BIR Ruling No. 249-12

April 13, 2012 BIR RULING NO. 249-12 E.O. 226; RR 2-98; BIR Ruling No. 334-2011 dated September 7, 2011. Country Mile Homes, Inc. 4th Floor, CSJ Building, Aguirre Street, Legaspi Village, Makati City Attention: Carolina S. Osteria Managing Director/Chief Financial Officer Gentlemen : This refers to your letter dated 5 September 2011 requesting for a confirmation that the income derived from the sales of a BOI registered project, particularly "Pacific Woods West Village, Carsadang Bago, Imus, Cavite", is exempt from income tax and consequently from creditable withholding tax. Documents submitted show that COUNTRY MILE HOMES, INC. (CMHI), with Tax Identification Number TIN 005-285-608-000, is a Domestic Corporation engaged in real estate business and registered with the Securities and Exchange Commission under Registration No. A199720930 dated 30 October 1997; that CMHI is the owner of "Pacific Woods West Village, Carsadang Bago, Imus, Cavite"; that CMHI is registered with the Board of Investments (BOI) as an Expanding Developer of Low-Cost Mass Housing Project on a Non-Pioneer status per BOI Registration No. 2011-109 dated 7 June 2011; that CMHI shall construct and sell One Hundred Fifty Four (154) units of low cost mass housing based on the following schedule: Year Volume (No. of Units) 1 50 2 68 3 36 TOTAL 154 ===== that the enterprise shall adhere to the following selling price as represented: THADEI Model Type Selling Price (Php) Sunflower 1,443,998.00 Jasmine 1,669,724.00 that the firm shall be entitled to Income Tax Holiday (ITH) for three (3) years from June 2011 or actual start of commercial operations/selling, whichever is earlier but in no case earlier than the date of registration; that the ITH shall be limited only to the revenues generated from this registered project (Pacific Woods West Village, Carsadang Bago, Imus, Cavite) ; that revenues from units with selling price exceeding PhP3.0M shall not be covered by ITH. In reply, please be informed that under Section 2.57.5 (B) (2) of Revenue Regulations No. 2-98, as amended by Revenue Regulations 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 payment to persons enjoying exemption from the income tax provided by the Omnibus Investment Code of 1987. Accordingly, since Pacific Woods West Village, Carsadang Bago, Imus, Cavite Project is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by CMHI in connection with the aforementioned housing project, Pacific Woods West Village, Carsadang Bago, Imus, Cavite Project, are exempt from the creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001, for a period of three years starting from June 2011. It must be emphasized, however, that the exemption from the creditable withholding tax covers only revenues generated from the registered activity, Pacific Woods West Village, Carsadang Bago, Imus, Cavite Project. 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, Pacific Woods West Village, Carsadang Bago, Imus, Cavite Project's entitlement to ITH is not automatic as it has still to comply with Section 9 (a) of the Specific Terms and Conditions of the BOI Registration, viz. : (1) Secure endorsement/certification from the HLURB that it has faithfully complied with the approved development plan and a "certificate of Good Housekeeping"; (2) File an application with the BOI Incentives Department within one (1) month from the filing of the final ITR with BIR in order to validate the claim for income tax exemption. The application shall be accompanied by a certification by SSS that the firm is in good standing in the remittance of SSS contributions of its employees; and (3) Secure a Certificate of ITH Entitlement (CoE) from the Supervision and Monitoring Department (SMD) of BOI prior to filing the Income Tax Return with the BIR, otherwise ITH for that particular taxable year without CoE shall be forfeited. aIcSED Furthermore, BOI-registered enterprises enjoy no tax exemption/privileges other than those granted under E.O. 266. In this regard, under the terms and conditions of its BOI REGISTRATION, Pacific Woods West Village, Carsadang Bago, Imus, Cavite Project was clearly granted a 3-year ITH but such terms and conditions do not provide for any exemption for other taxes that it may be subject to on its business transactions. Thus Pacific Woods West Village, Carsadang Bago, Imus, Cavite Project will remain subject to Value-Added Tax (VAT) and Documentary Stamp Tax (DST) on its sales of housing units pursuant to Section 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) 1 of the Tax Code of 1997 provides, that the sale of residential lot valued at One Million Five Hundred Thousand Pesos (P1,500,000.00) and below or house and lot, and other residential dwellings valued at Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below is VAT-exempt. Thus, only the sale by Pacific Woods West Village, Carsadang Bago, Imus, Cavite Project of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. It should be understood that Pacific Woods West Village, Carsadang Bago, Imus, Cavite Project 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, Pacific Woods West Village, Carsadang Bago, Imus, Cavite Project 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 Annual Information Return under oath, stating its gross income and expenses incurred during the taxable year. cADSCT Finally, Pacific Woods West Village, Carsadang Bago, Imus, Cavite 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 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 as represented 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. As amended by Revenue Regulations No. 16-2011 which took effect January 1, 2012. The adjusted amounts, rounded off to the nearest hundred are as follows: Section Amount in Pesos Adjusted threshold (2005) amounts Section 109 (P) 1,500,000.00 1,919,500.00 Section 109 (P) 2,500,000.00 3,199,200.00