BIR Ruling No. 360-12

May 23, 2012 BIR RULING NO. 360-12 E.O. 226; RR 2-98; BIR Ruling No. 334-2011 Stateland, Inc. 3rd Floor State Centre Bldg., 333 Juan Luna St., Binondo, Manila Attention: Mr. Bienvenido S. Uy Senior Vice President Gentlemen : This refers to your letter dated 26 July 2010 requesting confirmation that STATELAND, INC. is exempt from the creditable withholding tax on income payments received by it during the period it enjoys Income Tax Holiday (ITH) granted to it by the Board of Investments (BOI) under Executive Order (EO) No. 226 otherwise known as the "Omnibus Investments Code of 1987". Documents submitted disclosed that STATELAND, INC., with Taxpayer Identification No. 000-341-850-000, is a domestic corporation registered with the BOI as an Expanding Developer of Mass Housing Project on a Non-Pioneer status for its mass housing project located in Cabuyao, Laguna and New Developer of Low-Cost Mass Housing Project located in Imus, Cavite, particularly: Project Name Location BOI Reg. Date of BOI Start of No. of No. Registration Commercial Units Operation/ITH Gran Seville Cabuyao, 2007-045 March 14, February 2007 298 Phase 3 & 4 Laguna 2007 Villa San Brgy. Anabu 2008-279 October 6, October 2008 202 Lorenzo II, Imus, 2008 Cavite that according to the Specific Terms and Conditions of its BOI Registration, STATELAND, INC. is entitled to ITH for the following periods: Project Name ITH Period Reckoned from Gran Seville Phase 3 & 4 3 years From date of registration Villa San Lorenzo 4 years From October 2008 or actual start of commercial operations/selling, whichever is earlier but in no case earlier than the date of registration. that STATELAND, INC.'s ITH shall be limited only to the revenue generated from the registered projects Gran Seville Phase 3 & 4 at Cabuyao, Laguna and Villa San Lorenzo at Imus, Cavite ; and that revenues from the sale of units at Gran Seville Phase 3 & 4 at Cabuyao, Laguna and Villa San Lorenzo at Imus, Cavite with selling price exceeding P3.0M shall not be covered by ITH; and that Certificates of ITH Entitlement were issued to STATELAND, INC. for its registered projects, as follows: Project Name Certificate of Entitlement Period ITH Entitlement Gran Seville Phase 3 & 4 2008-000147 March 14, 2007 to March 13, 2010 Villa San Lorenzo 2011-000306 October 6, 2008 to October 5, 2012 In reply, please be informed that Section 2.57.5 (B) (2) of Revenue Regulations 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 under Republic Act No. 7918 and E.O. No. 226. Accordingly, since Gran Seville Phase 3 & 4 at Cabuyao, Laguna and Villa San Lorenzo at Imus, Cavite are STATELAND, INC.'s BOI-registered projects, this Office is of the opinion as it hereby holds, that income payments received by STATELAND, INC. in connection with the aforementioned low-cost mass housing projects are exempt from the creditable withholding tax imposed under RR No. 2-98, as amended by RR No. 6-2001, for a period of three (3) years from date of registration for Gran Seville Phase 3 & 4 and four (4) years from October 2008 for Villa San Lorenzo , or actual start of commercial operations/selling, whichever is earlier but in no case earlier than their dates of registration. It must be emphasized however, that the above exemption from creditable withholding tax covers only revenues generated from STATELAND, INC.'s registered activities, Gran Seville Phase 3 & 4 at Cabuyao, Laguna and Villa San Lorenzo at Imus, Cavite. Furthermore, such exemption shall not cover revenues with selling price exceeding Three Million Pesos (P3,000,000.00). (BIR Ruling No. 334-2011 dated September 7, 2011) cTDIaC Moreover, the entitlement of STATELAND, INC.'s Gran Seville Phase 3 & 4 at Cabuyao, Laguna and Villa San Lorenzo at Imus, Cavite to ITH is not automatic as it has to comply with Sections 5 and 7, respectively, of their Specific Terms and Conditions of their BOI Registration, viz. : (1) Secure from HLURB an endorsement that it has complied with the approved development plan; (2) File an application with the BOI Incentives Department within one (1) month from the filing of the final ITR with the BIR in order to validate the claim for income tax exemption. The application shall be accompanied by a certification by 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 Supervision and Monitoring Department (SMD) of BOI prior to filing the Income Tax Return with the BIR, otherwise ITH for that particular taxable year without CoE is 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, STATELAND, INC.'s Gran Seville Phase 3 & 4 at Cabuyao, Laguna and Villa San Lorenzo at Imus, Cavite were clearly granted a 3- and 4-year ITH, respectively, 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, STATELAND, INC.'s Gran Seville Phase 3 & 4 at Cabuyao, Laguna and Villa San Lorenzo at Imus, Cavite 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) 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 (P1,500,000.00) and below, or house and lot and other residential dwellings in the amount of Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below" 1 is VAT-exempt. Thus, only the sales by STATELAND, INC.'s Gran Seville Phase 3 & 4 at Cabuyao, Laguna and Villa San Lorenzo at Imus, Cavite of housing units with selling price of not more than the aforementioned price ceilings shall be exempt from VAT. (BIR Ruling No. 334-2011 dated September 7, 2011) DCaEAS It should be understood that STATELAND, INC. (Gran Seville Phase 3 & 4 at Cabuyao, Laguna and Villa San Lorenzo at Imus, Cavite) 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 RR 2-98, as amended. Likewise, STATELAND, INC. (Gran Seville Phase 3 & 4 at Cabuyao, Laguna and Villa San Lorenzo at Imus, Cavite) 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 your gross income and expenses incurred during the taxable year. Finally, STATELAND, INC. (Gran Seville Phase 3 & 4 at Cabuyao, Laguna and Villa San Lorenzo at Imus, Cavite)'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 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 as represented 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. Effective January 1, 2012, the adjusted threshold amounts of sales of real properties exempt from VAT stated in 109 (1) (P) pursuant to Revenue Regulations No. 16-2011, are as follows: Sale of residential lot valued at P1,919,500.00 and below, Sale of house & lot and other residential dwellings valued at P3,199,200.00 and below where the instrument of sale/transfer/disposition was executed on or after January 1, 2012.