BIR Ruling [DA-290-03]

September 2, 2003 BIR RULING [DA-290-03] R.A. No. 7641 156-2003; 018-2003 Mr. Pancrasio B. Banluta 493 Tenement Building Taguig, Metro Manila S i r : This refers to your letter dated May 6, 2003 requesting for a ruling that your retirement benefits under R.A. 7641 are not subject to income tax and consequently to the withholding tax prescribed under Section 79, Chapter XIII, Title II of the Tax Code of 1997. It is represented that you had been employed for thirty (30) years with the Eagle Electric of the Philippines, a domestic corporation, owned and operated by Command Electric Co., Inc. since September 26, 1973 up to April 30, 2003, as Mold Maker-Tool & Die Department; that you are sixty (60) years old at the time of your retirement; that Eagle Electric of the Philippines has no BIR approved Retirement Plan for its employees; and that on October 8, 1999 the Eagle Electric of the Philippines and the Eagle Electric Workers' and Employees Association, a legitimate labor organization, entered into a Collective Bargaining Agreement (CBA) for the benefit of the employees, viz. : "Section 3. It is further agreed between the parties that any worker covered by this Agreement who reached the age of fifty-five (55) years and had rendered at least twenty five (25) years continuous service with the Company shall have the option to apply for retirement with the Company and he shall be paid a sum equivalent to twenty six (26) days for every year of actual service computed at his ordinary basic rate on the date of retirement; and "Section 4. It is likewise agreed between the parties that any worker who reaches the age of sixty-five (65) years shall be compulsorily retired by the company and the subject worker who have rendered more than twenty (20) years of service to the Company shall be paid a retirement pay equivalent to thirty (30) days for every year of service rendered to the Company, computed at his last ordinary basic daily rate." In reply, please be informed that pursuant to Section 1 of R.A. No. 7641, otherwise known as an "Act Amending Article 287 of Presidential Decree No. 442, as amended, otherwise known as The Labor Code of the Philippines, by Providing for Retirement Pay to Qualified Private Sector Employees in the Absence of any Retirement Plan in the Establishment" provides, viz.: "Section 1, Article 287 of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines, is hereby amended to read as follows: "Art. 287. Retirement. Any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or other applicable employment contract. "In case of retirement, the employee shall be entitled to receive such retirement benefits as he may have earned under existing laws and any collective bargaining agreement and other agreements: Provided, however, that an employee's retirement benefits under any collective bargaining and other agreements shall not be less than those provided herein. "In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at least five (5) years in the said establishment, may retire and shall be entitled to retirement pay equivalent to at least one half () month salary for every year of service, a fraction of at least six (6) months being considered as one whole year. "Section 2. Nothing in this Act shall deprive any employee of benefits to which he may be entitled under existing laws or company policies or practices." Such being the case, and since the retirement benefits to be paid by Eagle Electric of the Philippines to you is in accordance with the CBA, said retirement benefits are exempt from income tax and consequently, to the withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997. ( BIR Ruling No. DA-018-2003 dated January 23, 2003 and BIR Ruling No. 156-2003 dated May 14, 2003 ) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service