BIR Ruling [DA-265-96]

July 22, 1996 BIR RULING [DA-265-96] National Development Company 116 Tordesillas Street Salcedo Village Makati City Attention: Mr . Esmeraldo E . Sioson Assistant General Manager Gentlemen : In reply to your letter dated February 27, 1996 requesting for the tax exemption of the National Development Company Provident Fund (NDC) Provident Fund, please be informed that a perusal of the Rules and Regulations governing the said Fund, disclosed the following: cdta (1) It is an employees' trust fund established by the National Development Company effective November 1, 1988, for the exclusive benefit of its officials and employees; (2) It is duly trusteed; (3) It is contributory. The members shall contribute monthly to the Fund a sum equal to 5% of their monthly salary and the Company shall pay to the Fund as its monthly contribution an amount equal to twenty percent (20%) of each member's current monthly salary. However, effective January 1, 1995, the company's monthly contributions shall be equal to forty-five percent (45%) of each member's current monthly salary for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated by the trust; (4) The fund is accumulated by the trust; and (5) The corpus or income of the fund is not used for or diverted to purposes other than for the exclusive benefit of the member-employees and their beneficiaries. In view thereof, this Office is of the opinion as it hereby holds that the NDC Provident Fund is an employees trust exempt from income tax under Section 53(b) of the Tax Code, as amended and therefore, it need not file an income tax return; and that the income of the trust fund from its investments are exempt from income tax, provided, that in its investment activities, no part of the corpus or income of the fund shall be used for a diverted to purposes other than for the exclusive benefit of the member-employees or their beneficiaries. Moreover, the National Development Company Provident Fund is no longer subject to the 20% final tax on interest and/or yield on deposit substitute instruments and on interest on its Philippine Currency bank deposits. (CIR vs. GCL Retirement Plan. GR. No. 95022, March 23, 1993) Moreover, the income or earnings from investments of the Fund, e.g., dividends, are taxable to the employee-member in the extent of the entire amount thereof, in the year so distributed, if the distribution is effected before his retirement from the company and that the income distributed shall not be diminished by the employee's personal contribution. Likewise, if the employee receives the NDC counterpart contributions plus earnings thereon before retirement , the entire amount is taxable to him in the year so distributed. Pursuant to Section 38(b) (7) (F) of the Tax Code, the benefits to be received from the NDC Provident Fund by the employee-members upon retirement in addition to and as part of their retirement gratuity from NDC shall be exempt from income tax This means that, upon retirement, the total benefits which the employee shall receive consisting of his personal contributions, the NDC counterpart contributions and the income of the Fund to which the employee is entitled and is distributed to him shall be exempt from income tax. cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Rev. Executive Assistant (Legal Service)