Cochingyan & Peralta Law Offices

July 20, 2007 BIR RULING [DA-402-07] 32 (A); No. 135-97; DA-353-2007 Cochingyan & Peralta Law Offices Twelfth Floor, 139 Corporate Center 139 Valero Street, Salcedo Village Makati City Attention: Atty. Anthony B. Peralta Partner Gentlemen : This refers to your letter dated June 21, 2007 requesting on behalf of your client, SYNNEX CORPORATION, a ruling on the proper rate of tax due on the earnings or income received by 12 senior employees of its local subsidiary, LINK2SUPPORT, INC. from a Restricted Stock Award ("RSA") under a Stock Incentive Plan ("SIP"). Background The salient points of the SIP are, as follows: 1. The RSA is to be issued by Synnex Corporation, a publicly-listed corporation, organized and existing under the laws of the United States. Its shares of stocks are traded in the New York Stock Exchange. 2. The recipients of the award are employees of Link2Support, Inc.-Philippines, which is a branch of Link2Support, Inc., a company organized and existing under the laws of British Virgin Islands. The said company is wholly-owned by Synnex Corporation. 3. The grant of the Restricted Stock Award in the Philippines is pursuant to a Stock Incentive Plan of Synnex Corporation. This plan was initially adopted by the Board of Synnex Corporation on September 2, 2003, and was subsequently re-adopted three (3) times, the most recent one being on January 4, 2007. The said Plan has been approved by the US Securities and Exchange Commission and is currently being implemented by Synnex Corporation. ADSIaT 4. The employee's privilege is premised upon the fact of employment which gives the employee title to the shares but not to the jus dispodendi . Hence, it is subject to the following restrictions: 4.1. The shares may not be sold, transferred, pledged or otherwise transferred without the written consent of the Company. 4.2. The employee shall have all the rights of a stockholder except for the right to transfer the shares. Accordingly, the employee will have the right to vote the shares and the right to receive cash dividends paid in respect to the shares. 4.3. Shares which have not become vested will be forfeited as of the date of termination in the event that the employment is terminated for any reason. In the event of forfeiture, no payment for the forfeited shares will be received by the employee. 5. The consideration for the restricted stock award is services rendered by the employee. The value of which, in relation to the stocks to be awarded will be determined by the Compensation Committee, which is designated by the Board and authorized to administer the 2003 Stock Incentive Plan of Synnex Corporation. 6. The vesting of the shares is scheduled as follows: 6.1. The first 1/5th of the shares subject of the award vest after the employee completes 12 months of continuous service from the Vesting Commencement Date. 6.2. Thereafter, the additional 1/5th of the shares subject of the award shall vest after the employee completes each additional 12 months of continuous service. 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. AIHECa Section 2.78.1 of Revenue Regulation (RR) 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 Restricted Stock Award (RSA) is being provided to twelve (12) senior employees of Link2Support, Inc.-Philippines for a period of five years covering the vesting period. On the commencement of the vesting period, the 12 senior employees will have the rights of a stockholder over the shares except the right to dispose of the shares without the consent of the employer. The said RSA from Synnex Corporation is being given to the senior employees of its local subsidiary in exchange for the services rendered by the said employees and the value of which, in relation to the stocks to be awarded will be determined by the Compensation Committee authorized to administer the Stock Incentive Plan (SIP) of Synnex Corporation. The fair market value of the stocks under the SIP upon the completion of the vesting period is a realized benefit actually received by the senior employees upon its delivery to them at the end of the vesting period. The value of the shares of stocks to be awarded to the senior employees is commensurate to the services being rendered by the senior employees. Consequently, the value of the shares of stock after the vesting period under the stock incentive plan is considered compensation under Section 32 of the Tax Code, as amended, and implemented by Revenue Regulations No. 2-98, as amended. EaTCSA However, considering that during the period of time between the date of grant and the date the shares become vested, the senior employees shall have the rights of a shareholder including the right to receive any cash dividends paid with respect to the shares, such cash dividends shall be subject to a final tax of 10% pursuant to Section 24 (B) (2) of the Tax Code of 1997, as amended. Accordingly, the transfer to the senior employees of the value of the shares at the end of the vesting period of the RSA and upon the vesting of full ownership thereof pursuant to the SIP shall be subject to individual income tax. Link2Support, Inc.-Philippines should act as the withholding agent of the government and withhold the appropriate withholding taxes on compensation on the value of the RSA received by Link2Support, Inc.-Philippines' senior employees, pursuant to Chapter XIII, Withholding on Wages, of the Tax Code, as amended. ( BIR Ruling Nos. 135-97 dated December 11, 1997 and DA-353-2007 dated July 3, 2007. ) 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