Stock Transactions Tax Regulations

November 11, 1970 REVENUE REGULATIONS NO. 02-70 SUBJECT : Stock Transactions Tax Regulations TO : All internal revenue officers and others concerned SECTION 1. Scope . Pursuant to Section 9 of R.A. No. 6141 entitled "AN ACT TO CREATE A PEACE AND ORDER SPECIAL ACCOUNT IN THE GENERAL FUND TO FINANCE THE ACTIVITIES AND FUNCTIONS OF THE POLICE COMMISSION AS DEFINED IN THE POLICE ACT OF 1966 AND CERTAIN POLICE ACTIVITIES OF THE NATIONAL BUREAU OF INVESTIGATION AND FOR OTHER PURPOSES", the following regulations providing the manner and system of collecting and accounting of the 2% tax on stock transactions prescribed in said Act are hereby promulgated and shall be known as the stock TRANSACTIONS TAX REGULATIONS. SECTION 2. Imposition of a stock transaction tax . On or after November 5, 1970, the date of effectivity of R.A. No. 6141 by the President of the Philippines, there shall be paid and collected, as hereinafter provided, a tax of 2% on every sale, exchange, transfer or similar transaction intended to convey ownership of, or title to, any share or shares of stock based on the gross selling price of the share or shares of stock sold, or on the gross value in money of the share or shares of stock, exchanged or transferred, the same to be paid by the seller or transferor. The tax shall be due and payable only as regards shares of stock acquired and sold, transferred or exchanged on or after November 5, 1970. Shares acquired before November 5, 1970 which shall be sold, transferred or exchanged after said date shall not be subject to this tax but the sale, transfer or exchange shall be treated as provided for by the pertinent provisions of the National Internal Revenue Code. cdt SECTION 3. Meaning of " gross value in money ". The term "gross value in money" means the "fair market value". In the case of shares traded thru the stock exchange, "fair market value" shall consist of the actual selling price as certified by the stock exchange where the sale was effected. In the case of shares not traded through the stock exchange, but listed in one or more stock exchanges, the highest closing price on the day when the shares are sold, transferred or exchanged shall be the "fair market value". Where no sale is made in any stock exchange, the highest closing price on the day nearest to the date of sale, transfer or exchange of the shares shall be the "fair market value". In the case of sale, transfer or exchange of shares not listed in the stock exchange the 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 stock to be valued and that of companies similarly situated. The tax shall in all cases be based on the fair market value of the shares transferred or exchanged and not on the fair market value of the property received in exchange. Thus, even if the property received in exchange has a higher fair market value than the shares transferred or exchanged, the fair market value of the latter shall nevertheless remain as the basis of the tax. Similarly, if the fair market value of the shares transferred or exchanged is less than the value of the property received as the basis of the tax. The tax shall likewise accrue in case of transfers by gift except as provided for in Section 4 hereof. In such cases, the tax shall be based similarly on the fair market value of the shares transferred. SECTION 4. Exemption from the 2% tax . The 2% stock transaction tax shall not be imposed in any of the following transactions: (a) The issuance by a corporation of original or additional issues of shares of stock; (b) Donations of shares of stock to any educational or charitable corporation, institution, foundation, trust or philanthropic organization, or research institution or organization as defined by Section 110 of the Tax Code and subject to the conditions therein prescribed; (c) Exchanges of shares pursuant to a plan of merger or consolidation under paragraph (2) (b) of Section 35 of the Tax Code. (d) Transfers of shares of stock by testate or intestate succession; and (e) The sale, exchange or transfer of shares acquired before November 5, 1970, the effectivity of R.A. No. 6141. It shall be the duty of the registered or beneficial owner of any such share before selling, transferring or exchanging the same either by himself directly or through brokers to certify under the penalties of perjury either by writing or stamping on the most appropriate place on the face or back of the certificate of stock that he acquired the share of stock before the effectivity of R.A. No. 6141. Such certification may substantially be accomplished as follows: "I certify, under the penalties of perjury, that this certificate of stock was acquired before November 5, 1970." SECTION 5. Exemption from the capital gains tax . Any capital gain to be derived from the sale, transfer or exchange of shares of stock which is subject to the 2% tax shall not be taken into account in computing the net capital gain or loss of the person selling, transferring or exchanging such shares of stock; Provided , That, in case of gain not arising from, but realized out of the said stock transaction, the pertinent provisions of this Code shall apply. However, any capital loss arising from such transaction shall be taken into account in computing net capital gain in accordance with the provisions of the Tax Code; Provided : That there shall be no capital loss carry-over. SECTION 6. Non-deduction of the tax from gross income . The 2% tax paid by the person selling, transferring, or exchanging shares of stock shall not be allowed as deduction from his gross income. SECTION 7. Collection of the tax . (a) Trading in the stock exchange . The stock broker concerned shall collect the tax from the seller or transferor upon the issuance of the confirmation of sale. In no case should the confirmation of sale be issued by the broker to the seller or transferor unless the tax is simultaneously paid to him. The issuance of the confirmation of sale by the broker shall be conclusive proof that the tax had been collected. (b) Trading outside the stock exchange . It shall be the duty of the stock transfer agent or the secretary of the corporation, in case a corporation has no stock transfer agent, to collect for and in behalf of the government the tax due from the seller or transferor before recording the transfer of stock in the stock and transfer book. The person selling, transferring or exchanging his share must on or before the fourth day from the date of the sale, transfer or exchange pay the tax to the stock and transfer agent or secretary of the corporation, as the case may be. (c) Presumption of taxability . Stock brokers shall collect the tax on all stocks traded by them in the stock exchanges. Unless they are informed by the stockholders concerned by appropriate certification to the contrary, the stocks are to be presumed to have been acquired after the passage of R.A. No. 6141. Stock transfer agents or secretary of the corporation shall also collect the tax on all transactions outside the exchange unless the shares involved show as provided in Section 4(e) hereof that they were acquired before R.A. 6141. (d) Receipt of tax payment . Payment shall be covered by an official receipt to be issued by the stock broker, transfer agent or secretary of the corporation, as the case may be. The receipt shall indicate the name, address and Taxpayer Account Number (TAN) of the seller or transferor, kind and number of shares (common or preferred), selling price or market value and amount of tax. The official receipt must, prior to use, be first registered with the Bureau of Internal Revenue. Stock brokers may use their current confirmation of sales as official receipts provided that said confirmation of sales contain the information provided for in the preceding paragraph hereof and are first registered with the Bureau of Internal Revenue prior to use. SECTION 8. Remittance of collection . It shall be the duty of every stock broker, stock transfer agent or secretary of the corporation to turn over the sums collected by them as tax to the Bureau of Internal Revenue within three banking days from the date of collection thereof. (Annex A). SECTION 9. Information returns. (a) By stock broker . The stock broker concerned shall submit on Monday 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 that he made it under the penalties of perjury, of all transactions effected through him during the preceding week and of the taxes collected by him and turned over the Bureau of Internal Revenue (Annex B). (b) By secretary of the stock exchange . It shall be the duty of the secretary of the stock exchange to reconcile the weekly reports of the stock brokers and to transmit to the Bureau of Internal Revenue on the first and sixteenth day of each month a consolidated return of all transactions effected through the exchange during the preceding period (Annex C). (c) By stock transfer agent or secretary of the corporation . The stock transfer agent or secretary of the corporation, as the case may be, shall file similar returns required of stock brokers under the same terms and conditions as provided for in paragraph (a) of this Section. The return, however, shall be filed direct with the Bureau of Internal Revenue (Annex D). SECTION 10. Submission of inventory . Within thirty days from the date of effectivity of these regulations, stock brokers and transfer agents or secretary of the corporation shall submit to the Bureau of Internal Revenue an inventory or listing of certificates of stock issued and outstanding before November 5, 1970, the date of effectivity of R.A. No. 6141, indicating the complete name or identity of the stockholders or beneficial owners in the case of street certificates. Such inventory shall contain a declaration that it was made under the penalties of perjury. SECTION 11. Replacement stock . Where shares of stock are issued in replacement or split-off or consolidation of shares issued prior to November 5, 1970, the stock transfer agent or secretary of the corporation shall stamp on such certificates said fact and may be substantially accomplished as follows: "Issued in replacement of certificate No. _____ acquired before November 5, 1970, the date of effectivity of R.A. No. 6141" or "Issued in split-off of certificate No. _____ acquired before November 5, 1970, the date of effectivity of R.A. No. 6141" of "Issued in consolidation of certificate No. ______ acquired before November 5, 1970, the date of effectivity of R.A. No. 6141" as the case may be. SECTION 12. Surcharges and penalties . If the sum collected as tax is not turned over within the period prescribed in Section 8, there shall be added to the tax a surcharge of 25% thereof plus a special penalty of 1% of the tax due for every banking day of delay in payment, the increment to form part of the tax. If a false or fraudulent return is filed, there shall be added to the tax or to the deficiency tax, in case payment had been made on the basis of the return before the discovery of the falsity or fraud, a surcharge of 50% thereof plus a special penalty of 1% of the tax deficiency tax due for every banking day of delay in the payment of the correct tax, the increment to form part of the tax. The 1% special penalty shall, in the case of tradings in the stock market, be computed from the fourth day following the date of the transaction until the date of payment of the tax or deficiency tax. In the case of tradings outside the stock exchange, the 1% special penalty shall be computed from the fourth day following the date of the collection of the tax. Similar surcharges and penalties shall be collected from the person selling, transferring or exchanging, in case of trading outside the stock exchange, who fails to pay the tax to the stock transfer agent or secretary of the corporation, as the case may be, on or before the fourth day from the date of sale, transfer or exchange. The 1% special penalty shall be imposed for every day of delay of payment beginning from the fifth day of the date of sale, transfer or exchange to the date of payment to the stock transfer agent or secretary of the corporation. SECTION 13. Criminal liability . A fine not exceeding ten thousand pesos or imprisonment not exceeding six years or both in the discretion of the court shall be imposed upon (a) Any person who fails to pay the 2% tax within the period prescribed; (b) Any stock broker who issues certificates of sale or any transfer agent or secretary of a corporation who registers a transfer of shares in the books of the corporation without previous payment of the tax; and (c) Any person who fails to pay or refuses to turn over collections of the taxes, including surcharges and penalties, if any, within the period prescribed, or who delays, obstructs or prevents the same or who fails to file the returns required to be filed within the period prescribed. (Section 12, R.A. 6141.) If the offender is a stock broker or a transfer agent, in addition to the penalties imposed, his or its license shall be cancelled and he or it shall be perpetually disqualified to act as such stock broker or transfer agent. (Ibid.) Where a false or fraudulent return is made, a fine of not less than P2,000.00 nor more than P10,000.00 and imprisonment of not less than six months but not more than six years shall be imposed (Sec. 5, R.A. 6141 in relation to Sec. 209 of the National Internal Revenue Code). Where false entries are made or a false or fictitious name is entered in the books or records required to be kept by Section 334 of the Tax Code, as amplified by Revenue Regulations No. V-1, otherwise known as the Bookkeeping Regulations, as amended, or by R.A. No. 6141, as amplified by these regulations, the stock broker, stock transfer agent or secretary of the corporation or any other person concerned shall be liable to a fine of not less than P500.00 nor more than P5,000.00 or to imprisonment of not less than six months and one day nor more than five years, or both (Sec. 5, R.A. 6141 in relation to Sec. 355 of the National Internal Revenue Code). For any other violation of the provisions of R.A. No. 6141 relating to the 2% tax or of these regulations for which no specific penalty is provided, the offender shall be liable to a fine of not more than P300.00 or by imprisonment for not more than six months, or both (Sec. 5 of R.A. 6141 in relation to Sec. 352 of the National Internal Revenue Code). SECTION 14. Turnover of collections . The collections from the 2% tax during any month shall be turned over by the Commissioner of Internal Revenue to the Treasurer of the Philippines within ten (10) days of the succeeding month. SECTION 15. Effectivity . These regulations shall take effect fifteen (15) days after publication in any newspaper of general circulation in the Philippines and in the Official Gazette counted from the last publication. aisa dc CESAR VIRATA Secretary of Finance Recommended by: MISAEL P. VERA Commissioner of Internal Revenue ATTACHMENTS: Annexes A, B, C and D ANNEX A BROKER'S RETURN OF REMITTANCES Name of Broker ____________ Taxpayer Acct. No. ______ Address __________________ Date _________________ A. Sales Transactions: 1 Acquired before the effectivity of R.A. 6141 P ______ 2 Acquired after the effectivity of R.A. 6141 P ______ B. 2% Tax collected on sales of stock acquired after the effectivity of R.A. 6141 P ______ I hereby declare under penalties of perjury that the above information is a true and accurate return of the stock transactions effected through this broker and of the taxes collected thereon on __________. aisa dc (Date) ________________ Authorized Signature RESIDENCE CERTIFICATES Class "A" or "C" Class "B" or "C-1" Number: ____________ ______________ Date of Issue: ____________ ______________ Place of Issue: ____________ ______________ TO BE FILED BY COLLECTION AGENT Official Receipt No. ____ Date _______ Amount _______ T.N.C. ______ If the tax collected by the broker is not remitted within three (3) banking days after collection thereof, penalties shall accrue as follows: 2% tax due under B P_______ 25% surcharge _______ 1% special penalty per banking day from _____ to _____ _______ Compromise for late remittance _______ Total amount due P====== ______________________ Signature of Collection Agent ANNEX B BROKERS WEEKLY INFORMATION RETURN ANNEX C STOCK EXCHANGE SEMI-MONTHLY CONSOLIDATED RETURN SUMMARY OF COLLECTIONS REMITTED ANNEX D TRANSFER AGENT'S/CORPORATE SECRETARY'S WEEKLY INFORMATION RETURN