BIR Ruling [DA-345-00]

September 13, 2000 BIR RULING [DA-345-00] Pilipinas Hino Inc. Retirement and Severance Benefit Plan E. De Los Santos Avenue corner Madison Street Mandaluyong City Attention: Mauro V. Yumang Trustee Gentlemen : This refers to your letter dated March 15, 2000 stating that Pilipinas Hino, Inc. Retirement and Severance Benefit Plan (PHIRSBP) is registered with the Bureau of Internal Revenue (BIR) as a qualified retirement plan since June 27, 1977; that its tax exemption benefits as a reasonable qualified trusteed retirement benefit plan was further confirmed by the BIR in a Ruling No. SB-17-97 dated February 27, 1997 to the effect that PHIRSBP is no longer subject to the final tax on interest in its Philippine currency bank deposits; that since its creation, PHIRSBP's activity is confined entirely to investment of retirement funds in money market and marketable securities; that because of the financial crisis which the country suffered since July 1997, PHIRSBP found its investments in the financial market no longer attractive and very risky; that PHIRSBP instead turned to real estate whose market is in a downturn; that taking advantage of the low and stagnant price of real estate, PHIRSBP acquired on December 29, 1998 an abandoned manufacturing plant owned by Pilipinas Hino, Inc. (PHI) which transferred to Canlubang, Laguna; that the property acquired by PHIRSBP consisted of two (2) parcels of land together with the improvements thereon located at Paso de Blas, Valenzuela City covered by TCT Nos. V-55575 and V-55576 issued by the Registry of Deeds for Valenzuela City with an aggregate area of 16,789 square meters and has a zonal value of P4,600.00 per square meter while the improvements thereon have a total fair market value of P5,593,828.62; and PHIRSBP is now considering to sell the above-mentioned properties. In connection therewith, you now request for confirmation of your opinion that "1. The sale of the properties by PHIRSBP is not subject to the 6% capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997 nor to the creditable withholding tax imposed under Revenue Regulations No. 2-98; "2. The sale of the properties by PHIRSBP is not in the course of business and consequently not subject to the value-added tax." In reply, please be informed as follows: 1. 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 or distributee. Such being the case, since PHIRSBP is a qualified pension plan within the contemplation of Section 32(B)(6)(a) of the Tax Code of 1997, any gain to be derived by PHIRSBP on the proposed sale of the above-mentioned real properties is not subject to capital gains tax imposed under Section 24(D)(1) of the said Code nor to the creditable withholding tax prescribed under Revenue Regulations No. 2-98. (BIR Ruling No. 010-90 dated January 31, 1990) 2. Section 109(w) of the Tax Code of 1997 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 value -added tax. Considering that PHIRSBP is a qualified pension plan within the contemplation of Section 32(B)(6)(a) of the Tax Code of 1997 and the above-mentioned properties are held as capital assets, the sale of the said properties by PHIRSBP 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.) LILIAN B. HEFTI Deputy Commissioner (Legal & Inspection Group)