BIR Ruling No. 077-14

March 4, 2014 BIR RULING NO. 077-14 E.O. 226; RR 16-2011; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 334-11 Liberty Land Corporation 224 J. Pacana Street, Puntod Cagayan de Oro City Attention: Gladeys Jill A. Santos-Cua Practitioner Gentlemen : This refers to your letter dated February 19, 2013 stating that Liberty Land Corporation (" Liberty " for brevity) with Tax Identification No. 001-748-244 is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under Company Reg. No. AS092-3093. It is registered with the Board of Investments (BOI) as an Expanding Developer of Low-Cost Mass Housing Project (Bloomingdale Subdivision Phase III Bulao, Iponan, Cagayan de Oro City) on a Non-Pioneer status under Certificate of Registration No. 2009-116 dated August 14, 2009 in accordance with the Omnibus Investments Code of 1987 or Executive Order (EO) No. 226. Liberty has been granted Income Tax Holiday (ITH) by the BOI for a period of three (3) years from August 2009 or actual start of commercial operations/selling, whichever is earlier but in no case earlier than the date of registration. Liberty's Bloomingdale Subdivision Phase III Bulao, Iponan, Cagayan de Oro City Project is registered with Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration Nos. 18931 and 18930; and holds HLURB License to Sell Nos. 22391, 22392 and 22394; and under the Specific Terms and Conditions of its BOI Registration, the ITH of Liberty Land Corporation shall cover only seven hundred thirty six (736) units of low-cost mass housing for Bloomingdale Subdivision Phase III Bulao, Iponan, Cagayan de Oro City Project based on the following schedule: Year Volume (No. of Units) Value (P'000) 1 128 110,660.00 2 236 216,300.00 3 250 219,150.00 4 86 73,100.00 5 36 30,600.00 Total 736 649,810.00 ==== ========= On the basis of the foregoing, you now request for an opinion on the tax consequences of the said ITH granted by BOI. Specifically, if Liberty, being a BOI-registered enterprise, is exempt from the payment of the creditable withholding tax (CWT) imposed under Revenue Regulations No. 2-98 on income payments received during the aforementioned period with respect to its registered activity. 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. SIacTE Accordingly, since Liberty's Bloomingdale Subdivision Phase III Bulao, Iponan, Cagayan de Oro City Project is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by Liberty in connection with its housing project, Liberty's Bloomingdale Subdivision Phase III Bulao, Iponan, Cagayan de Oro City Project (on the 736 low-cost mass housing units as mentioned in the Specific Terms and Conditions of its BOI Registration) , is exempt from CWT under RR No. 2-98, as amended by RR No. 6-2001, for a period of three (3) years from August 2009 or actual start of commercial operations/selling, whichever is earlier but in no case earlier than the date of registration. 1 It must be emphasized, however, that the above exemption from CWT covers only income directly attributable to revenues generated from its registered activity, Liberty's Bloomingdale Subdivision Phase III Bulao, Iponan, Cagayan de Oro City Project. Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million Pesos (P3,000,000.00). In the computation of ITH, interest income from in-house financing shall not be considered as revenues generated from the registered activity. Moreover, the entitlement to ITH of Liberty's Bloomingdale Subdivision Phase III Bulao, Iponan, Cagayan de Oro City Project is not automatic as it still has to comply with the following provisions of the Specific Terms and Conditions of its BOI Registration, viz. : 1. The firm shall observe the following sales schedule or construct and sell seven hundred thirty six (736) low-cost mass housing based on the following: Year Volume (No. of Units) Value (P'000) 1 128 110,660.00 2 236 216,300.00 3 250 219,150.00 4 86 73,100.00 5 36 30,600.00 Total 736 649,810.00 ==== ========= 2. The firm shall observe the following project timetable: Activity Schedule Related Cost Expense/s (In Php'000) 1. Site acquisition 2007- Raw land Cost 16,225,920 2008 2. Site Office, office January Cost of office equipment, vehicle 2009 construction office equipment and transportation 3. Site preparation and January Transportation 61,761,761 development 2009 of contractors, freight charges, 171,840,336 building facilities, etc. Start of commercial August Working operation 2009 capital Total Project 249,828,018 Cost ========== 3. Secure from the HLURB an endorsement that it has faithfully complied with the approved development plan. IEHSDA 4. File an application with the BOI Incentives Department within one (1) month from 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. 5. 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 year without CoE shall be forfeited. 6. Prior to availment of the ITH, the firm shall submit proof of compliance, as certified by the HLURB with the requirement under Section 18 of Republic Act No. 7279 (Urban Development and Housing Act of 1992) that at least twenty (20%) percent of the total subdivision area has been developed and allocated for socialized housing within one year; otherwise, ITH for that particular year shall be deemed 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, Liberty's Bloomingdale Subdivision Phase III Bulao, Iponan, Cagayan de Oro City Project was clearly granted a 3-year ITH but such terms and conditions do not provide for any exemption from other taxes that Liberty may be subject to on its business transactions. Thus, Liberty's Bloomingdale Subdivision Phase III Bulao, Iponan, Cagayan de Oro City Project will remain subject to Value-Added Tax (VAT) and Documentary Stamp Tax (DST) on its sales of house and lot units pursuant to Sections 106 (A) (1) (a) and 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 334-11 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 (P1,919,500.00) 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 is VAT-exempt. 2 Thus, only the sales by Liberty's Bloomingdale Subdivision Phase III Bulao, Iponan, Cagayan de Oro City Project of housing units with selling price of not more than the aforementioned price ceilings shall be exempt from VAT. It should be understood that Liberty's Bloomingdale Subdivision Phase III Bulao, Iponan, Cagayan de Oro City Project 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 No. 2-98, as amended. Likewise, Liberty's Bloomingdale Subdivision Phase III Bulao, Iponan, Cagayan de Oro City 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. TICDSc Finally, Liberty's Bloomingdale Subdivision Phase III Bulao, Iponan, Cagayan de Oro City 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 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 Footnotes 1. Movement of ITH period is subject to Art. 7 of E.O. 226 per BOI Specific Terms and Conditions No. 1. 2. The increase in the threshold amount 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.