BIR Ruling No. 442-11

November 11, 2011 BIR RULING NO. 442-11 E.O. 226; Secs. 57 (B); 106 (A) (1) (a); 109 (1) (P); 196 NIRC; BIR Ruling No. [DA-(IL-008) 080-10]; BIR Ruling No. [DA-(IL-010) 215-09] Nouveau Residences, Brgy. Pulung Cacutud, Angeles City c/o Hausland Development Corporation HLDC Corporate Center 43-35 Don Bonifacio Avenue Pulung Maragul, Angeles City Attention: Christopher Ryan T. Tan Legal Counsel Gentlemen : This refers to your letter, dated August 06, 2010, requesting on behalf of Hausland Development Corporation's housing project, Nouveau Residences, Brgy. Pulung Cacutud, Angeles City ( "HDC-Nouveau Residences", for brevity), for exemption from income and creditable withholding taxes pursuant to Revenue Regulations No. 2-98, as amended, on account of the housing project's registration with the Board of Investments (BOI) under Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987". Documents submitted show that Hausland Development Corporation, with Tax Identification Number (TIN) 233-293-553-004, is duly registered with the Board of Investments (BOI) under Certificate of Registration No. 2010-037, dated February 09, 2010, as New Developer of Low Cost Mass Housing Project, (HDC-Nouveau Residences) on a non-pioneer status; that Hausland Development Corporation has been granted Income Tax Holiday (ITH) with respect to the aforementioned housing project for a period of four (4) years from March 2010 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of registration; that it shall construct and sell Five Hundred Sixty Four (564) units of low-cost mass housing; and that the ITH shall be limited only to the revenue generated from HDC-Nouveau Residences . 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 the Omnibus Investments Code of 1987. TSIaAc Accordingly, since HDC-Nouveau Residences , is a BOI-registered project, this Office is of the opinion as it hereby holds, that income payments received by Hausland Development Corporation in connection with the sales of HDC-Nouveau Residences are exempt from the creditable withholding tax imposed under RR No. 2-98, as amended by RR No. 6-2001, for a period of four (4) years starting from February 2010 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 HDC-Nouveau Residences . Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million pesos (P3,000,000.00). ( BIR Ruling No. DA-(IL-008) 080-10 dated May 28, 2010). Moreover, HDC-Nouveau Residences' entitlement to ITH is not automatic since Hausland Development Corporation has still to comply with Section 9 (a) of the Specific Terms and Conditions of the BOI Registration, viz. : (1) 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"; (2) 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; and (3) 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. 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, Hausland Development Corporation was clearly granted a 4-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, Hausland Development Corporation 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. DA-(IL-010) 215-09 dated April 29, 2009) SCaTAc In relation thereto, Section 109 (1) (P) of the Tax Code of 1997 provides, that the sale of residential lot valued at one million five hundred thousand pesos (P1,500,000) and below or house and lot, and other residential dwellings valued at two million five hundred thousand pesos (P2,500,000) and below is VAT-exempt. Thus, only the sales by Hausland Development Corporation of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. It should be understood that Hausland Development Corporation 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 at 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, Hausland Development Corporation is required to file on or before the 15th day of the fourth month following the close of your accounting period a Profit and Loss Statement and Balance Sheet with the Annual information Return under oath, stating your gross income and expenses incurred during the taxable year. Finally, Hausland Development Corporation'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 you have been complying with the conditions under which you have 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. 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