Tax Exemption of Joint-venture Partners of the NHA from the Private Sector on All Socialized Housing Projects

June 7, 1996 BIR RULING NO. 064-96 196 000-00 064-96 National Housing Authority Quezon Memorial Elliptical Road Diliman, Quezon City Attention: Mr . Marciano M . Pineda General Manager Gentlemen : This refers to your letters dated April 3 and April 30, 1996, requesting for a ruling that all your joint-venture partners from the private sector on all your socialized housing projects are exempt from the payment of documentary stamp tax concerning your mortgage-take-out documents pursuant to R.A. No. 7279, otherwise known as the Urban Development and Housing Act of 1992; and in the alternative, in the case your said partners are liable to pay the said tax, you are requesting that the penalties for late payment of the same be waived by this Office. cdll It is represented that in all your socialized housing projects in the country, you and your partners have enjoyed the tax exemption on socialized housing provided for under R.A. No. 7279 since its effectivity; that however, there are some BIR officials who have a different interpretation of the said law, as in the case of your project, the San Jose Housing Project, in San Pablo City; that the BIR in San Pablo City opined that your partner-developer in the project. Manfil Construction and Development Corp., should shoulder the cost of documentary stamp tax in your mortgage-take-out documents; that under R.A. No. 7279, all your projects are exempt from the payment of documentary stamp tax and that considering that all your joint-venture projects are NHA undertakings, you are of the opinion that the tax incentives you are enjoying under R.A. No. 7279 are also applicable to your joint-venture partners. In reply, please be informed that under Article V, Section 19 of R.A. No. 7279, the National Housing Authority, being the primary government in charge of providing housing for the underprivileged and homeless, shall be exempt from the payment of all fees, and charges of any kind, whether local or national, such as income and real 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. In this connection, Sections 3(c)(A)(1)(b) of Revenue Regulations No. 9-93, providing the guidelines and procedures for the availment of the tax incentives by government-owned and controlled corporations, local government units and private sector participating in socialized housing and Community Mortgage Program, states that the exemption of the NHA from national taxes refers, among others, to documentary stamp tax on sales transaction executed by and in favor of the NHA in connection with socialized housing projects, provided, however, that in the case of foreclosure sale of real property mortgaged to NHA by qualified beneficiaries of socialized housing, NHA, as statutory seller shall be liable for the payment of capital gains tax and documentary stamp tax otherwise due from the mortgagor-debtor, provided further, that if the latter redeems the property within the one-year redemption period, the amount of tax paid by NHA may be collected from the mortgagor-debtor. In the case of private sector participating in socialized housing. Section 3(c)(b)(1)(a)(c) and (d) of Revenue Regulations No. 9-93 provides that in order 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 citizen, the private sector shall be exempt from the payment of the following national internal revenue taxes: LLpr (1) Project related corporate or individual income taxes on income directly realized from development and improvement of socialized housing sites, slum areas, resettlement areas, and/or construction and sale of socialized or low-cost housing units to qualified beneficiaries, as determined by the NHA and registered with the Housing and Urban Development Coordinating Council (HUDCC); provided that the determination of project-related income shall be made in accordance with the guidelines to be promulgated by the Bureau of Internal Revenue. (2) Capital gains tax on sale of raw lands for use in the socialized housing projects as certified by the HLURB. (3) Value-added tax for the project contractor concerned; and (4) Donor's tax for lands certified by the local government units to have been donated for socialized housing purposes. Form the foregoing, it is clear that only NHA is exempt from the payment of the documentary stamp tax due on its mortgage-take-out documents relative to its socialized housing project in joint-venture with a private entity participating in socialized housing. The said NHA exemption from the payment of documentary stamp tax does not extend and neither is it made applicable to any of its partners in a joint-venture undertaking in connection with its socialized housing projects. In other words, the tax incentives being enjoyed by the private sector participating in socialized housing under R.A. No. 7279 does not include exemption from the payment of documentary stamp tax. Accordingly, your request that your joint-venture partners, as in this case of Manfil Construction and Development Corp. in your San Jose Housing Project in San Pablo City, be exempt from the payment of documentary stamp tax on your mortgage-take-out documents is hereby denied for lack of legal basis. However, since your mortgage-take-out documents refer to the set of documents necessary to transfer title of the property under your socialized housing projects to its intended beneficiaries, one of which is the Deed of Sale executed by the NHA, owner-developer in favor of the beneficiaries, the documentary stamp tax imposed under Section 196 of the Tax Code, as amended, on said sale documents shall be paid by the beneficiaries based on the actual consideration paid by them (BIR Ruling No. 393-93 dated October 11, 1993). In other words, since you are exempt from the documentary stamp tax on such documents, pursuant to Section 173 of the Tax Code, as amended, the beneficiaries of your socialized housing projects as the other party thereto, shall be liable to pay the documentary stamp tax on the Deed of Sale transferring in their favor subject property and not your joint venture partners in said projects. Moreover, since the reason for the delay in the payment of the documentary stamp tax due on your mortgage-take-out documents was due to the advise you made to your joint-venture partners and to the beneficiaries of your socialized housing projects to defer payment of the same until a favorable ruling on the request you filed with this Office is secured, your request that the penalties for late payment of documentary stamp tax on your mortgage-take-out documents, particularly the Deed of Sale you and your joint-venture partners executed with the beneficiaries be waived by this Office, is hereby granted pursuant to Section 204(1)(a) of the Tax Code, as amended. LLjur Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue