The Insular Life Assurance Company, Ltd.

February 18, 2009 BIR RULING [SH-(007) 106-09] Section 22 (B); DA-047-2004 The Insular Life Assurance Company, Ltd. Corporate Center, Insular Life Drive Filinvest Corporate City, Alabang Muntinlupa City Attention: Wilfredo M. Llano Senior Vice-President Finance & Investment Group Gentlemen : This refers to your letter dated December 17, 2007, requesting rulings to the effect that: I. The Insular Life shall be considered as habitually engaged in real estate business inasmuch as its sales/transfers of real estate properties classified as ordinary assets, not registered real properties with the HLURB exceeded six (6) transactions in a year and in which case it shall be subject to the preferential withholding tax rate under Section 2.57.2 (J) of Revenue Regulations No. 6-2001; and II. The Insular Life shall be exempt from income and other related taxes and creditable withholding taxes on sale of house and lots/units from its socialized housing project ("Insular Homes") in Kaysipot Road, Brgy. San Luis, Antipolo City. It is represented that The Insular Life Assurance Company, Ltd., (Insular Life, for short) is a domestic corporation organized and existing under the laws of the Philippines with principal office at Insular Life Corporate Center, Insular Drive, Filinvest Corporate City, Alabang, Muntinlupa City; that it is a mutual life Insurance Company duly registered with the Securities and Exchange Commission (SEC), with SEC Registration No. C-171; that Article 2 of its By-Laws allows investments of its corporate fund in lots and buildings in which the corporation shall conduct and carry on its business and in real estate and such other properties as may be allowed by law or regulations; that incidental to its Insular Life Investment activities, it has various real estate transactions including the disposal of real properties acquired through straight purchases and through foreclosure proceedings of mortgage loans; that Insular Life has consummated more than six (6) taxable real estate transactions in the year 2007; that it is your contention that being habitually engaged in real estate business, your sales are subject to the creditable withholding tax (CWT) at preferential rates prescribed under Section 2.57.2 (J) of Revenue Regulations No. 6-2001, as amended; that aside from the foregoing, Insular Life is undertaking development and sale of a housing project known as "Insular Homes" located at Kaysipot Road, Brgy. San Luis, Antipolo City; that the development of the project and the sale of the lots with housing components are duly approved by the Housing and Land Use Regulatory Board (HLURB) per Certificate of Registration No. 05790 and License To Sell No. 06261 both dated January 3, 2003. CcHDaA In reply, please be informed as follows: I. Section 2.57 (J) (B) of Revenue Regulations No. 6-2001, as amended, provides hereto quote as follows: (J) Gross Selling price or total amount of consideration or its equivalent paid to the seller/owner for the sale, exchange or transfer of real property classified as ordinary asset A creditable withholding tax based on the gross selling price/total amount of consideration or the fair market value determined in accordance with Section (E) of the Code, whichever is higher, paid to the seller/owner for the sale, transfer or exchange of real property, other than the capital asset, shall be imposed upon the withholding agent/buyer, in accordance with the following schedule: A. Where the seller/transferor is exempt from withholding Exempt Tax in accordance with Sec. 2.57.5 of these regulations. B. Upon the following values of real property, where the Seller/transferor is habitually engaged in real estate Business: With a selling price of Five Hundred Thousand Pesos 1.5% (P500,000.00) or less. With a selling price of more than Five Hundred Thousand 3.0% Pesos (P500,000.00) but not more than Two Million Pesos (P2,000,000.00). With a selling price of more than Two Million Pesos 5.0% (P2,000,000.00) C. Where the seller/transferor is not habitually engaged in 6.0% the real estate business. Registration with HLURB or HUDCC shall be sufficient for a seller/transferor to be considered as habitually engaged in the real estate business. If the seller/transferor is not registered with HLURB or HUDCC, he/it may prove that he/it is engaged in real estate business by offering other satisfactory evidence (for example, he/it consummated during the preceding year at least six (6) taxable real estate transactions, regardless of amount) . Notwithstanding the foregoing, for purposes of these regulations, banks shall not be considered as habitually engaged in the real estate business. cTCADI xxx xxx xxx Accordingly, inasmuch as The Insular Life has consummated more than six (6) taxable real estate transactions in year 2007, it may now be considered as habitually engaged in real estate business, subject to the above-quoted preferential rates. II. Section 20 of Republic Act No. 7279, provides, to quote: "Sec. 20. Incentives for Private Sector Participating in Socialized Housing. To encourage greater participation in socialized housing, and further reduced the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sector: "xxx xxx xxx "(d) Exemption from the payment of the following: "(1) . . . "(2) Capital gains tax on raw lands used for the project;" The owners of the raw lands are exempt from the payment of capital gains tax on the conveyance of the property, corresponding to the portion thereof that will be used in the aforestated socialized housing project. Upon application for exemption, a lien on the titles of the lands shall be annotated by the Register of Deeds having jurisdiction over the properties, to the effect that the same are being applied to socialize housing project pursuant to RA No. 7279. However, the sale is subject to the documentary stamp tax imposed under Section 196 of the Tax Code of 1997, based on the consideration or the fair market value, whichever is higher. Furthermore, under Revenue Regulations No. 11-97, within six (6) months after this issuance of tax exemption from the capital gains tax or creditable withholding tax, the buyer/developer of raw land shall apply with the HLURB or Local Government Unit (LGU) concerned for a permit to develop the property and shall start the development Permit and issuance of permit. Otherwise, the exemption from the capital gains tax or creditable withholding tax becomes automatically null and void, and the buyer/developer shall be held liable for the payment of taxes that should otherwise have been paid, plus the penalties incident to late payment. Provided, further, that in case of misrepresentation, an additional penalty equivalent to one hundred percent (100%) of the capital gains tax or creditable withholding tax due shall be imposed on and paid by the buyer/developer. TcAECH In this connection, any sale made by the developer to interested parties other than the principal target beneficiaries under Sections 3 (t) and 16 of RA 7279, shall not be entitled to the foregoing tax exemption should there be non-compliance with any of the sine qua non terms and conditions as aforestated for tax exemption purposes. It is, however, understood that the Certificate Authorizing Registration (CAR) shall only be issued after it is established upon proper verification by the Revenue District Officer (RDO) concerned that, considering the rules on valuation of real property, the actual selling price per sale transaction of the units in this case does not really exceed P300,000.00. Thus, sale of a unit above the maximum amount shall be subject to the corresponding internal revenue taxes. However, it is observed that documentary stamp tax is not one of taxes covered by the tax exemption clause in Section 20 of RA No. 7279. Such being the case, the project developers/sellers shall be liable to pay the documentary stamp tax on the documents conveying the properties imposed under Section 196 of the Tax Code of 1997, based on the consideration contracted to be paid for such realties or on their fair market value determined in accordance with Section 6 (E) of the said Code, whichever, is higher. 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 are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service