Law Summary
Tax Treatment: Grant of Option
- When granted by an employer to an employee with no payment, the employer cannot claim deductions for the grant.
- If the option is granted for a price, the full price is treated as capital gains and taxed.
- Documentary Stamp Tax applies upon issuance: ₱0.75 per ₱200, or fraction thereof, of the par value of the underlying stock, or 25% of tax paid on original issue if no par value.
Tax Treatment: Sale or Transfer of Option
- Sale, barter, or exchange of stock options is treated as sale of unlisted shares.
- Capital gains tax applies under Section 24(C) of the NIRC on transfers with consideration.
- If granted or transferred without consideration, cost basis is zero.
- Transfers without consideration are treated as donations subject to donor's tax, based on fair market value at donation.
Tax Treatment: Exercise of Option
- Equity-settlement Options:
- Grantee pays exercise price and receives shares.
- For rank-and-file employees, difference between book/fair market value and exercise price is additional taxable compensation subject to income and withholding tax.
- For supervisory/managerial employees, difference is fringe benefit subject to fringe benefit tax under Section 33 of NIRC.
- For suppliers of goods/services, difference is additional consideration subject to withholding tax and other applicable taxes.
- For non-employees/suppliers, difference is considered a donation subject to donor's tax.
- Cash-settlement Options:
- Market value at exercise compared to exercise price; favorable difference paid by grantor to option holder.
- Same tax rules as above apply.
Reportorial Requirements: Grant of Option
- Issuing corporation must file a sworn statement within 30 days of grant to the Revenue District Office containing:
- Terms and conditions, grantee information (names, TINs, positions)
- Book value, fair market value, par value at grant date
- Exercise price, exercise date or period
- Taxes paid and amount paid for grant (if any)
Reportorial Requirements: Exercise of Option
- During exercise period, issuer must submit report by 10th day succeeding the exercise month including:
- Exercise date, grantee details (names, TINs, positions)
- Book value, fair market value, par value at exercise date
- Mode of settlement (cash or equity)
- Taxes withheld and fringe benefits tax paid, if applicable
General Applicability
- The tax treatments and reporting rules apply not only to stock options but also to other types of options.
- Revenue officials are directed to disseminate these guidelines widely for proper compliance.