BIR Ruling No. 165-13

April 30, 2013 BIR RULING NO. 165-13 E.O. 226; RR 2-98; RR 16-11; BIR Ruling No. 334-2011 CSA Resources Corporation Unit 7B PDCP Bank Centre Bldg. V.A. Rufino St. cor Leviste Sts. Salcedo Village, Makati City Attention: Enrique P. Subardiaga President Gentlemen : This refers to your letter dated March 30, 2011 requesting tax exemption as New Developer of Low-Cost Mass Housing Project (Alida Townhomes-Brgy. Malabanban Sur, Candelaria, Quezon) pursuant to the provisions of the Omnibus Investments Code of 1987. Documents submitted disclosed that CSA Resources Corporation with Taxpayer's Identification No. 005-649-745-000, is a domestic corporation engaged in real estate business and registered with the Securities and Exchange Commission (SEC) under SEC Registration No. A199807313 dated May 15, 1998; that CSA Resources Corporation is registered with the Board of Investments (BOI) as a New Developer of Low-Cost Mass Housing Projects on a Non-Pioneer status per BOI Registration No. 2011-046 dated February 25, 2011; that its BOI registration particularly covers the project: Project Name Location Start of Commercial No. of Operation/ITH Units Alida Townhomes Brgy. Malabanban March 2011 30 Sur, Candelaria, Quezon that according to the Terms and Conditions of its BOI Registration CSA Resources Corporation is entitled to Income Tax Holiday (ITH) for a period of four (4) years from March 2011 or the actual start of commercial operations/selling whichever is earlier, but in no case earlier than the date of registration; and that CSA Resources Corporation's ITH shall be limited only to the revenue generated from the registered project, Alida Townhomes-Brgy. Malabanban Sur, Candelaria, Quezon. HTSAEa 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 the Omnibus Investments Code of 1987. Accordingly, since CSA Resources Corporation Alida Townhomes Housing Project, is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by since CSA Resources Corporation in connection with the aforementioned housing project consisting of 30 low-cost housing units, CSA Resources Corporation Alida Townhomes 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 four years starting from March 2011 or actual start of commercial operations/selling, whichever is earlier but in no case earlier than the date of registration. It must be emphasized, however, that the above exemption from the creditable withholding tax covers only revenues generated from the registered activity, CSA Resources Corporation Alida Townhomes Housing Project. 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, CSA Resources Corporation Alida Townhomes Housing Project's entitlement to ITH is not automatic as it has still to comply with Section 10 (a) of the Specific Terms and Conditions of the BOI Registration, viz. : (1) In the computation of ITH, interest income from in-house financing shall not be considered as revenues generated from the registered activity; (2) The enterprise shall submit the list of cost items common to all its projects/activities (whether BOI or not-BOI-registered) and the methodology adopted in allocating the common costs; (3) 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"; CADHcI (4) File an application with the BOI Incentives 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; and (5) 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. 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, CSA Resources Corporation Alida Townhomes Housing Project 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, CSA Resources Corporation Alida Townhomes Housing Project 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 (P1,500,000) 1 and below or house and lot, and other residential dwellings valued at two million five hundred thousand pesos (P2,500,000) 2 and below is VAT-exempt. Thus, only the sales by CSA Resources Corporation Alida Townhomes Housing Project of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. DScTaC It should be understood that CSA Resources Corporation Alida Townhomes Housing Project 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 No. 2-98, as amended. Likewise, CSA Resources Corporation Alida Townhomes Housing Project 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, CSA Resources Corporation Alida Townhomes Housing Project'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 as represented are different, then this ruling shall be considered null and void. aCHcIE Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. P1,919,500.00 Starting January 1, 2012, Revenue Regulations No. 3-2012 dated February 20, 2012. 2. P3,199,200.00 Starting January 1, 2012, Revenue Regulations No. 3-2012 dated February 20, 2012.