A Share Transfer Years Ago Was Recorded in the Stock Book and GIS but Never Cleared with the BIR: How to Fix It Before Selling or Liquidating

What the situation means: the company changed shareholders, the tax record did not

A transfer without a CAR looks complete in the company's own files but is, to the BIR and to most practitioners, an unperfected and untaxed transaction. It does not void itself, but it blocks everything that comes after.

Where it bites:

• The next transfer stalls. A buyer's lawyer doing due diligence asks for the CAR of the previous transfer. Without it, the buyer walks, demands the cure first, or cuts the price sharply and pushes all back taxes onto the seller.
• Liquidation stalls. Dissolution requires tax clearance from the BIR, and during that process historical share movements are checked. A transfer with no CAR becomes an open item and the company cannot close. The full process is in closing a company in the Philippines.
• The certificate chain is broken. Cancelling the old certificate and issuing a new one should follow the CAR. In an omitted case the old certificate was often never surrendered, the new one was issued without basis, or none was issued at all.
• GIS and BIR records contradict each other. The annual GIS filed with the SEC shows the new shareholder while the BIR has no trace of the transaction, a contradiction you will be asked to explain in an audit or at liquidation. Correcting the GIS itself is covered in the General Information Sheet explained.
• Dividends and votes rest on shaky ground. Years of dividends, votes and resolutions based on the new shareholder list are open to challenge if someone later argues the transfer was never perfected.

One misconception needs correcting: "the stock book was updated, so the transfer happened; the tax is a separate matter". The corporate secretary recording a transfer without a CAR is itself a procedural defect; the secretary's and treasurer's duties in such entries are explained in corporate secretary and treasurer roles. So the problem is rarely just "pay a tax"; both the corporate record and the tax record need repair.

A second misconception: "after all these years nobody will care". The tax obligation on a share transfer does not expire because the company has operated with the new shareholder for years, and penalties keep accruing, so the later it surfaces the more it costs. Family businesses passing to the next generation uncover this kind of legacy issue especially often; see what to check about a family company's share history before taking over.

Step one: assemble every document and fact about the original transfer

How hard the cure is depends almost entirely on how much paper survives. Inventory first, then choose the route. Never the other way round.

Locate or confirm:

1. The Deed of Assignment or Deed of Sale of Shares: whether it was signed, whether it was notarised, its date, the stated consideration and the signatories. This is the foundation of the back-tax filing; without it everything must be rebuilt.
2. Proof of payment: whether the price was actually paid, how and when. Bank transfer records are best; a cash receipt is weaker; no payment record at all needs an explanation.
3. The audited financial statements and books for the year of transfer: the BIR values the shares by reference to the company's financial position at the time, so that year's statements are essential. If they are themselves deficient, the problems compound.
4. The stock book and share certificates: the date and signatory of the entry; whether the old certificate was surrendered and cancelled; whether a new one was issued and under what number.
5. Every GIS since the year before the transfer, to see when the shareholder information changed and whether it has been consistent.
6. The parties' present status: where the transferor and transferee are, whether they are reachable, alive and willing to sign. Who the corporate secretary was and whether they can still certify.
7. Foreign ownership: whether the transfer changed the foreign equity percentage or touched a sector cap. If so, the remediation becomes a tier more complex; see curing a share transfer that breached the foreign equity cap.

The inventory usually lands in one of three cases: complete documents and available parties, just never filed, the easiest to cure; incomplete documents but available parties, which can be rebuilt with supplementary instruments; and incomplete documents with a party missing or deceased, the hardest, discussed below.

One discipline during inventory: preserve every document exactly as found. Do not "tidy" them, add words or fill in dates. Your lawyer and accountant need to see the true state to design a cure that holds; a document later found to have been altered destroys the credibility of the entire remediation.

The core difficulty: what value the tax is based on and how penalties are treated

Back taxes are computed on the basis applicable when the transaction took place, not today's value, and penalties run from the date the return was originally due, consisting of surcharge, interest and possibly a compromise penalty. The rates, computation and any relief available follow current BIR rules and the actual assessment.

The valuation question has layers:

• Contract price versus fair value. Tax treatment compares the price written in the deed with the shares' fair value at the time, usually by reference to the company's net book value then or the valuation method prescribed at the time. If the contract price was clearly below fair value, the shortfall may be treated as a gift and attract a different tax. This is why transfers done years ago at a token price are the most painful to cure.
• You need that year's financial data. Fair value is computed from the company's assets and liabilities at the time, so the audited statements for that year are indispensable. If the company held real property, the property's valuation basis for that period comes in as well.
• Today's statements cannot substitute. Some people reason "we have to pay anyway, so use current net worth". That is not the rule, and it can cut against you whether the company is worth more or less now.

The penalty structure:

• Generally surcharge, interest and compromise penalty, running from the original due date to actual payment. The more years, the heavier the interest component.
• Surcharge and compromise penalty can in some circumstances be reduced on grounds of good faith and reasonable cause; interest is rarely reduced. The relief application resembles the compromise process; see BIR compromise, abatement and installment applications.
• Who bears it is a matter between the parties, not the BIR's concern. Tax law designates a default taxpayer, the old contract may allocate it, and a new buyer will have views; settle this inside the remediation plan.

A frequently proposed "shortcut": re-execute the old deal with a current date and process it as a new transaction. That is not a cure. It manufactures a document that contradicts the stock book, every GIS and the financial statements; once cross-checked, the back tax is still due and the authenticity of all company records comes into question. The principle is to present the original transaction truthfully and pay what it owes, not to rewrite history.

The right order: close the tax loop first, then repair the corporate records

The sequence is: lawyer and accountant review the full file and design the cure → file and pay the back taxes with the BIR, applying for any relief → obtain the CAR → the corporate secretary annotates the stock book against the CAR and sorts out the certificates → reconcile and, where necessary, correct the GIS and audit disclosures. Skip a step and every later step lacks its basis.

1. Professional assessment first. Give the inventory to a lawyer and accountant to determine the transaction's character (sale, gift or mixed), the tax base, the estimated penalties, the prospects for relief, and whether foreign ownership or other issues must be handled in parallel. This step shapes the whole route; do not economise on it.
2. Build the filing pack. Typically the notarised deed, proof of payment, that year's audited statements, a corporate secretary's certification of the stock book entry and certificate status, the parties' tax identification and identity documents, and an explanatory letter where needed. Where documents are missing, the lawyer decides which supplementary instruments can rebuild the facts, commonly a confirmatory instrument signed by the parties attesting to the original transaction. Its wording and admissibility must be lawyer-controlled.
3. File and pay with the BIR. Report the share-transfer taxes on the original transaction's basis, pay the tax and penalties, and lodge any relief application for surcharge and compromise penalty where reasonable cause exists. Keep every receipt.
4. Obtain the CAR. This document perfects the transfer. Check that the number of shares, parties and dates match the filing.
5. Repair the corporate records. The corporate secretary annotates the stock book with the CAR reference and date, deals with the certificates (surrender, reissue or correction of numbering) and issues a corrected extract.
6. Reconcile SEC and audit disclosures. If past GIS filings match the facts, no refiling is usually needed; if they do not, correct them through SEC procedure. Changes to company information at the SEC are covered in how to file company changes with the SEC. The auditor may also require disclosure of the cure in the current year's statements.

Common sequencing errors: signing with a new buyer first and curing afterwards, so the closing conditions cannot be met; amending the GIS before paying the tax, which multiplies the contradictory records; and having the new shareholder file in place of the old, so identities and obligations do not line up.

Expect the cure to be far slower than a routine transfer because historical documents must be reviewed. If a new deal is running in parallel, make "completion of the historical cure" an express condition precedent and allow generous time.

The original transferor is unreachable, uncooperative or deceased: can it still be cured?

Yes, but the route is longer, more lawyer-dependent, and in some cases only a court or an estate proceeding can resolve it. The deciding variables are whether a valid deed exists and which party is missing.

Case one: the transferor is abroad, reachable but unenthusiastic. The most common and most manageable. The back-tax filing rests mainly on the original deed and financial data; the transferor's cooperation is needed for identity and tax details and possibly a confirmatory signature. A special power of attorney can appoint an agent in the Philippines to sign, with the document executed abroad passing through the applicable authentication process.

Case two: the transferor refuses. If the deed is complete, the price was paid and the stock book was updated, the transferee's position is clear and the filing can in most cases be driven from the transferee's side, with only the other party's details missing. If the transferor instead claims the sale never happened, you are in a shareholder dispute and a lawyer must assess court confirmation of your rights. The toolkit for shareholder disputes is in shareholder disputes and deadlock.

Case three: the transferor has died. A valid deed signed in life remains valid, but any supplementary document requiring the transferor's signature can only come from the lawful heirs or estate representative, which depends on the estate proceeding. If no deed was ever signed and the transfer was oral plus a stock book entry, the shares may legally still belong to the estate, and the transferee must deal afresh with the heirs; that is an entirely different level of complexity.

Case four: the deed is lost. Check the notary's records (notarised deeds usually have an archived copy), the corporate secretary's files, the lawyer or accountant involved at the time, and the paying bank's records. If nothing surfaces, the lawyer evaluates whether a confirmatory instrument signed by the parties can rebuild the facts; its wording must confirm a past transaction, not create a new one today.

In every case the same rule: no forged signatures, no signing on someone's behalf without authority, no staging of "it was all signed back then". Those acts carry consequences far heavier than back taxes and destroy the basis for any lawful cure later.

If you are the transferee or heir about to take over the company, this is exactly what to check before taking over, not after.

What it means for a sale or liquidation already under way, and where Yixing fits

For a live transaction, this legacy issue usually means three things: closing moves later, price or risk allocation gets renegotiated, and the cure must be written in as a condition precedent. It need not kill the deal, but pretending it does not exist will.

If you are the seller: disclose it proactively with a cure plan and timetable rather than letting due diligence find it. The buyer's lawyer will almost certainly check, and concealment makes them doubt every other record in the company.

If you are the buyer: make "CAR obtained for the prior transfer and stock book and certificates corrected" a condition precedent to closing; allocate back taxes and penalties expressly; and require a post-cure stock book extract and certificates at closing. Note also that the transfer may be subject to other shareholders' pre-emptive or first-refusal rights in the by-laws; see when a right of first refusal blocks your exit.

If the company is in liquidation: the liquidator or the director handling dissolution should put this historical transfer at the top of the open-items list, because BIR tax clearance will not let it through, and the earlier it starts the less it delays the whole closure.

Where Yixing fits: we are not a law or accounting firm and we reach no conclusion on tax amounts or legal validity. What we do is build the timeline of the original deed, every GIS, the financial statements and the stock book entries and mark the gaps; bring in licensed lawyers and accountants to design the cure; help assemble the BIR filing pack and the corporate secretary's record corrections, with communication in Chinese and English throughout; and, if a new sale or liquidation is running, slot the cure into the transaction timetable. Company setup and share change services are at company setup and shareholding changes. Yixing is a privately owned consultancy registered with the SEC (Registration No. CS202009551), accredited by the Bureau of Immigration (BI Accreditation No. CA-202624381-1, valid to 2027-06-30), the Department of Labor and Employment and the Philippine Retirement Authority. It has no affiliation with or authority from the BIR or the SEC and guarantees no outcome.

This article summarises process and experience. It gives no rates, amounts, penalty computations or processing times; current BIR and SEC rules govern. Consult a licensed lawyer and accountant about your case. This article is not legal advice.