BIR Ruling No. 166-13

April 30, 2013 BIR RULING NO. 166-13 E.O. 226; RR 2-98; BIR Ruling No. 334-2011 Duraville Realty & Development Corporation MCC Commercial Center, Mary Cris Complex Subd. Pasong Camachile 2, General Trias, Cavite Attention: Atty. Rene Antonio Cirio Legal Counsel Gentlemen : This refers to your letter dated June 22, 2012 requesting tax exemption as Expanding Developer of Low-Cost Mass Housing Project (Wellington Place [Mary Cris Complex] Phase 11-A) pursuant to the provisions of the Omnibus Investments Code of 1987. Documents submitted disclosed that Duraville Realty & Development Corporation with Taxpayer's Identification No. 001-160-318-000, is a domestic corporation engaged in real estate business and registered with the Securities and Exchange Commission (SEC) under SEC Registration No. ASO91-197697 dated November 6, 1991; that Duraville Realty & Development Corporation is registered with the Board of Investments (BOI) as a Expanding Developer of Low-Cost Mass Housing Project on a Non-Pioneer status per BOI Registration No. 2012-030 dated February 14, 2012; that its BOI registration particularly covers the project: Project Name Location Start of No. of Commercial Units Operation/ITH Wellington Place [Mary Brgy. Pasong March 2012 436 Cris Complex] Phase 11-A Camachile, General Trias, Cavite that according to the Terms and Conditions of its BOI Registration, Duraville Realty & Development Corporation is entitled to ITH for a period of three (3) years from March 2012 or the actual start of commercial operations/selling whichever is earlier, but in no case earlier than the date of registration; that Duraville Realty & Development Corporation's ITH shall be limited only to the revenue generated from the registered projects; and that revenues from units with selling price exceeding PhP2.50M shall not be covered by ITH; and that the project is duly registered with the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 22664, with License to Sell No. 24929. CDHcaS 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 Duraville Realty & Development Corporation Wellington Place [Mary Cris Complex] Phase 11-A Housing Project , is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by Duraville Realty & Development Corporation in connection with the sale of four hundred thirty six (436) low-cost mass housing units, Duraville Realty & Development Corporation Wellington Place [Mary Cris Complex] Phase 11-A , 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 (3) years starting from March 2012 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, Duraville Realty & Development Corporation Wellington Place [Mary Cris Complex] Phase 11-A Housing Project . Furthermore, such exemption shall not cover revenues from units with selling price exceeding Two Million Five Hundred Thousand Pesos (P2,500,000.00). (BIR Ruling No. 334-2011 dated September 7, 2011) In the computation of ITH, interest income from in-house financing shall not be considered as revenues generated from the registered activity. Moreover, Duraville Realty & Development Corporation Wellington Place [Mary Cris Complex] Phase 11-A Housing Project's entitlement to ITH is not automatic as it has still to comply with Section 9 (a) of the Specific Terms and Conditions of the BOI Registration, viz. : (1) The enterprise shall submit audited segregated income statements and the net income of registered activity shall be certified under oath by CEO or CFO; (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. The methodology to be adopted in accounting for fixed Assets particularly the Plant, Property and Equipment account shall be the Straight Line depreciation method; ACDTcE (3) The Interest Expense on the firm's liabilities shall be proportionately allocated for the project; (4) 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"; (5) 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 (6) 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, Duraville Realty & Development Corporation Wellington Place [Mary Cris Complex] Phase 11-A Housing Project was clearly granted a 3-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, Duraville Realty & Development Corporation Wellington Place (Mary Cris Complex] Phase 11-A 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) HacADE 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 Duraville Realty & Development Corporation Wellington Place [Mary Cris Complex] Phase 11-A Housing Project of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. It should be understood that Duraville Realty & Development Corporation Wellington Place [Mary Cris Complex] Phase 11-A 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, Duraville Realty & Development Corporation Wellington Place [Mary Cris Complex] Phase 11-A 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, Duraville Realty & Development Corporation Wellington Place [Mary Cris Complex] Phase 11-A 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. cCHITA Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. P1,919,500.00 starting January 1, 2012. 2. P3,199,200.00 starting January 1, 2012.