BIR Ruling No. 490-12

July 30, 2012 BIR RULING NO. 490-12 RA 7279; BIR Ruling No. 129-12; BIR Ruling No. 413-11 Villa de Mavalor Neighborhood Association, Inc. 103 Villa Felisa Subdivision, Rosario, Batangas Attention: Ricardo Camus President Gentlemen : This refers to your letter dated February 10, 2011 requesting for exemption from the payment of Project Related Income Taxes, Creditable Withholding Tax, Value Added Tax, Transfer Tax and Donor's Tax relative to the transfer/individualization of title of parcels of land from Villa De Mavalor Neighborhood Association, Inc. (Villa De Mavalor) in favor of its qualified member beneficiaries pursuant to Republic Act 7279 otherwise known as the "Urban Development and Housing Act of 1992". It is represented that Villa De Mavalor with Taxpayer's Identification No. 006-033-744-000, is the registered owner of four (4) parcels of land located at the Municipality of Rosario, Province of Batangas and covered by Transfer Certificates of Title (TCT) Nos. T-149363, T-149364, T-149365, and T-149366 issued by the Registry of Deeds for the Province of Batangas; that it is a non-stock, non-profit organization duly registered with the Housing and Land Use Regulatory Board with Registration No. 13820 dated December 14, 2007; and that Villa De Mavalor, is now in the process of subdividing the purchased property to its 453 member-beneficiaries; that the project is duly registered with the Housing and Land Use Regulatory Board under Certificate of Registration No. 21529, with License to Sell No. 22626 involving 958 lots for a maximum selling price of P160,000.00 per lot. On August 11, 2009, a Deed of Donation was executed by the Villa De Mavalor, as Donor, and the Local Government Unit of Rosario, Province of Batangas, as Donee, whereby the donor transfers and conveys the Lot Nos. 13 to 22 Block 70 and with an aggregate area of one thousand two hundred twenty five square meters (1,225 sq.m.) and the Lot Nos. 3 to 12 Block 70 and with an aggregate area of one thousand two hundred forty five square meters (1,245 sq.m.) of the subject property. It is further represented that Villa De Mavalor Neighborhood Association, Inc. registered with the Securities and Exchange Commission and Villa de Mavalor I HoA, Inc. is the registered name with the Housing and Land Use Regulatory Board are one and the same association. In support of its request, Villa De Mavalor has completely submitted on May 30, 2011 the following documents: HCTAEc 1. Written Application for Exemption filed with the Law Division; 2. Certified True Copy of the Deed of Sale; 3. Certified True Copy of the Deed of Donation; 4. Certified True Copy of the Transfer Certificate of Titles (TCT); 5. Certified True Copy of Tax Declarations; 6. Photocopy of receipt of payment of the Documentary Stamp Tax; 7. Sworn Statement of taxpayer that the acquired raw land shall be used for socialized housing project; 8. Certified True Copy of Preliminary and Locational Clearance; 9. Certification from HLURB that the taxpayer is engaged in socialized housing; 10. Certification from the HLURB that the sale of the socialized housing units to qualified beneficiaries shall in no case exceed the maximum amount of P160,000.00; 11. Certified true copy of the Articles of Incorporation and By-laws; 12. Certified true copy of the Masterlist of qualified beneficiaries; 13. BIR Certificate of Registration; 14. Certified true copy Certification from the City of Pasig of the Subdivision Approval; and 15. Location plan. In reply, please be informed that 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: ScAaHE 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 to qualified beneficiaries shall be exempt from income taxes, and consequently, from creditable expanded withholding tax prescribed under Revenue Regulations No. 2-98, as amended. 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 RA 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. 129-12 dated February 23, 2012) 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 lots in this case does not really exceed P160,000.00. Thus, sale of a lot above the maximum amount shall be subject to the corresponding internal revenue taxes. 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. 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: SIDEaA xxx xxx xxx (p) The following sales of real properties are exempt from VAT, namely: 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 HUDCC Resolution No. 1, Series of 2008, dated December 11, 2008, and as circularized by Revenue Memorandum Circular No. 30-2009, pertinent portion of which reads: "THEREFORE BE IT RESOLVED, AS IT IS HEREBY RESOLVED that the adjustment of the Low Cost Level 1-A socialized housing loan ceiling from P300,000.00 to P400,000.00 be APPROVED, as the same is hereby APPROVED." the newly adjusted price ceiling of P400,000.00 for 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", beginning January 1, 2009. 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) Thus, it is likewise exempt from the payment of VAT on the sale of lot valued at one hundred sixty thousand pesos (P160,000.00) and below. However, its purchases of goods/articles shall be subject to VAT, even if the said purchases are to be used for the socialized housing project, since VAT is an indirect tax which can be passed on by the seller of the goods/services. Moreover, it shall be understood that Villa De Mavalor must issue non-VAT official receipts on its gross receipts from the said socialized housing project. Accordingly, sale of Lot covered by HLURB License to Sell No. 22626, (wherein the maximum price of Lot is P160,000.00) to qualified beneficiaries should be exempt from income taxes and, consequently, from creditable expended withholding tax and from VAT pursuant to RA 7279. HITAEC Finally, Section 101 (A) (2) of the Tax Code of 1997, as amended, gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the Government are exempt from donor's tax. Considering that the donations of the Lot Nos. 13 to 22 Block 70 with an aggregate area of one thousand two hundred twenty five square meters (1,225 sq.m.) and the Lot Nos. 3 to 12 Block 70 and with an aggregate area of one thousand two hundred forty five square meters (1,245 sq.m.) were made by Villa De Mavalor in favor of the Local Government Unit of Rosario, Province of Batangas, a political subdivision of the government, said donations, therefore, are exempt from donor's tax. (BIR Ruling No. 413-11 dated January 28, 2011) 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