Lunar Steel Corporation

January 30, 2008 BIR RULING [DA-052-08] DA391-05 Lunar Steel Corporation C. Raymundo Avenue Maybunga, Pasig City Attention: Mr. Ramon D. Tan Plant Manager and Mr. Teofilo De Guzman Union President Gentlemen : This refers to your letter dated June 13, 2007, which was referred to this Office by the Large Taxpayers Assistance Division I by way of its 1st Indorsement dated July 16, 2007, requesting for exemption from the payment of income tax and consequently from withholding tax on the retirement benefits paid to its employees (both union and non-union members). It is represented that Lunar Steel Corporation is a corporation duly registered with the Securities and Exchange Commission (SEC) with principal office address at Pasig Boulevard Extension, Maybunga, Pasig City; that there are some employees who are already retirable with at least 60 years of age and with an average of 25 years of service in the company; and that the above-mentioned employees are retiring under Article XXXI of the Collective Bargaining Agreement (CBA) between the company and the union, which provides that the Company shall grant retirement pay to all union members in the amount equivalent to twenty two and a half days (22.5) per year of service. In reply thereto, please be informed that Section 32 (B) (6) (a) of the Tax Code of 1997 provides "(a) 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 not be included in gross income and shall be exempt from taxation." In BIR Ruling No. DA391-05 dated September 14, 2005 ,this Office had already occasion to rule that "Accordingly, retirement benefits received under Republic Act (R.A.) No. 7641 shall not be included in gross income and shall be exempt from income tax effective January 1, 1998. ... xxx xxx xxx R.A. No. 7641 will apply only in the absence of any retirement plan, collective bargaining agreement or other applicable employment contract in the establishment. Under the said Act, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) which is declared the compulsory retirement age, who has served at least five (5) years in the service of the employer, 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 (1) whole year. HICcSA xxx xxx xxx It appears that your employer maintains a collective bargaining agreement providing for retirement benefits of its employees. Section 2 of Article X of said agreement between Venus Steel Corporation and Malayang Manggagawa sa Venus Steel Corporation-All Workers Alliance Trade Unions (AWATU) specifically provides, viz .: "SEC. 2. The COMPANY shall provide retirement pay to all union members in the amount of thirty (30) day per year of service when they reached the age of sixty (60) years old or when disabled or with serious ailments." IN VIEW OF THE FOREGOING, this Office holds that since the above-mentioned employees are at least 60 years of age at the time of their retirement and have rendered at least 25 years of service, the retirement pay to be received by them pursuant to the aforesaid CBA is exempt from income tax and consequently from withholding tax prescribed in 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service