Implementing Republic Act No. 7717, An Act Imposing a Tax on the Sale, Barter or Exchange of Shares of Stock Listed and Traded Through the Local Stock Exchange or Through Initial Public Offering, Amending for the Purpose the National Internal Revenue Code, as Amended, by Inserting a New Section and Repealing Certain Subsections Thereof.

February 7, 1995 REVENUE REGULATIONS NO. 03-95 (amended by Revenue Regulations 5-95) SUBJECT : I mplementing Republic ActNo.771 7, An Act Imposing aTax on the Sale, Barteror Exchange of Shares of StockListed and Traded Through the Local Stock Exchange or Through Initial Public Offering, Amending for the Purpose the National Internal Revenue Code, as Amended, by Inserting a New Section and Repealing Certain Subsections Thereof TO : All Internal Revenue Officers and Others Concerned SECTION 1 . Scope . Pursuant to the provisions of Sections 245 and 4 of the National Internal Revenue Code (NIRC), as amended, in relation to Section 4 of Republic Act No. 7717, these Regulations are hereby promulgated to implement the provisions of Section 124-A of the NIRC, as amended. SECTION 2 . Definition of Terms . For purposes of these Regulations, the following definitions of words and phrases are hereby adopted: (a) "Act" refers to Republic Act No. 7717. (b) "Closely-held corporation" means 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. (c) "Dealer in securities" means a merchant of stocks or securities, whether an individual, partnership or corporation, with an established place of business, regularly engaged in the business of buying and selling securities for his own account, through a broker or otherwise, but does not include any person insofar as he buys or sells securities for his own account, either individually or in some fiduciary capacity, but not as a part of a regular business. (d) "Family of an individual" includes only his brothers and sisters (whether by the whole or half-blood), spouse, ancestors, and lineal descendants. (e) "Gross selling price" the total amount of money or its equivalent which the purchaser pays the seller in exchange for the shares of stock. (f) "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 local stock exchange where the sale was effected. (g) "Initial public offering (IPO)" refers to stock offering made for the first time in the local stock market. (h) "Local stock exchange" refers to any domestic organization, association, or group of persons, whether incorporated or unincorporated, licensed or unlicensed, which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of stocks, and includes the market place and the market facilities maintained by such exchange. (i) "Option" refers to an option to acquire stock or an option to acquire such an option and each one of a series of options to acquire stock. (j) "Sale, barter or exchange" shall include every contract of sale, barter or exchange or disposition of share/s of stock for value. (k) "Secondary offering" refers to offering of stock to the public made after the initial public offering. (l) "Shareholder" include the shares of stock in a corporation, association, joint-stock company, or insurance company. (m) "Shares of Stock" include the shares of stock in a corporation, association, joint-stock company, or insurance company. (n) "Stock listed and traded" refers to shares of stock listed and traded through the local stock exchange. (o) "Stockbroker" includes all persons whose business it is, for other brokers, to negotiate purchases or sales of stocks, or engaged in the business of effecting transactions in securities for the account of others but does not include a bank or underwriters for one or more investment companies as defined in the Investment Company Act. SECTION 3 . Persons Liable to the Tax . The following sellers or transferors of stock are liable to the tax provided for in Section 5 of these Regulations: (a) Individual taxpayer, whether citizen or alien; (b) Corporate taxpayer, whether domestic or foreign; and (c) Other taxpayers not falling under (a) and (b) above, such as estate, trust, trust funds and pension funds, among others. SECTION 4 . Persons Not Liable to the Tax . The taxes imposed herein shall not apply to the following: (a) Dealers in securities; and (b) All other persons, whether natural or juridical, who are specifically exempt from percentage taxes under existing investment incentives and other special laws. SECTION 5 . Imposition of the Tax . (a) On sales of shares of stock listed and traded through the local stock exchange . A tax at the rate of: (1) three-eights of one percent (3/8 of 1%) for a period of (1) year from May 28, 1994; and (2) one-half of one percent (1/2 of 1%) thereafter shall be imposed on the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed through the facilities of a local stock exchange. (b) On sales of shares of stock in a closely-held corporation by the issuing corporation, through initial public offering (IPO) or by the seller in secondary offering . 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 in accordance with the proportion of shares of stock sold, bartered, exchanged, or otherwise disposed to the total outstanding shares to stock after the listing in the local stock exchange: 33 1/3% or below 4% Over 33 1/3 but below 50% 2% Over 50% 1% SECTION 6 . Determination of Tax Base . In determining the tax base, the following rules shall apply: (a) The gross selling price or the gross value in money of the shares of stock listed and traded through the local stock exchange shall be the "fair market value" of the shares of stock sold, bartered, exchange, or otherwise disposed of and not the fair market value of the property received in exchange. If the total consideration of the sale or disposition consists partly in cash or money and partly in kind, the selling price shall be the "fair market value" of the shares disposed. In the case of shares traded through the stock exchange, "fair market value" shall consist of the actual selling price as shown in the sales confirmation receipt issued by the member of the local exchange through whom the sale was effected. (b) The gross selling price or gross value in money of the shares of stock sold, bartered, exchanged, or otherwise disposed of through initial or secondary public offering shall be in accordance with the proportion of shares of stock sold, bartered, exchanged, or otherwise disposed as shown under Sec. 5 (b) of these Regulations to the total outstanding shares of stock after the listing in the local stock exchange. SECTION 7 . Transactions Covered . (a) Sale, barter or exchange or other disposition of shares of stock listed and traded through the local stock exchange; (b) Sale, barter or exchange or other disposition of shares of stock in closely-held corporations through initial/primary public offering (IPO); and (c) Sale, barter or exchange or other disposition of shares of stock in closely-held corporations through secondary offering. SECTION 8 . How to Determine whether the Corporation is a Closely-held Corporation . Insofar as such Determination is Based on Stock Ownership : (a) 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. (b) Family and partnership ownerships . An individual shall be considered as owning the stock owned, directly or indirectly. by or for 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. (c) 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 acquire such stock. (d) Constructive ownership as actual ownership . Stock constructively-owned by reason of the application of paragraph (a) or (c) shall, for purposes of applying paragraph (a) or (b), be treated as actually owned by such person; but stock constructively owned by the individual by reason of the application of paragraph (b) hereof shall not be treated as owned by him for purposes of again applying such paragraph in order to make another constructive owner of such stock. SECTION 9 . Time of Payment of Tax and Manner of Filing Returns . The tax imposed under Section 5 of these Regulations shall be collected as follows: (a) Tax on sale of shares of stock listed and traded through the local stock exchange . The stockbroker who effected the sale has the duty to collect the tax from the seller upon issuance of the confirmation of sale, issue the corresponding official receipt thereof and remit the same to the Revenue District Officer (RDO) where his principal place of business is located within five (5) banking days from the date of collection thereof and to submit on Mondays of each week to the secretary of the local 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 the transactions effected through him during the preceding week and of taxes collected by him and turned over to the concerned RDO. The secretary of the local stock exchange shall reconcile the same with the weekly reports of stockbrokers and in turn transmit to the RDO on the first and sixteenth day of each month, a consolidated return of all transactions effected during the preceding period through the local stock exchange. (b) Tax on shares of stock sold or exchanged through initial/primary public offering . The corporate issuer in primary offering shall file the return and pay the corresponding tax to the RDO where its principal place of business is located within thirty (30) days from the date of listing of the shares of stock in the local stock exchange. The return shall be accompanied with a copy of the instrument of sale. A final consolidated return or an adjustment return (BIR Form No. ____) covering all stock transfer transactions made by the concerned corporate issuer during the entire taxable year shall be filed on or before the fifteenth day of the fourth month following the close of the taxable year. (c) Tax on shares of stock sold or exchanged through secondary public offering . The provisions of subsection (a) of this Section shall apply as to the time and manner of the payment of the tax. SECTION 10 . Tax Exemptions . Any gain derived from the sale, barter, exchange, or other disposition of shares of stock listed and traded through the local stock exchange, or through initial or secondary public offering by closely-held corporations shall be exempt from the following taxes: (a) Capital gains tax from the sales of shares of stock by citizens or residents under Sec. 21(d) of the NIRC; (b) Capital gains tax from the sales of shares of stock by any domestic corporation under Sec. 24(e)(2) of the NIRC; (c) Capital gains tax from the sales of shares of stock by any resident foreign corporation under Sec. 25 (a) (6)(C) of the NIRC; (d) Capital gains tax from the sales of shares of stock by any non-resident foreign corporation under Sec. 25(b)(5)(C) of the NIRC; (e) Regular individual income tax on gains derived from sales of shares of stock; and (f) Regular corporate income tax on gains derived from sales of shares of stock. However, the tax paid under the Act shall not be an allowable deduction for income tax purposes. SECTION 11 . Effect of Non-Payment of Tax . No sale, exchange, transfer or similar transaction intended to convey ownership of, or title to any share of stock shall be registered in the books of the corporation unless the receipts of payment of the tax herein imposed is filed with and recorded by the stock transfer agent or secretary of the corporation. It shall be the duty of the aforesaid persons to inform the Bureau of Internal Revenue in case of non-payment of tax. Any stock transfer agent or secretary of the corporation or the stockbroker, who caused the registration of transfer of ownership or title on any share of stock in violation of the aforementioned requirements shall be punished in accordance with the provisions under Title X, Chapters I and II of the NIRC, particularly Secs. 250, 251, 252, 254 and 255 of the NIRC. SECTION 12 . Penalties . In addition of the civil and criminal liabilities of the taxpayer, for violation of the provision of Sec. 124-A of the NIRC, the following administrative penalties incident to the delinquency or deficiency prescribed under Sec. 248 of the same Code shall be imposed, which shall be collected at the same time, in the same manner and as part of the tax. (a) Surcharges . (1) In case of any failure to make and file a return required under these Regulations within the time prescribed by law, not due to willful neglect; or failure to pay the tax within the time prescribed for its payment; or failure to pay the full amount of tax shown on any return required to be filed under the provisions of the NIRC or these Regulations, there shall be imposed, in addition to the tax required to be paid, a surcharge equivalent to twenty-five percent (25%) of the amount due. (2) In case of willful neglect to file the return within the period prescribed by the NIRC or these Regulations, or in case a false of fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of the tax or of the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud. (3) The aforementioned penalties imposed shall form part of the tax and the entire amount shall be subject to the interest prescribed under Sec. 249 of the NIRC. (b) Interest . There shall be assessed and collected on any unpaid amount of stock transfer tax, interest at the rate of twenty percent (20%) per annum. (c) Deficiency interest . Any deficiency in the tax due shall be subjected to interest at the rate of twenty percent (20%), which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof. (d) Delinquency interest . In case of failure to pay the amount of the tax due on the return required to be filed, or a deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner of Internal Revenue, there shall be assessed and collected on the unpaid amount, interest at the rate of twenty percent (20%) per annum until the amount is fully paid, which interest shall form part of the tax. SECTION 13 . Repealed Provisions of the NIRC and other Rules and Regulations . The following provisions of the NIRC are hereby repealed, viz: (a) Sec. 21(d)(2) On capital gains presumed to have been realized by any citizen or resident from the sale, exchange or disposition of shares of stock listed and traded through a local stock exchange; (b) Sec. 24(e)(2)(B) On capital gains presumed to have been realized by any domestic corporation from the sale, exchange or disposition of shares of stock listed and traded through a local stock exchange; (c) Sec. 25(a)(6)(C)(ii) On capital gains presumed to have been realized by any resident foreign corporation from the sale or exchange or other disposition of shares of stock listed and traded through a local stock exchange; and (d) Sec. 25(b)(5)(C)(ii) On capital gains presumed to have been realized by any non-resident foreign corporation from the sale or exchange or other disposition of shares of stock listed and traded through a local stock exchange. All regulations, rules, order or portion thereof which are inconsistent with the provisions of these Regulations are hereby amended, modified or repealed. SECTION 14 . Effectivity . These Regulations shall take effect fifteen (15) days after its publication in any newspaper of general circulation in the Philippines. ROBERTO F. DE OCAMPO Secretary of Finance Recommending Approval: LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue