BIR Ruling [DA-071-02]

April 19, 2002 BIR RULING [DA-071-02] Rizal Commercial Banking Corporation RCBC Building, 333 Sen. Gil J. Puyat Avenue Makati City Attention: Ms. Ma. Cristina C. Arias AVP-Portfolio Manager and Atty. Federico P. Tancongco AVP-Trust Legal Counsel Gentlemen : This refers to your letter dated July 23, 2001 stating that Rizal Commercial Banking Corporation (RCBC) is the trustee bank of the Employees' Retirement Plan of Smith Bell & Co., Inc., a private retirement fund certified by the BIR as a reasonable retirement benefit plan under RA No. 4917; that under the compulsory retirement date of the said plan, when an employee reaches the age of sixty-five (65), the retirement shall be mandatory; and that pursuant to the said plan, Mr. Romeo C. Lasam is required to retire upon reaching sixty-five (65) although he has served Smith Bell & Co. Inc. for only six (6) years. In connection therewith, you now request for an opinion/clarification as to whether or not the retirement benefits to be received by Mr. Romeo C. Lasam who is 65 years of age and has rendered 6 years of service are exempt from income tax and consequently from withholding tax pursuant to Section 32(B)(6)(a) of the Tax Code of 1997. 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. 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." The law provides for at least ten (10) years of service and not less than fifty years of age at the time of retirement in order that the retirement benefit to be given to the official or employee may be exempt from income tax and consequently from withholding tax. However, the Retirement Plan Rules and Regulations of a company may provide for a normal retirement and/or early/optional retirement dates of more than what the law requires. Thus, although Mr. Romeo C. Lasam is 65 years of age at the time of his retirement he has however, rendered only six (6) years of service to the company. Such being the case, the retirement benefits to be received by him shall be subject to income tax and consequently to withholding tax. ( BIR Ruling No. 052-2000 dated October 30, 2000 ) 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 Acting Assistant Commissioner Legal Service