BIR Ruling No. 092-11

March 21, 2011 BIR RULING NO. 092-11 Section 32 (B) (6) (a); BIR Ruling No. ERP-063-2009; BIR Ruling No. DA-441-05 Angara Abello Concepcion Regala & Cruz ACCRA Bldg., 122 Gamboa St., Legaspi Village, 0770 Makati City Attention: Atty. Rubi Rose J. Yusi Atty. Anne Jamaica Eya-Bagaloyos Gentlemen : This is refers to your letter dated February 5, 2010, on behalf of your client, STMICROELECTRONICS, INC. (Formerly NF Philippines, Inc.) , requesting issuance of a new Certificate of Qualification as a BIR approved Retirement Plan due to change of name of the said corporation. Documents submitted disclosed that the NF Philippines, Inc., with TIN 007-060-221-000, is a domestic corporation registered with the Securities and Exchange Commission (SEC) under Company Registration No. CS200809531; that NF Philippines, Inc. established the NF Philippines Retirement Plan for the benefit of its employees; that on April 1, 2009, the Bureau of Internal Revenue (BIR) issued BIR Ruling No. ERP-063-2009 qualifying the NF Philippines Retirement Plan to be a "reasonable retirement benefit plan" within the contemplation of Section 32 (B) (6) (a) of the 1997 Tax Code, as amended; that NF Philippines, Inc. subsequently amended its Articles of Incorporation to change its corporate name to STMicroelectronics, Inc. as evidenced by SEC Certificate dated February 25, 2009; that its BIR Certificate of Registration was accordingly updated on March 17, 2009 to reflect the change of name; that the NF Philippines Retirement Plan was accordingly amended to be STMicroelectronics, Inc. Retirement Plan ; that in a sworn statement the following amendments in the Retirement Rules and Regulations were made: Section Old Provision Amended/New Provision 1.16 Retirement Board shall mean the Board of Trustees shall mean the body constituted by the Board of body constituted by the Board of Directors to act on behalf of the Directors to act on behalf of the Board of Directors and coordinate Board of Directors and coordinate with the appointed Trustee of the with the appointed Fund trustee of Plan, among the members of whom the Plan, among the members of the signatories of the Plan shall whom the signatories to the Plan emanate. shall emanate. It shall be responsible for the general administration of the Plan in accordance with Section 6 hereof. 1.18 Trustee of "Board of Trustee" Fund Trustee shall mean the shall mean the person or persons or person or persons or a corporate a corporate entity appointed by the entity appointed by the Employer, Employer who shall be responsible through the Board of Trustees, who for the general administration of the shall manage the Fund or portions of Plan in accordance with Section 6 the Fund in accordance with a duly and in accordance with the Trust executed trust agreement (the "Trust Agreement. Agreement"). The masculine pronoun whenever The masculine pronoun whenever used herein shall include the used herein shall include the feminine gender and the single feminine gender and the single number whenever used herein shall number whenever used herein shall include the plural and the plural and include the plural and the plural and singular unless the context clearly singular unless the context clearly indicates a different meaning. indicates a different meaning. 4.4 In the event that a Member dies or is In the event that a Member dies or is retired by the Employer due to total retired by the Employer due to total and permanent disability, his Death and permanent disability, his death and Disability Retirement Benefit or permanent disability retirement shall be an amount equal to 100% of benefit shall be equal to 100% of Plan Salary for every year of service Plan Salary for every year of Credited as of date of death or disability. Service if his Credited Service is 19 years or less as of date of death or permanent disability. Death or disability benefit shall be equal to 150% of the Member's Plan Salary for each year of Credited Service when the Member's Credited Service is beyond 19 years as of date of death or permanent disability. 4.5 Any Member who was terminated or Any Member who was terminated or separated by the Employer without separated by the Employer for cause or for causes not due to his causes not due to his own fault, own fault, misconduct or material misconduct or material neglect shall neglect shall be entitled to receive an be entitled to receive an amount amount equal to 100% of Plan equal to 100% of Plan Salary for Salary for every year of Credited every year of Credited Service when Service as of date of separation. his Credited Service is 19 years or Such benefit shall form part or all of less of the date of termination. and not an addition to the benefit Severance benefit shall be equal to required by the Labor Code. 150% of the Member's Plan Salary for each year of Credited Service when the Member's Credited Service is beyond 19 years as of date of termination. Such benefit shall form part or all of and not an addition to the benefit required by the Labor Code. 5.2 Reduction of Employer's Future Non-application to Increased Benefits. Contributions. Any portion, or all, of the benefits Forfeitures arising from severance of payable under this Plan, which was employment, death or for any other not paid to the Member by virtue of reason, shall not be applied to increase the limitations specified in these the benefits any employee would Rules and Regulations, shall be used otherwise receive under the Plan at any to reduce future contributions of the time prior to the termination of the Employer. Plan at the complete discontinuance or * Re-numbered as Section 5.3 employer contributions thereunder. 6.4 Manner of Payment. Manner of Payment. All benefits payable to a Member All benefits payable to a Member shall be in the form of a single sum shall be in the form of a single sum to be paid within ninety (90) days to be paid within ninety (90) days from his date of retirement, death of from his date of retirement, death of disability payable directly to the disability payable directly to the Retiree or to his designated Retiree or to his designated beneficiary or his legal guardian as beneficiary or his legal guardian as the circumstances of each case may the circumstances of each case may warrant. warrant. However, in no case will the beneficiary be entitled to any interest on the amount of the benefit during the period that payment was deferred because of the absence of a judicial guardian. 8.2 (b) Continue to hold and administer the Continue to hold and administer the Fund until such time as the trustee Fund until such time as the trustee shall deem advisable, and, from time shall deem advisable, and, from time to time, pay to any Member who to time, pay to any Member who may be eligible for benefits under may be eligible for benefits under Section 4 of the Plan such amounts Section 4 of the Plan such amounts representing the Member's equity in representing the Member's equity in the Fund at the time of such the Fund at the time of such payment. In determining the said payment. In determining the said amount of benefits payable to a amount of benefits payable to a Member, his equity at the time of the Member, his equity at the time of the termination of the Employee's termination of the Employee's contribution, as well as earnings or contribution, as well as earnings or losses, if any, realized or incurred by losses, if any, realized or incurred by the Fund from and after such the Fund from and after such termination of the contribution up to termination of the contribution up to the date of payment of the benefits the date of payment of the benefits shall be taken into consideration and shall be taken into consideration and used as the basis of the amount of used as the basis of the amount of benefits to be paid. In the event the benefits to be paid. In the event the Plan is ultimately terminated the Plan is ultimately terminated the fund shall be distributed in the fund shall be distributed in the manner provided under the manner provided under the preceding subsection (a) hereof. preceding subsection (a) hereof. Any benefits paid to a Member under the foregoing subsections 2 (a) and 2 (b) hereof shall be considered as advanced payment or in lieu of, or as compliance with any benefit which the Employer may be required to pay under any law, regulation or contract, including any Collective Bargaining Agreement. 10.6 Qualification of Plan Qualification of Plan The Rules and Regulations of the The Rules and Regulations of the Plan have been designed to meet Plan have been designed to meet present and legal requirements as a present and legal requirements as a tax-exempt qualified Plan. The tax-exempt qualified Plan. The Employer reserves the right to Employer reserves the right to amend any provisions of the Plan in amend any provisions of the Plan in order that it shall maintain its tax order that it shall maintain its tax qualified status in accordance with qualified status in accordance with the present and any future rules and the present and any future rules and regulations. regulations. In view of the foregoing, pursuant to Revenue Regulations No. 1-68 promulgated by the Department of Finance, the Board of Trustees shall see to it that the Fund Trustee will not: (a) lend any part of the Fund's income or corpus without adequate security and a reasonable rate of interest; (b) pay any compensation in excess of a reasonable allowance for salaries or other compensation for personal services actually rendered; (c) make any part of its services available on a preferential basis; (d) make any substantial purchase or securities or any other property for more than adequate consideration in money or money's worth; (e) sell any substantial part of the Fund's securities or other property, for less than an adequate consideration in money or money's worth; or (f) engage in any other transaction which results in a substantial diversion of the Fund's income or corpus. to or from the employer, to or from a corporation controlled by the employer through the ownership, directly or indirectly, or 50% or more of the total combined voting power of all classes of stock entitled to vote or 50% or more of the total value of shares of all classes of stock of the corporation. The Employer shall secure from the Bureau of Internal Revenue a prior determination of the qualification of the Plan to the privileges afforded by law and other rules and statutes. that in support of your request, the following documents were completely submitted on May 6, 2010: SCaTAc 1) BIR Certificate of Registration of STMicroelectronics, Inc.; 2) SEC Certification of Filing of the Amended Articles of Incorporation; 3) Amended Articles of Incorporation; 4) NF Philippines Retirement Plan (old); 5) STMicroelectronics, Inc. Retirement Plan (new); 6) Sworn Statement of the Amendments by the authorized representative of STMicroelectronics, Inc.; 7) Copy of BIR Ruling No. ERP-063-2009 dated April 1, 2009. In reply, please be informed that since the foregoing amendments are not prejudicial to the employee-members, they will not affect the Plan's qualification under Section 32 (B) (6) (a) of the Tax Code of 1997, the fund created to implement the provisions of the Plan and the retirement pay to qualified retirees remain exempt pursuant to said law. Moreover, the STMicroelectronics, Inc. Retirement Plan is no longer subject to the 20% final tax on interest and/or yield on deposit substitute instruments and on interest on its Philippine currency bank deposits. (CIR vs. Court of Appeals, G.R. No. 95022 dated March 23, 1992; BIR Ruling No. DA-441-05 dated October 25, 2005) Finally, it is requested that a copy of this latest amendatory letter of exemption be attached to the annual information return which the trustee of STMicroelectronics, Inc. Retirement Plan will file on April 15 of each year pursuant to Revenue Regulations No. 1-83, amending Revenue Regulations No. 1-68, and implementing Section 28 (b) (7) (A) of the Tax Code, as amended [now 32 (B) (6) (a) of the Tax Code of 1997]. 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.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue