BIR Ruling [DA-018-03]

January 23, 2003 BIR RULING [DA-018-03] 32 (B) (6) (a) The Candymaker, Inc. No. 8, Brixton cor. Reliance Street Pasig City Attention: The Personnel Manager Gentlemen : This refers to the 1st Indorsement of Ms. Marilou L. Del Rosario, Chief, Withholding Tax Division, dated February 14 and March 2, 2002 requesting for a ruling that the retirement benefits to be received by Mr. Ricardo Panganiban, Ms. Julieta A. Asis and Mr. Isidro A. Rulloda, who will soon be attaining the retirement age of sixty years are exempt from income tax and consequently from withholding tax. It is represented that the aforementioned employees have been under the employ of the Candymaker, Inc. for more than ten (10) years and will retire at the age of sixty (60) years old; and that they will be retiring pursuant to Article X of the company's Collective Bargaining Agreement which provides, viz. : "ARTICLE X MISCELLANEOUS PROVISIONS Section 1. Retirement Benefits . The COMPANY shall grant the following retirement benefits: a. Optional Retirement For employees who have rendered at least fifteen and above years in service or upon reaching the age of fifty five 12 days per year of service computed at the current basic pay of employee and reckoned from the initial date of employment; b. Compulsory Retirement For employees who have reached sixty (60) years of age benefits as provided for by law." In reply, please be informed that the retirement benefits received under R.A. No. 7641 shall be excluded from gross income pursuant to Section 32(B)(6)(a) of the Tax Code of 1997. DaIACS Section 1 of R.A. No. 7641 provides as follows: "Section 1. Section 287 of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines, is hereby amended to read as follows: "Art. 787. Retirement . Any employee may be retired upon reaching the retirement age established in the Collective Bargaining Agreement or other applicable employment contract. "In case of retirement, the employee shall be entitled to receive such retirement benefits as he may have earned under existing laws or any Collective bargaining agreement and other agreements. Provided, however, That an employee's retirement benefits under any collective bargaining agreement and other agreements shall not be less than those provided herein. "In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at least five (5) years in the said establishment, may retire and shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one whole year. "Section 2. Nothing in this Act shall deprive any employee of benefits to which he may be entitled under existing laws or company policies or practices. Section 1, Article X of the CBA between the Candymaker, Inc. and its employees is an agreement between the parties which provides for the number of years of service for compulsory/optional retirement. The compulsory retirement age of 60 years or more but not beyond sixty five (65) years and who has served at least five (5) years in the said establishment, shall apply only in the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment. Such being the case, and since they fall under Section 1(b), Article X of the CBA, the retirement benefits received by them shall not be subject to income tax and consequently, to withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service