BIR Ruling No. 209-12

March 23, 2012 BIR RULING NO. 209-12 E.O. 226; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 334-2011 Communities Batangas, Inc. Mezzanine Floor, Starmall Complex EDSA cor. Shaw Blvd. Attention: Atty. Cecilia A. Ramilio Tax Department Head Gentlemen : This refers to your letter dated August 25, 2011 requesting for exemption from the income tax, and consequently from creditable withholding tax, pursuant to Revenue Regulations (RR) No. 2-98, as amended, on account of your registration with the Board of Investments (BOI) Under Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987". The documents submitted show that Communities Batangas, Inc. (the " Corporation ") is a real property developer habitually engaged in the business of developing and constructing housing subdivisions; that at present, it has a low-cost housing project called Camella Lipa located in Brgy. Tibig, Lipa City, Batangas; and that the said housing project has been registered with the Board of Investments per Certificate of Registration No. 2011-189 dated August 24, 2011 as a new developer of low-cost mass housing project on a non-pioneer status under the Omnibus Investments Code of 1987 (E.O. 226); that the Corporation shall be entitled to income tax holiday (ITH) for its Camella Lipa project for a period of four (4) years beginning from August 2011 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 ( Camella Lipa, Brgy. Tibig, Lipa City, Batangas). The Corporation, Under the Specific Terms and Conditions of its BOI Registration for Camella Lipa housing project, is obligated to construct and sell four hundred seventy four (474) units of low-cost mass housing based on the following schedule: SHTEaA Year Volume (Units) Sales Value (P'000) 1 85 Php79,418 2 187 174,720 3 162 114,923 4 79 73,812 Total 474 Php442,873 ==== ========= In reply, please be informed that under Section 2.57.5 (B) (2) of Revenue Regulations (RR) 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 Republic Act No. 7916 and the Omnibus Investments Code of 1987. Accordingly, since Camella Lipa, is a BOI-registered housing project, this Office is of the opinion as it hereby holds, that income payments received by Communities Batangas, Inc. in connection with the aforementioned housing project, are exempt from the creditable withholding tax imposed under RR No. 2-98, as amended by RR No. 6-2001, for a period four (4) years beginning from August 2011 or 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 the creditable withholding tax covers only the revenues generated from the Corporation's registered housing project, Camella Lipa. 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, the Corporation's entitlement to ITH for its housing project, Camella Lipa, is not automatic as it has still to comply with the provisions of the Specific Terms and Conditions of the BOI Registration, viz.: (1) 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"; (2) File an application with the BOI Incentive 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; DSATCI (3) 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; (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 any capital equipment incentive availed of shall be refunded accordingly; (5) The Corporation shall submit a proof of compliance that, at least twenty percent (20%) of the total subdivision area (estimated at 8,280 sq. m.) or total subdivision cost (estimated at Php52,741,000.00), has been developed and allocated for socialized housing within one year from date of registration or prior to availment of ITH, whichever is earlier. Otherwise, the ITH for that particular taxable year shall be deemed forfeited; (6) The enterprise shall ensure (a) that its contractors are duly licensed by the Philippine Contractors Accreditation Board (PCAB) as required under Republic Act 4566 ("Contractors License Law") and (b) that any construction activity, under its project and supervision shall be undertaken in accordance with the rules and regulations prescribed by PCAB as well as all applicable laws; and (7) The enterprise shall submit to the BOI Supervision and Monitoring Department, on a quarterly basis within fifteen (15) days from the end of each quarter, a report on Actual Investments, Employment, Sales and other information that the Board may require at anytime with respect to the registered project starting on date of registration. 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, the Corporation was clearly granted a 4-year ITH for its project, Camella Lipa, 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, the Corporation 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 the Corporation of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. It should be understood that the Corporation 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 Revenue Regulations (RR) No. 2-98, as amended. Likewise, the Corporation is required to file on or before the 15th day of the fourth month following the close of your 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, the Corporation'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 you have been complying with the conditions under which you have 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 are different, then this ruling shall be considered null and void. aACEID 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.