BIR Ruling [DA-112-04]

March 12, 2004 BIR RULING [DA-112-04] EEI Corporation Brgy. Bagumbayan Quezon City Attention: Mr. Ferdinand G. Villafuerte SVP & Corporate Secretary Gentlemen : This refers to your letter dated October 7, 2003 requesting for clarification of BIR Ruling No. DA240-03 dated July 25, 2003, where this Office ruled that "In reply thereto, please be informed that the rights of each employee to the amounts credited to his account are non-forfeitable (Sec. 2(g), Revenue Regulations No. 1-68, as amended). Accordingly, the amendment to the EEI Retirement Plan reducing the retirement benefits from 150% to 100% of the retiree's monthly basic salary due allegedly to the economic difficulties that the company is presently going through must not affect the amounts already credited to the account of the employees or their vested rights under the Plan. In other words, the application of the amendment must be prospective without affecting the vested rights of the employees to the benefits under the Plan, i.e. , this amendment should only be applied to employees hired after the effectivity of the aforesaid amendment, otherwise, the said amendment will affect the Plan's qualification under Section 32(B)(6)(a) of the Tax Code of 1997, and therefore, the fund created to implement the provisions of the Plan and the retirement pay to its qualified retirees will be subject to income tax and consequently to the withholding tax." In the aforesaid letter, you have provided sample computations relative to the applicability and interpretation of the above-cited ruling particularly on the issue that "the application of the amendment must be prospective without affecting the vested rights of the employees to the benefits under the Plan" such that Employee A Employee B Normal Retirement Due Optional Retirement Due June 15, 2006 June 15, 2006 DATE HIRED June 1, 1966 June 1, 1986 Length of Service at time of 40 20 Retirement DATE OF BIRTH June 15, 1946 June 15, 1955 Age at time of Retirement 60 51 MONTHLY BASIC RATE Php50,000.00 on Php35,000.00 on Retirement Date Retirement Date RETIREMENT BENEFIT Present Plan 150% 105% As amended, March 14, 100% 100% 2003 In applying and interpreting the above-cited ruling, the retirement benefits of Employee A and B as of March 13, 2003 shall be computed based on 150% of the monthly basic salary which is the amounts already credited to the accounts of the employees or their vested rights under the Plan. Beginning March 14, 2003, the effective date of the amendment reducing the retirement benefit from 150% to 100% of the monthly basic salary, Employee A and B retirement benefit shall be computed based on 100% of their monthly basic salary. In other words, the application of the amendment is prospective without affecting the vested rights of the employees under the Plan. ADTCaI Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service