BIR Ruling No. 291-2022

REPUBLIC OF THE PHILIPPINES

DEPARTMENT QF FINANCE BUREAU OF INTERNAL REVENUE

Quezon City

Repubtic Act No.9136 BIR 3uling No. 431-2017 3JN} 8 'zzZ 0 2 z

NATIONAL POWER CORPORATION Quezon Avenue Corner BIR Road. Diliman, Quezon City

Attention: MA. GLADYS CRUZ-STA. RITA

NPC Presid?nt and CEO

Gentlemen:

This reters to your request for exemption from the payme.". of capital gains tax (CGT) and documentary stamp tax (DST) on +he reconveyance of Lots 3 and 4 of Psd- covered by Transfer Certificate oi : tle (TCT) Nos. and

issued to Power Se.tor Assets and Liabilities Management (PSALM) Corporation by the Registry of Deeis for Province of Lagtna, Calamba Branch.

It is represented that when Republic Act No. 9136, otherwise known as the Electric Power Industry Reform Act (EPIRA), was passe3 into law last June 8, 2001. PSALM Corporation was created pr-rsuant to Section 49, to take the ownership of ali existing National Power Corporatior: (NPC) generation ast:ets, liabilities, Independent Power Producer (IPP) contracts, real estate and all other c& sposable assets. In relation therewith, several deeds of transfer onveying and tran sferri.ig the ownership of NPC to PSALM over plants and facil:ties including the land, structures, equipment, machineries and other improvements were executed by the said corporations. On March 24, 2010, a Deed of Transfer was executed involving the Tiwi and Makiling- Banahaw Geothermal Power Plants inclusive of several parcels of land and various structures found thereon, including Lots 3 and 4 of PSD located in Brgy Bitin, Bay, Laguna, notwithstanding that the said lots are within the watershed area.

Pursuant to Section 34 (d) of the FPIRA Law, NP( is mandated to continue to undertake watershed management and is entitled to an er:-ironmental charge fund for the management of watersheds under its jurisdiction. Hoviever, in the afore-mentioned 2010 Deed of Transfer, Lots No. 3 and 4 of 1 located in . gy. Bitin, Bay Lagun "were included in the propert.es transferred from NPC to P~ALM Corporation, notwithstanding that the said lots are within the watershed area and thus, ownership of which should have been retained with NPC.

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Reconveyance of Property/ NPC/ PSALM Page 2 "2 OF+2 3 :. - 2 0 2 2 JuN } 0 2022

To rectify the mistake caused by their inadvertence and oversight, on May 23.

2016, a Deed of Reconveyance was executed between PSALM and NPC whereir

parties mutually agreed to rescind the 2010 Deed'of Transfer insofar as Lots 3 and 4 of

is concerned for the purpose of reconveying to NPC the said lots.

Hence, the request.

In reply, please be informea that in the case of Mariano Z. Velarde et al. vs.

Court of Appeals, et al., G.R. No. 108346 dated July 11, 2001, the Supreme Court held

that "(t)o rescind is to declare a contract void at its incaption and to put an end to it as

though it never was. It is not merely to terminate it and release the parties from further

obligations to each other, but to abrdgate it from the begifining and restore the parties

to their relative positions as if no contract has been made."

Based on the foregoing, the rescission of a contravt would not give rise to a

taxable event for two reasons: a) the result of rescission i:s that it is as if there was no

sale, transfer or exchange, and hence, no income is realived; and b) the return of the

object of the rescinded contract is not for monetary consideration and is merely an

acknowledgement or confirmation of the fitle and ownerstip of the original owner of

the property.

uch being the case. the reconvevance bv PSALM of Lots No. 3 a:- 4 covered

by TCT Nos. and in favor of NPC, in accordance

with the parties' mutual agreement to rescind : e 2010 Del of Transfer insofar as said

lots are concerned, is not subject to CGT imposed under Section 27(D) of the National

Internal Revenue Code (Tax Code of 1997), as amended. Moreover, said reconveyance

is not subject to DST as there is n5 sale transaction or cenveyance for consideration

that is being contemplated under Section 196 of the. 1997 Tax Code of 1997, as

amended. (CIR vs. Pilipinas Shell Petroleum Corp., G.R. No. 192398, September 29,

2014)

This ruling is being issued on the basis of the fotegoing facts as represented.

However, if upon investigation, it will be disclosed that the facts are different, then this

ruling shall be considered null and void.

: Very truly yours. xeta

CAESAR R. DULAY Commissiorier of Internal Revenue

E i 051784

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