BIR Ruling [DA-206-03]

June 30, 2003 BIR RULING [DA-206-03] 32 (B) (6) (a); 050-98 Reno Foods, Inc. Malabon City Attention: Jeanne Ang Cashier Gentlemen : This refers to your letter dated March 24, 2003 stating that your company has no retirement benefit plan duly approved by the Bureau of Internal Revenue; that you will be paying to several of your employees who will soon reached the mandatory retirement age of 65 and after rendering more than thirty (30) years of service to the company; and that pursuant to R.A. No. 7641, you are obliged to pay a retiree the following: 1. One half month salary 15.0 days 2. Five days Incentive leave 5.0 days 3. One over twelve (1/12) 13th month pay 2.5 days or a total of 22.5 days for every year of service. Based on the foregoing, you are requesting for ruling as to whether the aforesaid retirement benefits are subject to income tax and consequently to withholding tax. In reply thereto, please be informed that pursuant to Section 32(B)(6)(a) of the Tax Code of 1997 retirement benefits received under R.A. No. 7641 shall not be included in the gross income and therefore not forming part of the taxable income. Accordingly, the retirement benefits to be paid by you to your retiring workers under R.A. No. 7641 are not subject to income tax and consequently, to withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997 (formerly Section 72, Chapter 10, Title II of the Tax Code, as amended]. Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service