BIR Ruling

February 7, 1972 Monteiro, Perucho and Associates Law and Accounting Offices Suites 301, Margarita Building Jose Rizal Avenue Makati, Rizal Attention: Mr . Narciso C . Monteiro Gentlemen : This refers to your letter dated August 16, 1971 requesting in behalf of your client, Dr. Conrado P. Aquino, former Vice-President of Academic Affairs of the University of the East, the refund of all the amounts representing income tax withheld by the University of the East, on his retirement benefits. It appears that the amount of P7,218.05 as income tax was deducted and withheld from the retirement gratuity of Dr. Conrado P. Aquino by the University of the East; and that the retirement plan established and maintained by the latter for its employees has not as yet been submitted to this Office for determination of its qualification under Republic Act No. 4917 as implemented by Revenue Regulations No. 1-68. Pursuant to Republic Act No. 4917 as amplified by Revenue Regulations No. 1-68 dated March 25, 1968, the retirement benefits received by officials and employees who have been in the service of the same private firm for at least ten 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 consequence of such separation shall likewise be exempt as hereinabove provided" stands distinct and separate from the exemption under a private retirement benefit plan, and, therefore, is not subject to the conditions antecedent to the exemption under the 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 from his employer by reason of death, sickness or other physical disability or for any cause beyond the control of the official or employee is exempt as aforesaid regardless of age or length of service. Such benefits shall be exempt from taxes even if the employer paying the benefits does not maintain a retirement benefit plan as envisaged by said Act. In this connection, Revenue Regulations No. 1-68 dated March 25, 1968 as an administrative interpretation and implementation of Republic Act No. 4917, is valid and therefore, has the force and effect of law. (See U. S. vs. Tupasi Molina, 29 Phil. 119). In fact, long continued administrative interpretation of a tax law, while not conclusive, should be followed unless clearly erroneous. (Anderson vs. Collector of Internal Revenue, 66 Phil. 205, citing Molina vs. Rafferty, 38 Phil. 167 and People vs. Hernandez, 59 Phil. 272). Accordingly, 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 must submit to this Office, B. I. R. Form No. 17.60 duly filled out and accompanied a written program constituting the plan and the trust instrument. In view thereof, since the University of the East's retirement benefit plan has not as yet been submitted to this Office, the deduction and withholding of the income tax on the retirement benefits paid to your client was legal. Accordingly, the refund thereof cannot be granted. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue