RMC No. 143-2022: Clarifies issues relative to Revenue Regulations No. 13-2022 on Income Tax treatment of equity-based compensation

Key points

1. Effectivity and withholding. RR No. 13-2022 took effect October 29, 2022 and applies prospectively. Any exercise or availment on or after that date is compensation subject to Withholding Tax on compensation.
2. No CGT or DST on grant. No Capital Gains Tax is imposed on the grant, with or without an option price. No DST is imposed on the grant, and DST applies only upon actual issuance of shares under Sections 174 and 175 of the Tax Code.
3. Sale for consideration. A sale or transfer is subject to CGT under Section 24(C) of the Tax Code. If granted for a price, the difference between the sales price and the option price is taxed, and if granted without a price, the cost base is zero.
4. Transfer without consideration. The transfer is treated as a donation of shares subject to Donor’s Tax, based on the FMV of the option at the time of donation. The same treatment as donation applies where heirs exercise the compensation within the exercise period after the grantee’s death.
5. Additional compensation. The difference between the book value or FMV of the shares, whichever is higher, at exercise and the price fixed on the grant date is additional compensation subject to Income Tax and Withholding Tax.
6. Forms to file. Employer-grantors file BIR Form Nos. 1601-C, 1604-C and 2316 starting November 2022. They still file the returns, such as BIR Form No. 1603Q, for exercises by managerial or supervisory employees before the effectivity date.

Who is affected

• Employer-grantors of equity-based compensation
• Employee-grantees, whether rank-and-file, supervisory or managerial

Deadlines and effectivity

• RR No. 13-2022 effectivity: October 29, 2022, applied prospectively
• Forms filed starting November 2022 for exercises starting October 29, 2022