Under RR No. 20-2020, the following rules will apply in the event of the sale of unlisted shares traded on local stock exchanges:
- For ordinary shares of shares, the book value based on the last available financial statements duly certified by an independent public account before the date of sale, but not before the immediately preceding tax year, will be considered as the fair value. prima facie merchant. .
- For stock preferred shares, the fair market value will be the liquidation value, equal to the repurchase price of the preferred stock at the closing date closest to the trade date, including any outstanding premium and cumulative preferred dividend. .
- If there are both common stock and preferred stock, the book value per common share is calculated by deducting the liquidation value of the preferred stock from the total equity of the company and dividing the result by the number d common shares outstanding on the balance sheet. closest date to the transaction.
- It is not necessary to adjust the book value of common shares or the liquidation value of preferred shares to include any valuation surplus of any property of the company not reflected in the last audited financial statements, in order to determine the fairness. market value of the stock shares. The latest audited financial statements will be sufficient to determine the fair market value of the shares being sold, bartered, exchanged or otherwise disposed of.
RR n ° 20-2020 amends section 7 (c.2) of RR n ° 06-2008, as amended, with regard to the definition of “fair market value” of the shares sold. Previously, RR 06-2008 equated “fair market value” with “net book value”. In addition, under RR No. 06-2008, as amended, the adjusted net assets method was used to determine the fair market value of the shares at the time of sale, with all assets and liabilities adjusted to their fair market value.
RR 20-2020 reverts to the old rule that book value is only prima facie evidence of the fair market value of shares. The rules now appear to allow a deviation of the fair market value from the book value of shares if this can be justified, among other things, by factors recognized by the BIR in previous tax regulations as affecting the valuation of shares. In addition, this carrying amount will now be based on the latest audited financial statements available prior to the date of the sale. The adjusted net assets method will no longer be used to determine the fair market value of shares at the time of sale.
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