Tax Base for Purposes of the Capital Gains Tax

December 19, 1989 BIR RULING NO. 264-89 24 (e) (2) (A) 000-00 264-89 Gentlemen : This refers to your letter dated October 2, 1989 requesting a ruling as to the tax base for purposes of the capital gains tax due on your sale of shares of stock. It is represented that you are a corporation duly organized and existing under the laws of the Philippines; that you are intending to sell your 70% stockholdings in another corporation to a prospective buyer; that the shares of stock are not listed and traded in the stock exchanges; that the book value of the shares of stock nearest the valuation date is P245.00 per share; that the par value of the shares of stock is P100.00 without considering its appraisal surplus; and that your buyer is willing to buy in cash your 70% stockholdings at a price of P260.00 per share. In reply thereto, I have the honor to inform you that under Section 24(e)(A) of the Tax Code, net capital gains realized during each taxable year from the sale or exchange or other disposition of shares of stock not traded through a local stock exchange shall be subject to a tax of 10% if the gain is not over P100,000.00 and 20% if the gain is over P100,000.00. In the case of unlisted shares, the shares shall be valued at their book value nearest the valuation date. The book value of these unlisted shares of stock shall be prima facie considered as their fair market value. [Sec. 6(a)(3) Rev. Regs. No. 2-82]. Such being the case, and since your 70% stockholdings consisting of unlisted shares which has a book value of P245.00 per share is being sold for P260.00 per share, you will therefore realize a capital gain of P15.00 per share which is subject to the capital gains tax imposed under Section 24(e)(2)(A) of the Tax Code. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered not applicable and automatically revoked. cd Very truly yours, (SGD.) JOSE U. ONG Commissioner