BIR Ruling No. 174-14

June 5, 2014 BIR RULING NO. 174-14 E.O. 226; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 334-2011 Cityland Development Corporation 2/F & 3/F Cityland 10 Tower 1 156 H.V. Dela Costa St.,Ayala North Makati City Attention: Rudy Go Vice President Gentlemen : This refers to your letter dated April 5, 2013 requesting on behalf of Cityland Development Corporation ("Cityland") a certificate of tax exemption from income and expanded withholding taxes for its Project, Makati Executive Tower IV , on account of its registration with the Board of Investments (BOI) under Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987". Documents submitted show that Cityland ,with Tax Identification No. (TIN) 000-527-103-000, is a domestic corporation duly organized under the Philippine laws; that it is registered with the Securities and Exchange Commission (SEC) bearing SEC Certificate of Registration No. 77823; that it is a property developer habitually engaged in the business of developing and constructing housing projects; that at present, it has a low-cost mass housing project, Makati Executive Tower IV located at Sen. Gil J. Puyat Ave. cor. P. Medina Street, Makati City; that the said project has been registered with the Board of Investments per Certificate of Registration No. 2009-016 dated February 12, 2009 as a new developer of low-cost mass housing project on a non-pioneer status under the Omnibus Investments Code of 1987 (E.O. 226); that Cityland shall be entitled to income tax holiday (ITH) for its Makati Executive Tower IV project for a period of four (4) years beginning from June 2009; 1 that Certificates of ITH Entitlement for Taxable Years 2009, 2010, 2011 and 2012 were issued to Cityland pertaining to the above-project; that the ITH of Cityland shall be limited only to the revenue generated from the registered housing project, Makati Executive Tower IV; and that the said project is duly registered with the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 21456 and License to Sell No. 22748 pursuant to Batas Pambansa 220. ACTIcS Cityland, under the Specific Terms and Conditions of its BOI Registration for Makati Executive Tower IV project, is obligated to construct and sell Four Hundred Seventy Two (472) units based on the following sales schedule: Condominium Bachelor's Pad Studio 1-Bedroom Area (sq. m.) 21.27 26.93 31.96 Price/Unit (P) 1,643,107 2,080,342 2,468,910 No. of Units 43 63 366 Total Selling Price P69,010,494 P183,054,648 P754,777,305 ========== =========== ========== Moreover, Cityland shall adhere to the revised selling prices as follows: Unit Type Area (sq. m.) Price (Php) Price per sq. m. (Php) (With ITH) Bachelor's Pad 21.27 1,643,107.00 77,250.00 Studio 26.93 2,080,342.00 77,250.00 1-BR 31.96 2,468,910.00 77,250.00 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 Republic Act No. 7916 and the Omnibus Investments Code of 1987. (BIR Ruling No. 334-2011 dated September 7, 2011) Accordingly, since Makati Executive Tower IV is a BOI registered condominium project, this Office is of the opinion as it hereby holds, that income payments received by Cityland in connection with the aforementioned 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 (4) years beginning from June 2009. HDIaST It must be emphasized, however, that the above exemption from the creditable withholding tax covers only the revenues generated from Cityland's registered housing project, Makati Executive Tower IV. 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) In the computation of ITH, interest income from in-house financing shall not be considered as part of the revenues generated from the registered activity. Moreover, Cityland's entitlement to ITH for its project, Makati Executive Tower IV, is not automatic as it has still to comply with the provisions of the Specific Terms and Conditions of the BOI Registration, viz. : IEHaSc (1) Cityland must file an application with the BOI Incentive 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; (2) 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; (3) The enterprise shall submit to the BOI an annual report of its actual investments, taxes paid, employment, in the project within one (1) month following the end of its calendar/fiscal year. 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, Cityland was clearly granted a 4-year ITH for its project, Makati Executive Tower IV, but such terms and conditions do not provide for any exemption from other taxes that the Company may be subject to on its business transactions. Thus, Cityland 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) aScIAC In relation thereto, Section 109 (1) (P) of the Tax Code of 1997 provides, that the sale of residential lot valued at one million nine hundred nineteen thousand five hundred pesos (P1,919,500) 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) and below is VAT-exempt. 2 Thus, only the sales by Cityland of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. It should be understood that Cityland shall be constituted as a withholding agent for the government if it acts as employer and any of its employees received 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 (RR) No. 2-98 ,as amended. Likewise, Cityland 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, Cityland'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 are different, then this ruling shall be considered null and void. EDCIcH Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. The date of the start of commercial operation was moved from June 2009 to December 2009. However, the availment period of ITH incentives shall be reckoned from the original date of commercial operation which is on June 2009 (Annex A of the BOI Specific Terms and Conditions [STC] amending STC Nos. 1, 2, 3 and 4). 2. The increase in the threshold amounts for the sale or lease of goods or properties or the performance of services covered by Section 109 (P), (Q) and (V) of the 1997 Tax Code took effect on January 1, 2012, pursuant to Revenue Regulations No. 16-2011 dated October 27, 2011.