BIR Ruling No. 365-2021

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE^PHILIPPINES DEPARTMENT OF FINANCE

Quezon City

Sec 32(B)(6)(a) and (b) NIRC BIR Ruling Nos. 442-2012 and 526-2017

Pinagbuhatan, Pasig City Legacy Steel Corporation Alfonso Sandoval Avenue, MR. RAFAEL SOLARES, Union President MR. BERNARDO G. LAO, JR., Plant Manager CI-x3-2 OCT 9 4 2021

Gentlemen:

consequently from withholding tax, on the employees' retirement benefits received employees of Legacy Steel Corporation, for exemption from income tax, and Steel Corporation and Legacy Steel Workers Union-All Workers Alliance Trade Unions (LSWU-AWATU). pursuant to a Collective Bargaining Agreement (CBA) entered into between Legacy This refers to your letter dated August 25, 2016 requesting on behaif of the

provides: In reply, please be informed that the Labor Code of the Philippines, as amended

1. Art. 284. Disease as ground for termination. An employer may least six (6) months being considered as one (1) whole year. terminate the services of an empioyee who has been found to be suffering from any disease and whose continued_employment is prohibited by law or is prejudicial to his health as well as to the health of his_co-employees: Provided. That he is paid separation pay equivalent to at least one (1) month salary or to one-half (1/2) month salary for every year of service, whichever is greater. a fraction of at

2. Art. 287. Retirement. --- Any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or Other applicable employment contract.

retirement benefits as he may have earned under existing laws and any collective bargaining agreement and other agreements: Provided, however, that an employee's retirement under any collective bargaining In case of retirement, the employee shall be entitled to receive such and other agreements shall not be less than those provided herein.

In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment. an employee upon reaching the age of sixty (60) years or more, but not beyond sixty.

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six (6) months being considered as one whole year." (Underscoring five (65) years which is hereby declared the compulsory retirement age who has served at least five (5) years in the said establishment, may retire and shall be entitled to retirement pay equivalent to at least one) half (1/2) month salary for every year of service, a fraction of at least supplied)

or contract may agree on the retirement benefits that will be received by the empioyees provided that such benefits shall not be less than those provided under the Labor Code of the Philippines. provided under the applicable CBA or other employment contract entered into by and between the employer and the employees of the company, and the parties to the CBA disease and the retirement of an employee upon reaching the retirement age as may be The aforesaid provisions allow the separation of the employee on the ground of

retirement benefits of employees in the establishment, the retirement benefits as set forth under the aforequoted provision shall apply, i.e. at least one-half (1/2) month salary for every year of service of an employee who has reached the age of sixty (60) years or more, but not beyond sixty-five (65) years. and rendered at least five (5) years of service in the company. In the absence of a retirement plan' or other agreement providing for the

employees' retirement benefits are concerned. Article XX of the CBA provides. to wit: the LSWU-AWATU. the provisions of the said CBA shall apply in so far as the Considering that there is a CBA existing between Legacy Steei Corporation and

"RETIREMENT PAY

serious ailments." (Emphasis supplied) Section 1. The Company shall grant 'retirement pay to all union members in the amount equivalent to thirty days (30) per year of service upon reaching the age of 60 years old or when disabled or with

of the Tax Code of 1997. as amended'. states. thus: On the taxability of the above employee benefits. Section 32 (B) (6) (a) and (b)

"Section 32. Gross Income.-

XXX included in gross income and shall he exempt from taxation under this (B) Exclusions from Gross Income.-The following items shall not he Title: XXX XXX

officials und employees of' private firms. whether individual or corporute. in uccordance with_a reasonuhle_private_.benetit_plan (6) Retirement Benefits, Pensions. Gratuities. etc. (a) Retirement benefits received under R.A. 764 1 and those received by

Further armended by R.A. No. 10963 ertitied as "Tax Reform for Acceier.ation ard Inclusicr: (rRAIN)"

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maintained hy the employer: Provided that the retiring official or (10) years and is not less than fifty (50) years of age at the time of his retirement: . . ., shall not be included in gross income and shall be exempt from taxation. emplovee hus been in the service of the same emplover for at leust ten

or other physical disability or for any cause beyond the control of the Said official or employee. " (Underscoring supplied) (h) Any amount received hy an official or employee or by his heirs from the employer as u consequence of separation of such official or employee from the service of the employer because of death, sickness

private firm for at least ten (10) years; and (2) he is at least fifty (50) years old at the time of retirement. of two conditions in order that the employee benefits received pursuant to a CBA may be granted tax exemption, viz: (1) the employee had been in the service of the same Section 32(B)(6)(a) of the Tax Code of 1997, as amended, requires the presence

control of the said official or employee shall not be included in the gross income and shall be exempt from taxation under Title II of the same Tax Code. (BIR Ruling No. that any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the 197-2015 dated June 10, 2015) In addition, Section 32(B)(6)(b) of the Tax Code of 1997, as amended. provides

retirement pay (1) upon reaching the age of sixty (60) years old or (2) when disabled or (3) with serious ailments. It must be noted that under Article XX of the CBA, an employee is entitled to

are both present, to wit: (1) the employee had been in the service of Legacy Steel time of retirement. conditions provided under Section 32(B)(6)(a) of the Tax Code of 1997. as amended. upon reaching the age of 60 years old shall only be exempt from income tax if the two Corporation for at least ten (10) years: and (2) he is at least fifty (50) years old at the In such cases. the retirement benefits received under Article XX of the CBA

such separation. (BIR Ruling No. 197-2015 dated June 10, 2015) the employer pays benefits to the official or employee or his heirs as a consequence of the employee benefits may be granted tax exemption, namely (1) the employee is disability or for any cause beyond the control of the said official or employee. and (2) separated from the service of the employer due to death. sickness or other physical with serious ailments the law requires the presence of two (2) conditions in order that While the employee benefits received when the union member is disabled or

credits not exceeding ten (10) days during the year are not subject to income tax and exceeding ten (10) days is subject to tax. However. this same principle cannot apply to terminal pay. i.e., commutation and payment of monetized unused vacation leave consequently to the withhoiding tax. Conversely, the cash equivalent of vacation leave Moreover. pursuant to Section 2.78.1 (A)(7) of RR 2-98. as amended. the

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sick leave credits since an employee must actually go on sick leave to be able to avail of said leave credits. (BIR Ruling No. 442-2012 dated July 3, 2012)

salaries, except if minimum wage earners, and the payment of the 13 th month pay and other benefits in excess of the P90,000.002 threshold shall be subject to income tax, and 98, as amended. (BIR Ruling No. 442-2012 dated July 3, 2012) consequently to withholding tax, under Section 2.78.1 (A)(3)(a) and (A)(7) of RR 2- It is must be understood that the payment to the retiring employees of their

Please be guided accordingly.

Very truly yours. oa

K1-FR-16-1693 K- Commissioner of Internal Revenue CAESAR R. DULAY 045354

Republic Act No. 1(963 increased the threshold from P82.000) to P90.000 effective January 1, 2018