BIR Ruling [DA-342-06]

June 1, 2006 BIR RULING [DA-342-06] 32 (B) (6) (a); 60 (B); DA-315-2000; DA-179-A-2001 Borden Chemical Philippines, Inc . 6th Floor, Padilla Building, Emerald Avenue, Ortigas Center, Pasig City Attention: Atty. Vicente G. Gregorio Director and Corporate Secretary Gentlemen : This refers to your letter dated May 26, 2006 requesting for a ruling that the sale of a real estate property of the Retirement Plan of Borden Chemical Philippines, Inc .(formerly Borden International Philippines, Inc.) Employees Retirement Plan registered in the name of Prudential Bank, as the Trustee Bank, is not subject to any tax or taxes, such as capital gains, documentary stamps, income/creditable withholding and value-added taxes. BACKGROUND Borden Chemical Philippines, Inc. established a Retirement Plan for its employees which qualified under Republic Act (RA) No. 4917, within the contemplation of Section 29(a)(7)(A) of the NIRC, (now Section 32(B)(6)(a) of the Tax Code of 1997, as amended by RA 9337) and was duly approved by the BIR as a tax-exempt retirement fund on August 17, 1983. The funding of the Plan and payment of the benefits was provided for through the medium of a Retirement Fund held by a Trustee under an appropriate Trust Agreement. In a Trust Agreement dated December 16, 1981 Prudential Bank was appointed as Trustee of the said Retirement Plan to receive, hold, invest, administer and distribute the funds to the retiring employees. In the same Trust Agreement, the Trustee hank was directed and authorized to hold and to invest and reinvest the Fund and to purchase a real property situated in Pamplona, Las Pias, Metro Manila containing an area of 41,516 square meters. The said property was registered in the name of Prudential Bank, as the Trustee of the Retirement Plan, covered and evidenced by Transfer Certificate of Title No. T-32910 of the Registry of Deeds for Las Pias, Metro Manila. Under the Retirement Plan, after meeting and/or paying all liabilities and claims of the employees, any amount in excess or as may remain in the Retirement Fund and other assets shall revert to the company, which is Borden Chemical Philippines, Inc. In reply thereto, please be informed that one of the benefits and/or privileges that a qualified employees' retirement plan is entitled, within the purview of Section 32(B)(6)(a) of the Tax Code of 1997, as amended, is the exemption from income tax of the income of the trust fund from its investments. ( Section 60(B) of the Tax Code of 1997 ) In relation thereto, Section 60(B) of the Tax Code of 1997 provides that the tax imposed by Title II shall not apply to employee's trust which forms part of a pension, stock bonus or profit-sharing plan of an employer for the benefit of some or all of his employees (1) if contributions are made to the trust by such employer, or employees, or both for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan, and (2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees: Provided, That any amount actually distributed to any employee or distributee shall be taxable to him in the year in which so distributed to the extent that it exceeds the amount contributed by such employee of distributee. TIaEDC Such being the case, and since Borden Chemical Philippines, Inc. is a qualified employees retirement plan within the purview of Section 32(B)(6)(a) of the Tax Code of 1997, as amended, the capital gains, if any, which will be realized by it from the sale of a parcel of land covered by TCT No. T-32910 shall be exempt from the payment of capital gains tax imposed under Section 24(D) of the Tax Code of 1997 nor to the creditable withholding tax prescribed under Revenue Regulations (RR) No. 2-98, as last amended by RR 30-2003. ( BIR Ruling Nos. 368-88 dated August 3, 1988 and 010-90 dated January 31,1990 ) Furthermore, Section 109(w) of the Tax Code of 1997, as amended, provides that sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business shall be exempt from the value-added tax. Considering that Borden Chemical Philippines, Inc. is a qualified employees retirement plan within the contemplation of Section 32(B)(6)(a) of the Tax Code of 1997, the sale of the said property by Borden Chemical Philippines, Inc. is not subject to value-added tax. ( VAT Ruling No. 006-97 dated January 17, 1997 ) 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service