BIR amends fair market value of unlisted stocks

MANILA, Philippines — The Bureau of Internal Revenue (BIR) has amended the fair market value computation of stocks that are not traded in the local bourse, a move that is seen to ease the process of selling unlisted shares.

Finance Secretary Carlos Dominguez and BIR Commissioner Caesar Dulay have signed Revenue Regulations (RR) 20-2020 amending certain provisions of RR 6-2013, particularly on the fair market value of unlisted stocks.

The Department of Finance (DOF) said the new regulation abandoned the adjusted net asset method provided under RR 6-2013 and aligned the fair market value computation with basic taxation and accounting principles.

“This new fair market value definition promotes ease of doing business and disincentivizes red tape in the tax agency by removing several documentary requirements prescribed under the previous RR 6-2013,” the DOF said.

“The new RR provides certainty to both revenue personnel and the taxpaying public in computing the capital gains arising from the said transfer of shares,” it said.

The Tax Management Association of the Philippines (TMAP) said the new regulation eases the trading of unlisted shares.

“Prior to RR 20-2020, the adjusted net asset method was used, whereby the appraisal surplus of corporate properties was included in the fair market value of the shares, and therefore caused upward adjustments in the value of shares of corporations, especially those owing real properties,” TMAP president Romeo Duran said.

“Although an appraisal surplus is still unrealized gain and thus not yet subject to tax (until the property is disposed of), this nonetheless increases the fair market value of the shares on which the capital gains tax is based,” he said.

Former TMAP president Eleanor Roque said the new regulation also removed the requirement of appraising real properties, as companies can now rely on the book value of the shares based on the latest audited financial statement.

Under the new RR, the fair market value for unlisted common shares of stocks is “the book value based on the latest available financial statements duly certified by an independent public accountant before the date of sale, but not earlier than the immediately preceding taxable year.”

For preferred shares of stock, the fair market value is the liquidation value, which is equal to the redemption price of the preferred shares as of the date nearest to the transaction date, including any premium and cumulative preferred dividends in arrears.

The new RR also indicates that 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.