BIR Ruling No. 515-11

December 21, 2011 BIR RULING NO. 515-11 E.O. 226; BIR Ruling No. 334-2011 dated September 7, 2011 Firm Builders Realty Development Corporation 88 Scout Gandia Street Corner Tomas Morato Avenue Quezon City 1103 Attention: Mr. Sonny F. Ducay VP-Luzon Operations Gentlemen : This refers to your letter dated August 23, 2010 requesting for exemption from income and creditable withholding taxes, the income derived from the sales of a Board of Investments (BOI) registered project, particularly "The Low-Cost Mass Housing Project at San Alfonso Homes, Barangay Pacol, Naga City", pursuant to Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987". Documents submitted show that FIRM BUILDERS REALTY DEVELOPMENT CORPORATION (FBRDC),with Tax Identification Number (TIN) 001-650-003, is a domestic corporation engaged in real estate business and registered with the Securities and Exchange Commission under Reg. No. AS092-003148 dated May 18, 1992; that FBRDC is the owner of a Low-Cost Mass Housing Project at San Alfonso Homes, Barangay Pacol, Naga City; that FBRDC's Low-Cost Mass Housing Project is registered with the Board of Investments (BOI) under BOI Certificate of Registration No. 2008-250 dated 27 August 2008, as a New Developer of Low-Cost Mass Housing Project on a Non-Pioneer status; that it shall sell Three Hundred Fifty Four (354) units of low-cost mass housing based on the following schedule: Year Volume (units) Value (P'000) 1 140 68,775,000 2 214 149,612,000 Total 354 218,387,000 ==== ========== that the availment period of the Income Tax Holiday (ITH) incentives shall be reckoned from the date of registration, August 27, 2008; and that the ITH shall be limited only to the revenue generated from its registered project (The Low-Cost Mass Housing Project at San Alfonso Homes, Barangay Pacol, Naga City). DCcSHE In reply, please be informed that under Section 2.57.5 (B) (2) of Revenue Regulations 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 income tax provided by the Omnibus Investments Code of 1987. Accordingly, since FBRC-Low-Cost Mass Housing Project at San Alfonso Homes, Barangay Pacol, Naga City Project, is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by FBRC-Low-Cost Mass Housing Project at San Alfonso Homes, Barangay Pacol, Naga City Project, are exempt from the creditable withholding tax imposed under RR No. 2-98, as amended by RR No. 6-2001, for a period of four (4) years from August 27, 2008. It must be emphasized, however, that the above exemption from the creditable withholding tax covers only revenues generated from the registered activity FBRC-Low-Cost Mass Housing Project at San Alfonso Homes, Barangay Pacol, Naga City Project. Furthermore, such exemption shall not cover revenues from units with selling price exceeding Three Million Pesos (P3,000,000.00). Moreover, FBRC-Low-Cost Mass Housing Project at San Alfonso Homes, Barangay Pacol, Naga City Project's entitlement to ITH is not automatic as it has still to comply with Section 9 (a) of the Specific Terms and Conditions of the BOI Registration, viz. : (1) Secure from the Housing and Land Use Regulatory Board (HLURB) an endorsement that it has faithfully complied with the approved development plan. (2) File an application with the BOI Incentives Department within one (1) month from the filing of 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 taxable year without CoE shall be forfeited. SDTcAH 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, FBRC-Low-Cost Mass Housing Project at San Alfonso Homes, Barangay Pacol, Naga City Project will remain subject to Value-Added Tax (VAT) and Documentary Stamp Tax (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. Thus, only the sales by FBRC-Low-Cost Mass Housing Project at San Alfonso Homes, Barangay Pacol, Naga City 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 FBRC-Low-Cost Mass Housing Project at San Alfonso Homes, Barangay Pacol, Naga 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 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. Likewise, FBRC-Low-Cost Mass Housing Project at San Alfonso Homes, Barangay Pacol, Naga City 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 the Annual Information Return under oath, stating its gross income and expenses incurred during the taxable year. HICSTa Finally, FBRC-Low-Cost Mass Housing Project at San Alfonso Homes, Barangay Pacol, Naga 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 it has been complying with the conditions under which it has been granted tax exemption or tax incentives and its 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 as represented are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue