Parras & Parras Law Offices

March 7, 2008 BIR RULING [DA-169-08] 32 (b) (6) (a); R.A. 7641; DA-391-05 Parras & Parras Law Offices Rm. 300 (1-B) Delta Building Quezon Avenue cor. West Avenue, Quezon City Attention: Atty. Conrado P. Parras Legal Counsel S i r : This refers to your letter dated January 2, 2008 requesting for exemption from the payment of income and withholding tax on the retirement benefits that will be received by your clients Abraham Espinoza, Amado Ramos, Teodulo de Guzman, Ricardo M. Capanpan and Manuel de Aza who retired from Lunar Steel Corporation. It is represented that Lunar Steel Corporation is a corporation duly registered with the Securities and Exchange Commission (SEC) with principal office address at Pasig Blvd. Extension, Maybunga, Pasig City; that the following employees of said corporation have already retired: 1) ABRAHAM ESPINOZA retired from service on December 19, 2007 at the age of 60 years old with 11 years of service; 2) AMADO RAMOS retired from service on December 19, 2007 at the age of 62 years old with 33 years of service; 3) TEODULO DE GUZMAN retired from service on December 19, 2007 at the age of 66 years old with 33 years of service; 4) RICARDO M. CAPANPAN retired from service on December 19, 2007 at the age of 61 years old with 22 years of service; and 5) MANUEL DE AZA retired from service on December 19, 2007 at the age of 61 years old with 27 years of service. DISaEA that foregoing are members of Globe Labor Union (Lunar Steel)-AWATU; that the corporation grants retirement pay pursuant to Section 1, Article XIX of the Collective Bargaining Agreement (CBA) between Lunar Steel Corporation and All Workers Alliance Trade Unions (AWATU/GLOBE LABOR UNION (Lunar Steel Corporation) which was in effect at the time of their retirement; and that the employees are entitled to retirement benefits under existing law and the Collective Bargaining Agreement (CBA) of the employees and Lunar Steel Corporation. In reply, please be informed that 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. TcDHSI "Section 2. Nothing in this Act shall deprive any employee of benefits to which he may be entitled under existing laws or company policies or practices." (Emphasis supplied) It appears that your client, Lunar Steel Corporation, maintains a collective bargaining agreement (CBA) providing for retirement benefits of its employees and provides for retirement pay plus incentives under Section 1, Article XIX of said agreement between Lunar Steel Corporation and AWATU/GLOBE which specifically provides, viz.: ARTICLE XIX RETIREMENT PAY SEC. 1. The Company shall grant retirement pay to all union members in the amount equivalent to twenty two and a half days (22.5) per year of service as provided for by law. A. RETIREMENT PAY PLUS INCENTIVES 1. 65 years old or 25 years 22.5 days per year service in the Company year of service Plus an incentive of 7.5 days per year of service. 2. 60 years old or 20 years 22.5 days per year service in the Company year of service Plus an incentive of 2.5 days per year of service. Based on the foregoing, this Office is of the opinion and hereby holds that since the above-mentioned employees are at least 60 years of age at the time of their retirement and have rendered at least 20 years of service, except for Abraham Espinoza who has rendered 11 years of service, they are entitled to the retirement benefits provided by the CBA and that the retirement pay to be received by them pursuant thereto is exempt from income tax and consequently, from withholding tax prescribed under Section 79, Chapter XIII, Title II of the Tax Code of 1997, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. EIAaDC Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service