BIR Ruling No. 292-14

July 23, 2014 BIR RULING NO. 292-14 E.O. 226; RR 2-98; RR 16-11; BIR Ruling No. 334-2011 Servequest Properties Corporation 186 Elizalde cor. R. Corpuz Streets BF Homes Executive Village Paraaque City Attention: Mr. Roberto A. Alvarez Chairman Gentlemen : This refers to your letter dated December 12, 2012 requesting tax exemption as a New Developer of Low-Cost Mass Housing Project (One San Antonio Residences San Vicente Ferrer Street, Brgy. San Antonio, Paraaque City), pursuant to the provisions of the Omnibus Investments Code of 1987. Documents submitted disclosed that Servequest Properties Corporation ("Servequest") with Taxpayer's Identification No. 007-850-101-000, is a domestic corporation engaged in real estate business and registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CS201013139 dated August 20, 2010; that Servequest is registered with the Board of Investments (BOI) as a New Developer of Low-Cost Mass Housing Project on a Non-Pioneer status per BOI Registration No. 2011-253 dated November 29, 2011; that its BOI registration particularly covers the project: Project Name Location Start of Commercial No. of Operation/ITH Units One San Antonio San Vicente Ferrer November 2011 108 Residences St., Brgy. San Antonio, Paraaque City that according to the Terms and Conditions of its BOI Registration, Servequest is entitled to Income Tax Holiday (ITH) for a period of three (3) years from November 2011 or actual start of commercial operations/selling whichever is earlier, but in no case earlier than the date of registration; that Servequest's ITH shall be limited only to the revenue generated from its registered project (One San Antonio Residences San Vicente Ferrer Sheet, Brgy. San Antonio, Paraaque City); that revenues from units in Servequest's One San Antonio Residences San Vicente Ferrer Street, Brgy. San Antonio, Paraaque City with selling price exceeding PhP2.50M shall not be covered by ITH; and that the project is duly registered with the Housing and Land Use Regulatory Board (HLURB) Region III, particularly described as follows: Certificate of License to Sell No. Name of No. of Registration No. Project/Location Saleable Lots 22907 24715 One San Antonio 108 dated July 6, 2011 Residences San Vicente Ferrer Street, Brgy. San Antonio, Paraaque City 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. aHECST Accordingly, since Servequest's One San Antonio Residences San Vicente Ferrer Street, Brgy. San Antonio, Paraaque City, is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by Servequest 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 (3) starting from November 2011, 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, One San Antonio Residences San Vicente Ferrer Street, Brgy. San Antonio, Paraaque City involving 108 low-cost mass housing units as mentioned in the Specific Terms and Conditions of its BOI Registration. Furthermore, revenues from units with selling price exceeding Two Million Five Hundred Pesos (P2,500,000.00) 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. Moreover, Servequest's One San Antonio Residences San Vicente Ferrer Street, Brgy. San Antonio, Paraaque City entitlement to ITH is not automatic as it has still to comply with Sections 2, 3, 4, 6 and 7 (v) of the Specific Terms and Conditions of the BOI Registration, viz. : 1. Servequest shall construct and sell 108 units of low-cost mass housing based on the following schedule (Sec. 2): Housing Units No. of Units Studio Type 97 2-Bedroom 11 Total 108 ====== 2. Servequest shall submit an undertaking that the incentives availed of shall translate to the benefit of the consumers of mass housing. Semi-annual report shall be submitted to the BOI reflecting compliance to this condition. (Sec. 3) 3. Servequest shall submit a detailed report on low-cost mass housing units sold. Semi-annual report shall be submitted to the BOI reflecting compliance to this condition. (Sec. 4) 4. The enterprise is encouraged to (undertake Corporate Social Responsibility (CSR) activities duly identified by the Board as follows, to the extent possible, in accordance with the development plans of the community where the registered project is located; and, (b) submit proof of compliance thereof prior to the availment of Income Tax Holiday. 5. In the grant of incentives, including the ITH Rate of Exemption shall depend on Servequest's compliance with the following representations/commitments under its registration. 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, in terms of the foregoing representations/commitments, among others: a. Net Value Added (NVA) should be at least 25% Year 0 Year 1 Construction Cost P33,453,438 P15,742,795 Raw Materials (bathroom and 231,272 108,834 kitchen fixtures) NVA 99.3% 99.3% b. Employment Generation Year 0 Year 1 Direct Labor 120 120 Indirect Labor 6 6 Administrative/Sales 11 11 Total 137 137 ===== ===== In the determination of the enterprise's compliance with the required employment generation, both organic and outsourced employment shall be considered. c. Investments and Timetable Description Completion Related Cost date Expense/s (Php) (Month/Year) Site acquisition Completed Land cost (3,131 5,683,898 sqm.) (allocated) Obtained appropriate Completed Application fees: 79,846 license/Agreement/permit (DA/DENR/EM from government B, DAR, HLURB, etc.) Site Preparation and Completed Building 7,966,860 Development temporary facilities, surveying works, site preparation, road and walkway preparation, drainage system, rip-rap, electricity, water supply, greening and tree planting and amenities Building Construction February House 49,196,233 2011 to construction cost February 2012 Start of Commercial November Working capital 1,900,000 Operation 2011 Total Project Cost 64,826,837 ======== d. Sales Revenues Year Volume (No. of Value (Php'000) Units) 1 30 30,278,530 2 52 50,452,617 3 26 22,942,369 Total 108 103,673,516 ===== ========== Income qualified for ITH availment shall be allowed up to 10% more than the projected income represented in its application provided the project's actual investments and employment approximate the enterprise's representations in its application. Request/s for adjustment of projected income may be submitted to the Board within the ITH entitlement period. In cases where the project's actual revenues exceed the projections in its application, the Board may increase the project's ITH availment proportionately for reasons such as but not limited to (a) additional investments; (b) increase in selling price; (c) additional employment and/or increase in number of working shifts. (Sec. 6) DEaCSA 6. In the availment of ITH, Servequest shall secure from the HLURB an endorsement that it has faithfully complied with the approved development plan and a "Certificate of Good Housekeeping". (Sec. 7 (v)) 7. 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 must secure from the BOI Supervision and Monitoring Department, a Certificate of Entitlement (CoE) prior to filing of Income Tax Return with BIR, otherwise, ITH for that particular taxable year without CoE is 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, Servequest's One San Antonio Residences San Vicente Ferrer Street, Brgy. San Antonio, Paraaque City 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 on its business transactions. Thus, Servequest's One San Antonio Residences San Vicente Ferrer Street, Brgy. San Antonio, Paraaque City 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 Servequest's One San Antonio Residences San Vicente Ferrer Street, Brgy. San Antonio, Paraaque City, of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. (BIR Ruling No. 334-2011 dated September 7, 2011) It should be understood that Servequest-One San Antonio Residences shall be constituted as a withholding agent for the government if it acts as employer and any of its employees received 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, Servequest 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, Servequest'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 have 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. cCAaHD Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Section 7 (a)(i) of the Specific Terms and Conditions.