BIR Ruling No. 054-12

February 9, 2012 BIR RULING NO. 054-12 Executive Order No. 226; Sections 57 (B); 106 (A) (1) (a); 109 (1) (P); and 196 of the Tax Code of 1997, as amended; Revenue Regulations No. 16-2011; BIR Ruling No. 334-11 Surewell Equities, Inc. 690-A Quirino Avenue, Tambo Paraaque City Attention: Mr. Bansan C. Choa Chairman Gentlemen : This refers to your letter dated 3 December 2009 relative to the company's request for a ruling on the tax consequence of the Income Tax Holiday (ITH) granted by the Board of Investments (BOI). HTCISE As represented, Surewell Equities, Inc. (SEI) with Tax Identification Number (TIN) 212-380-824-000 registered with the BOI under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, per Certificate of Registration No. 2009-069 dated 22 May 2009, its Low-Cost Mass Housing Project, the La Brezza Project-Barrio Pantok, Meycauayan, Bulacan ; that pursuant to said registration, its project is entitled to ITH incentive for a period of three (3) years from January 2010 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of registration. Under the Specific Terms and Conditions of its BOI Registration, SEI is obligated to construct and sell One Hundred Sixty Three (163) Units which construction and sale shall be based on the following schedule: Year Volume Value (No. of Units) (P'000) 1 52 65,074 2 20 77,996 3 10 83,020 4 81 28,620 Total 163 254,710 === ====== and that SEI shall adhere to the following selling prices: House & Lot Cluster Inner Cluster End Isabel-Single Isabel-Single Package (55 sqm) (55 sqm) (63 sqm) (76 sqm) Total Package 1,015,000.00 1,219,000.00 1,537,000.00 1,908,000.00 Price/Unit In reply, please be informed that under Section 2.57.5 (B) (2) of Revenue Regulations 2-98, as amended by Revenue Regulations 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 income tax exemption provided by Republic Act No. 7918 and the Omnibus Investments Code of 1987. Accordingly, since SEI's project the La Brezza Project-Barrio Pantok, Meycauayan, Bulacan (SEI-La Brezza Project) is registered with the BOI, this Office is of the opinion as it hereby holds, that income payments received by SEI in connection with the aforementioned housing project, are exempt from creditable withholding tax imposed under RR No. 2-98, as amended by RR No. 6-2001, for a period of three (3) years starting from January 2010. It must be emphasized, however, that the above exemption from the creditable withholding tax covers only revenues generated from the registered activity, SEI-La Brezza Project. Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million Pesos (P3,000,000.00). Moreover, SEI-La Brezza Project's entitlement to ITH is not automatic as it has still to comply with Section 8 (a) of the Specific Terms and Conditions of the BOI Registration, viz. : (1) Secure from the Housing and Land Use Regulatory Board (HLURB) an endorsement that it has faithfully complied with the approved development plan and; (2) File an application with the BOI Incentives Department within one (1) month from the 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; and (3) 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 taxable year without CoE shall be forfeited. IaHDcT 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, SEI-La Brezza Project was clearly granted a 3-year ITH but such terms and conditions do not provide for any exemption from other taxes that it may be subject to on its business transactions. Thus, SEI-La Brezza Project 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. In relation thereto, Section 109 (1) (P) of the Tax Code of 1997 provides, that the sale of residential lot valued at one million five hundred thousand pesos (P1,500,000.00) and below or house and lot, and other residential dwellings valued at two million five hundred thousand pesos (P2,500,000.00) and below is VAT-exempt. Thus, only the sales by SEI-La Brezza Project of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. However, pursuant to Revenue Regulations No. 16-2011, starting January 1, 2012, the following sales of real properties are exempt from VAT: 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 where the instrument of sale/transfer/disposition was executed on or after July 1, 2005; Provided, That every three (3) years thereafter, the amounts stated herein shall be adjusted to its present value using the Consumer Price Index, as published by the National Statistics Office (NSO); Provided, further, that such adjustment shall be published through revenue regulations to be issued not later than March 31 of each year. It should be understood that SEI-La Brezza Project shall be constituted as a withholding agent for the government if it acts as employer and any of its employees receive compensation income subject to compensation withholding tax, or if it makes payments to individuals or corporations subject to the withholding taxes as 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, SEI-La Brezza Project is required to file on or before the 15th day of the fourth month following the close of your accounting period a Profit and Loss Statement and Balance Sheet with the Annual Information Return under oath, stating your gross income and expenses incurred during the taxable year. Finally, SEI-La Brezza 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 you have been complying with the conditions under which you have been granted tax exemption or tax incentives and your tax liability, if any, pursuant to Section 235 of the Tax Code of 1997, as amended. ScCEIA 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