BIR Ruling No. 501-11

December 15, 2011 BIR RULING NO. 501-11 E.O. 226; RR 2-98; BIR Ruling No. 334-2011 Asiatic Development Corporation Asiatic Bldg.,Phoenix Sun Business Park E. Rodriguez, Jr. Avenue, Libis, Quezon City Attention: Mr. Emiliano C. Estrella SVP-Comptroller Gentleman : This refers to your letter dated November 19, 2009 stating that Asiatic Development Corporation (ADC) with Tax Identification No. 000-436-566 is as a real estate developer. It is registered with the Board of Investments (BOI) as a New Developer of Mass Housing Project (Tierra Vista Homes Dasmarias Phase 1-Brgy. Langcaan I, Dasmarias, Cavite) 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. 2009-109 dated July 24, 2009 for a period of four (4) years from August 2009 or actual start of commercial operations/selling pursuant to EO 226. ADC's housing units shall be marketed and sold mainly through the Home Development Mutual Fund (HDMF) or Pag-ibig Fund, the Government Service Insurance System (GSIS), or through banks, with a term range of 5 to 10 years to pay and up to 30 years for PAG-IBIG. During the 4-year period, ADC will receive the full payment of the housing units from the financing institutions and must recognize the sale in its books to avail of the tax holiday granted by the BOI. ADC shall construct and sell Three Hundred Ninety Four (394) units of low cost mass housing based on the following schedule: Year Volume (in units) Value (Php'000) 1 97 99,008 2 111 106,190 3 104 97,685 4 82 85,704 Total 394 388,588 ==== ====== 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 ADC, being a BOI-registered enterprise is exempt from the payment of the creditable withholding tax (CWT) imposed under Revenue Regulations No. 2-98 and documentary stamp tax (DST) on income payments received during the aforementioned period with respect to its registered activity. CSAaDE In reply, please be informed that Section 2.57.5 (B) (2) of Revenue Regulations No. 2-98, as amended, by Revenue Regulations 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 payment to persons enjoying exemption from the income tax provided by the Omnibus Investment Code of 1987. Accordingly, since ADC-Tierra Vista Homes Dasmarias Phase 1-Brgy. Langcaan I, Dasmarias, Cavite Project is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by ADC in connection with the aforementioned housing project, ADC-Tierra Vista Homes Dasmarias Phase 1-Brgy. Langcaan I, Dasmarias, Cavite Project are exempt from the CWT imposed under Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001, for a period of four years starting from August 2009. It must be emphasized, however, that the exemption from the CWT covers only revenues generated from the registered activity. ADC-Tierra Vista Homes Dasmarias Phase 1-Brgy. Langcaan I, Dasmarias, Cavite Project. 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, ADC-Tierra Vista Homes Dasmarias Phase 1-Brgy. Langcaan I, Dasmarias, Cavite Project's entitlement to ITH is not automatic as it has still to comply with Section 10 (a) of the Specific Terms and Conditions of the BOI Registration, viz. : (1) Secure endorsement/certification from the HLURB 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 the filing of the final Income Tax Return (ITR) with BIR in order to validate the claim for income tax exemption. The application shall be accompanied by a certification by Social Security System (SSS) that the firm is in good standing in the remittance of SSS contributions of its employees; and DAHSaT (3) Secure a Certificate of ITH Entitlement (CoE) from the Supervision and Monitoring Department (SMD) of BOI prior to filing the ITR with the BIR, otherwise ITH for that particular taxable year without CoE shall be forfeited. Furthermore, BOI-registered enterprises enjoy no tax exemption/privileges other than those granted under EO 226. In this regard, under the terms and conditions of its BOI Registration, ADC-Tierra Vista Homes Dasmarias Phase 1-Brgy. Langcaan I, Dasmarias, Cavite Project was clearly granted a 4-year ITH but such terms and conditions do not provide for any exemption from other taxes that it may be subject to on its business transactions. Thus, ADC-Tierra Vista Homes Dasmarias Phase 1-Brgy. Langcaan I, Dasmarias, Cavite Project will remain subject to Value-Added Tax (VAT) and DST on its sales of housing units pursuant to Section 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 109 (1) (P) of the Tax Code of 1997 provides, that the sale of residential lot valued at One Million Five Hundred Thousand Pesos (P1,500,000.00) and below, or house and lot and other residential dwellings valued at Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below is VAT-exempt. As such, only the sale by ADC-Tierra Vista Homes Dasmarias Phase 1-Brgy. Langcaan I, Dasmarias, Cavite Project of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. It should be understood that ADC-Tierra Vista Homes Dasmarias Phase 1-Brgy. Langcaan I, Dasmarias, Cavite 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 at 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. ADEacC Likewise, ADC-Tierra Vista Homes Dasmarias Phase 1-Brgy. Langcaan I, Dasmarias, Cavite Project is required to file on or before the 15th day of the fourth month following the close of its accounting period a Profit and Loss Statement and Balance Sheet with Annual Information Return under oath, stating its gross income and expenses incurred during the taxable year. Finally, ADC-Tierra Vista Homes Dasmarias Phase 1-Brgy. Langcaan I, Dasmarias, Cavite 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 it has been complying with the conditions under which it has 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 ascertained that the facts are different, then this ruling shall be considered as null and void. aTDcAH Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue