BIR Ruling No. 334-11

September 7, 2011 BIR RULING NO. 334-11 E.O. 226 Secs. 57 (B); 106 (A) (1) (a); 109 (1) (P); 196 NIRC; BIR Ruling No. [DA(IL-008)-080-10]; BIR Ruling No. [DA-(IL-010) 215-09] Royal Palm Villa-Pamplona Dos, Las Pias City c/o Primegates Property, Inc. Km. 17 Alabang-Zapote Road and Cuevas St. Pamplona Dos, Las Pias City Attention: Mr. Pedro M. Palma, Jr. Corporate Secretary Gentlemen : This refers to your letter, dated January 15, 2010, requesting on behalf of Primegates Property, Inc.'s housing project, Royal Palm Villa-Pamplona Dos, Las Pias City ("PPI-Royal Palm Housing Project") , for exemption from income and creditable withholding taxes pursuant to Revenue Regulations No. 2-98, as amended, on account of the housing project's registration with the Board of Investments (BOI) under Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987". Documents submitted show that Primegates Property, Inc. (PPI) ,with Tax Identification Number (TIN) 237-568-138-000, is a Philippine corporation engaged in real estate business and registered with the Securities and Exchange Commission under Reg. No. CS200505871 dated April 11, 2005; that PPI is the owner of the PPI-Royal Palm Housing Project located at Pamplona Dos, Las Pias City; that PPI-Royal Palm Housing Project is duly registered with the Board of Investments (BOI) under Certificate of Registration No. 2008-15, dated June 12, 2008, as New Developer of Low Cost Mass Housing Project, (PPI-Royal Palm Housing Project) on a non-pioneer status; that it shall construct and sell Four Hundred Fifty Three (453) units of low-cost mass housing based on the following revised schedule: Year Volume (Units) Sales Value (with ITH) 1 113 Php248,190,000.00 2 113 248,190,000.00 3 113 248,190,000.00 4 114 250,390,000.00 Total 453 Php994,960,000.00 ==== =============== that the start of commercial operation was moved from May 2008 to October 2009; that the availment period of the Income Tax Holiday (ITH) incentives shall be reckoned from the date of registration, June 12, 2008, per BOI-SMD letter dated April 30, 2009; and that the ITH shall be limited only to the revenue generated from its registered project (PPI-Royal Palm Housing Project) . 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 the Omnibus Investments Code of 1987. cTDIaC Accordingly, since PPI-Royal Palm Housing Project ,is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by PPI in connection with the aforementioned housing project, PPI-Royal Palm Housing Project , 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 years starting from June 12, 2008. It must be emphasized, however, that the above exemption from the creditable withholding tax covers only revenues generated from the registered activity, PPI-Royal Palm Housing Project. Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million pesos (P3,000,000.00). (BIR Ruling No. DA-(IL-008) 080-10 dated May 28, 2010). Moreover, PPI-Royal Palm Housing Project'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 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; 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, PPI-Royal Palm Housing Project was clearly granted a 4-year ITH but such terms and conditions do not provide for any exemption from other taxes that it may be subject to on its business transactions. Thus, PPI-Royal Palm Housing Project 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. DA-(IL-010) 215-09 dated April 29, 2009) In relation thereto, Section 109 (1) (P) of the Tax Code of 1997 provides, that the sale of residential lot valued at one million five hundred thousand pesos (P1,500,000) and below or house and lot, and other residential dwellings valued at two million five hundred thousand pesos (P2,500,000) and below is VAT-exempt. Thus, only the sales by PPI-Royal Palm Housing 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 PPI-Royal Palm Housing 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, PPI-Royal Palm Housing 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, PPI-Royal Palm Housing 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. CASIEa Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue