Agan Land Corporation

August 3, 2009 BIR RULING [SH-(070) 491-09] Sec. 22; R.A. 7279; RMC 42-01; RR 16-05; DA-258-08 Agan Land Corporation Dr. 19, SMRAA Sports Complex Alunan Avenue, Koronadal City Attention: Mr. Mariano Ong Ante, Jr. President Gentlemen : This refers to your letter dated September 10, 2008, indorsed to this Office by Revenue Region No. 18, Cotabato City, requesting for exemption from the payment of capital gains tax, withholding tax, value-added tax and project-related income tax relative to the development and sale of socialized housing units pursuant to Republic Act (RA) No. 7279, otherwise known as the "Urban Development and Housing Act of 1992." Documents submitted show that Agan Land Corporation (ALC) entered into a Joint Venture Agreement with Boomtown Land, Inc. (BLI) for the development of the latter's property, covered by TCT No. T-101883, located at Purok Lagao, General Santos City. The Project, known as Agan Centro Phase I, is intended for the benefit of low and middle income families of General Santos City who are government and private employees and fund members of PAG-IBIG, GSIS, SSS, and other parties qualified to borrow under the Home Lending program of PAG-IBIG, government financial institutions and private corporations. The Project is covered by appropriate licenses issued by the Regional Office of the Housing and Land Use Regulatory Board which also provide that the sale of the units in the Project is subject to the rules and regulations on socialized and economic housing. In reply, please be informed as follows: Pursuant to Section 22 (B) of the Tax Code of 1997, as amended, the term corporation includes partnerships, no matter how created or organized, joint stock companies, joint accounts ( cuentas en particifacion ),associations or insurance companies, but does not include general professional partnerships and a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the Government. TIHCcA Considering that it is the intention of the legislature to exclude joint venture or consortium formed for the purpose of undertaking construction projects from the definition of taxable corporation, this Office is of the opinion as it hereby holds that the joint venture agreement entered into by ALC and BLI will not create a separate taxable joint venture within the meaning of Section 22 (B) of the Tax Code of 1997, as amended, and the resulting joint venture between said parties is not subject to the corporate income tax under Section 27 (A) of the same Code. Moreover, the subsequent distribution of the saleable lots and/or completed housing units to the co-venturers pursuant to the allocation agreement embodied in the joint venture agreement is not a taxable event and is not subject to income tax, withholding tax, value-added tax and documentary stamp tax because the allocation is a mere return of capital that each party to the joint venture has contributed. However, upon subsequent sale by the co-venturers of their respective shares in the saleable lots and/or completed housing units to third parties, any gain that may be realized by them from such sale will be subject to the regular corporate income tax under Section 27 (A) of the Tax Code of 1997, as amended, and consequently, to the creditable withholding tax under Revenue Regulations No. 2-98, as amended, unless the sale of the same is covered by an exemption. In the instant case, considering that the Project developed by the co-venturers is in accordance with the socialized housing program of the government, ALC and BLI, therefore, are not subject to the regular corporate income tax on their taxable income during each taxable year respectively derived by them from the sale of the socialized housing units. Section 20 of RA No. 7279 provides as follows: "See. 20. Incentives for the Private Sector Participating in Socialized Housing. To encourage greater 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 sector: xxx xxx xxx (d) Exemption from the payment of the following: (1) Project-related income taxes; (2) Capital gains tax on raw lands used for the project; THcaDA (3) Value-added tax for the project contractor concerned." Based on the foregoing provisions, both the developer-co-venturer, ALC, and the landowner-co-venturer, BLI, of the real property used in the socialized housing project, are exempt from the payment of project related income taxes, and consequently, from withholding tax on the conveyance of the developed lots and/or housing units to the intended beneficiaries. However, any sale made by the co-venturers to interested parties other than the principal target beneficiaries under Section 3 (t) and 16 of R.A. No. 7279, shall not be entitled to the foregoing tax exemption. Moreover, ALC and BLI are exempt from the payment of value-added tax (VAT) on their sale of the developed lots and/or housing units to the intended beneficiaries. (Sec. 4.109.1 (B) (p) (3) of RR No. 16-2005, implementing R.A. No. 9337) However, purchases of goods/articles by ALC, as the developer, are subject to VAT, even if the said purchases are to be used for the socialized housing project. (Revenue Memorandum Circular (RMC) No. 42-01 dated October 5, 2001). Further, it has to be emphasized, that this ruling is never intended and shall not be construed as giving authority to the concerned Register of Deeds to effect transfer of the land titles in the name of the buyers without the necessary certificate of authority to register issued by this Bureau. In this regard, this ruling shall be presented to the Revenue District Office (RDO) concerned in order for the latter to issue the Certificate Authorizing Registration (CAR) without the payment of the taxes on the transfer of the subject realties to the intended beneficiaries. It is, however, understood that the CAR shall only be issued after it is established upon proper verification by the 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 PhP300,000.00. (HUDCC, Memorandum Circular No. 3, Series of 2005) Thus, sale of a unit above the maximum amount shall be subject to the corresponding internal revenue taxes. Further, it is observed that documentary stamp tax is not one of the taxes covered by the tax exemption clause in Section 20 of R.A. No. 7279. Such being the case, the project developer/seller shall be liable to pay the documentary stamp tax on the documents conveying the property imposed under Section 196 of the Tax Code of 1997, based on the consideration contracted to be paid for such realty or on its fair market value determined in accordance with Section 6 (E) of the said Code, whichever is higher. Finally, in connection with the above undertaking, the Joint Venture and the co-venturers are hereby required to register with the Revenue District Office (RDO) where their principal place of business is located. HCISED 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