BIR Ruling No. 460-12

July 17, 2012 BIR RULING NO. 460-12 E.O. 226; RR 16-2011; Secs. 57 (B); 106 (A) (1) (a); 196 NIRC; BIR Ruling No. 334-11 Concepcion Grande Development, Inc. 2/F Dacon Bldg., 2281 Chino Roces Ave. Makati City Attention: Mr. Joy B. Fajardo Accounting Officer Gentlemen : This refers to your letter dated April 24, 2012 stating that Concepcion Grande Development, Inc. with Tax Identification No. 221-715-079-000 is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CS200262662. It is registered with the Board of Investments (BOI) as a New Developer of Low-Cost Mass Housing Project (Concepcion Grande Development, Inc. St. James Homes Brgy. Concepcion Grande, Naga City, Camarines Sur) 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. 2012-043 dated March 16, 2012 for a period of four (4) years from March 2012 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. 21606 and holds HLURB License to Sell No. 22300; and under the Specific Terms and Conditions of its BOI Registration, Concepcion Grande Development, Inc. shall construct and sell Two Hundred Seven (207) units of low-cost mass housing based on the following schedule: DEacIT Year Volume (No. of Units) Value (Php'000) 1 29 57,980.18 2 57 114,732.83 3 75 152,852.54 4 46 90,235.41 Total 207 415,800.96 ========= 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 Concepcion Grande Development, Inc., 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. 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 Concepcion Grande Development, Inc. St. James Homes Brgy. Concepcion Grande, Naga City, Camarines Sur , is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by Concepcion Grande Development, Inc. in connection with the aforementioned housing project, Concepcion Grande Development, Inc. St. James Homes Brgy. Concepcion Grande, Naga City, Camarines Sur (on the 207 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 four (4) years from March 2012 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, Concepcion Grande Development, Inc. St. James Homes Brgy. Concepcion Grande, Naga City, Camarines Sur. 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. 334-11 dated September 7, 2011) In the computation of ITH, interest income from in-house financing shall not be considered as revenues generated from the registered activity. DETACa Moreover, Concepcion Grande Development, Inc. St. James Homes Brgy. Concepcion Grande, Naga City, Camarines Sur Project's entitlement to ITH is not automatic as it has still to comply with the provisions of Sections 5 and 8 (a) 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. 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, Concepcion Grande Development, Inc. St. James Homes Brgy. Concepcion Grande, Naga City, Camarines Sur was clearly granted a 4-year ITH but such terms and conditions do not provide for any exemption from other taxes that Concepcion Grande Development, Inc. may be subject to on its business transactions. Thus, Concepcion Grande Development, Inc. St. James Homes Brgy. Concepcion Grande, Naga City, Camarines Sur 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 C oncepcion Grande Development, Inc. St. James Homes Brgy. Concepcion Grande, Naga City, Camarines Sur of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. IHaECA It should be understood that Concepcion Grande Development, Inc. St. James Homes Brgy. Concepcion Grande, Naga City, Camarines Sur 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, Concepcion Grande Development, Inc. St. James Homes Brgy. Concepcion Grande, Naga City, Camarines Sur 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, Concepcion Grande Development, Inc. St. James Homes Brgy. Concepcion Grande, Naga City, Camarines Sur 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. 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.