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

2) 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.

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
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 opportunity to participate in the growth of the Bank; that the salient features of the
Plan are as follows:

1. Under the ESAP, all employees, including executive officers, with

at least one year of service with the Bank will be offered
Australian registered shares in ANZ Bank free of charge. There are
two schemes under the plan: (1) the general scheme and (2) 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; until the earlier of (a) a period of three
years from the date the shares are awarded, 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.

• During the trading lock, a Trustee will hold the shares on

behalf of the employees.

• 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). As such, employees cannot
receive cash dividends; 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. EcICDT

that the main distinction between the two schemes relate to the forfeiture provisions;

1. that under the incentive scheme, 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; that
however, if the employee retires or is made redundant, the shares
will not be forfeited; that they will be transferred to him following
termination of employment.

2. that under the general scheme, the shares are not forfeitable under
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 any circumstances.

and that when the shares cease to be restricted shares under both scheme, 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.

In reply, please be informed of the following:

1. Section 32 (A) (l) of the Tax Code of 1997, provides that the term "gross
income" includes compensation for services in whatever form paid including, but not
limited to, fees, salaries, wages, commissions, and similar items. On the other hand
compensation is defined under Section 2.78. (A) of Revenue Regulations (RR) No.
2-98 as "all remuneration for services performed by an employee for his employer
under an employer-employee relationship, unless specifically excluded by the Code".
The regulations further provides that compensation may be paid in money or in some
medium other than money, as for example, stocks, bonds or other forms of property.

However, Section 2.83.6 of RR 2-98 provides that:

"xxx xxx xxx

Sec. 2.83.6. Applicability of constructive receipt of compensation. —

The withholding tax on compensation shall apply to compensation actually or
constructively paid. 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. To constitute payment in such a case, 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, and must be made available to him so that it
may be drawn upon at any time, and its payments brought within his control and
disposition. A book entry, if made, should indicate an absolute transfer from one
account to another. If the income is not credited, but it is set apart, such income
must be unqualifiedly subject to the demand of the taxpayer. Where a
corporation contingently credits its employees with a bonus stock, which is not
available to such employees until some future date, the mere crediting on the
books of the corporation does not constitute payment. (Emphasis supplied).

xxx xxx xxx"

Thus, the shares granted pursuant to an employer-employee relationship under

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, that is, for a
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 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. TaDAHE

2. With respect to dividends, the same should be recognized on the date of

declaration, the date on which the payment of dividends is approved. The reason is
that when dividends are declared, the stockholder has already the right thereto so
much so that if the stocks are subsequently sold, the sales price normally includes the
accrued dividends. Once a dividend has been declared, a legal liability binding on the
corporation is created.

However, stock dividends whether of the same class or different are not
income. The reason is that there is no distribution of the assets of the corporation. The
stock dividends create only a change in the composition of the stockholders' equity,
that is, a transfer from retained earnings to capital stock.

Thus, dividends from ANZ ESAP shares which are mandatorily reinvested
through the ANZ Dividend Reinvestment Plan, with the same disposal restrictions
and/or forfeiture clauses as the original shares, shall not also be taxed until the
disposal restriction is lifted. EDISTc

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.) GUILLERMO L. PARAYNO, JR.

Commissioner
Bureau of Internal Revenue

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