BIR Ruling No. 188-13

May 20, 2013 BIR RULING NO. 188-13 E.O. 226; RR 2-98; BIR Ruling No. 546-12; BIR Ruling No. 334-11 ACM Prospect Heights, Inc. 4th Flr. CSJ Bldg., 105 Aguirre St., Legaspi Village, Makati City Attention: Atty. Ma. Michelle T. Judan Chief Finance Officer Gentlemen : This refers to your letter dated May 25, 2012, received by this Office on November 16, 2012, requesting for a ruling on the tax consequences of the Income Tax Holiday (ITH) granted to ACM PROSPECT HEIGHTS, INC. by the Board of Investments (BOI) under Executive Order (EO) No. 226 otherwise known as the "Omnibus Investments Code of 1987", for a period of three (3) years from the start of commercial operations/selling. Documents submitted disclosed that ACM PROSPECT HEIGHTS, INC., with Taxpayer Identification No. (TIN) 004-447-514-000, is registered with the BOI as an Expanding Developer of Low-Cost Mass Housing Project on a Non-Pioneer status; that it is the developer of the following mass housing project: Project Name Location BOI Reg. Date of Start of No. of No. BOI Commercial Units Registration Operation/ITH Pacific Terraces Carsadang 2011-187 August 17, August 2011 290 Community Bago, Imus, 2011 South Cavite that under its BOI Terms and Conditions, the following project shall construct and sell units of low-cost mass housing units based on the following schedule: ETIDaH Project Name Year No. of Units Value (P'000) Pacific Terraces Community-South 1 75 192,023 2 115 294,435 3 100 256,031 Total 290 742,489 that Pacific Terraces Community-South located at Brgy. Carsadang Bago, Imus, Cavite is registered with the Housing and Land Use Regulatory Board (HLURB) under the following Certificate of Registration and was issued License to Sell, to wit: Project Name Location HLURB Certificate HLURB License to of Registration No./ Sell No./Date Date Issued Issued Pacific Terraces Brgy. Carsadang 22634/October 18, 23961/October 18, Community-South Bago, Imus, 2010 2010 Cavite that according to the Specific Terms and Conditions of its BOI Registration, ACM PROSPECT HEIGHTS, INC. (Pacific Terraces Community South-Brgy. Carsadang Bago, Imus, Cavite) is entitled to ITH for a period of three (3) years from August 2011 or the actual start of commercial operations/selling whichever is earlier, but in no case earlier than the date of registration; that ACM PROSPECT HEIGHTS, INC. (Pacific Terraces Community South-Brgy. Carsadang Bago, Imus, Cavite) ITH shall be limited only to the revenue generated from the registered project; and that revenues from units with selling price exceeding P3.0 M shall not be covered by ITH. In reply, please be informed that under Section 2.57.5 (B) (2) of Revenue Regulations 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 ACM PROSPECT HEIGHTS, INC. (Pacific Terraces Community South-Brgy. Carsadang Bago, Imus, Cavite) is a BOI-registered project, this Office is of the opinion that income payments received by ACM PROSPECT HEIGHTS, INC. in connections with the sale of units in its low-cost mass housing project (Pacific Terraces Community South-Brgy. Carsadang Bago, Imus, Cavite) 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 from August 2011 or the 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 creditable withholding tax covers only revenues generated from the registered activity, Pacific Terraces Community South-Brgy. Carsadang Bago, Imus, Cavite . Furthermore, such exemption shall not cover revenues with selling price exceeding Three Million Pesos (P3,000,000.00). (BIR Ruling No. 546-12 dated August 30, 2012) AHSEaD Moreover, the entitlement of ACM PROSPECT HEIGHTS, INC. (Pacific Terraces Community South-Brgy. Carsadang Bago, Imus, Cavite) to ITH is not automatic as such project has to comply with Items 8, 9 and 10 of the Specific Terms and Conditions of its pertinent BOI Registration, viz. : (1) Secure from HLURB an endorsement 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 the BIR in order to validate the claim for income tax exemption. The application shall be accompanied by a certification by SSS that the enterprise is in good standing in the remittance of SSS contributions of its employees; (3) Secure a Certificate of ITH Entitlement (CoE) from the BOI Supervision and Monitoring Department (SMD) prior to filing the Income Tax Return with the BIR, otherwise ITH for that particular taxable year without CoE is forfeited; (4) The enterprise shall maintain the 75:25 debt-to-equity requirement prior to availment of ITH. Otherwise, the enterprise shall not be entitled to ITH and shall be required to refund any capital equipment incentives availed of; and (5) The enterprise shall submit proof of compliance that at least 246 lots/units in Mebuhai/Kabahai Subdivision in Brgy. Kapatalan, Siniloan, Laguna (as indicated in its LTS No. 23961 dated 18 October 2010) has been developed and allocated for socialized housing in compliance with twenty percent (20%) socialized housing requirement of R.A. 7279. This must be submitted within one year from date of registration or prior to availment of ITH whichever is earlier. Otherwise, the ITH for that taxable year shall be deemed forfeited. cHSIDa 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, ACM PROSPECT HEIGHTS, INC. (Pacific Terraces Community South-Brgy. Carsadang Bago, Imus, Cavite) was clearly granted 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, ACM PROSPECT HEIGHTS, INC. (Pacific Terraces Community South-Brgy. Carsadang Bago, Imus, Cavite) 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) 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. 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 (P1,500,000.00) and below, or house and lot and other residential dwellings in the amount of Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below" 1 is VAT-exempt. Thus, only the sales by ACM PROSPECT HEIGHTS, INC. (Pacific Terraces Community South-Brgy. Carsadang Bago, Imus, Cavite) of housing units with selling price of not more than the aforementioned price ceilings shall be exempt from VAT. (BIR Ruling No. 334-2011 dated September 7, 2011) It should be understood that ACM PROSPECT HEIGHTS, INC. (Pacific Terraces Community South-Brgy. Carsadang Bago, Imus, Cavite) 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 RR No. 2-98, as amended. SATDEI Likewise, ACM PROSPECT HEIGHTS, INC. (Pacific Terraces Community South-Brgy. Carsadang Bago, Imus, Cavite) 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 your gross income and expenses incurred during the taxable year. Finally, ACM PROSPECT HEIGHTS, INC. (Pacific Terraces Community South-Brgy. Carsadang Bago, Imus, Cavite) 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Effective January 1, 2012, the adjusted threshold amounts of sales of real properties exempt from VAT stated in 109 (1) (P) pursuant to Revenue Regulations No. 16-2011, are as follows: Sale of residential lot valued at P1,919,500 and below, Sale of house & lot and other residential dwellings valued at P3,199,200 and below where the instruments of sale/transfer/disposition was executed or after January 1, 2012.