BIR Ruling [DA-011-99]

January 7, 1999 BIR RULING [DA-011-99] Mr. Romeo C. Grefaldin Manila Hotel Corporation 1 Rizal Park MANILA S i r : This refers to your letter dated September 8, 1998 which was referred to this Office by the Chief, Appellate Division by way of 1st Indorsement dated September 22, 1998 requesting on behalf of the retired employees of Manila Hotel Corporation, for a ruling as to whether or not the retirement benefits received by the aforementioned employees who have availed of the Early Retirement Incentive Program (ERIP) offered by the Manila Hotel Corporation, are exempt from income tax and consequently from withholding tax. It appears that the Manila Hotel Corporation Employees' Retirement Plan has been determined and adjudicated by the BIR as a reasonable private benefit plan that under the said Plan with the Trustee bank, any employee, may, with approval of the Hotel, retire on the first day of the month upon attainment of age 55 and after completion of at least 15 years of credited service with the Hotel; that the following employees who have availed of the ERIP together with the number of years of service and their age requirements are: Name No. of Years of Service Age Abrigo, Ricardo S. 16.01 59.32 Antonio, Ricarte M. 14.01 56.33 Bautista, Corazon B. 19.76 51.52 Canete, Ernesto T. 19.54 55.98 Catolico, Azucena H. 18.09 51.82 Costelo, Gaudioso P. 15.28 50.62 Dela Rosa, Pablo M. 19.76 56.35 Eniego, Rosita R. 19.46 59.93 Etabag, Perfecto E. 19.6 54.01 Fonseca, Genoveva O. 19.49 59.72 Gallardo, Virgilio B. 19.56 58.57 Gallego, Carlito A. 14.3 53.98 Grefaldin, Romeo C. 18.42 59.95 Lara, Ma. Virginia B. 14.27 59.88 Leuterio, Oscar A. 19.53 56.6 Lubat, Tomas N. 19.54 52.21 Lucero, Alexander A. 19.68 54.04 Magno, Danilo H. 20.1 52.13 Marcaida, Carmen R. 19.72 52.76 Osmea, Nolasco A. 19.67 57.28 Pascual, Luis R. 19.66 51.83 Ramos, Cornelio R. 19.53 57.52 Recinto, Jose R. 19.62 56.31 Revilala, Pacifica N. 18.32 52.96 Reyes, Oscar L. 17.56 51.2 Reyes, Rodolfo R. 17.94 50.04 Rivas, Edgardo L. 19.68 56.83 Salmo, Danilo V. 20.12 50.04 San Juan, Rafael 20 51.72 Sochayseng, Avelina T. 19.76 51.52 Tactay, Celestina B. 19.68 50.1 Tenedor, Ernesto R. 19.72 52.35 Tomimbang, Onofre D. 19.7 57.64 Ulit, Perfecto T. 19.8 51.24 Velasquez, Luzviminda 19.64 50.28 Yao, Verano M. 19.54 54.29 and that the total gross retirement benefits amounted to P9,789,352.38 of which the amount of P1,683,825.56 was withheld and remitted to the BIR. DHITCc In reply, please be informed that Section 32(B)(6) of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, provides that the retirement benefits received under R.A. No. 7641 and those received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer: Provided, that the retiring official or employee has been in the service of the same employer for at least ten (10) years and is not less than fifty (50) years of age at the time of his retirement. . . . " shall be excluded from gross income. The above-cited section of the Tax Code provides merely for the minimum requirements of ten (10) years of service and not less than fifty (50) years of age in order that the retirement benefits may be exempt from income tax. However, the retirement plan rules and regulations, as in the case, the Manila Hotel Employee's Retirement Plan can under its early retirement date require an employee to retire on the first day of the month upon attainment of age 55 and after completion of at least 15 years of credited service with the Hotel. These conditions must be complied with by the employees availing the early retirement incentive program being offered by Manila Hotel Corporation in order that their retirement benefits may be exempt from income tax and consequently from withholding tax. Such being the case, and considering that not all employees who have availed the early retirement incentive program offered by Manila Hotel Corporation have complied with the early retirement date of age 55 and completion of at least 15 years of credited service with the Hotel as provided under the early retirement date of the Manila Hotel Employees' Retirement Plan, this Office is of the opinion that only the retirement benefits paid to the following employees named hereunder are exempt from income tax and consequently from withholding tax prescribed by Section 79, Chapter XIII, Title II of the said Code, to wit: 1. Abrigo, Ricardo S. 2. Canete, Ernesto T. 3. Dela Rosa, Pablo M. 4. Eniego, Rosita R. 5. Fonseca, Genoveva O. 6. Gallardo, Virgilio B. 7. Grefaldin, Romeo C. 8. Leuterio, Oscar A. 9. Osmea, Nolasco A. 10. Ramos, Cornelio R. 11. Recinto, Jose R. 12. Rivas, Edgardo L. 13. Tomimbang, Onofre D. Accordingly, the taxes withheld from their respective retirement benefits under the Manila Hotel Employees' Retirement Plan should be refunded to them. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)