BIR Ruling No. 235-13

July 5, 2013 BIR RULING NO. 235-13 E.O. 226; BIR Ruling No. 334-2011 dated September 7, 2011 Johndorf Ventures Corporation Benito Ong Street, Iligan City Attention: Richard D. Lim President & CEO Gentlemen : This refers to your letter dated September 1, 2011, requesting for exemption from income and creditable withholding taxes on the income derived from the sales of a Board of Investments (BOI) registered project, particularly " Granvia Residences Pueblo de Oro Business Park, Upper Carmen, Cagayan de Oro City ", pursuant to Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987". CTAIHc Documents submitted show that Johndorf Ventures Corporation (hereinafter referred to as JVC), with Tax Identification Number (TIN) 000-555-949-000, is a domestic corporation engaged in real estate business and registered with the Securities and Exchange Commission under Reg. No. 137388; that JVC is the owner of a Low-Cost Mass Housing Project at Pueblo de Oro Business Park, Upper Carmen, Cagayan de Oro City; that JVC's Low-Cost Mass Housing Project " Granvia Residences Pueblo de Oro Business Park, Upper Carmen, Cagayan de Oro City " is registered with the Board of Investments (BOI) under BOI Certificate of Registration No. 2011-059 dated March 9, 2011 , as a New Developer of Low-Cost Mass Housing Project on a Non-Pioneer status ; that it shall sell Sixty Nine (69) units of low-cost mass housing based on the following schedule: Year Volume (units) Value (P'000) 1 19 24,450 2 18 22,500 3 18 22,500 4 14 17,500 Total 69 86,950 == ====== that the enterprise shall adhere to the following selling price as represented: Selling Price per Unit (Php) Model A (24.80 sq.m.) 1,350,000.00 Model B (27.20 sq.m.) 1,450,000.00 Model C (23.25 sq.m.) 1,250,000.00 that the availment period of the Income Tax Holiday (ITH) incentives shall be reckoned from March 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 shall be limited only to the revenue generated from its registered project ( Granvia Residences Pueblo de Oro Business Park, Upper Carmen, Cagayan de Oro City ). In reply, please be informed that under Section 2.57.5 (B) (2) of Revenue Regulations 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 income tax provided by the Omnibus Investments Code of 1987. aDcHIC Accordingly, since JVC Granvia Residences Pueblo de Oro Business Park, Upper Carmen, Cagayan de Oro City , is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by JVC Granvia Residences Pueblo de Oro Business Park, Upper Carmen, Cagayan de Oro City , are exempt from the creditable withholding tax imposed under RR No. 2-98, as amended by RR No. 6-2001, for a period of four (4) years from March 2011 or actual start of commercial operations 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 revenues generated from the registered activity JVC Granvia Residences Pueblo de Oro Business Park, Upper Carmen, Cagayan de Oro City . Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million Pesos (P3,000,000.00) . Interest income from in-house financing shall not be considered in the computation of ITH as revenues generated from the registered activity. The enterprise shall submit the list of cost items common to all its projects/activities (whether BOI-registered or not BOI-registered) and the methodology adopted in allocating the common costs between the registered activity/ies and non-registered activity/ies. The methodology to be adopted in depreciation for fixed Assets particularly the Plant, Property and Equipment account shall be the Straight Line depreciation method. The Interest Expense on the enterprise's liabilities shall be appropriately allocated between the registered activity/ies and the non-registered activity/ies. Moreover, JVC Granvia Residences Pueblo de Oro Business Park, Upper Carmen, Cagayan de Oro City Project's entitlement to ITH is not automatic as it has still to comply with Section 8 (a) 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; (2) File an application with the BOI Incentives Department within one (1) month from the filing of 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; and (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. cTIESa 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, JVC Granvia Residences Pueblo de Oro Business Park, Upper Carmen, Cagayan de Oro City 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 (P1,919,500.00) 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 sales by JVC Granvia Residences Pueblo de Oro Business Park, Upper Carmen, Cagayan de Oro City of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. It should be understood that JVC Granvia Residences Pueblo de Oro Business Park, Upper Carmen, Cagayan de Oro City 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, JVC Granvia Residences Pueblo de Oro Business Park, Upper Carmen, Cagayan de Oro City 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, JVC Granvia Residences Pueblo de Oro Business Park, Upper Carmen, Cagayan de Oro 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 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 as represented are different, then this ruling shall be considered null and void. aDSHIC Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue