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Tax bureau holds ground on REIT rules

Tuesday, 02 November 2010 00:00 ][ ]-
The tax bureau said real estate investment trust (REIT) companies should not avail of tax incentives if they refuse to sell majority of their shares to the public. “If they [real estate firms] cannot give up the substantial portion of their shares in their respective companies, then they are not compelled to do so. But they cannot likewise expect incentives from the government,” Bureau of Internal Revenue (BIR) Commissioner Kim Jacinto-Henares said.
She said there is no deadlock in the negotiations for the drafting of REIT’s implementing rules and regulations (IRR), but the Department of Finance (DOF) is holding its ground that real estate firms should first satisfy the government’s conditions before they could enjoy the perks as stated in Republic Act 9856, or the REIT Law.
This law allows the establishment of a corporation whose portfolio is made up of income-generating real estate assets. The REIT company’s shares can be owned by the public through the Philippine Stock Exchange (PSE).
But according to DOF estimates, the government would stand to lose P2.7 billion in revenues a year by giving away tax incentives.
For the first year alone, the government expects to lose P1 billion.
To make up for the foregone revenues, the DOF proposed that the REIT shares to be offered to the public must be increased from 33 percent to 51 percent.
This must be increased to 67 percent in the next three years, the DOF further said.
Val Antonio Suarez, PSE president and chief executive, said that the bourse will still insist on retaining the 33-percent public float requirement of the REIT.
“Based on my discussion with some bigger [property] players, you have to understand that a lot of them have built this business.
It may be very difficult for them to consider letting go of their baby, of what they have built for so many years,” he said.
Property developers led by Ayala Land Inc., SM Prime Holdings Inc. and Robinsons Land Corp. have expressed interest in listing their REIT units at the local bourse.
Instead of increasing the public float, Suarez said he recommended an alternative that involves raising the minimum paid-in capital to P1 billion from P300 million.
Jacinto-Henares said the government is not worried about investors shifting to other Asian bourses if the implementation of REIT were delayed.
“If they really are sincere, they [real estate firms] should be prepared to lose more than half of their shares in favor of the public.
Otherwise, this law can only be used among real estate firms and claim reimbursement from the government from investments which they have already made [a] profit [on a] long time ago,” the BIR chief said.
“What we are trying to avoid here is for them [Reit-covered firms] to recover and make money from what they have invested at the expense of the government without really serving the purpose of the law, which is to make the public enjoy a proportionate earnings from investing on it,” Jacinto-Henares said.
Because of this, the IRR cannot be drafted until the DOF agrees with PSE’s counter-proposal.

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