The BIR’s Revenue Regulation 20-2020
RR 20-2020 was welcomed by tax and accounting practitioners for simplifying the process for the sale, barter or other onerous transfers of unlisted shares of stock.
Published in Daily Tribune on August 28, 2020
by: Emmanuel Emigdio D. Dumlao
Taxes are the lifeblood of government. In these trying times, the government must come up with policies that are fiscally sound to aid the efforts to revive the country’s currently fragile economy. In pursuit of this goal, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) 20-2020 on 17 August 2020, which was published in a newspaper of general circulation on 19 August 2020.
Before RR 20-2020, RR 6-2008 and RR 6-2013 required taxpayers to provide updated appraisal reports on real properties whenever they sold, bartered, exchanged or otherwise onerously disposed of their unlisted shares in corporations that own such real properties. Since transfers of shares of stock required the payment of capital gains tax based on amount of gain realized, the gain of a transferor of unlisted shares was computed by subtracting the acquisition cost of the shares from the higher of its selling price or fair market value (FMV).
To determine the FMV of every share of stock, its value must be set against the actual worth of a corporation, which necessarily includes any real properties it owns. Given that real properties almost always appreciate in value, the FMV of shares of corporations which have substantial real property portfolios would increase in value proportionally to the increase in value of their real properties.
RR 20-2020 does away with such appraisal reports and only requires any transferor of unlisted shares of stock to provide the latest audited financial statements of the corporation. Using these statements to determine the actual worth of the corporation and dividing its equity by all of a corporation’s subscribed shares, the BIR would no longer consider the increase in value of such real properties and will only refer to their acquisition cost as booked in a corporation’s audited financial statements. This results in a lower FMV for every unlisted share sought to be transferred by sale, barter, exchange or other onerous disposition of shares since any increase in value of a corporation’s real properties would no longer be considered. By simplifying the process in determining the FMV of such shares of stock, individuals or juridical entities seeking to transfer these shares of stock would have more liberty in setting the price for such shares.
Before the issuance of RR 20-2020, any transferor of unlisted shares of stock would have to set a purchase price equal to or higher than its FMV to avoid being subjected to donor’s tax. Thus, they are required to consider the increase in value of any real properties owned by the corporation who issued the shares to be transferred. Since the FMV of such shares of stock would now be relatively lower because appraisal reports are no longer required, individuals or juridical entities will have more leeway in setting lower prices for their shares of stock, without being assessed for additional donor’s tax.
This will result in an influx of issuances of stock certificates and transfers of unlisted shares of stock leading to increased collection of documentary stamp tax. It can even be argued that collections for capital gains tax would also increase since shareholders will now be able to set reasonable prices for their shares without having to worry about being assessed donor’s taxes.
RR 20-2020 was welcomed by tax and accounting practitioners for simplifying the process for the sale, barter or other onerous transfers of unlisted shares of stock. Further, owners of unlisted shares who were previously hindered from selling their shares by the overstatement of the FMV of such shares would now be encouraged to transfer the same, especially in the case of corporations with hefty real property portfolios.
Our government should always make it easier for its constituents to obey its laws and not the other way around. RR 20-2020, which goes into effect on 3 September 2020, certainly does the job.
