BIR Ruling

January 3, 1974 Benguet Consolidated, Inc. Pasong Tamo Extension Makati, Rizal Attention: Mr . J . V . Ongpin Gentlemen : This refers to your letter dated December 7, 1973 requesting information as to the income tax consequences of an annuity contract to be purchased by your corporation for its executives under terms and conditions as follows: cdt "Under the annuity contract, the insured shall be the Company's executives and the premiums shall be payable by the employer-corporation. The contract shall provide a monthly income to the insured commencing on a specified event such as disablement of the insured, termination from employment or retirement. The policy shall be owned by the corporation and shall not be delivered to the executives until the occurrence of the aforementioned specified events." "During the premium-paying period, the insurance company has agreed to grant the said executives loans on the cash surrender value of the policy with our consent as employer and owner of the policy. The loans shall be repaid out of the annuity payments upon maturity and payable on equal monthly installments for a specified member of installments. In case of death of the employee prior to the maturity date of the policy, the cash surrender value of the policy less any indebtedness on the policy shall be payable to the employer. Likewise, during the premium-paying period, the policy may be surrendered by the employer and the cash surrender value of the policy less any indebtedness on the policy shall be payable to the employer." In reply, I have the honor to inform you as follows: The premiums paid by the employer is deductible by the corporation as ordinary expenses, the consideration for its purchase of the annuity contract being the employment of the executives. The premiums corresponding to each executive shall not be considered income to him, but any amount that the executive shall receive under the contract whether in lump sum or in monthly payments shall constitute taxable income to him. The loans secured by the executives under the policy are not income to them, they being loans pure and simple. cd Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5