BIR to tax listed firms below 10% public float rule

MANILA, Philippines - The Bureau of Internal Revenue (BIR) is imposing the capital gains tax on stock transactions involving publicly listed firms that do not comply with the minimum public float rule.

On Friday, stock market players were informed belatedly of the BIR’s move in a notice posted on the Web site of the Philippine Stock Exchange (PSE). The Securities and Exchange Commission (SEC) got the letter from the BIR on Dec. 28, and forwarded it to the PSE on Jan. 3. The date stamp showed the letter was received by the bourse only last Jan. 5.

The BIR said it wanted to collect the capital gains tax beginning Jan. 1, pointing out that many PSE firms could no longer be considered publicly listed, and therefore no longer entitled to tax perks. The PSE required listed firms to maintain their public float, or the level of public ownership, at 10%, late last year, and gave those that did not meet the threshold a grace period of one year.

"In order to qualify as a publicly listed company, initial public offering (IPO) requirement is set between the range of 10% to 33% depending on the market capitalization, as such all listed companies should maintain nothing less than their initial public offering as continuing listing requirement," the BIR said in its letter to the SEC.

Currently, the PSE requires firms seeking to go public to have a 33% float or P50 million worth of shares, whichever is higher, for companies with a market capitalization not exceeding P400 million. The minimum float is 25% or P100 million worth of shares, whichever is higher, for those with market capitalization of more than P400 million up to P1 billion; 20% or P250 million worth of shares, whichever is higher, for those with market capitalization of more than P1 billion up to P5 billion; 15% or P750 million worth of shares, whichever is higher, for those with market capitalization of more than P5 billion up to P10 billion; and 10% or P1 billion worth of shares, whichever is higher, for those with market capitalization of more than P10 billion.

"Listed companies should continually maintain, if not surpass their IPO requirement to continually enjoy the preferential tax rate of 1/2 of 1% of gross selling price of gross value on money on disposals by stockholders of publicly-listed shares through the exchange," the BIR said.

Erring companies will be subject to the 5-10% capital gains tax, the BIR said.

The capital gains tax is defined by the BIR as the tax imposed on "gains presumed to have been realized by the seller from the sale, exchange, or other disposition of capital assets located in the Philippines."

The BIR said it would strictly impose the rule starting Jan. 1. This will provide liquidity to investors, ensure fair prices, guard against manipulation of prices, and serve as a "tool for redistribution of wealth in the general public," the BIR said.

The tax agency also told the SEC that 50% of the value of the outstanding capital stock of listed firms should not be held by less than 20 individuals.

Moreover, since SEC rules require that independent directors occupy 20% of a listed firm’s board seats, the public float should be at a minimum 20%. This is in conflict with the existing 10% public float requirement of the PSE.

The PSE, the country’s only stock exchange, has 253 listed firms and 133 active trading participants. Forty companies have yet to comply with the 10% public float rule.