BIR Ruling No. 402-15

December 11, 2015 BIR RULING NO. 402-15 E.O. 226; RR 16-2011; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 334-11 Phinma Property Holdings Corporation Phinma Properties Center 29 EDSA Mandaluyong City Attention: Teresita Judy B. Vicente Accounting Manager Gentlemen : This refers to your letters dated May 28, 2014 stating that PHINMA PROPERTY HOLDINGS CORPORATION (Phinma Property for brevity) with Tax Identification No. 007-934-120-000 is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under Company Reg. No. CS201019568. It is registered with the Board of Investments (BOI) as a New Developer of Low-Cost Mass Housing Project (ASIA ENCLAVES ALABANG OHARA ENCLAVE formerly named ASYA ENCLAVES ALABANG OHARA ENCLAVE located in Km. 19, West Service Road, Cupang, Muntinlupa City on a Non-Pioneer status under Certificate of Registration No. 2011-166 dated July 28, 2011. Phinma Property has been granted Income Tax Holiday (ITH) by the BOI for a period of three (3) years from August 2011 or actual start of commercial operations/selling, whichever is earlier but in no case earlier than the date of registration. PHINMA PROPERTY'S ASIA ENCLAVES ALABANG OHARA ENCLAVE KM. 19, WEST SERVICE ROAD, CUPANG, MUNTINLUPA CITY PROJECT is registered with Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 24425 and holds HLURB License to Sell No. 26178; and under the Specific Terms and Conditions of its BOI Registration, Phinma Property has been approved to construct and sell six hundred forty four (644) 1 units of low-cost mass housing for ASIA ENCLAVES ALABANG OHARA ENCLAVE KM. 19, WEST SERVICE ROAD, CUPANG, MUNTINLUPA CITY PROJECT based on the following schedule: Year Volume (No. of Units) 1 150 2 180 3 314 Total 644 ======== On the basis of the foregoing, you now request for an opinion on the tax consequences of the said ITH granted by BOI. Specifically, if Phinma Property, being a BOI-registered enterprise is exempt from the payment of the creditable withholding tax (CWT) imposed under Revenue Regulations No. 2-98 on income payments received during the aforementioned period with respect to its registered activity. 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. Accordingly, since PHINMA PROPERTY'S ASIA ENCLAVES ALABANG OHARA ENCLAVE KM. 19, WEST SERVICE ROAD, CUPANG, MUNTINLUPA CITY PROJECT is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by Phinma Property in connection with its housing project, ASIA ENCLAVES ALABANG OHARA ENCLAVE KM. 19, WEST SERVICE ROAD, CUPANG, MUNTINLUPA CITY PROJECT (on the 644 low-cost mass housing units as mentioned in the Specific Terms and Conditions of its BOI Registration), is exempt from CWT under RR No. 2-98, as amended by RR No. 6-2001, for a period of 3 years from August 2011 or actual start of commercial operations/selling, whichever is earlier but in no case earlier than the date of registration. It must be emphasized, however, that the above exemption from CWT covers only income directly attributable to revenues generated from the registered activity, PHINMA PROPERTY'S ASIA ENCLAVES ALABANG OHARA ENCLAVE KM. 19, WEST SERVICE ROAD, CUPANG, MUNTINLUPA CITY PROJECT involving 644 low-cost mass housing units. Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million Pesos (P3,000,000.00). In the computation of ITH, interest income from in-house financing shall not be considered as revenues generated from the registered activity. Moreover, the entitlement to ITH of PHINMA PROPERTY'S ASIA ENCLAVES ALABANG OHARA ENCLAVE KM. 19, WEST SERVICE ROAD, CUPANG, MUNTINLUPA CITY PROJECT is not automatic as it still has to comply with the following provisions of the Specific Terms and Conditions of their BOI Registration, viz.: 1. The enterprise shall construct and sell 644 units of low-cost mass housing based on the following schedule: Year Volume (No. of Units) 1 150 2 180 3 314 Total 644 ======== 2. The enterprise shall observe the following project timetable: Activity Schedule Related Cost ( Php'000) Expense/s 1. Site acquisition Acquired Raw Land 102,466 cost 2. Obtaining appropriate On-going Government 19,613 license/agreement/permit permits and from the government licenses agencies 3. Acquisition of Equipment On-going Elevators, 16,900 GenSet 4. Site Preparation and Land On-going Landscaping 43,726 Development amenities 5. Cost of Construction On-going Building 479,955 Cost 6. Working Capital August 85,420 2011 Total Project Cost 748,080 ====== 3. The enterprise shall submit a list of cost items common to all its projects/activities (whether BOI-registered or non-BOI-registered) and the methodology adopted in allocating the common costs. 4. Secure from the HLURB an endorsement that it has faithfully complied with the approved development plan and a "Certificate of Good Housekeeping". 5. File an application with the BOI Incentives Department within one (1) month from 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. 6. 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 year without CoE shall be forfeited. 7. The enterprise shall maintain the 75:25 debt-equity requirement prior to availment of ITH; otherwise, the enterprise shall not be entitled to ITH and shall be required to refund any capital equipment incentives availed of. 8. The enterprise shall submit proof of compliance that at least twenty percent (20%) of the total saleable area (estimated at 5,502 sq.m.) for vertical housing projects, has been developed and allocated for socialized housing using either the options: a. Investment: 20% of total saleable; or b. Donation (whichever is lower between i and ii); i. 30% x (20% of the Building Construction Cost); or ii. 40% of ITH This may be complied with through any of the following modes: (1) New Settlement; (2) Slum Upgrading; and (3) Joint-Venture Projects. Otherwise, the ITH for that particular year shall be deemed forfeited. 9. The enterprise must abide by the principles of Good Governance. It must likewise accomplish the self-rating Governance Scorecard to be provided by the BOI every year as a requirement for ITH availment. 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, PHINMA PROPERTY'S ASIA ENCLAVES ALABANG OHARA ENCLAVE KM. 19, WEST SERVICE ROAD, CUPANG, MUNTINLUPA CITY PROJECT was clearly granted a 3-year ITH but such terms and conditions do not provide for any exemption from other taxes that Phinma Property may be subject to on its business transactions. Thus, PHINMA PROPERTY'S ASIA ENCLAVES ALABANG OHARA ENCLAVE KM. 19, WEST SERVICE ROAD, CUPANG, MUNTINLUPA CITY PROJECT will remain subject to Value-Added Tax (VAT) and Documentary Stamp Tax (DST) on its sales of house and lot units pursuant to Sections 106 (A) (1) (a) and 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 334-11 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 Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00) and below, or house and lot and other residential dwellings valued at Three Million One Hundred Ninety Nine Thousand Two Hundred Pesos (P3,199,200.00) and below is VAT-exempt. 2 Thus, only the sales by PHINMA PROPERTY'S ASIA ENCLAVES ALABANG OHARA ENCLAVE KM. 19, WEST SERVICE ROAD, CUPANG, MUNTINLUPA CITY PROJECT of housing units with selling price of not more than the aforementioned price ceilings shall be exempt from VAT. It should be understood that PHINMA PROPERTY'S ASIA ENCLAVES ALABANG OHARA ENCLAVE KM. 19, WEST SERVICE ROAD, CUPANG, MUNTINLUPA CITY 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. caITAC Likewise, PHINMA PROPERTY'S ASIA ENCLAVES ALABANG OHARA ENCLAVE KM. 19, WEST SERVICE ROAD, CUPANG, MUNTINLUPA CITY PROJECT 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, PHINMA PROPERTY'S ASIA ENCLAVES ALABANG OHARA ENCLAVE KM. 19, WEST SERVICE ROAD, CUPANG, MUNTINLUPA CITY 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 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 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. HLURB License to Sell No. 26178 issued to Phinma Property for ASIA ENCLAVES ALABANG OHARA ENCLAVE KM. 19, WEST SERVICE ROAD, CUPANG MUNTINLUPA CITY PROJECT covers only 644 Residential units. 2. The increase in the threshold amount for the sale or lease of goods or properties or the performance of services covered by Sections 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.