Basic Housing Solutions, Inc.

April 29, 2009 BIR RULING [DA-(IL-010) 215-09] DA-376-2004; VAT Ruling No. 44-2001; Secs. 32 (A) (1) & 57, NIRC Sec. 2.57.5 (B) (2), RR 2-98; Art. 39, E.O. 226 Basic Housing Solutions, Inc. Asiatic Building, Phoenix Sun Business Park E. Rodriguez Avenue, Libis Quezon City Attention: Emilliano C. Estrella SVP-Comptroller Gentlemen : This refers to your letter dated June 4, 2007, requesting for an opinion from this Office on the tax consequences regarding the income tax holiday granted to your company by the BOI. It is represented that, Basic Housing Solutions, Inc. (Basic), a domestic corporation engaged in real estate development, has been granted an Income Tax Holiday (ITH) by the Board of Investments (BOI) under Executive Order (E.O.) No. 226, otherwise known as the Omnibus Investments Code of 1987, for a period of four (4) years from start of its commercial/selling operations on September 2005. Basic is registered with the BOI as a New Developer of Mass Housing Project (Summerfield Homes-Mexico, Pampanga) on a Non-Pioneer status under E.O. 226. It is further represented that Basic's 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, Basic will receive the full payment of the housing units from the financing institutions and will recognize the same in its books to avail of the tax holiday granted by the BOI. Basic now requests for an opinion from this Office concerning the tax consequences on its activities in light of its abovementioned 4-year ITH privilege. Specifically, Basic would like to determine if it is exempt from the payment of the creditable withholding tax imposed under Revenue Regulations No. 2-98 and documentary stamp tax (DST) on income payments received during the aforementioned period with respect to its registered activity. In reply, please be informed that Sec. 2.57.5 (B) (2) of Revenue Regulations No. 2-98, as amended, provides that the withholding tax therein prescribed shall not apply to income payments made to corporations registered with the BOI and enjoying exemption from the payment of income taxes pursuant to the provisions of the Omnibus Investments Code of 1987, as amended. Basic's privilege in this regard as a non-pioneer enterprise is defined under Item 4 (a) of the terms and conditions of its BOI registration: CTEacH "a. Income Tax Holiday (ITH) for a period of four (4) years from the date of registration. The ITH shall be limited only to the revenue generated from this registered activity (Summerfield Homes-Mexico, Pampanga). 'In the availment of ITH, the firm shall secure endorsement/certification from the HLURB that it has faithfully complied with the approved development plan.' Date of Filing: An application shall be filed with the BOI Incentives Department within one (1) month from the filing of the final ITR with the BIR in order to validate claim for income tax exemption. The application shall be accompanied by a certification by SSS that the firm is in good standing in the remittance of SSS contributions of its employees. Any request for the extension of the reckoning date of ITH availment shall be filed prior to the scheduled date or within 90 days from the occurrence of fortuitous events and/or government delays." From the foregoing, it is evident that income payments made to Basic pursuant to its BOI-registered activities during the 4-year ITH period starting from its date of registration on October 26, 2005 shall not be subject to creditable withholding tax prescribed by Revenue Regulations No. 2-98, as amended. (BIR Ruling No. 163-94 dated December 2, 1994 and UN 339-94 dated December 6, 1994) However, the salaries paid to Basic's employees are subject to withholding taxes pursuant to Sec. 57 in relation with Sec. 32 (A) (1) both of the Tax Code of 1997. On the matter of the payment of documentary stamp tax, please be informed that in an earlier ruling, (VAT Ruling No. 44-2001, dated July 16, 2001) this Office held that BOI-registered enterprises enjoy no tax exemption/privileges other than those granted under E.O. 226. In this regard, under the terms and conditions of its BOI registration, Basic was clearly granted a 4-year ITH but such terms and conditions do not provide for any exemption from other taxes that Basic may be subject to on its business transactions. Thus, Basic will remain subject to DST on its sales of housing units under its Mass Housing Project in Mexico, Pampanga. 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group