BIR Ruling No. 223-14

June 23, 2014 BIR RULING NO. 223-14 RA 7279; RR 11-97;BIR Ruling No. 353-2013 Mar-deb Construction & Development Cabatuan, Isabela Attention: Atty. Miguel L. Ponce, Jr. Legal Counsel and Project Representative Gentlemen : This refers to your letter dated July 5, 2013 requesting issuance of Certificate of Tax Exemption for the AFP-PNP Housing Program in Brgy. Nattanzan, Iguig, Cagayan pursuant to Republic Act (R.A.) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted show that on January 28, 2012, a Contract Agreement was executed by and between Mar-deb Construction & Development (Mar-deb), a single proprietorship owned by Mario P. dela Fuente and AFP Housing Homeowners Association, Inc. (AFPHOA) and PNP Housing Homeowners Association, Inc. (PNPHOA), homeowner's organization registered with the Housing and Land Use Regulatory Board (HLURB), whereby Mar-deb has agreed to sell to AFPHOA's and PNPHOA's individual members the developed lots and completed housing units under the Community Initiative Approach Program (CIAP) of the National Housing Authority (NHA) (TIN 000-916-384-000) for Two Hundred Forty Thousand Pesos (P240,000.00) for every developed lot and completed housing unit per family. Moreover, on January 28, 2012, a Memorandum of Agreement (MOA) on NHA's financing of the acquisition by the members of developed homelots and financing the construction of completed housing was executed by and among Mar-deb, as the landowner/developer, AFPHOA and PNPHOA, as the beneficiaries, and the NHA, as the implementing government agency for the AFP/PNP Housing Program as cited under Administrative Order No. 9 dated April 11, 2011. TCDHIc Under the MOA, members of the AFPHOA and PNPHOA, shall be provided by the NHA with a financial grant for the acquisition house and lot packages in the AFP/PNP Housing Project through the CIAP in the amount of Php240,000.00 for a House and Lot Package of Forty square meters (40.00 sq.m.) lot and Twenty Two square meters (22.00 sq.m.) floor area. It is noted that Mario P. Dela Fuente (TIN 102-207-602-000), is the absolute and registered owner of parcels of land, identified as Lot A, of the subdivision Plan Psd-(AF)-02-015046 (AR) being a portion of Lot No. 662, Pls-601-D covered by Transfer Certificate of Title (TCT) No. 032-2012004962 issued by the Registry of Deeds for Tuguegarao, Cagayan. The aforesaid property is situated at Brgy. Nattanzan, Iguig, Cagayan with an area of Fifty Thousand square meters (50,000 sq.m.), more or less. On March 18, 2013 and April 15, 2013, Deeds of Conveyance for 500 lots and 250 lots, respectively, were executed by and between Mario P. Dela Fuente and NHA, whereby the former sold to NHA 750 developed lots with total aggregate area of Thirty Two Thousand Two Hundred Fifty square meters (32,250 sq.m.) portion of the subject properties for Eighty Six Million Two Hundred Fifty Thousand Pesos (P86,250,000.00) 1 to give effect to the Contract Agreement and MOA. In support of your above request, you submitted the following documents: 1) Photocopy of Mar-deb's DTI Certificate of Business Name Registration; 2) BIR Certificate of Registration; 3) Copies of HLURB Certificates of Registration of AFPHOA and PNPHOA; 4) Notarized copies of Deeds of Conveyance between Mar-deb and NHA; 5) Copy of the MOA executed by and among Mar-deb, AFPHOA and PNPHOA and NHA; ASTIED 6) Certified true copies of the Transfer Certificate of Title and Tax Declaration; 7) Other pertinent documents. In reply, please be informed that pursuant to Sections 19 and 20 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. "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 on raw lands used for the project; (3) Value-added tax for the project contractor concerned." CIaHDc xxx xxx xxx" the landowner/developer of properties who sell its properties for use in a socialized housing project are exempt from the payment of the project-related income taxes. Such being the case, the sale of Mar-deb to NHA of the 750 developed lots with total aggregate area of Thirty Two Thousand Two Hundred Fifty square meters (32,250 sq.m.) is exempt from the capital gains tax, project-related income taxes and consequently from withholding tax. Upon issuance of this letter of exemption, and upon registration of the documents of sale, a lien on the Certificates of Title of the land to be issued in the name of the NHA shall be caused to be annotated by the Register of Deeds having jurisdiction over the properties, to the effect that the said properties shall be used for socialized housing pursuant to R.A. No. 7279. (BIR Ruling No. 353-2013 dated September 20, 2013) Moreover, pertinent portions of 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. EHcaAI xxx xxx xxx The exemption from documentary stamp tax of NHA in connection with any of its socialized housing project 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. Pursuant to Section 20 of RA 7279, a project contractor of a socialized housing project shall also be exempt from the payment of value-added tax (VAT) on the project concerned. Thus, Mar-deb, being the contractor of a socialized housing project known as the AFP/PNP Housing Project Site in Brgy. Nattanzan, Iguig, Cagayan, is likewise exempt from the payment of 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 Mar-deb must issue non-VAT official receipts on its gross receipts from the said socialized housing project. (BIR Ruling No. 353-2013 dated September 20, 2013) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. 500 developed lots with total aggregate area 21,172 sq.m. for P57,500,000.00 and 250 developed lots with total aggregate area 11,078 sq.m. for P28,750,000.00.