For estate tax purposes, listed shares are valued at the arithmetic mean of the highest and lowest quoted price on the date nearest the decedent’s death, unlisted common shares are valued at book value (excluding any appraisal surplus) taken from the corporation’s financial statements nearest the date of death, and unlisted preferred shares are valued at par value. Which rule applies depends entirely on whether the shares trade on the stock exchange and what class of share is involved.
The value you plug into the gross estate depends entirely on one fact: whether the shares trade on the stock exchange. Listed and unlisted shares are valued under completely different rules, and using the wrong one is one of the most common errors in estate tax returns that involve stock ownership.
Why Share Valuation Matters
Under the estate tax rules that took effect with the TRAIN Law, a decedent’s gross estate includes all property, real and personal, tangible or intangible, owned at the time of death — and that includes shares of stock in any corporation the decedent held, whether it is a publicly listed company or a small, closely-held family corporation. Every item in the gross estate is valued as of the date of death, at fair market value, and the total feeds directly into the 6% estate tax computation. Get the share valuation wrong, and the whole return is wrong.
The Bureau of Internal Revenue’s consolidated estate and donor’s tax regulations set out two separate valuation tracks, and a third rule specifically for preferred shares.
Track 1: Shares Listed on the Stock Exchange
If the shares are listed and traded on the Philippine Stock Exchange, the fair market value is the arithmetic mean between the highest and lowest quoted selling price on the date nearest the decedent’s death. If there was no trading activity on the date of death itself, you use the nearest available trading date instead.
In practice this means pulling the exchange’s historical price data for the relevant date, taking the day’s high and low, and averaging the two. For a decedent who died on a weekend or holiday, that means looking at the closest prior or following trading day. Multiply the resulting per-share value by the number of shares the decedent owned, and that is the amount that goes into the gross estate for that holding.
Track 2: Unlisted Shares
Most family businesses and closely-held corporations are not listed anywhere, so this is the track that applies to the majority of estates that include a business interest. Unlisted shares split further by class:
Unlisted Common Shares: Book Value
Unlisted common shares are valued at their book value. Book value, for this purpose, is computed from the issuing corporation’s financial statements nearest to the date of death, and it deliberately excludes any appraisal surplus — meaning you cannot inflate or adjust the value upward by revaluing the company’s assets. The regulations also exempt unlisted share valuation from the more elaborate “adjusted net asset” method that applies to other property valuations, which keeps the computation comparatively straightforward: it is a book value exercise, not a full appraisal.
The basic formula is: total stockholders’ equity (excluding appraisal surplus), divided by the total number of outstanding common shares, multiplied by the number of shares the decedent owned.
Worked example: Suppose a family corporation has total stockholders’ equity of ₱10,000,000 as shown in its latest financial statements before the decedent’s death, with no appraisal surplus in that figure, and 1,000,000 outstanding common shares. Book value per share is ₱10,000,000 ÷ 1,000,000 = ₱10 per share. If the decedent owned 5,000 shares, the value included in the gross estate for that holding is 5,000 × ₱10 = ₱50,000.
Unlisted Preferred Shares: Par Value
Preferred shares that are not listed are valued differently — at par value, not book value. This is a simpler computation: it is whatever the stated par value on the share certificate says, multiplied by the number of preferred shares held, regardless of what the company’s book value per share would otherwise suggest.
Step-by-Step: Pulling the Numbers Together
- Step 1 — Identify every corporation the decedent held shares in, and classify each holding as listed or unlisted, common or preferred.
- Step 2 — For listed shares, obtain the trading data (high and low quotation) for the date nearest death and compute the arithmetic mean.
- Step 3 — For unlisted common shares, obtain the corporation’s financial statements nearest the date of death, confirm total stockholders’ equity excluding any appraisal surplus, divide by outstanding common shares, and multiply by the decedent’s shareholding.
- Step 4 — For unlisted preferred shares, take the par value stated on the certificate and multiply by the number of shares held.
- Step 5 — Total all shareholdings and add the sum to the rest of the gross estate before applying allowable deductions.
Documents You Will Need
Because the BIR will scrutinize how a share value was arrived at, it is standard practice to attach supporting documentation to the estate tax return for every share holding claimed: for unlisted shares, the corporation’s financial statements as of a date nearest the decedent’s death (ideally the latest audited statements, or the latest available statements if unaudited), together with a computation showing how book value per share was derived; for listed shares, documentation of the relevant trading prices, such as a certification or printout from the exchange for the date used. Keep the share certificates themselves on hand as well, since they establish both ownership and, for preferred shares, the par value.
If the decedent’s gross estate exceeds ₱5,000,000, the estate tax return must also be supported by a statement certified by a Certified Public Accountant itemizing the estate’s assets and their values, the deductions claimed, and the tax due — which means the share valuation computation will typically need to be reviewed and folded into that larger CPA statement.
Where This Fits in the Overall Estate Tax Process
Share valuation is only one input into the broader estate tax return, which must be filed within one year of the decedent’s death (the BIR may grant a reasonable extension in meritorious cases). Before shares can actually be transferred into an heir’s name in the corporation’s books, the BIR must first issue an electronic Certificate Authorizing Registration, or eCAR, for the estate — and the eCAR will not be issued until the estate tax on those shares, valued the way described above, has been paid. In other words, an unresolved or disputed share valuation does not just affect the tax bill; it can hold up the transfer of the shares themselves.
Common Mistakes to Avoid
- Using the purchase price or the decedent’s cost basis instead of book value or par value. What the decedent originally paid for the shares is irrelevant to the estate tax valuation.
- Including appraisal surplus in the book value computation for unlisted common shares. The regulations specifically exclude it.
- Valuing preferred shares at book value instead of par value — the two classes follow different rules even within the same unlisted corporation.
- Using financial statements from the wrong period, rather than the statements nearest the actual date of death.
- Forgetting to account for stock dividends, splits, or treasury shares that may have changed the outstanding share count between the last financial statement date and the actual date of death, which throws off the per-share book value computation.
- Treating a single class of preferred shares as uniform when the articles of incorporation actually define several sub-classes with different par values or preferences — each sub-class needs to be checked against its own certificate terms.
Because these valuations directly determine the estate tax due — and because an error can delay the eCAR and, with it, the transfer of the shares to the heirs — it is worth having the computation reviewed before the return is filed rather than after the BIR flags it.
What If the Corporation Itself Owns Shares in Another Company?
Family corporations sometimes hold cross-shareholdings — the corporation whose shares you are valuing might itself own an interest in a subsidiary or affiliate. Because unlisted common shares are valued on a book-value basis drawn from the corporation’s own financial statements, any such holdings are already reflected in that corporation’s stockholders’ equity as reported, rather than needing to be unwound and separately re-valued share by share. The practical implication is that the reliability of the book value figure depends heavily on the reliability of the underlying financial statements — which is one more reason the BIR leans toward audited statements where they exist, and why a corporation with informal or unaudited books should expect closer scrutiny of the numbers it submits.
Estate Tax Amnesty and Older Deaths
For decedents who died some years back and whose estates were never settled, the same valuation rules generally apply once the estate tax return is finally prepared — the financial statements used are still those nearest the actual date of death, not nearest the date the return happens to be filed. Because settling an old estate often means locating financial statements or share certificates that are themselves years out of date, it is worth budgeting extra time for this step specifically: tracking down a closely-held corporation’s books from a decade or more ago, if the entity has changed accountants, changed structure, or simply not kept careful archives, can take considerably longer than the actual computation itself.
Frequently Asked Questions
What if the corporation has never had its financial statements audited? The regulations do not require audited statements specifically for this purpose, but the BIR will expect a reliable, dated financial statement nearest the death to support the book value computation. The more reliable and clearly dated the statement, the less likely the valuation gets questioned.
Can I use the shares’ par value for unlisted common shares to keep things simple? No. Par value only applies to unlisted preferred shares. Unlisted common shares must be valued at book value, computed from the corporation’s financial statements, even if that produces a higher number than par value.
Does the estate tax valuation apply even if the shares are not sold or transferred yet? Yes. The shares are valued and included in the gross estate simply because the decedent owned them at death, regardless of whether or when the heirs actually sell or transfer them afterward.
What happens if the corporation itself doesn’t have updated financial statements near the date of death? You use the most recent financial statements reasonably available before the date of death. If the corporation’s books are significantly out of date, it is worth having them updated or reviewed before filing, since a stale valuation is more likely to draw questions from the BIR.
This commentary is for general informational purposes only and does not constitute legal advice. For guidance specific to your situation, please consult a licensed attorney.
If you have questions about your rights or options under Philippine law, our firm is available to assist. You may reach us via Viber or WhatsApp, call us at 0995 433 5550, or send an email to vivasnobles@gmail.com. We look forward to hearing from you.