BIR updates rules for stock options

By , on November 13, 2014

Bureau of Internal Revenue building (Wikipedia photo)
Bureau of Internal Revenue building (Wikipedia photo)

MANILA – The Bureau of Internal Revenue (BIR) has modernized stock options schemes rules to ensure that proper taxes are paid on time.

A stock option is a right given by an employer to an employee to purchase shares of the company or its affiliates. Aside from being a stockholder of the corporation, the employee can get the shares at a special price that’s usually lower than the current market price of the shares obtained.

Revenue Memorandum Circular 79-2014 issued by BIR aims to clarify the tax implications in terms of income or gain generated from the stock options.

For example, if the option was given because of an employee-employer relationship wherein the grantor is the employer and the grantee is the employee and no payment was given for the grant, the grantor has no right to claim deductions for the grant of the stock option.

But, if the option was given for a price, the full price will be deemed capital gains and will be taxed.

Once the option is issued, it should have a documentary tax of P0.75 for every P200.

Moreover, the BIR stressed that any grant for consideration or option transfer will be subjected to capital gains tax as mentioned under Sec. 24 of the Tax Code. If the option was given without any consideration, the cost of the option for computing capital gains will be zero.

Meanwhile, if the option is transferred by the grantee without any consideration, it will be treated as donation of shares and the basis will be the market value during the time of the donation.