BIR Ruling No. 206-15

June 17, 2015 BIR RULING NO. 206-15 RA 7279; BIR Ruling No. 360-2013; BIR Ruling No. 351-2012 Lak-K Builders Co. Units 606 & 609 Jocfer Bldg. Commonwealth Avenue, Quezon City Attention: Michael Angelo F. Kallos Vice President/General Manager Gentlemen : This refers to your letter dated November 5, 2014 requesting, on behalf of LAK-K BUILDERS CO., tax exemption on the low-cost housing project, Pandi Residences 1 Resettlement Project , located at Brgy. Mapulang Lupa, Pandi, Bulacan, pursuant to Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted show that LAK-K BUILDERS CO., with Tax Identification Number 007-191-150-000, is a General Partnership duly registered with the Securities and Exchange Commission (SEC) bearing SEC Registration No. PG200818704; that it is a real property developer habitually engaged in the business of developing and constructing housing subdivisions; that it owns two (2) parcels of land located at Brgy. Mapulang Lupa, Pandi, Bulacan, covered by Transfer Certificates of Title (TCT) Nos. 040-2014013553 and 040-2014023499 of the Registry of Deeds for Meycauayan, Bulacan, particularly described as follows: TCT NO. 040-2014013553 1 "A PARCEL OF LAND (LOT 2664 OF THE S.M. DE PANDI ESTATE, G.L.R.O. NO. 8503) SITUATED IN THE MUNICIPALITY OF BIGAA, PROVINCE OF BULACAN . . . CONTAINING AN AREA OF THIRTY FOUR THOUSAND FOUR HUNDRED FIFTY FOUR (34,454) SQUARE METERS MORE OR LESS." TCT NO. 040-2014023499 2 "Lot No.: 2640-A Plan No.: PSD-03-210471 Portion of: Lot 2640, Sta. Maria De Pandi Estate Location: Brgy. of Mapulang Lupa, Mun. of Bigaa (Now Pandi), Province of Bulacan Area: Fifty One Thousand One Hundred Sixty Two Square Meters (51,162), more or less" caITAC On September 30, 2013, two (2) Contract Agreements 3 were entered into by and between LAK-K BUILDERS CO. and Pandi Residences Homeowner's Association, Inc. (PRHOAI) , a homeowner's organization registered with the Housing and Land Use Regulatory Board (HLURB) with Registration No. 20090, whereby LAK-K BUILDERS CO. has agreed to sell to PRHOAI's individual members the developed lots, including the completed housing units thereon under the Community Initiative Approach Program (CIAP) of the National Housing Authority (NHA) (TIN 000-916-384-000) for Two Hundred Forty Thousand Pesos (P240,000) 4 for every developed lot and completed housing unit per family. Likewise, two (2) Memoranda of Agreement (MOAs) dated October 14, 2013 and November 24, 2014, respectively, were executed by and among LAK-K BUILDERS CO., as the landowner/developer/constructor, the members of PRHOAI, as the beneficiaries, and the NHA, as the lead agency in the implementation of the National Resettlement Programs of the government for Fiscal Year (FY) 2013, to ensure the timely, peaceful and orderly relocation and resettlement of the informal settler families living in danger areas, affected by calamities and those affected by the clearing of waterways, esteros and infrastructure projects of the government in Metro Manila. Under the MOA, members of the PRHOAI shall be provided by the NHA with a financial grant through the CIAP under the National Resettlement Program of the government for FY 2013 in the amount not to exceed One Hundred Fifteen Thousand Pesos (P115,000.00) per lot per family and One Hundred Twenty Five Thousand Pesos (P125,000.00) per housing unit, respectively. On June 19, 2014, LAK-K BUILDERS CO. and the NHA executed a Deed of Absolute Sale whereby the former transferred and conveyed to the latter a portion of the lot covered by TCT No. 040-2014013553, particularly an area of Seventeen Thousand Eight Hundred Fifty Five (17,855) square meters, more or less, consisting of Four Hundred Twenty Three (423) developed lots under Batch 02-2014 for a total consideration of Twenty Six Million Five Hundred Sixty Five Thousand Pesos (P26,565,000.00). Moreover, on October 17, 2014, LAK-K BUILDERS CO. and the NHA executed another Deed of Absolute Sale over a portion of lot covered by TCT No. 040-2014023499, particularly an area of Thirty Two Thousand One Hundred Sixty One (32,161) square meters, more or less, consisting of Seven Hundred Sixty Nine (769) developed lots under Batch 03-2014 for a total consideration of Eighty Eight Million Four Hundred Thirty Five Thousand Pesos (P88,435,000.00). In reply, please be informed that pursuant to Sections 19 and 20 of Republic Act (RA) No. 7279, pertinent portions of which state that: "Sec. 19. Incentives for the National Housing Authority . The National Housing Authority, being the primary government agency in charge of providing housing for the underprivileged and homeless, shall be exempted from the payment of all fees and charges of any kind, whether local or national, such as income and realty taxes. All documents or contracts executed by and in favor of the National Housing Authority shall also be exempt from the payment of documentary stamp tax and registration fees, including fees required for the issuance of transfer certificates of title. ICHDca "Sec. 20. Incentives for Private Sector Participating in Socialized Housing . To encourage greater private sector participation in socialized housing and further reduce the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sector: xxx xxx xxx "(d) Exemption from the payment of the following: (1) Project-related income taxes; (2) Capital Gains Tax; (3) Value-added tax for the project contractor concerned;" the landowner/developer of properties who sells its properties for use in a socialized housing project is exempt from the payment of the capital gains tax and project-related income taxes. Such being the case, the sale of 423 developed lots under Batch 02-2014 on the Seventeen Thousand Eight Hundred Fifty Five (17,855) square meters portion of TCT No. 040-2014013553 by LAK-K BUILDERS CO. to NHA is exempt from capital gains tax, project-related income taxes and consequently from withholding tax. Likewise, the sale by LAK-K BUILDERS CO. to NHA of the 769 developed lots under Batch 3-2014 on the Thirty Two Thousand One Hundred Sixty One (32,161) square meters portion of TCT No. 040-2014023499 is likewise exempt from capital gains tax, project-related income taxes and consequently from withholding tax. (BIR Ruling No. 360-2013 dated September 30, 2013) Moreover, pertinent portions of Revenue Memorandum Circular (RMC) No. 42-01 dated October 5, 2001, provide, viz. : xxx xxx xxx A. National Housing Authority (NHA) The NHA, being the primary government agency in charge of providing housing for the underprivileged and homeless citizens shall be exempted from the payment of the following national internal revenue taxes: (1) . . . (2) Documentary stamp tax on sales transactions executed by and in favor of the NHA in connection with socialized housing projects. Since Section 19 of R.A. 7279 exempts "all documents or contracts executed by and in favor of the NHA," the exemption from documentary stamp tax extends to the other party (either seller or buyer) that is dealing or transacting with the NHA. TCAScE xxx xxx xxx It must be noted that the exemption from the documentary stamp tax of NHA, in connection with any of its socialized housing projects, extends to the other party (either seller or buyer) that deals or transacts with the NHA. Consequently, since NHA is a party to the sale, no documentary stamp tax shall be due on such sale, either on NHA or the party with which NHA is transacting. Accordingly, the transfers by LAK-K BUILDERS CO. to NHA of the 423 developed lots under Batch 02-2014 on the Seventeen Thousand Eight Hundred Fifty Five (17,855) square meters portion of TCT No. 040-2014013553, and the 769 developed lots under Batch 3-2014 on the Thirty Two Thousand One Hundred Sixty One (32,161) square meters portion of TCT No. 040-2014023499, are likewise, exempt from the payment of documentary stamp tax under Section 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 360-2013 dated September 30, 2013) Pursuant to Section 20 (d) (3) of RA 7279, the sale of a socialized housing as defined therein shall also be exempt from the payment of value-added tax (VAT). Relative thereto, Section 4.109-1 (B) (1) (p) (3) of RR No. 16-2005 states that: "Section 4.109-1. VAT-Exempt Transactions . (A) In general . "VAT-exempt transactions" refer to the sale of goods properties and/or services and the use or lease of properties that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax) on purchases. xxx xxx xxx (B) Exempt transactions . (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from VAT: xxx xxx xxx (p) The following sales of real properties are exempt from VAT, namely: xxx xxx xxx (3) Sale of real properties utilized for socialized housing as defined under RA No. 7279 , and other related laws, such as RA No. 7835 and RA No. 8763, wherein the price ceiling per unit is P225,000.00 or as may from time to time be determined by the HUDCC and the NEDA and other related laws. . . . ." Furthermore, pursuant to HUDCC Resolution No. 1, Series of 2013, promulgated on October 16, 2013 approving the adjustment of price ceiling for socialized housing, and as circularized by Revenue Memorandum Circular No. 35-2014, pertinent portion of which reads: cTDaEH "THEREFORE BE IT RESOLVED, AS IT IS HEREBY RESOLVED that the price ceiling for horizontal socialized housing be adjusted from P400,000.00 to P450,000.00." thus, beginning December 18, 2013, 5 the newly adjusted price ceiling of P450,000.00 for horizontal socialized housing shall apply to sale of real properties utilized for socialized housing, as defined under R.A. No. 7279 otherwise known as "Urban Development and Housing Act", and other related laws such as R.A. No. 7835 otherwise known as the "Comprehensive and Integrated Shelter Financing Act of 1994," and R.A. No. 8763, otherwise known as the "Home Guaranty Act of 2000". Moreover, Section 2 of R.R. No. 17-2001 provides: "Section 2. Definition of Terms . As used in these Regulations, the following terms shall have the following meaning: xxx xxx xxx "A socialized housing unit shall not exceed P150,000.00 (now P450,000.00 per HUDCC Resolution No. 1, Series of 2013, promulgated on October 16, 2013) for a house and lot package, subject to periodic adjustment or increase as the Housing and Land Use Regulatory Board (HLURB) may effect from time to time. In the case of sale of home lots only, the price shall not exceed forty percent (40%) of the maximum limit prescribed for the house and lot package." Thus, the sale by LAK-K BUILDERS CO. to NHA of home lots valued at One Hundred Eighty Thousand Pesos (P180,000.00) and below, and house and lot packages valued at Four Hundred Fifty Thousand Pesos (P450,000.00) and below, on its Pandi Residences I Resettlement Project shall be exempt from VAT. However, its purchases of goods/articles shall be subject to VAT, even if the said purchases are to be used for the socialized housing project, since VAT is an indirect tax which can be passed on by the seller of the goods/services. Moreover, it shall be understood that LAK-K BUILDERS, CO. must issue non-VAT official receipts on its gross receipts from the said socialized housing project. (BIR Ruling No. 351-12 dated May 21, 2012) Upon application for exemption, a lien on the title of the subject parcel of land shall be annotated by the Register of Deeds having jurisdiction over the property, to the effect that the same is to be applied or is being applied to a socialized housing project pursuant to RA 7279. Please take note that this ruling is never intended and shall not be construed as giving authority to the concerned Register of Deeds to effect the transfer of the title in the name of the buyer without the necessary certificate of authority to register issued by this Bureau. In this regard, this ruling shall be presented to the Revenue District Office (RDO) concerned in order for the latter to issue the Certificate Authorizing Registration (CAR) after the submission of the requirement provided under RMO 15-2003. 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. cSaATC Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Formerly, TCT No. 040-RT2010003393 (T-21868). 2. Formerly, TCT No. T-413263. 3. (Financing the Acquisition of Developed Lots and Completed Housing Units) in Pandi Residences, Brgy. Mapulang Lupa, Pandi, Bulacan. 4. P115,000.00 per developed lot and P125,000.00 per completed housing unit. 5. HUDCC Resolution No. 1 Series of 2013 took effect on December 18, 2013 after having satisfied the publication requirement as circularized by HUDCC Memorandum Circular No. 01 Series of 2014.