Warrants
THE sale of the warrants by the warrant holder shall be subject to the documentary stamp tax (DST). A DST is imposed all sales, or agreements to sell, or memoranda of sales, or deliveries, or transfer of such securities by assignment in blank, or by delivery, or by any paper or agreement, or memorandum or other evidence of transfer or sale whether entitling the holder in any manner to the benefit of such stock, or to secure the future payment of money, or for the future transfer of any such stock, at a rate of P0.75 on each P200, or fractional part thereof, of the par value of such stock.
If a stock is without par value, the amount of the DST shall be equivalent to 25 percent of the DST paid upon the original issue of the stock. Thus, if the warrant is detachable and therefore without par or issued value, the DST payable would be 25 percent of the DST paid on the original warrant. As mentioned, the DST on the issuance warrants without par or issued value would be the amount of consideration paid.
If the Warrant Holder exercises his right to subscribe to shares thereby becoming a stockholder, then any dividend that he receives would likewise be taxable. As a general rule, dividends paid by a Philippine corporation to a foreign entity is subject to tax under Section 28 of the Tax Code of 1997, as amended, which provides that certain incomes received by nonresident foreign corporations are subject to specific rates of tax
Generally, dividends received by a non-resident foreign corporation from a domestic corporation shall be subject to a final withholding tax of 30 percent. However, subject to the condition that the country in which the nonresident foreign corporation is domiciled allows a credit against the tax due from the said corporation from taxes deemed to have been paid in the Philippines equivalent to 15 percent, a final withholding tax at the rate of 15 percent may be imposed on the amount of the dividends received from a domestic corporation.
RP-UK TAX TREATY
However, if the Warrant Holder is a resident of the UK, the taxability of dividends would be governed by the provisions of the Tax Treaty entered into between the Philippines and UK (RP-UK Tax Treaty) shall be applicable.
Section 4 of Article IX of the RP-UK Tax Treaty states that the term “dividends” means income from shares, or other rights, not being debt-claims, participating in profits, as well as income from corporate rights assimilated to income from shares. Section 1 of the same article states that dividends derived from a company which is a resident of the Philippines by a resident of the United Kingdom may be taxed in the UK. Such dividends may also be taxed in the Philippines but where such dividends are beneficially owned by a resident of the United Kingdom the tax so charged shall not exceed:
(a) 15 percent of the gross amount of the dividends if the beneficial owner is a company which controls directly or indirectly at least 10 percent of the voting power in the company paying the dividends;
(b) in all other cases 25 percent of the gross amount of the dividends.
It is worth emphasizing that in order to avail of the aforementioned treaty provisions, the warrant holder, as the income recipient, will have to secure a confirmatory ruling from the BIR.
For purposes of availing the tax treaty provisions, the BIR required that a Tax Treaty Relief Application be filed confirming the tax treatment of a particular transaction including claims or requests for application of preferential tax treaty rates of income derived or to be derived by a taxpayer. [Mirant (Philippines) Operations Corporation vs. Commissioner of Internal Revenue, CTA EB Case No. 40, CTA Case No, 6382, 7 June 2005].
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