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For common shares, the Fair Market Value (FMV) shall be the book value based on the latest available audited financial statements (AFS) prior to the date of sale, but not earlier than the immediately preceding taxable year.
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For preferred shares, the FMV shall be the liquidation value, which is equal to the redemption price of the preferred shares as of balance sheet date nearest to the transaction date, including any premium and cumulative preferred dividends in arrears.
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In determining the FMV of the shares, the book value of common shares or the liquidation value of the preferred shares need not be adjusted to include any appraisal surplus from any property of the corporation not reflected or included in the latest AFS.
The Secretary of Finance has issued RR No. 20-2020 to amend certain provisions relating to the imposition of tax for the sale, barter, exchange or other disposition of shares of stock not traded through the local stock exchange.
RR No. 20-2020 issued on 17 August 2020 provides that:
For shares of stocks is not listed and traded in the local stock exchange, the following rules in determining the Fair Market Value (FMV) of the shares sold shall apply:
- For common shares, the FMV shall be the book value based on the latest available audited financial statements (AFS) prior to the date of sale, but not earlier than the immediately preceding taxable year.
- For preferred shares, the FMV shall be the liquidation value, which is equal to the redemption price of the preferred shares as of balance sheet date nearest to the transaction date, including any premium and cumulative preferred dividends in arrears.
- In case there are both common and preferred shares, the book value per common share is computed by deducting the liquidation value of the preferred shares from the total equity of the corporation and dividing the result by the number of outstanding common shares as of balance sheet date nearest to the transaction date.
- In determining the FMV of the shares, the book value of common shares or the liquidation value of the preferred shares need not be adjusted to include any appraisal surplus from any property of the corporation not reflected or included in the latest AFS. The latest AFS shall be sufficient in determining the FMV of the shares subject of the sale, barter, exchange, or other disposition.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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