QuestionsQuestions (BIR REVENUE MEMORANDUM CIRCULAR NO. 79-2014)
A stock option is an option granted by a person (natural or juridical) to another person/entity entitling the holder to purchase shares at a specific price and time/period. It may involve equity-settlement (shares are delivered upon exercise) or cash-settlement (no actual shares transferred; the holder receives the difference between fair market value and the fixed price).
Equity-settlement: upon exercise, the grantor delivers shares to the option holder and the holder pays the exercise price. Cash-settlement: the grantor pays the difference between the stock’s fair market value at the exercise date and the fixed nominal/exercise price; no actual shares need be delivered.
It states stock options are “shares of stocks” as defined by Section 22(L) of the NIRC of 1997, as amended, and are taxable as such.
No. If the option was granted due to an employee-employer relationship and no payment was received for the grant, the grantor/employer 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 taxed as such.
Upon issuance, it is subject to DST of P0.75 on each P200 (or fractional part) of the par value of the stock subject to the option; if the stock has no par value, DST equals 25% of the DST paid upon original issue of the stock subject to the option, consistent with Section 175 of the NIRC.
It is treated as a sale, barter, or exchange of shares of stock not listed on the stock exchange. Thus, any grant for consideration or transfer of the option is subject to capital gains tax under Section 24(C) of the NIRC.
The cost base of the option for purposes of computing capital gains is zero.
If transferred without consideration, it is treated as a donation of shares of stock subject to donor’s tax. The basis is the fair market value of the option at the time of donation.
For employer-issued options involving the employer’s own shares (or shares it owns), upon exercise the additional compensation is recognized as the difference between book value/fair market value (whichever is higher) at exercise date and the price fixed on the grant date, subject to the appropriate tax treatment depending on the employee’s position.
Rank-and-file: the difference is treated as additional compensation subject to income tax and withholding tax on compensation. Supervisory/managerial: the difference is treated as fringe benefit subject to fringe benefit tax under Section 33 of the NIRC.
The difference between book value/fair market value (whichever is higher) at the exercise date and the grant-date fixed price is recognized as additional consideration for the services rendered or goods supplied, subject to the relevant withholding tax at source and other applicable taxes.
The difference is treated as a donation and is subject to donor’s tax, among others.
Yes, the circular states that the above rules on equity-settlement options also apply in cases of cash-settlement options, although cash-settled options do not require actual delivery of stocks.
It must submit a statement under oath to the Revenue District Office where it is registered. It must include terms and conditions; names, TINs, positions of grantees; book value, fair market value, and par value of shares at grant date; exercise price and exercise date/period; taxes paid on the grant (if any); and amount paid for the grant (if any).
During the exercise period, the issuing corporation must file a report on or before the 10th day of the month following the month of exercise.
It must state the exercise date; names and TINs and positions of those who exercised; book value, fair market value, and par value of the shares at exercise date/s; mode of settlement (cash or equity); taxes withheld on the exercise (if any); and fringe benefits tax paid (if any).
It has general applicability: the tax treatment and reportorial requirements apply not only to stock options but also to options other than stock.