BIR Ruling No. 453-12

July 10, 2012 BIR RULING NO. 453-12 E.O. 226; RR 16-2011; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 334-11 Double "R" Realty & Development Corporation Unit 409, Sunrise Condominium 226 Ortigas Avenue, San Juan City Attention: Ms. Resurreccion Aileen H. Go Assistant to the CEO Gentlemen : This refers to your letter dated March 15, 2012 stating that Double "R" Realty & Development Corporation with Tax Identification No. 001-396-257-000 is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 155462 dated September 21, 1988. It is registered with the Board of Investments (BOI) as a New Developer of Low-Cost Mass Housing Project ( Double "R" Realty & Development Corporation-Benrosi Residences III # 2007 F.B. Harrison St., San Rafael, Pasay City ) on a Non-Pioneer status under the Omnibus Investments Code of 1987 or Executive Order (EO) No. 226. It has been granted Income Tax Holiday (ITH) by the BOI under Certificate of Registration No. 2011-192 dated August 31, 2011 for a period of three (3) years from October 2011 or actual start of commercial operations/selling pursuant to EO 226. The project is registered with Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 22288 and holds HLURB License to Sell No. 23578; and under the Specific Terms and Conditions of its BOI Registration, Double "R" Realty & Development Corporation shall construct and sell Forty Three (43) units of low-cost mass housing based on the following schedule: Year Volume (No. of Units) 1 20 2 23 Total 43 === 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 Double "R" Realty & Development Corporation 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. HDTISa 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 Double "R" Realty & Development Corporation-Benrosi Residences III # 2007 F.B. Harrison St., San Rafael, Pasay City, is a BOI-registered project, this Office is of the opinion as it hereby holds, that income payments received by Double "R" Realty & Development Corporation in connection with the aforementioned housing project, Double "R" Realty & Development Corporation-Benrosi Residences III # 2007 F.B. Harrison St., San Rafael, Pasay City (on the 43 low-cost mass housing units as mentioned in the Specific Terms and Conditions of its BOI Registration), are exempt from CWT under RR No. 2-98, as amended by RR No. 6-2001, for a period of three (3) years from October 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 revenues generated from the registered activity, Double "R" Realty & Development Corporation-Benrosi Residences III # 2007 F.B. Harrison St., San Rafael, Pasay City. 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, Double "R" Realty & Development Corporation-Benrosi Residences III # 2007 F.B. Harrison St., San Rafael, Pasay City Project's entitlement to ITH is not automatic as it has still to comply with the provisions of Section 9 of the Specific Terms and Conditions of the BOI Registration, viz. : 1. Secure from the 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 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 year without CoE shall be forfeited. EHSADc 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, Double "R" Realty & Development Corporation-Benrosi Residences III # 2007 F.B. Harrison St., San Rafael, Pasay City was clearly granted a 3-year ITH but such terms and conditions do not provide for any exemption from other taxes that Double "R" Realty & Development Corporation may be subject to on its business transactions. Thus, Double "R" Realty & Development Corporation-Benrosi Residences III # 2007 F.B. Harrison St., San Rafael, Pasay City 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. 1 Thus, only the sales by Double "R" Realty & Development Corporation-Benrosi Residences III # 2007 F.B. Harrison St., San Rafael, Pasay 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 Double "R" Realty & Development Corporation-Benrosi Residences III # 2007 F.B. Harrison St., San Rafael, Pasay 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. Likewise, Double "R" Realty & Development Corporation-Benrosi Residences III Project 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, Double "R" Realty & Development Corporation-Benrosi Residences III # 2007 F.B. Harrison St., San Rafael, Pasay 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 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. cTCADI Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. The increase in the threshold amount for the sale or lease of goods or properties or the performance of services covered by Section 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.