BIR Ruling No. 252-12

April 20, 2012 BIR RULING NO. 252-12 E.O. 226; RR 2-98, as amended; BIR Ruling No. 334-2011 Alba Romeo & Co., 7th Floor Multinational Bancorporation Centre 6805 Ayala Ave., Makati City Attention: Mr. Romeo C. Alba Chairman & Managing Partner Gentlemen : This refers to your letter dated August 16, 2011 requesting on behalf of your client, CITIHOMES BUILDERS AND DEVELOPMENT, INC. (CBDI), exemption from withholding tax on income during the Income Tax Holiday (ITH) granted to it by the Board of Investments (BOI) under Executive Order (EO) No. 226 otherwise known as the "Omnibus Investments Code of 1987", as amended by Republic Act (R.A.) No. 7918. Documents submitted disclosed that CBDI with Taxpayer Identification No. 000-444-767-000, is a domestic corporation registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 111239; that CBDI is duly registered with the Board of Investments (BOI) under Certificate of Registration No. 2009-089 dated June 24, 2009 as a New Developer of Low Cost Mass Housing Project (Sterling Manors-Brgy. Anabu I, Imus, Cavite) on a Non-Pioneer status; that under its BOI Terms and Conditions, it shall construct and sell Three Hundred Seventeen (317) units of low-cost mass housing units based on the following schedule: Year No. of Units Value (P '000) 1 53 65,304,006 2 120 145,892,568 3 120 145,892,568 4 24 29,958,076 TOTAL 317 387,047,218 ========= that CBDI (Sterling Manors-Brgy. Anabu I, Imus, Cavite Project) shall start commercial operations in July 2009; that pursuant to the same Specific Terms and Conditions, CBDI's Sterling Manors-Brgy. Anabu I, Imus, Cavite Project is entitled to an ITH for a period of four (4) years from July 2009 or from the 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 revenue generated from this registered project, Sterling Manors-Brgy. Anabu I, Imus, Cavite; that revenues from units with selling price exceeding P3.0M shall not be covered by ITH; that it is registered with the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 20337 dated January 28, 2009 covering the project "Sterling Manors Subdivision-Brgy. Anabu I, Imus, Cavite" ; and that HLURB License to Sell No. 23992 dated December 14, 2010 was issued to CBDI over the same project; and that a Certificate of ITH Entitlement for Taxable Year 2010 was issued to CBDI by BOI under Certificate No. 2011-000547 dated April 15, 2011 for its low-cost mass housing project Sterling Manors-Brgy. Anabu I, Imus, Cavite. cCAIaD 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 the income tax provided by the Omnibus Investments Code of 1987. Accordingly, since CBDI's Sterling Manors-Brgy. Anabu I, Imus, Cavite Project is a BOI-registered project, this Office is of the opinion as it hereby holds, that income payments received by CBDI in connection with its low-cost mass housing project Sterling Manors-Brgy. Anabu I, Imus, Cavite 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 July 2009 or from the 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 creditable withholding tax covers only revenues generated from the registered activity, CBDI's Sterling Manors-Brgy. Anabu I, Imus, Cavite Project. Furthermore, such exemption shall not cover revenues with selling price exceeding Three Million Pesos (P3,000,000.00). (BIR Ruling No. 334-2011 dated September 7, 2011) Moreover, the entitlement of CBDI's Sterling Manors-Brgy. Anabu I, Imus, Cavite Project to ITH is not automatic as it has to comply with Section 7 of the Specific Terms and Conditions of its BOI Registration, viz.: (1) Secure from HLURB an endorsement that it has complied with the approved development plan; (2) File an application with the BOI Incentives Department within one (1) month from the filing of the final ITR with the BIR in order to validate the claim for income tax exemption. The application shall be accompanied by a certification by SSS that the enterprise is in good standing in the remittance of SSS contributions or 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 is forfeited. TAHIED 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, CBDI's Sterling Manors-Brgy. Anabu I, Imus, Cavite Project was clearly granted a 4-year ITH but such terms and conditions do not provide for any exemption from other taxes that it may be subject to on its business transactions. Thus, CBDI's Sterling Manors-Brgy. Anabu I, Imus, Cavite Project 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 Five Hundred Thousand Pesos (P1,500,000.00) and below, or house and lot and other residential dwellings in the amount of Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below" 1 is VAT-exempt. Thus, only the sales by CBDI's Sterling Manors-Brgy. Anabu I, Imus, Cavite Project of housing units with selling price of not more than the aforementioned price ceilings shall be exempt from VAT. (BIR Ruling No. 334-2011 dated September 7, 2011) It should be understood that CBDI (Sterling Manors-Brgy. Anabu I, 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 as source as required under Chapter XIII and Section 57 of the Tax Code of 1997, as amended and implemented by RR 2-98, as amended. Likewise, CBDI (Sterling Manors-Brgy. Anabu I, 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 the Annual Information Return under oath, stating your gross income and expenses incurred during the taxable year. Finally, CBDI (Sterling Manors-Brgy. Anabu I, 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 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 ascertained that the facts are different, then this ruling shall be considered null and void. HCSEcI Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Effective January 1, 2012, the adjusted threshold amounts of sales of real properties exempt from VAT stated in 109 (1) (P) pursuant to Revenue Regulations No. 16-2011, are as follows: Sale of residential lot valued at P1,919,500.00 and below, Sale of house & lot and other residential dwellings valued at P3,199,200.00 and below where the instrument of sale/transfer/disposition was executed on or after January 1, 2012.