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PSALM Vs CIR

The Supreme Court ruled that PSALM's sale of power plants is not subject to VAT for three reasons: 1) PSALM was created by law to privatize NPC's assets, not for commercial purposes; 2) The sale furthers the governmental mandate to liquidate NPC's obligations, not a business activity; 3) PSALM is limited to selling only NPC assets to fulfill its specific purpose, not trade. Hence, the sale is a governmental function, not "in the course of trade or business" subject to VAT under the tax code.

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529 views2 pages

PSALM Vs CIR

The Supreme Court ruled that PSALM's sale of power plants is not subject to VAT for three reasons: 1) PSALM was created by law to privatize NPC's assets, not for commercial purposes; 2) The sale furthers the governmental mandate to liquidate NPC's obligations, not a business activity; 3) PSALM is limited to selling only NPC assets to fulfill its specific purpose, not trade. Hence, the sale is a governmental function, not "in the course of trade or business" subject to VAT under the tax code.

Uploaded by

Ish
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Digest for Tax 2

(irrespective of the disposition of its net


PSALM v. CIR
income and whether or not it sells
exclusively to members or their guests), or
DOCTRINE/S: government entity. The sale of the power
The sale of the power plants by Power plants is not “in the course of trade or
Sector Assets and Liabilities Management business” as contemplated under Section
Corporation (PSALM) is not in pursuit of a 105 of the NIRC, and thus, not subject to
commercial or economic activity but a VAT.
governmental function mandated by law to
privatize National Power Corporation (NPC) The sale of the power plants is not in pursuit
generation asset. Hence, the sale is not of a commercial or economic activity but a
subject to value-added tax (VAT). governmental function mandated by law to
privatize NPC generation assets. PSALM
FACTS: was created primarily to liquidate all NPC
Through the EPIRA Law, PSALM was financial obligations and stranded contract
created to facilitate the sale and privatization costs in an optimal manner. The purpose and
of the National Power Corporation. Two objective of PSALM are explicitly stated in
power plants were sold by PSALM. The Section 50 of the EPIRA law.
BIR assessed the petitioner with VAT for
the said sale. Petitioner then paid the PSALM is limited to selling only NPC
assessed tax in protest and raised the issue assets and IPP contracts of NPC. The sale of
with the DOJ. NPC assets by PSALM is not “in the course
of trade or business” but purely for the
The DOJ rendered its judgement in favor of specific purpose of privatizing NPC assets in
the Petitioner. The respondent appealed to order to liquidate all NPC financial
the CA who reversed DOJ’s resolution. obligations. PSALM is tasked to sell and
Petitioner then appealed to the SC. privatize the NPC assets within the term of
its existence.
ISSUE/S:
Whether the sale of the power plants is Digest from Atty. Du-Baladadad’s law firm
subject to VAT. website:
The sale of the power plants by Power
RULING: Sector Assets and Liabilities Management
No, The phrase ‘in the course of trade or Corporation (PSALM) is not in pursuit of a
business’ means the regular conduct or commercial or economic activity but a
pursuit of a commercial or an economic governmental function mandated by law to
activity, including transactions incidental privatize National Power Corporation (NPC)
thereto, by any person regardless of whether generation asset. Hence, the sale is not
or not the person engaged therein is a subject to value-added tax (VAT).
nonstock, nonprofit private organization

Page 1 of 2
Digest for Tax 2

The BIR assessed the taxpayer for


deficiency VAT in relation to the sale of
power plants for the purpose of privatizing
power generation assets in accordance with
the EPIRA Law. On appeal, the Court of
Tax Appeals (CTA) upheld the assessment
and held that the taxpayer is subject to VAT
for its sale of generating assets, among
others. The case was elevated to the
Supreme Court wherein it was held that the
issue of whether or not the sale of power
plants by the taxpayer is subject to VAT
have been passed upon in the case of
PSALM vs. Commissioner of Internal
Revenue (G.R. No. 198146, August 8,
2017).

Page 2 of 2

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