BIR Ruling No. 079-13

February 18, 2013 BIR RULING NO. 079-13 E.O. 226; RR 2-98; BIR Ruling No. 334-2011 Alba Romeo & Co. 7th Floor Multinational Bancorporation Centre 6805 Ayala Avenue, Makati City Attention: Romeo C. Alba Chairman & Managing Partner Gentlemen : This refers to your letter dated October 7, 2011, requesting tax exemption in behalf of Citihomes Builders and Development, Incorporated as New Developer of Low-Cost Mass Housing Project (Residencia de Muzon-Brgy. Gaya-gaya & Muzon, San Jose del Monte City, Bulacan) pursuant to the provisions of the Omnibus Investments Code of 1987. TDAcCa Documents submitted disclosed that Citihomes Builders and Development, Incorporated with Taxpayer's Identification No. 000-444-767-000, is a domestic corporation engaged in real estate business and registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 111239; that Citihomes Builders and Development, Incorporated 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. 2009-090 dated June 24, 2009; that its BOI registration particularly covers the project: Project Name Location Start of Commercial No. of Operation/ITH Units Residencia de Muzon Brgy. Gaya-gaya & June 2009 594 Muzon, San Jose del Monte City, Bulacan that according to the Terms and Conditions of its BOI Registration, Citihomes Builders and Development, Incorporated is entitled to ITH for a period of four (4) years from June 2009 or the actual start of commercial operations/selling whichever is earlier, but in no case earlier than the date of registration; that Citihomes Builders and Development, Incorporated'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. 22754, with License to Sell No. 24244. Moreover, that Citihomes Builders and Development, Incorporated shall adhere to the following selling prices for its Residencia de Muzon-Brgy. Gaya-gaya & Muzon, San Jose del Monte City, Bulacan housing project: House and Lot Package PhP Ezmeralda 1,907,237 Elvira 1,400,000 Ezperanza-Inner 1,000,000 Ezperanza-End 1,200,000 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. AHaDSI Accordingly, since Citihomes Builders and Development, Incorporated Residencia de Muzon Housing Project, is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by Citihomes Builders and Development, Incorporated in connection with the aforementioned housing project, Citihomes Builders and Development, Incorporated Residencia de Muzon , 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 years starting from June 2009 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 the creditable withholding tax covers only revenues generated from the registered activity, Citihomes Builders and Development, Incorporated Residencia de Muzon 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. Moreover, Citihomes Builders and Development, Incorporated Residencia de Muzon Housing Project's entitlement to ITH is not automatic as it has still to comply with Section 7 (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; (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. aTcSID 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, Citihomes Builders and Development, Incorporated Residencia de Muzon Housing Project 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, Citihomes Builders and Development, Incorporated Residencia de Muzon 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 Citihomes Builders and Development, Incorporated Residencia de Muzon 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 Citihomes Builders and Development, Incorporated 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 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, Citihomes Builders and Development, Incorporated Residencia de Muzon 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, Citihomes Builders and Development, Incorporated Residencia de Muzon 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 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. EDCIcH 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. 2. P3,199,200.00 starting January 1, 2012.