BIR Ruling No. 280-2016

REPUBLICOF THE PHILIPPINES

DEPARTMENT OFFINANCE BUREAU OFINTERNALREVENUE

Quezon City

E.O.226 Secs.57B)106A1)a;196 NIRC

BIR Ruling No.412-13

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

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

Gentlemen:

as the "Omnibus Investments Code of 1987" Company of Friends, Inc. (Pro-Friends), certificate of tax exemption from income and expanded withholding taxes on its income derived from the low-cost housing project,Kensington Phase 21-Brgy.Navarro,General Trias,Cavite, duly registered with the Board of Investments (BOI) under Executive Order No.226,otherwise known This refers to your letter dated May 25, 2015 requesting on behalf of Property

(TIN Documents submitted show that Pro-Friends. with Tax Identification No is a domestic corporation duly organized under the Philippine

registration: that the project is duly registered with the Housing and Land Use Pro-Friends shall be entitled to income tax holiday (ITH) for the above project for a period of three (3) years beginning from December 2014 or actual start of commercial operations/selling, whichever is earlier, but in no case earlier than the date of Regulatory Board (HLURB)under Certificate of Registration No. to Sell No. Brgy. Navarro, General Trias, Cavite. 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 laws; that it is registered with the Securities and Exchange Commission (SEC) with SEC Certificate of Registration No. Developer of a Low-Cost Mass Housing Project (Horizontal), Kensington Phase 21 Hursuant to Batas Pambansa 220; and that the ITH of the Corporation that pursuant to said BOI Registration. that Pro-Friends,as an Expanding and License

Kensington Phase 21-Brgy. Navarro, General Trias, Cavite. shall be limited only to the revenue generated from the registered housing project.

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Property Company of Friends. Ine.'BOI ITH Page 2 of 6

of its BOI Registration for the project,Kensington Phase 21-Brgy.NavarroGeneral cost mass housing units based on the following sales revenues: Trias, Cavite, is obligated to construct and sell Three Hundred Sixty Nine (369) low- It is further shown that Pro-Friends, under the Specific Terms and Conditions

Catherine Model House Type Unit Year Total 2 3 Typical Inner Units 329 133 9 98 Volume Typical] Corner Units 12 16 12 40 Total Units 369 110 1O 14 Inner Units Typical Value (PhP) Typical Corner Units Total

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 57 (B) of the Tax Code of 1997, as amended, the withholding tax prescribed in the said

the income tax provided by Republic Act No. 7916 and the Omnibus Investments Code Regulations shall not apply to income payments to persons enjoying exemption from

of 1987. (BIR Ruling No. 412-2013 dated November 11, 2013)

Accordingly, since Pro-Friends- Kensington Phase 21-Brgy. Navarro

Code of 1987, this Office is of the opinion as it hereby holds, that the income payments General Trias, Cavite, is duly registered with the BOI under the Omnibus Investments

received by Pro-Friends directly in connection with the aforementioned housing project, consisting of Three Hundred Sixty Nine (369) units, are exempt from the creditable withholding tax imposed under RR No. 2-98, as amended by RR No. 6-2001. for a period of three (3) years beginning from December 2014 or actual start of

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

of registration of the housing project with the BOI.

It must be emphasized, however, that the aforesaid exemption from the

creditable withholding tax covers only income directly attributable to the revenues

generated from the project, Pro-Friends- Kensington Phase 21-Brgy. Navarro,

General Trias, Cavite, consisting of Three Hundred Sixty Nine (369) units.

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

exceeding One Million Two Hundred Fifty Pesos (Php1,250,000.00). (BIR Ruling No.

412-2013 dated November 11, 2013)

In the computation of I'TH, interest income from in-house financing shall not be

considered as part of the revenues generated from the registered housing project.

Moreover, Pro-Friends- Kensington Phase 21-Brgy. Navarro, General

Trias, Cavite's entitlement to ITH for its BOI-registered housing project is not

Per HLURB License to Sell iued for the Project, the maximum seling price shall be P1.250,00.0.

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automatic as it has still to comply with the provisions of the Specific Terms and Conditions of its BOI Registrationviz

(1) The firm shall submit proof of verified compliance with the 20% socialized housing requirement for its existing projects registered before 201 1 prior to availment of ITH

2 The firm shall submit a Notarized Affidavit executed by the licensed attached to the Affidavit: engineer or architect indicating the area or the number of lots and actual project for its BOI registered housing projects prior to availment of ITH. The following documents relevant to the compliance project shall be units built and the construction costs on the development of the compliance

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

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

a. Net Value Added shouid be at least 25%

NVA(%) Year I 95% Year 2 95% Year 3 95%

b.Job Generation

Employees Number of Pre-Op 38 Year I 125 Year 2 125 Year 3 125

C Investments and Timetable

Land Acquisition Secure license/permit/ Activity necessary July (Month/Year) April2011 October 2013 Schedule 2012- Pre-Operating Expenses Land Cost Expense/s Related Cost (Php)

registration from the

Total Project Cost Construction Start of Commercial Operations costs Site Preparation andOctober 2013- Development Building government/training 2014 March 2014-Building February 2017|Construction December January 2017 Land/Site Capital Development Working Cost

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d.Sales Revenues

Catherine House Model Type Unit Year Total 2 3 Typical Inner Units 329 133 98 9 Volume Corner Typical Units 12 40 16 12 Units 369 Total 110 149 0 Inner Units Typical Value (PhP) Typical Corner Units Total

revenues exceeding 10% of the projected gross revenue represented by the Net income qualified for ITH availment shall not be a result of gross 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 project is implemented:

(5) Only income directly attributable to revenue generated from the registered project (Kensington Phase 21-Brgy. Navarro, General Trias,Cavite) and its housing units used 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 plan and a "certificate of good housekeeping": endorsement that it has faithfully complied with the approved development

(7) File an application with the BOI Incentives 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 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.

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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 subdivision area (estimated at 6.968 sq.m.) or

developed and allocated for socialized housing within one year from date of total subdivision project cost (estimated at Php M) has been

registration or prior to availment of ITH,whichever is earlier

ll)The enterprise shall submit to the BOI Legal Service, on a semestrall

actual investments, employment, sales, production costs, actual ITH availed basis within fifteen (15 days from the end of each semester, a report on

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

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

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 of tax returns and payment of taxes. 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 and payment of taxes of the BIR.Furthermore, Pro-Friends shall file with

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, Pro-friends was clearly granted a 3-year ITH for its project. Kensington Phase 21-Brgy.Navarro, General Trias, Cavite, consisting of Three Hundred Sixty Nine (369) units, but such terms and conditions do not provide for any exemption from other taxes that the Corporation may be subject to on its business transactions. Thus, Pro-Friends- Kensington Phase 21-Brgy. Navarro, General

Tax (DST) on its sales of housing units pursuant to Sections 106(A1)a) and 196 of Trias, Cavite will remain subject to Value-Added Tax (VAT) and Documentary Stamp

the Tax Code of 1997, as amended. (BIR Ruling No. 412-2013 dated November 11 2013)

sale of residential lot valued at One Million Nine Hundred Nineteen Thousand Five In relation thereto, Section 109(1)(P) of the Tax Code of 1997 provides, that the

Hundred Pesos (P1.919,500) and below, or 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.3 Thus, only the sales by Pro-Friends-

2 An Act Enhancing Transparency in the Management and Accounting of Tax Incentives Administered

3 The increase in the threshold amounts for the sale or lease of goods or properties or the performance of by Investment Promotion Agencies.

Services covered by Section 109(P),QandV of the 1997 Tax Code took effect on January 1,2012,

pursuant to Revemue Regulations No.16-2011 dated October 27,2011.

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Kensington Phase 21-Brgy.Navarro,General Trias, Cavite of housing units with

selling price of not more than the aforementioned price ceiling shall be exempt from

VAT.

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 XI1I and Section 57 of the Tax Code of 1997, as amended and implemented by Revenue Regulations (RR) No. 2-98, as amended.

Likewise, Pro-Friends 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 with the Annual information Return under oath, stating its gross income

and expenses incurred during the taxable year.

Finally, Pro-Friends books of accounts and other pertinent records shall be subject to periodic examination by revenue enforcement officers of this Bureau for the

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.

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

K-1-JHB Commissioner of Internal Revenue 042239 JUN 2 0 2016