By Charmaine A. Tadalan
THE House economic affairs committee on Tuesday adopted a substitute resolution urging the Securities Exchange Commission (SEC) to revise its implementing rules and exempt the initial asset transfers to Real Estate Investment Trusts (REIT) from the value-added tax (VAT).
“The law was supposed to be tax free. Unfortunately, the BIR (Bureau of Internal Revenue) came out with a ruling, as well as the SEC, includ(ing) in the IRR (Implementing Rules and Regulations) that the initial transfer of assets to the REIT is taxable by 12%,” Committee Chair Arthur C. Yap said.
Mr. Yap noted that “TRAIN was passed and (this) included a provision in the law saying that for REITs, the initial transfer of assets of a corporation in a REITS vehicle is supposed to be treated as ‘non-VATable.’”
Section 34 of Republic Act 10963, the TRAIN Law, stated that among the transactions exempted from VAT is the “transfer of property pursuant to Section 40(c)(2) of the National Internal Revenue Code (NIRC), as amended.”
This addressed the VAT treatment concerns, resulting from the issuance of Revenue Regulation No. 13-2011, which imposed tax provisions on the REIT Law.
The RR stated that initial transfers of real property for shares of stocks in a REIT, falling under the 40(c)(2) of the NIRC are neither subject to income tax nor documentary stamp tax, but are subject to VAT.
“That became a disincentive for corporations who want to use this law to catch on their investments so they can invest more on the economy,” Mr. Yap said.
In addition, the SEC also issued a memorandum amending the 2010 IRR, increasing the minimum public ownership (MPO) requirement from 33% of the outstanding capital stocks of the REIT to at least 40% at the initial year and to 67% within three years from listing.
According to the resolution, the 67% MPO requirement is much higher as compared to other countries in the Asia-Pacific region. The resolution also urged the SEC to restore the 33% MPO requirement.
