Question & AnswerQ&A (BIR REVENUE MEMORANDUM CIRCULAR NO. 3-2014)
The transfer is subject to income tax, documentary stamp tax (DST), and value-added tax (VAT). It is considered a transaction "adeemed sale" and VAT is applied based on the gross selling price or fair market value, whichever is higher.
Redemption is the repurchase or reacquisition of stock by a corporation which issued the stocks in exchange for property, whether or not the acquired stock is cancelled, retired, or held in treasury.
The corporation recognizes capital gain or loss based on the difference between the amount/value received at redemption and the cost of preferred shares. Such gain or loss is subject to regular income tax rates applicable to individuals or corporate income tax rates for corporations.
No, the redeeming corporation is not subject to income tax on the receipt of shares surrendered if the shares are considered retired and no longer issuable, resulting in no gain realized by the corporation.
Any gain realized by BCDA on the redemption of shares is subject to corporate income tax and creditable withholding tax as prescribed under the Tax Code.
When the real properties are held primarily for sale or lease in the ordinary course of trade or business, the sale or transfer is subject to VAT, even if the transfer is not regular or in the usual course of business, as such transactions are considered "adeemed sale."
All real properties acquired by the real estate developer, developed or undeveloped, held primarily for sale or lease to customers in the ordinary course of business, or used in the trade or business, are considered ordinary assets.
Section 106(B)(1) of the Tax Code of 1997 defines 'adeemed sale' as the transfer, use, or consumption not in the course of business of goods or properties originally intended for sale or use in business.
Gross selling price means the consideration stated in the sales document or the fair market value, whichever is higher. Fair market value is determined by the Commissioner (zonal value) or the schedule of values by Provincial and City Assessors (real property tax declaration).
The DST is based on the actual consideration when one contracting party is the government, as provided under Section 196 of the Tax Code of 1997.