BIR Ruling No. 032-12

January 17, 2012 BIR RULING NO. 032-12 R.A. No. 7279; Section 109 (P) NIRC of 1997; Revenue Regulations No. 2-98; Revenue Regulations No. 11-97; Revenue Regulations No. 16-2005; Revenue Memorandum Circular No. 30-2009; VAT Ruling No. 038-03; BIR Ruling No. 021-11 Silverstar Homebuilders, Inc. 3rd Flr.,PGMC Building No. 76 Calbayog corner Libertad Street Mandaluyong City Attention: Mr. Jose P. Dalida Asst. Vice President-Finance Gentlemen : This refers to your letter dated May 3, 2010 requesting for a ruling on the tax consequences arising from the sale of socialized housing units (lots and/or houses and lots) by Silverstar Homebuilders, Inc. It is represented that Silverstar Homebuilders, Inc., with Taxpayer's Identification No. 237-512-046-000 is a corporation duly organized and existing under the laws of the Republic of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CS2000501394 dated January 28, 2005; that it is engaged in acquiring, developing and selling real estate, including residential subdivision and socialized housing projects; that it is registered with the Housing and Land Use Regulatory Board (HLURB); that it owns the following real properties, developed into socialized housing projects and duly registered with the HLURB, specifically under Section 21 of "The Rules and Standards for Economic and Socialized Housing Projects To Implement Batas Pambansa 220): I. Tierra Solana (Tarragona) Location: Brgy. Buenavista III, Gen. Trias, Cavite HLURB License to Sell No. 16221-R4A-06-08, dated July 20, 2006 License to Sell No. 16221-R4A-06-08 covers the sale of the following lots/units in compliance to Sec. 18 of RA 7279: IDCHTE Blocks Lots No. of Units 2 2 to7, 10 & 11 8 3 2 to 7, 10 to 15 12 4 2 to 5 4 7 2 to 9 8 8 2 to 8, 11 &17 14 9 2 to 6 5 Total Lots/Units 51 === Specific lots/units within the Project Site but utilized as compliance of Tierra Solana (Pontevedra) Project in accordance with Sec. 18 of RA 7279: Blocks Lots No. of Units 9 7, 8, 11 to 17 9 10 2 to 9, 12 to 20 17 11 2 to 12 & 15 to 26 23 12 16 to 26 11 13 2 to 10 & 13 to 19 16 14 2 to 5 & 9 5 15 2 to 9, 12 to 19, 22 to 33 & 30 to 47 40 17 2 to 12 & 15 to 26 23 19 2 to 8, 11 to 18, 21 to 28 & 31 to 39 32 20 2 to 10 & 13 to 22 19 21 2 to 8 & 25 to 36 19 22 2 to 9, 12 to 19, 22 to 29 & 32 35 Total Lots/Units 239 === Specific lots/units within the Project Site but utilized as compliance of Valerosa Residences Project located at Brgy. Balayong, Malolos City: Block/s Lots No. of Units 26 2 to 8 & 11 to 16 13 Compliance to Sec. 18 of RA 7279 is credited to Las Haciendas Cascada 2 located at Brgys. Poblacion, San Gabriel and Sta. Maria, Talisay (now) Laurel, Batangas 55 units. II. Tierra Solana (Pontevedra) Location: Brgy. Buenavista III, Gen. Trias, Cavite HLURB License to Sell No. 18573 dated November 13, 2007 (amending HLURB License to Sell No. 16222-R4A-06-08, dated August 9, 2006) License to Sell No. 18573 covers the sale of 788 lots/units and 16 lots only with maximum selling price of P1,250,000.00, per house and lot and P500,000.00 per lot only. and that at present, the price ceiling for sale of socialized units (houses and lots),as determined by the Housing and Urban Development Coordinating Council (HUDCC) is Four Hundred Thousand Pesos (P400,000.00). CHDAaS In reply, please be informed as follows: A. Income Tax Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992", provides for the tax incentives relative to the development and sale of socialized housing units (lots and/or houses and lots). In particular, Section 20 of RA No. 7279, provides as follows: "Section 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 sectors: (a) Reduction and simplification of qualification and accreditation requirements for participating private developers; ICacDE (b) Creation of one-stop offices in the different regions of the country for the processing, approval and issuance of clearances, permits and licenses: Provided, That clearances, permits and licenses shall be issued within ninety (90) days from the date of submission of all requirements by the participating private developers; (c) Simplification of financing procedures; and (d) Exemption from the payment of the following: (1) Project-related income taxes; (2) Capital gains tax on raw lands used for the project; (3) Value-added tax for the project contractor concerned; (4) Transfer tax for both raw completed projects; and (5) Donor's tax for lands certified by the local government units to have been donated to socialize housing purposes." ...(Emphasis supplied) On the other hand, Section 2.57.5 of Revenue Regulations (RR) No. 2-98, as amended, provides, viz. : "Section 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) ... (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) 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 only the lot does not exceed one hundred eighty thousand pesos (P180,000.00) in Metro Manila and other highly urbanized areas and one hundred fifty thousand pesos (P150,000.00) in other areas or such adjusted amount of selling price for socialized housing as may later be determined and adopted by the HLURB, as provided under Republic Act No. 7279 and its implementing regulations: xxx xxx xxx (Emphasis supplied) The current adjusted price ceiling for socialized housing units (houses and lots) is P400,000.00 per Housing and Urban Development Coordinating Council (HUDCC) Memorandum Circular No. 3, series of 2005, dated June 10, 2005, signed by former Vice President Noli L. de Castro. This however is limited only to sale of real properties utilized for socialized housing beginning January 1, 2009 (Revenue Memorandum Circular No. 30-2009). That in the case of sale of home lot only, the price thereof shall not exceed forty percent (40%) of the maximum limit prescribed for the house and lot package pursuant to RR No. 11-97. SIcEHC Furthermore, once registered with and certified by the HLURB as engaged in socialized housing projects pursuant to R.A No. 7279, as the developer of the properties used for the aforementioned socialized housing projects, the sale of the socialized housing units (house and lot or lots only) shall be exempt from project-related income taxes and creditable expanded withholding tax prescribed under Revenue Regulations No. 2-98 implementing Section 57 (B) of the Tax Code of 1997. In view of the foregoing, and considering that Silverstar Homebuilders, Inc.'s developed properties, namely Tierra Solana (Tarragona) and Tierra Solana (Pontevedra) which are duly registered with the HLURB as socialized housing projects, this Office holds that only the sale of socialized housing units under License to Sell No. 16221-R4A-06-08 that are sold below or at the ceiling price of P400,000.00 per lot/unit are exempt from income tax and consequently to withholding tax imposed under RR No. 2-98, as amended and the P400,000.00 price ceiling for socialized housing units applies to house and lot packages. B. Value-Added Tax (VAT) Section 109 (P) of the NIRC, as amended, provides thus: "Section 109. Exempt Transactions. (1) Subject to the provisions of subsection (2) hereof the following transactions shall be exempt from the value-added tax: xxx xxx xxx (P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business of real property utilized for low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws, . . . " Implementing the above provision of the 1997 Tax Code, as amended by RA No. 9337, Section 4.109-1 (B) (1) (p) (3) of RR No. 16-2005 states that: "Section 4.109-1. VAT-Exempt Transactions. (A) In general. "VAT-exempt transactions" refer to the sale of goods or properties and/or services and the use or lease properties that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax) on purchases. IDSaEA xxx xxx xxx (B) Exempt transactions. (1) Subject to the provisions of Subsection (2) hereof, the following shall be exempt from VAT: xxx xxx xxx (p) The following sales of real properties are exempt from-VAT namely: xxx xxx xxx (3) Sale of real properties utilized for socialized housing as defined under RA No. 7279, and other related laws, such as RA No. 7835 and RA No. 8763, wherein the price ceiling per unit is P225,000 or as may from time to time determined by the HUDCC and the NEDA and other related laws. TaDAHE xxx xxx xxx" Clearly, the above-quoted provision of the 1997 Tax Code, as amended, as implemented by RR No. 16-2005, allows for the VAT-exempt sale of socialized housing units (lots and/or houses and lots). Considering that Silverstar Homebuilders, Inc.'s socialized housing projects are duly registered with the HLURB, as such, its sales are thus VAT-exempt (BIR VAT Ruling No. 038-03, dated September 8, 2003). However, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause in Section 20 of R.A. No. 7279. Such being the case, the document conveying the property shall be subject to documentary stamp tax imposed under Section 196 of the Tax Code, as amended, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. (BIR Ruling No. 021-11 dated January 26, 2011) Any sale made by the developer to interested parties other than the principal target beneficiaries under Sections 3 (t) and 16 of RA No. 7279 shall not be entitled to the foregoing tax exemption. It is, however, understood that the Certificate Authorizing Registration (CAR) shall only be issued after it is established upon proper verification by the Revenue District Officer (RDO) concerned that, considering the rules on valuation of property, the actual selling price ceiling applicable to socialized housing at the time of sale. Thus, sale of a unit above the maximum amount shall be subject to the corresponding internal revenue taxes. 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