BIR Ruling No. 430-2021

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE

Quezon City

TRUST & INVESTMENT GROUP 6819 Ayala Avenue, Makati City RIZAL COMMERCIAL BANKING CORPORATION Yuchengco Tower, RCBC Plaza Code, as amended Section 32(B)(6)(a) of the amended Section 287 of the Labor Tax Code of 1997, as CT-3-281 NOV_1 7 202

Attention: Head, Trust Operations Division Jerik T. Balisi

Trust Legal Counsel Atty. Sherma Cecile O. Miranda

Gentlemen:

Ruling No. l151-OT-038-2021 which addressed the queries of Mr. Manuet F. Variacion ("Mr. Variacion") in this wise: This refers to your letter dated August 11, 2021 requesting for clarification on BIR

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In this case, since there is no separate retirement benefit plan for managerial employees, the retirement benefits set forth under RA No year of service if an employee who has reached the age of sixty (60) years or more, but not beyond sixty-five (65) years, and rendered at express provision of Section 32 (B)(6)(a) of the Tax Code of 1997, as least five (5) years of service in the company. The retirement benefits of employees who met the age and length of service requirement under RA No. 7641 shall be exempt from withholding income tax by 7641 shall apply, i.e., at least one -half (1/2) month salary for every amended.

Since you are more than sixty (60) years of age and have more than five (S) years in the service of the company, you meet the age and retirement benefits received under RA No. 7641 are exempt from length of service requirement under RA No. 7641. Thus, your income tax, and conseguently to withholding tax.

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CLS NOV 1 7 2021 L

It is represented that:

Rizal Commercial Banking Corporation - Trust and Investment Group (RCBC Trust trustee, shall administer the retirement fund contributions for the benefit of the officers and Refining Corporation Employees' Retirement Plan" ("PASAR Retirement Plan"), under entered into a Trust Agreement dated September 20, 2000 wherein RCBC Trust, as the employees of PASAR and as provided under the Philippines Associated Smelting and Trust Account No. 75-799-3. (l) The Philippine Associated Smelting and Refining Corporation (PASAR) and

1-83 and Section 32(B)(6)(a) of the National Internal Revenue Code (Tax Code) of 1997, as certificates in favor of the PASAR Retirement Plan, qualifying it as reasonable retirement benefit plan in accordance with Revenue Regulations (RR) No. 1-68, as amended by RR No. amended: 2) The Bureau of Internal Revenue (BIR issued the following tax exemption

a BIR Letter dated April 1,1991; (b) BIR Ruling No. ERP 087-2013 dated July 24, 2013; and (c) Certificate of Tax Exemption No. RP-076-2021 dated May 4, 2021.

of the PASAR Retirement Plan and may receive the retirement benefit upon qualification in accordance with the specified conditions, quoted as follows: 3) PASAR has confirmed that its officers, including Mr. Variacion, areMembers

DEFINITIONS "Article II

The following words and phrases as used in these rules and regulation shall have the following meaning:

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Plan subject to the provisions of Article III hereof. c) "Member" shall mean an employee eligible to participate in the

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ELIGIBILITY FOR PARTICIPATION Article II

Any regular or permanent full-time employee of the Company as of the effective date of this Plan who is below age 65 years shall be eligible for membership in the Plan as of the effective date.

65 years and working on a full-time basis. All other employees who are not eligible for membership in the Plan as of the effective date of the Plan and all such future employees shall be eligible for membership on the date they attain the regular or permanent status of employment. However, they should be below age

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determine and compute the Normal Retirement Benefit of Mr. Variacion in accordance with the PASAR Retirement Plan. Based on this LOI, the tax determined to be withheld amounted PASAR sent its letter of instruction (LOI) dated August 4, 2012 directing RCBC Trust to to P575,547.95

24, 2013, the BIR states the following: date on which a member attains age of 60 years. In BIR Ruling No. ERP-097-2013 dated July (4) Under the PASAR Retirement Plan, the Normal Retirement Date shall mean the

amended RETIREMENT PLAN defines "Normal Retirement Date " to mean the date when the member attains sixty (60) years of age the RETIREMENT PLAN allows the retirement of an employee whc has rendered less than ten (10) years of service to the company. The income tax because Section 32 (B)(6)(a) of the Tax Code of 1997 benefits may be granted tax exemption: (1) the employee has been in is at least fifty (50) vears old at the time of retirement.) without qualification as to length of service. Thus, this provision of benefits payable to the retiring member shall not be exempt_from requires the presence of two (2) conditions in order that the employee service of the same private firm for at least ten (10) years; and (2) he "It is observed, however, that paragraph (f) of Article Il of the

The foregoing same two (2) conditions provided under Section 32 (B)(6)(a) of the Tax Code of 997, as amended is reiterated by the BIR in the Certificate of Tax Exemption (CTE) No. RP-076-2021 dated May 4, 2021.

confirmed by PASAR that its "officers"" are "Members" of the PASAR Retirement Plan, the provisions of Republic Act (RA) No. 7641 shall not apply to Mr. Variacion. 2013 as cited in CTE No. RP-076-2021 it is very clear that the retirement benefits of Mr. Variacion is not tax exempt from income tax, hence, subject to withholding tax. Further, as (5) Applying the terms of the PASAR Retirement Plan and BIR Ruling No. ERP-087-

conclusion was predicated on the following representations, to wit: Variacion are exempted from income tax and withholding tax pursuant to RA No. 7641. Said Prefatorily, this Office has previously determined that the retirement benefits of Mr.

Smelting & Refining ("PASAR" or "the Company") on April 16, retirement plan under its Collective Bargaining Agreement with the Union the same is applicable only to rank and file employees 2003. On August 18, 2012, you retired at the age of sixty (60) years old after nine (9) years and four (4) months of service to the Company. At the time of your retirement, you were holding a managerial position in the Company, While PASAR has a only. "As represented, you were employed by the Philippine Associated

especially when grounded upon reasonable facts that would render the preceding conclusions inapplicable. Nonetheless, this Office is not precluded from extricating its previous findings

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Article 287 of the Labor Code, as amended, provides for the rules on retirement pay

to qualified private sector employees in the absence of any retirement plan in the

establishment, viz:

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

In case of retirement, the employee shall be entitled to receive such 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 benefits under any collective bargaining and other agreements shall not be less than those provided therein.

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-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 six (6) months being considered as one whole year. (Emphasis supplied)

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applicable only to a situation where, among others, there is no CBA or other applicable established that PASAR maintains a reasonable retirement plan which is made available not only to rank-and-file employees but also to employees with managerial position, the application therefore of Article 287 of the Labor Code on Mr. Variacion case is ilusory. employment contract providing for retirement benefits for an employee'. Since it is It can be clearly inferred from the language of the foregoing provision that it is

Code of 1997, as amended, viz: under the existing PASAR Retirement Plan, is governed by Section 32 (B)(6)(a) of the Tax Parenthetically, for purposes of taxation, the retirement benefits of Mr. Variacion

"SEC. 32. Gross Income.

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

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' Philippine Airlines. Inc. vs. Arjan Hassaram, G.R. No. 217730, June 5, 2017

pg.4K

: 10 1 :32

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

(a) Retirement benefits received under Republic Act No. 7641 and

those received by officials and emplovees of privute firms, whether

individual or corporate, in uccordance with a reusonable private benefit plan maintained by the employer: Provided, That the retiring official or eniployee has heen 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 enployee only once. For purposes of this Subsection, the term 'reasonable private benefit plan' means 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 niade by such employer for the officials or employees, or both, for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated, and wherein it is provided in said plan that at no time shall any' part of the corpus or income of the fund be used for. or be diverted to, any purpose other than for the exclusive benefit of the said officials and employees.

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therefore shall be subjected to income tax and consequently, to withholding tax by operation (9) years and four (4) months of service with PASAR. Since the number of years falls short as to the required number of years provided in the PASAR Retirement Plan, the proceeds of law. It is undisputed that Mr. Variacion retired when he is sixty (60) years of age after nine

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

Very truly yours,

Commissioner of Internal Re Aerao CAESAR R. DULAY " 0*4 " 3 7

C.C.: MANUEL V. MAPOY OiC Assistant Commissioner 1.arge Taxpayers Service

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