BIR Ruling No. 361-2022

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE Quezon City

Sec. 32(B)(6)(a) of the Tax Code of BIR Ruling No. 1151-2018; BIR Ruling No. 231-2016 1997, as amended OT-361-2022 AUG 2 2022

Diliman, Quezon City CONDOMINIUM CORPORATION EMPLOYEES UNION PHILIPPINE STOCK EXCHANGE CENTER : TUCP Compound, Eliptical Road cor. Maharlika Street

Attention: Mr. George.G. Pataray President

Gentlemen:

Condominium Corporation Employees Union (referred herein as "PSECCCEU" or "the Corporation (referred herein as "PSECCC" or "the Employer"). Union") for legal opinion on the non-taxability of retirement benefits embodied in its Collective Bargaining Agreement (CBA) with Philippine Stock Exchange Center Condominium This refers to your request: on behalf. of.. Philippine Stock Exchange Center

in the language as follows: including the most recent, are consistent in granting retirement benefits to the Union members Recently, the Union and the Employer entered into a new CBA. All of the existing CBAs. It is represented that PSECCCEU has a CBA:with PSECCC since August 4, 2004

RETIREMENT " Article XXV

redundancy, the separation package: shall 'be that of optional retirement or In case an employee applies for optional'retirement under the law (for those who redundancy, whichever is higher. " are 60 but less than 65 years old) but the said application is denied/disapproved by CONDOMINIUM and is later on"terminated from employment due to

Code (Tax Code) of 1997, as amended, provides, viz: In reply, please be informed that. Section 32 (B)(6)(a) of the National Internal Revenue

"SEC. 32. Gross Income.

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

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(6) Retirement Benefits, Pensions, Gratuities; etc.

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(a) Retirement benefits.received under Republic Act No. 7641 and those received by official and employees of private firms, whether individual or corporate, in accordance :with a reasonable private benefit plan maintained by the employer: Provided, That the retiring official or employee has been in the service of the same employer for at least ten"(10) years and is not less than fifty (50) years of age at the time of his retirement: Provided further, That the benefits granted under this subparagraph shall be availed of by an official or employee only once. For purpose of this.. subsection, the term "reasonable private benefit planmeans a pension, gratuity, stock bonus or profit- sharing plan maintained by an employer for the benefit of some or all of his officials or employees, wherein contributions are made by such

distributing to such officials and employees the earnings and principal employer for the officials or employees, or both, for the purpose of of the fund thus accumulated, and wherein it is provided in said plan that at no time shall iany part of the corpus or income of the fund be

benefit of the said officials and employees.:" used for, or be diverted to, amy:purpose other than for the exclusive

(1) the employee had been in the service of the same private firm for at least ten (10) years; and (2) he is at least fifty (50) years old at the time of retirement. employees shall be exempt from income tax, provided that the two (2) conditions are met, viz.: plan which have been determined by the Bureau of Internal .Revenue ("the Bureau") as a 'reasonable retirement benefit plan," the retirement benefits that will be received by the Based on the: above-quoted provision, if the company maintains a private retirement

this Bureau as a "reasonable retirement benefit"plan,"the provisions of the Labor Code, as amended, shall apply: However, even if the company maintains a retirement plan but was not approved by

qualified private sector employees in the absence of any retirement plan in the establishment. Viz: Article 287 of the Labor Code, as amended, provides for the rules on retirement pay to

retirement age established in the collective bargaining agreement or other applicable employment contract. "Article 287..Retirement. Any:employee. may be retired upon reaching the

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

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fraction of at least six (6) months being considered as one whole year. In the absence of a retirement plan :or agreement providing for retirement declared the compulsory retirement age, who has served at least five (5) years in the said establishment, imay retire and shall be entitled to retirement pay equivalent to at least one-half (1 /2) month salary for every year of service, a benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more; but not beyond sixty-five (65) years which is hereby

(Emphasis supplied) X

retirement plan, the retirement benefits that will be received by the employees shall be exempt from income tax, provided the following conditions are imet: First, the employee had been in the service for at least five (5) years; and Lastly, the employee is at least sixty (60) years old but not beyond sixty-five (65) years old at the time of retirement. From the quoted provision, in the absence :of :PSECCCEU's approved reasonable

Code of 1997, as amended, in relation to Section 1 of Republic Act (RA) No. 7641, amending the Labor Code of the Philippines in the service for at least five (5) years; and (2) he is at least sixty (60) years old but not beyond sixty-five (65) years old at the time of retirement, pursuant to Section 32(B)(6)(a) of the Tax that the benefits received may be granted: tax exemption: Thus, the retirement benefits to be received by Union members who shall avail of the optional retirement shall only be exempt from income tax provided the two (2) conditions are satisfied, viz: (1) the employee had been PSECCCEU's CBA was not determined or approved by the Bureau as a "reasonable retirement benefit plan," the requirements under the Labor Code, as amended, shall be applied in order In the instant case, considering that. the.. .provision on retirement embodied in

control of the said official or employee shall not'be: inicluded in the gross income and shall be for compliance with existing rules and regulations of the Department of Labor and Employment (DOLE) on separation and Revenue.:Memorandum Order (RMO) No. 66-20161 dated December 6, 2016. be denied/disapproved and is later'on be terminated from:employment due to redundancy, the separation benefits may be exempt:from income tax:: Pursuant to Section 32 (B) (6) (b) of the of the employer due to death, sickness or other physical disability or for any cause beyond the exempt from taxation:under Title II.of the same Tax Code. This is without prejudice however. Tax Code of 1997, as amended, 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 It is noted however, that if the application of a Union member for optional retirement

the employee is separated from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of.the said official or employee, and (2) the employer pays benefits to the official or employee:or his heirs as a consequence of such (2) conditions in order that the employee benefits may be granted tax exemption, namely: (1) separation. Section 32 (B) (6) (b) of the Tax Code of 1997, as amended, requires the presence of two

1 Amending Pertinent Provisios of Revenue Memorandum Order(RMO) No. 26-2011, Prescribing the Guidelines in the Tax Treatment of Separation Benefits Received by Officials and Employees on Account of Their Separation from Employment Due to Death, Sickness or Other Physical Disability and the Issuance of Certificate of Tax Exermption from Income Tax and from the Withholding Tax.

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Furthermore, it is worth :noting that pursuant to. Section 2.78.1 (A) (7) of Revenue

monetized unused vacation leave"credits not exceeding ten (10) days during the year are not subject to income tax and consequently'to the withholding tax. Conversely, the cash equivalent Regulations (RR). 2-98, 'as amended, the terminal "pay, : i.e., commutation and payment of

of vacation leave exceeding ten (10) days is subject to tax.:However, this same principle cannot apply to sick leave credits since an employee must actually go on sick leave to be able to avail of said leave credits.2

13th month pay. and:other benefits in excess of the P90.000.00: threshold shall be subject to Finally, it must be also understood that the payment to the retiring employees of their

income tax, and consequently to withholding tax, under Section 2.78.1 (A) (3) (a) and (A) (7) of RR No. 2-98, as amended.3

This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void.

Very truly yours,

chaL L.GU LILIA CATRIS GUILLERMO Commissioner of Internal Revenue

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2 BIR Ruling No. 231-2016'dated June 1, 2016 3 (b id