BIR Ruling [DA-113-06]

March 16, 2006 BIR RULING [DA-113-06] 32 (B) (6) (a); 014-91 Isla Lipana & Co. 29th Floor Philamlife Tower 8767 Paseo de Roxas Makati City Attention: Ms. Myrna M. Fernando Partner Gentlemen : This refers to your letter dated December 12, 2005 requesting for confirmation of your opinion that the retirement benefits to be received by Mr. Ramon S. Aranzaso (Mr. Aranzaso) from the Realty Investments, Inc. under its late retirement program are exempt from income tax and consequently from withholding tax pursuant to Section 32(B)(6)(a) of the Tax Code of 1997. It is represented that the Realty Investments, Inc. maintains a retirement benefit plan which is certified by the BIR as a reasonable retirement benefit plan under Republic Act (R.A.) No. 4917; that Section 2, Article V of the Plan provides that an employee may be allowed to work beyond his normal retirement date on a yearly extension basis and shall continue to be a member until his late retirement date, which is the first day of any month after attaining the normal retirement date; that the Plan did not provide for the maximum age that the employee may be allowed to remain in the service of the said company; that for purposes of computing the retirement benefit of a member who availed of the extension, the late retirement benefit shall be equivalent to 100% of the Plan Salary for every year of credited service, including the extension of service; that on July 31, 1985, Mr. Aranzaso reached the normal retirement age of 60 years, having completed a total of 23 years of service to Realty Investments, Inc.; and that prior to this date, owing to his valuable contributions to the company, the Executive Committee, in its meeting of June 20, 1985, unanimously decided to retain his employment immediately after his normal retirement date, i.e., August 1, 1985, with the same duties and responsibilities and with the same compensation, allowances and benefits, renewable on a yearly basis. In reply thereto, please be informed that Section 32(B)(6)(a) of the Tax Code of 1997 provides that "(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: Provided, further, That the benefits granted under this subparagraph shall be availed of by an official or employee only once. . . . ." It is undisputed that the above-cited provision provides merely for the minimum requirements in order for the retirement benefits to be exempt from income tax and consequently from withholding tax, i.e., length of service of at least 10 years and 50 years of age at the time of retirement. However, the retirement benefit plan of the company may provide for more than 10 years of service and more than 50 years of age. Thus, in the instant case, retirement plan of Realty Investments, Inc. provides for late retirement benefits for employees who have reached the normal retirement age of 60. Accordingly, the late retirement benefits to be paid to Mr. Aranzaso are exempt from income tax and consequently from withholding tax. Similarly situated is BIR Ruling No. 014-91 dated January 30, 1991 , where this Office ruled that "xxx xxx xxx ". . . employee who is 83 years old and has been serving the company for 39 years, the benefits that have vested up to his compulsory retirement age of 65 and as extended until 70 under your late retirement provision, are exempt from tax. . . . . SUCH BEING THE CASE, this Office holds that the retirement benefits to be given to Mr. Aranzaso by Realty Investments, Inc. Retirement Plan corresponding to the benefits that have vested up to his normal retirement age of 60 as well as those due him until his late retirement age of 80 are exempt from income tax and consequently from withholding tax. 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