BIR Ruling No. 286-12

April 25, 2012 BIR RULING NO. 286-12 E.O. 226; BIR Ruling No. 334-2011 dated September 7, 2011 Masaito Development Corporation 11th Floor, Philippine AXA Life Center 1286 Senator Gil Puyat Avenue, Makati City Attention: Allan O. Tranquilino Accounting Manager Gentlemen : This refers to your letter dated July 6, 2011, requesting for exemption from income and creditable withholding taxes, the income derived from the sales of a Board of Investments (BOI) registered project, particularly "New Developer of Low-Cost Mass Housing Project Springfield Properties Barangay Molino III, Bacoor, Cavite", pursuant to Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987". Documents submitted show that MASAITO DEVELOPMENT CORPORATION ("MDC"), with Tax Identification Number (TIN) 000-476-017-000, is a domestic corporation engaged in real estate business and registered with the Securities and Exchange Commission under Reg. No. 137220; that MDC is the owner of a Low-Cost Mass Housing Project at Barangay Molino III, Bacoor, Cavite; that MDC's Low-Cost Mass Housing Project is registered with the Board of Investments (BOI) under BOI Certificate of Registration No. 2011-022 dated 25 January 2011, as a New Developer of Low-Cost Mass Housing Project on a Non-Pioneer status; that it shall sell One Hundred Twenty (120) units of low-cost mass housing based on the following schedule: Year Volume (units) Sales (Php'000) 1 40 43,960 2 40 44,710 3 40 58,240 4 0 0 Total 120 146,910 ==== ===== that the availment period of the Income Tax Holiday (ITH) incentives shall be reckoned from the date of registration, January 25, 2011; and that the ITH shall be limited only to the revenue generated from its registered project (New Developer of Low-Cost Mass Housing Project Springfield Properties Barangay Molino III, Bacoor, Cavite). 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. aEHADT Accordingly, since MDC New Developer of Low-Cost Mass Housing Project Springfield Properties Barangay Molino III, Bacoor, Cavite, is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by MDC Mass Housing Project New Developer of Low-Cost Mass Housing Project Springfield Properties Barangay Molino III, Bacoor, 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 January 25, 2011. It must be emphasized, however, that the above exemption from the creditable withholding tax covers only revenues generated from the registered activity MDC Mass Housing Project New Developer of Low-Cost Mass Housing Project Springfield Properties Barangay Molino III, Bacoor, Cavite. Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million Pesos (P3,000,000.00). Lastly, in computing the ITH, interest income from in-house financing shall not be considered as revenues generated from the registered activity. Moreover, MDC New Developer of Low-Cost Mass Housing Project Springfield Properties Barangay Molino III, Bacoor, Cavite'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 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. 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, MDC New Developer of Low-Cost Mass Housing Project Springfield Properties Barangay Molino III, Bacoor, Cavite 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 MDC New Developer of Low-Cost Mass Housing Project Springfield Properties Barangay Molino III, Bacoor, Cavite of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. It should be understood that MDC New Developer of Low-Cost Mass Housing Project Springfield Properties Barangay Molino III, Bacoor, Cavite 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, MDC New Developer of Low-Cost Mass Housing Project Springfield Properties Barangay Molino III, Bacoor, Cavite 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, MDC New Developer of Low-Cost Mass Housing Project Springfield Properties Barangay Molino III, Bacoor, Cavite'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. 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