TOP OF MIND By Glenn Raymond O. Paradela (The Philippine Star) | Updated June 18, 2013 -
The Bureau of Internal Revenue (BIR) has issued Revenue Regulations No. 6-2013 (RR 6-2013), amending certain provisions of Revenue Regulations No. 6-2008 (RR 6-2008) entitled “Consolidated Regulations Prescribing the Rules on the Taxation of Sale, Barter, Exchange or Other Disposition of Shares of Stock Held as Capital Assets.”
Specifically, the new regulation, published last April 22, 2013, amended the definition of fair market value (FMV) of the shares of stock being sold where the shares are not traded through a local stock exchange. The definition is critical in view of the possible imposition of the donor’s tax on top of the capital gains tax (CGT). Under the Tax Code, in case of sale of shares of stock not traded in the local stock exchange, the net capital gains will be subject to a CGT of five percent on the first P100,000 and 10 percent on the amounts in excess of P100,000. However, in the event the selling price is less than the FMV of the shares of stock, the seller is deemed to have received a gift. The excess of the FMV over the selling price will be considered as taxable gift subject to donor’s tax. Hence, it is common for taxpayers selling shares of stock not traded through the local stock exchange to use the FMV as the selling price to avoid the donor’s tax.
However, with RR 6-2013, the question now is how to determine FMV. Under the old regulations (RR 6-2008), the FMV of shares of stock not traded in the local stock exchange would be the book value of the shares as shown in the audited financial statements (AFS) nearest to the date of sale. On the other hand, according to RR 6-2013, the value of the shares of stock at the time of the sale would be the FMV. In determining the value of the shares, RR 6-2013 prescribes a valuation procedure that changes the stated values of a company’s assets and liabilities to reflect its current fair market values. RR 6-2013 states that the Adjusted Net Asset should be used whereby all assets and liabilities are adjusted to FMV. The difference between the total FMV of the adjusted assets and the total FMV of the adjusted liabilities is the indicative value of the equity (what the business is considered to be worth).
In the event the assets of the corporation consist of real property, the appraised value at the time of sale should be the higher of – FMV as determined by the commissioner of Internal Revenue, or FMV as shown in the schedule of values fixed by the provincial and city assessors, or FMV as determined by an independent appraiser.
With the new definition of FMV in place, it is expected that higher taxes would be collected on the sale of shares of stock not traded in the local stock exchange.
But this situation is not that simple because the determination of FMV under RR 6-2013 raises a lot of questions with respect to sufficiency and timing of documents to establish FMV. When a taxpayer sells shares of stock not traded in the local stock exchange, he needs to get a Certificate Authorizing Registration (CAR) from the proper BIR office. The CAR is required to have the sale recorded in the company’s Stock and Transfer Book.
To get the CAR, the taxpayer would have to submit to the BIR documentary requirements such as the Deed of Absolute Sale, latest AFS, and the CGT and Documentary Stamp Tax Returns. Based on RR 6-2013, it appears that he would also need to present the Tax Declaration, Zonal Valuation and independent appraiser’s report covering the real property owned by the company to establish FMV. In this respect, in the absence of the independent appraiser’s report, would the Tax Declaration and the Zonal Valuation of the real property be sufficient to establish FMV? If the independent appraiser’s report is a requirement, who would shoulder the costs which are most likely not cheap? It could be that this requirement imposes additional burden to the selling stockholder to pay for the report. With respect to personal property, RR 6-2013is not clear if the AFS of the company is sufficient to establish its FMV.
As to the timing of the document, would the documents needed to establish the FMV be as of the time of sale?
What could add to the confusion is that there seems to be a view within the BIR that the valuation under RR 6-2013 applies only to certain properties.
To answer these questions, the BIR may have to issue clarifications; otherwise, RR 6-2013 may impede sales transactions that could impact on the financial viability of the company. When fresh capital is required by the company, and the solution is for an existing shareholder to sell to a new investor, a problem could arise if the BIR cannot agree on the valuation of the company’s shares in view of the valuation issues caused by the implementation of RR 6-2013. One could say then that redefining matters is creating gray areas.
Glenn Raymond O. Paradela is a supervisor from the tax group of Manabat Sanagustin & Co. (MS&Co.), the Philippine member firm of KPMG International.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.
The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or MS&Co. For comments or inquiries, please email firstname.lastname@example.org or email@example.com
June 13, 2013 9:30 pm [ manilatimes.net ]
by MAYVELIN U. CARABALLO
Businesses have given more time to prepare for the full implementation of the Bureau of Internal Revenue (BIR) regulation requiring the issuance and use of new sets of receipts.
In a TV interview, BIR Commissioner Kim Jacinto-Henares said that the bureau delayed the deadline for the full implementation of Revenue Regulations (RR) 18-2012 so that business can print new sets of receipts.
The extension also means that firms can still use their old receipts in the conduct of their businesses.
The deadline for the full implementation of the regulation was originally set on July 1, 2013, however, because of numerous complaints from various business firms, the BIR decided to delay the deadline until August 30, 2013.
Issued last year, RR 18-2012 provides, among others, that taxpayers must apply for the printing of their new receipts at least 60 days (or April 30) before the expiry of their old receipts on June 30, 2013, and start issuing the same on July 1, 2013.
Henares said that, “the BIR issued Revenue Memorandum Order [RMO] No. 12-2013 on May 2, 2013 to provide for penalties, since very few taxpayers were complying with the said regulations.”
The BIR said that taxpayers who apply for authority to print receipts beyond April 30, 2013, shall pay a penalty of P1,000.
However, those who apply for said authority beyond June 30, 2013, and/or on or before June 30, 2013, but failed to use the new sets of receipts starting July 1, 2013, shall pay the maximum penalty of P50,000 as provided for in Section 264 of the Tax Code.
By Zinnia B. Dela Peña (The Philippine Star) | Updated June 7, 2013 - 12:00am
MANILA, Philippines - The new regulations requiring all business establishments to print new official receipts, invoices and other business documents will proceed as scheduled on July 1, 2013, the Bureau of Internal Revenue (BIR) said yesterday.
BIR Commissioner Kim S. Jacinto-Henares said “the complaints against the new regulation are without any basis” and that business establishments were given more than enough time to meet the requirement.
Henares said the BIR issued the new policy last year and published the same in a newspaper of general circulation informing the parties concerned that existing receipts would expire on June 30, 2013.
“We believe that six months is enough preparation for everyone to comply with such requirement,” Henares pointed out.
The BIR, in issuing this new regulations, aims to regulate further the printing of all invoices, set validity period and generate reports relative to the Authority to Print official receipts.
This was an offshoot of the agency’s discovery of businesses registered with the BIR that are not really engaged in any business except to sell invoices, thereby defrauding the government of billions in tax revenues.
These businesses, the BIR noted, sell their invoices to entities who are either engaged in smuggling and/or purchasing goods without receipts. When BIR looked for these companies, mostly Small and Medium Enterprises, they cannot be found.
The BIR also discovered that a lot of invoices that were printed in the ‘70s are still being used.
Henares said the issuance of new receipts is also aimed at reforming the process of accrediting printers as well as addressing complaints against some BIR personnel engaged in the printing business who make it difficult for taxpayers to register and/or secure authority to print unless they get to print the receipts of said taxpayers.
The regulations disqualify printers with relatives working in the BIR.
All existing unused/unissued receipts or invoices shall be valid until June 30 and must be surrendered to the BIR for destruction.
Revenue Regulations (RRs) are issuances signed by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, that specify, prescribe or define rules and regulations for the effective enforcement of the provisions of the National Internal Revenue Code (NIRC) and related statutes
Revenue Memorandum Orders (RMOs) are issuances that provide directives or instructions; prescribe guidelines; and outline processes, operations, activities, workflows, methods and procedures necessary in the implementation of stated policies, goals, objectives, plans and programs of the Bureau in all areas of operations, except auditing.
Revenue Memorandum Rulings (RMRs) are rulings, opinions and interpretations of the Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other tax laws, as applied to a specific set of facts, with or without established precedents, and which the Commissioner may issue from time to time for the purpose of providing taxpayers guidance on the tax consequences in specific situations. BIR Rulings, therefore, cannot contravene duly issued RMRs; otherwise, the Rulings are null and void ab initio
Revenue Memorandum Circular (RMCs) are issuances that publish pertinent and applicable portions, as well as amplifications, of laws, rules, regulations and precedents issued by the BIR and other agencies/offices.
Revenue Bulletins (RB) refer to periodic issuances, notices and official announcements of the Commissioner of Internal Revenue that consolidate the Bureau of Internal Revenue's position on certain specific issues of law or administration in relation to the provisions of the Tax Code, relevant tax laws and other issuances for the guidance of the public.
BIR Rulings are official position of the Bureau to queries raised by taxpayers and other stakeholders relative to clarification and interpretation of tax laws.