Household Development Corporation

May 28, 2010 BIR RULING [DA-(IL-007) 079-10] EO 226; [DA(IL-035)651-2009]; [DA(IL-006)194-2009]; DA-456-007; DA-630-2006; DA-048-97 Household Development Corporation 3rd Level Starmall Las Pias C.V. Starr Avenue, Philamlife Village Pamplona, Las Pias City Attention: Ms. Lorelyn D. Mercado Chief Accountant Gentlemen : This refers to your letter dated January 25, 2010 requesting for confirmation of your opinion that HOUSEHOLD DEVELOPMENT CORPORATION is exempted from the withholding tax on the sale of house and lot units with contract price not exceeding Three Million Pesos (P3,000,000.00) per unit, for its subdivision project "Lessandra Molino Subdivision", pursuant to the Income Tax Holiday (ITH) granted 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 the date of approval or start of commercial operations, whichever comes earlier. It is represented that on January 22, 2010, the Board of Investments ("BOI") issued in favor of HOUSEHOLD DEVELOPMENT CORPORATION (the "Corporation") a Certificate of Registration as a New Developer of Low-Cost Mass Housing Project for its subdivision project "Lessandra Molino Subdivision" located in Brgy. San Nicolas, Bacoor, Cavite in accordance with the Omnibus Investments Code of 1987. Pursuant thereto, the project has been granted an Income Tax Holiday for a period of four (4) years commencing from January 22, 2010, the date of approval of the BOI, and until January 21, 2014. The Corporation offers to its buyers PAG-IBIG, Bank financing and installment payment scheme, 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 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) SaHIEA Accordingly, since Household Development Corporation is a BOI-registered enterprise, enjoying exemption from payment of income taxes pursuant to the provisions of Article 39 (a) (2) 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. It should be understood that Household Development Corporation, shall be constituted as a withholding agent for the government if it acts as employer and any of its employees receive compensation income subject to compensation withholding tax, or if it makes payments to individuals or corporations subject to the withholding taxes as source as required under Chapter XIII and Section 57 of the Tax Code of 1997, as amended and implemented by Revenue Regulations No. 2-98, as amended. Moreover, Household Development Corporation is required to file on or before the 15th day of the fourth month following the close of your accounting period a Profit and Loss Statement and Balance Sheet with the Annual Information Return under oath, stating your gross income and expenses incurred during the taxable year. Finally, Household Development Corporation's books of accounts and other pertinent records shall be subject to periodic examination by revenue enforcement officers of this Bureau for the purpose of ascertaining whether you have been complying with the conditions under which you have been granted tax exemption or tax incentives and your tax liability, if any, pursuant to Section 235 of the Tax Code of 1997, as amended. 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. TaSEHC Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group