BIR Ruling [DA-487-05]

November 30, 2005 BIR RULING [DA-487-05] DA 113-05 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 October 10, 2005 stating that your client, Fujitsu Phils., Inc. a domestic corporation duly organized and existing under the laws of the Philippines with principal office address at 2nd Floor, United Life Building, 837 A. Arnaiz Avenue, Legaspi Village, Makati City has on January 1, 1989 established a non-contributory multi-employer retirement plan (Plan); that the Plan was determined by the Bureau of Internal Revenue (BIR) to be a reasonable private benefit plan and therefore exempt from income tax; that aside from Fujitsu Phils., Inc., the Plan now includes the following participating companies: Wesolv Open Computing, Inc., Weserv Systems International, Inc. and Wecare Technology Services Corporation; that since 1995, the Plan has invested the total amount of P44,018,390.00 in capital stock of Fujitsu Philippines, Inc. at the price of P10.00/share; that at present, the value of such shares stands at P49.794/share, representing a growth of 400% from date of purchase; that the Board of Trustees of the Plan intends to sell 100% of the employer corporation shares it is holding at P49.80/share to an entity which has manifested its firm commitment to purchase the same at the stated price; that based on the actuarial valuation of the Plan conducted last March 31, 2005 by E.M. Zalamea Actuarial Services, Inc., if the above sale of the shares pushes through, the Plan will be over-funded by an estimated amount of P197,000,000.00; that after the proposed sale, the Board of Trustees of the Plan intends to return the amount of P150,000,000.00 representing 76% of the over-funding to the Fujitsu Phils., Inc. and the Participating Companies proportionately and as applicable; that Fujitsu Phils., Inc. and the Participating Companies acknowledge that they will be liable proportionately for income tax on the amounts returned to said companies; and that Fujitsu Phils., Inc. and the Participating Companies are prepared to issue and undertaking that they will immediately contribute such proportionate amounts to the Retirement Fund if said fund becomes insufficient to discharge all obligations of the Plan. Based on the foregoing representations, you now request confirmation of your opinion that a portion of the fund in excess of the amount actuarially determined to cover the benefits of all the employees in the approximate amount of P150,000,000.00 may accordingly be reverted to Fujitsu Phils., Inc. and the Participating Companies proportionately without terminating the fund or affecting the Plan's qualification under Section 32(B)(6)(a) of the Tax Code of 1997. In reply thereto, please be informed that in BIR Ruling No. DA252-98 dated June 19, 1998 and later reiterated in BIR Ruling No. DA113-05 dated April 5, 2005, this Office has consistency ruled 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 cases 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 P150,000,000.00 may be reverted to Fujitsu Phils., Inc. and the Participating Companies proportionately without terminating the fund. However, Fujitsu Phils., Inc. and the Participating Companies 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. 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. aDIHCT Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service