Gains Derived from the Sale of Shares of Stock

February 13, 1989 BIR RULING NO. 018-89 65 038-84 018-89 Gentlemen : This refers to your letter dated February 1, 1989 requesting on behalf of your client, Wemilco Management & Development Co., Inc. confirmation of your opinion to the effect that capital gains realized from the sale of shares of stock listed and traded through a local stock exchange which had been subjected to the final capital gains tax of 1/4 of 1% of gross selling price pursuant to then Section 34(g) of the Tax Code, as amended are not considered personal holding company income for purposes of the gross income requirement under then Section 64(a)(1) in relation to then Section 63 both of the Tax Code, as amended. cdta In reply, thereto, please be informed that your opinion is hereby confirmed. Under then Section 65(b) of the Tax Code as implemented by Section 222(5) of the Income Tax Regulations, all gains (including gains from liquidation dividends and other distributions from capital) realized from the sale or exchange of shares or securities includible in gross income is personal holding company income for purposes of the gross income requirement under then Section 64(a)(1) of the same Code. Gains derived from the sale of stocks on which the final capital gains tax of 10% prescribed by then Section 34(g) of the Tax Code as amended by Presidential Decree No. 1739 has been imposed are, for income tax purposes, not includible in the gross income of the seller. Thus, Section 9 of Revenue Regulations No. 14-80, implementing then Section 34(g) specifically provides: "SEC. 9. Nature and Treatment of Net Capital Gains and Taxes Imposed . The net capital gains realized on stock transactions, shall not be included in the gross income of the seller in computing his income tax liability. xxx xxx xxx (Emphasis supplied) In other words, under then Section 65(b) of the Tax Code as implemented by Section 222(5) of the Income Tax Regulations, gains from the sale or exchange of stocks are not considered personal holding company income if the same are no longer includible as part of gross income, e.g., when the final capital gains tax has been imposed thereon. This conclusion is bolstered by the enactment of then Section 34(g) of the Tax Code as amended by Presidential Decree No. 1739 and Batas Pambansa Blg. 221 which imposes special income tax rates on net capital gains derived from the sale or exchange of stocks. Under these amendments, said gains are no longer subject to the normal rates of income tax, in which case, the same should not be included as part of the gross income. Such being the case, gains derived from the sale of shares of stock are not considered personal holding company income because they are not includible in gross income, the final capital gains tax imposed by then Section 34(g) of the Tax Code, as amended having been previously paid thereon. cdtech Very truly yours, (SGD.) JOSE U. ONG Commissioner