BIR Ruling No. 303-2016

REPURLICOFTHT PHILIPPINFS

DEPARTMENTOF FINANCE

BUREAU OF INTFRNAL REVENUE

Quezon City

EO.226RR16-201

Sccs.57(B106A196NR

BIR Ruling No.33+- 8-

SM DEVELOPMENT CORPORATION

15Floor Two E-Com Center.Harbor Drive

Mall of Asia Complex.Brgy.76.7one 10.CBP-1A

Pasay City

Attention CECILIA R.PATRICIO Authorized Representative

Gentlemen:

Corporation (SMDC for brevity with Tax Identification No. This refers to your letter dated March 19, 2015 stating that SM Development is a domestic

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

Company Reg.No. It is registered with the Board of Investments BOI as a New

Developer of Low-Cost Mass Housing Project (Princeton Residences - Gilmore Street.

Quczon City on a Non-Pioneer status under Certificate of Registration No. dated

February 05,2010. SMDC has been granted Income Tax Holiday ITH by the BOI for a period

of four(4) years from February 2010 or actual start of commercial operations/selling.whichever

is earlier but in no case earlier than the date of registration. SMDC's Princeton Residences -

Gilmore Street, Quezon City Project is registered with Housing and Land Use Regulatory

Board (HLURB Expanded 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

Gilmore Street, Quezon City Princeton Residences - 3 commereial units/ 145 parking slots 1.096 residential units na

Under the Specific Terms and Conditions of its BOI Registration the ITH of SMDC shall

cover only one thousand ninety five (1.095 units of low-cost mass housing for SMDC's

Princeton Residences -Gilmore Street,Quezon City Project.

On the basis of the foregoing. you now request for an opinion on the tax consequences of

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

Regulations No.2-98 on income payments received during the aforementioned period with

respect to its registered activity

In reply,please be informed that under Section 2.57.5 B(2 of Revenue Regulations

RR No.2-98.as amended by RR No.6-2001 implementing Section 57Bof the Tax Code of

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1997.as amended. the withholding tax prescribed in the said Regulations shall not apply to

income payments to persons enjoying exemption from the income tax provided by Republic Act

No.7916 and the Omnibus Investments Code of 1987.

Accordingly since SMDCs Princeton Residences -Gilmore Street, Quezon City

Project is a BOl registered project. this Office is of the opinion as it hereby holds,that income

payments received by SMDC in connection with its housing project. Princeton Residences -

Gilmore Street, Quezon City (on the 1.095 low-cost mass housing units as mentioned in the

Specific Terms and Conditions of its BOI Registration, is exempt from CWT under RR No.2-

98, as amended by RR No. 6-2001, for a period of 4 years from February 2010 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 SMDC's

Princeton Residences - Gilmore Street,Quezon City Project involving 1.095 low-cost mass

housing units. Furthermore, such exemption shall not cover revenues from units with selling

price exceeding Three Million Pesos (P3,000,000.00. In the computation of ITH, interest

income from in-house financing shall not be considered as revenues generated from the

registered activity.

Moreover, the entitlement to ITH of SMDC's Princeton Residences -Gilmore Street

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 Registrationviz

The enterprise shall construct and sell 1,095 units of low-cost mass housing

based on the following schedule:

Year Volume (No. of Units) Value(Php'000)

2 3 4 1 430 183 473 9

Total 1,095

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

Studio Unit Type (Sqm) Selling Price (Php'000)

1 Bedroom 2 Bedrooms 2 Bedrooms cnd units

3. The enterprise shall observe the following project timetable:

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Description Completion date Related Expenses In PhP000 Cost

I. Site 2 Obtaining acquisition appropriate license/agreement permit from government Completed Completed Month/Year) GDMF) Land cost 2.401 sqm Government HLURB. application fces LGU.DENR.

3 Site agencies Preparation Hiring of and Development On-going Rental of payloader equipment.Building temporary facilities. and other heavy Ssurvey ing works.

preparation Building contractors Completion of Site preparation,site preparation. riprap electrical and drainage system, road and walkway

construction water distribution. amenities and

4 Start of February 2010 greening and tree planting Working capital

commercial operation

TOTAL PROJECT COST

A Secure from the HLURB an endorsement that it has faithfully complied with

the approved development plan and a "Certificate of Good Housekeeping

5 File an application with the BOI Incentives Department within one lmonth

from 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

contributions of its employees. System (SSS) that the enterprise is in good standing in the remittance of SSS

6. Secure a Certificate of ITH Entitlement (CoE from the BOI Supervision and

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

7. 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.

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Prior to availment of ITH and subject to HLURB certification.the enterprise

shall submit proof of compliance that at least twenty percent 20%) of the total

condominium project cost has been developed and allocated for socialized

housing within the same city or municipality. whenever feasible and in

accordance with other existing laws. Condominium projects with a density of

one hundred (100 units per hectare shall be considered as having fully

complied with the twenty percent (20% requirement.Otherwise,the ITH for

that particular year shall be deemed forfeited.

Furthermore, BOl-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. SMDC's Princeton Residences - Gilmore Street, Quezon City Project was

clearly granted a 4-year ITH but such terms and conditions do not provide for any exemption

from other taxes that SMDC may be subject to on its business transactions.Thus, SMDC's

Princeton Residences -Gilmore Street, Quezon City Project will remain subject to Value-

Added Tax (VAT and Documentary Stamp Tax (DST on its sales of house and lot units

pursuant to Sections 106A1a and 196 of the Tax Code of 1997.as amended.(BIR Ruling

No. 334-11 dated September 7, 2011)

In relation thereto. Section 1091(P) of the Tax Code of 1997 provides. that the Sale of residential lot valued at One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1.919.500.00 and bclow,or house and lot and other residential dwellings

valued at Three Million One Hundred Ninety Nine Thousand Two Hundred Pesos

P3,199,200.00 and below is VAT-exempt.Thus, only the sales by SMDC's Princeton Residences - Gilmore Street, Quezon City Project of housing units with selling price of not

more than the aforementioned price ceilings shall be exempt from VAT.

Pursuant to Section 4 of Republic Act (RANo.10708,SMDC 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

SMDC shall file with BOI a complete annual tax incentives report of its income-based tax incentives.value-added tax (VAT) and duty exemptions,deductions,credits or exclusions from the tax base,as may bc 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 SMDC 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 subiect to the withholding taxes as source as required under Chapter XIlI and Section 57 of thc Tax Code of 1997,as amended and implemented by Revenue Regulations No.2-98.as amended.

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

covered by Scction 109P.Q and V of the 1997 Tax Code took effect on January 1.2012.pursuant to Revenue Regulations No16-2011 dated October 27,2011. iThe increase in the threshold amount for the sale or lease of goods or properties or the performance of serv ices

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periodic examination by revenue enforcement officers of this Bureau for the purpose of Finally, SMDC's books of accounts and other pertinent records shall be subject to

ascertaining whether it has been 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.

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.

KIM S.JACINTO-HENARES

Commissioner of Internal Revenue 042338 JUN 2 4 2016

K-1-GPS