BIR Ruling [UN-266-95]

June 13, 1995 BIR RULING [UN-266-95] Joaquin Cunanan & Co. 8th Floor, BA Lepanto Bldg. 8747 Paseo de Roxas Makati, Metro Manila Attention: Atty . George T . J . Lavadia Principal Gentlemen : This refers to your letter of June 13, 1995, requesting for a ruling to the effect that payments of FHE Properties, Inc. (FHE) to Carmelray Development Corporation (Carmelray) for the purchase of land is not subject to expanded withholding tax on the ground that Carmelray, a business enterprise registered with the Board of Investments (BOI), enjoys income tax holiday on the sale of industrial estates. Documents submitted show that Carmelray is a BOI-registered enterprise with a Certificate of Registration No. 90-255 dated November 27, 1990 for the development and sale of industrial estate; that it was granted an income tax holiday for a period of four (4) years from the start of commercial operation in April 1991 or from the actual start of selling/leasing of the lots whichever comes first, but in no case earlier than the date of registration of the project; that it is the absolute and registered owner of the parcel of land situated within the Carmelray Industrial Park, Municipality of Calamba, Province of Laguna; and that on March 31, 1995, FHE purchased from Carmelray a piece of land and made an initial payment of thirty percent (30%) of the total selling price. In reply, please be informed that under Section 175 of Revenue Regulations No. 2, implementing Section 42 of the Tax Code, as amended, ". . . If the initial payments in the year of sale exceed twenty-five percent (25%) of the selling price, then the sale is on the deferred-payment basis, . . .". Such being the case, the aggregate initial payments of FHE to Carmelray in the year of sale should be reported on a deferred payment method, not on the installment plan. (BIR Ruling Nos. 70-034; 74-007; 402-88) Moreover, Section 4(b) (2) of Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 12-94, provides that the withholding tax therein prescribed shall not apply to income payments to persons enjoying exemption from payment of income taxes pursuant to the provisions of the Omnibus Investments Code of 1987, as amended. As a BOI-registered enterprise, Carmelray is enjoying exemption from the payment of income taxes pursuant to the provisions of Section 39(a) (1) of the Omnibus Investments Code of 1987. Such being the case, the income payments made to Carmelray by FHE for the purchase of said land shall not be subject to the expanded withholding tax prescribed in Revenue Regulation No. 6-85, as amended by Revenue Regulations No. 12-94. This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, and/or any of the requirements imposed in this letter is not complied with, then this ruling shall be considered null and void. Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)