BIR Ruling No. 257-13

July 11, 2013 BIR RULING NO. 257-13 E.O. 226; RR 2-98; BIR Ruling No. 334-2011 Borland Development Corporation 2nd Floor, Metrobank Bldg., Old National Highway, Balibago, Sta. Rosa, Laguna Attention: Ramiro R. Dimas Assistant General Manager Gentlemen : This refers to your letter dated August 13, 2012, requesting tax exemption as an Expanding Developer of Low-Cost Mass Housing Project (Celina Plains Subdivision Phase 4-A) pursuant to the provisions of the Omnibus Investments Code of 1987. IaSAHC Documents submitted disclosed that Borland Development Corporation with Taxpayer's Identification No. 001-008-417-002, is a domestic corporation engaged in real estate business and registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 175300; that Borland Development Corporation 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. 2012-081 dated May 25, 2012; that its BOI registration particularly covers the project: Project Name Location Start of Commercial No. of Operation/ITH Units Celina Plains Brgys. Pooc and May 2012 347 Units Subdivision Phase 4-A Caingin, Sta. Rosa City, Laguna that according to the Terms and Conditions of its BOI Registration, Borland Development Corporation Celina Plains Subdivision Phase 4-A is entitled to Income Tax Holiday (ITH) for a period of three (3) years from May 2012 or the actual start of commercial operations/selling whichever is earlier, but in no case earlier than the date of registration; that Borland Development Corporation Celina Plains Subdivision Phase 4-A 's ITH shall be limited only to the revenue generated from the registered projects; and that revenues from units with selling price exceeding PhP2.5M shall not be covered by ITH. 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 the Omnibus Investments Code of 1987. Accordingly, since Borland Development Corporation Celina Plains Subdivision Phase 4-A , is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by Borland Development Corporation in connection with the sale of Three Hundred and Forty Seven (347) low-cost mass housing units, Borland Development Corporation Celina Plains Subdivision Phase 4-A , are exempt from the creditable withholding tax imposed under RR No. 2-98, as amended by RR No. 6-2001, for a period of three (3) years starting from May 2012 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 revenues generated from the registered activity, Borland Development Corporation Celina Plains Subdivision Phase 4-A . Furthermore, such exemption shall not cover revenues from units with selling price exceeding Two Million Five Hundred Thousand Pesos (P2,500,000.00). (BIR Ruling No. 334-2011 dated September 7, 2011) aTEScI In the computation of ITH, interest income from in-house financing shall not be considered as revenues generated from the registered activity. Moreover, Borland Development Corporation Celina Plains Subdivision Phase 4-A 's entitlement to ITH is not automatic as it has still to comply with Section 7 (a) of the Specific Terms and Conditions of the BOI Registration, viz. : "7. The enterprise shall be entitled to the following incentives: "a. Income tax Holiday (ITH) for three (3) years from May 2012 or actual start of commercial operations/selling, whichever is earlier but in no case earlier than the date of registration. xxx xxx xxx ii. The enterprise shall submit the list of cost items common to all its projects/activities (whether BOI 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 Straight Line depreciation method. iii. The Interest expense on the enterprise's liabilities shall be appropriately allocated between the registered activity/ies and the non-registered activity/ies. v. In the availment of ITH, the enterprise shall secure from the HLURB an endorsement that it has faithfully complied with the approved development plan and a 'Certificate of Good Housekeeping'. DaHcAS "Date of Filing: An application should be filed 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 of its employees. . . . "The enterprise shall secure a Certificate of Entitlement (CoE) from the BOI Supervision and Monitoring Department prior to filing of Income Tax Return (ITR) with the Bureau of Internal Revenue; otherwise, ITH for that particular taxable year without CoE is forfeited." (Emphasis ours.) 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, Borland Development Corporation Celina Plains Subdivision Phase 4-A was clearly granted a 3-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, Borland Development Corporation Celina Plains Subdivision Phase 4-A 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) 1 and below or house and lot, and other residential dwellings valued at Two Million Five Hundred Thousand Pesos (P2,500,000) 2 and below is VAT-exempt. Thus, only the sales by Borland Development Corporation Celina Plains Subdivision Phase 4-A of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. It should be understood that Borland Development Corporation Celina Plains Subdivision Phase 4-A 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 No. 2-98, as amended. Likewise, Borland Development Corporation Celina Plains Subdivision Phase 4-A 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. IcTEaC Finally, Borland Development Corporation Celina Plains Subdivision Phase 4-A'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 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. P1,919,500.00 starting January 1, 2012, Revenue Regulations No. 16-11, dated October 27, 2011. 2. P3,199,200.00 starting January 1, 2012, supra Note 1.