BIR Ruling No. 136-15

May 4, 2015 BIR RULING NO. 136-15 RA 7279; RMC 42-2001; BIR Ruling No. 360-2013; BIR Ruling No. 351-2012 TRM Construction and Development Corporation 19 I Eisenhower Tower, 7 Eisenhower St. Greenhills, San Juan City Attention: Ms. Josephine Manuel-Lagman President Gentlemen : This refers to your letter dated October 10, 2011 requesting for exemption from capital gains tax, documentary stamp tax, project-related income tax and value-added tax on the sale of your properties to the National Housing Authority (NHA) for distribution to the families affected by typhoon Reming and the Bulusan Volcano eruption, in pursuance to Republic Act (RA) No. 7279, otherwise known as the Urban Development and Housing Act of 1992. Documents submitted show that TRM Construction & Development Corporation with Tax Identification No. 208-380-838-000 is a domestic corporation duly registered under Philippine laws. It is the registered owner of properties covered by Transfer Certificates of Title (TCT) Nos. T-68636 and T-68091 (Subject Lots) both located in Brgy. Salvacion, Irosin, Sorsogon containing an aggregate area of 100,000 sq.m., more or less. In a Memorandum of Agreement (MOA) dated July 2, 2010 executed by and among TRM Construction & Development Corporation, The Irosin Resettlement Area Homeowners Association (TIRAHAN), Inc. and the NHA, the subject lots shall be proportionately distributed by NHA to qualified member-beneficiaries of TIRAHAN, Inc. per approved Financing Scheme for the acquisition of developed lots under the Community Association Initiative Approach Program (CAIAP) for the Bicol Calamity Assistance and Rehabilitation Effort (B-CARE) in the amount not to exceed P80,000.00 per developed lot per affected family chargeable against the B-CARE Fund. In the Deed of Absolute Sale executed by and between TRM Construction & Development Corporation and the NHA on July 2, 2010, it was stated that President Gloria Macapagal-Arroyo declared that there is a need to immediately develop a permanent resettlement site for families affected by 'Super typhoon Reming' whose houses were totally damaged, and those residing in areas declared as danger zones and that all the parties thereto have fully conformed that the acquisition of developed lots by the members of TIRAHAN, Inc. shall be financed by the NHA through the grant. In consideration of the sum of P63,040,000.00, the seller TRM Construction & Development Corporation transfers and conveys in favor of NHA, the 788 developed lots with a total aggregate area of 63,818 sq.m., more or less. But after considering the actual site condition in the implementation of the said Resettlement Project, a revision of the subdivision plan was introduced by TRM Construction & Development Corporation, thus revising the Land Distribution Area of 788 developed lots to an aggregate area of 49,308 sq.m. as per approved technical description. You now request for exemption from taxes on the sale of the said socialized housing units, as well as the project contractor's exemption from value-added tax (VAT) pursuant to RA No. 7279. In reply, please be informed that pursuant to Sections 19 and 20 of RA No. 7279, pertinent portions of which state that: AcSIDE "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 or 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; (3) Value-added tax for the project contractor concerned;" the landowner/developer of properties who sells his/its properties for use in a socialized housing project is exempt from the payment of the capital gains tax and project-related income taxes. Such being the case, the sale of the 788 developed lots on the 49,308 sq.m. by TRM Construction & Development Corporation to NHA is exempt from capital gains tax, project-related income taxes and consequently from withholding tax. ( BIR Ruling No. 360-2013 dated September 30, 2013) Moreover, pertinent portions of Revenue Memorandum Circular (RMC) No. 42-01 dated October 5, 2001, provide, viz. : xxx xxx xxx (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 It must be noted that the exemption from the documentary stamp tax of NHA, in connection with any of its socialized housing projects, 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 & Development Corporation to NHA of the 788 developed lots under the CAIAP for the Bicol Calamity Assistance and Rehabilitation Effort (B-CARE) on the 49,308 sq.m. portion of the above-stated properties, is likewise, exempt from the payment of documentary stamp tax under Section 196 of the Tax Code of 1997, as amended. ( BIR Ruling No. 360-2013 dated September 30, 2013) Upon application for exemption, a lien on the title of the subject parcels of 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 a 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 the transfer of the title 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 Revenue Memorandum Order (RMO) No. 15-2003. 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: HSIaAT 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 2013, promulgated on October 16, 2013 approving the adjustment of price ceiling for socialized housing, and as circularized by RMC No. 35-2014, pertinent portion of which reads: "THEREFORE BE IT RESOLVED, AS IT IS HEREBY RESOLVED that the price ceiling for horizontal socialized housing be adjusted from P400,000.00 to P450,000.00." thus, beginning December 18, 2013, 1 the newly adjusted price ceiling of P450,000.00 for horizontal socialized housing shall apply to sale of real properties utilized for socialized housing, as defined under R.A. No. 7279 otherwise known as "Urban Development and Housing Act", and other related laws such as R.A. No. 7835 otherwise known as the "Comprehensive and Integrated Shelter Financing Act of 1994," and R.A. No. 8763, otherwise known as the "Home Guaranty Act of 2000". Moreover, Section 2 of R.R. 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 P450,000.00 per HUDCC Resolution No. 1, Series of 2013, promulgated on October 16, 2013) 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." Thus, TRM Construction & Development Corporation, being the contractor of the afore-mentioned socialized housing project located at Brgy. Salvacion, Irosin, Sorsogon, is likewise exempt from the payment of VAT on the sale of lots valued at One Hundred Eighty Thousand Pesos (P180,000.00) and below, and house and lot valued at Four Hundred Fifty Thousand Pesos (P450,000.00) and below, on its gross receipts from the sale of developed lots and completed housing units to NHA. 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 & Development Corporation must issue non-VAT official receipts on its gross receipts from the said socialized housing project. (BIR Ruling No. 351-12 dated May 21, 2012) 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. HUDCC Resolution No. 1 Series of 2013 took effect on December 18, 2013 after having satisfied the publication requirement as circularized by HUDCC Memorandum Circular No. 01 Series of 2014.