BIR Ruling [DA-309-99]

May 20, 1999 BIR RULING [DA-309-99] W. Raymundo Pawnshop Co., Inc. 40-C ReyLor Building Arayat Street corner EDSA Cubao, Quezon City Attention: Ms. Tina R. Legaspi General Manager Gentlemen : This refers to your letter dated November 13, 1998 which was referred to this Office by way of 1st Indorsement dated December 7, 1998 by Revenue Region No. 7, Quezon City requesting for information/guidelines on how a pension/retirement plan can avail of the tax exemption and privileges accorded to a qualified reasonable private benefit plan within the contemplation of Section 32(B)(6)(a) of the Tax Code of 1997. In reply, please be informed that Revenue Regulations No. 1-83, as amended, provides that before availing of the privileges afforded by pension, gratuity, profit-sharing, or stock bonus plans, a certificate must be secured by the employer to the effect that the qualification of the plan for tax-exemption has been determined. In securing such certification, the employer must file a written application therefor with the Commissioner of Internal Revenue, attaching thereto the following documents: "(1) In the case of a trusteed plan. "(a) BIR Form No. 17.60 duly accomplished; "(b) A copy of the written program constituting the Plan; "(c) A copy of the Trust Agreement executed by and between the employer as trustor and the trustee/trustees of the employees retirement trust fund, duly signed by the parties to the trust and acceptance by the trustee/trustees indicated; "(d) Statement of Actuarial Assumption or Valuation duly certified to by an independent consulting actuary who must be a Fellow of the Actuarial Society of the Philippines; and "(e) Such other documents which the Commissioner may consider necessary in the final determination of the qualification of the Plan for tax-exemption. "(2) In the case of a non-trusteed/insured plan. "(a) BIR Form No. 17.60 duly accomplished; "(b) A copy of the written program constituting the Plan; "(c) A copy of the Deposit Administration Contract or Deferred Annuity Contract executed by and between the employer as the insured or policyholder and the Insurance Company as the insurer; and "(d) Such other documents which the Commissioner may consider necessary in the final determination of the qualification of the Plan for tax exemption. "(3) In the case of Multi-employer Plans. "The same documentation requirements as in paragraph (A)(1) or paragraph (A)(2), as the case may be, of the said Regulations should be submitted for each of the participating employers together with the Participating Agreement." However, in the case of insured plans, it is worth mentioning that the income of the Fund shall be subject to income tax. This is so because in the case of insured plans, the premium contributions are commingled with all other funds, premiums and receipts of the insurance company as the fundholder. Therefore, when such premiums or receipts are invested by the insurance company, there is actually no distinction, segregation or setting aside of the premium contributions intended to purchase future annuity benefits for plan annuitant or retiree. All premiums and receipts are without distinction invested. Consequently, income or earnings from such investments are subject to income tax. HESCcA Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)