PSALM transactions
THE Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular No. 11-2012 clarifying the tax consequences of the various transactions of the Power Section Assets and Liabilities Management Corporation (PSALM).
No income and withholding taxes are due from the sale of the National Power Corporation (Napocor) generation assets and other real properties to winning bidders. Proceeds from the sale of generating assets and other real properties do not accrue to PSALM but to the National Government.
However, the same is earmarked for a particular purpose, as said proceeds are set aside in a special account for payments of NPC’s liabilities, as mandated by the Electric Power Industry Reform Act of 2001 (EPIRA).
The principal purpose of PSALM is to manage the orderly sale, disposition, and privatization of NPC generation assets and other real properties, with the objective of liquidating all NPC financial obligations and stranded contract costs in an optimal manner, thus, it will not derive gain from the said sale of the NPC generation assets and other real properties.
The sale by PSALM of the NPC generation assets and other real properties to winning bidders, is subject to the Value Added Tax (VAT).
Pursuant to Section 105 of the Tax Code, any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties shall be subject to VAT.
The Tax Code defines the phrase “in the course of trade or business” as the regular conduct or pursuit of a commercial or an economic activity including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstick private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members of their guests), or government entity.
The Circular has also ruled that the sale by PSALM of the NPC generation assets and other real properties is subject to the Documentary Stamp Tax, and the rental income of PSALM from the NPC generation assets and other real properties, prior to the sale to winning bidders, is subject to income tax and VAT.
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