BIR Ruling No. 012-11

January 19, 2011 BIR RULING NO. 012-11 Section 27 (A), 1997 Tax Code; BIR Ruling No. 102-95; BIR Ruling No. 049-97; BIR Ruling No. DA-349-06; BIR Ruling No. DA-113-05; BIR Ruling No. DA-252-98 Banco de Oro 12 ADB Avenue, Ortigas Center Mandaluyong City Attention: Ms. Armina C. Empeo Account Officer and Ms. Ma. Carina S. Antonio First Vice President Gentlemen: This refers to your letter dated December 14, 2009 requesting, in behalf of your client Atlantic Gulf & Pacific Company of Manila, Inc. (AG&P), for confirmation of their opinion that the amount of P23,000,000.00 which represents the portion of the AG&P Retirement Fund's overfunding be reverted to AG&P without terminating the Fund or affecting the Plan's qualification under Section 32 (B) (6) (a) of the Tax Code. It is represented that AG&P, with Taxpayer's Identification No. 000-155-905-000, is a domestic corporation duly organized and existing under the laws of the Philippines with principal office address at Units 815-820 AIC-Burgundy Empire Tower, ADB Ave. cor. Garnet & Sapphire Sts.,Ortigas Center, Pasig City; that on January 1, 1976, AG&P established the AG&P Retirement Plan; that the Plan was determined by the Bureau of Internal Revenue to be a "reasonable private benefit plan" and therefore exempt from income tax; that the Banco de Oro Unibank, Inc. Trust and Investments Group is the trustee of the Plan's Fund; that as of September 30, 2009, the value of the Fund with BDO-Trust stood at P61,133,379.38; that the latest IAS 19 Actuarial Report submitted by an independent actuary, Feliciano F. Miravite, Inc. dated December 8, 2009, shows that the Plan's accrued liability is P29,004,585.00, translating to an overfunding of P32,128,795.00; that on December 9, 2009, AG&P and the Board of Trustees of the Plan issued separate Letters of Instruction requesting for the return to the Company of the amount of P23,000,000.00 representing a portion of the Fund's overfunding; and that AG&P acknowledges that it will be liable for income tax on the amounts returned to the Company and has undertaken to immediately contribute such amounts to the Fund if this becomes insufficient to discharge the obligations under the Plan rules and regulations. AacDHE In reply thereto, please be informed that this Office had already occasioned to rule on the matter when it said in BIR Ruling No. DA252-98 dated June 19, 1998 and later reiterated in BIR Ruling No. DA113-05 dated April 5, 2005, 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 rulings are in all fours similar to the instant case, your opinion is hereby confirmed 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 P23,000,000.00 may be reverted to AG&P without terminating the fund. However, AG&P 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, as amended. (BIR Ruling No. 102-95 dated July 7, 1995; BIR Ruling No. 049-97 dated April 14, 1997; and DA-349-06 dated June 6, 2006) In addition and as a condition to the reversion to AG&P of its overpaid contribution to the Retirement Plan, the same shall be reverted to the Company only after all liabilities of the Plan has been satisfied pursuant to Section 3 of the Plan, viz. : "Section 3. Irrevocability. "All contributions made by the Company to the Retirement Fund shall be held, solely and exclusively, for the benefit of the members of their Beneficiaries, and no part of said contributions, or the income thereon, should be used for or diverted to purposes other than for the exclusive benefit of such Members and their Beneficiaries. However, after all the liabilities of the Plan have been satisfied, any amount remaining in the Retirement Fund as the result of overpayment by the Company to the Retirement Fund may be reverted to the Company." 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. EcTaSC Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue