BIR Ruling No. 277-2016

REPUBLICOFTHEPHILIPPINES

DEPARTMENT OF FINANCE

BUREAU OFINTERNALREVENUE

S

Quezon City

E.O.226 Secs.57B106A1)a196 NIRC

BIR Ruling No.412-13

PROPERTY COMPANY OF FRIENDS, INC. 277-2016 6222016 PROFRIENDS CENTER.55 Tinio St. Brgy. Addition Hills, Mandaluyong City

Attention: VP-Financial Control Group Marilyn T.Santos-Oblena

Gentlemen:

This refers to your letter dated May 25, 2015 requesting on behalf of Property Company of Friends,Inc.("Pro-Friends"),certificate of tax exemption from income and expanded withholding taxes on its income derived from the economic and low-cost housing project, Ilustrata Residences Building A-Boni Serrano Avenue, Bagong Lipunan ng CrameCubao Quezon Citywhich is duly registered with the Board of Investments (BOD under Executive Order No.226,otherwise known as the "Omnibus Investments Code of 1987".

Documents submitted show that Pro-Friends, with Tax Identification No.

(TIN) is a domestic corporation duly organized under the Philippine laws; that it is registered with the Securities and Exchange Commission (SEC) with

SEC Certificate of Registration No. that Pro-Friends, as New Developer

of Economic and Low-Cost Housing Project (Vertical). Ilustrata Residenees Building A-Boni Serrano Avenue,Bagong Lipunan ng Crame,Cubao,Quezon City.is duly registered with the Board of Investments (BOI) under the Omnibus Investments Code of 1987 (E.O. 226). under BOI Certificate of Registration No. that pursuant

to said BOI Registration, Pro-Friends shall be entitled to income tax holiday (ITH) for

the above project for a period of three (3) years beginning from May 2015 or actual

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

the date of registration; that the project is duly registered with the Housing and Land

Use Regulatory Board (HLURB) under Certificate of Registration No. and

License to Sell No. pursuant to Batas Pambansa 220; and that the ITH of the

Corporation shall be limited only to the revenue generated from the registered project.

Ilustrata Residences Building A- Boni Serrano Avenue, Bagong Lipunan ng

Crame, Cubao, Quezon City.

It is further shown that Pro-Friends, under the Specific Terms and Conditions

of its BOI Registration for the project, Ilustrata Residences Building A- Boni Serrano

Avenue Bagong Lipunan ng Crame Cubao, Quezon City, is obligated to construct

and sell Two Hundred Forty (240) low-cost mass housing units based on the following

sales revenues:

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Property Companv of Friends. Inc./BOI ITH Page 2 of'6

Year 1 Volume (No.of Units 9 Value (Php)

Total 2 3 240 15 5

the income tax provided by Republic Act No. 7916 and the Omnibus Investments Code of 1987. (BIR Ruling No. 412-2013 dated November 11, 2013) Regulations shall not apply to income payments to persons enjoying exemption from Regulations (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 In reply, please be informed that under Section 2.57.5 (B) (2) of Revenue

is earlier, but in no case earlier than the date of registration of the housing project with Serrano Avenue, Bagong Lipunan ng Crame, Cubao, Quezon City, is duty the opinion as it hereby holds, that the income payments received by Pro-Friends Hundred Forty (240) units, are exempt from the creditable withholding tax imposed registered with the BOI under the Omnibus Investments Code of 1987, this Office is of directly in connection with the aforementioned housing project, consisting of Two under RR No. 2-98. as amended by RR No.6-2001, for a period of three (3) years beginning from May 2015 or actual start of commercial operations/selling, whichever the BOI. Accordingly, since Pro-Friends- Ilustrata Residences Building A- Boni

revenues from the One Hundred Nine (109) parking slots, as well as revenues from generated from the project, Pro-Friends- Ilustrata Residences Building A- Boni units with selling price exceeding Three Million Pesos (Php3,000,000.00). (BIR Ruling No. 412-2013 dated November 11, 2013) creditable withholding tax covers only income directly attributable to the revenues Serrano Avenue, Bagong Lipunan ng Crame, Cubao, Quezon City, consisting of Two Hundred Forty (240) units. Furthermore, such exemption shall not cover It must be emphasized, however, that the aforesaid exemption from the

considered as part of the revenues generated from the registered housing project. In the computation of ITH, interest income from in-house financing shall not be

Moreover, Pro-Friends- Ilustrata Residences Building A- Boni Serrano Avenue,Bagong Lipunan ng CrameCubao,Quezon City's entitlement to ITH for

provisions of the Specific Terms and Conditions of its BOI Registration, viz: its BOI-registered housing project is not automatic as it has still to comply with the

1) The firm shall submit proof of verified compliance with the 20% socialized

housing requirement for its existing projects prior to availment of ITH

2 The firm shall submit a Notarized Affidavit executed by the licensed

engineer or architect indicating the area or the number of Jots and actual units built and the construction costs on the development of the compliance

project for its BOI registered housing projects prior to availment of ITH.

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Property Company of Friends, Inc.BOI ITH Page 3 of 6

The following documents relevant to the compliance project shall be attached to the Affidavit

b) Project Development Plan cDevelopment Permit;and a) License to Sell d Verified Survey Return

3 In the grant of incentives,the extent of the project's ITH entitlement shall shall comply with the following representations: be based on the project's ability to contribute to the economys 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

a. Net Value Added should be at least 25%

NVA (%) Year I 8% Year 2 85% Year 3 87%

b.Job Generation

Number of Employees Year I 223 Year 2 223 Year 3 223

C Investments and Timetable

Land Acquisition registration from the government/training license/permit/ Secure Activity necessary May January 201 October 2013 (Month/Year) Schedule 2011 Pre-Operating Land Cost Expenses Expense/s Related Cost (Php)

Site Preparation and costs Development October 2013- January 2017 Land/Site Development

Building Construction March 2017 April 2014 Building Construction

Total Project Cost Start of Commercial Operations CapitalEquipment Acquisition January 2015- May 2015 December 2016 Capital Capital Equipment Working

d.Sales Revenues

Total Year 2 3 1 Volume (No. of Units) 240 7 00 15 Value(Phn)

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Property Company of Friends, Inc./BOI ITH Page 4 of 6

Net income qualified for ITH availment shall not be a result of gross

revenues exceeding 10% of the projected gross revenue represented by the firm in its application.

In cases where the project's actual revenues exceed the projections in its

application due to, e.g., new markets/orders, additional employment/shifts. additional investments, the Board may increase the project's ITH availment proportionately. Request/s for adjustments of projected revenue must be filed before the filing of application for ITH;

(4) The enterprise should endeavor to undertake meaningful and sustainable

Corporate Social Responsibility (CSR) activities in the locality where the

proiect is implemented;

(5) Only income directly attributable to revenue generated from the registered

Lipunan ng Crame, Cubao, Quezon City) and its housing units used project (Ilustrata Residences Building A-Boni Serrano Avenue, Bagong solely for family home or dwelling purposes and not for commercial purposes such as leasing, retail stores, offices, etc. shall be qualified for ITH;

(6) Secure from the Housing and Land Use Regulatory Board (HLURB) an

endorsement that it has faithfully complied with the approved development plan and acertificate of good housekeeping;

7 File an application with the BOI Incentives Administration Service within

one (1) month from the 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 contributions of its employees;

(8) Secure a Certificate of ITH Entitlement (CoE) from the BOI Legal and Compliance Service prior to filing of ITR with the BIR; otherwise, ITH for

that particular taxable year without CoE shall be forfeited;

(9) In the event the enterprise fails to maintain the 75:25 debt-to-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:

(10)The enterprise shall submit proof of compliance that, at least twenty

percent (20%) of the total building area (estimated at 1,334.40 sq. m.) has been developed and allocated for socialized housing within one year from

date of registration or prior to availment of ITH, whichever is earlier

11)The enterprise shall submit to the BOI Legal and Compliance Service

on a semestral basis within fifteen (15) days from the end of each semester.

a report on actual investments, employment, sales, production costs, actual

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ITH availed of for each year, and other information that the Board may require at any given time with respect to the registered project; and

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

Furthermore. BOI-registered enterprises enjoy no tax exemption/privileges

other than those granted under E.O.226. In this regard, under the terms and conditions of its BOI registration,Pro-friends was clearly granted a 3-year ITH for its project,

Crame, Cubao, Quezon City, consisting of Two Hundred Forty (240 residential Ilustrata Residences Building A- Boni Serrano Avenue, Bagong Lipunan ng

units, but such terms and conditions do not provide for any exemption from other taxes

Ilustrata Residences Building A- Boni Serrano Avenue, Bagong Lipunan ng Crame, Cubao, Quezon City will remain subject to Value-Added Tax (VAT) and that the Corporation may be subject to on its business transactions. Thus, Pro-Friends-

dated November I 1, 2013) 106 (A)(1)(a) and 196 of the Tax Code of 1997, as amended. (BIR Ruling No. 412-2013 Documentary Stamp Tax (DST) on its sales of residential units pursuant to Sections

In relation thereto,Section 1091)P) of the Tax Code of 1997 provides,that the sale of house and lot and other residential dwellings valued at Three Million One Hundred Ninety Nine Thousand Two Hundred Pesos (P3,199,200) and below,is VAT exempt.'Thus,oniy the sales by Pro-Friends Iustrata Residences Building A-Boni

Serrano Avenue, Bagong Lipunan ng Crame, Cubao,Quezon City of residential

exempt from VAT. units with selling price of not more than the aforementioned price ceiling shall be

Pursuant to Section 4 of Republic Act (RA) No. 107082, Pro-Friends is required to file its 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, Pro-Friends shall file with

BOI a complete annual tax incentives report of its income-based tax incentives, VAT and duty exemptions,deductions, credits or exclusions from the tax base, as may be provided under E.O. 226, within thirty (30) days from the deadline for

filing of tax returns and payment of taxes.

It should be understood that Pro-Friends shall be constituted as a withholding agent for the 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 (RR) No. 2-98, as amended.

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I The increase in the threshold amounts for the sale or lease of goods or properties or the performance of

services covered by Section 109(P),(Q and V) of the 1997 Tax Code took effect on January 1,2012

pursuant to Revenue Regulations No.16-2011 dated October 27,2011. 5 An Act Enhancing Transparency in the Management and Accounting of Tax Incentives Administered by Investment Promotion Agencies.

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Property Company of Friends. Inc./BOI IT Page 6 of 6

month 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, Pro-Friends is required to file on or before the 15th day of the fourth

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

However, if 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.

Very truly yours.

KIM S. JACINTO-HENARES Commissioner of Internal Revenue

K-1-JHB 042206 JUN 2 0 2016