BIR Ruling No. 414-13

November 13, 2013 BIR RULING NO. 414-13 RA 7279; RR 11-97;BIR Ruling No. 413-11 Edly Construction 11 Malipajo St., Meadwood Exec. Village Panapaan-8, Bacoor, Cavite Attention: Eduardo C. Abendano Jr. General Manager Gentlemen : This refers to your letter dated March 9, 2013 requesting issuance of Certificate of Tax Exemption for the AFP-PNP Housing Program in Brgy. Lonoy, Roxas City, Capiz pursuant to Republic Act (R.A.) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted show that on July 16, 2012, a Contract Agreement was executed by and between Edly Construction, a single proprietorship owned by Eduardo C. Abendano Jr. (Edly Construction) 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 Edly Construction has agreed to sell to AFP Housing Homeowners Association, Inc.'s and PNP Housing Homeowners Association, Inc.'s individual members the developed lots and completed housing units under the Community Initiative Approach Program (CIAP) of the National Housing Authority (NHA) (TIN 000-916-384-000) for Two Hundred Forty Thousand Pesos (P240,000.00) for every developed lot and completed housing unit per family. HIAcCD Moreover, on August 2, 2012, a Memorandum of Agreement (MOA) for developed lots and completed housing units, was executed by and among Edly Construction, 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. It is noted that Eduardo C. Abendano Jr. (TIN 103-950-572-000),is the absolute and registered owner of parcels of land located at Brgy. Lonoy, Roxas City, covered by Transfer Certificates of Titles (TCT),to wit: TCT No. Area (sq.m.) Tax Declaration No. T-097-2012001923 (Formerly TCT No. 2012000932) 46,428 0751 T-097-2012001924 (Formerly TCT No. 2012000933) 46,952 0750 T-097-2012001925 (Formerly TCT No. 2012000934) 31,350 1 0749 124,730 ======= Per Deed of Conveyance executed on August 14, 2012, One Thousand (1,000) house and lot packages with total aggregate area of Forty One Thousand Two Hundred Eighty square meters (41,280 sq.m.) was sold by Edly Construction to NHA for One Hundred Fifteen Million pesos (P115,000,000.00) to give effect to the Contract Agreement and MOA. DCaEAS In support of your above request, you submitted the following documents: 1) Photocopy of Edly Construction's DTI Certificate of Business Name Registration; 2) BIR Certificate of Registration; 3) Copies of HLURB Certificates of Registration of AFP Housing Homeowners Association Incorporation and the PNP Housing Homeowners Association Incorporation; 4) Notarized copy of Deed of Conveyance dated August 14, 2012 between Edly Construction and the National Housing Authority; 5) Copy of the Memorandum of Agreement by and among Edly Construction, AFP Housing Homeowners Association Incorporation and the PNP Housing Homeowners Association Incorporation and National Housing Authority; 6) Certified true copies of the Transfer Certificate of Titles and Tax Declarations; 7) Other pertinent documents. In reply, please be informed that pursuant to Sections 19 and 20 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. DEcSaI "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" the landowner/developer of properties who sell its properties for use in a socialized housing project are exempt from the payment of the project-related income taxes. Such being the case, the sale of Edly Construction to NHA of the One Thousand (1,000) units of house and lot package covering the total aggregate area of Forty One Thousand Two Hundred Eighty square meters (41,280 sq.m.) is exempt from the capital gains tax, project-related income taxes and consequently from withholding tax. Upon issuance of this letter of exemption, and upon registration of the documents of sale, a lien on the Certificates of Title of the land to be issued in the name of the NHA shall be caused to be annotated by the Register of Deeds having jurisdiction over the properties, to the effect that the said properties shall be used for socialized housing pursuant to R.A. No. 7279. (BIR Ruling No. 413-2011 dated October 28, 2011) HcSCED 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. cTSDAH 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. (BIR Ruling No. 413-2011 dated October 28, 2011) Pursuant to Section 20 of RA 7279, a project contractor of a socialized housing project shall also be exempt from the payment of value-added tax (VAT) on the project concerned. Thus, Edly Construction, being the contractor of a socialized housing project known as the AFP/PNP Housing Project Site in Brgy. Lonoy, Roxas City, Capiz, is likewise exempt from the payment of VAT. 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. Moreover, it shall be understood that Edly Construction 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 ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Antonio V. Bidiones (14,000 sq.m.) and Eduardo C. Abendano Jr. (17,350 sq.m.).