On October 31, 2014, the Philippines Bureau of Internal Revenue (“BIR”) issued a new revenue circular (Revenue Memorandum Circular 79-2014; the “Circular”) that clarified the tax treatment of stock options granted to employees in the Philippines on a number of fronts. Although the Circular specifically addressed only stock options directly granted by a Philippine corporation to its employees, the Circular similarly should apply to other equity compensation awards (e.g., restricted stock units, performance units) granted by a Philippine corporation to its employees, and also should apply to equity compensation awards granted by a non-Philippine parent corporation to local employees of a Philippine subsidiary where the Philippine subsidiary bears the financial costs of such awards (i.e., via an equity compensation reimbursement arrangement with the non-Philippine parent corporation). Of particular note and consistent with our position for a number of years, the Circular clarified that the treatment of equity compensation awards granted to employees in the Philippines turns on the classification of the award recipient as either a managerial or supervisory-level employee or a rankand- file employee. More specifically, a Philippine corporation granting equity awards to managerial / supervisory employees (or a non-Philippine corporation granting equity awards to managerial / supervisory employees of a Philippines subsidiary where reimbursement is being sought) are subject to a fringe benefits tax (“FBT”) generally imposed at the rate of 32% of the grossed-up taxable value of the awards that must be paid by the employing entity. Thus, for example, a stock option exercised by a managerial employee that results in US$100 of taxable value will trigger a FBT liability of approximately US$47 (US$100 divided by 68%) that ultimately must be paid by the employing entity (technically as an employee withholding tax), on top of the US$100 benefit realized by the employee. Because of the additional costs triggered by the FBT on equity compensation awards granted to managerial / supervisory employees, we currently are exploring the possibility of making award recipients contractually responsible for the FBT liability as part of the terms and conditions of the equity grants (such that the equity compensation benefits realized by managerial / supervisory employees would be net of the FBT, not in addition to the FBT). For more information on the tax treatment of equity compensation awards in the Philippines and the possibility of shifting any FBT liabilities to the award recipients, please contact your GES attorneys.