Donor's Tax and Stock Transaction Tax — Shares of Stocks

October 12, 1979 BIR RULING NO. 093-79 This refers to your letter dated August 14, 1979 requesting a ruling as to the tax consequence of the following proposed transactions: '(a) V & S is a corporation engaged in realty business controlled by the Villonco family through a tax-free exchange under Section 35(c)(2) of the Tax Code. The Villonco's intend to donate their shares of stocks in V & S Realty, Inc. In the event such donations are made, what will be the "fair market value" of said shares of stocks not traded in the stock market and not listed in any of the stock exchanges, for purposes of computing the Donor's (Gift) Tax under Section 121 of the Tax Code? cd "(b) If, in the future, any or all of the donees decide to sell the said shares of stocks at any time, will the donees be liable to pay only the stock transaction tax under Section 210 of the Tax Code?" In reply, thereto, I have the honor to inform you that if, as represented, the shares of stock of the Villoncos in V & S Realty, Inc. are not traded in the stock market and not listed in any of the stock exchanges, their fair market value shall be determined by considering the nature and history of the business, book value of the stock, earning and dividend paying capacity of the company, goodwill, and sales of both the stocks to be valued and those of companies similarly situated. (Sec. 210(a), Tax Code of 1977) However, in the absence of the other factors afore-enumerated by which to determine the market value, the book value of such shares of stock may serve as basis in determining the fair market value thereof, for purposes of computing the donor's gift tax under Section 121 of the Tax Code of 1977 as amended. (See B.I.R. Ruling No. 70-047 dated November 11, 1979) If the shares of stock were acquired by the donors after November 5, 1970, the donation thereof shall be subject to both the donor's tax and the of 1% stock transaction tax. Finally, since the shares of stock to be sold by the donees adverted to in your inquiry were acquired by them by donation after November 5, 1970, the sale of such shares is subject only to the of 1% stock transfer tax pursuant to Section 210(a) of the Tax Code of 1977 as amended. In view of the foregoing, your request is hereby denied. You are therefore requested to advise your aforesaid client to pay the deficiency advance sales tax assessed against it. casia