QuestionsQuestions (BIR REVENUE REGULATIONS NO. 6-2013)
RR No. 6-2013 invokes the rule-making authority under Sec. 244 of the National Internal Revenue Code (1997, as amended) in relation to the provisions on capital gains and other tax treatment of shares, specifically Secs. 24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(C), and 28(B)(5)(C) of the Tax Code, as amended.
Section 1 states that RR No. 6-2013 amends certain provisions of RR No. 06-2008 regarding the imposition of tax for the sale, barter, exchange, or other disposition of shares of stock that are NOT traded through the Local Stock Exchange.
RR No. 6-2013 amends Sec. 7 of RR No. 06-2008, particularly the provisions on the definition of fair market value (FMV) for shares not traded through local stock exchanges.
For shares not listed and traded in local stock exchanges, the value at the time of sale is the fair market value determined using the Adjusted Net Asset Method, where assets and liabilities are adjusted to fair market values.
It adjusts all corporate assets and liabilities to fair market values; the net of adjusted assets minus adjusted liability values yields the indicated equity value. Dividing by the number of outstanding shares gives the FMV per share.
It is the net value obtained after adjusting total assets and liabilities to fair market values: (Adjusted Assets − Adjusted Liabilities) = indicated value of equity.
The appraised value of real property at the time of sale shall be the highest of: (1) FMV determined by the Commissioner, (2) FMV shown in the schedule of values by the Provincial/City Assessors, or (3) FMV determined by an independent appraiser.
It means the valuation to be used in the FMV computation is not an average or combination of the three inputs; instead, the valuation that results from the highest of the three listed standards (BIR Commissioner/Local Assessors/Independent Appraiser) must be used.
The illustration states total assets were Php20,000,000 in the latest audited financial statements, adjusted total assets were computed by adding the real property adjustment. It gave adjusted net asset as Php24,500,000 = (20,000,000 + 9,500,000) − 5,000,000 (adjusted liabilities), resulting in an indicated net equity of Php24,500,000.
The illustration uses adjusted equity of Php24,500,000 and divides by 10,000 outstanding shares to get Php2,450 per share (24,500,000 ÷ 10,000).
Mr. X sold 5,000 shares. FMV of sold shares = 5,000 × Php2,450 = Php12,250,000.
The illustration demonstrates how to apply the Adjusted Net Asset Method and how to value real property using the 'highest of' among Commissioner/Assessor/Independent Appraiser values. It shows that only adjustments (especially to real property) can significantly increase the adjusted net assets and thus the FMV per share.
FMV is used as the valuation basis in determining the taxable gain/consideration from the sale (or other disposition) of shares considered capital assets, consistent with the referenced Tax Code provisions on taxation of gains and sale/exchange of property.
Section 3 provides a repealing/inconsistent-circulation clause: all revenue issuances (or parts) inconsistent with RR No. 6-2013 are considered repealed, amended, or modified accordingly.
Section 4 states it takes effect immediately. In practice, it means that upon publication/effectivity as provided by law (and as interpreted for BIR regulations), the rules apply without waiting for a later date stated in the issuance.