BIR Ruling [DA-156-03]

May 14, 2003 BIR RULING [DA-156-03] R.A. 7641 050-98 Quality Container Corporation No. 17 Eulogia Drive Barrio Kangkong Quezon City Attention: Mr. Reynaldo M. Antonio HRD/Manager Gentlemen : This refers to your letter dated November 26, 2002 which was referred to this Office by Revenue Region No. 7, Quezon City by way of 1st Indorsement dated April 3, 2003 requesting for a ruling as to whether or not the retirement benefits to be paid to Mr. Domingo T. Pidlaoan (Mr. Pidlaoan) under R.A. No. 7641 are exempt from income tax and consequently from withholding tax pursuant to Section 32(B)(6)(a) of the Tax Code of 1997. Documents, submitted to this office show that Mr. Pidlaoan is 62 years old and have rendered 15 years of service with the Quality Container Corporation or from April 3, 1987 to November 13, 2002 and held the position of Pressman under the Lithography Department; that per certification of Reynaldo M. Antonio, HRD/Manager, Mr. Pidlaoan was separated from employment due to retireable age and acute gastritis; that Mr. Pidlaoan could no longer perform well on his work for his health is gradually deteriorating; that Quality Container Corporation has no retirement plan duly approved by the Bureau of Internal Revenue (BIR) and that it has entered into a collective bargaining agreement (CBA) with Samahang Manggagawa sa Quality Container Corporation Federation of Free Workers in order to promote and foster cordial and harmonious relationship with its employees. In reply thereto, please be informed that Section 32(B)(6)(a) of the Tax Code of 1997 provides that retirement benefits received under Republic Act No. 7641 . . . shall be excluded from gross income. Section 1 of R.A. No. 7641 otherwise known as an Act amending Article 287 of Presidential Decree No. 442, as amended, otherwise known as The Labor Code of the Philippines, by Providing for Retirement Pay to Qualified Private Sector Employees in the Absence of any Retirement Plan in the Establishment provides, viz : Section 1, Article 287 of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines, is hereby amended to read as follows: "Art. 287. Retirement. Any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or other applicable employment contract. "In case of retirement, the employee shall be entitled to receive such retirement benefits as he may have earned under existing laws and any collective bargaining agreement and other agreements: Provided, however, that an employee's retirement benefits under any collective bargaining and other agreements shall not be less than those provided herein. "In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at least five (5) years in the said establishment, may retire and shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one whole year. ATcaID "xxx xxx xxx" Thus, since the CBA between Quality Container Corporation and the Samahang Manggagawa sa Quality Container Corporation Federation of Free Workers states no mention about the retirement age and length of service; an employee upon reaching the age of sixty (60) years or more is hereby declared the compulsory retirement age. Accordingly, since Mr. Pidlaoan is 62 years of age and has rendered 15 years of service to the company at the time of retirement, any retirement benefits to be received by him under the CBA shall be exempt from income tax and consequently from withholding tax prescribed under Section 79, Chapter XIII, Title II of the Tax Code of 1997. ( BIR Ruling No. 050-98 dated April 27, 1998 ) 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service