THE Bureau of Internal Revenue (BIR) said a tax exemption on secondary trade and transfers of asset-backed securities (ABS) has taken effect.
“The sale or transfer of assets to the SPE (Special Purpose Entity), including sale or transfer of any and all security interest thereto, made in accordance with the Securitization Plan, shall be exempted from value-added tax (VAT) and documentary stamp tax (DST), or any other taxes imposed in lieu thereof,” the BIR said in a circular dated Jan. 8.
“Secondary trades and subsequent transfers of ABS, including all forms of credit enhancement in such instruments, shall be exempt from DST and VAT, or any other taxes imposed in lieu thereof,” it added.
The transfer of assets to settle a debt, also known as dacion en pago, will exempt both the payor and the recipient from capital gains tax.
“The transfer of assets by dacion en pago by the obligor in favor of the obligee shall not be subject to capital gains tax,” the BIR said.
“The original issuance of ABS and other securities related solely to such securitization transaction, such as, but not limited to, seller’s equity, subordinated debt instruments purchased by the originator, and other related forms of credit enhancement shall be exempt from VAT, or any other taxes imposed in lieu thereof, but shall be subject to DST,” the BIR added.
Income gained from the ABS will be subject to a 20% final withholding tax, but yields from any low-cost or socialized-housing related ABS will be exempt from income tax.
However, the income generated to be exempted will have to come from the securitization of the mortgage and housing-related receivables of government housing agencies, or must be certified by the Department of Human Settlements and Urban Development and the Department of Finance. — Aaron Michael C. Sy
