment. Provided, further, that in case of misrepresentation, an additional penalty equivalent to one hundred percent (100%) of the capital gains tax or creditable withholding tax due shall be imposed on and paid by the buyer/developer. IACDaS In this connection, any sale made by the developer to interested parties other than the principal target beneficiaries under Sections 3 (t) and 16 of RA No. 7279, shall not be entitled to the foregoing tax exemption should there be non-compliance with any of the sine qua non terms and conditions as aforestated for tax exemption purposes. It is, however, understood that the Certificate Authorizing Registration (CAR) shall only be issued after it is established upon proper verification by the Revenue District Officer (RDO) concerned that, considering the rules on valuation of real property, the actual selling price per sale transaction of the units in this case does not really exceed P300,000.00. Thus, sale of a unit above the maximum amount shall be subject to the corresponding internal revenue taxes. However, it is observed that documentary stamp tax is not one of taxes covered by the tax exemption clause is Section 20 of RA No. 7279, such being the case, the project developer/sellers shall be liable to pay the documentary stamp tax on the documents conveying the properties imposed under Section 196 of the Tax Code of 1997, based on the consideration contracted to be paid for such realties or on their fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. ESacHC Furthermore, the transfer of title of the said property from the developer to the beneficiaries is not subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997. However, the notarial acknowledgement to said deed of conveyance is subject to the documentary stamp tax of P15.00 pursuant to Section 188 of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. CIDaTc Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service