BIR Ruling [DA-174-96]

May 21, 1996 BIR RULING [DA-174-96] Joaquin Cunanan & Co. 8th Floor, BA Lepanto Building 8747 Paseo de Roxas Makati, Metro Manila Attention: Mr. Jose S. Tayag Partner Gentlemen : This refers to your letter dated August 2, 1995 on behalf of your client, PORCELANA MARIWASA, INC., requesting confirmation of your opinion that the interest portion of the past service cost liability of your said client under its Retirement Benefit Plan is deductible in full in accordance with the provisions of Section 29 (b) of the Tax Code. It is represented that PORCELANA MARIWASA, INC., has set up a retirement plan providing for the payment of reasonable pension to its employees, which was approved by its Board of Directors, but which is now pending approval with this Bureau; that under the said Plan, your said client's total past service liability amounts of P29,119,344; that since it cannot afford to pay this amount in lump sum, the same was amortized over a period of twenty-five (25) years; that based on the acturial report conducted on the Plan, your client would be paying an annual contribution to the Fund to cover past service liability in the amount to P3,208,022.00 under a 25-year amortization period; that a portion of the aforesaid annual amortization represents interest payment computed at 10% per annum compounded annually as shown in the attached copy of the actuary's Summary of actuarial assumptions and cost results and Schedule of Amortization. In reply thereto, please be informed that your request for opinion on whether or not the interest portion of the past service cost liability of PORCELANA MARIWASA, INC. under its Retirement Benefit Plan is deductible in full from your gross income is still premature on the ground that as you have represented, your client's said Plan is still pending approval with the Bureau. On the other hand, your said request cannot be granted on the ground that said interest payment cannot be deducted in full from your client's gross income, but only up to 10% annually of the said interest for a period of ten (10) years. In view thereof, this Office is of the opinion, as it hereby holds, that your aforesaid request is hereby DENIED for lack of legal basis. Very truly yours, (SGD.) ALICIA P. CLEMENO Assistant Commissioner (Legal Service)