BIR Ruling No. 264-2016

REPUBLICOFTHE PHILIPPINES

DEPARTMENT OF FINANCE

BUREAU OF INTERNAL REVENUE

Quezon City

E.O.226:RR 16-2011

Secs.57(B);106(A1a:196 NIRC

BIR Ruling No.334-11

6-222016 264-2016

Mall of Asia Complex.Brgy.76,Zone 10,CBP-1A Pasay City SM DEVELOPMENT CORPORATION 15th Ftoor Two E-Com Center. Harbor Drive

Attention: CECILIA R.PATRICIO

Authorized Representative

Gentlemen:

Corporation (SMDC for brevity) with Tax Identification No. This refers to your letter dated March 05. 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 (Mezza II Residences - Aurora BIvd.cor.G.

Certificate of Registration No. Araneta Ave. Guirayan St.,Brgy.Dona Imeida,Quezon City) on a Non-Pioneer status under dated May 12201.SMDC has been granted Income

Tax Holiday(ITH) by the BOI for a period of three 3years from October 2012 or actualstart of commercial operations/selling. whichever is earlier but in no case earlier than the date of registration.SMDC's Mezza II Residences -Aurora Bivd.cor.G.Araneta Ave.Guirayan St., Brgy.Dona Imelda, Quezon City Project is registered with Housing and Land Use Regulatory Board (HLURB) Expanded National Capital Region Field Office, particularly described as follows:

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

Brgy. Dona Imelda, Quezon Aurora Blvd. Brgy. cor. G. Araneta Ave.Guirayan St. Mezza Il Residences - City and 2 commercial 1.324 residential units with 274 parking slots na

SMDCs Mezza II Residences Aurora Blvd. cor. G. Araneta Ave. Guirayan St., Brgy. cover only one thousand three hundred thirty nine (1,339) units of low-cost mass housing for Dona ImeldaQuezon City Project. Under the Specific Terms and Conditions of its BOI Registration, the ITH of SMDC shal!

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

respect to its registered activity.

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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 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 1 987.

Accordingly,since SMDC's Mezza II Residences -Aurora Bivd. cor. G.Araneta

Ave.Guirayan St.Brgy.Donia Imelda,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. Mezza II Residences - Aurora Blvd. cor. G. Araneta Ave. Guirayan St., Brgy.Donia Imelda, Quezon City Project (on the 1,339 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 3 years from October 2012 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 Guirayan St., Brgy. Dona Imelda, Quezon City Project involving 1,339 low-cost mass registered activity SMDC's Mezza II Residences - Aurora Blvd. cor. G. Araneta Ave. 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 Mezza II Residences -Aurora Bivd cor. G. Araneta Ave. Guirayan St., Brgy. Dona Imelda, Quezon City Project is not

Conditions of their BOI Registration,viz automatic as it still has to comply with the following provisions of the Specific Terms and

1. The enterprise shall construct and sell 1.339 units of low-cost mass housing based on the following schedule:

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

40

2 670

3 268 Total 1,339

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

Studio Type Floor Area (Sqm) Selling Price (Php)

1 Bedroom

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3.The enterprise shall observe the following project timetable:

Activity (month,year) Schedule Expenses Related CostP000

Site/and acquisition March 2009 Raw land Acquisition Cost Obtain appropriate ticense/agreement/permit December 2010 Pre-operating Expenses

from the government agencies

of equipinent Development Site Preparation and Start of Commercial Acquisition and installation Operation June 2013 June 2011 June 2014 October 2012 Cost Land Development Machinery Construction Cost Equipment Cost Building Working capital

COST TOTAL PROJECT

4.The enterprise shall submit a list of common cost items and cost allocation

methodology for its other projects/activities (whether BOl-registered or non- BOI registered) and the methodology adopted in allocating the common costs.

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

the approved development plan and a "Certificate of Good Housekeeping

6. 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 (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.

7 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.

8. 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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9. Submit proof of compliance that at least twenty (20%) percent of the total

saleable area for vertical housing projects has been developed and allocated for socialized housing using either the options:

a.Investment:20% of total saleable area b.Donation(whichever is lower between i and ji

i.30% x (20% of the Building Construction Cost); or i.40% of ITH

modes: (1) New Settlement; (2) Slum Upgrading: and (3) Joint-Venture Projects. Otherwise, the ITH for that particular taxable year shall be deemed forfeited. The investment scheme may be complied with through any of the following

those granted under E.O. 226. In this regard, under the terms and conditions of its BO! St., Brgy. Donia Imelda, Quezon City Project was clearly granted a 3-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 Mezza II Residences -- Aurora Blyd. cor. G. pursuant to Sections 106(A1)a)and 196 of the Tax Code of 1997,as amended.(BIR Ruling No.334-11 dated September 7,2011 registration, SMDC's Mezza II Residences -Aurora BIvd. cor. G. Araneta Ave. Guirayan Araneta Ave. Guirayan St., Brgy.Dona Imelda, Quezon City Project will remain subject to Value-Added Tax (VAT) and Documentary Stamp Tax (DST) on its sales of house and lot units Furthermore, BOl-registered enterprises enjoy no tax exemption/privileges other than

City Project of housing units with selling price of not more than the aforementioned price sale of residential lot valued at One Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1.919.500.00) and below, 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 Mezza II Residences -- Aurora Blvd. cor. G. Araneta Ave. Guirayan St., Brgy.Dona Imelda,Quezon ceilings shall be exempt from VAT. In relation thereto. Section 109(1)(P) of the Tax Code of 1997 provides, that the or house and lot and other residential dwellings

the tax base. as may be provided under E. O. 226, within thirty (30) days from the deadline for 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 returns and pay its tax liabilities, on or before the deadline as provided under the 1997 Tax Code. filing of tax returns and payment of taxes. Pursuant to Section 4 of Republic Act (RA) No. 10708. SMDC is required to file its tax

government if it acts as employer and any of its employees received compensation income It should be understood that SMDC shall be constituted as a withholding agent for the

covered by Seetion 109(P)Q) andV of the 1997Tax Code took effect on January 1.2012.pursuant to Reveme Regulations No.16-2011 dated October 27.2011 ' The increase in the threshold amount for the sale or lease of goods or properties or the performance of services

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subject to the withholding taxes as source as required under Chapter XIl1 and Section 57 of the subject to compensation withholding tax. or if it makes payments to individuals or corporations 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

periodic examination by revenue enforcement officers of this Bureau for the purpose of ascertaining whether it has been coinplying 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. Finally, SMDC's books of accounts and other pertinent records shall be subject to

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

Very truly yours.

K-1 Commissioner of Internal Revenue KIM S. JACINTO-HENARES 042150 JUN 1 7 2016