BIR Ruling No. 102-12

February 20, 2012 BIR RULING NO. 102-12 E.O. 226; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 334-2011 Communities Iloilo, Inc. Mezzanine Floor, Starmall Complex, EDSA cor. Shaw Blvd., Mandaluyong City Attention: Atty. Cecilia A. Ramilo Tax Department Head Gentlemen : This refers to your letter dated March 1, 2010 requesting for a tax exemption certificate pursuant to Revenue Regulations No. 2-98, as amended, on account of your registration with the Board of Investments (BOI) under Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987". As represented, Communities Iloilo, Inc. is a real property developer habitually engaged in the business of developing and constructing affordable house and lot units; that its projects are duly registered with the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 21065 and License to Sell No. 22155 pursuant to Batas Pambansa 220; that at present, it has an ongoing project called Savannah Glen E-3 located at Brgy. Abilay Norte, Oton, Iloilo; that it has been registered with the Board of Investments per Certificate of Registration No. 2010-049 dated February 24, 2010 as an expanding developer of low-cost mass housing project on a non-pioneer status under the Omnibus Investments Code of 1987 (E.O. 226); that it shall be entitled to income tax holiday (ITH) for a period of three (3) years from February 2010 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of registration; and that the ITH shall be limited only to the revenue generated from its registered activity (Savannah Glen E-3 located at Brgy. Abilay Norte, Oton, Iloilo) . cTDaEH Under the Specific Terms and Conditions of its BOI Registration, Communities Iloilo, Inc. is obligated to construct and sell one hundred one (101) units of low-cost mass housing based on the following schedule: Year Volume (Units) Sales Value (P'000) 1 27 49,645 2 38 69,598 3 36 68,124 Total 101 187,367 === ====== 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 Savannah Glen E-3 , is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by Communities Iloilo, Inc. in connection with the aforementioned housing project, are exempt from the creditable withholding tax imposed under RR No. 2-98, as amended by RR No. 6-2001, for a period of three years starting from February 2010 or actual start of commercial operations/selling, whichever is earlier. It must be emphasized, however, that the above exemption from the creditable withholding tax covers only revenues generated from Communities Iloilo, Inc.'s registered activity, Savannah Glen E-3 . 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 ). Moreover, Communities Iloilo, Inc.'s entitlement to ITH for its project, Savannah Glen E-3, is not automatic as it has still to comply with Sections 8 (a), 9, 10, 11 and 12 of the Specific Terms and Conditions of the BOI Registration, viz. : aDHCEA (1) Secure from the Housing and Land Use Regulatory Board (HLURB) an endorsement that it has faithfully complied with the approved development plan and a "certificate of good housekeeping"; (2) File an application with the BOI Incentive 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; (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; (4) The enterprise shall maintain the 75:25 debt-to-equity requirement prior to availment of ITH. Otherwise, the enterprise shall not be entitled to ITH and any capital equipment incentive availed of shall be refunded accordingly; (5) Prior to availment of ITH, for low-cost mass housing projects, the firm shall submit a proof of compliance that, at least twenty percent (20%) of the total subdivision project cost, has been developed and allocated for socialized housing within the same city or municipality, whenever feasible and in accordance with other existing laws. The total subdivision project cost may also be complied with in any of the following manner viable in the city or municipality: (1) New Settlement; (2) Slum Upgrading; (3) Community Mortgage Program; and (4) Joint-Venture Projects. Otherwise, the ITH for that particular taxable year shall be deemed forfeited; cSCADE (6) The enterprise shall ensure (a) that its contractors are duly licensed by the Philippine Contractors Accreditation Board (PCAB) as required under Republic Act 4566 ("Contractors License Law") and (b) that any construction activity, under its project and supervision shall be undertaken in accordance with the rules and regulations prescribed by PCAB as well as all applicable laws; and (7) The enterprise shall submit to the BOI Supervision and Monitoring Department, on a quarterly basis within fifteen (15) days from the end of each quarter, a report on Actual Investments, Employment, Sales, Production Costs, and other information that the Board may require at anytime with respect to the registered project starting on date of registration. 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, Communities Iloilo, Inc. was clearly granted a 3-year ITH for its project, Savannah Glen E-3 , but such terms and conditions do not provide for any exemption from other taxes that Communities Iloilo, Inc. may be subject to on its business transactions. Thus, Communities Iloilo, Inc. will remain subject to Value-Added Tax (VAT) and Documentary Stamp Tax (DST) on its sale 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. 334-2011 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 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 Communities Iloilo, Inc. of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. It should be understood that Communities Iloilo, Inc. 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 (RR) No. 2-98, as amended. DCIEac Likewise, Communities Iloilo, Inc. is 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, Communities Iloilo, Inc.'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.