BIR Ruling No. 304-2016

REPUBIICOFTHE PHILIPPINES

DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE

Quezon City

EO.226:RR 16-2011 Secs.57B106A1a196NIR

BIR Ruling No.334-1 #304-2016

6-28-2016 SM DEVELOPMENT CORPORATION 15th Floor Two E-Com Center.Harbor Drive Mall of Asia Complex.Brgy.76.Zone 10,CBP-A

Pasay City

Attention: CECILIA R.PATRICIO

Authorized Representative

Gentlemen:

This refers to your letter dated March 19, 2015 stating that SM Development

Corporation SMDC' for brevity with Tax Identification No. is a domestic

corporation duly registered with the Securities and Exchange Commission (SEC under

Developer of Low-Cost Mass Housing Project (Berkeley Residences Katipunan Ave. cor. Company Reg.No. Escaler St. Loyola Heights, Quezon City on a Non-Pioneer status under Certificate of It is registered with the Board of Investments BOI as a New

ITH by the BOI for a period of four (4 years from December 2008 or actual start of Registration No. dated July 24.2008.SMDC has been granted Income Tax Holiday

commercial operations/selling, whichever is earlier but in no case earlier than the date of

registration. SMDC's Berkeley Residences - Katipunan Ave. cor. Escaler St. Loyola Heights, Quezon City Project is registered with Housing and Land Use Regulatory Board (HLURBExpanded National Capital Region Field Office,particularly described as follows

Registration No. Certificate of License to Sell No. Name of Project/Location No.of Saleable Lots Selling Price Maximum

Berkeley Residences- Heights, Quezon City Katipunan Ave. cor. Escaler St. Loyola 333 parking slots 1,276 residential 6 commercial units / units/ n/a

cover only nine hundred four (904) units of low-cost mass housing for SMDC's Berkeley Residences -Katipunan Ave. cor.Escaler St. Loyola Heights,Quezon City Project. Under the Specific Terms and Conditions of its BOI Registration, the ITH of SMDC shall

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

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income payments to persons enjoying exemption from the income tax provided by Republic Act RR No.2-98,as amended by RR No.6-2001 implementing Section 57 (B of the Tax Code of 1997.as amended. the withholding tax prescribed in the said Regulations shall not apply to In reply, please be informed that under Section 2.57.5 (B(2 of Revenue Regulations

No.7916 and the Omnibus Investments Code of 1987.

Accordingly,since SMDC's Berkeley Residences -Katipunan Ave.cor.Escaler

St. Loyola Heights,Quezon City Project is a BOI registered project, this Office is of the

opinion as it hereby holds, that income payments received by SMDC in connection with its housing project, Berkcley Residences - Katipunan Ave. cor. Escaler St. Loyola Heights Quezon City (on the 904 low-cost mass housing units as mentioned in the Specific Terms and Conditions of its BOI Registrationis exempt from CWT under RR No.2-98. as amended by RR No.6-2001.for a period of 4 years from December 2008 or actual start of commercial operations/selling, whichever is earlier but in no case earlier than the date of

registration. It must be emphasized, however, that the above exemption from CWT covers only income directly attributable to revenues generated from the registered activity, SMDCs Berkeley Residences Katipunan Ave. cor. Escaler St. Loyola Heights, Quezon City Project involving 904 low-cost mass housing units used solely for family home or dwelling purposes and not for commercial purposes such as leasing, retail stores, offices, etc Furthermore, such exemption shall not cover revenues from units with selling price

from in-house financing shall not be considered as revenues generated from the registered exceeding Three Million Pesos (P3.000.000.00.In the computation of ITH,intercst income activity.

Moreover,the entitlement to ITH of SMDC's Berkeley Residences -Katipunan Ave cor.Escaler St. Loyola Heights,Quezon City Project is not automatic as it still has to comply with the following provisions of the Specific Terms and Conditions of their BOI Registration. Viz:

1 The enterprise shall construct and sell 904 units of low-cost mass housing based on the following schedule:

Total Year 2 1 Volume (No. of Units) 40 504 904 ValueP000

2.The enterprise shall adhere to the following selling prices as represented

1-BR (904 units) Unit Type Price/Unit Projected Revenue

3 The enterprise shall observe the following project timetable:

Site acquisition through Obtain appropriate license government agreement from the Activity March 2007 June 2007- December 2007 Date Land/Other expense Pre-operating expense Retated Expenses Amount (PhP'000)

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execution of deed of sale or May 2007 lease contract of land. Site Preparation and Development :Hiring of contractors Completion of Site Preparation and August 2011 June 2008 - improvement/civil Other expenses Building/leasehold works

Total Start of commercial operation Development December 2008 Working capital

4. File an application with the BOI Incentives Department within one (1) month from

filing of the final Income Tax Return (ITR) with the Bureau of Internal Revenue

shall be accompanied by a certification from the Social Security System (SSS) that the enterprise is in good standing in the remittance of SSS contributions of its BIR in order to validate the claim for income tax exemption. The application

employees.

5. Secure a Certificate of ITH Entitlement (CoE from the BOI Supervision and Monitoring Department (SMD) prior to filing of ITR with the BIR; otherwise. ITH for that particular taxable year without CoE shall be forfeited.

Heights, Quezon City Project will remain subject to Value-Added Tax (VAT and those granted under E.O. 226. In this regard, under the terms and conditions of its BOI registration, SMDC's Berkeley Residences - Katipunan Ave. cor. Escaler St. Loyola do not provide for any exemption from other taxes that SMDC may be subject to on its business transactions.Thus, SMDC's Berkeley Residences -Katipunan Ave.cor.Escaler St.Loyola Documentary Stamp Tax (DST) on its sales of house and lot units pursuant to Sections 106 A1a and 196 of the Tax Code of 1997,as amended.BIR Ruling No.334-11 dated September7,2011 Heights,Quezon City Project was clearly granted a 4-year ITH but such terms and conditions Furthermore, BOI-registered enterprises enjoy no tax exemption/privileges other than

Hundred Pesos (P1,919,500.00) and below, or house and lot and other residential dwellings housing units with selling price of not more than the aforementioned price ceilings shall be sale of residential lot valued at One Million Nine Hundred Nineteen Thousand Five valued at Three Million One Hundred Ninety Nine Thousand Two Hundred Pesos Residences - Katipunan Ave.cor.Escaler St. Loyola Heights, Quezon City Project of P3.199.200.00 and below is VAT-exempt.Thus.only the sales by SMDC's Berkeley exempt from VAT. In relation thereto, Section 1091P) of the Tax Code of 1997 provides,that the

SMDC shall file with BOI a complete annual tax incentives report of its income-based tax returns and pay its tax liabilities on or before the deadline as provided under the 1997 Tax Code. as amended,using the electronic system for filing and payment of taxes of the BIR.Furthermore Pursuant to Section 4 of Republic Act RA) No.10708,SMDC is required to file its tax

QandVof the 1997 Tax Code took effec on January 1.2012pursuant to Revenne Regulartos No.16-201/dated October 27.2011 1The increase in the threshold amount for the sale or lease of goods or propertes or the perfomance of services covered by Section 109P)

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the tax base, as may be provided under E.O.226,within thirty 30 days from the deadline for incentives,value-added tax (VAT and duty exemptions, deductions, credits or exclusions from filing of tax returns and payment of taxes.

government if it acts as employer and any of its employees received compensation income subject to compensation withholding tax,or if it makes payments to individuals or corporations subject to the withholding taxes as source as required under Chapter XIII and Section 57 of the Tax Code of 1997, as amended and implemented by Revenue Regulations No.2-98, as amended. It should be understood that SMDC shall be constituted as a withholding agent for the

following the close of its accounting period of a Profit and Loss Statement and Balance Sheet with the Annual information Return under oath, stating its gross income and expenses incurred during the taxable year. Likewise, SMDC is required to file on or before the 15th day of the fourth month

ascertaining whether it has been complying with the conditions under which it has been granted periodic examination by revenue enforcement officers of this Bureau for the purpose of tax exemption or tax incentives and its tax liability, if any, pursuant to Section 235 of the Tax Code of 1997,as amended. Finally, SMDC's books of accounts and other pertinent records shall be subject to

upon investigation it will be disclosed 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.

Commissioner of Internal Revenue KIM S.JACINTO-HENARES 042349

K-1-GPS