BIR Ruling

November 14, 1968 The Philippine Steam Navigation Co. Everett Steamship Corporation 290 Atlanta, Port Area Manila Attention: Mr . Pedro S . Velasquez Treasurer Gentlemen : This refers to your letter dated October 26, 1968 requesting information on the question of whether or not the tax exemption under Republic Act No. 4917 as implemented by Revenue Regulations No. 1-68 dated March 25, 1968 covers the amount paid to employees as retirement benefit pay granted by virtue of a "collective bargaining agreement" entered into between your Company and its employees' Union embodying, among others, a private retirement benefit plan. In reply, I have the honor to inform you that pursuant to Republic Act No. 4917 as implemented by Revenue Regulations No. 1-68, the retirement benefits received by officials and employees who have been in the service of the same private firm for at least ten (10) years and who are not less than fifty (50) years of age at the time of retirement are exempt from all taxes provided that the retirement benefits are in accordance with a reasonable private benefit plan established and maintained by the employer. The Act further states that the term "reasonable private benefit plan" means a pension, gratuity, stock bonus or profit sharing plan maintained by the employer for the benefit of some or all of his officials and 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 officials and employees. It is further required that for a plan to qualify as a "reasonable private benefit plan" it must be funded. Furthermore, before the tax exemption under the said statute can availed of, employers must secure a prior determination of the qualification of the plan by submitting to the Commissioner of Internal Revenue BIR Form No. 17.60 duly filled out and accompanied by a written program constituting the plan and the trust instrument. Inasmuch as, the retirement benefit plan referred to in your query states only the requisite qualifications of a member-employee before he can be considered entitled to receive retirement benefit pay, and the funds to be paid to the retiring employee will come from the general funds of the company, the same does not qualify as a reasonable private benefit plan under Republic Act No. 4917 and any payment made therefrom is not tax exempt under the said Act. iatdc Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue