BIR Ruling No. 453-11

November 15, 2011 BIR RULING NO. 453-11 E.O. 226; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 334-2011 Phinma Property Holdings Corporation 4th Flr., Phinma Plaza, 39 Plaza Drive Rockwell Center, Makati City Attention: Mr. Stephen B. Sabularse AVP-Comptroller Gentlemen : This refers to your letter dated January 26, 2010 requesting for a tax exemption certificate pursuant to Revenue Regulations No. 2-98, as amended, on account of your registration with the Board of Investments (BOI) under Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987". As represented, Phinma Property Holdings Corporation ("Phinma") is a real property developer habitually engaged in the business of developing and constructing affordable condominium units; that its projects are duly registered with the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 21434 and License to Sell No. 22716 pursuant to Batas Pambansa 220; that at present, it has an ongoing project called Sofia Bellevue located at 11 Capitol Hills Drive, Old Balara, Quezon City; that it has been registered with the Board of Investments per Certificate of Registration No. 2009-186 dated December 15, 2009 as new developer of low-cost mass housing project on a non-pioneer status under the Omnibus Investments Code of 1987 (E.O. 226); that it shall be entitled to income tax holiday (ITH) for a period of four (4) years from January 2010 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of registration; and that the ITH shall be limited only to the revenue generated from its registered activity (Sofia Bellevue 11 Capitol Hills Drive, Old Balara, Quezon City) . Under the Specific Terms and Conditions of its BOI Registration, Phinma is obligated to construct and sell seven hundred fifty two (752) units of low-cost mass housing based on the following schedule: AICHaS Year Volume (Units) Sales Value 1 180 Php262,000.00 2 240 349,000.00 3 240 349,000.00 4 92 145,168.00 Total 752 Php1,105,168.00 === ============ 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 Sofia Bellevue , is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by Phinma in connection with the aforementioned housing project, 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 years starting from January 2010 or actual start of commercial operations/selling, whichever is earlier. It must be emphasized, however, that the above exemption from the creditable withholding tax covers only revenues generated from Phinma's registered activity, Sofia Bellevue . Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million pesos (P3,000,000.00). ( BIR Ruling No. 334-2011 dated September 7, 2011). Moreover, Phinma's entitlement to ITH for its project, Sofia Bellevue, is not automatic as it has still to comply with Sections 10 (a), 11, 12, 13 and 14 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"; ECTIcS (2) File an application with the BOI Incentive 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; (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; (4) The enterprise shall maintain the 75:25 debt-to-equity requirement prior to availment of ITH. Otherwise, the enterprise shall not be entitled to ITH and any capital equipment incentive availed of shall be refunded accordingly; (5) Prior to availment of ITH, for vertical mass housing projects, the firm shall submit a proof of compliance that, at least twenty percent (20%) of the total condominium project cost, has been developed and allocated for socialized housing within the same city or municipality, whenever feasible and in accordance with other existing laws. Condominium projects with a density of one hundred (100) units per hectare shall be considered as having fully complied with the twenty percent (20%) requirement. Otherwise, the ITH for that particular taxable year shall be deemed forfeited; (6) The enterprise shall ensure (a) that its contractors are duly licensed by the Philippine Contractors Accreditation Board (PCAB) as required under Republic Act 4566 ("Contractors License Law") and (b) that any construction activity, under its project and supervision shall be undertaken in accordance with the rules and regulations prescribed by PCAB as well as all applicable laws; and HIaTDS (7) The enterprise shall submit to the BOI Supervision and Monitoring Department, on a quarterly basis within fifteen (15) days from the end of each quarter, a report on Actual Investments, Employment, Sales, Production Costs, and other information that the Board may require at anytime with respect to the registered project starting on date of registration. 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 was clearly granted a 4-year ITH for its project, Sofia Bellevue , but such terms and conditions do not provide for any exemption from other taxes that Phinma may be subject to on its business transactions. Thus, Phinma will remain subject to Value-Added Tax (VAT) and Documentary Stamp Tax (DST) on its sales of condominium 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 4.109-1 (B) (p) (2) of RR No. 16-2005 provides, that the sale of "low cost" housing is VAT-exempt if the unit selling price is within the selling price ceiling of per unit of P750,000.00 under RA No. 7279, otherwise known as the "Urban Development and Housing Act of 1992" and other laws, such as RA No. 7835 and RA No. 8763. Thus, only the sales by Phinma of condominium units with selling price of not more than P750,000.00 shall be exempt from VAT. It should be understood that Phinma 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 (RR) No. 2-98 , as amended. Likewise, Phinma 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, Phinma'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. TacSAE 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