BIR Ruling No. 376-2020

REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE BUREAU OFINTERNALREVENUE

Quezon City

Sec. 60 (B),1997 Tax Code BIR Ruling No. 399-2011 OT-0376-2020 JUL 0 3 2UZU

Pioneer Street, Mandaluyong City MHI TECHNICAL SERVICES CORPORATION 25th Floor Robinsons Cybergate Center Tower 3

Attention: Koji Ikeda President

Gentlemen:

Technical Services Corporation (the Company) certificate of tax exemption of its Retirement Fund's interest income derived from the Multi-Purpose Loan Assistance Program (MLAP) for the benefit of its employee-members. This refers to your letter dated 14 March 2012 requesting on behalf of MHI

together with the principal amount from two (2) to six (6) year period depending on the amount of individual loans approved by the Company; that the 3% interest rate was approved by the Board of Trustees of the Fund on October 21, 2011; and that the fund to be set aside for the MLAP is thirty percent (30%) of the total Retirement Fund. and consequently revalidated in an undated letter addressed to the Bank of the MLAP to lend money to the member-employees for their family financial needs; that the loans shall bear an interest rate of three percent (3%) per annum and payable by this Office in BIR Ruling No. ERP-091-94 dated November 22, 1994 as a Philippine Islands; that the Company has planned to set aside a part of the Fund for the "reasonable retirement benefit plan" under Section 32(B)(6)(a) of the 1997 Tax Code. It is represented that the Company's Retirement Fund was previously approved

as amended, provides: In reply thereto, please be informed that Section 60 (B) of the Tax Code of 1997.

of a pension, stock bonus, or profit-sharing plan of an emplover for the benefit of some or all of his emplovees (1) employees the earnings and principal of the fund accumulated by the trust in accordance with such plan, and Title II shall not apply to employees' trust which forms part if contributions are made to the trust by such employer, or employees, or both for the purpose of distributing to such "Sec. 60 (B)Exception. -- The tax imposed by

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(2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to emplovees under the trust,for any part of the corpus or

income to be (within the taxable vear or thereafter) used

for, or diverted to, purposes other than for the exclusive

benefit of his employees: Provided, that any amount actually distributed to any employee or distributee shall be taxable to him in the vear in which so distributed to the extent that it exceeds the amount contributed by such emplovee or distributee. "

tax exemption of employees' trust under Section 60 (B) of the Tax Code of 1997, as Thus, the following elements/conditions should be present to warrant the income

amended, to wit:

I.. the contributions are made to the trust by the employer, or employees, or

both:

2. 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

3.. under the trust instrument it is impossible at any time prior to the satisfaction

of all liabilities with respect to employees under the trust, for any part of the

corpus or income to be (within the taxable year or thereafter) used for, or

diverted to. purposes other than for the exclusive benefit of the employees.

It is noted that the above conditions are present in the Retirement Fund. Thus.

it is exempt from income tax on its interest income derived from the MLAP for the

benefit of its employee-members. Since the final tax and the withholding thereof are

embraced within the title on "Income Tax", it follows that said trust is also exempt from

the coverage of the withholding tax regulations.

In the case of Commissioner of Internal Revenue vs. Court of Appeals, G.R. No.

95022, promulgated on March 23, 1992, the Supreme Court upheld the judgment of the

respondent Court of Appeals in affirming the decision of the Court of Tax Appeals,

which ruled:

. . . it is significant to note that the GCL Plan was qualified as

exempt fron income tax by the Commissioner of Internal Revenue in

accordance with Republic Act (R.A.) No. 4917 approved on June 17,

1967. This law specifically provided:

notwithstanding, the retirement benefits received by officials and "Sec. I. Any provision of law to the contrary

emplovees of private firms, whether individual or corporate, in

accoraance wiih a reasonable private benefit plans maintained by the

enpioyer shall be exempt from all taxes and shall not be liable to

attachment, levy or seizure by or under any legal or equitable process

whatsoever except to pay a debt of the official or emplovee concerned

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to the private benefit plan or that arising from liability imposed in a criminal action;

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"And rightly so, by virtue of the raison de'etre behind the

creation of employees' trusts. Employees' trusts or benefit plans normally provide economic assistance to emplovees upon occurrence of

certain contingencies, particularly, old age retirement, death, sickness,

or disability. It provides security against certain hazards to which members of the Plan may be exposed. It is an independent and additional source of protection for the working group. What is more, it is established for their exclusive benefit and for no other purpose.

"The tax advantage in R.A. No. 1983, Section 56(b), was conceived in order to encourage the formation and establishment of such private plans for the benefit of laborers and employees outside of the Social Security Act. Engineering is a portion of the explanatory note to H.B. No. 6503.now R.A.1983, reading:

"Considering that under Section 17 of the Social Security Act, all contributions collected and payments of sickness, unemployment, ret:rement, disability and death benefits made thereunder together with

the income of the pension trust are exempt from any tax, assessment,

fee, or charge, it is proposed that a similar system providing for retirement, etc. benefits for employees outside the Social Security Act be exempted from income taxes." (Congressional Record, House of Representatives, Vol. IV, Part 2, No. 57, p. 1859, May 3, 1957; cited in Commissioner of Internal Revenue vs. Visayan Electric Co., et al., G.R. No. L-22611, May 27, 1968, 23 SCRA 715).

"It is evident that tax-exemption is likewise to be enjoyed by the

income of the pension trust. Otherwise, taxation of those earnings would

result in a diminution of accumulated income and reduce whatever the

irust ieneficiaries would receive out of the trust fund. This would run

afoul of the very intent of the law.

1Xx XXX XXX

"There can be no denying either that the final withholding tax is

coliected from income in respect of which employees' trusts are declared exempt (Sec. 56(b) now' Sec. 53(b), Tax Code). The application of ihe withholding system to interest on bank deposits or

vield from deposit substitutes is essentially to maximize and expedite the

coilection of income taxes by requiring its payment at the source. If an

emplovees' trust like the GCL enjoys a tax-exempt status from income.

we see no iogic in withholding a certain percentage of that income

which it is noi supposed to pay in the first place.

1Xx XXX JXX

In view cf the foregoing, interest income derived by the Company's Retirement

Fund frorn the MLAP for the benefit of its employee-members is exempt from income tax, and ccnsequently, from final withholding tax. Provided. however, that in its

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investment activities. no part of the corpus or income of the Fund shall be used for or diverted to purposes other than for the exclusive benefit of the member- employees or their beneficiaries. (BIR Ruling No. 076-2012 dated February 15,2012)

However, if upon investigation, it will be disclosed 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.

w

CAESAR R. DULAY Commissioner of Internal Revenue

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