Professional Documents
Culture Documents
Issue: W/N ANSCORs redemption of stocks from its stockholder as well as the
exchange of common with preferred shares can be considered as essentially
equivalent to the distribution of taxable dividend making the proceeds thereof
taxable under the provisions of the Sec 83(b)
Held:
On Amnesty
First, PD 67, from which ANSCOR based its claim on tax amnesty, was extended to
taxpayers. ANSCOR, being assessed not as a taxpayer but rather as a withholding
agent cannot claim amnesty from said Presidential Decree.
In the operation of the withholding tax system, the withholding
agency is the payor, a separate entity acting no more than an agent of
the government for the collection of the tax. x x x The withholding
agent is merely a tax collector, not a taxpayer. x x x The agent is not
liable for the tax as no wealth flowed into him he earned no income.
The Tax Code only makes the agent personally liable for the tax arising
from the breach of its legal duty to withhold as distinguish from its
duty to pay tax since:
The governments cause of action against the withholding is not
for the collection of income tax, but for the enforcement of the
withholding provision of Sec 53 of the Tax Code, compliance with
which is imposed on the withholding agent and not upon the
taxpayer.
On Tax on Stock Dividends
General Rule: A stock dividend representing the transfer of surplus to capital
account shall not be subject to tax.
Rationale: Stock dividends represent capital and do not constitute income to its
recipient. As capital, it is not yet subject to income tax.
Exception: However, if a corporation cancels or redeems stock issued as a dividend
at such time and in such manner as to make the distribution and cancellation or
redemption, in whole or in part, essentially equivalent to the distribution of a
taxable dividend, the amount so distributed in redemption or cancellation of the
stock shall be considered as taxable income to the extent it represents a
distribution of earnings or profits accumulated after March first, nineteen hundred
and thirteen.
The redemption or cancellation of stock dividends, depending on the time and
manner it was made, is essentially equivalent to a distribution of tax dividends,
making the proceeds thereof taxable income to the extent it represents profits.
The proceeds of redemption of stock dividends are essentially distribution of cash
dividends, which when paid becomes the absolute property of the stockholder.
Having realized gain from that redemption, the income earner cannot escape
income tax.
On Redemption and Cancellation
Stock dividend
A stock dividend of a corporation is a dividend paid in shares of stock instead of
cash, and is properly payable only out of surplus profits.
So a stock dividend is actually two things: 1) a dividend, and 2) the enforced use of
the dividend money to purchase additional shares of stock at par
Nielson & Co., v Lepanto Consolidated Mining Co., L-21601
Issued Shares
Issued shares are the authorized shares sold to and held by the shareholders of a
company, regardless of whether they are insiders, institutional investors or the
general public, as shown in the companys annual report. Investopedia
Common Stock
Represents the residual ownership interest in the corporation. It is a basic class of
stock ordinarily and usually issued without extraordinary rights or privileges and
entitles the shareholder to a pro rata division of profits.
Preferred Shares
Those which entitle the shareholder to some priority on dividends and asset
distribution.
Share subscription
Purchase of the shares of a firm by an entity (subscriber) who becomes a
shareholder upon its inclusion in the shareholders register.
Redemption
A repurchase, a reacquisition of stock by a corporation which issued the stock in
exchange for property, whether or not the acquired stock is cancelled, retired or
held in the treasury.
The shares bought back in a redemption are considered a fixed-income security that
is expected to be bought back by the issuer.
Capital Stock
All shares representing ownership of a business, including preferred stock and
common stock. Amount fixed by charter to be subscribed and paid in or secured to
be paid in by shareholders. Blacks Law Dictionary