Manabat San Agustin & Co.

July 2, 2007 BIR RULING [DA-353-07] 32 (A) No. 135-97 Manabat San Agustin & Co. 22/F Philamlife Tower 8767 Paseo de Roxas Makati City 1226 Attention: Atty. Herminigildo G. Murakami Tax Principal Gentlemen : This refers to your letter dated June 1, 2007 requesting for a ruling on the tax implication, if any, of the discounted purchase of shares of stock pursuant to a Stock Purchase Plan. It is represented that Intel Corporation ("Intel") is a corporation organized and existing under the laws of the United States of America and is the ultimate parent company of ITPI; that ITPI is a corporation registered and existing under Philippine laws and a PEZA registered enterprise/locator in Cavite; that under Intel Group's Stock Purchase Plan ("SPP"), employees of Intel and Intel participating subsidiaries such as ITPI, are given the opportunity to purchase common stock of Intel, which are traded at the NASDAQ Stock Exchange; that the SPP was designed as additional incentive to attract, retain, and motivate employees by providing the opportunity to purchase common stock shares of Intel at a discount; that at present, stock purchases are made twice a year, in February and August. It has been represented further that the salient features of the SPP are as follows: 1. The relevant SPP terms are defined as follows : a. "Commencement Date" with respect to a given Subscription Period, is understood to mean the last Trading Day prior to the beginning of an Enrollment Period for such Subscription Period. The SPP has two enrollment periods in which employees may enroll for payroll deductions. The enrollment periods may vary per country. b. "Common Stock" shall mean the common stock of Intel, with a par value $.001 per share, or any securities into which such Common Stock may be converted. DAHSaT c. "Effective Date" means July 31, 2006, the effective of the Intel Group's 2006 Stock Option Plan. d. "Market Value" on a given date of determination (e.g., a Commencement Date or Purchase Date, as appropriate) shall mean the value of Common Stock determined as follows: (i) if the Common Stock is listed on any established stock exchange, but not including an automated quotation system, its Market Value shall be the closing sales price for a share of the Common Stock (or the closing bid, if no sales were reported) on the date of determination as quoted on such exchange on which the Common Stock has the highest average trading volume, as reported in The Wall Street Journal or such other source as the Committee deems reliable; or (ii) if the Common Stock is listed on a national market system and the highest average trading volume of the Common Stock occurs through that system, its Market Value shall be the average of the high and the low selling prices reported on the date of determination, as reported in The Wall Street Journal or such other source as may be deemed reliable; or (iii) if the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Market Value shall be the average of the mean of the closing bid and asked prices for the Common Stock on the date of such determination, as reported in The Wall Street Journal or such other source as the may be deemed reliable; or, (iv) in the absence of an established market for the Common Stock, the Market Value thereof shall be determined in good faith by the Board. e. "Participating Subsidiary" shall mean an Intel Corporation Subsidiary that has been designated as eligible to participate in the SPP with respect to its Employees. f. "Purchase Date" shall mean the last trading day of each Subscription Period. g. "Trading Day" shall mean a day on which U.S. national stock exchanges and the NASDAQ National Market System are open for trading and the Common Stock is being publicly traded on one or more of such markets. 2. Eligible Employees . Any Intel employee or employee of a Participating Subsidiary (such as ITPI) shall be eligible to participate in the SPP, subject to the general limitation on the number of shares that may be owned by an employee and subject to administrative rules requiring certain minimum employment period (not to exceed 30 days under present SPP procedures). 3. Subscription/Subscription Period. The SPP is implemented by a series of six (6) month Subscription Periods with new Subscription Periods commencing on each February 20 and August 20 and ending on the last Trading Day in the six (6) month periods ending on the following August 19 and February 19, respectively. The first Subscription Period started last 21 August 2006, and ended on the last Trading Day on or before 19 February 2007. Subject to a 30-day prior notice, the frequency and/or duration of Subscription Periods (including the commencement dates) may be changed. Hence, there are two subscription periods that follow the enrollment periods. At present, the subscription periods are: February 20 through August 19, and August 20 through February 19. During the subscription periods, money is deducted from the employee-participant each pay period, deposited in a designated account, and eventually used to purchase the stock. Re-enrollment is automatic for an employee-participant currently enrolled in SPP and chooses to remain at current contribution level. 4. Participation . An employee-SPP participant should have completed a payroll deduction authorization and SPP enrollment form. The current SPP has two enrollment periods in which employees may enroll for payroll deductions. All payroll deductions will be held in a general corporate account or a trust account, but without interest to be paid or credited to the employee with respect to such payroll deductions. ITPI is maintaining a separate bookkeeping account to monitor payroll deductions for each employee-SPP participant. 5. Offering/Offering Price . The "Offering Price" shall mean the Market Value of a share of Common Stock on the Commencement Date for a given Subscription Period. On the Commencement Date, Intel employees are granted an option to purchase Intel Common Stock, subject to the allowable limitation on the number of shares to be purchased. Under the SPP, an option is "granted" on an employee-participant's Commencement Date, which option shall expire upon the earliest to occur of the following: (a) the termination of a Participant's participation in the SPP or such Subscription Period; (b) the beginning of a subsequent Subscription Period in which such Participant is participating; or (c) the termination of the Subscription Period. The Purchase Price shall the lower of: (a) a percentage (which shall not be less than eighty-five percent (85%), referred to as the "Designated Percentage", of the Offering Price; or (b) the Designated Percentage of the Market Value of a share of Common Stock on the Purchase Date on which the Common Stock is purchased. 6. Purchase of Stock . An employee-SPP participant's option is automatically exercised, wherein the number of Common Stock is purchase based on the SPP Purchased Price, and the available accumulated payroll deductions recorded per employee-SPP participant's account. When applicable, each employee-participant shall be responsible for payment of all individual tax liability incidents to or as may result in the implementation of the SPP. For tax purposes in any jurisdiction, the Common Stock purchased upon exercise of an option shall be considered sold to or purchased by the employee-participant on the Purchase Date. Based on the current 2006 SPP, the purchase price is the lower of 85% of the fair market value (average of the high and low of the day) of the stock on either: The last trading day before the beginning of the U.S. enrollment period (grant date), or the last day of the subscription period. The number of shares purchased for the employee-participant is calculated by dividing the balance in his account by the purchase price. No fractional shares are issued. Any funds representing a fractional share will remain in your account for the next subscription period. 7. Payment and Delivery . As soon as practicable, the Intel employer shall deliver to the employee-SPP participant a record of the Common Stock purchased and the balance of any amount of payroll deductions credited to the participant's account. Finally, it has been represented that the payroll deductions are applied on employee compensation net of applicable tax on compensation; that based on the SPP incentive, an Intel employee-SPP participant, upon exercise, will be able to purchase Intel Corporation common stocks at a discount of not less than 15%; that the discount forms part of the product cost of the participating Intel subsidiary and effectively expensed out, in this case by ITPI, corresponding to the benefit/discount received by ITPI employee-participants; and that the Intel Group account this in accordance with Financial Accounting Standards No. 123 R of the US-GAAP. In reply, please be informed as follows: Section 32 (A) of the Tax Code of 1997, as amended, defines gross income as all income derived from whatever source, including compensation for services in whatever form paid, including but not limited to, fees, salaries, wages, commissions and similar items. As implemented, compensation includes payment in some form of medium other than money. Section 2.78.1 of Revenue Regulation No. 2-98, as amended, provides as follows: "Section 2.78.1. Withholding Tax on Compensation Income . (A) Compensation Income Defined. . . . (1) Compensation paid in kind. Compensation may be paid in money or in some medium other than money, as for example, stocks, bonds or other forms of property. If services are paid for in a medium other than money, the fair market value of the thing taken is the payment to be included as compensation subject to withholding . If the services are rendered at a stipulated price, in the absence of evidence to the contrary, such price will be presumed to be the fair market value of the remuneration received. If the corporation transfers to its employees its own stock as remuneration for services rendered by the employee, the amount of such remuneration is the fair market value of the stock at the time the services were rendered." (Emphasis supplied) In the instant case, the SPP incentive is provided to all qualified or eligible employees, including rank and file employees. On the "Purchase Date", ITPI employee-participants will be able purchase Intel Corporation common shares of stock at a discount of not less than 15% of the market price, based on the SPP's current designated discount. That portion of the purchased price for the Intel Corporation (a United States company) common stock funded from payroll deductions represents an investment activity of ITPI employee-participants, which does not have any Philippine tax implication. However, the discount provided under the SPP is a realized benefit actually received by the employee-participants upon exercise or purchase of the Intel Corporation common stock. If the employee-participants bought the shares at market, they would have been made to pay for the shares at prevailing market price. Consequently, the discount is considered compensation under Section 32 of the Tax Code, as amended, implemented by Revenue Regulation No. 2-98, as amended, mentioned above. That the discount is a realized benefit considered as additional compensation for the services of employee-participants becomes more evident by the fact that ITPI expensed out the discount. Consequently, to the extent that ITPI employee-participants exercise to purchase Intel common stock under the SPP, ITPI should accordingly act as the withholding agent of the government and impose the appropriate withholding tax on compensation on the discount received by ITPI employee-SPP participants, pursuant to Chapter XIII, Withholding on Wages, of the Tax Code, as amended. (BIR Ruling No. 135-97 dated December 11, 1997) HECaTD 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