BIR Ruling No. 002-2016

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE

Quezon City

HLC Group Compound, R. Castillo St. HLC CONSTRUCTION CORPORATION Agdao, Davao City BIR Ruling No. 334-11 E.0. 226; RR 16-2011 Secs.57(B);106(A)(!)(a); 196 NIRC #002-2016 1-6-2016

Attention: Admin Manager/Authorized Representative ABEGAIL T.TAO

Gentlemen:

Board (HLURB) under Certificate of Registration No. Construction has been approved to construct and sell one hundred eighty eight (188)' units of Del Norte Project based on the following schedule: Development Corporation (HLC Construction for brevity) with Tax Identification No. investments (BOl) as a New Developer of Low-Cost Mass Housing Project (Oakwood Residences -- Brgy. New Visayas, Panabo City, Davao Del Norte) on a Non-Pioneer status under Certificate of Registration No. actual start of commercial operations/selling, whichever is earlier but in no case earlier than the Panabo City, Davao Del Norte Project is registered with Housing and Land Use Regulatory Iow-cost mass housing for Oakwood Residences - Brgy. New Visayas, Panabo City, Davao Commission (SEC) under Company Reg. No. granted Income Tax Holiday (ITH) by the BO1 for a period of four (4) years from July 2014 or date of registration. No. This refers to your letter dated September 17, 2014 stating that HLC Construction and ; and under the Specific Terms and Conditions of its BOI Registration, HLC is a domestic corporation duly registered with the Securities and Exchange HLC Construction's Oakwood Residences -- Brgy. New Visayas, dated July 10, 2014. HLC Construction has been It is registered with the Board of and holds HLURB License to Seil

Total Year -2 3 Volume (No. of Units) 12 18 57 1 9

the said ITH granted by BOI. Specifically, if HLC Construction, being a BOI-registered enterprise is exempt from the payment of the creditable withholding tax (CWT) imposed under Revenue Regulations No. 2-98 on income payments received during the aforementioned period with respect to its registered activity. On the basis of the foregoing, you now request for an opinion on the tax consequences of

I HLURB License to Selt No. Norte tovers osty 188 units/lots aad provides for maximum sellins price ol Isued to HLC Construction for Oakwood Residences - Brey. New Visayas, Panabo City, Davao De! er House aad Lot Package.

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1997, as amended, the withholding tax prescribed in the said Regulations shall not apply to 'RR) No. 2-98, as amended by RR No. 6-2001 implementing Section 57 (B) of the Tax Code of In reply, please be informed that under Section 2.57.5 (B)(2) of Revenue Regulations

Vo. 7916 and the Omnibus Investments Code of 1987. :ncome payments to persons enjoying exemption from the income tax provided by Republic Act

Panabo City, Davao Del Norte Project is a BOI registered project, this Office is of the opinion is it hereby holds, that income payments received by HLC Construction in connection with its Accordingly, since HLC Construetion's Oakwood Residences -- Brgy. New Visayas,

1ousing project, Oakwood Residences -- Brgy. New Visayas, Panabo City, Davao Del Norte Conditions of its BOl Registration), is exempt from CWT under RR No. 2-98, as amended by RR No. 6-2001, for a period of 4 years from July 2014 or actual start of commerciat Sperations/selling, whichever is earlier but in no case earlier than the date of registration2. It must be emphasized, however, that the above exemption from CWT covers only income directly attributable to revenues generated from the registered activity, HLC Construction's Oakwood Resideuces -- Brgy. New Visayas, Panabo City, Davao Del Norte Project involving 188 low- zost mass housing units. Furthermore, such exemption shall not cover revenues from units with Project (on the 188 low-cost mass housing units as mentioned in the Specific Terms and selling price exceeding Pesos (P. ). In the computation of iTH. interest income from in-house financing shall not be considered as revenues generated from the egistered activity.

Brgy. New Visayas, Panabo City, Davao Del Norte Project is not automatic as it still has to comply with the following provisions of the Specific Terms and Conditions of their BOI Moreover, the entitlement to ITH of HLC Construction's Oakwood Residences -

Registration, viz.

1. In the grant of incentives, the extent of the project's iTH entitlement shall be based in the project's ability to contribute to the economy's development based on the following parameters: (1) net value added, (2) job generation, (3) multiplier effect, and (4) measured capacity. The Board may reduce the ITH if the project does not realize the extent of economic benefits represented by the proponent at the time of its application. The enterprise shall comply with the following representations:

a. Net Value Added (NVA) should be at least 25%

NVA Year 0 90 Year 1 00% Year 2 90% Year 3 90%

b. Job Generation

Employees Total Year O 84 Number of Employees Year 1 4 Year 2 84 Year 3 84

c. Investments and Timetable

Activity "Schedule Related Cost

Movement of ITH period is subject to Art. 7 of E.O. 226 per BOI Specific Terms and Conditions No.1

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license/permit/registration TOTAL PROJECT COST government/training cost Building Construction Site preparation and Start of Commercial Secure necessary Land acqusition development Operations from the Nov 2012- Nov 2012- May 2013 December May 2013 Oct 2013- July 2014 Jan 2014 202 2012 April Land Cost Pre-operating Development Construction Expenses Expense/s Land/Site Working Building Capital

d. Sales Revenues

Year Volume (No. of Units) Va|ue (PhP)

Total 2 1 3 I 2 188 5 19

exceeding 10% of the projected gross revenue represented by the firm in its Net income qualified for ITH availment shall not be a result of gross revenues application.

application due to new markets/orders; additional employment and/shifts. additionat investments, the Board may increase the project's ITH availment proportionately. Request/s for adjustment of projected revenue must be filed before the filing of application for ITH. In cases where the project's actual revenues exceed the projections in its

2. The enterprise shall submit a list of cost items common to all its methodology adopted in allocating the common costs between'the registered and the non-registered activity/ies. projects/activities (whether BOl-registered or non-BOi-registered) and the

3 the approved development plan and a "Certificate of Good Housekeeping". Secure from the HLURB an endorsement that it has faithfully complied with

4 File an application with the BOI (ncentives Service within one (1) month from

contributions of its employees. filing of the final income Tax Return (iTR) with the Bureau of Internal Revenue (BIR) in order to validate the claim for income tax exemption. The application shall be accompanied by a certification from the Social Security System (SSS) that the enterprise is in good standing in the remittance of SSS

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5. Secure a Certificate of ITH Entitlement (CoE) from the BOI Lega! Service

prior to the filing of ITR with the BIR; otherwise, ITH for that particular year without CoE shall be forfeited.

6. In the event the enterprise fails to maintain the 75:25 debt-equity ratio

requirement, it shall show proof that the construction of housing units have been completed and delivered to buyers prior to availment of ITH; otherwise, the enterprise shall not be entitled to ITH and shall be required to refund any capital equipment incentives availed of.

1 The enterprise shatl submit proof of compliance that at least twenty percent

(20%) of the total subdivision area (estimated at 3,886 sq.m.) or total Otherwise, the ITH for that particular taxable year shall be deemed forfeited. Subdivision project cost (estimated at PhP allocated for socialized housing within one year from date of registration or prior to availment of iTH, whichever is earlier. This may be done through the development of new settlement directly undertaken by registered entity : has been developed and

completed within the ITH availment period and should be proportionate to the number of low-cost housing units being applied for ITH for the taxable year. Compliance with the twenty (20%) percent housing requirement must be

8. The enterprise must commit to the tenets of Good Corporate Governance.

those granted under E.0. 226. In this regard, under the terms and conditions of its BO1 provide for any exemption from other taxes that HLC Construction may be subject to on its September 7, 2011) registration, HLC Construction's Oakwood Residences - Brgy. New Visayas, Panabo City, Davao Del Norte Project was clearly granted a 4-year ITH but such terms and conditions do not business transactions. Thus, HLC Construction's Oakwood Residences -- Brgy. New Visayas. Panabo City, Davao Del Norte Project wiil remain subject to Value-Added Tax (VAT) and Documentary Stamp Tax (DST) on its sales of house and lot units pursuant to Sections 106 (A)(1)(a) and 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 334-11 dated Furthermore, BOI-registered enterprises enjoy no tax exemption/privileges other than

sale of residential lot valued at valued at (P In relation thereto, Section 109 (1)(P) of the Tax Code of 1997 provides, that the Pesos (P and below is VAT-exempt3. Thus, only the sales by HLC Construction's and below, or house and lot and other residential dwellings Pesos

housing units with selling price of not more than the aforementioned price ceilings shall be Oakwood Residences - Brgy. New Visayas, Panabo City, Davao Del Norte Project of exempt from VAT.

Visayas, Panabo City, Davao Del Norte Project shall be constituted as a withholding agent for It should be understood that HLC Construction's Oakwood Residences -- Brgy. New

3 The incre. and (V} of the 1997 Tax Code took effect on January 1, 20!2, pursuant to Revemue Regufations No. /6-201 / dated October 27. 201 t. in the threshoid amour nt for the sale or of goods or properties or the performance of services covered by Section 109(P). (Q)

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the government if it acts as employer and any of its employees received compensation income subject to compensation withhoiding tax, or if it makes payments to individuals or corporations subject to the withholding taxes as source as required under Chapter Xill and Sectior 57 of the Tax Code of 1997, as amended and implemented by Revenue Regulations No. 2-98, as amended.

with the Annual information Return under oath, stating its gross income and expenses incurred during the taxable year. City, Davao Del Norte Project is required to file on or before the 15th day of the fourth month following the close of its accounting period of a Profit and Loss Statement and Balance Sheet Likewise, HLC Construction's Oakwood Residences - Brgy. New Visayas, Panabo

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 City, Davao Del Norte Project's books of accounts and other pertinent records shall be subject tax exemption or tax incentives and its tax liability, if any, pursuant to Section 235 of the Tax Code of 1997, as amended. Finally, HLC Construction's Oakwood Residences -- Brgy. New Visayas, Panabo

upon investigation it will be disciosed that the facts are different, then this ruling shall be considered null and void. This ruling is being issued on the basis of the foregoing facts as represented. However, if

Very truly yours,

Commissiorier of Upternal Revenue KIM S. JACINTO-HENARES Q37 8"4 c DEC z 2 2015

BOI-HLC CONSTRECTION-OAKWOOD RESIDENCES K-1-VDPM