BIR Ruling

May 17, 1968 The Treasurer Manila Cordage Company P.O. Box 469 Makati, Rizal S i r : This refers to your letter dated May 11, 1968 wherein you posed the following query: "With reference to the subject Republic Act No. 4917, which became effective last June 17, 1967, we wish to request an official ruling from your good Office regarding the particular cases of two recent retirees from the Manila Cordage Company. "In this connection, we would advise that our Company implemented a Pension Plan for our administrative monthly salaried employees, which became effective on January 1, 1967, or prior to the enactment of Republic Act No. 4917. The two employees in question, Mr. Fabian D. Bautista and Miss Francisca C. Asuncion, were excluded from the Company Plan due to their age (60 and 59 years respectively in 1967), and as a result of their request for official retirement from the Company in 1968. Both employees were retired on March 31, 1968, with Mr. Bautista having a service record of 40 years with the Company and Miss Asuncion a service record of 17 years. Both employees chose to receive a lump sum retirement settlement, approved by the Management of Manila Cordage Company, Commensurate with their years of service. The question arises, however, whether or not they are exempt from taxation on their retirement pay under the provisions of Republic Act No. 4917. Under the circumstances, it would appear unfair if these two employees were subject to pay income tax on their retirement settlement, due to circumstances beyond their control, since they were not eligible to participate in the Company Plan, while those employee covered by said Plan are exempt from taxation as provided by law under Republic Act No. 4917. "Also for consideration is the question of those employees of Manila Cordage Company who were retired prior to the implementation of the Company Pension Plan and the enactment of Republic Act No. 4917, who are presently receiving a monthly retirement pension approved by the Board of Directors of the Manila Cordage Company. We are withholding taxes each month from these employees under the rules implemented by your goodselves on the withholding tax law, and those concerned have now appealed to us for a decision by the Bureau of Internal Revenue as to whether their retirement income is subject to taxation." In reply, I have the honor to inform you that Mr. Bautista and Miss Asuncion cannot avail of the exemption provisions of Republic Act No. 4917 regarding retirement benefits for the reason that said employees are not covered by the Pension Plan of the Manila Cordage Company. Neither can they avail of the tax exemption benefit under the final proviso of Section 1 of the Act because their separation from the services of the Company is not deemed "beyond the control of said official or employee" within the contemplation of said proviso of R.A. No. 4917, said separation having been made upon the employees' own request. As regards those employees who retired prior to the enactment of R.A. No. 4917, they are subject to income tax on the retirement benefits they received or will receive before or after June 17, 1967, the effectivity date of the Act. This is so because as a rule, laws have prospective application, unless the contrary is expressed. lexlib Moreover, in order that retiring employees who need the qualifications called for by the Act may avail of the tax exemption benefit under A.A. No. 4917, the employer-company must submit to this Office a copy of its plan and establish the reasonableness of said plan in accordance with the requirement of the Act. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue