BIR Ruling No. 332-14

August 14, 2014 BIR RULING NO. 332-14 E.O. 226; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 334-2011 Posh Properties Development Corporation 11 Floor LV Locsin Bldg. 6752 Ayala Avenue cor. Makati Avenue, Makati City Attention: Floramie T. Manlolo Gentlemen : This refers to your letter dated November 4, 2013 requesting on behalf of Posh Properties Development Corporation ("Posh Properties") ,a certificate of tax exemption from income and expanded withholding taxes on its income derived from the low-cost mass housing project, Solemare Parksuites , which has been duly registered with the Board of Investments (BOI) under Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987". Documents submitted show that Posh Properties ,with Tax Identification No. (TIN) 006-958-978-000, is a domestic corporation duly organized under the Philippine laws; that it is registered with the Securities and Exchange Commission (SEC) with SEC Certificate of Registration No. CS200801003; that the primary purpose for which it was organized is to "acquire by purchase, lease, donation or otherwise, and to own, use, improve, develop, subdivide, sell, mortgage, exchange, lease, develop and hold for investment or otherwise, real estate of all kinds, whether improve, manage or otherwise dispose of buildings, houses, apartments, and other structures or whatever kind, together with their appurtenances";that at present, Posh Properties has a low-cost mass housing project, Solemare Parksuites, located at Bradco Avenue, Aseana Business Park, Paraaque City, which has been duly registered with the Board of Investments (BOI) under the Omnibus Investments Code of 1987 (E.O. 226), with BOI Certificate of Registration No. 2009-099; that the Corporation shall be entitled to income tax holiday (ITH) for the said project for a period of four (4) years beginning from May 2012 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of registration; that the project is duly registered with the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 20134 and License to Sell No. 21948 pursuant to Batas Pambansa 220; and that the ITH of the Corporation shall be limited only to the revenue generated from the registered housing project, Posh Properties- Solemare Parksuites, Bradco Avenue, Aseana Business Park, Paraaque City . It is further shown that Posh Properties- Solemare Parksuites, Bradco Avenue, Aseana Business Park, Paraaque City, under the Specific Terms and Conditions of its BOI Registration, is obligated to construct and sell Nine Hundred Twelve (912) low-cost mass housing units based on the following schedules: Name of Project Year Volume Sales Value (PhP) (No. of Units) 1 355 694,623,845 Solemare Parksuites 2 319 607,795,864 3 238 434,139,903 Total 912 1,736,559,612 ===== =========== Posh Properties shall adhere to the following selling prices as represented: Unit Type Selling Price (PhP) One Bedroom 2.2 Million One Bedroom with Balcony 2.4 Million 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. (BIR Ruling No. 334-2011 dated September 7, 2011) Accordingly, since Posh Properties- Solemare Parksuites, Bradco Avenue, Aseana Business Park, Paraaque City, is duly registered with the BOI under the Omnibus Investments Code of 1987, this Office is of the opinion as it hereby holds, that the income payments received by Posh Properties in connection with the aforementioned housing project, involving Nine Hundred Twelve (912) 1 units, are exempt from the creditable withholding tax imposed under RR No. 2-98, as amended by RR No. 6-2001, for a period of four (4) years beginning from May 2012 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of registration of the housing project with the BOI. HcTDSA It must be emphasized, however, that the aforesaid exemption from the creditable withholding tax covers only income directly attributable to the revenues generated from the project, Posh Properties- Solemare Parksuites, Bradco Avenue, Aseana Business Park, Paraaque City involving Nine Hundred Twelve (912) units. Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million Pesos (Php3,000,000.00),as well as revenues from the sale of the Thirteen (13) commercial units and One Hundred Seventy-Five (175) parking units in the said condominium project. In the computation of ITH, interest income from in-house financing shall not be considered as part of the revenues generated from the registered housing project. Moreover, Posh Properties- Solemare Parksuites, Bradco Avenue, Aseana Business Park, Paraaque City's entitlement to ITH for its BOI-registered housing project is not automatic as it has still to comply with the provisions of the Specific Terms and Conditions of its BOI Registration, to wit: (1) Secure from the Housing and Land Use Regulatory Board (HLURB) an endorsement that it has faithfully complied with the approved development plan and a "certificate of good housekeeping"; (2) File an application with the BOI Incentives Department within one (1) month from the 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; (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; (4) Prior to availment of ITH, the enterprise shall submit proof of compliance with the requirement under Section 18 of Republic Act No. 7279 ("Urban Development and Housing Act of 1992") that at least twenty percent (20%) of the total subdivision area or total subdivision project cost has been allocated and developed for socialized housing, otherwise the ITH for that particular taxable year shall be deemed forfeited; (5) The enterprise is encouraged to undertake Corporate Social Responsibility (CSR) Projects/Activities. A report on completed/on-going CSR projects/activities shall be submitted to the Board prior to availment of ITH; and (6) The enterprise shall submit to the BOI Supervision and Monitoring Department, on a quarterly basis within fifteen (15) days from the end of each quarter, a report on actual investments, employment, sales, production costs and other information that the Board may require at anytime with respect to the registered project starting on date of registration. 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, Posh Properties was clearly granted a 4-year ITH for its project, Solemare Parksuites, Bradco Avenue, Aseana Business Park, Paraaque City involving Nine Hundred Twelve (912) units, but such terms and conditions do not provide for any exemption from other taxes that the Corporation may be subject to on its business transactions. Thus, Posh Properties- Solemare Parksuites, Bradco Avenue, Aseana Business Park, 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 ) DcCIAa 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) 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. 2 Thus, only the sales by Posh Properties- Solemare Parksuites, Bradco Avenue, Aseana Business Park, Paraaque City involving Nine Hundred Twelve (912) housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. It should be understood that Posh Properties 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 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 (RR) No. 2-98, as amended. Likewise, Posh Properties 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, Posh Properties' 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 is 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 Bureau of Internal Revenue Footnotes 1. While the HLURB License to Sell is for 916 residential units, 13 commercial units and 175 parking units, the BOI Registration covers only the 192 residential units. Thus, the tax exemption shall only cover the 192 residential units. 2. The increase in the threshold amounts 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 .