BIR Ruling [DA-059-97]

February 4, 1997 BIR RULING [DA-059-97] Fortune Tobacco Corporation Parang, Marikina Metro Manila Attention: Mr . Cesar N . Santos VP - Industrial Affairs Gentlemen : This refers to your letter dated November 5, 1996 requesting for a ruling on whether the benefits derived by your employees as a consequence of their separation from your company in accordance with an existing Retirement Plan, are exempt from income tax and consequently from withholding tax. LLjur It is represented that Fortune Tobacco Corporation is compulsorily retiring employees in accordance with its Retirement Plan; that said Plan provides for normal retirement of employees on "the day he attains age 60 or upon completion of thirty (30) years of service " and early retirement upon reaching "the age of fifty-five (55) years and with at least ten (10) years of continuous or upon completion of twenty (20) years of service; and that employees who have completed 30 years of service but below the age of 50 are being compulsorily retired . In reply, please be informed that pursuant to Section 28(b)(7)(A) of the Tax Code, as amended, retirement benefits received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit maintained by the employer: Provided, That the retiring official or employee has been in the service of the same employer for at least 10 years and is not less than 50 years of age at the time of his retirement, shall not be included in the gross income and shall be exempt from taxation under Title II of the Tax Code, as amended. In order that the benefits to be received by your retiring employees pursuant to your BIR-approved Retirement Plan be exempt from taxes, the following conditions must concur: (1) that the retiring official or employee has been in the service of the same employer for at least 10 years; and (2) that the employee is not less than 50 years of age the time of his retirement. Such being the case, retiring employees who have completed 30 years of service but who are below 50 years of age upon retirement cannot avail of the tax exemption on their retirement benefits for lack of legal basis. (BIR Ruling 144-89 dated June 12, 1989) cdll Very truly yours, ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)