BIR Ruling No. 296-12

May 3, 2012 BIR RULING NO. 296-12 E.O. 226; BIR Ruling No. 334-2011 dated September 7, 2011 Property Company of Friends, Inc. PROFRIENDS CENTER, 55 Tinio Street, Barangay Addition Hills, Mandaluyong City 1550 Attention: Girlie B. Seco OIC-Realty Services Division Gentlemen : This refers to your letter dated July 30, 2011 requesting for an opinion on the tax consequences of the Income Tax Holiday (ITH) granted to your company by the Board of Investment (BOI) under E.O. 226, otherwise known as the Omnibus Investment Code of 1987. Documents submitted show that PROPERTY COMPANY OF FRIENDS, INC. (PCFI), with Tax Identification Number (TIN) 201-981-861-000, is a domestic corporation engaged in real estate business and registered with the Securities and Exchange Commission under Reg. No. A199902864 dated February 23, 1999; that PCFI is the owner of a Low-Cost Mass Housing Project at California West Hills Phase 6 Brgy. Buhay na Tubig, Imus, Cavite; that PCFI's Low-Cost Mass Housing Project is registered with the Board of Investments (BOI) under BOI Certificate of Registration No. 2010-177 dated 27 October 2010, as an Expanding Developer of Low-Cost Mass Housing Project on a Non-Pioneer status; that it shall sell One Hundred Sixteen (116) units of low-cost mass housing based on the following schedule: Year No. of Units (Palms) 1 39 2 39 3 38 TOTAL 116 ==== The committed selling prices of PCFI, as represented, are as follows: Package Price Lot Price 995,000 House Price 705,000 Total 1,700,000 ======== that the availment period of the Income Tax Holiday (ITH) incentives shall be reckoned from the date of registration, October 27, 2010; and that the ITH shall be limited only to the revenue generated from its registered project (The Low-Cost Mass Housing Project at California West Hills Phase 6 Brgy. Buhay na Tubig, Imus, 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. Accordingly, since PCFI Low-Cost Mass Housing Project at California West Hills Phase 6 Brgy. Buhay na Tubig, Imus, Cavite is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by PCFI Low-Cost Mass Housing Project at California West Hills Phase 6 Brgy. Buhay na Tubig, Imus, 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 three (3) years from October 27, 2010. It must be emphasized, however, that the above exemption from the creditable withholding tax covers only revenues generated from the registered activity PCFI Low-Cost Mass Housing Project at California West Hills Phase 6 Brgy. Buhay na Tubig, Imus, Cavite. Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million Pesos (P3,000,000.00). Moreover, PCFI Low-Cost Mass Housing Project at California West Hills Phase 6 Brgy. Buhay na Tubig, Imus, Cavite's entitlement to ITH is not automatic as it has still to comply with Section 10 (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, PCFI Low-Cost Mass Housing Project at California West Hills Phase 6 Brgy. Buhay na Tubig, Imus, 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 PCFI Low-Cost Mass Housing Project at California West Hills Phase 6 Brgy. Buhay na Tubig, Imus, 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 PCFI Low-Cost Mass Housing Project at California West Hills Phase 6 Brgy. Buhay na Tubig, Imus, 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, PCFI Low-Cost Mass Housing Project at California West Hills Phase 6 Brgy. Buhay na Tubig, Imus, 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, PCFI Low-Cost Mass Housing Project at California West Hills Phase 6 Brgy. Buhay na Tubig, Imus, 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