Property Company of Friends, Inc.

February 2, 2016 BIR RULING NO. 052-2016 E.O. 226; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 334-2011 Property Company of Friends, Inc. Profriends Center, 55 Tinio St. Brgy. Addition Hills, Mandaluyong City Attention: Marilyn T. Santos Financial Control Group Head Gentlemen : This refers to your letter dated January 7, 2014 requesting on behalf of Property Company of Friends, Inc. ("Pro-Friends") , certificate of tax exemption from income and expanded withholding taxes on its income derived from the low-cost housing project, Somerset Phase 3-Brgy. Navarro, General Trias, Cavite , duly registered with the Board of Investments (BOI) under Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987." HTcADC Documents submitted show that Pro-Friends , with Tax Identification No. (TIN) _____________ is a domestic corporation duly organized under the Philippine laws; that it is registered with the Securities and Exchange Commission (SEC) bearing SEC Certificate of Registration No. __________ that the primary purpose for which Pro-Friends was organized is to own, use, improve, develop, subdivide, sell, exchange, lease, and hold for investment or otherwise, real estate of all kinds, including buildings, houses, apartments and other structures; that at present, Pro-Friends has a low-cost mass housing project, Somerset Phase 3-Brgy. Navarro, General Trias, Cavite , which has been duly registered with the Board of Investments (BOI) under the Omnibus Investments Code of 1987 (E.O. 226), bearing BOI Certificate of Registration No. ________; that the Corporation shall be entitled to income tax holiday (ITH) for the aforesaid project for a period of three (3) years beginning from August 2012 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of registration; that the project is duly registered with the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. _____ and License to Sell No. ______ pursuant to Batas Pambansa 220; and that the ITH of the Corporation shall be limited only to the revenue generated from the registered housing project, Somerset Phase 3-Brgy. Navarro, General Trias, Cavite . It is further shown that Pro-Friends-Somerset Phase 3-Brgy. Navarro, General Trias, Cavite , under the Specific Terms and Conditions of its BOI Registration for the above housing project, is obligated to construct and sell Three Hundred Twenty Nine (329) low-cost mass housing units based on the following prices and schedules: Name of Project Year Sales Volume (No. of Units) Sales Value (PhP'000) 1. Somerset Phase 3 1 98 2 133 3 98 Total 329 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. ( BIR Ruling No. 334-2011 dated September 7, 2011) Accordingly, since Pro-Friends-Somerset Phase 3-Brgy. Navarro, General Trias, Cavite , is duly registered with the BOI under the Omnibus Investments Code of 1987, this Office is of the opinion as it hereby holds, that the income payments received by Pro-Friends in connection with the aforementioned housing project, consisting of Three Hundred Twenty Nine (329) units, are exempt from the creditable withholding tax imposed under RR No. 2-98, as amended by RR No. 6-2001, for a period of three (3) years beginning from August 2012 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of registration of the housing project with the BOI. It must be emphasized, however, that the aforesaid exemption from the creditable withholding tax covers only income directly attributable to the revenues generated from the project, Pro-Friends-Somerset Phase 3-Brgy. Navarro, General Trias, Cavite , consisting of Three Hundred Twenty Nine (329) units. Furthermore, such exemption shall not cover revenues from units with selling price exceeding Two Million Five Hundred Pesos (Php2,500,000.00) ( BIR Ruling No. 334-2011 dated September 7, 2011). In the computation of ITH, interest income from in-house financing shall not be considered as part of the revenues generated from the registered housing project. Moreover, Pro-Friends-Somerset Phase 3-Brgy. Navarro, General Trias, Cavite's entitlement to ITH for its BOI-registered housing project is not automatic as it has still to comply with the provisions of the Specific Terms and Conditions of its BOI Registration, viz. : (1) e.g. , if the total revenue corresponding to the total registered units is 300 and 100% is sold and collected by the first year of availment, then the 20% socialized housing requirement for the 300 units should be met by the first year; aScITE (2) a. Year 1 Year 2 Year 3 Total Construction Cost (Php) Cost of Imported Raw Materials (Php) NVA (%) b. Year 1 Year 2 Year 3 Employees paid on monthly basis 7 7 7 Full-time workers paid by contractors 114 114 114 Others (Managers and Supervisors) 3 3 3 TOTAL 124 124 124 c. Activity Schedule Related Expense/s Cost (Php'000) Site/Land Acquisition April 2010 Raw Land Cost Obtaining appropriate license/agreement/permit from the government July 2011 to June 2012 Pre-Operating Expenses Site Preparation and Development - - June 2011 to August 2011 Land Development Cost House Construction March 2012 to January 2015 House Construction Cost Start of Commercial Operations August 2012 Working Capital Total Project Cost d. Year Sales Volume (No. of Units) Sales Value (Php'000) 1 98 2 133 3 98 Total 329 Income qualified for ITH availment shall not exceed by more than 10% of the projected income represented by the enterprise in its application provided the project's actual investments and employment match the enterprise's representations in its application. In cases where the project's actual revenues exceed the projections in its application by more than 10%, the Board may increase the project's ITH availment proportionately for reasons such as but not limited to (a) additional investments; (b) new markets/orders; (c) additional employment and/or increase in number of working shifts. Request/s for adjustment of projected income may be submitted to the Board within the ITH entitlement period. (3) (4) (5) HEITAD (6) (7) (8) 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, Pro-friends was clearly granted a 3-year ITH for its project, Somerset Phase 3-Brgy. Navarro, General Trias, Cavite , consisting of Three Hundred Twenty Nine (329) units, but such terms and conditions do not provide for any exemption from other taxes that the Corporation may be subject to on its business transactions. Thus, Pro-Friends-Somerset Phase 3-Brgy. Navarro, General Trias, Cavite will remain subject to Value-Added Tax (VAT) and Documentary Stamp Tax (DST) on its sales of housing units pursuant to Sections 106 (A) (1) (a) and 196 of the Tax Code of 1997, as amended. ( BIR Ruling No. 334-2011 dated September 7, 2011) 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) 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) and below, is VAT-exempt. 1 Thus, only the sales by Pro-Friends-Somerset Phase 3-Brgy. Navarro, General Trias, Cavite of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. Pursuant to Section 4 of Republic Act (RA) No. 10708, 2 Pro-Friends is required to file its tax returns and pay its tax liabilities, on or before the deadline as provided under the 1997 Tax Code, as amended, using the electronic system for filing and payment of taxes of the BIR. Furthermore, Pro-Friends shall file with BOI a complete annual tax incentives report of its income-based tax incentives, VAT and duty exemptions, deductions, credits or exclusions from the tax base, as may be provided under E.O. 226, within thirty (30) days from the deadline for filing of tax returns and payment of taxes. It should be understood that Pro-Friends-Somerset Phase 3-Brgy. Navarro. General Trias, Cavite 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 (RR) No. 2-98 , as amended. Likewise, Pro-Friends is required to file on or before the 15th day of the fourth month following the close of its accounting period of 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, Pro-Friends' 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 is 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 amounts 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. 2. An Act Enhancing Transparency in the Management and Accounting of Tax Incentives Administered by Investment Promotion Agencies.