BIR Ruling No. 067-12

February 10, 2012 BIR RULING NO. 067-12 E.O. 226; RR 2-98; BIR Ruling No. 334-2011 Bon Giorno Homes, Inc. Unit 2-E, K-Pointe Commercial Center Ayala Highway, Sabang, Lipa City, Batangas Attention: Mariano D. Martinez President Gentlemen : This refers to your letter dated March 14, 2011 requesting for exemption from the payment of creditable withholding tax under Executive Order (EO) No. 226 otherwise known as the "Omnibus Investments Code of 1987". It is represented that of BON GIORNO HOMES, INC. with Taxpayer's Identification Number (TIN) 006-032-948, is a corporation duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Registration No. CS200313473 dated July 18, 2003; that the primary purposes for which the corporation was incorporated are "to buy, develop, promote, administer, manage and to subdivide, any real estate properties, located anywhere in the Philippines, belonging to individuals, partnership or corporation, subdivided into lots for residential and or commercial purposes and to sell, lease, mortgage or otherwise, to dispose of such lands to the general public" and "to own, promote, contract for, manage and or administer housing projects, subdivision operations, real estate developments and other transactions, involving rights, to real estate properties and interest therein"; that it is the project owner and developer of "Bon Giorno Homes Subdivision" located at Brgy. Muntingpulo, Lipa City, Batangas, under Housing and Land Use Regulatory Board (HLURB) Certificate of Registration No. 22429 dated July 8, 2010; that the HLURB issued a license for the sale of Three Hundred Eighty Five (385) saleable lots/units in "Bon Giorno Homes Subdivision" under License to Sell No. 23741 dated July 8, 2010; that it is registered with the Board of Investments (BOI) under Registration No. 2011-035 dated February 8, 2011 as "New Developer of Low-Cost Mass Housing Project (Bon Giorno Homes Subdivision Brgy. Muntingpulo, Lipa City, Batangas)" on a Non-Pioneer Status under the Omnibus Investments Code of 1987 (Executive Order No. 226); and that it was granted an Income Tax Holiday (ITH) for four (4) years from March 2011 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of registration; that the ITH shall be limited only to the revenue generated from the registered activity; that the revenues from units with selling price exceeding Three Million Pesos (P3.0M) shall not be covered by ITH; and that it shall construct and sell 385 units of low-cost mass housing based on the following schedule: Year Volume Value (No. of units) (Php'000) 1 30 24,498 2 180 146,989 3 120 97,992 4 55 44,913 Total 385 314,392 === ======= In reply, please be informed that under Section 2.57.5 (B) (2) of Revenue Regulations No. 2-98, as amended, implementing Section 57 (B) of the Tax Code of 1997, the withholding tax prescribed in the Regulations shall not apply to income payments to persons enjoying exemption from income tax provided by Republic Act No. 7916 and E.O. 226. Accordingly, since BON GIORNO HOMES, INC.'s low-cost mass housing project, Bon Giorno Homes Subdivision, is registered with BOI, this Office is of the opinion as it hereby holds, that income payments received by BON GIORNO HOMES, INC. in connection with its low-cost mass housing project "Bon Giorno Homes Subdivision" is exempt from the creditable withholding tax imposed under RR No. 2-98, as amended by RR No. 6-2001, for a period of four (4) years from March 2011 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of registration. It must be emphasized, however, that the above exemption from creditable withholding tax covers only revenues generated from the aforementioned registered projects. Furthermore, such exemption shall not cover revenues with selling price exceeding Three Million Pesos (P3.0M). Moreover, the entitlement of BON GIORNO HOMES, INC. 's Bon Giorno Homes Subdivision to ITH is not automatic as it has to comply with Sections 10 (a) and 9 (a), respectively, of the Specific Terms and Conditions of its BOI Registrations for both projects, viz. : (1) Secure from HLURB an endorsement that it has complied with the approved development plan and a "Certificate of Good Housekeeping"; (2) File an application with the BOI Incentives Department within one (1) month from the filing of the final ITR with the BIR in order to validate the claim for income tax exemption. The application shall be accompanied by a certification by SSS that the enterprise is in good standing in the remittance of SSS contributions or its employees; and (3) Secure a Certificate of ITH Entitlement (CoE) from the Supervision and Monitoring Department (SMD) of BOI prior to filing the Income Tax Return with the BIR, otherwise ITH for that particular taxable year without CoE is forfeited. 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, BON GIORNO HOMES, INC.'s Bon Giorno Homes Subdivision was clearly granted a 4-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, BON GIORNO HOMES, INC. 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 Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00) and below, or house and lot and other residential dwellings in the amount of Three Million One Hundred Ninety Nine Thousand Two Hundred Pesos (P3,199,200.00) and below is VAT-exempt. Thus, only the sales by BON GIORNO HOMES, INC. of housing units with selling price of not more than the aforementioned price ceilings shall be exempt from VAT. (Revenue Regulations No. 16-2011 dated October 27, 2011) It should be understood that BON GIORNO HOMES, INC. 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 RR 2-98, as amended. Likewise, BON GIORNO HOMES, INC. is required to file on or before the 15th day of the fourth month following the close of its 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, BON GIORNO HOMES, INC.'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 it has been 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