RMC No. 03-2014: Circularizes the modification of BIR Ruling DA (C-133) 431-2008

Key points

1. Gain or loss on redemption. When preferred shares are redeemed for retirement under RR No. 6-2008, the capital gain or loss is the difference between the amount received at redemption and the cost of the shares. It is taxed at the regular income tax rate for individuals or the corporate rate for corporations.
2. BCDA and FBDC income tax. BCDA’s gain on redemption is subject to corporate income tax and creditable Withholding Tax. FBDC is not subject to income tax, since the redeeming corporation realizes no gain or loss and the redeemed shares are retired and no longer issuable.
3. VAT on the property transfer. FBDC is a real estate developer, and its real properties are ordinary assets. Its conveyance of real properties to BCDA to redeem shares is a transaction deemed sale subject to VAT, even though it is not done in the regular course of business or with regularity.
4. Gross selling price. VAT is based on the higher of the consideration, being the redemption price for the preferred shares, and the Fair Market Value of the property. The FMV is the value in the Real Property Tax Declarations or the zonal value, whichever is higher.
5. Documentary Stamp Tax. Section 196 of the Tax Code of 1997 imposes DST on sales and conveyances of real property. The conveyance in partial redemption of Preferred B shares is subject to income tax, DST and VAT.

Who is affected

• Bonifacio Conversion and Development Authority (BCDA)
• Fort Bonifacio Development Corporation (FBDC)