BIR Ruling

September 17, 1974 Mr. J. R. Salita P. O Box 615 Manila D-406 S i r : In reply to your letter of the 10th instant, I have the honor to inform you of Presidential Decree No. 220 which took effect on June 20, 1973 exempting from Philippine income tax social security benefits, gratuities, pensions and other similar benefits, arising out of employment abroad and received by employees and workers who are retired and who came to reside in the Philippines for the remaining years of their lives, be they citizens of the Philippines or not, and whether the employer is a foreign government or a foreign private entity. The exemption equally applies to such incomes received by citizens of the Philippines after their retirement from the same sources even if they should continue to reside in the foreign country where they were employed or in any other country where they may emigrate after their retirement (Revenue Regulations No. 6-73 dated July 10, 1973 implementing Presidential Decree No. 220). Accordingly, social security benefits, gratuities, pensions or other similar benefits received by resident citizens, resident aliens and non-resident citizens from foreign governments or from foreign private entities during the taxable year 1973, i. e., January 1 to December 31, 1973 and thereafter shall be exempt from Philippine income tax. Presidential Decree No. 220 does not cover the retirement benefits or pensions of officials and employees of private firms in the Philippines which shall continue to be governed by Republic Act No. 4917 as amplified by Revenue Regulations No. 1-68. (par. 2, Sec. 2, Rev. Regs. No. 6-73, supra ) 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 (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. Under the final proviso of Section 1, Republic Act No. 4917, 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 likewise exempt from taxes regardless of age of length or service. In view of all the foregoing, and considering that the recipient employee will be separated from the service of the employer-company, the First National City Bank, Manila, by voluntary retirement and not by retirement on the actual retirement dates specified by the Rules and Regulations of the First National City Bank, Manila Retirement Plan, the qualification of which as a tax-exempt retirement benefit plan under Republic Act No. 4917 has been determined and approved by this Office on January 5, 1972, nor by involuntary separation or separation for "any cause beyond the control of the employee", this Office is of the opinion as it hereby holds that all such special gratuity payments and other benefits to be received under the Plan by a member-employee upon his voluntary retirement from the service of the First National City Bank, Manila shall be subject to income tax and consequently to the withholding tax prescribed by Revenue Regulations No. V-8 as amended by Revenue Regulations No. V-70. aisa dc Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."