Individuals

Passive Income
REVENUE REGULATIONS NO. 14-2012 issued on November 7, 2012 prescribes the proper tax treatment of
interest income earnings on financial instruments and other related transactions.

The tax treatment of interest income derived from government debt instruments and securities is as follows:
a. Government Debt Instruments and Securities, including Bureau of Treasury (BTr) issued instruments and
securities such as Treasury bonds (T-bonds), Treasury bills (T-bills) and
Treasury notes, shall be considered as deposit substitutes irrespective of the number of lenders at the time of
origination if such debt instruments and securities are to be traded or exchanged in the secondary market.
b. Interest income derived therefrom is subject to Final Withholding Tax (FWT) at the rate of 20% pursuant to
Sections 24(B)(1), 25(A)(2), 27(D)(1) and 28(A)(7)(a) or 25% pursuant to Section 25(B) or 30% pursuant to Section
28(B)(1) of the National Internal
Revenue Code (NIRC) of 1997, as amended, payable upon original issuance of the deposit substitutes.
c. The original issuance of these debt instruments is subject to Documentary Stamp Tax
(DST) pursuant to Section 179 of the NIRC of 1997, as amended.
d. The mere issuance of government debt instruments and securities is deemed as falling within the coverage of
deposit substitutes irrespective of the number of lenders at the time of origination, and therefore interest income
derived therefrom shall be subject to the applicable FWT rate imposed on deposit substitutes as prescribed under the
NIRC of
1997, as amended.

The tax treatment of interest income derived from Long-Term Deposits or Investment
Certificates is as follows:
a. Interest income from long-term deposit or investment in the form of savings, common or individual trust funds,
deposit substitutes, investment management accounts and other investments evidenced by certificates in such form
prescribed by the Bangko Sentral ng Pilipinas (BSP) shall be exempt from Income Tax under Section 24(B)(1) and
25(A)(2) of the NIRC of 1997, as amended, provided that the following characteristics/ conditions are present:
i. the depositor or investor is an individual citizen (resident or non-resident), a resident alien or a non-resident alien
engaged in trade or business in the Philippines;
ii. the long-term deposits or investment certificates should be under the name of the individual and not under the
name of the corporation or the bank or the trust department/unit of the bank;
iii. the long-term deposits or investments must be in the form of savings, common or individual trust funds, deposit
substitutes, investment management accounts and other investments evidenced by certificates in such form
prescribed by the BSP;
iv. the long-term deposits or investments must be issued by banks only and not by other financial institutions;
v. the long-term deposits or investments must have a maturity period of not less than 5 years;
vi. the long-term deposits or investments must be in denominations of Ten thousand pesos (P10,000.00) and other
denominations, as may be prescribed by the BSP;
vii. the long-term deposits or investments should not be terminated by the investor before the 5 th year, otherwise they
shall be subjected to the graduated rates of 5%, 12% or
20% on interest income earnings; and
viii. except those specifically exempted by law or regulations, any other income such as gains from trading, foreign
exchange gain shall not be covered by Income Tax exemption.
b. Absent any of the characteristics/conditions enumerated in Section 4(1) of these Regulations, interest income from
long-term deposit or investment shall be subject to a FWT at the rate of 20% pursuant to Sections 24(B)(1), 25(A)
(2), 27(D)(1) and 28(A)(7)(a) of the NIRC of 1997, as amended.
c. Interest income from long-term deposit or investment that is pre-terminated by the depositor or investor before the
5th year shall be subject to the following graduated rates of FWT on the entire income and shall be deducted and
withheld by the depository bank from the proceeds of the long-term deposit or investment certificate based on the
remaining maturity thereof as follows:
Four (4) years to less than five (5) years 5%;
Three (3) years to less than four (4) years 12%; and
Less than three (3) years 20%.
d. Interest income from long-term deposit or investment shall be subject to a FWT at the rate of 25% if received by a
non-resident alien not engaged in trade or business in the
Philippines pursuant to Section 25(B) of the NIRC of 1997, as amended.
e. Interest income from long-term deposit or investment shall be subject to a FWT at the rate of 30% if received by a
non-resident foreign corporation pursuant to Section
28(B)(1) of the NIRC of 1997, as amended.
f. Interest income from long-term deposit or investment shall be subject to regular Income
Tax at the rate of 30% if received by a domestic corporation and resident foreign corporation pursuant to Sections
27(A) and 28(A)(1) of the NIRC of 1997, as amended.

The tax treatment of interest income derived from currency bank deposit and yield or any other monetary benefit
from deposit substitutes and from trust funds and similar arrangements derived from sources within the Philippines is
as follows:
a. Subject to a FWT of 20% if the interest income is received by citizens; resident aliens; non-resident aliens
engaged in trade or business in the Philippines; domestic corporations; and resident foreign corporation.
b. Subject to a FWT at the rate of 25% if the interest income is received by non-resident aliens not engaged in trade
or business in the Philippines.
c. Subject to FWT at the rate of 30% if received by a non-resident foreign corporation, unless the interest income is
from foreign loans contracted on or after August 1, 1986, in which case, it is subject to a FWT of 20%.

The tax treatment of interest income derived from a depository bank under the Expanded
Foreign Currency Deposit System is as follows:
a. Subject to a FWT of 7.5% if the interest income is received by citizens; resident aliens; domestic corporations; and
resident foreign corporation.
b. Any income of non-residents, whether individuals or corporations, from transactions with depository banks under
the expanded system shall be exempt from Income Tax.
c. If a bank account that is jointly in the name of a non-resident citizen such as an overseas contract worker or a
Filipino seaman and his/her spouse or dependent who is a resident in
the Philippines, 50% of the interest income from such bank deposit shall be treated as exempt while the other 50%
shall be subject to a FWT of 7.5%.
d. Income derived by a depository bank under the expanded foreign currency deposit system from foreign currency
transactions with non-residents, offshore banking units in the
Philippines, local commercial banks including branches of foreign banks that may be authorized by the BSP to
transact business with foreign currency deposit system units and other depository banks under the expanded foreign
currency deposit system shall be exempt from all taxes, except net income from such transactions as may be
specified by the Secretary of Finance, upon recommendation by the Monetary Board to be subject to the regular
Income Tax payable by banks.
e. Interest income from foreign currency loans granted by such depository banks under said expanded system to
residents other than offshore banking units in the Philippines or other depository banks under the expanded system
shall be subject to a final tax at the rate of
10%.

The tax treatment of interest income derived from offshore banking units is as follows:
a. Income derived by offshore banking units authorized by the BSP, from foreign currency transactions with non-
residents, other offshore banking units, local commercial banks, including branches of foreign banks that may be
authorized by the BSP to transact business with offshore banking units shall be exempt from all taxes except net
income from such transactions as may be specified by the Secretary of Finance, upon recommendation of the
Monetary Board which shall be subject to the regular Income Tax payable by banks.
b. Interest income derived from foreign currency loans granted to residents other than offshore banking units or local
commercial banks, including local branches of foreign banks that may be authorized by the BSP to transact business
with offshore banking units, shall be subject only to a FWT at the rate of 10%.
c. Any income of non-residents, whether individuals or corporations, from transactions with said offshore banking
units shall be exempt from Income Tax.
Unless otherwise provided by law or regulations, interest income derived from any other debt instruments not within
the coverage of deposit substitutes and these Regulations shall be subject to a Creditable Withholding Tax (CWT)
at the rate of 20%. For this purpose, the income payor is required to withhold and remit the said tax to the Bureau of
Internal Revenue in accordance with Sections 2.57.3, 2.57.4 and 2.58 of Revenue Regulations No. 2-98, as amended.
In order for an instrument to qualify as a deposit substitute pursuant to Section 22 (Y) of the NIRC of 1997, as
amended, the borrowing must be made from 20 or more individual or corporate lenders at any one time. Corollarily,
the mere flotation of a debt instrument is not considered to be a public borrowing and is not deemed a deposit
substitute if there are only
19 or less individual or corporate lenders at any one time. However, any person holding any interest, whether legal or
beneficial, on a debt instrument or holding thereof either by assignment or participation, with or without recourse,
shall be considered as lender and thus, be counted in applying the 19-lender rule.
The original issuance of debt instruments shall be subject to DST in accordance with
Section 179 of the NIRC of 1997, as amended. Thus, on every original issue of debt instruments, there shall be
collected a DST of P 1.00 on each P 200, or fractional part thereof, of the issue price of any such debt instrument.
However, any assignment or re-assignment of said debt instruments shall be subject to the same DST mentioned
above pursuant to Section 198 of the
NIRC of 1997.
Capital Gains Tax
Sale, Transfer and Exchange of Property
REVENUE REGULATIONS NO. 8-98 issued September 2, 1998 amends pertinent portions of Revenue
Regulations Nos. 11-96 and 2-98 relative to the tax treatment of the sale, transfer or exchange of real property.
Specifically, the Capital Gains Tax (CGT) Return will be filed by the seller within 30 days following each sale or
disposition of real property. Payment of the CGT will be made to an Authorized Agent Bank (AAB) located within the
Revenue District Office (RDO) having jurisdiction over the place where the property being transferred is located.
Creditable withholding taxes, on the other hand, deducted and withheld by the withholding agent/buyer on the sale,
transfer or exchange or real property classified as ordinary asset will be paid by the withholding agent/buyer upon filing of
the return with the AAB located within the RDO having jurisdiction over the place where the property being transferred is
located.
Payment will have to be done within 10 days following the end of the month in which the transaction occurred, provided,
however, that taxes withheld in December will be filed on or before January 25 of the following year.

Extra Judicial Foreclosure

REVENUE MEMORANDUM CIRCULAR NO. 55-2011 issued on November 11, 2011
clarifies the redemption period on foreclosed property pursuant to Revenue Memorandum
Circular No. 58-2008.
For purposes of reckoning the one-year redemption period on the foreclosed asset of
natural persons and the period within which to pay Capital Gains Tax or Creditable Withholding
Tax and Documentary Stamp Tax on the foreclosure of Real Estate Mortgage, the same shall be
reckoned from the date of registration of the sale in the Office of the Register of Deeds.
As regards the right of redemption of juridical persons in an extrajudicial foreclosure,
Section 47 of Republic Act 8791 (The General Banking Law of 2000) provides that its right of
redemption shall be until, but not after, the registration of the certificate of foreclosure sale with
the applicable Register of Deeds, which in no case shall be more than three (3) months after
foreclosure, whichever is earlier. It shall be reckoned from the date of approval by the executive
judge.
REVENUE REGULATIONS NO. 4-99 issued March 16, 1999 further amends Revenue Memorandum Order No.
6-92 relative to the payment of Capital Gains Tax and Documentary Stamp Tax on extrajudicial foreclosure sale of
capital assets initiated by banks, finance and insurance companies. Where the right of redemption of the mortgagor
exists, the certificate of title of the mortgagor will not be cancelled yet even if the property had already been
subjected to foreclosure sale. Instead, only a brief memorandum will be annotated at the back of the certificate of
title, and the cancellation of the title and the subsequent issuance of a new title in favor of the purchaser/highest
bidder depends on whether the mortgagor will redeem or not the mortgaged property within one year from the
issuance of the certificate of sale. Thus, no transfer of title to the highest bidder can be effected yet until and after the
lapse of the one-year period from the issuance of the said certificate of sale. In case the mortgagor exercises his right
of redemption within one year from the issuance of the certificate of sale, no Capital Gains Tax will be imposed
because no capital gains has been derived by the mortgagor and no sale or transfer of real property was realized. In
case of non-redemption, the Capital Gains Tax on the foreclosure sale shall become due based on the bid price of the
highest bidder, but only upon the expiration of the one-year period of redemption, and will be paid within thirty (30)
days from the expiration of the said one-year redemption period. The corresponding Documentary Stamp Tax will be
levied, collected and paid by the person making, signing, issuing, accepting or transferring the real property
wherever the document is made, signed, issued, accepted or transferred where the property is situated in the
Philippines.
Exemption of a citizen or a resident alien individual
REVENUE REGULATIONS NO. 13-99 issued September 14, 1999 prescribes the regulations for the exemption
of a citizen or a resident alien individual from the payment of the 6% Capital Gains Tax on the sale, exchange or
disposition of his principal residence. In order for a person to be exempted from the payment of the tax, he should
submit, together with the required documents, a Sworn Declaration of his intent to avail of the tax exemption to the
Revenue District Office having jurisdiction over the location of his principal residence within (30) days from the
date of the sale, exchange or disposition of the principal residence. The proceeds from the sale, exchange or
disposition of the principal residence must be fully utilized in acquiring or constructing the new principal residence
within eighteen (18) calendar months from the date of the sale, exchange or disposition. In case the entire proceeds
of the sale is not utilized for the purchase or construction of a new principal residence, the Capital Gains Tax will be
computed based on the formula specified in the Regulations.
If the seller fails to utilize the proceeds of sale or disposition in full or in part within the 18-month reglementary
period, his right of exemption from the Capital Gains Tax did not arise on the extent of the unutilized amount, in
which event, the tax due thereon will immediately become due and demandable on the 31st day after the date of the
sale, exchange or disposition of the principal residence.
If the individual taxpayer's principal residence is disposed in exchange for a condominium unit, the disposition of the
taxpayer's principal residence will not be subjected to the Capital Gains Tax herein prescribed, provided that the said
condominium unit received in the exchange will be used by the taxpayer-transferor as his new principal residence
REVENUE REGULATIONS NO. 14-2000 issued December 29, 2000 amends Sections 3(2), 3 and 6 of RR No.
13-99 relative to the sale, exchange or disposition by a natural person of his "principal residence".
The residential address shown in the latest income tax return filed by the vendor/transferor immediately preceding
the date of sale of said real property shall be treated, for purposes of these Regulations, as a conclusive presumption
about his true residential address, the certification of the Barangay Chairman, or Building Administrator (in case of
condominium unit), to the contrary notwithstanding, in accordance with the doctrine of admission against interest or
the principle of estoppel.
The seller/transferor's compliance with the preliminary conditions for exemption from the 6% capital gains tax under
Sec. 3(1) and (2) of the Regulations will be sufficient basis for the RDO to approve and issue the Certificate
Authorizing Registration (CAR) or Tax Clearance Certificate (TCC) of the principal residence sold, exchanged or
disposed by the aforesaid taxpayer. Said CAR or TCC shall state that the said sale, exchange or disposition of the
taxpayer's principal residence is exempt from capital gains tax pursuant to Sec. 24 (D)(2) of the Tax Code, but
subject to compliance with the post-reporting requirements imposed under Sec. 3(3) of the Regulations.
Sale, barter, exchange or other disposition of shares of stock of domestic corporation

REVENUE REGULATIONS NO. 6-2008 issued on May 2, 2008 consolidates the

regulations prescribing the rules on the taxation of sale, barter, exchange or other disposition
of shares of stock of domestic corporation that are listed and traded through the Local Stock
Exchange (LSE), or disposition of shares through Initial Public Offering (IPO) or disposition
of shares not traded through the LSE.

The following sellers or transferors of stock are liable to the tax provided in these
Regulations:
a. Individual taxpayer, whether citizen or alien;
b. Corporate taxpayer, whether domestic or foreign; and
c. Other taxpayers not falling under (a) and (b) above, such as estate, trust, trust
funds and pension funds, among others.

The following are exempted to the taxes imposed in the Regulations:

a. Dealers in securities;
b. Investors in shares of stock in a mutual fund company, as defined in Section 22
(BB) of the Tax Code, as amended and Section 2(s) of these Regulations, in connection with the gains realized by
said investor upon redemption of said shares of stock in a mutual fund company; and
c. All other persons, whether natural or juridical, who are specifically exempt from national internal revenue taxes
under existing investment incentives and other special laws.

There shall be levied, assessed and collected on every sale, barter, exchange or other disposition of shares of stock
listed and traded through the LSE a stock transaction tax at the rate of one-half of one percent (1/2 of 1%) based on
the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise
disposed, which shall be assumed and paid by the seller or transferor through the remittance of the stock transaction
tax by the seller or transferors broker.

There shall be levied, assessed and collected on every sale, barter, exchange or other disposition through IPO of
shares of stock in closely held corporations a tax at the rates provided hereunder, which shall be imposed in
accordance with the proportion of shares of stock sold, bartered, exchanged or otherwise disposed to the total
outstanding shares of stock after the listing in the LSE.
Proportion of Disposed Shares to Outstanding Shares Tax Rate
Up to twenty-five percent (25%)..4%
Over twenty-five percent (25%) but not over thirty three and one-third percent (33 1/3%).....2%
Over thirty-three and one third percent (33 1/3%).......1%

The said tax on the sale, barter or exchange or issuance of shares of stock through IPO shall be based on the gross
selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed of. The
following are the persons liable to pay the said tax:
a. Primary Offering The tax herein imposed shall be paid by the issuer corporation with respect to the shares of
stock corresponding to the Primary
Offering.
b. Secondary Offering The tax herein imposed shall be paid by the selling shareholder(s) with respect to the
shares of stock corresponding to the Secondary
Offering.
The provisions of Section 39(B) of the Tax Code, as amended, notwithstanding, a final tax at the rates prescribed
hereunder is imposed on the sale, barter or exchange of shares of stock not traded through the LSE pursuant to
Sections 24(C), 25(A)(3), 25(B), 27(D)(2), 28(A)(7)(c), 28(b)(5)(c) of the Tax Code, as amended.

Amount of Capital Gain Tax Rate

Not over P 100,000.. 5%
On any amount in excess of P 100,000 10%

The final tax imposed above shall be upon the net capital gains realized during the taxable year from the sale, barter,
exchange or disposition of shares of stock, except shares sold or disposed of through the LSE.
The following rules shall apply in determining the selling price of shares of stock:
a. In the case of cash sale, the selling price shall be the total consideration per deed of sale.
b. If the total consideration of the sale or disposition consists partly in money and partly in kind, the selling price
shall be sum of money and the fair market value of the property received.
c. In the case of exchange, the selling price shall be the fair market value of the property received.
d. In case the fair market value of the shares of stock sold, bartered, or exchanged isgreater than the amount of
money and/or fair market value of the property received, the excess of the fair market value of the shares of stock
sold, bartered or exchanged over the amount of money and the fair market value of the property, if any, received as
consideration shall be deemed a gift subject to the donors tax under Sec. 100 of the Tax Code, as amended.
The fair market value (FMV) of the share s of stock sold shall be defined as follows:
a. In the case of listed shares, which were sold, transferred, or exchanged outside of the trading system and/or
facilities of the LSE, the FMV shall be the closing price on the day when the shares are sold, transferred, or
exchanged. When no sale is made in the LSE on the day when the listed shares are sold, transferred, or exchanged,
the closing price on the day nearest to the date of sale, transfer or exchange of the shares shall be the FMV.
b. In the case of shares of stock not listed and traded in the LSE, the book value of the shares of stock as shown in
the financial statements duly certified by an independent Certified Public Accountant nearest to the date of sale shall
be the FMV.
c. In the case of a unit of participation in any association, recreation or amusement club (such as golf, polo, or
similar clubs), the FMV thereof shall be its selling price or the bid price nearest to the date of sale as published in
any newspaper or publication of general circulation, whichever is higher.
The gain from the sale or other disposition of shares of stock shall be the excess of the amount realized therefrom
over the basis or adjusted basis for determining gain, and the loss shall be the excess of the basis or adjusted basis for
determining loss over the amount realized. The amount realized from the sale or other disposition of property shall
be the sum of money received plus the fair market value of the property (other than money) received, if any.
Gain or loss from the sale, barter or exchange of property, for a valuable consideration, shall be determined by
deducting from the amount of consideration contracted to be paid, the vendor/transferors basis for the property sold
or disposed plus expenses of sale/disposition, if any.
If the property is acquired by purchase, the basis is the cost of such property. The cost basis for determining the
capital gains or losses for shares of stock acquired through purchase shall be governed by the following rules:
a. If the shares of stock can be identified, then the cost shall be the actual purchase price plus all costs of acquisition,
such as commissions, Documentary Stamp
Taxes, transfer fees, etc.
b. If the shares of stock cannot be properly identified, then the cost to be assigned shall be computed on the basis of
the first-in first-out (FIFO) method.
c. If books of accounts are maintained by the seller where every transaction of a particular stock is recorded, then the
moving average method shall be applied rather than the FIFO method.
d. In general, stock dividend received shall be assigned with a cost basis which shall be determined by allocating the
cost of the original shares of stock to the total number shares held after receipt of stock dividends (i.e. the original
shares plus the shares of stock received as stock dividends).
If the property was acquired by devise, bequest or inheritance, the basis shall be the
FMV of such property at the time of death of the decedent. The term property acquired by bequest, devise or
inheritance means acquisition through testamentary or intestate succession and includes, among others:
a. Property interests that the taxpayer received as a result of a transfer, or creation of a trust, in contemplation of or
intended to take effect in possession or enjoyment at or after death; and
b. Such property interests as the taxpayer has received as the result of the exercise by a person of a general power of
appointment by will or by deed executed in contemplation of or intended to take effect in possession or enjoyment at
or after death, otherwise known as a donation mortis causa or a donation in contemplation of death.
If the property was acquired by gift, the basis shall be the same as it would be in the hands of the donor or the last
preceding owner by whom it was not acquired by gift, except that if such basis is greater than the FMV of the
property at the time of the gift, then for the purpose of determining the loss, the basis shall be such FMV.
If the property was acquired for less than an adequate consideration in money or moneys worth, the basis of such
property is the amount paid by the transferee for the property.
The substituted basis of the stock or securities received by the transferor on a tax-free exchange shall be as follows:
a. The original basis of the property, stock or securities transferred;
b. Less: (i) money received, if any, and (ii) the FMV of the other property received,
if any;
c. Plus: (i) the amount treated as dividend of the shareholder, if any, and (ii) the amount of any gain that was
recognized on the exchange, if any. However, the property received as 'boot' shall have as basis its FMV. The term
"boot" refers to the money received and other prope rty received in excess of the stock or securities received by the
transferor on a tax-free exchange.

If the transferee of property assumes, as part of the consideration to the transferor, a liability of the transferor or
acquires from the latter property subject to a liability, such assumption or acquisition (in the amount of the liability)
shall, for purposes of computing the substituted basis, be treated as money received by the transferor on the
exchange.
If the transferor receives several kinds of stock or securities, the Commissioner is authorized to allocate the basis
among the several classes of stocks or securities.

The substituted basis of the property transferred in the hands of the transferee shall be
as follows:
a. The original basis in the hands of the transferor;
b. Plus: the amount of the gain recognized to the transferor on the transfer.

The original basis of the property to be transferred shall be the following, as may be appropriate :
a. The cost of the property, if acquired by purchase on or after March 1, 1913;
b. The fair market price or value as of the moment of death of the decedent, if acquired by inheritance;
c. The basis in the hands of the donor or the last preceding owner by whom the property was not acquired by gift, if
the property was acquired by donation. If the basis, however, is greater than the FMV of the property at the time of
donation, then, for purposes of determining loss, the basis shall be such FMV; or,
d. The amount paid by the transferee for the property, if the property was acquired for less than an adequate
consideration in money or money's worth.
e. The adjusted basis of (a) to (d) above, if the acquisition cost of the property is increased by the amount of
improvements that materially add to the value of the property or appreciably prolong its life less accumulated
depreciation.
f. The substituted basis, if the property was acquired in a previous tax-free exchange under Section 40(C)(2) of the
Tax Code, as amended.
The substituted basis as defined in Section 40(C)(5) of the Tax Code, as amended, shall be the basis for determining
gain or loss on a subsequent sale or disposition of property subject of the tax-free exchange.
For sale, barter, exchange or other forms of disposition of shares of stock subject to
the 5%/10% Capital Gains Tax on the net capital gain during the taxable year, the capital losses realized from this
type of transaction during the taxable year are deductible only to the extent of capital gains from the same type of
transaction during the same period. If the transferor of the shares is an individual, the rule on holding period and
capital loss carry-over will not apply, notwithstanding the provisions of Section 39 of the Tax Code , as amended.
Losses from shares of stock, held as capital asset, which have becom e worthless during the taxable year shall be
treated as capital loss as of the end of the year. However, this loss is not deductible against the capital gains realized
from the sale, barter, exchange or other forms of disposition of shares of stock during the taxable year, but must be
claimed against other capital gains to the extent provided for under Section 34 of the Tax Code, as amended. For the
5% and 10% net Capital Gains Tax to apply, there must be an actual disposition of shares of stock held as capital
asset, and the capital gain and capital loss used as the basis in determining net capital gain, must be derived and
incurred respectively, from a sale, barter, exchange or other disposition of shares of stock.

The following rules shall apply with respect to losses from wash sales of shares of stock:
a. A taxpayer cannot deduct any loss claimed to have been sustained from the sale or other disposition of stock, if,
within a period beginning 30 days before the date ofbsuch sale or disposition and ending 30 days after such date
(referred to in this section as the 61-day period), he has acquired (by purchase or by an exchange upon which the
entire amount of gain or loss was recognized by law), or has entered into a contract or option so to acquire,
substantially identical stock. However, this prohibition does not apply in the case of a dealer in stock if the sale or
other disposition of stock is made in the ordinary course of the business of such dealer.
b. Where more than one loss is claimed to have been sustained within the taxable year from the sale or other
disposition of stock or securities, it shall be applied to the losses in the order in which the stock the disposition of
which resulted in the respective losses were disposed of (beginning with the earliest disposition). If the order of
disposition of stock disposed of at a loss on the same day cannot be determined, the stock or securities will be
considered to have been disposed of in the order in which they were originally acquired (beginning with earliest
acquisition).
c. Where the amount of stock or securities acquired within the 61-day period is less than the amount of stock or
securities sold or otherwise disposed of, then theparticular shares of stock or securities the loss from the sale or other
disposition of which is not deductible shall be those with which the stock or securities acquired are matched in
accordance with this rule: The stock or securities sold will be matched in accordance with the order of their
acquisition (beginning with the earliest acquisition) with an equal number of the shares of stock or securities sold or
otherwise disposed of.
d. Where the amount of stock or securities acquired within the 61-day period is not less than the amount of stock or
securities sold or otherwise disposed of, then the particular shares of stock or securities the acquisition of which
resulted in the nondeductibility of the loss shall be those with which the stock or securities disposed of are matched
in accordance with this rule: The stock or securities sold or otherwise disposed of will be matched with an equal
number of the shares of stock or securities acquired in accordance with the order of acquisition (beginning with the
earliest acquisition) of the stock or securities acquired.
e. The acquisition of any share of stock or any security which results in the nondeductibilityof a loss shall be
disregarded in determining the deductibility of any other loss.
f. As provided in the Regulations, the word acquired means acquired by purchase or by an exchange upon which
the entire amount of gain or loss was recognized by law, and comprehends cases where the taxpayer has entered into
a contract oroption within the 61-day period to acquire by purchase or by such an exchange the subject shares of
stock.
Upon surrender by the investor of the shares in exchange for cash and property distributed by the issuing corporation
upon its dissolution and liquidation of all assets and liabilities, the investor shall recognize either capital gain or
capital loss upon such surrender of shares computed by comparing the cash and fair market value of property
received against the cost of the investment in shares. The difference between the sum of the cash and the fair market
value of property received and the cost of the investment in shares shall represent the capital gain or capital loss from
the investment, whichever is applicable. If the investor is an individual, the rule on holding period shall apply and
the percentage of taxable capital gain or deductible capital loss shall depend on the number of months or years the
shares are held by the investor. Section 39 of the Tax Code, as amended, shall apply in all possible situations.
The capital gain or loss derived therefrom shall be subject to the regular Income Tax rates imposed under the Tax
Code, as amended, on individual taxpayers or to the corporate Income
Tax rate, in case of corporations. When preferred shares are redeemed at a time when the issuing corporation is still
in its going-concern and is not contemplating in dissolving or liquidating its assets and liabilities, capital gain or
capital loss upon redemption shall be recognized on the basis of the difference between the amount/value received at
the time of redemption and the cost of the preferred shares. Similarly, the capital gain or loss derived shall be subject
to the regular Income Tax rates imposed under the Tax Code, as amended, on individual taxpayers or to the corporate
Income Tax rate, in case of corporations.
Where a corporation voluntarily buys back its own shares, in which case it becomes treasury shares, the stock
transaction tax under Section 127(A) of the Tax Code shall apply if the shares are listed and executed through the
trading system and/or facilities of the LSE.
Otherwise, if the shares are not listed and traded through the LSE, it is subject to the 5% and
10% net Capital Gains Tax.
The tax imposed on the sale, barter or exchange of shares of stock shall be collected as follows:
a. Tax on sale of shares of stock listed and traded through the LSE The stock broker who effected the sale has the
duty to collect the tax from the seller upon issuance of the confirmation of sale, issue the corresponding official
receipt thereof and remit the same to the collecting bank/officer of the Revenue District
Officers (RDO) where the broker is registered within 5 banking days from the date of collection thereof ,and to
submit on Mondays of each week to the Scretary of the LSE, of which he is a member, a true and complete return,
which shall contain a declaration, that he made under the penalties of perjury, of all the transactions effected through
him during the preceding week and of taxes collected by him and turned over to the concerned RDO. The Secretary
of the LSE shall reconcile the records of the LSE with the weekly reports of stockbrokers and,
in turn, transmit to the RDO, on or before the 15th day of the following month, a
consolidated return of all transactions effected during the preceding month
through the LSE.
b. Tax on shares of stock sold or exchanged through IPO The corporate issuer in
Primary Offering shall file the return and pay the corresponding tax to the RDO
which has jurisdiction over said corporate issuer within 30 days from the date of
listing of the shares of stock in the LSE. The return shall be accompanied with a
copy of the instrument of sale.
In the case of shares of stock sold or exchanged through Secondary Offering at
the time of listing at the LSE of shares of closely-held corporations, the provisions
in (a) above shall apply as to the time and manner of the payment of the tax on the
sale thereof.
c. Tax on shares of stock not traded through the LSE Persons deriving capital
gains from the sale or exchange of listed shares of stock not traded through the
LSE, as prescribed by these regulations, shall file a return within 30 days after
each transaction and a final consolidated return of all transactions during the
taxable year on or before the 15th day of the 4th month following the close of the
taxable year.
In the case of an individual taxpayer, the filing of the final consolidated return
of all transactions shall be during the calendar year. However, for corporate
taxpayers, the filing of the final consolidated return of all transactions shall be in
accordance with the accounting period employed by such taxpayer which may
either be calendar or fiscal year basis.
No sale, exchange, transfer or similar transaction intended to convey ownership of, or
title to any share of stock shall be registered in the books of the corporation unless the
receipts of payment of the tax herein imposed is filed with and recorded by the stock transfer
agent or secretary of the corporation. It shall be the duty of the aforesaid persons to inform
the Bureau of Internal Revenue in case of non-payment of tax. Any stock transfer agent or
secretary of the corporation or the stockbroker who caused the registration of transfer of
ownership or title on any share of stock in violation of the aforementioned requirements shall
be punished in accordance with the provisions of Title X, Chapters I and II of the Tax Code,
as amended.
In addition to the civil and criminal liabilities of the taxpayer for violation of the
provisions of these Regulations, administrative penalties prescribed under Sections 248 and
249 of the Tax Code, as amended, shall be imposed, which shall be collected at the same
time, in the same manner and as part of the tax.
There shall be imposed, in addition to the tax required to be paid, a penalty equivalent
to 25% of the amount due, in the following cases:
a. Failure to file any return and pay the tax due thereon as required by the provisions
of the Tax Code, as amended, and these Regulations, on the date prescribed;
b. Unless otherwise authorized by the Commissioner, filing a return with an internal
revenue officer other than those with whom the return is required to be filed; or
c. Failure to pay the deficiency tax within the time prescribed for its payment in the
notice of assessment; or
d. Failure to pay the full or part of the amount of the tax shown on any return
required to be filed under the provisions of the Tax Code, as amended, and these
Regulations, on or before the date prescribed for its payment.
In case of willful neglect to file the return within the period prescribed by the Tax
Code or these Regulations, or in case a false or fraudulent return is willfully made, the
penalty to be imposed shall be 50% of the tax or of the deficiency tax, in case any payment
has been made on the basis of such return before the discovery of the falsity or fraud.
There shall be assessed and collected on any unpaid amount of tax, interest at the rate
of 20% per annum. Any deficiency in the tax due shall be subjected to interest at the rate of
20%, which interest shall be assessed and collected from the date prescribed for its payment
until the full payment thereof.
In case of failure to pay the amount of the tax due on the return required to be filed, or
a deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice
and demand of the Commissioner of Internal Revenue, there shall be assessed and collected
on the unpaid amount, interest at the rate of 20% per annum until the amount is fully paid,
which interest shall form part of the tax.