BIR Ruling No. 395-2018

REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE

Quezon City

BIR Ruling No. 297-2012 32(B}(6)(a) Tax Code of 1997, as amended, Section

395-2018 3-9-2018

C.M. Recto Ave., cor. Evangelista St. and Quezon Bivd.. ISETANN DEPARTMENT STORE INC Quiapo, Manila

Attention: Mr. Eddie O. Go AVP-Control

Gentlemen:.

Blesilda C. Ronquillo ("Ms. Ronguillo"), a certificate of tax exemption on the Iatter's retirement benefits upon her retirement on March 18, 2015. This refers to your letter, dated December 2, 2014, requesting on behaif of Ms.

Ms. Ronquilio is due for retirement on March 18, 2015, after rendering twenty nine (29) years of service in the company and upon reaching the age of sixty (60); and that and file empioyees 896, is presently employed by Isetann Department Store, Inc. ("Isetann"), as Receiving Clerk"in the Traffic Department of the company since June 27, 1985; that the company maintains a Collective Bargaining Agreement (CBA) covering its rank It is represented that Ms. Ronquillo, with Tax Identification Number 104-439.

qualified private sector employees in the "absence of any retirement plan in the 7641, amending the Labor Code of the Philippines by providing for retirement pay to establishment," it is provided, viz.: In reply, please be informed that under Section 1 of Republic Act (R.A.) No.

No. 442, as amended, otherwise known as the Labor Code of the Philippines, is hereby amended to read as follows. "Section I. Article 287 of Presidential Decree

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

under existing to receive such retirement benefits as he may have earned In case of retirement, the employee shall be entitled laws and anycollective bargaining

Page 2 of 3 Isetann Department Store, Inc. :: 395-20 18 3-9-2018

an employee's retirement under any collective bargaining and other agreements shall not be less than those provided agreement and other agreements: Provided, however, that herein.

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

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

Section 13, Article VIII of the said CBA provides, to wit: It is noted that there is a CBA covering the rank-and-file employees of Isetann.

"Section 13. Retirement Pay.

pursuant to existing law The COMPANY agrees to give a retirement pay

and-file employees, the retirement benefits that will be received by the employees shall still be governed by Article 287 of the Labor Code, to wit: Pursuant to the above provision, while Isetann maintains a CBA for its rank-

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

Tax Code of 1997, as amended, states, thus: On the taxability of the above retirement benefits, Section 32 (B) (6) (a) of the .

"Section 32. Gross Income.- :+

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

XXXXXX XXX

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

Isetann Department Store, lic. Page 3 of 3 #395-2018 3-9-2018

a reasonable private benefit"plan maintained by the has been in the service of the same emplover for at least ten firms, whether individual or corporate, in accordance with and those received by officials and employees of private emplover: Provided, that the retiring official or employee (10) years and is not less than fifty (50) years of age at the time of his retirement: . income and shall be exempt from taxation. " (underscoring supplied) (a Retirement benefits received under R.A. 7641 :, shall not be included in gross

retirement on March 18, 2015, her retirement benefits shall be exempt from income tax. II of the Tax Code of 1997, as amended. (BIR Ruling No. 154-13 dated April 29, 2013) accordance with RA 7641, and since Ms. Ronquillo would be reaching the age of sixty (60) and rendering twenty nine (29) years of service in the company at the time of her and consequently from withholding tax imposed under Section 79,'Chapter XIII, Title Accordingly, since the retirement benefits of Ms. Ronquillo will be given in

terminal pay, i.e.,. commutation and payment of monetized unused vacation leave consequently to the withholding tax. Conversely, the cash equivalent of vacation leave exceeding ten (10) days is subject to tax. However, this same principle cannot apply to sick ieave credits since an employee must actually go on sick leave to be able to avail credits not exceeding ten (10) days during the year are not subject to income tax and of said leave credits. (BIR Ruling No. 154-13 dated April 29, 2013) However, pursuant to Section 2.78.1 (A)(7) of RR 2-98, as amended, the

and the 13th month pay and other benefits in excess of the PhP 82,000- threshold shall be subject to income tax, and consequently to withholding tax, under Section 2.78.1 (A)(3)(a) and (A)(7) of RR 2-98, as amended. It is must be understood that the payment to the retrenched employees of salaries

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,

o Ro

Commissioner of Internal Revenue CAESAR R. DULAY 014185

K-1

P i

Purpose Section 32(B), Chapter VI of the National Internai Revenue Code of 1997, as Amended." R.A. No. 10653 is being implemented by Revenue Regulations No. 3-2015. 1 : Republic Act (R.A.) No. 10653, "An Act Adjusting the 13th Month Pay and other Benefits Ceiling Excluded from the Computation of Gross Income for Purposes of Income Taxation, Amending for the :