Romulo Mabanta Buenaventura Sayoc & De Los Angeles

November 18, 2008 BIR RULING [DA-(C-135) 433-08] Romulo Mabanta Buenaventura Sayoc & De Los Angeles 30th Floor, Citibank Tower 8741 Paseo de Roxas Makati City Attention: Atty. Reynaldo G. Geronimo Partner Gentlemen : This refers to your letter dated November 13, 2008 stating that your client, NWYM, Inc., is a corporation organized and existing under the laws of the Philippines; that on July 1, 1998, NWYM, Inc. in a Declaration of Trust established an employee retirement benefit plan known as NWYM, Inc. Retirement Plan; that on November 18, 1998, the said retirement plan was approved by the BIR as a reasonable private benefit plan within the contemplation of Section 32 (B) (6) (a) of the Tax Code of 1997; that as such (a) the retirement benefits to be received by the employee-members shall be exempt from all taxes; (b) the income of the Trust Fund from its investments are exempt from income tax; and (c) the contributions of the company to the retirement plan are deductible from its gross income; that Section 2 of Article IX of the Plan requires NWYM, Inc. to make contributions to the Trust Fund in order to keep the same on an actuarially sound basis at all times; that ordinarily, the company would comply with this obligation by remitting cash; and that in these times of economic slow down, however, the company anticipates a decrease in income and some tightness in its cash position, and therefore, in order to keep up with its commitment under the Plan, NWYM, Inc. would like to transfer its parcel of land together with the improvements thereon covered by TCT No. 15362 and covered by Tax Declaration Nos. D-016-01889, D-016-01890, D-016-01891 and D-016-01892, respectively. Based on the foregoing representations, you now request for confirmation of your opinion that NWYM, Inc.'s contribution, in the form of real property, to its duly qualified NWYM, Inc. Retirement Plan, is not subject to capital gains tax and/or creditable withholding tax but is deductible as a business expense based on its book value. IaHAcT In reply thereto, please be informed that Section 34 (J) of the Tax Code of 1997 provides an employer establishing or maintaining a pension trust to provide for the payment of reasonable pensions to his employees shall be allowed as a deduction (in addition to the contributions to such trust during the taxable year to cover the pension liability accruing during the year, allowed as a deduction under Subsection (A) (1) of this Section) a reasonable amount transferred or paid into such trust during the taxable year in excess of such contributions, but only if such amount: (1) has not therefore been allowed as a deduction; and (2) is apportioned in equal parts over a period of ten (10) consecutive years beginning with the year in which the transfer or payment is made. Generally, Company establishing or maintaining a pension trust would comply with its obligation by remitting cash instead of real properties. However, considering that the contribution to the pension fund is a mere remittance in anticipation of a future expense, in the form of retirement benefits to its retiring employees if and when they retire, a departure from the ordinary way of contribution like real property would not deny the said company from claiming the book value of the said property as a deduction under Section 34 (J), supra. Moreover, the transfer by way of contribution of the said parcel of land together with its improvements thereon by NWYM, Inc. to the NWYM, Inc. Retirement Plan is likewise not a taxable transaction. This is so because the said transfer is in essence a payment of its obligation under the Plan and NWYM, Inc. would not incur any gain as a result of said transfer since NWYM, Inc. will not receive anything in return considering that it would not benefit any reduction from its liabilities in its balance sheet. Besides, the obligation to pay retirement benefits is not yet recorded as the same still not having accrued. SUCH BEING THE CASE, this Office hereby confirms your opinion that NWYM, Inc.'s contribution to the NWYM, Inc. Retirement Plan in the form of real property is not subject to capital gains tax and/or creditable withholding tax. However, the said contribution shall be deductible as a business expense under Section 34 (J) of the Tax Code of 1997 based on its book value. aHSTID 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