BIR Ruling [DA-528-04]

October 12, 2004 BIR RULING [DA-528-04] Punongbayan & Araullo 20th Floor, Tower 1 The Enterprise Center 6766 Ayala Avenue Makati City Attention: Atty. Romeo H. Duran Tax Principal Gentlemen : This refers to your letter dated September 15, 2004 stating that your client, Cutler-Hammer Asia Corporation (formerly Westinghouse Philippines) Employees' Retirement Fund (Cutler Retirement Fund) is a trusteed retirement plan managed by Metropolitan Bank and Trust Company (Metrobank) and is duly certified by the Bureau of Internal Revenue (BIR) as a tax-exempt retirement plan; that Cutler Retirement Fund was set up in 1979 and was created under Republic Act (R.A.) No. 4917, "An Act Providing that Retirement Benefits of Employees of Private Firms shall not be subject to attachment, levy, execution or any tax whatsoever", and in accordance with Section 28(b)(7)(A) and in relation to Section 53(b) of the Tax Code (now Section 32(B)(6)(a) in relation to Section 60(B) of the Tax Code of 1997); that Cutler Retirement Fund owns 60% of Cyclotron, which is equivalent to 54,000 shares, with par value of P10.00 per share, of the total 90,000 shares subscriptions; that it will be selling its entire stockholdings in Cyclotron to SYS Resources, Inc. (SYS Resources) for a total consideration of P17,236,020.00; and that since the total par value of the subject stockholdings is P54,000.00 only, the Cutler Retirement Fund will have a gain of P16,696,020.00 on the sale transaction. In connection therewith, you now request for a ruling on the following "1. Whether or not Cutler Retirement Fund is exempt from capital gains tax on the sale of its shares of stock in Cyclotron to SYS Resources; and "2. Whether or not Cutler Retirement Fund, is exempt from the documentary stamp tax on the sale of such shares." In reply thereto, please be informed that Section 60(B) of the Tax Code of 1997 provides "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 Cutler Retirement Fund is an employee's trust fund established under then Section 28(b)(7)(A) of the Tax Code [32(B)(6)(a) of the Tax Code of 1997] for the exclusive benefit of all the employees of Cutler-Hammer Asia Corporation 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 the sale of the Cyclotron shares to SYS Resources is exempt from capital gains tax under Section 24(C) of the Tax Code of 1997 and consequently from withholding tax prescribed in Revenue Regulations No. 2-98, as amended. ( BIR Ruling No. DA087-02 dated May 2, 2002 ) However, the sale of the aforesaid shares of stock in Cyclotron by Cutler Retirement Fund to SYS Resources is subject to documentary stamp tax at the rate of P0.75 on each P200 or fractional part of the par value of the stocks as prescribed in Section 176 of the Tax Code of 1997, as amended by R.A. No. 9243. ECDHIc 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