BIR Ruling No. 169-15

June 5, 2015 BIR RULING NO. 169-15 Secs. 19, 20 of RA 7279; RR 11-97; BIR Ruling No. 066-2011; BIR Ruling No. 353-2013 Mar-Deb Construction & Development Cabatuan, Isabela Attention: Atty. Miguel L. Ponce, Jr. Legal Counsel and Project Representative Gentlemen : This refers to your letter dated June 23, 2014 requesting, on behalf of MAR-DEB Construction and Development ("MAR-DEB") Certificate of Tax Exemption for the AFP-PNP Housing Project located in Brgy. Minante II, Cauayan City, Isabela, pursuant to Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". It is represented that the National Housing Authority (NHA), as the implementing government agency for the AFP/PNP Housing Program, as cited under Administrative Order No. 9 dated April 11, 2011, acquired two (2) parcels of land to be developed into a residential housing project for the Armed Forces of the Philippines (AFP), Philippine National Police (PNP), Bureau of Jail Management and Penology (BJMP) and Bureau of Fire Protection (BFP) under the Community Initiative Approach Program (CIAP) of the NHA. The subject properties are particularly described as follows: Transfer Certificate of Title No. T-370805 1 "A PARCEL OF LAND OF LOT NO. A-2 of the subd. Plan (LRC) Psd-48010, being a portion of Lot A, (LRC) Psd-16686, LRC (GLRO) Rec. No. H. Patent), situated in the Barrio of Minate, (San Isidro), Municipality of Cauayan, Province of Isabela, Island of Luzon. . . . containing an area of Thirty Eight Thousand Nine Hundred Fifty Six (38,956) square meters, more or less." Transfer Certificate of Title No. T-370806 2 "A PARCEL OF LAND OF LOT NO. A-1 of the subd. Plan (LRC) Psd-48010, being a portion of lot no. A, LRC Psd-16686, LRC (GLRO) Rec. No. H. Pat., situated in the Barrio of Minate, Municipality of Cauayan, Province of Isabela, Island of Luzon. . . . containing an area of Twenty Thousand (20,000) square meters, more or less." On June 18, 2012, the landowner, A-4 Trade Center Incorporated executed a Deed of Absolute of Sale in favor of the NHA, whereby the former sold to the latter Forty Eight Thousand Nine Hundred Fifty Six (48,956) square meters portion out of the 58,956 sq.m. covered by TCT Nos. T-370805 and T-370806, to be utilized by the NHA for its socialized housing project, for and in consideration of the sum of Four Million Eight Hundred Ninety Five Thousand Six Hundred Pesos (P4,895,600.00). EcTCAD On October 23, 2012, a Contract Agreement was executed by and between Mar-Deb Construction and Development ("Mar-Deb"), a private entity duly organized and existing under the laws of the Philippines, and the AFP Housing Homeowners' Association, Inc. (AFPHOAI) and PNP Housing Homeowners Association, Inc. (PNPHOAI), homeowners' organizations registered with the Housing and Land Use Regulatory Board (HLURB), whereby Mar-Deb has agreed to sell to AFPHOAI's individual members the developed lots and completed housing units under the Community Initiative Approach Program (CIAP) of the NHA for Two Hundred Forty Thousand Pesos (P240,000.00) 3 for every developed lot and completed housing unit per family. Moreover, on October 23, 2012, a Memorandum of Agreement (MOA) was executed by and among Mar-Deb, as the developer, AFPHOAI and PNPHOAI, as the beneficiaries, and the NHA, as the lead agency in the implementation of the Resettlement and Relocation Programs of the government and to ensure the timely, peaceful and orderly relocation and resettlement of the families affected by the calamities and those living in danger areas. Under the MOA, members 4 of the AFPHOAI and PNPHOAI shall be provided by the NHA with a financial grant for the acquisition of developed lots and financing of the acquisition of completed housing units through the CIAP in the amount not to exceed One Hundred Fifteen Thousand Pesos (P115,000.00) per lot and One Hundred Twenty Five Thousand Pesos (P125,000.00) per housing unit. To give effect to the Contract Agreement and MOA, on January 8, 2013, a Deed of Conveyance, was executed by and between A-4 Trade Center, Incorporated, Mar-Deb and NHA, whereby the former agreed to sell to NHA, 746 developed lots or parcels of land covering an area of Thirty One Thousand Fifty Two square meters (31,052 sq.m.) portion of the properties covered by TCT Nos. T-370805 and T-370806 for and in consideration of Eighty Five Million Seven Hundred Ninety Thousand Pesos (P85,790,000.00). In support of your above request, you submitted the following documents: 1) BIR Certificate of Registration of Mar-Deb; 2) Copy of HLURB Certificate of Registration of PNPHOAI; 3) Copy of the Deed of Absolute Sale executed by A-4 Trade Center, Inc. in favor of the NHA; 4) Copy of Deed of Conveyance between A-4 Trade Center, Inc., Mar-Deb and the NHA; 5) Copy of the Memorandum of Agreement by and among Mar-Deb, AFPHOAI, PNPHOAI and NHA; 6) Copy of Contract of Agreement between Mar-Deb, AFPHOAI and PNPHOAI; 7) Copies of the Transfer Certificate of Titles; and 8) Other pertinent documents. In reply, please be informed that Sections 19 and 20 of Republic Act (RA) No. 7279 provide: HSAcaE "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;" xxx xxx xxx" Sale by the Landowner to NHA Based on the aforesaid provision, the owner of the raw lands is exempt from the payment of capital gains tax or the withholding tax under Revenue Regulations No. 2-98, as amended, on the sale of the parcels of land to the NHA which shall be utilized by the latter in its socialized housing projects. (BIR Ruling No. 066-2011 dated March 9, 2011) Accordingly, the sale by A-4 Trade Center, Incorporated to NHA of the Forty Eight Thousand Nine Hundred Fifty Six (48,956) square meters portion of lots covered by TCT Nos. T-370805 and T-370806, 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. Moreover, 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 sale by the landowner to NHA of the Forty Eight Thousand Nine Hundred Fifty Six (48,956) square meters portion of lots covered by TCT Nos. T-370805 and T-370806, is likewise, exempt from the payment of documentary stamp tax under Section 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 353-2013 dated September 20, 2013) Furthermore, under Section 109 (1) (P) of the Tax Code, as amended by R.A. 9337, the sale of real properties utilized for low-cost and socialized housing as defined under R.A. No. 7279 shall be exempt from value-added tax (VAT). Thus, the sale by the landowner to NHA of the Forty Eight Thousand Nine Hundred Fifty Six (48,956) square meters portion of lots covered by TCT Nos. T-370805 and T-370806, is also exempt from VAT. 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. HESIcT Transaction between Mar-Deb and NHA The developer of properties who sells its properties for use in a socialized housing project is exempt from the payment of project-related income taxes pursuant to Section 20 of RA No. 7279. Such being the case, the sale by Mar-Deb to NHA of the 746 developed lots or parcels of land, covering an area of Thirty One Thousand Fifty Two square meters (31,052 sq.m.) portion of the subject properties, is exempt from the capital gains tax, project-related income taxes and consequently from withholding tax. Upon issuance of this letter of exemption, and upon registration of the documents of sale, a lien on the Certificates of Title of the land to be issued in the name of the NHA shall be caused to be annotated by the Register of Deeds having jurisdiction over the properties, to the effect that the said properties shall be used for socialized housing pursuant to R.A. No. 7279. (BIR Ruling No. 353-2013 dated September 20, 2013) Likewise, 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 Mar-Deb to NHA of the 746 developed lots or parcels of land, covering an area of Thirty One Thousand Fifty Two square meters (31,052 sq.m.) portion of the subject properties is exempt from the payment of documentary stamp tax under Section 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 353-2013 dated September 20, 2013) Furthermore, under Section 20 (d) (3) of RA 7279, the sale by Mar-Deb to NHA of the 746 developed lots or parcels of land, covering an area of Thirty One Thousand Fifty Two square meters (31,052 sq.m.) portion of the subject properties shall be exempt from VAT. However, the purchases of goods/articles by Mar-Deb 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 Mar-Deb 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 Footnotes 1. Registered under the name of A-4 Trade Center Incorporated. 2. Registered under the name of A-4 Trade Center Incorporated. 3. P115,000.00 per developed lot and P125,000.00 per completed housing unit. 4. Composed of members/families of AFP, PNP, BJMP, and BFP.