BIR Ruling No. 396-2018

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE

Quezon City

Makati City, Philippines 1 226 2nd Floor BPI Bldg., 6768 Ayala Avenue BPI ASSET MANAGEMENT AND TRUST CORP. BIR Ruling No. 409-15 CIR vs. Court of Appeals, G.R. No. 95022 Sections 60(B) and 109(1)(P) of the Tax Code of 1997, as amended BIR Ruling No. ERP-38-08 t 396-2018 3-9-2018

Attention :Ms. Amalia Lourdes S. Valdez Vice President

Ms. Rowena S. Salvador Senior Manager Gentlemen:

of its two (2) condominium units covered by Condominium Certificate of Titles (CCTs) with withholding tax (CWT) under Revenue Regulations No. 2-98, as amended. confirmatory ruling that the sale by Novartis Healthcare Philippines, Inc. Retirement Fund formerly "CIBA-GEIGY Philippines Employees' Retirement Plan" (the "Retirement Fund") Nos. This refers to your letters dated July 7, 2017 and October 13, 2017, requesting and is not subject to income tax, hence, not also subject to creditable

subject Retirement Fund is still considered a qualified reasonable retirement benefit plan within the contemplation of Section 32 (B)(6)(a) of the Tax Code of 1997, as amended. the income of the Retirement Fund from its investments is exempt from income tax; that it was reiterated as a reasonable retirement plan in BIR Rulings dated April 23, 1981 and April 28. BIR-approved retirement plan pursuant to BIR Ruling dated April 6,1979 and as such, shall be entitled to all benefits and privileges provided for by Republic Act No. 491 7, specifically, that 1992: and that in BIR Ruling ERP-38-08 dated Febri!ary 19, 2008, it was confirmed that the It is represented that the Novartis Healthcare Philippines, Inc. Retirement Fund is a

Philippines. Inc. Retirement Fund. the Titles to show that the properties are held by BPI Management and Trust Group (now BPI Asset Management and Trust Corporation) ("BPI-AMTC") as Trustee of Novartis Healthcare Islands-Asset Management and Trust Group pursuant to Article 2.5 (h) of the Trust Agreement dated December 26, 1978 and Article II, Section B.7 of the Trust Agreement dated April 12. (BPI), as Trustee of the Retirement Fund, purchased two (2) Condominium units covered by 2004; and for the avoidance of doubt. you have requested the Register of Deeds to annotate on CCT Nos. It is further represented that as part of its investment, Bank of the Philippine Isiands and which were registered under the name of Bank of the Philippine

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to the Deed of Absolute Sale dated December 21, 2016 for the purchase price of and described as Fifth Floor and Sixth Floor, including the appurtenant parking slots of the issued by the Register of Deeds for the City of Makati, to Alveo Land Corporation pursuant Fifth Floor and Sixth Floor, located along 120 Gamboa St., corner Salcedo St., Legaspi Village. Makati City. covered by CCT No. It is further represented that BPI-AMTC sold the two (2) condominium units identified Philippine Currency. (Fifth Floor) and CCT No. (Sixth Floor), both and Pesos

the BPI Management and Trust Group acting in its capacity as Trustee for Norvatis Health Care Philippines. Inc. Retirement Fund of the two (2) condominium units to Alveo Land Corporation. is exempt from income tax under Section 60(B) of the 1997 Tax Code, as amended. On the basis of the foregoing representations, it is now being requested that the sale by

In reply, please be informed that the governing provision relative to the tax exemption E

amended, which states that: of inconme derived by a retirement benefit fund is Section 60(B) of the 1997 Tax Code, as

"Section 60(B). Imposition of Tax. -

instrument it is impossible, at any time prior to the satisfaction of any employee or distributee shall he taxable to him .in the year in which so distributed to the extent that it exceeds the amount contributed by such employee or distributee. by the trust in accordance with such plan, and (2) if under the trust used for, or diverted to, purposes other than for the exclusive benefil of his emplovees: Provided, That any amount actually distributed to such enployees the earnings and principal of the fund accumulated all liabilities with respect to employees under the trust, for any pari of the corpus or income to be (within the taxuble year or thereafter) protit-sharing plan of an employer for the benefit of some or all of his cmployees (l) if contributions are made to the trust by such employer. or emplovees, or both for the purpose of distributing to to emplovee's trust which forms part of a pension. stock bonus or (B) Exception. - The tax imposed by this Title shall not apply

reasonable retirement benefit plan in BIR Certification/Ruling dated April 6, 1979, BIR Ruling met by the Retirement Fund as in fact, this Office had already approved the same as a trust by the employer, or employees, or both for the purpose of distributing to such employees and (2) 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 used for. or diverted to. purposes other than for the exclusive benefit of the employees. (BIR Ruling No. ERP-040-2014 dated March 25, 2014). These two (2) conditions are sufficientiy retirement fund may be exempt from income tax, to wit: 1) the contributions are made to the the earnings and principal of the fund accumulated by the trust in accordance with such plan; The above-cited provision sets forth two (2) conditions in order that the earnings of a

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dated April 23, 1981. BIR Ruling No. ERP-054-92 dated April 28, 1992, and BIR Ruling No ERP-38-08 dated February 19. 2008.

Court upheld the judgment of the respondent Court of Appeals which affirmed the decision of the Court of Tax Appeals, the pertinent portion of which is quoted below: from its investnents had already been settled in the case of Commissioner of Internal Revenue vs. Court of Appeuls, G.R. No. 95022, promulgated on March 23, 1992, where the Supreme It bears mentioning that the tax exenption of the income derived by a retirement fund

provided: from 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 . it is significant to note that the GCL Plan was qualified as exempt

concerned to the private benefit plan or that arising.from liability imposed in a retirement benefits received by officials and employees of private firms, cr iminal act ion; benefit plans maintained by the employer shall he exempt from all taxes and shall not be liable to attachment, levy or seizure by or under any legal or equitable process whusoever except to pay a debt of the official or employee w'hether individual or corporate, in accordance with a reasonable private "See. I. Any provision of law to the contrary notwithstanding, the

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It is am independent and additional source of protection for the working group. economic ussistance to employees upon occurrence of certain contingencies. particulurly: old age retirement, death, sickness, or disability. It provides security aguinst certain hazards to which members of the Plan may be exposed. purpose. What is more, it is established for their exclusive benefit and for no other employees' trusts. Employees' trusts or benefit plans normally provide "And righily so. by virtue of the raison de'etre behind the creation of

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

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 Record, House of Representatives, Vol. IV. Part 2. No. 57, p. 1859, May 3. contributions collected and payments of sickness, unemployment, retirement. disability and death benefits made thereunder together with the income of the Outside the Social Security Act be exempted from income taxes. " (Congressional "Considering that under Section 17 of the Social Security Act. all 1

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al.. G.R. No. L-22611. May 27, 1968. 23 SCRA 715) 1957: cited in Commissioner of Internal Revenue vs. Visayan Electric Co., et

would receive out of the trust fund. This would run afoul of the very intent of the law. : of the pension trust. Otherwise, taxation of those earnings would result in a diminution of accumulated income and reduce whatever the trust beneficiaries "It is evident that tax-exemption is likewise to be enjoved by the income

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of Miguel J.. Ossorio Pension Foundation, Incorporated vs. Court of Appeals and Commissioner of Internal Revenue. G.R. No. 162175, June 28, 2010. The above pronouncement of the Supreme Court was reiterated in the subsequent case

condominium units in favor of the Alveo Land Corporation, pursuant to Section 60(B) of the established for the benefits of the empioyees of Novartis Health Care Philippines, Inc.. is exempt from income tax and, consequently, from the CWT, on the sale of its two (2) 1997 Tax Code. as amended. (BIR Ruling No. 409-15 dated December 14, 2015) Accordingly, the Retirement Fund, being a reasonable retirement benefit plan

to VAT pursuant to Section 109(1)(P) of the 1997 Tax Code, as amended. tax under Section 60(B) of the 1997 Tax Code, as amended. Hence, it may still be subject to other applicable taxes iinposed under other provisions of the same Code. Accordingly, the sale of the Retirement Fund to Alveo Land Corporation of its two (2) condominium units is subject However, a retirement fund or pension trust is only entitled to exemption from income

accordance with Sectioni 6(E) of the 1997 Tax Code, as amended, whichever is higher. the Alveo Land Corporation is subject to documentary stamp tax (DST) computed based on the consideration'contracted to be paid therefor or on their fair market value determined in Likewise. the sale by the Retirement Fund of its two (2) condominium units in favor of

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. However.

1a13M^"aV Very truly yours,

K- Commissioner of Internal Revenue CAESAR R. DULAY 0 1 4 1 9 5