RMC No. 11-2012: Clarifies the tax consequences of Power Sector Assets and Liabilities Management Corporation (PSALM) transactions

Summary

RMC No. 11-2012 clarifies the tax consequences of transactions of the Power Sector Assets and Liabilities Management Corporation (PSALM).

Key points

1. Income Tax on sales. Under Section 50 of EPIRA, sale proceeds of NPC generation assets and other real properties revert to the National Government, so PSALM derives no gain. No Income Tax or withholding tax is due from PSALM on these sales.
2. VAT on sales. Sale of the generation assets and real properties is subject to VAT under Section 106 of the Tax Code of 1997, as no provision exempts it or makes it zero-rated. The buyer may use the VAT as creditable input VAT.
3. Documentary Stamp Tax. Under Section 196, sale of real properties is subject to DST at P15.00 for every P 1,000, based on the higher of the consideration or fair market value. Where one party is the Government, the tax is based on the actual consideration, and where one party is exempt, the other party pays the tax.
4. Leasing and operations. Income from leasing NPC transferred assets is subject to corporate Income Tax under Section 27(A), and the gross receipts are subject to VAT. Income from operating the assets and selling electricity or services is subject to Income Tax under Section 27(A) and (E) and to VAT under Section 108, but sale of power from renewable sources is at zero percent VAT under Section 108(B)(7).
5. Other income. Other income such as forfeited performance bonds, and interest income from persons other than winning bidders, is subject to all applicable taxes under the Tax Code of 1997.

Who is affected

• Power Sector Assets and Liabilities Management Corporation (PSALM)
• Buyers of NPC generation assets

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.