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DA-152-07 - Restricted Stock Unit Plan
DA-152-07 - Restricted Stock Unit Plan
Gentlemen :
This refers to your letter dated February 12, 2007 requesting for a ruling on the
proper rate of tax due on the earnings or income received by your executive
employees from a Restricted Stock Unit Plan.
The scheme under the Restricted Stock Unit Plan ("RSUP"), is as follows:
3. Under the Plan, a certain number of shares are granted but are not
transferred during a restricted period of three (3) years from the
time of the grant. During this period, the Stock Units are
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non-tradable and do not entitle the participant to any shareholder
rights, e.g., dividend payments or voting rights, until the shares are
vested and transferred to the participant at the end of the restricted
period.
The term "fringe benefit" means any good, service, or other benefit furnished
or granted by an employer in cash or in kind, in addition to basic salaries, to an
individual employee (except rank and file employee).
It is clear from your representations that the executives of NPI who are
qualified under your RSUP receive benefits either in Nestlé SA shares or its cash
equivalent which clearly constitute a fringe benefit under Section 2.33 (A) of RR No.
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3-98. Such being the case, the benefits under your RSUP are subject to the fringe
benefit tax under Section 33 (A) of the Tax Code of 1997, as amended, which
provides, as follows:
From the above-quoted provision, NPI being the employer, is liable to pay a
final tax of 32% based on the grossed-up value of the benefit granted, which
represents the actual monetary value of the aforesaid benefit under your RSUP.
Accordingly, the 32% tax is payable upon the delivery of the shares of stock or its
cash equivalent.
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The following are the requisites for deductibility of business expenses from
gross income:
For this purpose, it is clear that the deduction shall be made in the year when
the related expense is incurred which in this case is at the time of the delivery of the
shares of stock of Nestlé SA or its cash equivalent.
Such being the case, NPI can claim as deduction from gross income the
grossed-up monetary value of the benefit that is furnished to its executives under the
RSVP, which is the value of the shares of stock of Nestlé SA at the time of its
delivery to the executives participating in the RSVP, or its cash equivalent. EHScCA
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.
By:
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