Eastern Telecommunications Philippines, Inc.

July 5, 2007 BIR RULING [DA-362-07] DA 487-05 Eastern Telecommunications Philippines, Inc. 316 Sen. Gil Puyat Avenue, Salcedo Village Makati City Attention: Mr. Rodolfo Ma. A. Ponferrada and Mr. Jonathan T. Altubar Gentlemen : This refers to your letter dated March 15, 2007 stating that Eastern Telecommunications Philippines, Inc. (ETPI) and Telecommunications Technologies Phils., Inc. (TTPI) are both corporations organized and existing under the laws of the Philippines; that they hold offices at Telecom Plaza, 316 Se. Gil Puyat Avenue, Salcedo Village, Makati City; that TTPI is a wholly-owned subsidiary of ETPI; that both corporations are grantees of legislative franchises to operate telecommunications business in the Philippines, including data, internet, leased circuits, regular landlines and the latest broadband technology; that on May 1, 1986, ETPI and TTPI established the 'Eastern Telecommunications Philippines, Inc. and Telecommunications Technologies Philippines, Inc. Employees' Retirement Plan (the Retirement Plan); that the Retirement Plan is a non-contributory retirement plan created for the benefit of ETPI and TTPI's employees; that in addition to payment of retirement benefits to employees, the Retirement Plan also pays separation and death benefits to qualified employees under certain conditions; that the BIR has confirmed that the Retirement Plan is a reasonable private benefit fund and as such is exempt from income taxation pursuant to Section 32 (B) (6) (a) of the Tax Code; that based on the actuarial study and conducted by Institutional Synergy, Inc. (Insync), as of January 1, 2007, the fund assets of the Retirement Plan exceeded the actuarial accrued liability and the normal pension cost for the calendar year 2007 by P146,001,600.00; that however, the actual over-funding of the fund assets of the Retirement Plan is P65,631,700.00 as of January 1, 2007; that consequently, ETPI and TTPI would like that P50,000,000.00 of the fund assets of the Retirement Fund will be proportionately returned to them; and that ETPI and TTPI undertook to contribute to the Retirement Plan in the event its funds and resources become insufficient to discharge its obligations. In connection therewith, you now request confirmation of your opinion that the portion of the Retirement Fund of ETPI and TTPI, in excess of the amount actuarially determined to cover the benefits of all the employees, may be reverted back to ETPI and TTPI without terminating the fund and that such excess amount shall be declared as income of ETPI and TTPI. 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 Office 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 P50,000,000.00 of the P65,631,700.00, as requested, may be reverted to ETPI and TTPI without terminating the fund. However, they 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. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service