BIR Ruling No. 386-14

October 8, 2014 BIR RULING NO. 386-14 RA 7279; BIR Ruling No. 036-2014 RFN Construction and Development Corporation Rm. 210 Tia Maria Bldg. C.V. Starr Avenue, Pamplona, Las Pias City Attention: Rafael A. Ilagan President Gentlemen : This refers to the letter of Atty. Chito M. Cruz, General Manager of National Housing Authority dated May 27, 2013, requesting issuance of Certificate of Tax Exemption for the AFP-PNP Housing Program in Brgy. Lagalag, Tiaong, Quezon pursuant to Republic Act (R.A.) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted show that National Housing Authority (NHA), is the absolute and registered owner of a parcel of land, identified as Lot 2 of the consolidation and subdivision plan, PCS-04-003353, being a portion of the consolidation of Lots 1 & 2 (LRC) Psd-192017 covered by Transfer Certificate of Title (TCT) No. 066-2012000377 1 issued by the Registry of Deeds for the Province of Quezon, located at Brgy. Lagalag, Tiaong, Quezon with an aggregate area of Seven Hundred Thousand Ninety Two square meters (73,092 sq.m.). * On January 22, 2013, a Contract Agreement was executed by and between RFN Construction and Development Corporation and AFP Housing Homeowners Association, Inc. and PNP Housing Homeowners Association, Inc., a homeowner's organization registered with the Housing and Land Use Regulatory Board (HLURB), whereby between RFN Construction and Development Corporation has agreed to sell to AFP Housing Homeowners Association, Inc. and PNP Housing Homeowners Association, Inc.'s individual members the developed lots and completed housing units covered by the said Titles under the Community Initiative Approach Program (CIAP) of the National Housing Authority (NHA) for Two Hundred Forty Thousand Pesos (P240,000.00) for every developed lot and completed housing unit per family. DIAcTE Moreover, on January 22, 2013, a Memorandum of Agreement (MOA) for developed lots and completed housing units, was executed by and among RFN Construction and Development Corporation, as the landowner/developer, AFP Housing Homeowners Association, Inc. and PNP Housing Homeowners Association, Inc., as the beneficiaries, and the NHA, as the implementing government agency for the AFP/PNP Housing Program as cited under Administrative Order No. 9 dated April 11, 2011. Under the MOA, members of the AFP Housing Homeowners Association, Inc. and PNP Housing Homeowners Association, Inc., shall be provided by the NHA with a financial grant for the acquisition house and lot packages in the AFP/PNP Housing Project through the CIAP in the amount of Php240,000.00 for a House and Lot Package of Forty square meters (40.00 sq.m.) lot and Twenty Two square meters (22.00 sq.m.) floor area. On May 15, 2013, RFN Construction and Development Corporation and the NHA executed a Deed of Conveyance, whereby the former transferred and conveyed, 996 developed lot packages on the Forty One Thousand Nine Hundred Ninety Eight square meters (41,998 sq.m.) to NHA at an agreed price of One Hundred Fourteen Million Five Hundred Forty Thousand Pesos (P114,540,000.00). In reply, please be informed that pursuant to Sections 19 and 20 of Republic Act (RA) No. 7279, pertinent portions of which state that: "Sec. 19. Incentives for the National Housing Authority. The National Housing Authority, being the primary government agency in charge of providing housing for the underprivileged and homeless, shall be exempted from the payment of all fees and charges of any kind, whether local or national, such as income and realty taxes. All documents or contracts executed by and in favor of the National Housing Authority shall also be exempt from the payment of documentary stamp tax and registration fees, including fees required for the issuance of transfer certificates of title. "Sec. 20. Incentives for Private Sector Participating in Socialized Housing. To encourage greater private sector participation in socialized housing and further reduce the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sector: ITSaHC xxx xxx xxx "(d) Exemption from the payment of the following: (1) Project-related income taxes; (2) Capital Gains Tax; (3) Value-added tax for the project contractor concerned;" the landowner/developer of properties who sell its properties for use in a socialized housing project are exempt from the payment of the capital gains tax and project-related income taxes. Such being the case, the transfer of 996 developed lots/house and lot packages on the Forty One Thousand Nine Hundred Ninety Eight square meters (41,998 sq.m.) by RFN Construction and Development Corporation to NHA is exempt from capital gains tax, project-related income taxes and consequently from withholding tax. (BIR Ruling No. 036-2014 dated January 29, 2014) Moreover, pertinent portions of RMC No. 42-01 dated October 5, 2001, provide, viz. : xxx xxx xxx A. National Housing Authority (NHA) The NHA, being the primary government agency in charge of providing housing for the underprivileged and homeless citizens shall be exempted from the payment of the following national internal revenue taxes: (1) . . . (2) Documentary stamp tax on sales transactions executed by and in favor of the NHA in connection with socialized housing projects. Since Section 19 of R.A. 7279 exempts "all documents or contracts executed by and in favor of the NHA," the exemption from documentary stamp tax extends to the other party (either seller or buyer) that is dealing or transacting with the NHA. DEScaT xxx xxx xxx The exemption from documentary stamp tax of NHA in connection with any of its socialized housing project extends to the other party (either seller or buyer) that deals or transacts with the NHA. Consequently, since NHA is a party to the sale, no documentary stamp tax shall be due on such sale, either on NHA or the party with which NHA is transacting. Accordingly, the transfer by RFN Construction and Development Corporation to NHA of 996 developed lots/house and lot packages on the Forty One Thousand Nine Hundred Ninety Eight square meters (41,998 sq.m.), is likewise exempt from documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 036-2014 dated January 29, 2014) Upon application for exemption, a lien on the title of the land shall be annotated by the Register of Deeds having jurisdiction over the property, to the effect that the same is to be applied or is being applied to socialized housing project pursuant to RA 7279. Please take note that this ruling is never intended and shall not be construed as giving authority to the concerned Register of Deeds to effect transfer of the land in the name of the buyer without the necessary certificate of authority to register issued by this Bureau. In this regard, this ruling shall be presented to the Revenue District Office (RDO) concerned in order for the latter to issue the Certificate Authorizing Registration (CAR) after the submission of the requirement provided under RMO 15-2003. Moreover, RFN Construction and Development Corporation is likewise exempt from the payment of VAT on its gross receipts from the said project, involving the transfer of 996 developed lots/house and lot packages on the Forty One Thousand Nine Hundred Ninety Eight square meters (41,998 sq.m.). However, its purchases of goods/articles shall be subject to VAT, even if the said purchases are to be used for the socialized housing project, since VAT is an indirect tax which can be passed on by the seller of the goods/services. It shall be understood that RFN Construction and Development Corporation must issue non-VAT official receipts on its gross receipts from the said socialized housing project. 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. aESIHT Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Formerly TCT No. T-219584.