RR No. 13-2022 — Pre cribe the guideline , procedure and requirement for the proper Income Tax treatment of equity ba ed compen ation of any kind (Publi hed in Manila Time on October 14, 2022) Dige t |

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE

Date: October 7. 2022

REVENUE REGULATIONS NO. 13- 2022

SUBJECT Income Tax Treatment of Equity-Based Compensation

TO All Internal Revenue Officials, Employees and Others Concer:red

organizational, technical or business accomplishments. the common feature of being granted to existing employees of the grantor as a dependent on performance, outstanding business achievements ar d, exemplary restricted stock units, stock appreciation rights, and restricted share awards, v.nich may or may not pertain to the shares of stock of the grantor itself, but which ali have performance incentive for services rendered by the employees and are typically employee equity schemes that come in different forms such as stock op:ions, SECTION 1. Background. -- Equity-Based compensation cover: all typ.:s of

guidelines, procedures and requirements for the proper income tax t:eatmen: of in relation to Section 4, of the National internal Revenue Code (NIRC) of 1997 as amended, these Regulations are hereby promulgated to prescribe more defini:ive equity based compensation of any kind. SECTION 2. Objective. - Pursuant to the provisions of Sections 2.44 anc 245,

SECTION 3. Definitions.

a) Stock options - Stock options merely entitle the employee to purchase st:ares become sharehoiders. The period between the grant of stock or;tions an : the at a future date. Thus, unless the options are exercised, the employees do not date when they become exercisable represents the vesting period.

b) Restricted share awards - The award may or may not be subject to a ve sting period, as may be specified in the grant. If subject to a vesting pericd, any unvested shares shall be forfeited if employment is terminated.

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c) Stock Appreciation Rights (SARs) - The terms and conditions are sim.ilar to stock options. However, under the SARs, the optionee may receive (a) sh ares, (b) cash or (c) a combination of shares and cash, as determined by the grantor.

d) Restricted Stock units - As with restricted shares, stock units may or ma', not vested stock units may be made in the form of (a) shares, (b) cash cr (c) a combination of shares and cash. be subject to a vesting period, as will be specified in the grant. Settlemeat of

SECTION 4. Income Tax Treatment.

income derived from whatever source, including compensation for service: in commissions and similar items. As implemented, compensation includes pay:ment in some form of medium other than money. whatever form paid, including but not limited to, fees, salaries, wages, Section 32 (A) of the NIRC of 1997, as amended, defines gross income a:; all

as follows: Section 2.78.1 of Revenue Regulation (RR) No. 2-98, as amended, provi:es Income. "Section2.78.1 Withholding Tax on Compensatior

(A) Compensation Income Defined.

XXX

included as compensation subject to withholding. If the services are rendered at a stipulated price, in the absence: to be the fair market value of the remuneration received If the corporation transfers to its employees its own stock as remuneration for services rendered by the employee. the amount of such remuneration is the fair market value services are paid for in a medium other than money, the fair market value of the thing taken is the payment to be of evidence to the contrary, such price will be presumec of the stock at the time the services were rendered." paid in money or in some medium other than money, as for example, stocks, bonds or other forms of property. it (1) Compensation paid in kind. Compensation may be

2 BUREAU OF INTERNAL REVENUE RECORDS MST. Cc 6:38PM G AVISION 222 IMIN- Q

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of the NIRC of 1997, as amended and all applicable issuances do not make a distinction for purposes of applying the tax implication on all forms of compensation, including equity based compensation. file or occupying a supervisory or managerial position considering that Section 32 said employees. Consequently, the equity grants under the equity plans, once exercised or availed of by the grantee-empioyees, are considered cc.mpensat:on to be taxed as such under Section 32 of the NIRC of 1997, as amended, :nd implemented by RR No. 2-98, as amended. This rule will be applied regardles:; of the employment status of the grantee-employee who could either tie rank-and- give rise to a realized benefit on the part of the grantee-employees. The equity grants to be awarded to the employees are for the services being rendered by t:he The equity grants under the applicable equity schemes of the grantor will

declared invalid by a competent court, the remainder of these Regulations or any provision not affected by such declaration of invalidity shall remain in force ::nd effect. SECTION 5. Separability Clause. -- If any provision of these Regulation: is

made in these Regulations are hereby maintained and/or adopted accordingly. circulars, or portions thereof which are inconsistent with the provisions of these Regulations are hereby revoked, repealed or amended accordingiy. All matt ers and other tax treatment that are not inconsistent with the pronourceme nts Circular 079-2014 dated October 31, 2014 and any reguiations, rulings or ord ars, SECTION 6. Repealing Clause. -- The provisions of Revenue Memorandum

general circulation, whichever comes first. (15) days following its publication in the Official Gazette or in a newspaper of SECTION 7. Effectivity Clause. -- These Regulations shall take e:ffect fiftt:en

C C

Recommending Approval: BENJAMIN E. DICKNO Secretary of Fin:ance OCT 9 7 222

Ali C. Gull

Commissioner of Internal Revenue LILIA CATRIS GUILLERMO

001911 BUREAU OF INTERNAL REVENUE BRECOR DS MAT TH SION

3 OCT 07.2022 6:38paM

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