BIR Ruling

January 8, 1970 R.G. Nicolas, Inc. 153 Blumentritt San Juan, Rizal Attention: Mr . Pacifico C . Vicente Accountant Gentlemen : This refers to your letter dated October 21, 1969 requesting information on a query stated as follows: "For our guidance we would appreciate very much your counselling regarding Retirement Pay and Pension Pay extended to employees by the employer on account of longer and dedicated service to the company. For purposes of Income Tax, will this form part of the gross income of the recipient and as such subject to the payment of Income tax?" In reply, I have the honor to inform you that pursuant to Republic Act No. 4917, 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 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 an employer for the benefit of some or all of his officials and employees, wherein contributions are made by such employer or 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 said officials and employees. It will be noted that for a plan to qualify as a "reasonable private benefit plan" under the Act, it is required that said plan be funded. The exemption under the final proviso of Section 1 of Republic Act No. 4917 reading "in case of separation of an official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee, any amount received by him or by his heirs from the employer as a consequence of such separation shall likewise be exempt as hereinabove provided" stands distinct and separate from the exemption a under a private benefit plan, and, therefore, is not subject to the conditions antecedent to the exemption under a private benefit plan, such as age and length of service. The term "as hereinabove provided" refers nothing more than to the scope of the exemption prevailing under a benefit plan like exemption from all taxes and from attachment, garnishment, levy or seizure by or under any legal or equitable process whatsoever except liability imposed in a criminal action. Therefore, any amount received by an official or employee is exempt as aforesaid regardless of age or length of service. casia Employees who retired prior to the enactment of Republic Act No. 4917, are subject to income tax and consequently, to the withholding tax on the retirement benefits they received or will receive before or after June 17, 1967 which is the date of the effectivity of said Act. This is so because as a rule, laws have prospective application unless the contrary is expressly provided. (Filipinas Compaa de Seguros vs. C.I.R., G.R. No. L-14880, April 29, 1960). This rule applies with greater force in the case of Republic Act No. 4917, considering that Section 2 thereof, expressly provides that "this Act shall take effect upon its approval". Moreover, in order that retiring employees who meet the qualifications called for by the Act may avail of the tax exemption benefit under Republic Act No. 4917, the employer-company must submit to this Office B.I.R. Form No. 17.60 duly filled out and accompanied by a written program constituting the plan and the trust instrument. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue