BIR Ruling No. 172-13

May 14, 2013 BIR RULING NO. 172-13 E.O. 226; BIR Ruling No. 334-2011 Cypress Grove Estates Corporation 12/F Equitable Bank Tower, 8751 Paseo de Roxas Makati City Attention: Ms. Arlene C. Keh President Madame : This refers to your letter dated July 26, 2010, requesting for exemption from income and creditable withholding taxes, the income derived from the sales of a Board of Investments (BOI) registered project, particularly "New Developer of Low-Cost Mass Housing Project The Bellefonte 1388 Camarin Road, Kalookan City", pursuant to Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987". HETDAC Documents submitted show that CYPRESS GROVE ESTATES CORPORATION (CGEC),with Tax Identification Number (TIN) 006-931-545-000, is a domestic corporation engaged in real estate business and registered with the Securities and Exchange Commission under Reg. No. CS200718945; that CGEC is the owner of a Low-Cost Mass Housing Project at Camarin Road, Kalookan City; that CGEC's Low-Cost Mass Housing Project is registered with the Board of Investments (BOI) under BOI Certificate of Registration No. 2010-073 dated 25 March 2010 ,as a New Developer of Low-Cost Mass Housing Project, The Bellefonte 1388 Camarin Road, Kalookan City, on a Non-Pioneer status ;that CGEC (The Bellefonte 1388 Camarin Road, Kalookan City) shall sell Five Hundred Seventy Four (574) units of low-cost mass housing based on the following schedule: Year Volume (units) Value (P'000) 1 148 184,375 2 180 223,875 3 180 223,875 4 66 82,063 Total 574 714,188 ==== ======= that the availment period of the Income Tax Holiday (ITH) incentives shall be reckoned from April 2010 or actual start of commercial operations/selling, whichever is earlier but in no case earlier than the date of registration; and that the ITH shall be limited only to the revenue generated from its registered project (The Bellefonte 1388 Camarin Road, Kalookan City) ;that a Certificate of Entitlement was issued by the BOI on September 20, 2010 to CGEC The Bellefonte 1388 Camarin Road, Kalookan City and that the ITH entitlement period is from April 10, 2010 to March 31, 2014 (4 years). In reply, please be informed that under Section 2.57.5 (B) (2) of Revenue Regulations 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 income tax provided by the Omnibus Investments Code of 1987. Accordingly, since CGEC The Bellefonte 1388 Camarin Road, Kalookan City ,is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by CGEC The Bellefonte 1388 Camarin Road, Kalookan City , 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 (4) years from April 2010 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 CGEC The Bellefonte 1388 Camarin Road, Kalookan City .Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million Pesos (P3,000,000.00). SDEITC Moreover, CGEC The Bellefonte 1388 Camarin Road, Kalookan City 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) Secure from the Housing and Land Use Regulatory Board (HLURB) an endorsement that it has faithfully complied with the approved development plan; (2) File an application with the BOI Incentives Department within one (1) month from the filing of 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 (3) 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, CGEC The Bellefonte 1388 Camarin Road, Kalookan City will remain subject to Value-Added Tax (VAT) and Documentary Stamp Tax (DST) on its sales of housing units pursuant to Section 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, 1 as amended by Revenue Regulations No. 16-2011 provides, that the sale of residential lot valued at One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00) and below or house and lot, and other residential dwellings valued at Three Million One Hundred Ninety Nine Thousand Two Hundred Pesos (P3,199,200.00) and below is VAT-exempt. Thus, only the sales by CGEC The Bellefonte 1388 Camarin Road, Kalookan City of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. TAECSD It should be understood that CGEC The Bellefonte 1388 Camarin Road, Kalookan City 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 at 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, CGEC The Bellefonte 1388 Camarin Road, Kalookan City is required to file on or before the 15th day of the fourth month following the close of its accounting period a Profit and Loss Statement and Balance Sheet with the Annual Information Return under oath, stating its gross income and expenses incurred during the taxable year. Finally, CGEC The Bellefonte 1388 Camarin Road, Kalookan City 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 it has been complying with the conditions under which it has been granted tax exemption or tax incentives and its 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. CSaIAc Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Effective January 1, 2012, the adjusted threshold amount of sale of real properties exempt from VAT in 109 (1) (P) pursuant to Revenue Regulations No. 16-2011, are as follows: * Sale of residential lot valued at P1,919,500.00 and below, * Sale of house and lot and other residential dwellings valued at P3,199,200.00 and below where the instrument of sale/transfer/disposition was executed on or after January 1, 2012.