BIR Ruling No. 547-12

August 31, 2012 BIR RULING NO. 547-12 E.O. 226; RR 2-98; BIR Ruling No. 334-2011 dated September 7, 2011 Forte Realty Corporation 5th Floor, Kalayaan Building, Salcedo Street, Legaspi Village, Makati City 1229 Attention: Vilma E. Ruano Executive Vice-President Madame : This refers to your letter dated July 27, 2010 requesting for a confirmation that the income derived from the sales of a BOI-registered project, particularly "Forte Realty Corporation (Villa Alicia II) New Developer of Low-Cost Mass Housing Project", is exempt from income tax and consequently from creditable withholding tax, and that the Certificate of Creditable Tax Withheld at Source (BIR Form 2307) is no longer required to be submitted to the BIR for purposes of issuing the Certificate Authorizing Registration. Documents submitted shows that FORTE REALTY CORPORATION (FRC), with Tax Identification Number TIN 000-119-682-000, is a Domestic Corporation engaged in real estate business and registered with the Securities and Exchange Commission under Registration No. 97289 dated 4 February 1981; that FRC is the developer of "Villa Alicia II, 2659 Zamora Street, Pasay City"; that FRC is registered with the Board of Investments (BOI) as a New Developer of Low-Cost Mass Housing Projects on a Non-Pioneer status per BOI Registration No. 2009-104 dated 20 July 2009 ; that FRC shall construct and sell Sixty Five (65) units of low cost mass housing based on the following schedule: Year Volume (No. of Units) Value (P'000) 1 58 61,961 2 7 7,478 Total 65 69,439 ===== ====== that the firm shall be entitled to Income Tax Holiday (ITH) for four (4) years from July 2009 or actual start of commercial operations/selling, whichever is earlier but in no case earlier than the date of registration; that the ITH shall be limited only to the revenues generated from this registered project (Villa Alicia II, 2659 Zamora Street, Pasay City) ; that revenues from units with selling price exceeding PhP3.0M shall not be covered by ITH. 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. AHCETa Accordingly, since Forte Realty Corporation Villa Alicia II, 2659 Zamora Street, Pasay City is a BOI-registered project, this Office is of the opinion as it hereby holds, that income payments received by FRC in connection with the aforementioned housing project, Forte Realty Corporation Villa Alicia II, 2659 Zamora Street, Pasay City, are exempt from the creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001, for a period of four years starting from July 2009 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 exemption from the creditable withholding tax covers only revenues generated from the registered activity, Forte Realty Corporation Villa Alicia II, 2659 Zamora Street, Pasay City. 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). In the computation of ITH, interest income from in-house financing shall not be considered as revenues generated from the registered activity. Moreover, Forte Realty Corporation Villa Alicia II, 2659 Zamora Street, Pasay City Project's entitlement to ITH is not automatic as it has still to comply with Section 8 (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 ITR with BIR in order to validate the claim for income tax exemption. The application shall be accompanied by a certification by SSS that the firm is in good standing in the remittance of SSS contributions of its employees; and DcCIAa (3) Secure a Certificate of ITH Entitlement (CoE) from the Supervision and Monitoring Department (SMD) of BOI prior to filing the Income Tax Return 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 E.O. 266. In this regard, under the terms and conditions of its BOI REGISTRATION, Forte Realty Corporation Villa Alicia II, 2659 Zamora Street, Pasay City was clearly granted a 4-year ITH but such terms and conditions do not provide for any exemption for other taxes that it may be subject to on its business transactions. Thus Forte Realty Corporation Villa Alicia II, 2659 Zamora Street, Pasay 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) 1 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. Thus, only the sale by Forte Realty Corporation Villa Alicia II, 2659 Zamora Street, Pasay 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 Forte Realty Corporation Villa Alicia II, 2659 Zamora Street, Pasay 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. SCaITA Likewise, Forte Realty Corporation Villa Alicia II, 2659 Zamora Street, Pasay 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 Annual Information Return under oath, stating its gross income and expenses incurred during the taxable year. Finally, Forte Realty Corporation Villa Alicia II, 2659 Zamora Street, Pasay 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 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 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 Footnotes 1. As amended by Revenue Regulations No. 3-2012 which took effect January 1, 2012.