Sale of listed shares

GENERALLY, the sale of listed and traded shares in the local stock exchange is subject to a percentage tax of one half of one percent of the gross selling price or gross value in money of the shares transferred pursuant to Section 127 of the Tax Code as follows:

(A) Tax on Sale, Barter or Exchange of Shares of Stock Listed and Traded through the Local Stock Exchange. — There shall be levied, assessed and collected on every sale, barter, exchange or other disposition of shares of stock listed and traded through the local stock exchange other than the sale by a dealer in securities, a tax at the rate of one-half of one percent of the gross selling price or gross value in money of the shares of stock sold, bartered, exchanged or otherwise disposed which shall be paid by the seller or transferor.

However, if the listed shares are sold outside the local stock exchange, the income from such transfer will be subject to the capital gains tax (CGT).

The percentage tax under Section 127(A) of the Tax Code will apply to shares of stocks listed and traded in the local stock exchange. The nature of the shares i.e. whether listed or not is not material for the purpose of determining tax liability in the disposition of shares of stocks. What is material is the manner by which such shares are traded [CIR v. Del Rosario, CA-G.R. SP No. 37402, 29 August 1997]. Thus, If the shares of stock are listed but sold outside the local stock exchange, any gain from the sale will be subject to CGT.

Under the Tax Code, capital gains realized from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold or disposed of through the stock exchange is taxed at the following rates:

Not over P100,000—5 percent

On any amount in excess of P100,000—10 percent

Moreover, the transfer of shares of stocks in a domestic corporation is generally subject to the documentary stamp tax (DST) at the rate of P0.75 on each P200, or fractional part of the par value of such stocks pursuant to Section 175 of the Tax Code as amended by Republic Act No. 9243.

The sale of shares of stock listed and traded through the local stock exchange used to be exempt from DST until 20 March 2009 or 5 years from 20 March 2004 when Republic Act No. 9243 took effect. Section 199 of such law provides:

“Sec. 199. Documents and Papers Not Subject to Stamp Tax. — The provisions of Section 173 to the contrary notwithstanding, the following instruments, documents and papers shall be exempt from the DST:

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(e) Sale, barter or exchange of shares of stock listed and traded through the local stock exchange for a period of five (5) years from the effectivity of this Act.”

Based on the above provision, the exemption applies only when the share transferred is both listed and traded through the local stock exchange. If a listed share is transferred off-market, such transfer is not exempt but subject to DST at the rate of Php .75 on each Php 200 of the par value or a fractional part of the par value of such stock in accordance with Section 175 of the Tax Code.

Moreover, after 20 March 2009, the sale of shares of stock listed and traded through the local stock exchange shall already be subject to DST of P0.75 on each P200 or fractional part of the par value of such stock pursuant to Section 175 of the Tax Code.

Please note that for a sale or exchange to be taxable, there must be an actual or constructive transfer of beneficial ownership of the shares of stock from one person to another. Such transfer may be manifested by the clear exercise of attributes of ownership over such stocks by the transferee, or by an actual entry of a change in the name appearing in the certificate of stock or in the Stock and Transfer Book of the issuing corporation or by any entry indicating transfer of beneficial ownership in any form of registry including those of a duly authorized scripless registry, such as those maintained for or by the Philippine Stock Exchange. However, if by the transfer of certificates of stock from a resigned trustee to a newly appointed trustee such certificate of stock remain in the name of the cestui que trust or the resigned trustee so that the new trustee is constituted as mere depository of the stock, such transfer is not taxable [RR 13-04, § 4].

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