BIR Ruling No. 099-14

March 25, 2014 BIR RULING NO. 099-14 E.O. 226 Secs. 57 (B); 106 (A) (1) (a); 109 (1) (P); 196 of the Tax Code of 1997, as amended; BIR Ruling No. 474-11; BIR Ruling No. 334-11 SM Development Corporation 15th Floor Two E-Com Center Harbor Drive, Mall of Asia Complex Barangay 76 Zone 10 CBP-1A, Pasay City 1300 Attention: Atty. John L. Itoh Assistant Vice President Corporate Tax Division Gentlemen : This refers to your letter dated 03 October 2012 forwarded to this Office by Revenue Region No. 8, Makati City dated 21 November 2012 requesting for exemption from income and creditable withholding taxes pursuant to Revenue Regulations (RR) No. 2-98, as amended, on account of the housing project's registration with the Board of Investments (BOI) under Executive Order (EO) 226, otherwise known as the "Omnibus Investments Code of 1987". It is represented that SM DEVELOPMENT CORPORATION (SMDC), with Tax Identification Number (TIN) 000-601-470-000, is a corporation duly organized under the laws of the Philippines; that it is registered with the Securities and Exchange Commission (SEC) under Company Registration No. 56909 dated 19 July 1974; that SMDC is the developer of Sea Residences located at J.W, Diokno Blvd., Mall of Asia Complex, CBP-1A, Pasay City; that SMDC (formerly SM SYNERGY PROPERTIES HOLDINGS CORPORATION) is duly registered with the Board of Investments (BOI) under Certificate of Registration No. 2008-222 dated 14 August 2008, as New Developer of Low-Cost Housing Project (Sea Residences Mall of Asia Complex, Bay City, Pasay City) on a non-pioneer status; that pursuant to its registration, its project is entitled to income tax holiday (ITH) incentive for a period of four (4) years from December 2008 or actual start of commercial operations/selling, whichever is earlier but in no case earlier that the date of registration; that Certificates of ITH Entitlement dated April 15, 2010, April 11, 2011 and April 10, 2012 were issued to SMDC granting ITH incentive relative to its registered activity: SMDC Sea Residences Mall of Asia Complex, Bay City, Pasay City for the period December 2008 to November 2012 (4 years); that under the Revised Specific Terms and Conditions Nos. 4 and 6 of its BOI Registration, SMDC shall construct and sell two thousand five hundred sixty one (2,561) units of low-cost mass housing based on the following schedule: TAaCED Year Volume Value (Php'000) 1 1,100 2,579,274 2 959 2,331,502 3 351 897,737 4 151 384,744 Total 2,561 6,193,257 ===== ======== Building One-Bedroom Price/Unit (Php) Projected Revenue Condominium (Php) (units) A 520 2,432,879 1,265,097,080 B 527 2,432,879 1,265,097,080 C 421 2,597,971 1,093,745,791 D 336 2,597,971 872,918,256 E 421 2,590,313 1,090,521,773 F 336 2,590,313 870,345,168 In reply, please be informed that under Section 2.57.5 (B) (2) of 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 Omnibus Investments Code of 1987. Accordingly, since SMDC Sea Residences Mall of Asia Complex, Bay City, Pasay City is a BOI registered project, this Office is of the opinion as it hereby holds that income payments received by SMDC in connection with the aforementioned housing project, SMDC Sea Residences Mall of Asia Complex, Bay City, Pasay City 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 from December 2008 to November 2012. It must be emphasized, however, that the above exemption from creditable withholding tax covers only revenues generated from the registered activity, SMDC Sea Residences Mall of Asia Complex, Bay City, Pasay City. Furthermore, such exemption shall not cover revenues with selling price exceeding Three Million pesos (Php3,000,000.00). (BIR Ruling No. 474-2011 dated December 5, 2011 and 334-2011 dated September 7, 2011) Moreover, SMDC Sea Residences Mall of Asia Complex, Bay City, Pasay City's entitlement to ITH is not automatic as it has still to comply with Section 9 (a) of the Specific Terms and Conditions of the BOI Registration, viz. : 1) Secure from the Housing and Land Use Regulatory Board (HLURB) endorsement/certification that it has faithfully complied with the approved development plan; 2) File an application with the BOI Incentives Division 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 AEHCDa 3) Secure a Certificate of ITH Entitlement (CoE) form the BOI Supervision and Monitoring Department prior to the filing of ITR with the BIR; otherwise, ITH for that particular taxable year without CoE shall be forfeited. Furthermore, BOI-registered enterprises enjoy no tax exemption/privileges other than those granted under EO 226. In this regard, under the terms and conditions of its BOI registration, SMDC Sea Residences Mall of Asia Complex, Bay City, Pasay City 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, SMDC Sea Residences Mall of Asia Complex, Bay City, Pasay City 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 (P1,919,500) * and below or house and lot, and other residential dwellings valued at two million five hundred thousand pesos (P3,199,200.00) * and below is VAT-exempt. Thus, only the sales by Sea Residences of housing units with selling price of not more than the aforementioned price ceilings shall be exempt from VAT. It should be understood that SMDC Sea Residences Mall of Asia Complex, Bay City, Pasay City 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, SMDC Sea Residences Mall of Asia Complex, Bay City, Pasay City 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, SMDC Sea Residences Mall of Asia Complex, Bay City, Pasay City '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 ascertained that the facts are different, then this ruling shall be considered null and void. CTSDAI Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue