BIR Ruling [DA-087-02]

May 2, 2002 BIR RULING [DA-087-02] Bank of the Philippine Islands BPI Building, Ayala Avenue corner Paseo de Roxas Makati City Attention: Atty. Rodolfo B. Fernandez Vice President and Ms. Emily C. Chan-Onglingchuan Manager Gentlemen : This refers to your letter dated March 4, 2002 stating that the PAL Pilots Retirement Benefit Fund (the Fund), which is a duly qualified tax exempt retirement benefit plan within the contemplation of Republic Act No. 4917, and as such, it is entitled to all the benefits and privileges provided for by said Act; that the Fund is the owner of a property known as the PAL Pilots Building or ALPAP II Building located at Trade Street corner Investment Drive, Madrigal Business Park, Ayala Alabang, Muntinlupa City; that the property is registered in the name of Bank of the Philippine Islands (BPI) as Trustee of the Fund under TCT No. 188913; that BPI as Trustee leases out this property to different lessees and the latter in the past have not been assessed any withholding tax as the rental income is exempt from withholding tax; that recently, however, the Revenue District Office N. 53 of Las Pias, Muntinlupa City has repeatedly assessed the lessees or tenants of the ALPAP Building withholding tax from rental income; and that at present, its tenants continue to withhold 5% tax on their rental payments to the Fund because of the constant pressure from the RDO. Based on the foregoing representations, you now request a ruling as to whether or not the rental income derived by the Fund from the lease of its property is subject to withholding tax prescribed in Revenue Regulations No. 2-98, as amended. In reply thereto, please be informed that Section 60(B) of the Tax Code of 1997 provides that "Sec. 60(B) Exception . The tax imposed by Title II shall not apply to employee's trust which forms part of a pension, stock bonus or profit-sharing plan of an employer for the benefit of some or all of his employees (1) if contributions are made to the trust by such employer, or employees, or both for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan, and (2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees: . . ." Considering that PAL Pilots' Retirement Benefit Fund is an employee's trust fund established under R.A. No. 4917 for the exclusive benefit of all the pilots and the corpus or income of the fund is not used for or diverted to purposes other than for the exclusive benefit of the members and their beneficiaries, this Office is of the opinion as it hereby holds that its investments remain exempt from income tax and consequently from withholding tax pursuant to Section 60(B) of the Tax Code of 1997. Accordingly, the rental income derived by the Fund from the lease of its property is not subject to income tax and consequently to withholding tax prescribed in Revenue Regulations No. 2-98, as amended by Revenue Regulations Nos. 6-2001 and 12-2001. ( BIR Ruling No. DA673-99 dated December 12, 1999 ) 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. CHDAEc Very truly yours, (SGD.) MILAGROS V. REGALADO Acting Assistant Commissioner Legal Service