BIR Ruling No. 317-15

September 18, 2015 BIR RULING NO. 317-15 E.O. 226; RR 16-2011; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 334-11 8990 Housing Development Corporation 2nd Floor PGMC Building 76 Calbayog corner Libertad Streets Mandaluyong City Attention: Juliet P. Valerio Management Services Manager Gentlemen : This refers to your letter dated November 4, 2013 stating that 8990 Housing Development Corporation ("8990 Housing" for brevity) with Tax Identification No. 006-095-771-007 is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under Company Reg. No. CS200307008. It is registered with the Board of Investments (BOI) as an Expanding Developer of Low-Cost Mass Housing Project (Deca Homes Resort Residences Phase 10 Subdivision-Tacunan, Mintal, Davao City) on a Non-Pioneer status under Certificate of Registration No. 2011-007 dated January 10, 2011. 8990 Housing has been granted Income Tax Holiday (ITH) by the BOI for a period of three (3) years from January 2011 or actual start of commercial operations/selling, whichever is earlier but in no case earlier than the date of registration. 8990 Housing's Deca Homes Resort Residences Phase 10 Subdivision-Tacunan, Mintal, Davao City Project is duly registered with the Housing and Land Use Regulatory Board (HLURB) Southern Mindanao Region, particularly described as follows: Certificate of License to Name of No. of Maximum Selling Registration No. Sell No. Project/Location Saleable Price Lots 19158 22857 Deca Homes Resort 534 P1,250,000 per Residences Phase 10, House & Lot Tacunan, Mintal, package Davao City Under the Specific Terms and Conditions of its BOI Registration, 8990 Housing shall construct and sell five hundred thirty four (534) units of low-cost mass housing for Deca Homes Resort Residences Phase 10 Subdivision-Tacunan, Mintal, Davao Project based on the following schedule: cHDAIS Year Volume (No. of Units) 1 80 2 170 3 284 Total 534 ==== On the basis of the foregoing, you now request for an opinion on the tax consequences of the said ITH granted by BOI. Specifically, if 8990 Housing, being a BOI-registered enterprise is exempt from the payment of the creditable withholding tax (CWT) imposed under Revenue Regulations No. 2-98 on income payments received during the aforementioned period with respect to its registered activity. 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 Republic Act No. 7916 and the Omnibus Investments Code of 1987. Accordingly, since 8990 Housing's Deca Homes Resort Residences Phase 10 Subdivision-Tacunan, Mintal, Davao Project is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by 8990 Housing in connection with its housing project, Deca Homes Resort Residences Phase 10 Subdivision-Tacunan, Mintal, Davao City Project (on the 534 low-cost mass housing units), is exempt from CWT under RR No. 2-98, as amended by RR No. 6-2001, for a period of 3 years from January 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 CWT covers only income directly attributable to revenues generated from the registered activity, 8990 Housing's Deca Homes Resort Residences Phase 10 Subdivision-Tacunan, Mintal, Davao City Project involving 534 low-cost mass housing units. Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million Pesos (P3,000,000.00). However, while its HLURB License to Sell No. 22857 pegs the maximum selling price of units in Deca Homes Resort Residences Phase 10 Subdivision-Tacunan, Mintal, Davao Project at P1,250,000.00 per House and Lot package; a specific condition its BOI registration states that the enterprise shall adhere to the selling price of P670,000.00 for a housing unit with 80 sq.m. lot area, and 35 sq.m. floor area. In the computation of ITH, interest income from in-house financing shall not be considered as revenues generated from the registered activity. Moreover, the entitlement to ITH of 8990 Housing's Deca Homes Resort Residences Phase 10 Subdivision-Tacunan, Mintal, Davao Project is not automatic as it still has to comply with the following provisions of the Specific Terms and Conditions of their BOI Registration, viz. : 1. The enterprise shall construct and sell 534 units of low-cost mass housing based on the following schedule: Year Volume (No. of Units) Value (Php'000) 1 80 53,600 2 170 113,900 3 284 190,280 Total 534 357,780 ==== ====== 2. The enterprise shall adhere to the following selling prices as represented: Lot Area Floor Area (sq.m.) Selling Price sq.m. (Php'000) 80 35 sq.m. 670 3. The enterprise shall observe the following project timetable: Activity Schedule Related Cost Expense/s (In Php'000) 1. Site acquisition Completed Raw Land cost 25,025 2. Obtaining appropriate Completed Government 3,000 license/agreement/ application permit from the fees government agencies 3. Site preparation and On-going Rental of payloader 35,451 development and other heavy equipment, Building temporary facilities, surveying works, road and walkway preparation, site preparation, drainage system, riprap, electrical and water distribution and amenities. 4. House Construction On-going 124,155 5. Start of commercial January Working 5,500 operation 2011 capital Total 193,131 ====== 4. The enterprise shall submit a list of common cost items common to all its projects/activities (whether BOI or not BOI-registered) and the methodology adopted in allocating the common costs. ISHCcT 5. Secure from the HLURB an endorsement that it has faithfully complied with the approved development plan and a "Certificate of Good Housekeeping". 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. 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. 8. The enterprise shall maintain the 75:25 debt-equity requirement prior to availment of ITH; otherwise, the enterprise shall not be entitled to ITH and shall be required to refund any capital equipment incentives availed of. 9. The enterprise shall submit proof of compliance that at least twenty percent (20%) of the total subdivision area or total subdivision project cost, at the option of the developer, has been developed and allocated for socialized housing within one year from date of registration or prior to availment of ITH whichever is earlier. This may be complied with through any of the following modes: (1) New Settlement; (2) Slum Upgrading; and (3) Joint-Venture Projects. Otherwise, the ITH for that particular year shall be deemed forfeited. 10. The enterprise must abide by the principles of Good Governance. It must likewise accomplish the self-rating Governance Scorecard to be provided by the BOI every year as a requirement for ITH availment. 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, 8990 Housing's Deca Homes Resort Residences Phase 10 Subdivision-Tacunan, Mintal, Davao Project was clearly granted a 3-year ITH but such terms and conditions do not provide for any exemption from other taxes that 8990 Housing may be subject to on its business transactions. Thus, 8990 Housing's Deca Homes Resort Residences Phase 10 Subdivision-Tacunan, Mintal, Davao Project will remain subject to Value-Added Tax (VAT) and Documentary Stamp Tax (DST) on its sales of house and lot units pursuant to Sections 106 (A) (1) (a) and 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 334-11 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 Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00) and below, or house and lot and other residential dwellings valued at Three Million One Hundred Ninety Nine Thousand Two Hundred Pesos (P3,199,200.00) and below is VAT-exempt. 1 Thus, only the sales by 8990 Housing's Deca Homes Resort Residences Phase 10 Subdivision-Tacunan, Mintal, Davao Project of housing units with selling price of not more than the aforementioned price ceilings shall be exempt from VAT. It should be understood that 8990 Housing 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 Revenue Regulations No. 2-98, as amended. Likewise, 8990 Housing 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, 8990 Housing 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 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. The increase in the threshold amount for the sale or lease of goods or properties or the performance of services covered by Section 109 (P), (Q) and (V) of the 1997 Tax Code took effect on January 1, 2012, pursuant to Revenue Regulations No. 16-2011 dated October 27, 2011.