DMCI Project Developers, Inc. (DMCI-PDI)

November 6, 2009 BIR RULING [DA-(IL-035) 651-09] October 25, 2009 DMCI Project Developers, Inc. (DMCI-PDI) 1321 Apolinario St. Bangkal, Makati City Attention: Atty. Roel Pacio Deputy Director for Legal This refers to your request for a confirmation of BIR Ruling DA-704-2007 dated December 28, 2007, issued by Assistant Commissioner James Roldan, to the effect that your company, DMCI Project Developers, Inc. (DMCI-PDI), being a registered BOI enterprise on a non-pioneer status and granted an income tax holiday (ITH) status with respect to income derived from BOI-registered projects, is exempt from income tax, and consequently, from any creditable or final withholding tax. It is represented that on December 28, 2007, BIR Ruling DA-704-2007, was issued by the BIR to DMCI-PDI. Under said ruling, the BIR confirmed the exemption from income tax and withholding tax of income derived from the sales of certain BOI-registered projects enjoying ITH, particularly Raya Gardens (Medium Rise), Rosewood Pointe, Raya Gardens (High Rise) and Cypress Towers. However, despite the issuance of said BIR Ruling, some BIR District Offices where these registered projects are located refuse to issue the CAR (Certificate Authorizing Registration) for the transfer of these properties to buyers, unless a certificate of withholding tax (BIR Form No. 2307) is submitted. This situation has prompted your company to seek for further confirmation and guidance directly from the Office of the Commissioner, on the following issues: 1. That income derived from sales of BOI-registered projects enjoying Income Tax Holiday (BOI) status particularly: (1) Raya Garden (Medium Rise) in Merville, Paraaque; (2) Rosewood Pointe in Taguig City; (3) Raya Garden (High Rise) also in Merville, Paraaque; and (4) Cypress Towers in Taguig City, is exempt from income tax and consequently from any withholding tax. DHITcS 2. That the exemption from income, and consequently to withholding tax, is the consequence of its being granted an Income Tax Holiday (ITH) incentive by the BOI and not because these are from sales of socialized or low-cost housing pursuant to Section 2.57.5 (B) (1) of Revenue Regulation 2-98. Thus, as long as the sale of the property pertains to a BOI-registered project granted with an ITH incentive, it shall be exempt from income and withholding tax even if it does not qualify as a socialized or low cost housing under existing regulations. 3. That, for purposes of issuing the CAR (Certificate Authorizing Registration) for the transfer of the title of these properties under ITH status to the buyers, the Certificate of Creditable Withholding (BIR Form 2307) shall no longer be required to be submitted. In lieu of BIR 2307, a certified true copy of the BOI Certificate of Registration (BCR) showing the BOI registration of the project to which the property being transferred/sold belongs shall be required to be submitted, together with other documents prescribed under existing regulations. In reply, this office hereby confirms BIR Ruling DA-704-2007 dated December 28, 2007 that the income derived from sales of BOI-registered projects enjoying Income Tax Holiday (BOI) status particularly: (1) Raya Garden (Medium Rise) in Merville, Paraaque; (2) Rosewood Pointe in Taguig City; (3) Raya Garden (High Rise) also in Merville, Paraaque; and (4) Cypress Towers in Taguig City, is exempt from income tax and consequently from any withholding tax. DMCI-PDI is a real estate company. It is registered with the BOI as a new developer of Mass Housing Projects on a non-pioneer status. The BOI registration particularly pertains to the following projects which are each covered by a BOI Certificate of Registration, as follows: Project Location No. of Date of BOI Housing Registration Registration Units Raya Garden (medium rise) Merville 252 Dec. 5, 2006 2006-154 Paraaque City Rosewood Pointe Taguig City 744 Feb. 15, 2007 2007-023 Raya Garden (high rise) Merville 651 July 5, 2007 2007-117 Paraaque City Cypress Tower Taguig City 793 Aug. 3, 2007 2007-138 Pursuant to the Specific Terms and Conditions of the Certificate of Registration granted by the BOI to the above projects, DMCI-PDI is entitled to an ITH on its sales of these projects for a period of four (4) years counted from: November 2006 for Raya Garden (medium rise); January 2007 for Rosewood Pointe; June 2007 for Raya Garden (high rise) and June 2007 for Cypress Tower, or from the start of actual start of its commercial operations/selling, whichever is earlier, but in no case earlier than their corresponding date of registration. TAEcSC The entitlement to a 4-year ITH incentive is contained clearly in the Specific Terms and Conditions of Registration issued by the BOI to DMCI-PDI. This grant of 4-year ITH incentive is pursuant to the provisions of E.O. 226, otherwise known as The Omnibus Investments Code of 1987, as amended. Sec. 2.57.5 (B) (2) of Revenue Regulations 2-98, as amended, exempts from withholding tax the corporations registered with the BOI and enjoying income tax exemption, to wit: "Sec. 2.57.5. Exemption from withholding. The withholding of creditable withholding tax prescribed in these regulations shall not apply to income payments made to the following: (A) National government and its instrumentalities, including provincial, city or municipal governments (B) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following: (1) . . . (2) Corporations registered with the Board of Investments and enjoying exemption from the income tax provided by Republic Act No. 7916 and the Omnibus Investment Code of 1987;" The exemption from the withholding tax of income payments made to corporations enjoying ITH incentive finds justification on the fact that a withholding tax is an advance collection of a tax which is imposed on the income at the end of the taxable period. Considering that the income is not subject to income tax since the BOI-registered projects are entitled to a tax holiday incentive, it is just proper that there should be no withholding tax to be required on the income. In fact, it is clear that the requirement to withhold taxes imposed under Sec. 2.57.2 of RR 2-98 on sales of real property by real estate dealers shall not be imposed as the transaction is one of those exempted from withholding under Sec. 2.57.5 of the same RR 2-98. This is reiterated under Sec. 2.57.2 (J) (a) which states: SATDEI "(J) Gross selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or transfer of real property classified as ordinary asset . A creditable withholding tax based on the gross selling price/total amount of consideration for the fair market value determined in accordance with Section 6(E) of the Code, whichever is higher, paid to the seller/owner for the sale, transfer or exchange of real property, other than capital asset, shall be imposed upon the withholding agent/buyer, in accordance with the following schedule: "(a) Where the seller/transferor is exempt EXEMPT from creditable withholding tax in accordance with Sec. 2.57.5 of these regulations "(b) . . . In view of all the above, the income derived from the sales of BOI-registered projects of DMCI-PDI such as the (1) Raya Garden (Medium Rise) in Merville, Paraaque; (2) Rosewood Pointe in Taguig City; (3) Raya Garden (High Rise) also in Merville, Paraaque; and (4) Cypress Towers in Taguig City, is exempt from income tax and consequently from any withholding tax during the period these are entitled to the 4-year ITH. The exemption from income tax, and consequently to withholding tax, is the consequence of its being granted an Income Tax Holiday (ITH) incentive by the BOI and not because these are from sales of socialized or low-cost housing pursuant to Section 2.57.5 (B) (1) of Revenue Regulation 2-98. Thus, as long as the sale of the property pertains to a BOI-registered project granted with an ITH incentive, it shall be exempt from income and withholding tax even if it does not qualify as a socialized or low cost housing under existing regulations. It may be noted that there are certain sales of properties that are likewise exempt from income tax and withholding taxes, such as sales of low cost and socialized housing units. Under existing regulations, sales of real property by a corporation which is registered with and certified by the Housing and Land Use Regulatory Board (HLURB) or HUDCC as engaged in socialized housing project where the selling price of the house and lot or lot only does not exceed P180,000 (now P400,000 under RMC 30-2009) in Metro Manila and other highly urbanized areas and P150,000 in other areas or such amount of selling price for socialized housing as may later be determined and adopted by the HLURB, as provided under RA No. 7279 and its implementing regulations, is exempt from income tax and from withholding tax (RR 2-98, Sec. 2.57.5 (B) (1), as amended) . DcHaET However, it must be emphasized that in the case of DMCI-PDI, the income tax exemption is granted not because its sales of properties qualify as a low cost or socialized housing as defined under RR 2-98, but rather, the exemption from income and withholding tax is premised on the fact that its projects, as mentioned, are BOI-registered projects entitled to an income tax holiday incentive for a period of 4 years from the date indicated in its respective registration certificate or from actual start of commercial operations/selling whichever comes earlier. Thus, as long as the sales of property by DMCI-PDI pertains to any of the BOI-Registered projects and that, it is within the 4-year ITH incentive, the income derived from such sales shall be exempt from income and withholding tax regardless of whether or not the sales qualify as a low cost or socialized housing. The selling price of the properties, therefore, may not necessarily meet the ceiling prices imposed for sales to qualify as low cost or socialized housing. It is the entitlement to the ITH incentive that matters. It is also hereby confirmed that for purposes of issuing the CAR (Certificate Authorizing Registration) for the transfer of the title of these properties under ITH status to the buyers, the Certificate of Creditable Withholding (BIR Form 2307) shall no longer be required to be submitted. In lieu of BIR 2307, a certified true copy of the BOI Certificate of Registration (BCR) showing the BOI registration of the project to which the property being transferred/sold belongs shall be required to be submitted, together with other documents prescribed under existing regulations. Since the income from the sales of BOI-registered projects are exempt from income and withholding taxes, as discussed, the requirement for the submission of a Certificate of Withholding Tax (BIR Form No. 2307) before a CAR is issued shall be dispensed with. In lieu of BIR Form 2307, proof of entitlement to the ITH shall be submitted such as a copy of the Certificate of BOI Registration or other documents showing the registration of the project to which the property being sold belongs, and which would clearly show the period of entitlement to the ITH. In sum, the submission of a copy of the Certificate of BOI Registration or similar documents, in addition to other documents required under existing regulations for the issuance of CAR, shall be sufficient for the BIR to issue the CAR. The submission of the Withholding Tax Certificate or BIR Form No. 2307 shall no longer be required for the CAR to be issued as regards sales of properties covered by the ITH incentive. However, even with the grant of a 4-year ITH to DMCI, the same does not preclude the Revenue District Office from conducting an annual audit on DMCI during the period covered by the ITH grant, through the issuance of Letter of Authority, to ascertain DMCI's compliance with its other tax obligations not covered by the tax incentives granted by BOI, such as, but not limited to its obligation to withhold tax on wages, compensation, and other income payments as well as in ascertaining its fulfillment with the terms and conditions set by the BOI on which basis the incentive of ITH has been granted. SECIcT This confirmation to BIR Ruling DA-704-2007 issued by Assistant Commissioner James Roldan is 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 confirmation issued shall be considered null and void. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Commissioner of Internal Revenue