Tax Consequence of Capital Gain Realized by SGV & Co. Provident Plan from the Distribution of Assets

August 3, 1988 BIR RULING NO. 368-88 28 (b) (7) (A); 66 000-00 368-88 Gentlemen : This refers to your letter dated May 26, 1988 requesting confirmation of your opinion to the effect that the capital gain that will be realized by SGV & Co. Provident Plan from the distribution of the assets of your client, Owl Realty Corporation in complete liquidation is exempt from income tax. It is represented that Owl Realty Corporation is a domestic corporation, the entire outstanding capital stock of which is owned by the SGV & Co. Provident Plan; that the SGV & Co. Provident Plan is a qualified retirement benefit plan within the contemplation of Section 28(b)(7)(A) of the Tax Code; and that Owl Realty Corporation is now contemplating to dissolve, as a consequence of which it will distribute its assets to the SGV & Co. Provident Plan upon the surrender by the latter of all its outstanding shares to the former. In reply thereto, I have the honor to inform you that one of the benefits and/or privileges that a qualified employees' retirement plan within the purview of Section 28(b)(7)(A) of the Tax Code, as amended is entitled, is exemption from income tax of the income of the trust fund from its investments. (Section 53(b), Tax Code, as amended) However, its income from interest and/or yield on deposit substitute instruments; and interest on its savings and time deposits paid or accrued beginning August 1, 1986 shall be subject to a final tax of 20% pursuant to Section 21(c)(1) in relation to Section 50(a) of the Tax Code, as amended. Such being the case, and since the SGV & Co. Provident Plan is a qualified employees retirement plan within the purview of Section 28(b)(7)(A) of the Tax Code, as amended, the capital gain, if any, which will be realized by it from the distribution of the assets of the Owl Realty Corporation in complete liquidation is not subject to income tax. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner