BIR Ruling [DA-146-99]

March 10, 1999 BIR RULING [DA-146-99] Atty. Antonio Z. Gregorio 12 Jaime Street Carmel 1 Diliman, Quezon City S i r : This refers to your letter dated November 27, 1998 requesting for the tax exemption of the Overseas Workers' Welfare Administration Provident Fund, Inc. (OWWA Provident Fund) under Section 60(B) of the Tax Code of 1997. It is represented that OWWA Provident Fund is a non-stock, non-profit corporation duly organized under the laws of the Republic of the Philippines; that OWWA Provident Fund is an employees' pension trust which forms part of a pension plan of the Overseas Workers' Welfare Administration (OWWA) for the benefit of its employees who are members of the fund; that contributions to the trust are made jointly by OWWA and its employees for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan; that after meeting administrative and necessary expenses, no part of the corpus nor income of the fund is used for or directed to any other purpose other than for the exclusive benefit of OWWA employees; and that OWWA Provident Fund was established for the primary purpose of providing benefits or loans to OWWA officials and employees who can make use of these for any of the following ends: (i) for their education and that of their children; (ii) for their hospitalization and that of their immediate dependents; and (iii) for minor but immediate needed repairs of their houses. LLphil Based on the foregoing representations, it was disclosed that the OWWA Provident Fund: (1) is an employees' trust established by the Overseas Workers' Welfare Administration (OWWA) for the exclusive benefit of its officials and employees; (2) is duly trusted; (3) is contributory. The members of OWWA shall contribute to the Fund for the purpose of distributing to such officials and employees the earnings and principal of the fund accumulated by the trust; (4) the Fund is accumulated by the trust; and (5) the corpus or income of the fund is not used for or diverted to purposes other than for the exclusive benefit of the member-employees and their beneficiaries. In view thereof, this Office is of the opinion as it hereby holds that the OWWA Provident Fund is an employees' trust exempt from income tax under Section 60(B) of the Tax Code of 1997 and therefore, it need not file an income tax return; and that the income of the trust fund from its investments are exempt from income tax, provided, that in its investment activities, no part of the corpus or income of the fund shall be used for or diverted to purposes other than for the exclusive benefit of the member-employees or their beneficiaries. Moreover, the OWWA Provident Fund is no longer subject to the 20% final tax on interest and/or yield on deposit substitute instruments and on interest on its Philippine Currency bank deposits. (CIR vs. GCL Retirement Plan, GR No. 95022 dated March 23, 1993) Moreover, the income or earnings from investments of the Fund, e.g., dividends, are taxable to the employee-member to the extent of the entire amount thereof, in the year so distributed, if the distribution is effected before his retirement from OWWA and that the income distributed shall not be diminished by the employee's personal contribution. Likewise, if the employee receives the OWWA counterpart contributions plus earnings thereon before retirement, the entire amount is taxable to him in the year so distributed. Pursuant to Section 32 (B)(6)(a) of the Tax Code of 1997, the benefits to be received from the OWWA Provident Fund by the employee-members upon retirement in addition to and as part of their retirement benefits from OWWA shall be exempt from income tax. This means that, upon retirement, the total benefits which the employee shall receive consisting of his personal contributions, the OWWA counterpart contributions and the income of the Fund to which the employee is entitled and is distributed to him shall be exempt from income tax. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)