BIR Ruling No. 027-15

February 5, 2015 BIR RULING NO. 027-15 RA 7279; BIR Ruling No. 036-2014 Halrey Construction, Inc. 282 F.F. Halili Avenue, Sta. Maria Bulacan Attention: Anthony Gerard A. Halili Vice President & COO Gentlemen : This refers to the letter of Atty. Sinforoso R. Pagunsan, Chief of Staff, Office of the General Manager of the NHA dated May 29, 2014 requesting issuance of Certificate of Tax Exemption for the acquisition of developed lots and completed housing units in Eastshine Residences Project located at Sitio Waray, Brgy. Plaza Aldea, Tanay Rizal pursuant to Republic Act (R.A.) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted show that Halrey Construction, Inc. (TIN 000-236-488-000), is the registered owner of a certain housing subdivision known as Eastshine Residences situated at Sitio Waray, Brgy. Plaza Aldea, Tanay Rizal, covered by three (3) Transfer Certificates of Title (TCT), to wit: TCT No. Lot No. Area (sq. m.) 069-2014006723 1 1-C 49,493 069-2014004322 2 1-B 49,493 M-38805 3 68,058 total area 167,044 ======= all issued by the Registry of Deeds for Rizal, Morong Branch. On October 3, 2013, a Contract Agreement 4 was executed by and between Halrey Construction, Inc. and Westbank Floodway Homeowners Association Inc., a homeowner's organization registered with the Housing and Land Use Regulatory Board (HLURB) with Certificate of Registration No. 19723, whereby former has offered to sell the developed lots and completed housing units under the Community Initiative Approach Program (CIAP) of the NHA for Two Hundred Forty Thousand Pesos (P240,000.00) for every developed lot and completed housing unit per family. Moreover, on October 25, 2013, a Memorandum of Agreement 5 (MOA) was executed by and among, Halrey Construction, Inc., as the landowner/developer/constructor, Westbank Floodway Homeowners Association, Inc., as the beneficiary, and the NHA, as the lead agency in the implementation of the National Resettlement Programs of the government and to ensure the timely, peaceful and orderly relocation and resettlement of the families affected by the calamities and those living in danger areas from the Province of Rizal. TcDHSI Under the MOA, members 6 of Westbank Floodway Homeowners Association, Inc. shall be provided by the NHA with a financial grant for the acquisition of 2,000 developed lots and 2,000 completed housing units in the amount not to exceed One Hundred Fifteen Thousand Pesos (P115,000.00) per developed lot and One Hundred Twenty Five Thousand Pesos (P125,000.00) per completed housing units. On May 29, 2014, Halrey Construction, Inc. and the NHA executed a Deed of Absolute Sale whereby the former, transferred and conveyed 2,000 developed lots with an aggregate area of Eighty Six Thousand Eight Hundred Twenty Eight square meters (86,828 sq.m.) to NHA at an agreed price of Two Hundred Thirty Million Pesos (P230,000,000.00). In reply, please be informed that pursuant to Sections 19 and 20 of Republic Act (RA) No. 7279, pertinent portions of which state that: "Sec. 19. Incentives for the National Housing Authority. The National Housing Authority, being the primary government agency in charge of providing housing for the underprivileged and homeless, shall be exempted from the payment of all fees and charges of any kind, whether local or national, such as income and realty taxes. All documents or contracts executed by and in favor of the National Housing Authority shall also be exempt from the payment of documentary stamp tax and registration fees, including fees required for the issuance of transfer certificates of title. "Sec. 20. Incentives for Private Sector Participating in Socialized Housing. To encourage greater private sector 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: xxx xxx xxx "(d) Exemption from the payment of the following: (1) Project-related income taxes; (2) Capital Gains Tax; (3) Value-added tax for the project contractor concerned;" the landowner/developer of properties who sell its properties for use in a socialized housing project are exempt from the payment of the capital gains tax and project-related income taxes. Such being the case, the sale of 2,000 developed lot packages on the Eighty Six Thousand Eight Hundred Twenty Eight square meters (86,828 sq.m.) portion of the subject properties by Halrey Construction, Inc. to NHA is exempt from capital gains tax, project-related income taxes and consequently from withholding tax. (BIR Ruling No. 036-2014 dated January 29, 2014) Moreover, pertinent portions of RMC No. 42-01 dated October 5, 2001, provide, viz. : xxx xxx xxx A. National Housing Authority (NHA) The NHA, being the primary government agency in charge of providing housing for the underprivileged and homeless citizens shall be exempted from the payment of the following national internal revenue taxes: CHcETA (1) . . . (2) Documentary stamp tax on sales transactions executed by and in favor of the NHA in connection with socialized housing projects. Since Section 19 of R.A. 7279 exempts "all documents or contracts executed by and in favor of the NHA," the exemption from documentary stamp tax extends to the other party (either seller or buyer) that is dealing or transacting with the NHA. xxx xxx xxx The exemption from documentary stamp tax of NHA in connection with any of its socialized housing project extends to the other party (either seller or buyer) that deals or transacts with the NHA. Consequently, since NHA is a party to the sale, no documentary stamp tax shall be due on such sale, either on NHA or the party with which NHA is transacting. Accordingly, the transfer of Halrey Construction, Inc. to NHA of the 2,000 developed lot packages on the Eighty Six Thousand Eight Hundred Twenty Eight square meters (86,828 sq.m.) portion of the subject properties are likewise exempt from documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 036-2014 dated January 29, 2014) Upon application for exemption, a lien on the title of the land shall be annotated by the Register of Deeds having jurisdiction over the property, to the effect that the same is to be applied or is being applied to socialized housing project pursuant to RA 7279. Please take note that this ruling is never intended and shall not be construed as giving authority to the concerned Register of Deeds to effect transfer of the land in the name of the buyer without the necessary certificate of authority to register issued by this Bureau. In this regard, this ruling shall be presented to the Revenue District Office (RDO) concerned in order for the latter to issue the Certificate Authorizing Registration (CAR) after the submission of the requirements provided under RMO 15-2003. Moreover, Halrey Construction, Inc. is likewise exempt from the payment of VAT on its gross receipts from the said project, involving the sale of 2,000 developed lot packages on the Eighty Six Thousand Eight Hundred Twenty Eight square meters (86,828 sq.m.) portion of the subject properties. However, its purchases of goods/articles shall be subject to VAT, even if the said purchases are to be used for the socialized housing project, since VAT is an indirect tax which can be passed on by the seller of the goods/services. It shall be understood that Halrey Construction, Inc. must issue non-VAT official receipts on its gross receipts from the said socialized housing project. On the other hand, the exemption granted under R.A. 7279 is without prejudice to the right of the Government to collect the proper amount of estate tax, capital gains tax and documentary stamp tax, as far as applicable, to the legal heirs/owner of the property covered by TCT No. M-38805 pursuant to Sections 84, 24 (D) and 196 of the Tax Code, 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 Bureau of Internal Revenue Footnotes 1. Formerly: M-96848. 2. Formerly: M-96847. 3. Certificate Authorizing Registration on-going evidenced by payment of Estate Tax, Capital Gains Tax and Documentary Stamp Tax all dated August 5, 2014. 4. Financing the Acquisition of Developed Lots and Completed Housing Units. 5. For financing the acquisition of developed lots and financing the acquisition of completed housing units (Eastshine Residences, Brgy. Plaza Aldea, Tanay, Rizal). 6. Composed of members/families affected by the calamities and those living in danger areas from the Province of Rizal.