BIR Ruling No. 026-14

January 17, 2014 BIR RULING NO. 026-14 E.O. 226; RR 16-2011; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 334-11 Liberty Land Corporation 224 J. Pacana Street, Puntod Cagayan de Oro City Attention: Gladeys Jill A. Santos-Cua Practitioner Gentlemen : This refers to your letter dated February 19, 2013 stating that Liberty Land Corporation (" Liberty " for brevity) with Tax Identification No. 001-748-244 is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under Company Reg. No. AS092-3093. It is registered with the Board of Investments (BOI) as a New Developer of Low-Cost Mass Housing Project ( Bloomingdale Subdivision Iponan, Cagayan de Oro City ) on a Non-Pioneer status under Certificate of Registration No. X2008-013 dated January 14, 2008 in accordance with the Omnibus Investments Code of 1987 or Executive Order (EO) No. 226. Liberty has been granted Income Tax Holiday (ITH) by the BOI for a period of four (4) years from January 2008 or actual start of commercial operations/selling, whichever is earlier but in no case earlier than the date of registration. Liberty's Bloomingdale Subdivision Iponan, Cagayan de Oro City Project is registered with Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration Nos. 15618 and 15620; and holds HLURB License to Sell Nos. 22395, 22404 and 18483; and under the Specific Terms and Conditions of its BOI Registration, the ITH of Liberty Land Corporation shall cover only three hundred fifty five (355) units of low-cost mass housing for Bloomingdale Subdivision Iponan, Cagayan de Oro City Project based on the following schedule: Year Volume (No. of Units) Value (P'000) 1 96 61,880 2 141 91,380 3 69 43,880 4 49 28,240 Total 355 225,380 ==== ======= On the basis of the foregoing, you now request for an opinion on the tax consequences of the said ITH granted by BOI. Specifically, if Liberty, being a BOI-registered enterprise, is exempt from the payment of the creditable withholding tax (CWT) imposed under Revenue Regulations No. 2-98 on income payments received during the aforementioned period with respect to its registered activity. In reply, please be informed that under Section 2.57.5 (B) (2) of Revenue Regulations (RR) No. 2-98, as amended by RR No. 6-2001 implementing Section 57 (B) of the Tax Code of 1997, as amended, 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. SEHaTC Accordingly, since Liberty's Bloomingdale Subdivision Iponan, Cagayan de Oro City Project is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by Liberty in connection with its housing project, Liberty's Bloomingdale Subdivision Iponan, Cagayan de Oro City Project (on the 355 low-cost mass housing units as mentioned in the Specific Terms and Conditions of its BOI Registration) , is exempt from CWT under RR No. 2-98, as amended by RR No. 6-2001, for a period of four (4) years from January 2008 or actual start of commercial operations/selling, whichever is earlier but in no case earlier than the date of registration. It must be emphasized, however, that the above exemption from CWT covers only income directly attributable to revenues generated from its registered activity, Liberty's Bloomingdale Subdivision Iponan, Cagayan de Oro City Project involving 355 low-cost mass housing units. Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million Pesos (P3,000,000.00). In the computation of ITH, interest income from in-house financing shall not be considered as revenues generated from the registered activity. Moreover, the entitlement to ITH of Liberty's Bloomingdale Subdivision Iponan, Cagayan de Oro City Project is not automatic as it still has to comply with the following provisions of the Specific Terms and Conditions of its BOI Registration, viz. : 1. The firm shall observe the following sales schedule or construct and sell three hundred fifty five (355) low-cost mass housing based on the following: Year Volume (No. of Units) Value (P'000) 1 96 61,880 2 141 91,380 3 69 43,880 4 49 28,240 Total 355 225,380 ==== ======= 2. The firm shall adhere to the following selling prices as represented: House Type Area (sq.m.) Price (Php) Maple 50 860,000.00 Aspen 34 550,000.00 Rosean End 30 480,000.00 3. The firm shall observe the following project timetable: EACIaT Activity Schedule Related Cost Expense/s (In Php'000) Secure necessary appropriate June 2007 Pre-operating 2,203 license/permit/registration Expenses from the government Site Acquisition January Raw Land 46,152 2007 Site preparation and June 2007- Land 12,539 development August Development 2008 Cost House 51,680 construction Start of commercial January Working 26,806 operation 2008 capital Total Project 139,380 Cost ======= 4. Secure from the HLURB an endorsement that it has faithfully complied with the approved development plan. 5. File an application with the BOI Incentives Department within one (1) month from filing of the final Income Tax Return (ITR) with the Bureau of Internal Revenue (BIR) in order to validate the claim for income tax exemption. The application shall be accompanied by a certification from the Social Security System (SSS) that the enterprise is in good standing in the remittance of SSS contributions of its employees. 6. Secure a Certificate of ITH Entitlement (CoE) from the BOI Supervision and Monitoring Department prior to filing of ITR with the BIR; otherwise, ITH for that particular year without CoE shall be forfeited. Furthermore, 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, Liberty's Bloomingdale Subdivision Iponan, Cagayan de Oro City Project was clearly granted a 4-year ITH but such terms and conditions do not provide for any exemption from other taxes that Liberty may be subject to on its business transactions. Thus, Liberty's Bloomingdale Subdivision Iponan, Cagayan de Oro City Project will remain subject to Value-Added Tax (VAT) and Documentary Stamp Tax (DST) on its sales of house and lot units pursuant to Sections 106 (A) (1) (a) and 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 334-11 dated September 7, 2011) cADaIH In relation thereto, Section 109 (1) (P) of the Tax Code of 1997 provides, that the sale of residential lot valued at One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00) and below, or house and lot and other residential dwellings valued at Three Million One Hundred Ninety Nine Thousand Two Hundred Pesos (P3,199,200.00) and below is VAT-exempt. 1 Thus, only the sales by Liberty's Bloomingdale Subdivision Iponan, Cagayan de Oro City Project of housing units with selling price of not more than the aforementioned price ceilings shall be exempt from VAT. It should be understood that Liberty's Bloomingdale Subdivision Iponan, Cagayan de Oro City Project shall be constituted as a withholding agent for the government if it acts as employer and any of its employees received compensation income subject to compensation withholding tax, or if it makes payments to individuals or corporations subject to the withholding taxes at 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. Likewise, Liberty's Bloomingdale Subdivision Iponan, Cagayan de Oro City Project is required to file on or before the 15th day of the fourth month following the close of its accounting period a Profit and Loss Statement and Balance Sheet with the Annual Information Return under oath, stating its gross income and expenses incurred during the taxable year. Finally, Liberty's Bloomingdale Subdivision Iponan, Cagayan de Oro City Project'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 it has been complying with the conditions under which it has been granted tax exemption or tax incentives and its 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 disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. The increase in the threshold amount for the sale or lease of goods or properties or the performance of services covered by Section 109 (P), (Q) and (V) of the 1997 Tax Code took effect on January 1, 2012, pursuant to Revenue Regulations No. 16-2011 dated October 27, 2011.