BIR Ruling No. 578-12

eptember 19, 2012 BIR RULING NO. 578-12 E.O. 226; RR 2-98; BIR Ruling No. 334-2011 Central Luzon Basic Homes, Inc. MacArthur Highway cor. La Aldea Rd. Brgy. Ilang Ilang, Guiguinto, Bulacan Attention: Mr. Robert Marie C. Sy President Gentleman : This refers to your letter dated September 20, 2011 stating that Central Luzon Basic Housing, Inc. (CLBHI) with Tax Identification No. 007-306-003 is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under Company Registration No. CS200908134 dated July 21, 2009. It is registered with the Board of Investments (BOI) as a New Developer of Low-Cost Mass Housing Project (CLBHI-Ylang Ylang Homes, Brgy. Tabang, Guiguinto, Bulacan) 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. 2010-201 dated November 23, 2010 for a period of four (4) years from November 2010 or actual start of commercial operations/selling whichever is earlier, but in no case earlier than the date of registration. CLBHI's maiden project Ylang Ylang Homes consists of 75 rowhouse and lot units on a 5,364 square meter parcel of land, 22 of which are end units, while 53 units are inner rowhouse units. The rowhouses have a floor area of 35 square meters while the lot area vary from 39 square meters to 77 square meters, more than half of which have a lot area of 42.5 square meters. The project is registered with the Housing and Land Use Regulatory Board (HLURB) with Certificate of Registration No. 21809 and holds HLURB Licence to Sell No. 23073. The project is accredited with the Home Development Mutual Fund (Pag-ibig Fund) and the end units have been appraised at P647,780.00 each while the inner rowhouse units were appraised at P556,500.00 each. Since the project is covered by BOI Certificate of Registration No. 2010-201 issued on the 23rd day of November 2010, the end units have an average selling price of only P541,800.00 while the inner rowhouse units have an average selling price of only P469,158.00. CLBHI shall construct and sell Seventy Five (75) units of low-cost mass housing based on the following schedule: cTAaDC Year Volume (in units) 1 75 2 0 3 0 4 0 Total 75 === and shall adhere to the following price as represented: Model Type No. of Units Selling Price Per Unit Rowhouse End Unit 22 P541,800.00 Rowhouse Inner Unit 53 P469,158.00 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 CLBHI, 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. 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 CLBHI-Ylang Ylang Homes, Brgy. Tabang, Guiguinto, Bulacan Project is a BOI registered project, this Office is of the opinion as it hereby holds, that income payments received by CLBHI in connection with the aforementioned housing project, CLBHI-Ylang Ylang Homes, Brgy. Tabang, Guiguinto, Bulacan 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 November 2010 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 CWT covers only revenues generated from the registered activity, CLBHI-Ylang Ylang Homes, Brgy. Tabang, Guiguinto, Bulacan 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). Furthermost, in the computation of ITH, interest income from in-house financing shall not be considered as revenues generated from the registered activity. EHSADa Moreover, CLBHI-Ylang Ylang Homes, Brgy. Tabang, Guiguinto, Bulacan 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 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 (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, CLBHI-Ylang Ylang Homes, Brgy. Tabang, Guiguinto, Bulacan 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, CLBHI-Ylang Ylang Homes, Brgy. Tabang, Guiguinto, Bulacan 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 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. 1 As such, only the sale by CLBHI-Ylang Ylang Homes, Brgy. Tabang, Guiguinto, Bulacan Project of housing units with selling price of not more than the aforementioned price ceiling shall be exempt from VAT. cHDaEI It should be understood that CLBHI-Ylang Ylang Homes, Brgy. Tabang, Guiguinto, Bulacan 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, CLBHI-Ylang Ylang Homes, Brgy. Tabang, Guiguinto, Bulacan 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, CLBHI-Ylang Ylang Homes, Brgy. Tabang, Guiguinto, Bulacan 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. The increase in the threshold amount for the sale or lease of goods or properties or the performance of services covered by Section 109 (P),(Q) and (V) of the 1997 Tax Code took effect on January 1, 2012, pursuant to Revenue Regulations No. 16-2011 dated October 27, 2011.