BIR Ruling [DA-104-97]

March 19, 1997 BIR RULING [DA-104-97] Ms. Louise Neville Vice President Global Securities Borrowing & Lending Union Bank of Switzerland Switzerland Madame : This refers to your letter dated January 22, 1996 referred to us by Mr. Eugenio B. Reyes, Director, Securities and Exchange Commission, on June 3, 1996 requesting for information on the tax consequences of the transfer of stocks and securities borrowing and lending. llcd In reply, please be informed as follows: A. Taxes imposed on transfers of shares of stock I. Capital gains tax on the sales of shares of stock . Capital gains realized by an individual (whether citizen, resident or nonresident alien) or by a corporation (whether domestic, resident or nonresident foreign corporation) from the sale, exchange or disposition of shares of stock in any domestic corporation shall be taxed as follows: (a) Net capital gains as defined in Section 33 (a) (2) of the National Internal Revenue Code (NIRC) realized during each taxable year from the sale, exchange or other disposition of shares of stock not traded through a local stock exchange: Not over P100,000 10% Over P100,000 20% (Secs. 21(d) (1), 22(a) (3), 24(e) (2) and 25 (a) (6) (C), and 25(b) (5) (C); all of the NIRC, as amended) 2. Percentage tax on sale, barter or exchange of shares of stock listed and traded through the local stock exchange or through initial public offering . (a) Tax on sale, barter or exchange of shares of stock listed and traded through the local stock exchange . There shall be levied, assessed, and collected on every sale, barter, exchange, or other disposition of shares of stock listed and traded through the local stock exchange other than the sale by a dealer in securities, a tax at the rate of one-half of one percent (1/2 of 1%) of the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged, or otherwise disposed which shall be paid by the seller or transferor. It shall be the duty of every stock broker who effected the sale subject to the tax imposed herein to collect the tax and remit the same to the Bureau of Internal Revenue in five (5) banking days from the date of collection thereof and to submit on Mondays of each week to the secretary of the stock exchange, of which he is a member, a true and complete return which shall contain a declaration of all the transactions effected through him during the preceding week and of taxes collected by him and turned over to the Bureau of Internal Revenue. (b) Tax on shares of stock sold or exchange through initial public offering . There shall be levied, assessed, and collected on every sale, barter, exchange, or other disposition through initial public offering of shares of stock in closely held corporations, as defined herein, a tax at the rates provided hereunder based on the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed in accordance with the proportion of shares of stock sold, bartered, exchanged or otherwise disposed to the total outstanding shares of stock after the listing in the local stock exchange: LibLex 33 1/3 or below 4% Over 33 1/3 but below 2% Over 50% 1% The tax herein imposed shall be paid by the issuing corporation in primary offering or by the seller in secondary offering. For purposes of Section 124-A, NIRC, the term "closely held corporation" means any corporation at least fifty percent (50%) in value of the outstanding capital stock or at least fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or for not more than twenty (20) individuals. For purposes of determining whether the corporation is a closely held corporation, insofar as such determination is based on stock ownership, the following rules shall be applied: (1) Stock not owned by individuals . Stock owned directly or indirectly by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by its shareholders, partners, or beneficiaries. (2) Family and Partnership ownerships . An individual shall be considered as owning the stock owned, directly or indirectly, by or for his family, or by or for his partner. For purposes of this paragraph, the family of an individual includes only his brothers and sisters (whether by the whole or half-blood), spouse, ancestors, and lineal descendants. LLpr (3) Option . If any person has an option to acquire stock, such stock shall be considered as owned by such person. For purposes of this paragraph, an option to acquire such an option and each one of a series of options shall be considered as an option to acquired such stock. (4) Constructive ownership as actual ownership . Stock constructively owned by person of the application of paragraph (1) or (3) shall, for purposes of applying paragraph (1) or (2), be treated as actually owned by such person; but stock constructively owned by the individual by reason of the application of paragraph (2) hereof shall not be treated as owned by him for purposes of again applying such paragraph in order to make another the constructive owner of such stock. In case of primary offering, the corporate issuer shall file the return and pay the corresponding tax within (30) days from the date of listing of the shares of stock in the local stock exchange. In the case of secondary offering, the provision of subsection (a) of Section 124-A shall apply as to the time and manner of the payment of the tax. (c) Common provisions . Any gain derived from the sale, barter, exchange, or other disposition of shares of stock under this Section shall be exempt from the tax imposed in Sections 21 (d), 24 (e) (2), 25(a) (6) (C), and 25(b) (5) (C) of the NIRC and from the regular individual or corporate income tax. Tax paid under this Section shall not be deductible for income tax purposes. (Sec. 124-A, NIRC, as amended) 3. Documentary Stamp Tax . (a) Stamp tax on sales, agreements to sell, memoranda of sales, deliveries or transfer of due-bills, certificates of obligation, or shares or certificates of stock . On all sales, or agreements to sell, or memoranda of sales, or deliveries, or transfer of due-bills, certificates of obligation, or shares or certificates of stock in any association, company, or corporation, or transfer of such securities by assignment in blank, or by delivery, or by any paper or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such due-bills, certificates of obligation or stock, or to secure the future payment of money, or for the future transfer of any due-bill, certificates of obligation or stock, there shall be collected a documentary stamp tax of One peso (P1.00) on each Two hundred pesos, or fractional part thereof, of the par value of such due-bill, certificates of obligation or stock: Provided, That only one tax shall be collected on each sale or transfer of stock or securities from one person to another, regardless of whether or not a certificate of stock or obligation is issued, endorsed or delivered in pursuance of such sale or transfer; and Provided, further, That in the case of stock without par value the amount of the documentary stamp tax herein prescribed shall be equivalent to twenty five per centum (25%) of the documentary stamp tax paid upon the original issued of said stock; Provided, furthermore, That the tax herein imposed shall be increased to One peso and fifty centavos (P1.50) beginning 1996. (Sec. 176, NIRC, as amended) B. Tax imposed on securities borrowing and lending . Gross receipts derived from the sale or exchange of services in the Philippines of dealers in securities and lending investors are now subject to the 10% value-added tax. prcd Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue