BIR Ruling [DA-184-06]

March 27, 2006 BIR RULING [DA-184-06] 60 (B) AFP Retirement and Separation Benefits System Camp General Emilio Aguinaldo Quezon City Attention: Atty. Francisco H. Paredes Senior Vice President and Head, Corporate Services Gentlemen : This refers to your letter dated April 14, 2005 stating that the AFP Retirement and Separation Benefits System (AFPRSBS) is a pension fund duly created by Presidential Decree No. 361, as amended, with principal address at RSBS Building, 424 Capinpin Avenue, Camp Aguinaldo, Quezon City, with the mission "to establish a perpetually self-reliant retirement and separation benefits system for the AFP retirees and their beneficiaries; that AFPRSBS is established exclusively for the benefit of all active officers and enlisted personnel of the Armed Forces of the Philippines; that all its earnings are intended purely for the retirement and separation benefits of those military personnel and no part thereof is diverted for any other purpose other than for the benefit of the latter; that the AFPRSBS property located in Taguig City covered by TCT No. 36085 was conveyed to the Equitable PCI Bank in 2002 pursuant to a dacion en pago agreement; and that the consolidation of the said title under the bank's name has not yet been completed since BIR-Taguig is requesting for the submission of a BIR ruling that AFPRSBS is exempt from capital gains tax/expanded withholding tax on the sale of its real properties. In connection therewith, you now request for an opinion that the sale of real properties by AFPRSBS, a pension trust, is exempt from the payment of capital gains tax/expanded withholding tax pursuant to Section 60(B) of the Tax Code of 1997. 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 employees' 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 employee. . ." SUCH BEING THE CASE, this Office hereby maintains its position that AFPRSBS is still considered an employee's trust and therefore income of the trust fund from its investments remain exempt from income tax. Accordingly, the sale of its real properties is exempt from capital gains tax/expanded withholding tax pursuant to Section 60(B) of the Tax Code of 1997. SaHTCE Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service