BIR Ruling No. 326-13

August 28, 2013 BIR RULING NO. 326-13 E.O. 226; RR 16-2011; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 334-11 Communities Bulacan, Inc. Mezzanine Floor, Starmall Complex EDSA cor. Shaw Blvd. Mandaluyong City Attention: Atty. Cecilia A. Ramilo Tax Department Head Gentlemen : This refers to your letter dated November 23, 2011 stating that Communities Bulacan, Inc. is a real property developer habitually engaged in the business of developing and constructing affordable house and lot units; that its projects are duly registered with the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 21855 and License to Sell No. 23832; that at present, it has an ongoing subdivision project called Camella Baliwag Phase 2 located in Bo. Tangos, Baliwag, Bulacan; that it has been registered with the Board of Investments (BOI) per Certificate of Registration No. 2011-247 dated November 22, 2011 as an expanding developer of low-cost mass housing project on a non-pioneer status under the Omnibus Investments Code of 1987 (E.O. 226); that it shall be 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 the ITH shall be limited only to revenue generated from its registered project (Camella Baliwag Phase 2 Bo. Tangos, Baliwag, Bulacan); and that under the Specific Terms and Conditions of its BOI Registration, Communities Bulacan, Inc. Camella Baliwag Phase 2 Subdivision Project shall construct and sell Two Hundred Fifty Six (256) units of low-cost mass housing based on the following schedule: AEIcSa Year Volume (No. of Units) Value (Php '000) 1 79 82,143 2 95 96,124 3 82 84,996 Total 256 263,263 === ======= 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 Communities Bulacan, 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. 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 Communities Bulacan, Inc. Camella Baliwag Phase 2 Subdivision Project is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by Communities Bulacan, Inc. in connection with its housing project, Communities Bulacan, Inc. Camella Baliwag Phase 2 Subdivision Project (on the 256 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 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. It must be emphasized, however, that the above exemption from CWT covers only income directly attributable to revenues generated from the registered activities, Communities Bulacan, Inc. Camella Baliwag Phase 2 Subdivision Project. Furthermore, such exemption shall not cover revenues from units with selling price exceeding Two Million Five Hundred Thousand Pesos (P2,500,000.00). (BIR Ruling No. 334-11 dated September 7, 2011). In the computation of ITH, interest income from in-house financing shall not be considered as revenues generated from the registered activity. CDaSAE Moreover, the entitlement to ITH of Communities Bulacan, Inc. Camella Baliwag Phase 2 Subdivision Project is not automatic as they still have to comply with the provisions of Section 7 (a) of the Specific Terms and Conditions of their BOI Registrations, viz. : 1. The enterprise shall submit the list of cost items common to all its projects/activities whether BOI-registered or not BOI-registered and the methodology adopted in allocating the common costs; 2. Secure from the HLURB an endorsement that it has faithfully complied with the approved development plan and a "Certificate of Good Housekeeping"; 3. 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; and 4. 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. 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, Communities Bulacan, Inc. Camella Baliwag Phase 2 Subdivision Project were clearly granted a 3-year ITH but such terms and conditions do not provide for any exemption from other taxes that Communities Bulacan may be subject to on its business transactions. Thus, Communities Bulacan, Inc. Camella Baliwag Phase 2 Subdivision 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 Communities Bulacan, Inc. Camella Baliwag Phase 2 Subdivision Project of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. DAEcIS It should be understood that Communities Bulacan, Inc. Camella Baliwag Phase 2 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, Communities Bulacan, Inc. Camella Baliwag Phase 2 Subdivision 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, Communities Bulacan, Inc. Camella Baliwag Phase 2 Subdivision 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. 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.