BIR Ruling No. 180-12

March 15, 2012 BIR RULING NO. 180-12 E.O. 226; RR 2-98; BIR Ruling No. 334-2011 dated September 7, 2011 Asiatic Development Corporation ASIATIC Building, Phoenix Sun Business Park, E. Rodriguez Jr. Ave., Libis, Quezon City Attention: Emiliano C. Estrella SVP-Comptroller Gentlemen : This refers to your letter dated 29 June 2011 requesting for a confirmation that the income derived from the sales of a BOI registered project, particularly "Asiatic Development Corporation Alta Tierra Homes Phase 2B Brgy. Olaes, General Mariano Alvarez, Cavite", are exempt from income tax and consequently from creditable withholding tax, and that the Certificate of Creditable Tax Withheld at Source (BIR Form 2307) is no longer required to be submitted to the BIR for purposes of issuing the Certificate Authorizing Registration. CITDES Documents submitted show that ASIATIC DEVELOPMENT CORPORATION (ADC), with Tax Identification Number TIN 000-436-566, is a Domestic Corporation engaged in real estate business and registered with the Securities and Exchange Commission under Registration No. 41642 dated May 1, 1980; that ADC is the owner of "Asiatic Development Corporation Alta Tierra Homes Phase 2B Brgy. Olaes, General Mariano Alvarez, Cavite"; that ADC is registered with the Board of Investments (BOI) as an Expanding Developer of Low-Cost Housing Project on a Non-Pioneer status per BOI Registration No. 2011-099 dated 30 May 2011; that ADC shall construct and sell Five Hundred Sixty One (561) units of low cost mass housing based on the following schedule: Year Volume (no. of units) Value (P'000) 1 187 211.700 2 185 219.907 3 189 235.432 Total 561 667.03 === ======== that the firm shall be entitled to Income Tax Holiday (ITH) for three (3) years from July 2011 or actual start of commercial operations/selling, whichever is earlier but in no case earlier than the date of registration; that the ITH shall be limited only to the revenues generated from this registered project (Asiatic Development Corporation Alta Tierra Homes Phase 2B Brgy. Olaes, General Mariano Alvarez, Cavite) ; that revenues from units with selling price exceeding PhP3.0M shall not be covered by ITH. In reply, please be informed that Section 2.57.5 (B) (2) of Revenue Regulations No. 2-98, as amended, by Revenue Regulations 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 payment to persons enjoying exemption from the income tax provided by the Omnibus Investment Code of 1987. Accordingly, since Asiatic Development Corporation Alta Tierra Homes Phase 2B Brgy. Olaes, General Mariano Alvarez, Cavite Project is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by ADC in connection with the aforementioned housing project, are exempt from the creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001, for a period of three (3) years starting from July 2011. It must be emphasized, however, that the exemption from the creditable withholding tax covers only revenues generated from the registered activity. 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). EADCHS Moreover, Asiatic Development Corporation Alta Tierra Homes Phase 2B Brgy. Olaes, General Mariano Alvarez, Cavite 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 endorsement/certification from the HLURB that it has faithfully complied with the approved development plan and a "certificate of Good Housekeeping"; (2) File an application with the BOI Incentives Department within one (1) month from the filing of the final ITR with BIR in order to validate the claim for income tax exemption. The application shall be accompanied by a certification by SSS that the firm is in good standing in the remittance of SSS contributions of its employees; and (3) Secure a Certificate of ITH Entitlement (CoE) from the Supervision and Monitoring Department (SMD) of BOI prior to filing the Income Tax Return 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. 266. In this regard, under the terms and conditions of its BOI REGISTRATION, Asiatic Development Corporation Alta Tierra Homes Phase 2B Brgy. Olaes, General Mariano Alvarez, Cavite Project was clearly granted a 3-year ITH but such terms and conditions do not provide for any exemption for other taxes that it may be subject to on its business transactions. Thus Asiatic Development Corporation Alta Tierra Homes Phase 2B Brgy. Olaes, General Mariano Alvarez, Cavite Project 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 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 sale by Asiatic Development Corporation Alta Tierra Homes Phase 2B Brgy. Olaes, General Mariano Alvarez, Cavite 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 Asiatic Development Corporation Alta Tierra Homes Phase 2B Brgy. Olaes, General Mariano Alvarez, Cavite 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 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, Asiatic Development Corporation Alta Tierra Homes Phase 2B Brgy. Olaes, General Mariano Alvarez, Cavite Project 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 Annual Information Return under oath, stating its gross income and expenses incurred during the taxable year. Finally, Asiatic Development Corporation Alta Tierra Homes Phase 2B Brgy. Olaes, General Mariano Alvarez, Cavite 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 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. SEIcHa Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue