BIR Ruling No. 436-15

December 22, 2015 BIR RULING NO. 436-15 E.O. 226; RR 2-98; RR 16-11; BIR Ruling No. 334-11; BIR Ruling No. 129-12; BIR Ruling No. 223-13 Firm Builders Realty Development Corporation No. 88 Scout Gandia Street cor. Tomas Morato Avenue Quezon City Attention: Manuel C. Crisostomo President Gentlemen : This refers to your letter dated March 8, 2013, requesting tax exemption as New Developer of Low-Cost Mass Housing Project (Cambridge Subdivision-Brgy. Iponan, Cagayan de Oro City) pursuant to the provisions of the Omnibus Investments Code of 1987 and socialized housing project. Documents submitted disclosed that Firm Builders Realty Development Corporation with Taxpayer's Identification No. 001-650-003-006-000, is a domestic corporation engaged in real estate business and registered with the Securities and Exchange Commission (SEC) under SEC Registration No. AS092-03148 dated May 18, 1992; that Firm Builders Realty Development Corporation is registered with the Board of Investments (BOI) as a New Developer of Low-Cost Mass Housing Projects on a Non-Pioneer status per BOI Registration No. 2011-231 dated November 4, 2011; that its BOI registration particularly covers the project: Project Name Location Start of Commercial No. of Operation/ITH Units Cambridge Subdivision Brgy. Iponan, November 2011 254 Cagayan de Oro City that according to the Terms and Conditions of its BOI Registration, Firm Builders Realty Development Corporation is entitled to Income Tax Holiday (ITH) for a period of three (3) years from November 2011 or the actual start of commercial operations/selling whichever is earlier, but in no case earlier than the date of registration; that Firm Builders Realty Development Corporation's ITH shall be limited only to the revenue generated from the registered project, Cambridge Subdivision-Brgy. Iponan, Cagayan de Oro City ; and that the project is duly registered with the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 21262, with License to Sell No. 23481 for 254 house and lot package for economic housing (Blk 1 Lot 2-21; Blk 3 Lot 2-22; Blk 4 Lot 1-9; Blk 5 Lot 4-28; Blk 6 Lot 1-6; Blk 7 Lot 1-32; Blk 8 Lot 1-6; Blk 9 Lot 1-12; 15-26; Blk 10 Lot 1-20; 22, 24, 50 & 52; Blk 11 Lot 1-25; Blk 12 Lot 3-6; Blk 13 Lot 1-22; Blk 14 Lot 1-21; Blk 15 Lot 1, 2, 43-46; Blk 16 Lot 1, 2, 43-46; Blk 17 Lot 1, 22 & 23, all in Psd-10-063179) and License to Sell No. 23482 for 128 house and lot for socialized housing (Blk 10 Lot 21, 23, 25-51; Blk 15 Lot 3-42; Blk 16 Lot 3-42; Blk 17 Lot 2-21, all in Psd-10-063179). CAIHTE We reply as follows: 1. BOI Registration No. 2011-231 under HLURB License to Sell No. 23481 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 the Omnibus Investments Code of 1987. Accordingly, since Firm Builders Realty Development Corporation's Cambridge Subdivision-Brgy. Iponan, Cagayan de Oro City , is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by Firm Builders Realty Development Corporation , in connection with the aforementioned housing project consisting of 254 low-cost housing units 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 November 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 the creditable withholding tax covers only revenues generated from the registered activity, Firm Builders Realty Development Corporation-Cambridge Subdivision-Brgy. Iponan, Cagayan de Oro City . Furthermore, such exemption shall not cover revenues from units with selling price exceeding Two Million Five Hundred Thousand Pesos (P2,500,000.00). (BIR Ruling No. 334-2011 dated September 7, 2011) Moreover, Firm Builders Realty Development Corporation-Cambridge Subdivision-Brgy. Iponan, Cagayan de Oro City entitlement to ITH is not automatic as it has still to comply with the Specific Terms and Conditions of the BOI Registration: (1) In the computation of ITH, interest income from in-house financing shall not be considered as revenues generated from the registered activity; (2) The enterprise shall submit the list of cost items common to all its projects/activities (whether BOI or not-BOI-registered) and the methodology adopted in allocating the common costs; (3) Secure from the Housing and Land Use Regulatory Board (HLURB) an endorsement that it has faithfully complied with the approved development plan and a "certificate of good housekeeping"; DETACa (4) File an application with the BOI Incentives Department within one (1) month from the 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; (5) 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 taxable year without CoE shall be forfeited; (6) The enterprise shall maintain the 75:25 debt-to-equity requirement 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; (7) The enterprise shall submit proof of compliance that at least twenty percent (20%) of the total subdivision area (estimated at 9,000 sq.m.) or total subdivision project cost (estimated at Php28.78 M), has been developed and allocated for socialized housing within one year from date of registration or prior to availment of ITH, whichever is earlier. This may be done through any of the following modes: (1) New Settlement; (2) Slum Upgrading; and (3) Joint-Venture Projects. Otherwise, the ITH for the particular taxable year shall be deemed forfeited; and (8) The enterprise must abide by the principles of Good Corporate Governance. It must likewise accomplish the self-rating Governance Scorecard to be provided by BOI every year as a requirement for ITH availment. aDSIHc 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, Firm Builders Realty Development Corporation-Cambridge Subdivision-Brgy. Iponan, Cagayan de Oro City was clearly granted a 3-year ITH 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, Firm Builders Realty Development Corporation-Cambridge Subdivision-Brgy. Iponan, Cagayan de Oro City 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 Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500) 1 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) 2 and below is VAT-exempt. Thus, only the sales by Firm Builders Realty Development Corporation-Cambridge Subdivision-Brgy. Iponan, Cagayan de Oro City of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. It should be understood that Firm Builders Realty Development Corporation-Cambridge Subdivision-Brgy. Iponan, Cagayan de Oro City 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. Likewise, Firm Builders Realty Development Corporation-Cambridge Subdivision-Brgy. Iponan, Cagayan de Oro City 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. ETHIDa Finally, Firm Builders Realty Development Corporation-Cambridge Subdivision-Brgy. Iponan, Cagayan de Oro City'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 your tax liability, if any, pursuant to Section 235 of the Tax Code of 1997, as amended. 2. HLURB License to Sell No. 23482 Section 20 of RA No. 7279, reads: "Sec. 20. Incentives for the 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;" Only the sale of socialized housing units covered by License to Sell No. 23482 for 128 house and lot for socialized housing (Blk 10 Lot 21, 23, 25-51; Blk 15 Lot 3-42; Blk 16 Lot 3-42; Blk 17 Lot 2-21, all in Psd-10-063179) to qualified beneficiaries shall be exempt from income taxes, and consequently, from creditable expanded withholding tax prescribed under Revenue Regulations (R.R.) No. 2-98, as amended. cSEDTC Thus, a buyer of a socialized housing unit covered by HLURB License to Sell No. 23482 shall be required by the developer/owner/seller to execute a sworn statement that he is eligible as a socialized housing beneficiary provided under Section 5 (A) of R.R. No. 11-97. Section 5 (A) of R.R. No. 11-97 provides that: SECTION 5. Requirements/Conditions for the Availment of Tax Incentives/Exemptions. A. To qualify for socialized housing program, a beneficiary: (a) must be a Filipino citizen; (b) must be an underprivileged and homeless citizen, as defined in Section 3(t) of the Act and Section 2(r) of these Regulations; (c) must not own any real property, whether in the urban or rural areas; and (d) must not be a professional squatter or a member of squatting syndicates. In this connection, any sale made by the owner and developer to interested parties other than the principal target beneficiaries under Sections 3 (t) and 16 of R.A. No. 7279, shall not be entitled to the foregoing tax exemption should there be non-compliance with any of the aforestated sine qua non terms and conditions. (BIR Ruling No. 223-13 dated June 20, 2013) It is, however, understood that the Certificate Authorizing Registration (CAR) shall only be issued after it is established upon proper verification by the Revenue District Officer (RDO) concerned that, considering the rules on valuation of real property, the actual selling price per sale transaction of the house and lot packages covered by HLURB License to Sell No. 23482 does not really exceed P400,000.00 and P160,000.00 for lot only. Thus, sale of a house and lot or lot only above the maximum amount shall be subject to the corresponding internal revenue taxes. (BIR Ruling No. 129-12 dated February 23, 2012) SDAaTC Nonetheless, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause in Section 20 of RA No. 7279. Such being the case, the owner/project developer/seller shall be liable to pay the documentary stamp tax on the documents conveying the properties imposed under Section 196 of the Tax Code of 1997, as amended, based on the consideration contracted to be paid for such realties or on their fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. Moreover, a project contractor of a socialized housing project shall also be exempt from the payment of value-added tax (VAT) on the project concerned. However, purchases of goods/articles by the project contractor shall be subject to value-added tax, even if the said purchases are to be used for the socialized housing project. Moreover, it shall be understood that it must issue non-VAT official receipts on its gross receipts from the said socialized housing project. Relative thereto, Section 4.109-1 (B) (1) (p) (3) of RR No. 16-2005 states that: "Section 4.109-1. VAT-Exempt Transactions. (A) In general. "VAT-exempt transactions" refer to the sale of goods or properties and/or services and the use or lease of properties that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax) on purchases. xxx xxx xxx (B) Exempt transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from VAT: xxx xxx xxx (p) The following sales of real properties are exempt from VAT, namely: acEHCD xxx xxx xxx (3) Sale of real properties utilized for socialized housing as defined under RA No. 7279, and other related laws, such as RA No. 7835 and RA No. 8763, wherein the price ceiling per unit is P225,000.00 or as may from time to time be determined by the HUDCC and the NEDA and other related laws. . . . ." Furthermore, pursuant to Housing and Urban Development Coordinating Council (HUDCC) Resolution No. 1, Series of 2013 dated October 16, 2013, and as circularized by Revenue Memorandum Circular No. 35-2014, pertinent portion of which reads: "THEREFORE BE IT RESOLVED, AS IT IS HEREBY RESOLVED that the price ceiling for horizontal socialized housing be adjusted from P400,000.00 to P450,000.00." Thus, beginning December 18, 2013, the newly adjusted price ceiling of P450,000.00 for horizontal socialized housing shall apply to sale of real properties utilized for socialized housing, as defined under R.A. No. 7279 otherwise known as "Urban Development and Housing Act", and other related laws such as R.A. No. 7835 otherwise known as the "Comprehensive and Integrated Shelter Financing Act of 1994" and R.A. No. 8763 otherwise known as the "Home Guaranty Act of 2000". Moreover, Section 2 of Revenue Regulations No. 17-2001 provides: Section 2. Definition of Terms. As used in these Regulations, the following terms shall have the following meaning: xxx xxx xxx "A socialized housing unit shall not exceed P150,000.00 (now P400,000.00) for a house and lot package, subject to periodic adjustment or increase as the Housing and Land Use Regulatory Board (HLURB) may effect from time to time. In the case of sale of homelots only, the price shall not exceed forty percent (40%) of the maximum limit prescribed for the house and lot package ." (Emphasis supplied) SDHTEC The developer of the socialized housing units under RA No. 7279 is exempt from the payment of value-added tax pursuant to the aforecited provision. However, purchases of goods/articles by the project contractor shall be subject to value-added tax, even if the said purchases are to be used for the socialized housing project. Moreover, it shall be understood that it must issue non-VAT official receipts on its gross receipts from the said socialized housing project. Thus, the sale of the House and Lot covered by HLURB License to Sell No. 23482 (for 128 lots & units for socialized housing, Blk 10 Lot 21, 23, 25-51; Blk 15 Lot 3-42; Blk 16 Lot 3-42; Blk 17 Lot 2-21, all in Psd-10-063179, wherein the maximum price of the House and Lot is P450,000.00 and P180,000.00 for Lot only) to qualified beneficiaries are exempt from income taxes and, consequently, from creditable expanded withholding tax and from VAT pursuant to RA 7279. 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. Starting January 1, 2012, Revenue Regulations No. 3-2012 dated February 20, 2012. 2. Starting January 1, 2012, Revenue Regulations No. 3-2012 dated February 20, 2012.