Allied Bank

September 14, 2009 BIR RULING [DA-(FIT-018) 534-09] Section 24 (B) (1); DA-279-2006 dated 4/25/06 Allied Bank Allied Bank Center, 6754 Ayala Ave., Cor. Legaspi St., Makati City Attention: Atty. Maria Cheryl Ann R. Gabo Trust and Investment Division Gentlemen : This refers to your letter dated July 31, 2009, requesting in effect exemption from the 20% final tax imposed under Section 24 (B) (1) of the Tax Code of 1997, on the interest income derived from long term deposit or investment in the form of Trust Agreement and Investment Management Agreement. ASTIED It is represented that Allied Bank's Trust and Investment Division offers to clients proper management and handling of their respective investible funds by either offering its services as a Trustor through a Revocable Trust Agreement, or as an investment manager in an Investment Management Agreement; that both agreements being offered by the Trust Investment Department invests the investible funds of its clients in long term investments within the purpose and intent of Section 24 (B) (1) of the Tax Code; that a brief background on the functions of both Agreements are as follows, to wit: 1. For the Trust Agreement: (a) The Bank acts as a Trustee for long term trust accounts and its client is the Trustor that desires to create a long term trust (referred to in the Trust Agreement as the "Portfolio"); (b) The Trustor then appoints the Trustee bank for purposes of administering and managing the Portfolio sought to be created by the Trust Agreement and shall take effect upon final constructive or actual delivery of the fund to the Trustee which shall be in full force and effect until revoked by the Trustor during his lifetime or upon the final distribution of the Portfolio to the beneficiary/ies. (c) Upon receipt of the initial fund contribution and receipts of additional funds, if any, the Bank properly documents and dates the same for the determination of the minimum five (5) year holding period for tax-exempt purposes of the said fund which shall form part of the Portfolio and whatever proceeds and/or losses realized and unrealized from the Portfolio shall be credited or charged against the same. (d) In case of a Revocable Trust Agreement, the Trustor reserves all the rights and powers to alter, amend, revoke or terminate the trust agreement or any of its terms, in whole or in part, subject to the giving of a thirty (30)-day prior written notice by the Trustor to the Trustee. 2. For Investment Management Agreement (a) The Bank acts as an Investment Manager of the funds delivered by its client to be invested and reinvested to in retail treasury bonds, corporate bonds, tier and other tax exempt securities and its client is the Principal that desires to create a long term trust (referred to the Investment Management Agreement as the "Portfolio") (b) The Agreement takes effect upon final constructive or actual delivery of the funds to the Investment Manager which shall be in full force and effect until revoked by either parties by giving a thirty (30)-day prior written notice. (c) Upon receipt of the initial fund contribution and receipts of additional funds, if any, the Bank properly documents and dates the same for the determination of the minimum five (5) year holding period for tax-exempt purposes of said fund which shall form part of the Portfolio and whatever proceeds and/or losses realized and unrealized from the Portfolio shall credited or charged against the same. ASTcaE That in both agreements, the Bank invests the Portfolio in a fixed income generating investments and does not guarantee a yield or return to its client as the income of the investments may fall or rise depending on prevailing market conditions; that the Bank further ensures that both Agreements continually retain its long-term character and no part of the Portfolio may be withdrawn within a period of five (5) years from the date of Agreements; that, however, in the event of any withdrawal by the client or assignment or transfer of any of the Agreements within the five (5)-year period, the corresponding final tax shall be withheld and remitted to the BIR in accordance with the schedule provided in the Tax Code, to wit: Four (4) years to less than Five (5) years 5% Three (3) years to less than Four (4) years 12% Less than three (3) years 20% In reply, please be informed Section 24 (B) (1) of the Tax Code of 1997 provides that "a final tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest from any currency bank deposit and yield or any other monetary benefit from deposit substitute and from trust funds and similar arrangements; . . .: Provided further, That interest income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investment evidenced by certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP) shall be exempt from the tax, Provided, finally, That should the holder of the certificate preterminate the deposit or investment before the fifth (5th) year, a final tax shall be imposed on the entire income and shall be deducted and withheld by the depository bank from the proceeds of the long-term deposit or investment certificate based on the remaining maturity thereof: Four (4) years to less than Five (5) years 5% Three (3) years to less than Four (4) years 12% Less than three (3) years 20% Such being the case, the interest income to be derived by your individual Investors through your Trust and Investments Division is exempt from final withholding tax provided that the fund is held by the trustee-bank for at least five (5) years. However, if the participation is for a period of less than 5 years, the interest income subject to a final withholding tax which shall be deducted and withheld from the proceeds of said investments and which shall be computed in accordance with the pre-terminated rate schedule under Sections 24 (B) (1) and 25 (A) (2) of the Tax Code of 1997. (BIR Ruling No. DA-064-02 dated April 3, 2002) cHECAS 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