Friday, September 2, 2011

VAT on tax-free transfer under RR No. 10-2011

Revenue Regulations No. 10-2011 dated July 1, 2011 entitled "Amending Certain Provisions of Revenue Regulations No. 16-2005, as amended by Revenue Regulations No. 4-2007, Otherwise Known as the Consolidated Value Added Tax Regulations of 2005, as amended" finally settled the issue of VAT on tax-free transfers of real property used in trade or business of a taxpayer.

Section 2 of RR No. 10-2011 reworded part of Section 4.106-8 of RR No. 16-05, as last amended by RR No. 4-07, as follows:

"X x x
However, the exchange of goods or properties including the real estate properties used in business or held for sale or for lease by the transferor, for shares of stocks, whether resulting in corporate control or not, is subject to VAT"
X x x"

Based on the above provision, a real property that is used in trade or business or held for lease in the ordinary course of trade or business of the owner-transferor, shall be subject to 12% Value Added Tax (VAT) if transferred to a corporation in exchange for shares of stocks, irregardless of whether or not the owner-transferor acquired control in accordance with Section 40 of the Tax Code of the Philippines, as amended.


Revenue Regulations No. 10-2011

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