BIR Ruling [DA-304-99]

May 18, 1999 BIR RULING [DA-304-99] Romulo Mabanta Buenaventura Sayoc & De Los Angeles 30th Floor, Citibank Tower Citibank Plaza Paseo de Roxas Makati City Attention: Atty. Priscilla B. Valer Gentlemen : This refers to your letter dated January 26, 1999 stating that your client, Vitacolor Industries, Inc. (Vitacolor) is engaged in the duplication of cassettes and tapes; that it owns a parcel of land which is the subject matter of a long term lease agreement; that it maintains a BIR qualified Retirement Plan effective May 1, 1991; that the management of Vitacolor decided to discontinue its manufacturing business, thus, effective December 1, 1998, Vitacolor separated all its employees and paid the benefits due them under the Retirement Plan; that at present, Vitacolor is no longer actively engaged in any business and its only activity is the leasing out of the parcel of land covered by a long term lease agreement; that it has no more employees and the only persons connected with the company are the corporate officers who are not covered by the Retirement Plan; and that as of December 31, 1998, the fund of the Retirement Plan has a balance of P1,091,644.39. Based on the foregoing representations, you now request for a ruling that, since all the liabilities of the fund under the Retirement Plan have been satisfied, any excess on the retirement fund may be recovered by Vitacolor. In reply, please be informed that Section 32(B)(6)(a) of the Tax Code of 1997 provides that "at no time shall any part of the corpus or income of the fund to be used for, or diverted to, any purpose other than for the exclusive benefit of the said officials and employees." This provision prohibiting diversion of trust fund includes all objects or aims not solely designed for the proper satisfaction of all liabilities to employees covered by the trust. (Sec. 4(e), Revenue Regulations No. 1-68, as amended by Revenue Regulations No. 1-83) In other words, recovery by the employer of trust funds is permitted after the satisfaction of all liabilities to employees or their beneficiaries. IEHScT In the instant case, therefore, since all the liabilities of employees and their beneficiaries under the approved retirement plan have been fully satisfied, any excess in the retirement fund may be recovered by the company. However, such excess recovered must be declared by the company for income tax purposes during the year of receipt. (BIR Ruling No. 371-88 dated August 8, 1988) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)