TAX-EXEMPT MERGER

SMYP Co., as the surviving corporation, is seeking confirmation whether its merger with SMYA Co. is a tax-free merger in accordance with Section 40(C)(2) and (C)(6)(b) of the 1997 Tax Code, as amended.

In ruling, BIR confirmed the following:

1. Given that SMYP Co. shall acquire all the assets and liabilities of SMYA Co. and the same will yield advantageous results for the merging corporations, such is deemed undertaken for a bona fide business purpose and not to escape the burden of taxation; hence, the non-recognition of gain or loss for income tax purposes in accordance with Section 40(C)(2) of the 1997 Tax Code qualifies the merger as tax-free within the contemplation of Section 40(C)(2) and (C)(6)(b) of the same Code;

2. Transfer of assets is not subject to VAT as such transfer is not made in the ordinary course of business;

3. Merger is not subject to donor’s tax since there is no intention to donate and the transaction is a bona fide merger effected solely for business reasons; 

4. No Documentary Stamp Tax (DST) is due on the transfer of assets; However, DST shall be imposed on the original issuance of shares by the surviving corporation in favor of the stockholders of the absorbed corporation as a result of the merger;

5. Excess and unutilized Creditable Withholding Tax (CWT), if any, of SMYA Co. may be used by SMYP Co. as tax credit against its income tax due; 

6. Net Operating Loss Carry Over (NOLCO), if any, of SMYA Co. shall not be transferred to SMYP Co.;

7. Excess and unexpired Minimum Corporate Income Tax (MCIT), if any, of SMYA Co. may be used by SMYP Co. as tax credit against its income tax due for the three (3) immediately succeeding taxable years; and

8. 10% Final Withholding Tax shall be imposed on dividends constructively received by the individual shareholders of the absorbed corporation. [BIR RULING NO. 426-2021, NOVEMBER 15, 2021]

RAW AND UNCOOKED MEAT PRODUCTS, WHICH HAD UNDERGONE THE SIMPLE PROCESSES OF PREPARATION AND PRESERVATION, WHICH ARE STILL CONSIDERED FOOD PRODUCTS IN THEIR ORIGINAL STATE, IS EXEMPT FROM VAT

S Foods, Inc. is seeking confirmation that the sale of the meat products, as well as other products similarly prepared and preserved, is exempt from value-added tax (VAT). In ruling, the BIR cited Section 109 (1)(A) of the Tax Code, as amended, and Revenue Regulations (RR) No.16-2005, as amended, which provides that sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption are exempted from VAT. Thus, the sale by S Foods, Inc. of its Raw and Uncooked Meat Products, which have undergone the simple processes of preparation and preservation, which are still considered food products in their original state, are exempt from VAT. [BIR RULING NO. 386-2021, OCTOBER 13, 2021]

SALE OF PROPERTY BY NHA IS SUBJECT TO TAX IF THE TRANSACTION IS NOT INTENDED FOR SOCIALIZED HOUSING

The Roman Catholic Bishop of Antipolo Inc. is requesting a ruling on the taxability and exemption of sale of a parcel of land by the National Housing Authority (NHA). In ruling, the Bureau cited BIR Ruling No. 301-18 which provides that only the sale of socialized housing as defined under Section 3 (r) of Republic Act (R.A.) No. 7279 otherwise known as “Urban Development and Housing Act of 1992” comes within the purview of tax-exempt transactions of the NHA. The provision defines socialized housing as programs and projects covering houses and lots or homelots for underprivileged and homeless citizens. Thus, the sale of the subject property by NHA to the Roman Catholic Bishop of Antipolo Inc. is subject to 6% creditable withholding tax to be paid by the latter being the buyer. Moreover, since the above sale is not intended for socialized housing, the same is subject to Documentary Stamp Tax imposed under Section 196 of the Tax Code.  [BIR RULING NO. 369-2021, OCTOBER 4, 2021]

INVESTMENT INCOME DERIVED IN THE PHILIPPINES BY FOREIGN GOVERNMENTS IS EXEMPT FROM INCOME TAX AND WITHHOLDING TAX 

K Investment Corp (KIC), is seeking confirmation whether all income derived from its investments in the Philippines in loans, stocks, bonds, and other domestic securities, made in behalf of the Ministry of Economy and Finance of the Republic of Korea (MOEF), and any future investment income, are exempt from Philippine income tax, and consequently, to withholding tax. In reply, the BIR cited Section 32(B)(7)(a) of the 1997 Tax Code, which provides that income derived from investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on deposits in banks in the Philippines by (i) foreign government, (ii) financing institutions owned, controlled, or enjoying refinancing from foreign governments, and (iii) international or regional financial institutions established by foreign governments, shall not be included in gross income, and shall be exempt from taxation. Since MOEF is an executive ministry that is part of the government of the Republic of Korea, investment income by KIC in the Philippines shall be exempt from Philippine income tax and withholding tax. [BIR RULING 362-2021, OCTOBER 4, 2021]

CHANGE OF TRUSTEE WHERE THERE IS NO ACTUAL TRANSFER OF OWNERSHIP IS NOT SUBJECT TO CGT AND DST

N Co. is requesting for confirmation on whether the transfer of the shares of its from its employees' retirement trust to a new trustee is subject to capital gains tax (CGT) and documentary stamp tax (DST). In reply, the Bureau has opined that since there is no actual transfer of ownership over the aforementioned property as a result of the change of trustee from B Co. to M Co., it is not subject to CGT under Section 24(D) of the 1997 Tax Code, as amended. Likewise, since there is no sale, exchange, or disposition of property, it is not subject to DST under Section 196 of the same Code; however, notarial acknowledgement of the Deed of Assignment is subject to DST under Section 188. This Ruling shall be presented to the Revenue District Office (RDO) concerned in order to facilitate the issuance of Certificate Authorizing Registration (CAR) which is necessary to effect the change of trustee. [BIR RULING NO. 346-2021, OCTOBER 4, 2021]

HOMEOWNERS ASSOCIATION IS EXEMPT FROM INCOME TAX AND BUSINESS TAX

E Homeowners Association, a non-stock and non-profit residential homeowners' association, is seeking a ruling on the extent of its tax exemption. As represented, it is a duly registered Homeowners Association with the Housing and Land Use Regulatory Board; that its financial statements show the delivery of basic community services; and that the Local Government Unit covering the jurisdiction of the Homeowners Association has issued a Certificate that it lacks the resources to provide these services to the Association. In ruling, income derived from association dues, membership fees, other assessments and charges collected in a purely reimbursable nature as well as rentals of facilities are exempt from income tax, VAT, or percentage tax, whichever is applicable. Provided, that such income and dues shall be used for the cleanliness, safety, security, and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages. However, it shall be subject to the applicable internal revenue taxes on its other income from trade, business, or other activities. [BIR RULING NO. 345-2021, OCTOBER 4, 2021]