BIR Ruling No. 110-15

April 16, 2015 BIR RULING NO. 110-15 RA 7279; BIR Ruling No. 129-12; BIR Ruling No. 413-11 Borland Development Corporation 3rd Floor, E & V Bldg., 1039 Quirino Hi-way Novaliches, Quezon City Attention: Mr. Ramiro R. Dimas Assistant General Manager Gentlemen : This refers to your letter dated December 4, 2012, requesting for exemption from payment of project-related income tax/creditable withholding tax on the sale by Borland Development Corporation (Borland for brevity) of its socialized and low-cost housing units pursuant to the provisions of Republic Act (RA) No. 7279 or the "Urban Development and Housing Act of 1992". It is represented that Borland with Tax Identification No. 001-008-417-000 is a domestic corporation duly organized and existing under Philippine laws; that it is the owner and developer of a housing project known as Sanja Mayor Subdivision (700 lots with units/Pcs-04-027739) covered by Transfer Certificates of Title (TCT) Nos. 057-2012023569 and 057-2012023549 both located in Brgy. Sanja Mayor, Tanza, Cavite; and that the project is duly registered with the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 24323 and License to Sell No. 26080, with the following conditions: "LIST OF LOTS & BLOCKS COVERED BY LICENSE TO SELL: Blocks Lots 28 1 to 27 27 1 to 63 26 1 to 65 25 1 to 67 24 1 to 73 23 1 to 80 22 1 to 85 21 1 to 43 29 1 to 34 01 21 to 77 20 1 to 46 18 1 to 42 17 1 to 18 Total No. of Units = 700 units *Compliance to Section 18 of RA 7279 CREDITED TO: BERKELEY HEIGHTS SUBDIVISION B Brgy. Pulong Sta. Cruz, Sta. Rosa, Laguna No. of units 60 CELINA PLAINS SUBDIVISION PHASE 4-B Brgy. Pook & Caingin, Sta. Rosa, Laguna No. of units 66 SPRINGTOWN VILLAS PHASE 2 Brgy. Gaya-Gaya, San Jose del Monte, Bulacan No. of units 67 STA. ELENA VILLAGE PHASE 2 Brgy. San Jose, Antipolo City No. of units 56 Additional compliance on STA. ELENA VILLAGE PHASE 2 Located at Brgy. San Jose, Antipolo City No. of units 7" In reply, please be informed that Section 20 of RA No. 7279, reads: TcDAHS "Sec. 20. Incentives for the 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;" Only the sale of socialized housing units to qualified beneficiaries shall be exempt from income taxes, and consequently, from creditable expanded withholding tax prescribed under Revenue Regulations (RR) No. 2-98, as amended. Thus, a buyer of a socialized housing unit shall be required by the developer/owner/seller to execute a sworn statement that he is eligible as a socialized housing beneficiary provided under Section 5 (A) of RR No. 11-97. Section 5 (A) of RR No. 11-97 provides that: "SEC. 5. Requirements/Conditions for the Availment of Tax Incentives/Exemptions. A. To qualify for socialized housing program, a beneficiary: (a) must be a Filipino citizen; (b) must be an underprivileged and homeless citizen, as defined in Section 3(t) of the Act and Section 2(r) of these Regulations; (c) must not own any real property, whether in the urban or rural areas; and (d) must not be a professional squatter or a member of squatting syndicates." In this connection, any sale made by the owner and developer to interested parties other than the principal target beneficiaries under Sections 3 (t) and 16 of RA No. 7279, shall not be entitled to the foregoing tax exemption should there be non-compliance with any of the aforestated sine qua non terms and conditions. (BIR Ruling No. 129-12 dated February 23, 2012) It is, however, understood that the Certificate Authorizing Registration (CAR) shall only be issued after it is established upon proper verification by the Revenue District Officer (RDO) concerned that, considering the rules on valuation of real property, the actual selling price per sale transaction of the house and lot packages in this case does not really exceed P400,000.00 and P160,000.00 for lot only. Thus, sale of a house and lot or lot only above the maximum amount shall be subject to the corresponding internal revenue taxes. ADECcI Nonetheless, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause in Section 20 of RA No. 7279. Such being the case, the owner/project developer/seller shall be liable to pay the documentary stamp tax on the documents conveying the properties imposed under Section 196 of the Tax Code of 1997, as amended, based on the consideration contracted to be paid for such realties or on their fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. Pursuant to Section 20 of RA 7279, a project contractor of a socialized housing project shall also be exempt from the payment of value-added tax (VAT) on the project concerned. Relative thereto, Section 4.109-1 (B) (1) (p) (3) of RR No. 16-2005 states that: "Section 4.109-1. VAT-Exempt Transactions. (A) In general. "VAT-exempt transactions" refer to the sale of goods or properties and/or services and the use or lease of properties that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax) on purchases. xxx xxx xxx (B) Exempt transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from VAT: xxx xxx xxx (p) The following sales of real properties are exempt from VAT, namely: xxx xxx xxx (3) Sale of real properties utilized for socialized housing as defined under RA No. 7279, and other related laws, such as RA No. 7835 and RA No. 8763, wherein the price ceiling per unit is P225,000.00 or as may from time to time be determined by the HUDCC and the NEDA and other related laws. . . . ." Furthermore, pursuant to HUDCC Resolution No. 1, Series of 2008, dated December 11, 2008, and as circularized by Revenue Memorandum Circular No. 30-2009, pertinent portion of which reads: "THEREFORE BE IT RESOLVED, AS IT IS HEREBY RESOLVED that the adjustment of the Low Cost Level 1-A socialized housing loan ceiling from P300,000.00 to P400,000.00 be APPROVED, as the same is hereby APPROVED." the newly adjusted price ceiling of P400,000.00 for socialized housing shall apply to sale of real properties utilized for socialized housing, as defined under RA No. 7279 otherwise known as "Urban Development and Housing Act", and other related laws such as RA No. 7835 otherwise known as the "Comprehensive and Integrated Shelter Financing Act of 1994" and RA No. 8763 otherwise known as the "Home Guaranty Act of 2000", beginning January 1, 2009. cDICaS Moreover, Section 2 of RR No. 17-2001 provides: Section 2. Definition of Terms. As used in these Regulations, the following terms shall have the following meaning: xxx xxx xxx "A socialized housing unit shall not exceed P150,000.00 (now P400,000.00) for a house and lot package, subject to periodic adjustment or increase as the Housing and Land Use Regulatory Board (HLURB) may effect from time to time. In the case of sale of homelots only, the price shall not exceed forty percent (40%) of the maximum limit prescribed for the house and lot package. " (Emphasis supplied) The developer of the socialized housing units under RA No. 7279 is exempt from the payment of VAT pursuant to the aforecited provision. However, purchases of goods/articles by the project contractor shall be subject to VAT, even if the said purchases are to be used for the socialized housing project. Moreover, it shall be understood that it must issue non-VAT official receipts on its gross receipts from the said socialized housing project. Accordingly, sale of the House and Lot or Lot only covered by HLURB License to Sell No. 26080, covering Block 28 Lot 1-27, Block 27 Lot 1-63, Block 26 Lot 1-65, Block 25 Lot 1-67, Block 24 Lot 1-73, Block 23 Lot 1-80, Block 22 Lot 1-85, Block 21 Lot 1-43, Block 29 Lot 1-34, Block 01 Lot 21-77, Block 20 Lot 1-46, Block 18 Lot 1-42 and Block 17 Lot 1-18 (700 units) under SANJA MAYOR SUBDIVISION to qualified beneficiaries should be exempt from income taxes and, consequently, from creditable expanded withholding tax and from VAT pursuant to RA 7279 (wherein the maximum price of the House and Lot is P400,000.00 and P160,000 for Lot only). 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue