REVENUE REGULATIONS NO. 6-2008 issued on May 2, 2008 consolidates the regulations prescribing the rules on the taxation of sale, barter, exchange or other disposition of shares of stock of domestic corporation that are listed and traded through the Local Stock Exchange (LSE), or disposition of shares through Initial Public Offering (IPO) or disposition of shares not traded through the LSE. The following sellers or transferors of stock are liable to the tax provided in 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. The following are exempted to the taxes imposed in the Regulations: a. Dealers in securities; b. Investors in shares of stock in a mutual fund company, as defined in Section 22 (BB) of the Tax Code, as amended and Section 2(s) of these Regulations, in connection with the gains realized by said investor upon redemption of said shares of stock in a mutual fund company; and c. All other persons, whether natural or juridical, who are specifically exempt from national internal revenue taxes under existing investment incentives and other special laws. There shall be levied, assessed and collected on every sale, barter, exchange or other disposition of shares of stock listed and traded through the LSE a stock transaction tax at the rate of one-half of one percent (1/2 of 1%) based on the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed, which shall be assumed and paid by the seller or transferor through the remittance of the stock transaction tax by the seller or transferor’s broker. There shall be levied, asse ssed and collected on every sale, barter, exchange or other disposition through IPO of shares of stock in closely held corporations a tax at the rates provided hereunder, which shall be imposed in accordance with the proportion of shares of stock sold, bartered, exchanged or otherwise disposed to the total outstanding shares of stock after the listing in the LSE. Proportion of Disposed Shares to Outstanding Shares Tax Rate Up to twenty-five percent (25%)……………………………..4% Over twenty-five percent (25%) but not over thirty three and one-third percent (33 1/3%)…..……………2% Over thirty-three and one third percent (33 1/3%)…………….…………….…..………………1% The said tax on the sale, barter or exchange or issuance of shares of stock through IPO shall be based on the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed of. The following are the persons liable to pay the said tax: a. Primary Offering — The tax herein imposed shall be paid by the issuer corporation with respect to the shares of stock corresponding to the Primary Offering. b. Secondary Offering — The tax herein imposed shall be paid by the selling shareholder(s) with respect to the shares of stock corresponding to the Secondary Offering. The provisions of Section 39(B) of the Tax Code, as amended, notwithstanding, a final tax at the rates prescribed hereunder is imposed on the sale, barter or exchange of shares of stock not traded through the LSE pursuant to Sections 24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(c), 28(b)(5)(c) of the Tax Code, as amended. Amount of Capital Gain Tax Rate Not over P 100,000…………..……… ………… 5% On any amount in excess of P 100,000 ………10% The final tax imposed above shall be upon the net capital gains realized during the taxable year from the sale, barter, exchange or disposition of shares of stock, except shares sold or disposed of through the LSE. The following rules shall apply in determining the selling price of shares of stock: a. In the case of cash sale, the selling price shall be the total consideration per deed of sale. b. If the total consideration of the sale or disposition consists partly in money and partly in kind, the selling price shall be sum of money and the fair market value of the property received. c. In the case of exchange, the selling price shall be the fair market value of the property received. d. In case the fair market value of the shares of stock sold, bartered, or exchanged is greater than the amount of money and/or fair market value of the property received, the excess of the fair market value of the shares of stock sold, bartered or exchanged over the amount of money and the fair market value of the property, if any, received as consideration shall be deemed a gift subject to the donor’s tax under Sec. 100 of the Tax Code, as amended. The “fair market value” (FMV) of the shares of stock sold shall be defined as follows: a. In the case of listed shares, which were sold, transferred, or exchanged outside of the trading system and/or facilities of the LSE, the FMV shall be the closing price on the day when the shares are sold, transferred, or exchanged. When no sale is made in the LSE on the day when the listed shares are sold, transferred, or exchanged, the closing price on the day nearest to the date of sale, transfer or exchange of the shares shall be the FMV. b. In the case of shares of stock not listed and traded in the LSE, the book value of the shares of stock as shown in the financial statements duly certified by an independent Certified Public Accountant nearest to the date of sale shall be the FMV. c. In the case of a unit of participation in any association, recreation or amusement club (such as golf, polo, or similar clubs), the FMV thereof shall be its selling price or the bid price nearest to the date of sale as published in any newspaper or publication of general circulation, whichever is higher. The gain from the sale or other disposition of shares of stock shall be the excess of the amount realized therefrom over the basis or adjusted basis for determining gain, and the loss shall be the excess of the basis or adjusted basis for determining loss over the amount realized. The amount realized from the sale or other disposition of property shall be the sum of money received plus the fair market value of the property (other than money) received, if any. Gain or loss from the sale, barter or exchange of property, for a valuable consideration, shall be determined by deducting from the amount of consideration contracted to be paid, the vendor/transferor’s basis for the property sold or disposed plus expenses of sale/disposition, if any. If the property is acquired by purchase, the basis is the cost of such property. The cost basis for determining the capital gains or losses for shares of stock acquired through purchase shall be governed by the following rules: a. If the shares of stock can be identified, then the cost shall be the actual purchase price plus all costs of acquisition, such as commissions, Documentary Stamp Taxes, transfer fees, etc. b. If the shares of stock cannot be properly identified, then the cost to be assigned shall be computed on the basis of the first-in first-out (FIFO) method. c. If books of accounts are maintained by the seller where every transaction of a particular stock is recorded, then the moving average method shall be applied rather than the FIFO method. d. In general, stock dividend received shall be assigned with a cost basis which shall be determined by allocating the cost of the original shares of stock to the total number shares held after receipt of stock dividends (i.e. the original shares plus the shares of stock received as stock dividends). If the property was acquired by devise, bequest or inheritance, the basis shall be the FMV of such property at the time of death of the decedent. The term “property acquired by bequest, devise or inheritance” means acquisition through testamentary or intestate succession and includes, among others: a. Property interests that the taxpayer received as a result of a transfer, or creation of a trust, in contemplation of or intended to take effect in possession or enjoyment at or after death; and b. Such property interests as the taxpayer has received as the result of the exercise by a person of a general power of appointment by will or by deed executed in contemplation of or intended to take effect in possession or enjoyment at or after death, otherwise known as a donation mortis causa or a donation in contemplation of death. If the property was acquired by gift, the basis shall be the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift, except that if such basis is greater than the FMV of the property at the time of the gift, then for the purpose of determining the loss, the basis shall be such FMV. If the property was acquired for less than an adequate consideration in money or money’s worth, the basis of such property is the amount paid by the transferee for the property. The substituted basis of the stock or securities received by the transferor on a tax-free exchange shall be as follows: a. The original basis of the property, stock or securities transferred; b. Less: (i) money received, if any, and (ii) the FMV of the other property received, if any; c. Plus: (i) the amount treated as dividend of the shareholder, if any, and (ii) the amount of any gain that was recognized on the exchange, if any. However, the property received as ‘boot’ shall have as basis its FMV. The term “boot” refers to the money received and other prope rty received in excess of the stock or securities received by the transferor on a tax-free exchange. If the transferee of property assumes, as part of the consideration to the transferor, a liability of the transferor or acquires from the latter property subject to a liability, such assumption or acquisition (in the amount of the liability) shall, for purposes of computing the substituted basis, be treated as money received by the transferor on the exchange. If the transferor receives several kinds of stock or securities, the Commissioner is authorized to allocate the basis among the several classes of stocks or securities. The substituted basis of the property transferred in the hands of the transferee shall be as follows: a. The original basis in the hands of the transferor; b. Plus: the amount of the gain recognized to the transferor on the transfer. The original basis of the property to be transferred shall be the following, as may be appropriate : a. The cost of the property, if acquired by purchase on or after March 1, 1913; b. The fair market price or value as of the moment of death of the decedent, if acquired by inheritance; c. The basis in the hands of the donor or the last preceding owner by whom the property was not acquired by gift, if the property was acquired by donation. If the basis, however, is greater than the FMV of the property at the time of donation, then, for purposes of determining loss, the basis shall be such FMV; or, d. The amount paid by the transferee for the property, if the property was acquired for less than an adequate consideration in money or money’s worth. e. The adjusted basis of (a) to (d) above, if the acquisition cost of the property is increased by the amount of improvements that materially add to the value of the property or appreciably prolong its life less accumulated depreciation. f. The substituted basis, if the property was acquired in a previous tax-free exchange under Section 40(C)(2) of the Tax Code, as amended. The substituted basis as defined in Section 40(C)(5) of the Tax Code, as amended, shall be the basis for determining gain or loss on a subsequent sale or disposition of property subject of the tax-free exchange. For sale, barter, exchange or other forms of disposition of shares of stock subject to the 5%/10% Capital Gains Tax on the net capital gain during the taxable year, the capital losses realized from this type of transaction during the taxable year are deductible only to the extent of capital gains from the same type of transaction during the same period. If the transferor of the shares is an individual, the rule on holding period and capital loss carry-over will not apply, notwithstanding the provisions of Section 39 of the Tax Code , as amended. Losses from shares of stock, held as capital asset, which have become worthless during the taxable year shall be treated as capital loss as of the end of the year. However, this loss is not deductible against the capital gains realized from the sale, barter, exchange or other forms of disposition of shares of stock during the taxable year, but must be claimed against other capital gains to the extent provided for under Section 34 of the Tax Code, as amended. For the 5% and 10% net Capital Gains Tax to apply, there must be an actual disposition of shares of stock held as capital asset, and the capital gain and capital loss used as the basis in determining net capital gain, must be derived and incurred respectively, from a sale, barter, exchange or other disposition of shares of stock. The following rules shall apply with res pect to losses from wash sales of shares of stock: a. A taxpayer cannot deduct any loss claimed to have been sustained from the sale or other disposition of stock, if, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date (referred to in this section as the 61-day period), he has acquired (by purchase or by an exchange upon which the entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire, substantially identical stock. However, this prohibition does not apply in the case of a dealer in stock if the sale or other disposition of stock is made in the ordinary course of the business of such dealer. b. Where more than one loss is claimed to have been sustained within the taxable year from the sale or other disposition of stock or securities, it shall be applied to the losses in the order in which the stock the disposition of which resulted in the respective losses were disposed of (beginning with the earliest disposition). If the order of disposition of stock disposed of at a loss on the same day cannot be determined, the stock or securities will be considered to have been disposed of in the order in which they were originally acquired (beginning with earliest acquisition). c. Where the amount of stock or securities acquired within the 61-day period is less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the loss from the sale or other disposition of which is not deductible shall be those with which the stock or securities acquired are matched in accordance with this rule: The stock or securities sold will be matched in accordance with the order of their acquisition (beginning with the earliest acquisition) with an equal number of the shares of stock or securities sold or otherwise disposed of. d. Where the amount of stock or securities acquired within the 61-day period is not less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the acquisition of which resulted in the nondeductibility of the loss shall be those with which the stock or securities disposed of are matched in accordance with this rule: The stock or securities sold or otherwise disposed of will be matched with an equal number of the shares of stock or securities acquired in accordance with the order of acquisition (beginning with the earliest acquisition) of the stock or securities acquired. e. The acquisition of any share of stock or any security which results in the nondeductibility of a loss shall be disregarded in determining the deductibility of any other loss. f. As provided in the Regulations, the word “acquired” means acquired by purchase or by an exchange upon which the entire amount of gain or loss was recognized by law, and comprehends cases where the taxpayer has entered into a contract or option within the 61-day period to acquire by purchase or by such an exchange the subject shares of stock. Upon surrender by the investor of the shares in exchange for cash and property distributed by the issuing corporation upon its dissolution and liquidation of all assets and liabilities, the investor shall recognize either capital gain or capital loss upon such surrender of shares computed by comparing the cash and fair market value of property received against the cost of the investment in shares. The difference between the sum of the cash and the fair market value of property received and the cost of the investment in shares shall represent the capital gain or capital loss from the investment, whichever is applicable. If the investor is an individual, the rule on holding period shall apply and the percentage of taxable capital gain or deductible capital loss shall depend on the number of months or years the shares are held by the investor. Section 39 of the Tax Code, as amended, shall apply in all possible situations. The capital gain or loss derived therefrom shall be subject to the regular Income Tax rates imposed under the Tax Code, as amended, on individual taxpayers or to the corporate Income Tax rate, in case of corporations. When preferred shares are redeemed at a time when the issuing corporation is still in its “going-concern” and is not contemplating in dissolving or liquidating its assets and liabilities, capital gain or capital loss upon redemption shall be recognized on the basis of the difference between the amount/value received at the time of redemption and the cost of the preferred shares. Similarly, the capital gain or loss derived shall be subject to the regular Income Tax rates imposed under the Tax Code, as amended, on individual taxpayers or to the corporate Income Tax rate, in case of corporations. Where a corporation voluntarily buys back its own shares, in which case it becomes treasury shares, the stock transaction tax under Section 127(A) of the Tax Code shall apply if the shares are listed and executed through the trading system and/or facilities of the LSE. Otherwise, if the shares are not listed and traded through the LSE, it is subject to the 5% and 10% net Capital Gains Tax. The tax imposed on the sale, barter or exchange of shares of stock shall be collected as follows: a. Tax on sale of shares of stock listed and traded through the LSE — The stock broker 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 collecting bank/officer of the Revenue District Officers (RDO) where the broker is registered within 5 banking days from the date of collection thereof,and to submit on Mondays of each week to the Scretary of the LSE, of which he is a member, a true and complete return, which shall contain a declaration, that he made 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 LSE shall reconcile the records of the LSE with the weekly reports of stockbrokers and, in turn, transmit to the RDO, on or before the 15th day of the following month, a consolidated return of all transactions effected during the preceding month through the LSE. b. Tax on shares of stock sold or exchanged through IPO — The corporate issuer in Primary Offering shall file the return and pay the corresponding tax to the RDO which has jurisdiction over said corporate issuer within 30 days from the date of listing of the shares of stock in the LSE. The return shall be accompanied with a copy of the instrument of sale. In the case of shares of stock sold or exchanged through Secondary Offering at the time of listing at the LSE of shares of closely-held corporations, the provisions in (a) above shall apply as to the time and manner of the payment of the tax on the sale thereof. c. Tax on shares of stock not traded through the LSE — Persons deriving capital gains from the sale or exchange of listed shares of stock not traded through the LSE, as prescribed by these regulations, shall file a return within 30 days after each transaction and a final consolidated return of all transactions during the taxable year on or before the 15th day of the 4th month following the close of the taxable year. In the case of an individual taxpayer, the filing of the final consolidated return of all transactions shall be during the calendar year. However, for corporate taxpayers, the filing of the final consolidated return of all transactions shall be in accordance with the accounting period employed by such taxpayer which may either be calendar or fiscal year basis. 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 of Title X, Chapters I and II of the Tax Code, as amended. In addition to the civil and criminal liabilities of the taxpayer for violation of the provisions of these Regulations, administrative penalties prescribed under Sections 248 and 249 of the Tax Code, as amended, shall be imposed, which shall be collected at the same time, in the same manner and as part of the tax. There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to 25% of the amount due, in the following cases: a. Failure to file any return and pay the tax due thereon as required by the provisions of the Tax Code, as amended, and these Regulations, on the date prescribed; b. Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or c. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or d. Failure to pay the full or part of the amount of the tax shown on any return required to be filed under the provisions of the Tax Code, as amended, and these Regulations, on or before the date prescribed for its payment. In case of willful neglect to file the return within the period prescribed by the Tax Code or these Regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be 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. There shall be assessed and collected on any unpaid amount of tax, interest at the rate of 20% per annum. Any deficiency in the tax due shall be subjected to interest at the rate of 20%, which interest shall be assessed and collected from the date prescribed for its payment until the full payment thereof. 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 20% per annum until the amount is fully paid, which interest shall form part of the tax.