BIR Ruling No. 393-15

December 7, 2015 BIR RULING NO. 393-15 RA No. 7279; BIR Ruling No. 171-15; BIR Ruling No. 063-14 Urban Consolidated Constructors Phils., Inc./ Hercar Builders, Inc., Joint Venture Unit 404 Merchant Square Condominium 1386 E. Rodriguez Sr. Avenue cor. Mabolo St., New Manila, Quezon City Attention: Mr. Herminio P. Carreon Managing Joint Venturer Gentlemen : This refers to your letter dated June 1, 2015, requesting issuance of Certificate of Tax Exemption for the socialized housing project known as the "Bacjawan Sur People's Village-Site 1" under the Yolanda Permanent Housing Program located at Brgy. Bacjawan Sur, Concepcion, Iloilo pursuant to Republic Act (R.A.) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted show that Estelle Lois S. Zerrudo, Ryan S. Zerrudo and Francis Clyde S. Zerrudo are the registered owners (hereinafter collectively referred to as "Landowners") of parcels of land, covered by four (4) "Katibayan ng Orihinal na Titulo" or Original Certificates of Title (OCT) located at Brgy. Bacjawan Sur, Conception, Iloilo, to wit: Landowners OCT Area (Sq.m.) Estelle Lois S. Zerrudo F-45506 49,999 Ryan S. Zerrudo F-45536 49,999 Francis Clyde S. Zerrudo F-45509 26,766 Francis Clyde S. Zerrudo F-45503 25,665 Total Area 152,429 ======= all issued by the Registry of Deed for Iloilo. The following Deeds of Absolute Sale conveying portions of the abovementioned properties were executed by the landowners, all represented by their Attorney-in-Fact, Rhett E. Zerrudo (TIN: 168-260-169-000), to the National Housing Authority (NHA) (TIN: 000-916-384-012), a government corporation organized and existing by virtue of Presidential Decree No. 757, as amended: Landowners/Sellers OCT Date of Deed of Purchased Purchase Absolute Sale Area (Sq.m.) Price (Php) Estelle Lois S. Zerrudo F-45506 May 13, 2015 24,120 482,400.00 Ryan S. Zerrudo F-45536 May 13, 2015 372 7,440.00 Francis Clyde S. Zerrudo F-45509 May 13, 2015 24,933 498,660.00 Francis Clyde S. Zerrudo F-45503 May 13, 2015 19,062 381,240.00 Total 68,487 1,369,740.00 ====== ========== The above described properties have been identified and certified for development into a residential project under the Yolanda Permanent Housing Program intended for the families affected by typhoon Yolanda and qualified for housing assistance under R.A. No. 7279. CAIHTE On December 4, 2014, the NHA has issued a Notice of Award to Urban Consolidated Constructors Phils., Inc./Hercar Builders, Inc., Joint Venture (TIN: 467-676-955-000) for the " Procurement of Fully Developed Lots and Completed Housing Units under the NHA's Yolanda Permanent Housing Program located at Brgy. Bacjawan Sur, Concepcion, Iloilo 1,000 Housing Units " at a contact price of Two Hundred Eighty Nine Million Eight Hundred Thirty Seven Thousand Thirty Six and 64/100 Pesos (P289,837,036.64), Philippine Currency. To give effect to the Notice of Award, a Contract for the abovementioned Procurement of Fully Developed Lots and Completed Housing Units (1,000 Units) was executed on June 17, 2015 by and between the NHA and Urban Consolidated Constructors Phils., Inc./Hercar Builders, Inc., Joint Venture wherein the works contemplated in the Contract is land development to include boundary and subdivision survey, roadworks, drainage works, water supply works, power supply works, housing construction and miscellaneous requirements necessary for the completion of the project which shall be completed within the work duration provided in the Contract and strictly in accordance with the approved plans and specifications. On June 29, 2015, a Certification was issued by the National Housing Authority-Northern and Central Luzon Management Office, certifying that the Procurement of Fully Developed Lots and Completed Housing Units (1,000 Units), Bacjawan Sur People's Village Housing Project located at Brgy. Bacjawan Sur, Concepcion, Iloilo, is a Socialized housing project intended for the underprivileged and homeless families affected by Typhoon Yolanda. This project will be used as a relocation site for these families. 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: xxx xxx xxx (d) Exemption from the payment of the following: (1) Project-related income taxes; (2) Capital gains tax on raw lands used for the project; (3) Value-Added Tax for the project contractor concerned;" xxx xxx xxx" Moreover, pertinent portions of Revenue Memorandum Circular (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: DETACa (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." xxx xxx xxx Sale by the Landowners to NHA The landowners who sell their properties for use in a socialized housing project are exempt from the payment of capital gains tax. Accordingly, the sale by Estelle Lois S. Zerrudo, Ryan S. Zerrudo and Francis Clyde S. Zerrudo to NHA of the aggregate area of Sixty Eight Thousand Four Hundred Eighty Seven (68,487) square meters, more or less, covered by "Katibayan ng Orihinal na Titulo" or Original Certificates of Title (OCT) Nos. F-45506, F-45536, F-45509 and F-45503 is exempt from the payment of capital gains tax. (BIR Ruling No. 171-15 dated June 8, 2015) 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 sale by the landowners to NHA of the Sixty Eight Thousand Four Hundred Eighty Seven (68,487) square meters, more or less, covered by "Katibayan ng Orihinal na Titulo" or Original Certificates of Title (OCT) Nos. F-45506, F-45536, F-45509 and F-45503 issued by the Registry of Deeds for Iloilo, is likewise exempt from documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 171-15 dated June 8, 2015) Moreover, under Section 109 (1) (P) of the Tax Code of 1997, as amended by R.A. No. 9337, the sale of real properties utilized for low-cost and socialized housing as defined by R.A. No. 7279 shall be exempt from value-added tax (VAT), thus, the sale by the landowners to NHA for purposes of the Yolanda Permanent Housing Program is exempt from the imposition of VAT. (BIR Ruling No. 171-15 dated June 8, 2015) Upon application for exemption, a lien on the titles of the lands shall be annotated by the Register of Deeds having jurisdiction over the properties, to the effect that the same are to be applied or are 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 lands 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. Transaction between Urban Consolidated Constructors Phils., Inc./ Hercar Builders, Inc., Joint Venture and NHA Considering that Urban Consolidated Constructors Phils., Inc./Hercar Builders, Inc., Joint Venture is a project contractor whose services are engaged by NHA to undertake construction of 1,000 Housing Units with its necessary construction components in Bacjawan Sur People's Village-Site 1, Brgy. Bacjawan Sur, Concepcion, Iloilo and which was certified by the NHA as a socialized housing project as resettlement site pursuant to R.A. No. 7279, the income directly realized by Urban Consolidated Constructors Phils., Inc./Hercar Builders, Inc., Joint Venture from the land development and housing construction with its necessary construction components for 1,000 Housing Units in Bacjawan Sur People's Village-Site 1, Brgy. Bacjawan Sur, Concepcion, Iloilo shall be exempt from project-related income taxes. (BIR Ruling No. 063-14 dated February 19, 2014) Thus, the income accruing to the co-venturers as a result of its distribution of profits from the project shall also be exempt from project-related income taxes pursuant to Section 20 (d) (1) of R.A. 7279. Joint Venture formed for the purpose of undertaking construction projects shall be exempt from income tax provided it complies with the requirements set forth under Revenue Regulations No. 10-2012. aDSIHc Moreover, pursuant to Section 20 (d) (3) of R.A. No. 7279. The housing construction with its necessary construction components for 1,000 Housing Units in Bacjawan Sur People's Village-Site 1, Brgy. Bacjawan Sur, Concepcion, Iloilo by Urban Consolidated Constructors Phils., Inc./Hercar Builders, Inc., Joint Venture shall be exempt from VAT. However, the purchases of goods/articles by Urban Consolidated Constructors Phils., Inc./Hercar Builders, Inc., Joint Venture 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 good/services. It shall be understood that Urban Consolidated Constructors Phils., Inc./Hercar Builders, Inc., Joint Venture must issue non-VAT official 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue