BIR Ruling [DA-490-04]

September 14, 2004 BIR RULING [DA-490-04] Prudential Bank 6787 Ayala Avenue Makati City Attention: Ms. Anna Maria P. Ylagan Senior Assistant Vice President Gentlemen : This refers to your letter dated June 3, 2004 stating that Prudential Bank, in its capacity as Investment Manager of Prudential Bank Employees Retirement Plan, purchased a parcel of land located at F. Manalo Street, Punta, Sta. Ana, Manila with an area of 20,000 square meters covered by TCT No. 145074 through a Deed of Sale and a Supplemental Deed of Sale dated April 10, 1981 and July 21, 1981, respectively; that on May 7, 2004. Prudential Bank sold the said property to Serviam Foundation, Inc., a non-stock, non-profit corporation for and in consideration of P95,000,000.00. In connection therewith, you now request for a ruling that the sale of the abovementioned parcel of land by Prudential Bank, in its capacity as Investment Manager of Prudential Bank Employees' Retirement Plan, a qualified reasonable retirement benefit plan, under Section 32(B)(6)(a) of the Tax Code of 1997, is exempt from capital gains tax pursuant to Section 60(B) of the Tax Code of 1997. In reply thereto, please be informed that Section 60(B) of the Tax Code of 1997 provides that "Sec. 60. Imposition of Tax . "xxx xxx xxx "(B) Exception . The tax imposed by this Title shall not apply to employee's trust which forms part of a pension, stock bonus or profit-sharing plan of an employer for the benefit of some or all of his employees (1) if contributions are made to the trust by such employer, or employees, or both for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan, and (2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees: . . . " Considering that the Prudential Bank Employees' Retirement Plan is an employee's trust fund established under Section 32(B)(6)(a) of the Tax Code of 1997 for the exclusive benefit of all the employees of Prudential Bank and the corpus or income of the fund is not used for or diverted to purposes other than for the exclusive benefit of the members and their beneficiaries, this Office holds that its investments remain exempt from income tax and consequently from withholding tax pursuant to Section 60(B) of the Tax Code of 1997. Accordingly, the income derived from the sale of the Sta. Ana property is exempt from capital gains tax imposed under Section 24(D)(1) of the Tax Code of 1997. ( BIR Ruling No. DA087-02 dated May 2, 2002 ) However, the sale of the aforesaid parcel of land by Prudential Bank, in its capacity as Investment Manager of Prudential Bank Employees' Retirement Plan is subject to documentary stamp tax imposed under Section 196 of the Tax Code of 1997, as amended. HTDcCE 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service