BIR Ruling [DA-177-02]

October 2, 2002 BIR RULING [DA-177-02] AFP Retirement and Separation Benefits System Camp General Emilio Aguinaldo Quezon City Attention: Atty. Pedro Herrera-Davila Vice President-Legal Counsel Gentlemen : This refers to your letter dated November 22, 2001 requesting for confirmation/clarification on the tax exempt status of the Armed Forces of the Philippines Retirement and Separation Benefits System (AFPRSBS) a pension fund duly organized and existing under and by virtue of P.D. 361, as amended by P.D. 1656, pursuant to Section 60(B) of the Tax Code of 1997. It is represented that AFPRSBS was established to provide perpetual self-reliant retirement and separation benefits system for the AFP retirees and their beneficiaries; that San Lorenzo South Subdivision (SLSS) is one of the projects of the RSBS covering Phase I, Phase I-B, Phase I-C, Phase I-C Extension, Phase I-D (formerly portion of Phase I-C), Phase I-D, Phase I-E, Toledo and Villa Segovia are all located at Sta. Rosa, Laguna; that some SLSS documents for BIR clearance remain unprocessed and pending until such time that a new ruling on the tax exempt status will be presented by AFPRSBS; that at present, there are no modifications or changes in the law concerning RSBS being exempt from paying capital gains tax; that on June 23, 1993, the BIR upheld the position of AFPRSBS as an employee's trust fund and exempt from capital gains tax pursuant to Section 53(b) [sic] of the Tax Code of 1997; that the same was likewise affirmed by the BIR in its 1999 ruling; that however, despite such BIR Rulings, the BIR Regional Director of San Pedro, Laguna required the issuance of a new ruling regarding the said tax exemption. In reply thereto, please be informed that Section 60(B) of the Tax Code of 1997 provides that "Sec. 60(B) Exception. The tax imposed by Title II shall not apply to employee's trust which forms part of a pension, stock bonus or profit-sharing plan of an employer for the benefit of some or all of his employees (1) if contributions are made to the trust by such employer, or employees, or both for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan, and (2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees: . . ." Considering that AFPRSBS is an employee's trust fund established under P.D. 361, as amended by PD 1656 for the exclusive benefit of all the military members or commission officers and enlisted personnel of the Armed Forces of the Philippines and the corpus or income of the fund is not used for or diverted to purposes other than for the exclusive benefit of the military members or commission officers and enlisted personnel of the AFP and their beneficiaries, this Office maintains its position that the AFPRSBS is still considered an employees' trust and therefore income of the trust fund from its investments remain exempt from income tax and consequently from withholding tax pursuant to Section 60(B) of the Tax Code of 1997. (BIR Ruling No. DA673-99 dated December 12, 1999) Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service