Tax Rules on Shares Not Traded Locally

These regulations are issued pursuant to Section 244 of the National Internal Revenue Code of 1997, as amended.
The regulations apply in relation to tax rules under the National Internal Revenue Code (Tax Code), as amended, specifically Sections 24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(C), and 28(B)(5)(C).
The amendment specifically targets Section 7 of RR No. 06-2008 governing sale, barter, or exchange of shares of stock not traded through a local stock exchange.

The regulations amend the rule on computing tax implications for the sale, barter, exchange, or other disposition of shares of stock held as capital assets.
The amendment covers shares not traded through the Local Stock Exchange.
The amended provision governs sale, barter, or exchange of shares of stock not traded through a local stock exchange under Sections 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 2 amends Section 7(c.2) by providing a definition of the fair market value of shares sold for purposes of the amended section.
For shares not listed and traded in the local stock exchanges, the value of the shares at the time of sale is treated as the fair market value.
The valuation must use the Adjusted Net Asset Method, where all assets and liabilities are adjusted to fair market values.
The “indicated value of the equity” is computed as the net of adjusted asset minus the liability values.

For purposes of determining the adjusted value of real property under the Adjusted Net Asset Method, the appraised value of real property at the time of sale is the higher of the following:
- the fair market value as determined by the Commissioner; or
- the fair market value as shown in the schedule of valued fixed by the Provincial and City Assessors; or
- the fair market value as determined by Independent Appraiser.
The rule above governs how the real property portion is valued when applying the Adjusted Net Asset Method to compute the fair market value of unlisted, non-traded shares.

The valuation illustration assumes a sale on April 30, 2013 of 5000 shares of stock in a corporation with 10,000 outstanding shares.
The illustration applies the Adjusted Net Asset Method using latest audited financial statements showing assets of PHP20,000,000 and liabilities of PHP5,000,000.
The example demonstrates that the fair market value of shares is derived from an adjusted equity value computed as adjusted net asset minus liability values, then allocated per share.
The example concludes with a computed fair market value per share of PHP 2,450, resulting in a total fair market value of shares sold of PHP12,250,000 (for 5000 shares).

Section 3 provides that all revenue issuances or parts thereof inconsistent with these regulations are repealed, amended, or modified accordingly.