CTA affirms realtor non-VAT status

The Court of Tax Appeals (CTA) has affirmed an earlier ruling that the transfer of real property by a real-estate dealer to gain control of another real-estate corporation is not subject to value-added tax (VAT).

In the case of Commissioner of Internal Revenue v. Dakudao & Sons Inc., the CTA en banc affirmed a ruling of the Second Division granting a tax refund to the respondent in the amount of P112 million.

The VAT payment was made in 2011 when Dakudao & Sons transferred two parcels of land to Metro South Davao Property Corp. in exchange for 75 percent of the capital stock of the corporation.

The transfer was levied a P112-million output VAT liability on the part of Dakudao & Sons by the
Bureau of Internal Revenue (BIR), which considered the transaction a sales transaction.

But the CTA upheld the argument of the respondent that under Revenue Regulations (RR) 16-2005, transfers of real property made by a real-estate corporation to gain control of another real-estate corporation are not subject to VAT.

RR 16-2005 provides that: “The VAT shall not apply to goods or properties existing as of the occurrence of the following: 1. Change of control of a corporation by the acquisition of the controlling interest of such corporation by another stockholder or group of stockholders.

The goods or properties used in business or those comprising the stock-in-trade of the corporation, having a change in corporate control, will not be considered sold, bartered or exchanged despite the change in the ownership interest in the said corporation.”

“If the transferee of the transferred real property by a real-estate dealer is another real-estate dealer, in an exchange where the transferor gains control of the transferee-corporation, no output VAT is imposable on the said transfer,” the regulation said.

The CTA rejected the argument of the BIR that the transfer transaction was not one of those enumerated in Section 109 of the Tax Code as VAT-exempt transactions.

The CTA said the claim for refund by the respondent is under another provision of the law, specifically RR 16-2005, which provides that the subject transaction is not liable for output VAT.

source:  Business Mirror