BIR Ruling [DA-126-03]

April 21, 2003 BIR RULING [DA-126-03] 33; RR 3-98 14-2001 Pru Life U.K. 25/F Tower 1, The Enterprise Center Ayala Avenue corner Paseo de Roxas & Dela Rosa Streets Legaspi Village, Makati City Attention: Ms. Glenda C. Caete AVP-Finance Gentlemen : This refers to your letter dated October 3, 2002 requesting for a confirmation of your opinion that contributions made by corporate clients to the retirement plan are tax exempt. It is represented that PRU LIFE U.K. (PRU LIFE) is an insurance company selling among others, retirement plans to private companies for the benefit of their employees; that what it basically offers to its corporate clients are life insurance policies with a special feature on retirement benefits for their employees; that aside from the life insurance coverage given to the employees, the life insurance plans earn guaranteed cash values and dividends that would then be the source of the retirement benefits to be given to qualified employees; that its projected accumulation rate for life insurance plans like these is eleven percent (11% ) per annum; that the actual amount of retirement benefits to be given to employees would however depend on the policy of its corporate clients, provided that, it should not go below what is provided under existing laws. In reply, please be informed that Section 33(C) of the Tax Code states: "Section 33. Special Treatment of Fringe Benefits . . . . (C) Fringe Benefits Not Taxable. The following benefits are not taxable under this Section. (1) Fringe benefits which are authorized and exempted from tax under special laws; (2) Contributions of the employer for the benefit of the employee to retirement, insurance, and hospitalization benefit plans; (3) Benefits given to the rank and file employees, whether granted under a collective bargaining agreement or not; and (4) De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance upon recommendation of the Commissioner." In addition, Section 2.33(B) of Revenue Regulations No. 3-98, otherwise known as the rules and regulations implementing the FBT, provides that the cost of group life insurance premiums borne by the employer for his employees shall be considered as a non-taxable fringe benefit. The pertinent section of the said regulation states as follows: "(10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. The cost of life or health insurance and other non-life insurance premiums borne by the employer for his employee shall be treated as taxable fringe benefit, except the following: (a) contributions of the employer for the benefit of the employee, pursuant to the provisions of existing law, such as under the Social Security System (SSS), (R.A. No. 8282, as amended) or under the Government Service Insurance System (GSIS) (R.A. No. 8291), or similar contributions arising from the provisions of any other existing law; and (b) the cost of premiums borne by the employer for the group insurance of his employees." Therefore, the premium payments to be made by the employers as contributions to the retirement plan for the benefit of their employees constitute non-taxable fringe benefits. ( BIR Ruling No. 014-2001 dated March 26, 2001 ) 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 his ruling shall be considered null and void. cDCSTA Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group