BIR Ruling No. 076-13

February 18, 2013 BIR RULING NO. 076-13 E.O. 226; RR 2-98; BIR Ruling No. 334-2011 V.C. Mamalateo & Associates Unit 6C, 20 Lansbergh Place 170 T. Morato Avenue Quezon City Attention: Atty. Victorino C. Mamalateo Managing Partner Gentlemen : This refers to your letter dated February 14, 2012, requesting tax exemption in behalf of Pax Asiana Realty and Development Corporation as New Developer of Low-Cost Mass Housing Project (Oaks Residences Housing Project) pursuant to the provisions of the Omnibus Investments Code of 1987. CDAHIT Documents submitted disclosed that Pax Asiana Realty and Development Corp. with Taxpayer's Identification No. 007-634-215-000, is a domestic corporation engaged in real estate business and registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CS201003294 dated March 9, 2010; that Pax Asiana Realty and Development Corp. is registered with the Board of Investments (BOI) as a New Developer of Low-Cost Mass Housing Project on a Non-Pioneer status per BOI Registration No. 2011-199 dated September 14, 2011; that its BOI registration particularly covers the project: Project Name Location Start of Commercial No. of Operation/ITH Units Oaks Residences Sitio Munting Dilao, January 2012 392 San Isidro, Cainta, Rizal that according to the Terms and Conditions of its BOI Registration, Pax Asiana Realty and Development Corp. is entitled to Income Tax Holiday (ITH) for a period of four (4) years from January 2012 or the actual start of commercial operations/selling whichever is earlier, but in no case earlier than the date of registration; that Pax Asiana Realty and Development Corp. 's ITH shall be limited only to the revenue generated from the registered projects; and that revenues from units with selling price exceeding PhP3.0M shall not be covered by ITH; and that the project is duly registered with the Housing and Land Use Regulatory Board under Certificate of Registration No. 22959, with License to Sell No. 25044. 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 the Omnibus Investments Code of 1987. Accordingly, since Pax Asiana Realty and Development Corp. Oaks Residences Housing Project, is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by Pax Asiana Realty and Development Corp. in connection with the sale of three hundred ninety two (392) low-cost mass housing units, Pax Asiana Realty and Development Corp. Oaks Residences , are 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 starting from January 2012 or the 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 the creditable withholding tax covers only revenues generated from the registered activity, Pax Asiana Realty and Development Corp. Oaks Residences Housing Project. Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million pesos (P3,000,000.00). (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 revenues generated from the registered activity. The enterprise shall submit the list of cost items common to all its projects/activities (whether BOI or not-BOI-registered) and the methodology adopted in allocating the common costs. The methodology to be adopted in accounting for Fixed Assets particularly the Plant, Property and Equipment account shall be the Straight Line depreciation method. Furthermore, the Interest Expense on the firm's liabilities shall be proportionately allocated for the project. Moreover, Pax Asiana Realty and Development Corp. Oaks Residences Housing Project's entitlement to ITH is not automatic as it has still to comply with Section 10 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 a "certificate of good housekeeping"; (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. cCaDSA 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, Pax Asiana Realty and Development Corp. Oaks Residences Housing 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, Pax Asiana Realty and Development Corp. Oaks Residences Housing 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. (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 Five Hundred Thousand Pesos (P1,500,000) 1 and below or house and lot, and other residential dwellings valued at Two Million Five Hundred Thousand Pesos (P2,500,000) 2 and below is VAT-exempt. Thus, only the sales by Pax Asiana Realty and Development Corp. Oaks Residences Housing Project of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. It should be understood that Pax Asiana Realty and Development Corp. Oaks Residences Housing 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, Pax Asiana Realty and Development Corp. Oaks Residences Housing Project 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 its gross income and expenses incurred during the taxable year. Finally, Pax Asiana Realty and Development Corp. Oaks Residences Housing 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 it have 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 as represented 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. P1,919,500.00 starting January 1, 2012, Revenue Regulations No. 3-2012 dated February 20, 2012. 2. P3,199,200.00 starting January 1, 2012, Revenue Regulations No. 3-2012 dated February 20, 2012.