Santos Ventura Hocorma Foundation, Inc.

February 19, 2009 BIR RULING [SH-(008) 121-09] RA 7279; BIR Ruling No. S-20-027-2007 Santos Ventura Hocorma Foundation, Inc. Unit 406 Midland Mansion Condominium 839 A.S. Arnaiz Avenue Legaspi Village, Makati City Attention: Mr. Gabriel H. Abad Trustee & Corporate Secretary Gentlemen : This refers to your letter dated April 25, 2007 requesting for exemption from or reduction of the capital gains, documentary stamp, and transfer taxes and guidelines on how to go about in transferring the lots to the member-beneficiaries. As represented, Santos Ventura Hocorma Foundation, Inc. (the "Foundation") is a non-stock, non-profit corporation registered with the Securities and Exchange Commission on December 24, 1979. On July 20, 2005, the Foundation was registered with the Housing and Land Use Regulatory Board (HLURB) Region III Office under Certificate of Registration No. 12002 and was granted permit to sell one hundred seventeen (117) lots located at Mamatitang, Mabalacat, Pampanga under License to Sell No. 13382. The Foundation is the registered owner of several parcels of land located in Cacutod and Mamatitang, Mabalacat, Pampanga with a total area of 20,976 sq. m. which are occupied by informal settlers. Through the intervention of the local government of Mabalacat, the Foundation had agreed to donate said lots in favor of its present occupants, except that it was agreed that they absorb/pay for the survey, subdivision, segregation and such other costs in order to effectively transfer the lots into their individual ownership. Such costs were paid by the individual settlers in accordance with their actual area occupied under various payment terms varying from cash, 1-year and 3-year terms, which were duly covered by their individual contracts to sell. The local government had on its first phase, declared a 2-hectare portion as socialized housing area by virtue of Sangguniang Bayan Resolution No. 557. In as much as most of the settlers have already fully paid their share of the survey and subdivision costs, the Foundation had executed their individual deeds of sale. HCSAIa In reply, please be informed that Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992," provides for the tax incentives relative to the development and sale of socialized housing units (lots and/or houses and lots). Section 20, RA No. 7279 reads "Section 20. Incentives for Private Sector Participating in Socialized Housing. To encourage greater private sector participation in socialized housing and further reduce the cost of housing units for the benefit of the underprivileged and homeless, the following incentives shall be extended to the private sectors: (a) ... (b) ... (c) ... (d) Exemption from the payment of the following: (1) Project-related income taxes; (2) Capital gains tax on raw lands used for the project; (3) Value-added tax for the project contractor concerned; (4) Transfer tax for both raw completed projects; and (5) Donor's tax for lands certified by the local government units to have been donated to socialized housing purposes. xxx xxx xxx" On the other hand, Section 2.57.5 of Revenue Regulations (RR) No. 2-98, as amended, provides "Section 2.57.5. Exemption from Withholding. The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income payments made to the following: DaHSIT (A) .... (B) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following: (1) Sales of real property by a corporation which is registered with and certified by the Housing and Land Use Regulatory Board (HLURB) or HUDCC as engaged in socialized housing project where the selling price of the house and lot or only the lot does not exceed one hundred eighty thousand pesos (P180,000.00) in Metro Manila and other highly urbanized areas and one hundred fifty thousand pesos (P150,0000.00) * in other areas or such adjusted amount of selling price for socialized as may later be determined and adopted by the HLURB, as provided under Republic Act No. 7279 and its implementing regulations; xxx xxx xxx" The current adjusted price ceiling for socialized housing units (house and lot and/or lot) is PhP300,000.00 per Housing and Urban Development Coordinating Council (HUDCC) Memorandum Circular No. 3, series of 2005, dated June 10, 2005, signed by Vice President Noli L. de Castro. In view of the foregoing, the subject raw land shall be exempt from capital gains tax pursuant to RA No. 7279 provided that the local government unit concerned certifies that it has been donated for socialized housing purposes and subject to the conditions provided under RR No. 11-97 i.e., submission to this Office of the deed of donation, TCT/OCT/tax declaration and fair market value/zonal value. Since Santos Ventura Hocorma Foundation Subdivision is registered with the HLURB as socialized housing project, this Office rules that if the socialized housing units (house and lot or lot only) are sold below or at the ceiling price of PhP300,000.00 per unit/lot, the sale thereof is exempt from income tax, and consequently, from the creditable expanded withholding tax imposed under the provisions of the National Internal Revenue Code (NIRC), as amended, and as implemented by RR No. 2-98, as amended. Under Section 109 (P) of the NIRC, as amended by RR No. 4-2007, the sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business or real property utilized for low-cost and socialized housing as defined by RA 7279, and other related laws, shall be exempt from VAT. In relation thereto, Section 4.109-1 (B) (1) (p) (3) of RR No. 16-2005 states that the sale of real properties utilized for socialized housing as defined under RA 7279, and other related laws, such as RA 7835 and RA 8763, wherein the price ceiling per unit is PhP300,000.00 or as may from time to time be determined by the HUDCC and the NEDA and other related laws, shall be exempt from VAT. HEDSIc Accordingly, considering that the Foundation's socialized housing projects are duly registered with the HLURB, its sales are exempt from VAT pursuant to Section 109 (P) of the NIRC, as amended, and as implemented by RR No. 16-2005. It is observed that documentary stamp tax (DST) is not one of the taxes covered by the tax exemption clause under Sections 20 and 32 of R.A. No. 7279. Such being the case, the landowner is liable to pay the DST on the document conveying the property to the community Association under the CMP as imposed under Section 196 of the NIRC, as amended, based on the actual consideration paid by the community Association to the landowner. As regards subsequent transfer from community Association to the member-beneficiaries, Section 185 of Regulations No. 26, otherwise known as the Revised Documentary Stamp Tax Regulations, implementing Title VII of the NIRC, as amended, provides that conveyances of realties not in connection with a sale, to trustees or other persons without consideration are not taxable. Thus, the deed to be executed by the community Association to effect the aforesaid transfer in favor of its member-beneficiaries is not subject to the DST imposed under Section 196 of the NIRC, as amended. The notarial acknowledgment to said deed of conveyance is subject to the DST of PhP15.00 pursuant to Section 188 of the same Code. 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 lots in this case does not really exceed PhP300,000.00 for each qualified beneficiaries. Finally, for the guidelines on how to go about in transferring the lots to the member-beneficiaries, please refer to RR No. 11-97 and Revenue Memorandum Circular No. 42-2001. 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 as null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service