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September 13, 2004

BIR RULING NO. 009-04
32(A)(1) Joaquin Cunanan & Co. 29th Floor Philamlife Tower 8767 Paseo de Roxas 1226 Makati City Attention: Ms. Myrna M. Fernando Partner Tax Services Gentlemen : This refers to your letter dated February 21, 2003 requesting for confirmation of your opinion, viz: 1) That the shares granted under the ANZ ESAP Plan which are subject to disposal restriction and forfeiture clause (the latter applies to ESAP shares under incentive scheme) at the time of grant shall not be taxed until the disposal restriction is lifted; and That dividends from ANZ ESAP shares which are mandatorily reinvested through the ANZ Dividend Reinvestment Plan (DRP), with the same disposal restrictions and/or forfeiture clauses as the original shares, shall not also be taxed until the disposal restriction is lifted.

2)

It is represented that ANZ Bank was organized under the laws of Australia; that its shares are listed and traded in the Australian Stock exchange; that in order to increase employee motivation and to create a stronger link between increasing shareholder value and its employee reward system ANZ Bank has established the ANZ Employee Share Acquisition Plan (ESAP) to provide employees with the
Copyright 1994-2006 CD Technologies Asia, Inc. Taxation 2005 1

with at least one year of service with the Bank will be offered Australian registered shares in ANZ Bank free of charge. until the earlier of (a) a period of three years from the date the shares are awarded. that they will be transferred to him following termination of employment. the shares will not be forfeited. Under the ESAP. that however.opportunity to participate in the growth of the Bank. including executive officers. that the salient features of the Plan are as follows: 1. Taxation 2005 2 2. the shares and any accumulated DRP shares will be forfeited if the employee resigns or is dismissed before the end of the three year restriction period. Copyright 1994-2006 . if the employee retires or is made redundant. There are two schemes under the plan: (1) the general scheme and (2) the incentive scheme. all employees. As such. the cash dividends will be received in the form of additional ANZ shares. The additional shares will be released from restriction at the same time the participant's plan shares are released. or (b) termination of employment with ANZ in the case of the general scheme and a period of three years from the date the shares are awarded in the case of the incentive scheme. 1. Dividends accruing to the employees during the trading lock are required to be reinvested in ANZ shares under the compulsory participation requirement of the Dividend Reinvestment Plan (DRP). that under the general scheme. Inc. that under the incentive scheme. The following plan features are common to both the general and the incentive schemes: • There is a trading lock preventing employees from disposing the shares. employees cannot receive cash dividends. EcICDT • • that the main distinction between the two schemes relate to the forfeiture provisions. a Trustee will hold the shares on behalf of the employees. the shares are not forfeitable under CD Technologies Asia. During the trading lock.

unless specifically excluded by the Code". please be informed of the following: 1. However. Inc. In reply. but not limited to.6. and its payments brought within his control and disposition.83. On the other hand compensation is defined under Section 2. Section 32(A)(l) of the Tax Code of 1997. (A) of Revenue Regulations (RR) No. and that when the shares cease to be restricted shares under both scheme. Applicability of constructive receipt of compensation. the compensation must be credited or set apart for the employee without any substantial limitation or restriction as to time or manner of payment or condition upon which payment is to be made. Taxation 2005 3 .83. the mere crediting on the books of the corporation does not constitute payment. fees.any circumstances. The regulations further provides that compensation may be paid in money or in some medium other than money. but it is set apart. and similar items. should indicate an absolute transfer from one account to another. Where a corporation contingently credits its employees with a bonus stock. Section 2. such income must be unqualifiedly subject to the demand of the taxpayer. the shares granted pursuant to an employer-employee relationship under Copyright 1994-2006 CD Technologies Asia. A book entry. (Emphasis supplied). bonds or other forms of property. as for example. stocks. commissions. xxx xxx xxx" Thus. which is not available to such employees until some future date. provides that the term "gross income" includes compensation for services in whatever form paid including. To constitute payment in such a case. If the income is not credited. and must be made available to him so that it may be drawn upon at any time. 2-98 as "all remuneration for services performed by an employee for his employer under an employer-employee relationship. wages.78. if made.6 of RR 2-98 provides that: "xxx xxx xxx Sec. — The withholding tax on compensation shall apply to compensation actually or constructively paid. salaries. the Trustee can elect whether to transfer the shares to the participant or sell the shares and pay the net proceeds of sale to the participant/employee. Compensation is constructively paid within the meaning of these Regulations when it is credited to the account of or set apart for an employee so that it may be drawn upon by him at any time although not then actually reduced to possession. 2.

for a period of three years from the date the shares are awarded or the termination of employment with ANZ in case of the general scheme and a period of three years from the date the shares are awarded in the case of the incentive scheme whichever is earlier. as the same will only be taxable when actually or constructively received. a legal liability binding on the corporation is created. JR. with the same disposal restrictions and/or forfeiture clauses as the original shares. However. The reason is that when dividends are declared. it will be disclosed that the facts are different. Thus. dividends from ANZ ESAP shares which are mandatorily reinvested through the ANZ Dividend Reinvestment Plan. shall be considered null and void. then this ruling. should be recognized on the date of declaration. Commissioner of Internal Revenue Copyright 1994-2006 CD Technologies Asia. that is. With respect to dividends. The stock dividends create only a change in the composition of the stockholders' equity. Inc. the same. TaDAHE 2. if upon investigation. The reason is that there is no distribution of the assets of the corporation. Taxation 2005 4 . the stockholder has already the right thereto so much so that if the stocks are subsequently sold.) GUILLERMO L. that is. Very truly yours. the date on which the payment of dividends is approved. However. stock dividends whether of the same class or different are not income. EDISTc This ruling is being issued on the basis of the foregoing facts as represented. (SGD. PARAYNO. the sales price normally includes the accrued dividends. shall not also be taxed until the disposal restriction is lifted.the ANZ ESAP Plan which are subject to disposal restriction and forfeiture clause at the time of grant shall not be taxed until the disposal restriction is lifted. a transfer from retained earnings to capital stock. Once a dividend has been declared.