BIR Ruling No. 492-14

December 11, 2014 BIR RULING NO. 492-14 RA 7279; BIR Ruling No. 036-2014 Linear Construction Corporation 142 Katipunan Road, Quezon City Attention: Godofredo J. Abesamis President Gentlemen : This refers to your letter dated April 2, 2014 requesting issuance of Certificate of Tax Exemption for the development and construction of socialized housing units located at Brgy. Sabang, Naic, Cavite pursuant to Republic Act (R.A.) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992". Documents submitted show that Linear Construction Corporation (TIN 000-392-340-000), is the absolute and registered owner of parcels of land identified as Lot 2715, FLS-422, Naic Estate as shown on resurvey plan RS-04-000087 covered by Transfer Certificate of Title (TCT) No. 057-2014047485 1 issued by the Registry of Deeds for Province of Cavite. The aforesaid property is situated at Brgy. Sabang, Naic, Cavite with an area of Seventy Two Thousand Eight Hundred Forty Three square meters (72,843 sq.m.), more or less. On October 18, 2013, a Contract Agreement 2 was executed by and between Linear Construction Corporation and Verdant Residences Homeowners Association, Inc., a homeowner's organization registered with the Housing and Land Use Regulatory Board (HLURB) with Certificate of Registration No. 20200, whereby former has offered to sell the developed lots and completed housing units under the Community Initiative Approach Program (CIAP) of the National Housing Authority (NHA) for Two Hundred Forty Thousand Pesos (P240,000.00) for every developed lot and completed housing unit per family. DCcHAa Moreover, on March 13, 2014, a Memorandum of Agreement 3 (MOA) was executed by and among, Linear Construction Corporation, as the landowner/developer/constructor, Verdant Residences Homeowners Association, Inc., as the beneficiaries, and the NHA, as the lead agency in the implementation of the National Resettlement Programs of the government and to ensure the timely, peaceful and orderly relocation and resettlement of families affected by calamities and those living in danger areas from Metro Manila. Under the MOA, members 4 of Verdant Residences Homeowners Association, Inc. shall be provided by the NHA with a financial grant for the acquisition of One Thousand Ninety Seven (1,097) developed lots and financing the acquisition of 1,097 completed housing units in the amount not to exceed One Hundred Fifteen Thousand Pesos (P115,000.00) per lot and One Hundred Twenty Five Thousand Pesos (P125,000.00) per completed housing unit. On May 14, 2014, Linear Construction Corporation and the NHA executed a Deed of Absolute Sale whereby the former, transferred and conveyed 1,097 developed lots containing an area of Forty (40 sq.m.) each lot with an aggregate area of Forty Three Thousand Eight Hundred Eighty square meters (43,880 sq.m.) to NHA at an agreed price of One Hundred Twenty Six Million One Hundred Fifty Five Thousand Pesos (P126,155,000.00). In reply, please be informed that pursuant to Sections 19 and 20 of Republic Act (RA) No. 7279, pertinent portions of which state that: "Sec. 19. Incentives for the National Housing Authority. The National Housing Authority, being the primary government agency in charge of providing housing for the underprivileged and homeless, shall be exempted from the payment of all fees and charges of any kind, whether local or national, such as income and realty taxes. All documents or contracts executed by and in favor of the National Housing Authority shall also be exempt from the payment of documentary stamp tax and registration fees, including fees required for the issuance of transfer certificates of title. "Sec. 20. Incentives for 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: AaCcST xxx xxx xxx "(d) Exemption from the payment of the following: (1) Project-related income taxes; (2) Capital Gains Tax; (3) Value-added tax for the project contractor concerned." the landowner/developer of properties who sell its properties for use in a socialized housing project are exempt from the payment of the capital gains tax and project-related income taxes. Such being the case, the sale of 1,097 developed lot packages on the Forty Three Thousand Eight Hundred Eighty square meters (43,880 sq.m.) by Linear Construction Corporation to NHA is exempt from capital gains tax, project-related income taxes and consequently from withholding tax. (BIR Ruling No. 036-2014 dated January 29, 2014) Moreover, pertinent portions of RMC No. 42-01 dated October 5, 2001, provide, viz. : xxx xxx xxx A. National Housing Authority (NHA) The NHA, being the primary government agency in charge of providing housing for the underprivileged and homeless citizens shall be exempted from the payment of the following national internal revenue taxes: (1) . . . (2) Documentary stamp tax on sales transactions executed by and in favor of the NHA in connection with socialized housing projects. Since Section 19 of R.A. 7279 exempts "all documents or contracts executed by and in favor of the NHA," the exemption from documentary stamp tax extends to the other party (either seller or buyer) that is dealing or transacting with the NHA. cTECHI xxx xxx xxx The exemption from documentary stamp tax of NHA in connection with any of its socialized housing project extends to the other party (either seller or buyer) that deals or transacts with the NHA. Consequently, since NHA is a party to the sale, no documentary stamp tax shall be due on such sale, either on NHA or the party with which NHA is transacting. Accordingly, the transfer of Linear Construction Corporation to NHA of the 1,097 developed lot packages on the Forty Three Thousand Eight Hundred Eighty square meters (43,880 sq.m.) are likewise exempt from documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 036-2014 dated January 29, 2014) Upon application for exemption, a lien on the title of the land shall be annotated by the Register of Deeds having jurisdiction over the property, to the effect that the same is to be applied or is being applied to socialized housing project pursuant to RA 7279. Please take note that this ruling is never intended and shall not be construed as giving authority to the concerned Register of Deeds to effect transfer of the land in the name of the buyer without the necessary certificate of authority to register issued by this Bureau. In this regard, this ruling shall be presented to the Revenue District Office (RDO) concerned in order for the latter to issue the Certificate Authorizing Registration (CAR) after the submission of the requirements provided under RMO 15-2003. Moreover, Linear Construction Corporation is likewise exempt from the payment of VAT on its gross receipts from the said project, involving the sale of 1,097 developed lot packages on the Forty Three Thousand Eight Hundred Eighty square meters (43,880 sq.m.). 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. It shall be understood that Linear Construction Corporation must issue non-VAT official receipts on its gross receipts from the said socialized housing project. 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 Bureau of Internal Revenue Footnotes 1. Formerly: TCT No. T-654734. 2. Financing the acquisition of 1,097 Housing Units (Verdant Residences, Brgy. Sabang, Naic, Cavite). 3. For financing the acquisition of developed lots and financing the acquisition of completed housing units (Verdant Residences, Brgy. Sabang, Naic, Cavite). 4. Composed of members/families affected by calamities and those living in danger areas from Metro Manila.