BIR Ruling No. 091-13

March 5, 2013 BIR RULING NO. 091-13 E.O. 226; RR 16-2011; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 334-11 Property Company of Friends, Inc. (Profriends) Profriends Center, 55 Tinio St. Brgy. Addition Hills, Mandaluyong City Attention: Ms. Marilyn T. Santos Financial Control Group Head Gentlemen : This refers to your letter dated March 30, 2012 stating that Property Company of Friends, Inc. (Profriends for brevity) with Tax Identification No. 201-981-861-000 is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under Company Reg. No. A199902864. It is registered with the Board of Investments (BOI) as an Expanding Developer of a Low-Cost Mass Housing Project (Cedar Village Phase 4 Brgy. Lantic, Carmona, Cavite) and as a New Developer of Low-Cost Mass Housing Project (Bellefort Estates Phase 1 Brgy. Molino, Bacoor, Cavite) both on a Non-Pioneer status under the Omnibus Investments Code of 1987 or Executive Order (EO) No. 226. For (Cedar Village Phase 4 Brgy. Lantic, Carmona, Cavite) it has been granted Income Tax Holiday (ITH) by the BOI under Certificate of Registration No. 2011-019 dated January 19, 2011 for a period of three (3) years from January 2011 or actual start of commercial operations/selling pursuant to EO 226. For (Bellefort Estates Phase 1 Brgy. Molino, Bacoor, Cavite Project) it has been granted ITH by the BOI under Certificate of Registration No. 2011-245 dated November 21, 2011 for a period of four (4) years from November 2011 or actual start of commercial operations/selling pursuant to EO 226. Pro-friends' Cedar Village Phase 4 Brgy. Lantic, Carmona, Cavite Project is registered with Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 23652 and holds HLURB License to Sell No. 25321. Pro-friends' Bellefort Estates Phase 1 Brgy. Molino, Bacoor, Cavite Project is registered with HLURB under Certificate of Registration No. 21673 and holds HLURB License to Sell No. 22679; and under the Specific Terms and Conditions of its BOI Registration, Profriends shall construct and sell two hundred seventy four (274) units of low-cost mass housing for Cedar Village Phase 4 Brgy. Lantic, Carmona, Cavite Project based on the following schedule: Year Volume (No. of Units) 1 92 2 92 3 90 Total 274 ==== Likewise, Profriends shall construct and sell six hundred seventy (670) units of low-cost mass housing for Bellefort Estates Phase 1 Brgy. Molino, Bacoor, Cavite Project based on the following schedule: Year Volume (No. of Units) Value (Php'000) 1 169 405,600 2 167 400,800 3 167 400,800 4 167 400,800 Total 670 1,608,000 ==== ======== 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 Profriends, 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. aSTAIH 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. Accordingly, since Profriends' Cedar Village Phase 4 Brgy. Lantic, Carmona, Cavite and Bellefort Estates Phase 1 Brgy. Molino, Bacoor, Cavite Project, are both BOI-registered projects, this Office is of the opinion as it hereby holds, that income payments received by Profriends in connection with its housing projects: Cedar Village Phase 4 Brgy. Lantic, Carmona, Cavite (on the 274 low-cost mass housing units as mentioned in the Specific Terms and Conditions of its BOI Registration) and Bellefort Estates Phase 1 Brgy. Molino, Bacoor, Cavite (on the 670 low-cost mass housing units as mentioned in the Specific Terms and Conditions of its BOI Registration) are exempt from CWT under RR No. 2-98, as amended by RR No. 6-2001, for a period of 3 years from January 2011 and 4 years from November 2011, respectively 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 CWT covers only revenues generated from the registered activities, Cedar Village Phase 4 Brgy. Lantic, Carmona, Cavite Project and Bellefort Estates Phase 1 Brgy. Molino, Bacoor, Cavite Project. Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million Pesos (P3,000,000.00) for Cedar Village but P2,500,000.00 for Bellefort. (BIR Ruling No. 334-11 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, the entitlement to ITH of Profriends' Cedar Village Phase 4 Brgy. Lantic, Carmona, Cavite Project and Bellefort Estates Phase 1 Brgy. Molino, Bacoor, Cavite Project are not automatic as they still have to comply with the provisions of Sections 10 (a) and 8 (a.v.), respectively, of the Specific Terms and Conditions of their BOI Registrations, viz. : 1. The enterprise shall submit a list of common cost items and cost allocation methodology for its other projects/activities (whether BOI-registered or non-registered); 2. Secure from the HLURB an endorsement that it has faithfully complied with the approved development plan and a "Certificate of Good Housekeeping"; 3. 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; and cTECIA 4. 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. 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 registrations, Profriends' Cedar Village Phase 4 Brgy. Lantic, Carmona, Cavite Project and Bellefort Estates Phase 1 Brgy. Molino, Bacoor, Cavite Project were clearly granted a 3-year ITH, and a 4-year ITH, respectively, but such terms and conditions do not provide for any exemption from other taxes that Profriends may be subject to on its business transactions. Thus, Profriends' Cedar Village Phase 4 Brgy. Lantic, Carmona, Cavite and Bellefort Estates Phase 1 Brgy. Molino, Bacoor, Cavite 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. 1 Thus, only the sales by Cedar Village Phase 4 Brgy. Lantic, Carmona, Cavite Project and Bellefort Estates Phase 1 Brgy. Molino, Bacoor, Cavite 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 Profriends' Cedar Village Phase 4 Brgy. Lantic, Carmona, Cavite Project and Bellefort Estates Phase 1 Brgy. Molino, Bacoor, Cavite 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. ECDaAc Likewise, Profriends' Cedar Village Phase 4 Brgy. Lantic, Carmona, Cavite Project and Bellefort Estates Phase 1 Brgy. Molino, Bacoor, Cavite Project are required to file on or before the 15th day of the fourth month following the close of your 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, Profriends' Cedar Village Phase 4 Brgy. Lantic, Carmona, Cavite Project and Bellefort Estates Phase 1 Brgy. Molino, Bacoor, Cavite 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 you have been complying with the conditions under which you have been granted tax exemption or tax incentives and your 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. 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 .