BIR Ruling No. 280-13

July 22, 2013 BIR RULING NO. 280-13 E.O. 226; RR 2-98; RR 16-11; BIR Ruling No. 334-2011 Verdantpoint Development Corporation 7th Floor Summit One Tower, 530 Shaw Boulevard Mandaluyong Attention: Mr. Johnny L. Corpuz Vice-President Gentlemen : This refers to your letter dated May 31, 2013 requesting exemption from withholding tax on sale of house and lot units on its subdivision project (Eastwood Residences Phase 9 Brgy. San Isidro, Rodriguez, Rizal) which is entitled to Income Tax Holiday (ITH) granted by the Board of Investments (BOI) under Executive Order (E.O) 226 or of the Omnibus Investments Code of 1987. Documents submitted disclosed that Verdantpoint Development Corporation (Verdantpoint for brevity) with Taxpayer's Identification No. 237-765-097-000, is a domestic corporation engaged in real estate business and registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CS200506138; that Verdantpoint Development Corporation is registered with the Board of Investments (BOI) as an Expanding Developer of Low-Cost Mass Housing Project (Horizontal) on a Non-Pioneer status per BOI Registration No. 2013-090 dated April 15, 2013; that its BOI registration particularly covers the project: Project Name Location Start of Commercial No. of Operation/ITH Units Eastwood Residences 9 Brgy. San Isidro, May 2013 283 Rodriguez, Rizal that according to the Terms and Conditions of its BOI Registration, Verdantpoint is entitled to Income Tax Holiday (ITH) for a period of three (3) years from May 2013 or the actual start of commercial operations/selling whichever is earlier, but in no case earlier than the date of registration; that Verdantpoint's ITH shall be limited only to the revenues generated from Verdantpoint's registered project (Eastwood Residences Phase 9 Brgy. San Isidro, Rodriguez, Rizal); that revenues from units in Verdantpoint's Eastwood Residences Phase 9 Brgy. San Isidro, Rodriguez, Rizal) with selling price exceeding PhP3.0M shall not be covered by ITH; and that the project is duly registered with the Housing and Land Use Regulatory Board (HLURB), particularly described as follows: AHa ETS Certificate of License to Sell No. Name of No. of Registration No. Project/Location Saleable Lots 24673 26924 Eastwood Residences 283 dated May 9, 2013 dated May 9, 2013 Phase 9 Brgy. San Isidro, Rodriguez, Rizal 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 as provided by the Omnibus Investments Code of 1987. Accordingly, since Verdantpoint's Eastwood Residences Phase 9 Brgy. San Isidro, Rodriguez, Rizal is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by Verdantpoint in connection with the aforementioned housing project, 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 years starting from May 2013 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 project, Verdantpoint's Eastwood Residences Phase 9 Brgy. San Isidro, Rodriguez, Rizal. Furthermore, revenues from units with selling price exceeding Three Million Pesos (P3,000,000.00) shall not be covered by ITH. 1 (BIR Ruling No. 334-2011 dated September 7, 2011) In the computation of ITH, interest income from in-house financing shall not be considered as part of the revenues generated from the registered activity. AEDISC Moreover, Verdantpoint's Eastwood Residences Phase 9 Brgy. San Isidro, Rodriguez, Rizal entitlement to ITH is not automatic as it has still to comply with the Specific Terms and Conditions of the BOI Registration, viz. : 1. The enterprise shall submit proof of verified compliance with its tree-planting activity for its housing projects and with its 20% socialized housing requirement for its existing project. Compliance with the 20% socialized housing requirement should be proportionate to the number of low-cost housing project being applied for ITH for the taxable year; 2. In the grant of incentives, the extent of the project's ITH entitlement shall be based in the project's ability to contribute to the economy's development based on the following parameters in this order of importance: (1) project's net value added, (2) job generation, (3) multiplier effect, and (4) measured capacity. In the event that the registered enterprise fails to implement the project as represented in its project application, the Board may reduce the project's ITH entitlement proportionate to the actual performance of the enterprise. The project's entitlement to incentives shall be based on the following: a. Net Value Added (NVA) should be at least 25% Year 1 Year 2 Year 3 NVA 98% 98% - b. Job Generation Year 1 Year 2 Year 3 Year 4 Employees 85 145 147 29 In the determination of the enterprise's compliance with the required job generation, both organic and outsourced employment shall be considered. c. Investments and Timetable DICcTa Activity Schedule Related Cost (In Expense/s Php'000) Land acquisition October Land cost 48,107,815 2007 Secure necessary July 2012- Pre-operating 963,491 license/permit/registration March 2013 expenses from the government/training costs Site preparation and July 2012- Land/site 38,676.786 development March 2013 development House construction July 2012- House 52,910,640 March 2014 construction Start of commercial May 2013 Working 8,219,289 operation capital Total 148,878,021 ========== d. Sales Revenues Year Volume (No. of Value (Php'000) Units) 1 114 83,528,465 2 124 90,154,470 3 45 32,850,863 Total 283 206,533,798 === ========== 3. The enterprise shall maintain a book of account for the registered project separate from all its other operation/s and other activities; 4. The enterprise shall submit a list of common cost items and cost allocation methodology for its other projects/activities (whether BOI-registered or non-registered); 5. Secure from the HLURB an endorsement that it has faithfully complied with the approved development plan and a "Certificate of Good Housekeeping"; IaAHCE 6. File an application with the BOI Incentives Department within one (1) month from filing of the final 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 7. 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 year without CoE shall be forfeited. Income qualified for ITH availment shall not exceed by more than 10% of the projected income represented by the enterprise in its application provided the project's actual investments and employment match the enterprise's representations in its application. In cases where the project's actual revenues exceed the projections in its application by more than 10%, the Board may increase the project's ITH availment proportionately for reasons such as bust not limited to (a) additional investments; (b) new markets/orders; (c) additional employment and/or increase in number of working shifts. Request/s for adjustment of projected income may be submitted to the Board within the ITH entitlement period. 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, Verdantpoint's Eastwood Residences Phase 9 Brgy. San Isidro, Rodriguez, Rizal 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 on its business transactions. Thus, Verdantpoint's Eastwood Residences Phase 9 Brgy. San Isidro, Rodriguez, Rizal 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, as amended, provides, that the sale of residential lot valued at One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500) 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) and below is VAT-exempt. (Revenue Regulations No. 16-2011 dated October 27, 2011) Thus, only the sales by Verdantpoint's Eastwood Residences Phase 9 Brgy. San Isidro, Rodriguez, Rizal, 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) acHCSD It should be understood that Verdantpoint's Eastwood Residences Phase 9 Brgy. San Isidro, Rodriguez, Rizal Housing 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 withholding tax on compensation, 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, Verdantpoint 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, Verdantpoint'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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Section 9 (a) (i) of the Specific Terms and Conditions.