Question & AnswerQ&A (BIR REVENUE MEMORANDUM CIRCULAR NO. 79-2014)
A stock option is an option granted by a person, natural or juridical, to a person or entity entitling the optionee to purchase shares of stocks of a corporation at a specific price to be exercised at a specific date or period. It can be an Equity-settlement Option or a Cash-settlement Option.
Stock options are classified as "shares of stocks" under Section 22(L) of the NIRC of 1997, as amended, and are taxable as such.
If the stock option is granted without any payment, the grantor cannot claim deductions for the grant of the stock option in the year it was granted.
If the option was granted for a price, the full price of the option is considered capital gains and is taxed accordingly.
Yes, the issuance of stock options is subject to documentary stamp tax amounting to P0.75 on each P200 or fractional part of the par value of the stock subject of the option. For stock without par value, it is equivalent to 25% of the documentary stamp tax paid upon original issuance of the stock.
The sale, barter, or exchange of stock options is treated as a sale, barter, or exchange of shares of stock not listed on the stock exchange and subjected to capital gains tax under Section 24(C) of the NIRC.
If a stock option is transferred without consideration, it is treated as a donation and is subject to donor's tax based on the fair market value of the option at the time of donation.
The difference between the book value or fair market value (whichever is higher) and the exercise price is recognized as additional compensation, subjected to income tax and withholding tax on compensation.
For supervisory or managerial employees, the difference between the book value/fair market value and the exercise price is treated as a fringe benefit and is subject to fringe benefits tax under Section 33 of the NIRC.
The difference between the book value or fair market value and the exercise price is considered additional consideration for services or goods supplied and is subject to relevant withholding taxes and other applicable taxes.
The difference between the book value or fair market value and the exercise price is considered a donation and is subject to donor's tax among other taxes.
Yes, the tax rules for equity-settlement options apply to cash-settlement options as well.
Within 30 days from the grant, the issuing corporation must submit a statement under oath to the Revenue District Office including terms and conditions, names and TINs of grantees, values of shares, exercise price and period, taxes paid, and amounts paid for the grant if any.
Within 10 days from the month of exercise, the issuing corporation must report the exercise date, names and TINs of option holders, values of shares, mode of settlement, and taxes withheld or paid related to the exercise.
No, these provisions also apply to options other than stock options, as stated under general applicability of the Circular.