Reorganization and Consequent Succession by SmithKline Beecham Research Ltd.

April 14, 1997 BIR RULING NO. 049-97 53 (b) 000-00 049-97 Sycip Gorres Velayo & Co. 6760 Ayala Avenue, Makati City Attention: Atty . F . G . Tagao Gentlemen : This refers to your letter dated May 22, 1996 stating that your client, Sterling Products International, Inc. ( SPII ) is involved in a global reorganization; that SPII is a US corporation with a Philippine branch ( SPII-Phils .) and has a BIR qualified retirement plan; that SPII was formerly a US subsidiary of another US company, Sterling Winthrop, Inc. ( SWI-US ); and SWI-US was acquired by SmithKline Beecham PLC ( SBPLC ), and SWI-US transferred its ownership in shares in various entities, such as SPII shares of stock, to SBPLC in cancellation of SBPLC shares in SWI-US; that in addition, SBPLC has the following subsidiaries, to wit: cdt a. Dungarvan, Inc. ( DI ), a US company; b. SmithKline Beecham Intercredit BV ( SBIBV ), a Dutch subsidiary; and c. SmithKline Beecham Research Ltd. ( SBRL ), a UK company with a Philippine branch ( SBRL-Phils .) and a BIR qualified retirement plan; that SBPLC transferred its SPII and DI shares of stock to SBIBV, the Dutch subsidiary of SBPLC; that subsequently, SBIBV transferred its SPII shares of stock to DI; and that as part of the worldwide reorganization, the following steps will be taken: a. SBRL, through SBRL-Phils. will purchase the SPII shares of stock from DI. The payment for the SPII shares will go to DI; b. After the purchase, SBRL will absorb SPII's employees and operations (inclusive of the SPII-Phils. operations and employees). All assets of SPII and SPII-Phils., including its leasehold rights on land owned by the SPII Retirement Plan in the Philippines will be transferred to SBRL in liquidation, and SPII and SPII-Phils. will be dissolved and liquidated; c. SBRL will succeed as "employer," in what used to be the SPII Retirement Plan, but the succession will only be temporary because it will be done only to effect the smooth transfer of SPII employees and their actuarial accrued benefits to the already existing SBRL Retirement Plan; d. As the successor "employer" to the SPII Retirement Plan, SBRL will sell the leasehold right on the land owned by the SPII Retirement Plan to the SPII Plan Trustee; e. Thereafter, the SPII Plan Trustee will sell the land and the leasehold rights; f. Once the employees, and the actuarial accrued benefits of the absorbed employees are transferred to the SBRL Retirement Plan, and the Trustee of the SPII Retirement Plan has sold the land and leasehold rights thereon, SBRL will terminate the SPII Retirement Plan; and g. After payment of the SPII Plan liabilities and the transfer of the SPII employees and their actuarial accrued benefits to the SBRL Trust Fund, any excess funds of the SPII Retirement Trust fund, including the proceeds from the sale of the land and leasehold rights thereon shall revert to SBRL as the successor employer. You now request confirmation of your opinion on the following, viz : 1. SBRL can succeed, although temporarily, as "employer" in the SPII Retirement Plan to effect the smooth transfer of SPII employees and their actuarial accrued benefits from the SPII Retirement Plan to the SBRL Retirement Plan; 2. The SPII Retirement Plan, when taken over by the SBRL as successor "employer", will maintain its tax exempt status; and thus, the sale by the SPII Plan Trustee of the land and the leasehold rights thereon is exempt from tax; 3. The transfer of the actuarial accrued benefits of the SPII employees to the SBRL Retirement Plan is exempt from tax; 4. The excess funds of the SPII Retirement Fund, including the proceeds from the sale of the land and the leasehold rights thereon, after transfer of the actuarial accrued benefits of the SPII employees to the SBRL Retirement Plan, and paying off other liabilities of the SPII Retirement Plan, will revert to SBRL as successor employer and taxable to SBRL and not to SPII. In reply, please be informed that since the foregoing reorganization and consequent succession by SBRL as the "employer" of what used to be the SPII Retirement Plan are not prejudicial to the employee-members of the existing SBRL Retirement Plan and to the absorbed employee-members of what used to be the SPII Retirement Plan, they will not affect SBRL Retirement Plan's qualification under Republic Act No. 4917 [now Section 28(b)(7)(A) of the Tax Code as amplified by Revenue Regulations No. 1-83] and therefore, the fund created to implement the provisions of the plan and the retirement pay to qualified retirees remain exempt pursuant to said law as decided in BIR Ruling No. DA-201-96 dated June 18, 1996. In addition, pursuant to Section 53(b) of the Tax Code as amended, the employees' 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 shall be exempt from tax, if the following conditions are fulfilled, viz .: 1. The 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 used for, or diverted to, purposes other than for the exclusive benefit of the parties. Considering finally, that pursuant to the reorganization SBRL shall absorb the SPII employees and operations and that all assets of SPII, including its leasehold rights on land owned by the SPII Retirement Plan will be transferred to SBRL in liquidation, and SPII will be dissolved and liquidated, SBRL will be constituted as the successor corporation, SPII having been dissolved and liquidated. cdti Accordingly, your following opinions are hereby confirmed, to wit: 1) SBRL can succeed, although temporarily as "employer" in the SPII Plan to effect the smooth transfer of SPII employees and their AAB to the SBRL Plan; 2) The SPII Retirement Plan, when taken over by SBRL as successor "employer", will maintain its tax exempt status, and the sale by the SPII Plan Trustee of the land and the leasehold rights therein is exempt from tax; 3) The transfer of the actuarial accrued benefits of the SPII employees to the SBRL is exempt from tax; and 4) The excess funds of the SPII Retirement Fund, including the proceeds from the sale of the land and the leasehold rights thereon, after transfer of the actuarial accrued benefits of the employees to SBRL Retirement Plan, and paying off other liabilities of the SPII Retirement Plan will revert to SBRL as successor employer and taxable to SBRL and not SPII. 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, and/or any of the requirements imposed in this letter are not complied with, then this ruling shall be considered null and void. cdi Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue