BIR streamlines stock option rules

MANILA, Philippines - The Bureau of Internal Revenue has streamlined the rules for stock option schemes to make sure that the proper taxes are paid in a timely manner.

A stock option is a right granted by an employer to an employee to buy shares of the company or its affiliates.  Aside from becoming a stockholder of the corporation or its affiliate, the employee acquires the shares at a preferential price.

The exercise price of a stock option is usually lower than the prevailing market price of the shares.

The BIR issued Revenue Memorandum Circular 79-2014 clarifying the tax implications of income or gain derived from the exercise of stock options.

In the event the option was granted due to an employee-employer relationship where the grantor is the employer and the grantee is the employee and no payment was received for the grant of the said option, the grantor can not claim deductions for the grant of the stock option, the BIR said.

However, if the option was granted for a price, the full price of the option shall be considered capital gains and shall be taxed as such.

Upon issuance of the option, the same is subject to a documentary tax amounting to P0.75 on each P200 or fractional part thereof of the par value of the stock subject of the option.

The BIR noted that any grant of an option for consideration or transfer of the option is subject to capital gains tax as required under Sec. 24 of the Tax Code.    If the option was granted without any consideration, the cost base of the option for purposes of computing capital gains shall be zero.

If the option is transferred by the grantee without any consideration, the same shall be treated as a donation of shares of stock subject to donor’s tax.  The basis shall be the fair market value of the option at the time of the donation.