Philippines Modifies Insurance And VAT Exemptions

by Mary Swire, Tax-News.com, Hong Kong

14 July 2011

The Philippine Bureau of Internal Revenue (BIR) has issued clarifications to its revenue regulations with regard to the income tax deductibility of insurance contributions, and to the applicability of value-added tax (VAT) following takeovers and mergers.

Firstly, taxpayers were reminded that only the mandatory monthly contributions to various institutions providing life and health insurance, retirement and pension funds, and mutual savings for housing, are income tax deductible.

Amounts paid voluntarily above those mandatory contributions are, henceforth, to be considered as ‘investments’, and taxable as part of gross income. This is contrary to previous BIR rulings issued in 1999, 2004 and 2006.

Secondly, the BIR has issued a clarification that the exchange of goods and properties for a shareholding in a company, whether involving control or not, is to be considered subject to VAT. It has confirmed, however, that neither a change in the trade or corporate name of a company, nor its merger, consolidation or takeover by another company, which do not involve the transfer of assets, will have VAT consequences.

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