BIR Ruling No. 564-12

September 7, 2012 BIR RULING NO. 564-12 EO 226; RR 2-98; 334-11 Primeland Properties, Inc. 3rd Floor PPI Building 9-A Ponciano Reyes Street Davao City Attention: Mr. Carlito C. Dublan President Gentlemen : This refers to your letter dated June 22, 2010 requesting for a ruling that PRIMELAND PROPERTIES, INC.'s Project, known as the LAS CASAS ELENA located at Km. 3 Barangay Baan, Butuan City, is exempt from the payment of withholding tax on the sale of house and lot pursuant to the Income Tax Holiday (ITH) granted by the Board of Investments (BOI) under Executive Order (EO) No. 226 otherwise known as the Omnibus Investments Code of 1987, for a period of four (4) years from March 2010 or actual start of commercial operations/selling, whichever comes earlier, but in no case earlier than the date of registration. aDcEIH It is represented that PRIMELAND PROPERTIES, INC. is a corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. D199600496 with TIN 004-752-820-000 and is likewise registered with the BOI under BOI Certificate of Registration No. 2010-077 as a New Developer of Low-Cost Mass Housing Project (LAS CASAS ELENA Km. 3 Barangay Baan, Butuan City); that its LAS CASAS ELENA Project (Project) is registered with the Housing and Land Use Regulatory Board (HLURB) under Certificate of Registration No. 18072 for Blocks 1-27, 29, 30, 33, 36-38, 40, 45, 46 Lots 1-19, 52; 47 Lots 1-14, Pcs-13-001638 and Certificate of Registration No. 18073 for Blocks 31, 32, 34, 35, 42-44 Lots 20-35, 37-51; 47 Lots 15-20, 22, 38, Pcs-13-001638; that PRIMELAND PROPERTIES, INC. was issued a License to Sell No. 18945 by HLURB for its LAS CASAS ELENA Project for its 167 saleable lots/units with maximum selling price of P300,000.00 per lot/unit and License to Sell No. 18944 for its 608 saleable lots/units with maximum selling price of P1,250,000.00 per lot/unit; that it shall construct and sell 608 low-cost mass housing units based on the following schedule: Year No. of Units Value (Php) 1 133 123,625,900.00 2 142 130,055,900.00 3 162 160,155,900.00 4 171 166,645,900.00 Total 608 PhP580,483,600.00 ==== ================ that PRIMELAND PROPERTIES, INC. is entitled to an ITH for four (4) years from March 2010 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 revenue generated from this registered project (LAS CASAS ELENA); and that the revenue from units with selling price exceeding P3.0M shall not be covered by ITH. In reply thereto, please be informed that under Section 2.57.5 (B) (2) of Revenue Regulations No. 2-98, as amended, implementing Section 57 (B) of the Tax Code of 1997, the withholding tax prescribed in the said Regulations shall not apply to income payments to persons enjoying exemption from the income tax provided by Republic Act No. 7916 and the Omnibus Investments Code of 1987. EDaHAT Accordingly, since PRIMELAND PROPERTIES, INC. is a BOI-registered enterprise, enjoying exemption from payment of income taxes pursuant to the provisions of Section 39 (a) (1) of the Omnibus Investments Code of 1987 for a period of four (4) years, this Office holds that payment for units on the LAS CASAS ELENA Project of PRIMELAND PROPERTIES, INC. are EXEMPT from the payment of the creditable withholding tax imposed under Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001, on income payments received by it during the aforementioned period with respect to its registered activity, subject however to the condition that both the BOI General and Specific Terms and Conditions for the grant of ITH are met during said period. Moreover, LAS CASAS ELENA Project of PRIMELAND PROPERTIES, INC.'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 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 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. CHDAaS Furthermore, BOI-registered enterprises enjoy no tax exemption/privileges other than those granted under EO No. 226. In this regard, under the terms and conditions of its BOI registration, the LAS CASAS ELENA Project of PRIMELAND PROPERTIES, INC. will remain subject to value-added tax (VAT) and documentary stamp tax (DST) on its sales of housing units pursuant to Sections 106 (A) (1) (a) and 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 334-11 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 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, as prescribed in Revenue Regulations No. 16-2011, is VAT exempt. Thus, only the sales by PRIMELAND PROPERTIES, INC. 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 PRIMELAND PROPERTIES, INC. 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 implemented by Revenue Regulations No. 2-98, as amended. Likewise, PRIMELAND PROPERTIES, INC. Project is required to file on or before 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. Finally, PRIMELAND PROPERTIES, INC. 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. TAECaD 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue