BIR Ruling No. 197-12

March 21, 2012 BIR RULING NO. 197-12 E.O. 226; RR 2-98; BIR Ruling No. 334-2011 dated September 7, 2011 Fiesta Communities, Inc. HLDC Corporate Center 43-35 Don Bonifacio Ave., Pulang Marugal, Angeles City Pampanga Attention: Atty. Christopher Ryan T. Tan Legal Counsel Fiesta Communities, Inc. Gentlemen : This refers to your letter dated 2 March 2011 requesting for a confirmation that the income derived from the sales of a BOI registered project, particularly "Fiesta Communities Tarlac, Barangay Buno, Matatalaib, Tarlac City", is 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. HCISED Documents submitted shows that FIESTA COMMUNITIES, INC. (FCI), with Tax Identification Number TIN 006-908-344, is a Domestic Corporation engaged in real estate business and registered with the Securities and Exchange Commission under Registration No. CS200716795 31 March 2010; that FCI is the owner of "Fiesta Communities Tarlac, Barangay Buno, Matatalaib, Tarlac City"; that FCI is registered with the Board of Investments (BOI) as a New Developer of Low-Cost Mass Housing Projects on a Non-Pioneer status per BOI Registration No. 2010-070 dated 25 March 2010; that FCI shall construct and sell One Thousand Eighty Seven (1,087) units of low cost mass housing based on the following schedule: Year Volume (no. of units) Value P'000 1 231 177,375 2 394 301,550 3 361 267,875 4 101 79,075 Total 1,087 825,875 ====== ======= that the firm shall be entitled to Income Tax Holiday (ITH) for four (4) years from March 2010 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 (Fiesta Communities Tarlac, Brgy. Buno, Matatalaib, Tarlac City) ; 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 Regulation shall not apply to income payment to persons enjoying exemption from the income tax provided by the Omnibus Investment Code of 1987. Accordingly, since Fiesta Communities Tarlac, Brgy. Buno, Matatalaib, Tarlac City Project is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by FCI in connection with the aforementioned housing project, Fiesta Communities Tarlac, Brgy. Buno, Matatalaib, Tarlac City, 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 four years starting from March 2010. It must be emphasized, however, that the exemption from the creditable withholding tax covers only revenues generated from the registered activity, Fiesta Communities Tarlac, Brgy. Buno, Matatalaib, Tarlac City. 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). Moreover, Fiesta Communities Tarlac, Brgy. Buno, Matatalaib, Tarlac City Project's entitlement to ITH is not automatic as it has still to comply with Section 10 (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. DTAcIa 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, Fiesta Communities Tarlac, Brgy. Buno, Matatalaib, Tarlac City Project was clearly granted a 4-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 Fiesta Communities Tarlac, Brgy. Buno, Matatalaib, Tarlac City 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 Fiesta Communities Tarlac, Brgy. Buno, Matatalaib, Angeles City 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 Fiesta Communities Tarlac, Brgy. Buno, Matatalaib, Angeles City 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, Fiesta Communities Tarlac, Brgy. Buno, Matatalaib, Angeles City 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. ESITcH Finally, Fiesta Communities Tarlac, Brgy. Buno, Matatalaib, Angeles 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 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue