(A) Assuming That The Sale Took Place in The Year 2020, Was The Commissioner Correct?

In the comment section below, write your answers to the following questions/problems:
V. Tizza Sora Corp. (Tizza Sora) offered to sell through a competitive bidding its unlisted
shares in Bianca Joy, Inc. (Bianca Joy). Diana Lou acquired the said shares as the highest
bidder at a price which was 45% lower than the book value of the shares. Tizza Sora
applied for a ruling from the BIR confirming that the sale was not subject to donor’s tax
considering that there was lack of donative intent on its part. Although the Commissioner
agreed that there was no donative intent on the part of Tizza Sora, the Commissioner, held
that the difference between the selling price and the book value was a taxable donation
since the selling price of the subject shares of stock was substantially lower than their book
value. The Commissioner stressed that the Tax Code categorically states that the amount by
which the fair market value of the property exceeded the value of the consideration shall be
deemed a gift; thus, even if there was no actual donation, the difference in price was
considered a donation by fiction of law.
(A) Assuming that the sale took place in the year 2020, was the Commissioner
correct?
No, the Commissioner was not correct.
Under the Tax Reform for Acceleration and Inclusion (TRAIN) Law which took effect on Jan. 1,
2018, Sec. 100 of the Tax Code was amended to include an exception stating that the transfer
of property made in the ordinary course of business (a transaction which is a bona fide, at
arm’s length, and free from any donative intent) will be considered made for an adequate and
full consideration in money or money’s worth. Further, RMC 30-2019 dated Feb. 28, 2019,
clarified that starting Jan. 1, 2018, when shares of stock not traded in the Philippine Stock
Exchange (PSE) are sold for less than their FMV, the excess shall be treated as gift subject to
donor’s tax, except when the shares are sold at arm’s length, free from any donative intent in
the ordinary course of business.
In the case at bar, Diana Lou acquired the unlisted shares in Bianca Joy as the highest
bidder at a price which was 45% lower than the book value of the shares through a
competitive bidding, in the ordinary course of business (at arm’s length, free from any
donative intent). Accordingly, the transaction was considered made for an adequate and full
consideration in money or money’s worth.
Therefore, the Commissioner was not correct in holding that the difference between the
selling price and the book value was a taxable donation since the selling price of the subject
shares of stock was substantially lower than their book value.
(B) If the sale was made in 2016, would your answer be the same?
No, my answer would not be the same.

Under Section 100 of the Tax Code provides that the amount by which the fair market value
(FMV) of the property exceeds the value of the consideration shall be considered a gift
subject to the donor’s tax. In Revenue Memorandum Circular No. (RMC) 25-2011, dated
March 2, 2011, the BIR clarified that Section 100 of the Tax Code does not admit any
exception and imposed donor’s tax in cases where the consideration of the sale of shares of
stock not listed and traded through the Philippine Stock Exchange (PSE) is lower than the
FMV/book value of the shares. Further, in the case of Philam Life vs. Secretary of Finance,
G.R. No. 210987, Nov. 24, 2014, the court declared that the absence of donative intent does
not exempt the sales of stock transaction from donor’s tax since Section 100 of the Tax
Code categorically states that the amount by which the FMV of the property exceeded the
value of the consideration shall be deemed a gift. Thus, even if there is no actual donation,
the difference in price is considered a donation by fiction of law.
In the case at bar, Diana Lou acquired the unlisted shares in Bianca Joy as the highest
bidder at a price which was 45% lower than the book value of the shares without donative
intent on the part of Tizza Sora. Applying, law and jurisprudence cited absence of donative
intent does not exempt the sales of stock transaction from donor’s tax.
Therefore, the Commissioner was correct Commissioner in holding that the difference
between the selling price and the book value was a taxable donation since the selling price
of the subject shares of stock was substantially lower than their book value; and that the
Tax Code categorically states that the amount by which the fair market value of the
property exceeded the value of the consideration shall be deemed a gift; thus, even if there
was no actual donation, the difference in price was considered a donation by fiction of law.

(A) Assuming That The Sale Took Place in The Year 2020, Was The Commissioner Correct?

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In the comment section below, write your answers to the following questions/problems:

No, my answer would not be the same.

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