Wash Sales Tax and Other Corporate Oddities

Besides those taxes mentioned in Final Capital Gains Tax, MCIT, Creditable and Final Withholding Taxes and Corporate Tax Basics, there are other kinds of taxes that affect corporations in one way or another.

Wash Sales

A wash sale is a pretended sale between traders in the stock market to make it look like there is activity going on in the stock of a particular company. Wash sales are taxed without deductions from loss.

Gross Philippine Billings

This refers to gross income of foreign shipping or aircraft companies whose trips begin or pass through the Philippines. A special rate of 2.5% is imposed on the part of the travel that started in the Philippines. In case of transshipment where the ship passes through Philippine waters, the part that begins in the Philippines and ends at the transshipment point is taxed.

Short Sales

These are sales of a stock borrowed from somebody else and bought back at a lower price. To illustrate, Let's say Loser, Inc.'s stocks are valued at Php100 per share. Bob owns 10,000 shares of Loser, Inc. Bill borrows all of Bob's shares and sells them for Php1M. Later, the shares drop to Php30 per share. Bill buys the shares back for Php300,000 and returns them to Bob. Bill has a profit of Php700,000. This sale is subject to capital gains tax.

Exempt Exchanges

Exchanges not involving money in mergers and consolidations are exempt from income tax because there is no money involved. The BIR isn't interested in cashless transactions (obviously!) If the exchange isn't solely in kind (meaning there's some money involved) the income from the exchange in question is taxed without deductions for losses, like a wash sale. But if the merger/consolidation plan requires that the money must be distributed to the shareholders of the absorbed corporation, the gain isn't subject to income tax. Also property exchanged for stocks in order to gain control of a corporation (should be 51% at least for 1 person or a maximum of 4 people if made by a group) are also income tax-exempt.