BIR Ruling No. 318-15

September 18, 2015 BIR RULING NO. 318-15 E.O. 226; RR 16-2011; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 334-11 St. Francis Land Ventures, Inc. Esguerra St., Brgy. San Francisco Poblacion, Pulilan, Bulacan Attention: Jessie Tan Weston Corporate Secretary Gentlemen : This refers to your letter dated April 10, 2014 stating that St. Francis Land Ventures, Inc. ("St. Francis" for brevity) with Tax Identification No. 007-649-893-000, is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under Company Reg. CS201004103. It is registered with the Board of Investments (BOI) as a New Developer of Low-Cost Mass Housing Project (San Francisco Homes-Sitio San Francisco, Poblacion, Pulilan, Bulacan) on a Non-Pioneer status under the Omnibus Investments Code of 1987 or Executive Order (EO) No. 226. St. Francis Land Ventures, Inc. has been granted Income Tax Holiday (ITH) by the BOI under Certificate of Registration No. 2011-108 dated June 06, 2011 for a period of four (4) years from June 2011 or actual start of commercial operations/selling pursuant to EO 226. St. Francis' San Francisco Homes-Sitio San Francisco, Poblacion, Pulilan, Bulacan Project is registered with Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 22761 and holds HLURB License to Sell No. 030026 which amends License to Sell No. 24251; and under the Specific Terms and Conditions of its BOI Registration, St. Francis Land Ventures, Inc. shall construct and sell One Hundred Two (102) units of low-cost mass housing for San Francisco Homes-Sitio San Francisco, Poblacion, Pulilan, Bulacan Project based on the following schedule: Year Volume (No. of Units) 1 54 2 48 3 0 4 0 Total 102 ==== 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 St. Francis Land Ventures, Inc., 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. aCIHcD 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 St. Francis' San Francisco Homes-Sitio San Francisco, Poblacion, Pulilan, Bulacan Project is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by St. Francis Land Ventures, Inc. in connection with its housing projects: San Francisco Homes-Sitio San Francisco, Poblacion, Pulilan, Bulacan (on the 102 low-cost mass housing units as mentioned in the Specific Terms and Conditions of its BOI Registration) is exempt from CWT under RR No. 2-98, as amended by RR No. 6-2001, for a period of 4 years from June 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 revenues generated from the registered activities, San Francisco Homes-Sitio San Francisco, Poblacion, Pulilan, Bulacan Project involving 102 low-cost mass housing units. 1 Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million Pesos (P3,000,000.00). 2 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 St. Francis' San Francisco Homes-Sitio San Francisco, Poblacion, Pulilan, Bulacan Project is not automatic as it still has to comply with the Specific Terms and Conditions of its BOI Registrations, viz. : 1. The enterprise shall increase its stockholders' equity to at least Php12,973,500.00 equivalent to 25% of the total project cost and shall submit proof of compliance before availment of Income Tax Holiday (ITH) incentive. 2. The enterprise shall construct and sell 102 units of low-cost mass housing based on the following schedule: Year Volume (No. of Units) Value (Php'000) 1 54 36,934 2 48 32,831 3 0 0 4 0 0 Total 102 69,765 ===== 3. The enterprise shall observe the following project timetable: Activity Schedule Related Cost in Expense/s Php'000 Site Acquisition Completed Raw Land 10,000 Cost Obtaining Appropriate Completed DA; DENR; 1,819 License/Agreement/ EMB; DAR; Permits from the HLURB Government Site Preparation and Completed Land/site 6,687 Development development Start of Commercial June 2011 Working 1,018 Operation capital Total Project Cost 51,894 ===== 4. The enterprise shall undertake Corporate Social Responsibility (CSR) activity duly identified by the Board. The enterprise shall submit proof of compliance thereof prior to availment of Income Tax Holiday. 5. 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. 6. Secure from the HLURB an endorsement that it has faithfully complied with the approved development plan and a "Certificate of Good Housekeeping". 7. 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. cHaCAS 8. 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. 9. The enterprise shall maintain the 75:25 debt-equity ratio requirement, it shall show proof that the construction of housing units have been completed and delivered to buyers 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. 10. The enterprise shall submit proof of compliance that at least twenty percent (20%) of the total subdivision project (estimated at Ph10,378,800) 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. 11. 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, St. Francis' San Francisco Homes-Sitio San Francisco, Poblacion, Pulilan, Bulacan Project were clearly granted a 4-year ITH but such terms and conditions do not provide for any exemption from other taxes that St. Francis Land Ventures, Inc. may be subject to on its business transactions. Thus, St. Francis' San Francisco Homes-Sitio San Francisco, Poblacion, Pulilan, Bulacan 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. 3 Thus, only the sales by St. Francis' San Francisco Homes-Sitio San Francisco, Poblacion, Pulilan, Bulacan Project of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. It should be understood that St. Francis' San Francisco Homes-Sitio San Francisco, Poblacion, Pulilan, Bulacan 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 Revenue Regulations No. 2-98, as amended. Likewise, St. Francis' San Francisco Homes-Sitio San Francisco, Poblacion, Pulilan, Bulacan Project is required to file on or before the 15th day of the fourth month following the close of your 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, St. Francis' San Francisco Homes-Sitio San Francisco, Poblacion, Pulilan, Bulacan 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 you have been complying with the conditions under which you have been granted tax exemption or tax incentives and your 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. HLURB License to Sell No. 030026 issued to St. Francis Land Ventures, Inc. for San Francisco Homes covers only 102 House and Lots/1 Lot. 2. HLURB License to Sell No. 030026 provides for maximum selling price per House and Lot Package at P1,250,000.00 and P500,000.00 for lot only. 3. 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.