RMC No. 30-2019: Clarifies Section 100 of NIRC of 1997 as amended by RA No. 10963 (TRAIN Law) in relation to Sale of Shares of Stock Not Traded or Listed

Summary

RMC No. 30-2019 clarifies Section 100 of the NIRC, as amended by RA No. 10963 (TRAIN Law), on the sale of shares of stock that are not traded or listed.

Key points

1. Deemed gift rule. Under Section 100, if the fair market value (FMV) of the shares is higher than the selling price, the excess is treated as a gift subject to Donor’s Tax. The rule aims to discourage parties from understating the selling price to save on Income Tax.
2. TRAIN exception. Since January 1, 2018, a sale made in the ordinary course of business is treated as made for adequate and full consideration. This means a transaction that is bona fide, at arm’s length and free from any donative intent.
3. When the Donor’s Tax applies. Starting January 1, 2018, an unlisted share sale below FMV has the excess treated as a gift subject to Donor’s Tax, except when it is at arm’s length and free from donative intent.
4. Proof of arm’s length. Whether a sale is at arm’s length is a question of fact, so the party invoking the exception must prove it. The evidence must show no irregularity between unrelated and independent parties and no intent to evade tax, judged case to case.

Who is affected

• Sellers of shares of stock not traded or listed

Deadlines and effectivity

• Exception applies starting January 1, 2018

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.