BIR Ruling No. 126-15

April 17, 2015 BIR RULING NO. 126-15 RA 7279; RR 11-97; BIR Ruling No. 473-2014 TRM Construction & Development Corp. 19 I. Eisenhower Tower 7 Eisenhower St., Greenhills, San Juan, Metro Manila Attention: Josephine M. Lagman President Gentlemen : This refers to your letter dated October 28, 2011, requesting for a ruling on the tax consequences arising from the development of AFP/PNP Housing program in Brgy. San Mateo, Norzagaray, Bulacan pursuant to Republic Act (R.A.) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted show that J Square Realty Corporation (TIN 004-724-874-000) (hereinafter referred to as Landowner), is the absolute and registered owner of a parcel of land, identified as Lot E, Psd-03-073355 (AR) portion of Lot Psu-114346. SWO-24492 covered by Transfer Certificate of Title (TCT) No. T-297380 issued by the Registry of Deeds for the Meycauayan Branch located at Brgy. San Mateo, Norzagaray, Bulacan with an aggregate area of One Hundred Eleven Thousand Five Hundred Two square meters (111,502 sq.m.). On July 4, 2011, a Deed of Absolute of Sale was executed by and between the landowner and the NHA, whereby the landowner transferred and conveyed Seventy Four Thousand Six square meters (74,006 sq.m.) portion of the subject property to NHA for Three Million Seven Hundred Thousand Three Hundred Pesos (P3,700,300.00). On July 6, 2011, a Contract Agreement was executed by and between TRM Construction and Development Corporation (TIN 208-380-838-000) 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 has offered to sell the developed lots and completed housing units under the Community Initiative Approach Program (CIAP) of the National Housing Authority (NHA) for Php175,000.00 per member/family for Package I and Php208,000.00 per member/family for Package II. EaHDcS Moreover, on July 6, 2011, a Memorandum of Agreement (MOA) (for developed lots and completed housing units) was executed by and among TRM Construction and Development Corporation, 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, Incorporation and PNP Housing Homeowners Association Incorporation, shall be provided by the NHA with a financial grant for the acquisition of house and lot packages in the AFP/PNP Housing Project through the CIAP to finance acquisition in the amount of PhP175,000.00 for a House and Lot Package of thirty six square meters (36.00 sq.m.) lot and twenty two square meters (22.00 sq.m.) floor area (Package I) and Php208,000.00 for a House and Lot Package of forty square meters (40.00 sq.m.) lot and eighteen (18.00 sq.m.) loftable to twenty five square meters (25 sq.m.) floor area (Package II). To give effect to the Contract Agreement and MOA, on July 6, 2011, a Deed of Conveyance was executed by and between TRM Construction and Development Corporation and NHA, whereby the former conveyed One Thousand (1,000) developed lot and completed housing packages with the aggregate area Forty Thousand Six Hundred Four square meters (40,604 sq.m.) of the 74,006 sq.m. covered by TCT No. T-297380 for One Hundred Million pesos (P100,000,000.00). In reply, please be informed that pursuant to Sections 19 and 20, 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;" HcTEaA 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: (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 Landowner 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 landowner to NHA of 74,006 sq.m. out of 111,502 sq.m. for a consideration of P3,700,300.00 covered by TCT No. T-297380 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 landowner to NHA of the 74,006 sq.m. out of 111,502 sq.m. covered by TCT No. T-297380 , 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, including proof of payment of documentary stamp tax. caIDSH Transaction between TRM Construction and Development Corporation and NHA The developer of properties who sells its properties for use in a socialized housing project are exempt from the payment of project-related income taxes. Such being the case, the sale of TRM Construction and Development Corporation to NHA of the 1,000 developed lots and completed housing on the 40,604 sq.m. out of 74,006 sq.m. covered by TCT No. T-297380 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 TRM Construction and Development Corporation to NHA of the 1,000 developed lots and completed housing on the 40,604 sq.m. out of 74,006 sq.m. covered by TCT No. T-297380 is concerned, 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 TRM Construction and Development Corporation of 1,000 the developed lots and completed housing on the 40,604 sq.m. out of 74,006 sq.m. covered by TCT No. T-297380 to 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 TRM Construction and Development Corporation must issue non-VAT official receipts on its gross receipts from the said socialized housing project. 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