1.

Yes. The sale is subject to tax.

The part of the proceeds of the sale which corresponds to the share of
Victoria’s Milling Company (VMC) is subject to tax, on the other hand, Section 53
(B) of the Tax Code provides that employees’ trust shall not be subject to tax
provided that the following elements have been complied with:

a.) That the contributions are made to the trust by the employer, or
employee, or both;
b.) Such contributions are made 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
c.) Under the trust instrument, it is impossible for any part of the income
to be used for or diverted to purposes other than for the exclusive
benefit of the employees.

Given that the contributions were made by the employer and the employees
for the purpose of distributing the same as retirement and pension benefits and that
a part of the trust fund was used as an investment as evidenced by the Memorandum
of Agreement, where such investment inured to the benefit of the employees, then
all the necessary requisites for the tax exemption of the proceeds of sale, from the
property co-owned by the employee’s trust have been complied with.

Ergo, while the share of VMC from the proceeds of the sale is subject to tax,
the share of Miguel J. Ossorio Pension Foundation Incorporated (MJOPFI) which
corresponds to 49.59% should not have been subject to tax which makes the same
entitled to a tax refund for the amount of tax paid on the share of MJOPFI.

2.

Yes. The income will be subject to tax but only the net taxable income of Php
250, 000.

Under the Tax Code, trusts can utilize allowable deductions and special
deductions in order to reduce the amount of the taxable base.
 Therefore, assuming that the Trust is in the form of an irrevocable trust, the
Trust as a separate taxpayer can utilize both the Php 500, 000 as allowable deduction
and the distributed shares to the beneficiaries in the amount of Php 250, 000 as a
special deduction which reduces the taxable base to Php 250, 000 only.

As for the declaration of the income, since it is an irrevocable trust, the Trust
as a separate taxpayer should declare the income and not the beneficiaries nor the
trustor.