BIR Ruling [DA-335-05]

August 1, 2005 BIR RULING [DA-335-05] AFP Retirement and Separation Benefits System Camp General Emilio Aguinaldo Quezon City Attention: Col. Honorio S. Azcueta (Ret.) EVP/COO, AFPRSBS Gentlemen : This refers to your letter dated October 13, 2004 requesting for confirmation/clarification on the tax exempt status of the Armed Forces of the Philippines Retirement and Separation Benefits System (AFPRSBS), a pension fund duly organized and existing under and by virtue of P.D. 361, as amended by P.D. 1656, pursuant to Section 60(B) of the Tax Code of 1997. It appears that on December 09, 1999, this Office ruled as follows: "xxx xxx xxx "In reply thereto, I have the honor to inform you that a perusal of the papers/documents which were submitted by you for this purpose disclosed the following: "1. The AFPRSBS is an employee's trust fund established under Presidential Decree No. 361 issued on December 30, 1973 as amended by P.D. No. 1656 for the exclusive benefit of all the military members or commission officers and enlisted personnel of the Armed Forces of the Philippines (AFP); "2. It is duly trusteed. The Secretary of National Defense exercises general supervision on the affairs of the AFPRSBS with the Chief of Staff of the AFP as Chairman of the Board of Trustees and major service commanders of the Armed Forces and Police service as members; "3. It is duly funded (Secs. 3 & 4, P.D. 361, as amended); "4. The fund and earnings thereof are accumulated by the trust in accordance with the AFPRSBS plan of which the trust is part; 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 military members or commission officers and enlisted personnel of the AFP and their beneficiaries. "In view thereof, this Office is of the opinion as it hereby holds that the AFPRSBS is an employees' trust and, therefore income of the trust fund from its investments are exempt from income tax and consequently from withholding tax pursuant to Section 53(b) of the Tax Code, as amended. Accordingly, the AFPRSBS is no longer subject to the 20% final tax on interest income and/or yield on deposit substitute instruments, e.g., money market placements and treasury bills and on interest income from its Philippine currency bank deposits ( CIR vs. The Hon. Court of Appeals, the Court of Tax Appeals and the GCL Retirement Plan , G.R. No. 95022, March 23, 1992). "xxx xxx xxx." Such being the case, this Office hereby maintains its position that AFPRSBS is still considered an employees' trust and therefore income of the trust fund from its investments remain exempt from income tax and consequently from withholding tax pursuant to Section 60(B) of the Tax Code of 1997. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service