BIR Ruling [DA-349-06]

June 6, 2006 BIR RULING [DA-349-06] DA 487-05 Banco De Oro 12 ADB Avenue Ortigas Center Mandaluyong City Attention: Atty. Cristina Barbara Valencia-Concepcion Senior Manager Gentlemen : This refers to your letter dated April 25, 2006 stating that your client, C.L. Manabat & Co., a general professional partnership duly organized and existing under the laws of the Philippines with principal office address at 3rd-6th Floors, Salamin Building, 197 Salcedo Street, Legaspi Village, Makati City, on July 1, 2001, established the C.L. Manabat & Co. Retirement Plan (Plan); that Banco de Oro-Trust Banking Group was appointed as trustee of the Retirement Fund; that the Plan was determined by the BIR to be a reasonable private benefit plan and therefore exempt from income tax; that as of December 31, 2005, the fair market value of the assets of the Plan, consisting of fixed income deposits/securities, amounts of P22,832,687.00; that based on the actuarial valuation of the Plan conducted last December 31, 2005 by E.M. Zalamea Actuarial Services, Inc., the Plan is over-funded by an estimated amount of P9,934,257.00; that the over-funding is a result of the retirement of some of the key officers of the partnership who were included in the Plan; that the Board of Partners intends to return the amount of P9,934,257.00 to C.L. Manabat & Co., representing the over-funding; and that C.L. Manabat & Co., acknowledges that it will pay income tax on the amounts returned to the company and is willing to issue an undertaking that it will immediately contribute such amounts to the Retirement Fund if such fund becomes insufficient to discharge all obligations of the Plan. In connection therewith, you now request confirmation of your opinion that the portion of the Retirement Fund of C.L. Manabat & Co. in excess of the amount actuarially determined to cover the benefits of all the employees, may be reverted back to C.L. Manabat & Co. without terminating the fund and that such excess amount shall be declared as income of C.L. Manabat & Co. In reply thereto, please be informed that this Office had already occasioned to rule on the matter when it said in BIR Ruling No. DA252-98 dated June 19, 1998 and later reiterated in BIR Ruling No. DA113-05 dated April 5, 2005 , that ". . . Your opinion that the portion of the fund in excess of the amount actuarially determined to cover the benefits of all the employees amounting to more than P100 million may be reverted to BCII without terminating the fund is hereby confirmed. However, BCII should declare as income the said excess of P100 million and pay the corresponding income tax thereon pursuant to Section 27(A) of the Tax Code of 1997." Accordingly, inasmuch as the above-cited rulings are in all fours similar to the instant case, this Officer hereby confirms your opinion that the portion of the fund in excess of the amount actuarially determined to cover the benefits of all the employees in the approximate amount of P9,934,257.00 may be reverted to C.L. Manabat & Co. without terminating the fund. However, C.L. Manabat & Co. should declare as income the said excess amount and pay the corresponding income tax thereon as prescribed in Section 27(A) of the Tax Code of 1997, as amended. 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. ITCHSa Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service