BIR Ruling [DA-019-04]

January 14, 2004 BIR RULING [DA-019-04] R.A. No. 7641 156-2003; 018-2003 Ms. Lilia P. Ventura c/o South Seas Trading Corporation 428 Fifth Avenue, Cubao Quezon City M a d a m : This refers to your letter dated December 10, 2003 requesting for a ruling that your retirement benefits under R.A. 7641 is not subject to income tax and consequently to the withholding tax prescribed under Section 79, Chapter XIII, Title II of the Tax Code of 1997. It is represented that you had been employed for seventeen (17) years with the South Seas Trading Corporation (Company), a domestic corporation duly registered with the Securities and Exchange Commission; that you are sixty two (62) years old at the time of your retirement; that the Company has no BIR approved Retirement Plan for its employees: and that on March 12, 2001 the Company and the Philippine Association and Free Labor Unions, a legitimate labor organization, entered into a Collective Bargaining Agreement (CBA) for the benefit of the employees, viz : "Section 6. The Company shall grant retirement pay to an employee upon reaching the age of sixty (60) years as follows: Years of Service 1015 = 16 days pay + 5 E1 + 1/12 13th Mo. 1520 = 17 '" 2025 = 18 '" 2530 = 19 '" 30 ABOVE 20 '" "Section 7. That the Company shall grant an EARLY RETIREMENT BENEFIT to all regular employees who have rendered at least fifteen years of service without regard to age and for any cause, which may only be availed by three (3) employees every year, to wit: Years of Service 1517 = 13 days 1820 = 14 21-23 = 15 2426 = 16 2729 = 17 30 ABOVE 18 Section 8. That in distinction from the above benefits, the Company is hereby granting an OPTIONAL RETIREMENT BENEFIT based on health reasons, which shall be available to all regular employees who shall by reason of sickness, illness, disease or any affliction opt to retire from his/her service to the Company regardless of age and years of service to the Company. AHDacC Years of Service 115 = 7 days 1620 = 8 2125 = 9 1630 = 10 30 ABOVE 11 In reply, please be informed that Section 1 of R.A. No. 7641, otherwise known as an "Act Amending Article 287 of Presidential Decree No. 442, as amended, otherwise known as The Labor Code of the Philippines, by Providing for Retirement Pay to Qualified Private Sector Employees in the Absence of any Retirement Plan in the Establishment" provides, viz : "Section 1, Article 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. 287. 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 and any collective bargaining agreement and other agreements: Provided, however, that an employee's retirement benefits under any collective bargaining 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." since you are sixty-two (62) years old, i.e. , more than the minimum age requirement prescribed in the CBA, and have rendered seventeen (17) years of service to the company, it is the opinion of this Office that you are covered by Section 6 of the CBA. Accordingly, the retirement benefits to be paid to you which is in accordance with the CBA, are exempt from income tax and consequently, to the withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997. (BIR Ruling No. DA-018-2003 dated January 23, 2003 and BIR Ruling No. 156-2003 dated May 14, 2003) 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, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service