BIR Ruling No. 081-15

March 30, 2015 BIR RULING NO. 081-15 RA 7279; RR 11-97; BIR Ruling No. 473-2014 Eddmari Construction and Trading 19 San Juan, San Luis, Pampanga Attention: Engr. Edgardo A. Sagum General Manager Gentlemen : This refers to your letter dated October 22, 2013 requesting issuance of Certificate of Tax Exemption for the AFP-PNP Housing Program in Brgy. Mabuco, Hermosa, Bataan pursuant to Republic Act (R.A.) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted show that spouses Gilbert N. Reyes and Ma. Socorro C. Reyes and Merceditas Consunji (hereinafter referred to as Landowners) are the registered owners of parcels of land covered by three (3) Transfer Certificates of Title (TCT) located at Brgy. Mabuco, Hermosa, Bataan to wit: Landowners TCT Area (sq.m.) Merceditas Consunji 038-2013001161 20,273 Gilbert N. Reyes and Ma. Socorro C. Reyes 038-2013001163 60,000 Gilbert N. Reyes and Ma. Socorro C. Reyes 038-2013001164 14338 Total Area 94,661 ====== all issued by the Registry of Deeds for the Balanga, Bataan. Deeds of Absolute of Sale were executed by and between the landowners and the NHA, whereby the landowners transferred and conveyed the above mentioned properties, to wit: Date of Deed of Consideration Landowners Absolute Sale TCT (PhP) Merceditas Consunji 41233 038-2013001161 5,777,805.00 Gilbert N. Reyes and 41233 038-2013001163 & 21,200,580.00 Ma. Socorro C. Reyes 038-2013001164 TCT No. 038-2013001163 On December 21, 2012, a Contract Agreement was executed by and between Eddmari Construction and Trading, a single proprietorship owned by Edgardo Aguilar Sagum and AFP Housing Homeowners Association, Inc. and PNP Housing Homeowners Association, Inc., a homeowner's organization registered with the Housing and Land Use Regulatory Board (HLURB), whereby the former offered its services to the latter to undertake the construction of One Thousand (1,000) housing units for Two Hundred Forty Thousand Pesos (P240,000.00) for every developed lot and completed housing unit per family, which shall be financed by the NHA under the Community Initiative Approach Program (CIAP). Moreover, on December 21, 2012, a Memorandum of Agreement (MOA) for developed lots and completed housing units, was executed by and among Eddmari Construction and Trading as the landowner/developer, AFP Housing Homeowners Association, Inc. and PNP Housing Homeowners Association, Inc., as the beneficiaries, and the NHA, as the implementing government agency for the AFP/PNP Housing Program as cited under Administrative Order No. 9 dated April 11, 2011. Under the MOA, members of the AFP Housing Homeowners Association, Inc. and PNP Housing Homeowners Association, Inc., shall be provided by the NHA with a financial grant for the acquisition house and lot packages in the AFP/PNP Housing Project through the CIAP in the amount of Php240,000.00 for a House and Lot Package of Forty square meters (40.00 sq.m.) lot and Twenty Two square meters (22.00 sq.m.) floor area. cSITDa To give effect to the Contract Agreement and MOA, on December 21, 2012, a Deed of Conveyance was executed by and between Eddmari Construction and Trading and NHA, whereby the former agreed to sell to the latter, Nine Hundred Forty Three (943) developed house lots packages with an aggregate area of Thirty Eight Thousand Two Hundred Eighty One square meters (38,281 sq.m.) covered by TCT No. 038-201301163 for One Hundred Eight Million Four Hundred Forty Five Thousand pesos (P108,445,000.00). TCT Nos. 038-2013001161 and 038-2013001164 On October 29, 2014, a Contract Agreement was executed by and between Eddmari Construction and Trading and AFP Housing Homeowners Association, Inc. and PNP Housing Homeowners Association, Inc., whereby the former offered its services to the latter to undertake the construction of Two Hundred Thirty (230) housing units for Two Hundred Forty Thousand Pesos (P240,000.00) for every developed lot and completed housing unit per family, which shall be financed by the NHA under the Community Initiative Approach Program (CIAP). Moreover, on November 6, 2014, a Memorandum of Agreement (MOA) for developed lots and completed housing units, was executed by and among Eddmari Construction and Trading as the landowner/developer, AFP Housing Homeowners Association, Inc. and PNP Housing Homeowners Association, Inc., as the beneficiaries, and the NHA. Under the MOA, members of the AFP Housing Homeowners Association, Inc. and PNP Housing Homeowners Association, Inc., shall be provided by the NHA with a financial grant for the acquisition house and lot packages to the AFP/PNP Housing Project through the CIAP in the amount of Php240,000.00 for a House and Lot Package of Forty square meters (40.00 sq.m.) lot and Twenty Two square meters (22.00 sq.m.) floor area. To give effect to the Contract Agreement and MOA, on December 1, 2014, a Deed of Conveyance was executed by and between Eddmari Construction and Trading and NHA, whereby the former agreed to sell to the latter, Two Hundred Eighty Seven (287) developed house lots packages with an aggregate area of Eleven Thousand Six Hundred Ninety square meters (11,690 sq.m.) covered by TCT No. 038-2013001161 and 038-2013001164 for Thirty Three Million Five Thousand pesos (P33,005,000.00). In reply, please be informed that pursuant to Sections 19 and 20 of RA No. 7279, pertinent portions of which state that: "Sec. 19. Incentives for the National Housing Authority. The National Housing Authority, being the primary government agency in charge of providing housing for the underprivileged and homeless, shall be exempted from the payment of all fees and charges of any kind, whether local or national, such as income and realty 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. "Sec. 20. Incentives for Private Sector Participating in Socialized Housing . 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, the following incentives shall be extended to the private sector: xxx xxx xxx (d) Exemption from the payment of the following: (1) Project-related income taxes; (2) Capital gains tax on raw lands used for the project; (3) Value-added tax for the project contractor concerned;" xxx xxx xxx" Moreover, pertinent portions of RMC No. 42-01 dated October 5, 2001, provide, viz. : xxx xxx xxx A. National Housing Authority (NHA) The NHA, being the primary government agency in charge of providing housing for the underprivileged and homeless citizens shall be exempted from the payment of the following national internal revenue taxes: cSATEH (1) . . . (2) Documentary stamp tax on sales transactions executed by and in favor of the NHA in connection with socialized housing projects. Since Section 19 of R.A. 7279 exempts "all documents or contracts executed by and in favor of the NHA," the exemption from documentary stamp tax extends to the other party (either seller or buyer) that is dealing or transacting with the NHA. xxx xxx xxx Sale by the Landowners to NHA The owner of the raw land is exempt from the payment of capital gains tax or the withholding tax under Revenue Regulations No. 2-98, as amended, on the conveyance of the parcel of land for use in the aforesaid socialized housing project. (BIR Ruling No. 473-2014 dated November 24, 2014) Accordingly, the sale by the landowners to NHA of the subject properties covered by TCT Nos. 038-2013001161, 038-2013001163 and 038-2013001164 is exempt from the payment of capital gains tax imposed under Sec. 24 (D) of the Tax Code of 1997, as amended or creditable withholding tax under Revenue Regulations No. 2-98, as amended. The exemption from documentary stamp tax of NHA in connection with any of its socialized housing project extends to the other party (either seller or buyer) that deals or transacts with the NHA. Consequently, since NHA is a party to the sale, no documentary stamp tax shall be due on such sale, either on NHA or the party with which NHA is transacting. Accordingly, the transfer by the landowners to NHA of the subject properties, is, likewise, exempt from the payment of documentary stamp tax under Section 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 473-2014 dated November 24, 2014) Upon application for exemption, a lien on the titles of the land shall be annotated by the Register of Deeds having jurisdiction over the properties, to the effect that the same is to be applied or is being applied to socialized housing project pursuant to RA 7279. Please take note that this ruling is never intended and shall not be construed as giving authority to the concerned Register of Deeds to effect transfer of the land in the name of the buyer without the necessary certificate of authority to register issued by this Bureau. In this regard, this ruling shall be presented to the Revenue District Office (RDO) concerned in order for the latter to issue the Certificate Authorizing Registration (CAR) after the submission of the requirement provided under RMO 15-2003. Transaction between Eddmari Construction and Trading and NHA The developer of properties who sells its properties for use in a socialized housing project is exempt from the payment of project-related income taxes. Such being the case, the sale of Eddmari Construction and Trading to NHA of the One Thousand Two Hundred Thirty (1,230) 1 developed house lots packages, in so far as the aggregate area of 49,971 sq.m. portion covered by TCT Nos. 038-2013001161, 038-2013001163 and 038-2013001164 is concerned, is exempt from the capital gains tax, project-related income taxes and consequently from withholding tax. (BIR Ruling No. 473-2014 dated November 24, 2014) The exemption from documentary stamp tax of NHA in connection with any of its socialized housing project extends to the other party (either seller or buyer) that deals or transacts with the NHA. Consequently, since NHA is a party to the sale, no documentary stamp tax shall be due on such sale, either on NHA or the party with which NHA is transacting. Accordingly, the transfer by Eddmari Construction and Trading to NHA of the 1,230 2 developed house lots packages on the 49,971 sq.m. portion covered by TCT Nos. 038-2013001161, 038-2013001163 and 038-2013001164 is, likewise, exempt from the payment of documentary stamp tax under Section 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 473-2014 dated November 24, 2014) Pursuant to Section 20 (d) (3) of RA 7279, the transfer/sale by Eddmari Construction and Trading of 1,230 3 developed house lots packages on the 49,971 sq.m. portion covered by TCT Nos. 038-2013001161, 038-2013001163 and 038-2013001164 in favor of NHA shall be exempt from VAT. However, its purchases of goods/articles shall be subject to VAT, even if the said purchases are to be used for the socialized housing project, since VAT is an indirect tax which can be passed on by the seller of the goods/services. Moreover, it shall be understood that Eddmari Construction and Trading must issue non-VAT official receipts on its gross receipts from the said socialized housing project. aDcETC This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. 943 units in 38,281 sq.m. for TCT No. 038-2013001163 and 287 units in 11,690 sq.m. for TCT Nos. 038-2013001161 & 038-2013001164. 2. Id. 3. Id.