Donor’s tax under Section 99, on the other hand, is imposed at the rate of 6 percent on the total gifts in excess of P250,000 for gratuitous transfers of property made during the calendar year.
There may, however, be instances wherein both CGT and donor’s tax are imposed on a single transaction.
Section 100 of the NIRC provides that where a property is transferred for less than an adequate and full consideration, the amount by which the fair market value (FMV) of the property exceeded the value of the consideration shall be deemed as a gift. As such, a donor’s tax is imposed on the said value.
Accordingly, the need arises to determine the FMV of the shares in order to ascertain if the selling price is less than the FMV that would also warrant the imposition of donor’s tax on the transaction.
Under Revenue Regulations 20-2020, the FMV for common shares of stock is the book value based on the latest financial statements duly certified by an independent public accountant prior to the date of sale, but not earlier than the immediately preceding taxable year.
Section 100 now as applied to the sale of shares of stock contemplates a situation where both CGT and donor’s tax are imposed — where CGT is imposed on the selling price less the acquisition cost while donor’s tax is imposed on the amount which is the difference of the FMV and the selling price.
Note that Article 100 now includes a proviso, which states in essence, that where a transfer is made in the ordinary course of business, which is bona fide, made at arm’s length and free from any donative intent, it will be considered as made for adequate and full consideration. In such cases, no donor’s tax will be imposed even if the price or consideration is less than the FMV.
Despite such exception, Revenue Memorandum Circular 30-2019 states that the determination of whether the sale of shares of unlisted shares of stock is at arm’s length is a question of fact and not of law. Accordingly, it is incumbent upon the taxpayer to prove that the transaction wherein FMV is less than the purchase price is a bona fide one which may require the submission of reasonable evidence.
Finally, for all transfers of unlisted shares, DST is imposed, which is P1.50 on each P200.00, or a fraction thereof, of the par value of such stock.
Being knowledgeable of the tax consequences of transferring shares of stock provides a more holistic view of the transaction. Whether the transaction is one for profit or one borne out of the transferor’s generosity or both, the transferor can anticipate the corresponding taxes that come with it.
