BIR Ruling No. 289-12

April 25, 2012 BIR RULING NO. 289-12 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. 2009-009 dated January 29, 2009 as a New Developer of Low-Cost Mass Housing Project (Il Giardino Residences-Phase 1, Brgy. Buenavista 1, General Trias, Cavite) on a Non-Pioneer status; that under its BOI Terms and Conditions, it shall construct and sell Five Hundred Twenty One (521) units of low-cost mass housing units based on the following schedule: Year No. of Units Value (P '000) 1 36 45,015 2 163 207,505 3 161 207,165 4 161 195,270 TOTAL 521 654,955 ====== that CBDI (Il Giardino Residences-Phase 1, Brgy. Buenavista 1, General Trias, Cavite) shall start commercial operations/selling in January 2009; that pursuant to the same Specific Terms and Conditions, CBDI is entitled to an ITH for a period of four (4) years from January 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, Il Giardino Residences-Phase 1, Brgy. Buenavista 1, General Trias, 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. 21541 dated July 22, 2009 covering the project "Il Giardino-Brgy. Buenavista 1, General Trias, Cavite" ; and that HLURB License to Sell No. 22631 dated July 22, 2009 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. 2011-000559 dated April 15, 2011 for its low-cost mass housing project "Il Giardino-Brgy. Buenavista 1, General Trias, Cavite" . AIcaDC 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 Il Giardino-Brgy. Buenavista 1, General Trias, 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 Il Giardino-Brgy. Buenavista 1, General Trias, 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 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 Il Giardino-Brgy. Buenavista 1, General Trias, 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 Il Giardino-Brgy. Buenavista 1, General Trias, Cavite Project to ITH is not automatic as it has to comply with Section 9 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. ADaECI 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 Il Giardino-Brgy. Buenavista 1, General Trias, 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 Il Giardino-Brgy. Buenavista 1, General Trias, 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 Il Giardino-Brgy. Buenavista 1, General Trias, 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 (Il Giardino-Brgy. Buenavista 1, General Trias, 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 (Il Giardino-Brgy. Buenavista 1, General Trias, 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 (Il Giardino-Brgy. Buenavista 1, General Trias, 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. ITCHSa 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.