BIR Ruling No. 207-15

June 19, 2015 BIR RULING NO. 207-15 E.O. 226; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 334-2011 Axeia Development Corp . Asiatic Building, Phoenix Sun Business Park E. Rodriguez Jr.,Ave.,Bagumbayan (Libis) 1 Quezon City Attention: Geoffrey T. Quiec VP-Operations Gentlemen : This refers to your letter dated November 22, 2013 requesting, on behalf of Axeia Development Corp. (hereinafter referred to as " Axeia " or the " Corporation "),a certificate of tax exemption from income and expanded withholding taxes for its low-cost mass housing project, Valle Verde Dasmarias Phase 2 , duly registered with the Board of Investments (BOI) under Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987". It is represented that Axeia ,with Tax Identification No. (TIN) 000-436-566-000, is a domestic corporation duly organized under the Philippine laws; that the Corporation is registered with the Securities and Exchange Commission (SEC) bearing SEC Certificate of Registration No. 41642; that the Corporation is primarily engaged in the real estate business; that at present, it has a low-cost mass housing project, Valle Verde Dasmarias Phase 2 located at Brgy. Langkaan 2, Dasmarias City, Cavite; that the said project is registered with the Board of Investments per Certificate of Registration No. 2013-200 dated October 1, 2013 under the Omnibus Investments Code of 1987 (E.O. 226); that the aforesaid project is duly registered with the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 23667 and License to Sell No. 25617 pursuant to Batas Pambansa 220; that the Corporation shall be entitled to income tax holiday (ITH) for the above-project for a period of three (3) years beginning from December 2013 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of registration; and that the ITH of the Corporation shall be limited only to the revenue generated from the registered housing project, Axeia-Valle Verde Dasmarias Phase 2-Brgy. Langkaan 2, Dasmarias City, Cavite . HTcADC It is further shown that Axeia-Valle Verde Dasmarias Phase 2-Brgy. Langkaan 2, Dasmarias City, Cavite ,under its BOI Specific Terms and Conditions is obligated to construct and sell Two Hundred Seventy Nine (279) low-cost mass housing units based on the following schedule: Year Volume (No. of Units) Value (Php) 1 92 99,739,400 2 94 106,817,600 3 93 110,818,800 Total 279 317,375,800 === ========== Accordingly, since Axeia-Valle Verde Dasmarias Phase 2-Brgy. Langkaan 2, Dasmarias City, Cavite , is duly registered with the BOI under the Omnibus Investments Code of 1987, this Office is of the opinion as it hereby holds, that the income payments received by Axeia in connection with the aforementioned housing project consisting of Two Hundred Seventy Nine (279) units, 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 beginning from December 2013 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of registration of the housing project with the BOI. It must be emphasized, however, that the aforesaid exemption from the creditable withholding tax covers only income directly attributable to the revenues generated from the project, Axeia-Valle Verde Dasmarias Phase 2-Brgy. Langkaan 2, Dasmarias City, Cavite consisting of Two Hundred Seventy Nine (279) units. Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million Pesos (Php3,000,000.00). (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 housing project. Moreover, Axeia-Valle Verde Dasmarias Phase 2-Brgy. Langkaan 2, Dasmarias City, Cavite's entitlement to ITH for its BOI-registered housing project is not automatic as it has still to comply with the provisions of the Specific Terms and Conditions of its BOI Registration, to wit: (1) In the grant of incentives, the extent of the project's ITH entitlement shall be based on the project's ability to contribute to the economy's development based on the following parameters: (1) net value added, (2) job generation, (3) multiplier effect, and (4) measured capacity. The Board may reduce the ITH if the project does not realize the extent of economic benefits represented by the proponent at the time of its application. The enterprise shall comply with the following representations: a. Net Value Added should be at least 25% Pre-Op Year 1 Year 2 Total NVA (%) 97% 97% 97% 97% b. Job Generation Number of Employees Pre-Op Year 1 Year 2 Total Employees 49 49 49 c. Investments and Timetable Activity Schedule Related Cost (In (Month/Year) Expenses Php'000) Land Acquisition April 2010 Land Cost 62,047 Secure necessary January 2013 Pre-Operating 3,060 license/permit/ Expenses registration from the government/training cost Site Preparation and October 2012 Land/Site 40,374 Development to October Development 2015 Cost House Construction January 2014 House 93,905 to January Construction 2017 Start of Commercial December Working 2,000 Operations 2013 Capital Total 201,386 ===== d. Sales Revenues Year Volume (No. of Units) Value (Php) 1 92 99,739,400 2 94 106,817,600 3 93 110,818,800 Total 279 317,375,800 === ========= Net income that exceeds 10% of the revenue represented at the time of application shall not be eligible to ITH unless the Board is informed in writing by the proponent in advance before the revenue is expected to exceed the projections in the application for registration submitted to the Board. (2) Secure from the Housing and Land Use Regulatory Board (HLURB) an endorsement that it has faithfully complied with the approved development plan and a "certificate of good housekeeping"; (3) File an application with the BOI Incentives 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; aScITE (4) 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; (5) In the event that the enterprise fails to maintain the 75:25 debt-to-equity ratio requirement, it shall show proof that the construction of housing units have been completed and delivered to buyers 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 (6) The enterprise shall submit proof of compliance that, at least twenty percent (20%) of the total subdivision area (estimated at 8,196 sq.m.) or total subdivision project cost (estimated at Php40,277,200),has been developed and allocated for socialized housing within one year from the date of registration or prior to availment of ITH, whichever is earlier. Compliance with the 20% socialized housing requirement must be completed within the ITH availment period and should be proportionate to the number of low-cost housing units being applied for the taxable 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, Axeia was clearly granted a 3-year ITH for its project, Valle Verde Dasmarias Phase 2-Brgy. Langkaan 2, Dasmarias City, Cavite consisting of Two Hundred Seventy Nine (279) units, but such terms and conditions do not provide for any exemption from other taxes that the Corporation may be subject to on its business transactions. Thus, Axeia-Valle Verde Dasmarias Phase 2-Brgy. Langkaan 2, Dasmarias City, 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 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. 1 Thus, only the sales by Axeia-Valle Verde Dasmarias Phase 2-Brgy. Langkaan 2, Dasmarias City, Cavite of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. It should be understood that Axeia 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 (RR) No. 2-98 ,as amended. Likewise, Axeia 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, Axeia'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 is 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. 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.