BIR Ruling [DA-377-04]

July 7, 2004 BIR RULING [DA-377-04] National Transmission Corporation Power Center, Quezon Avenue corner BIR Road Diliman, Quezon City Attention: Mr. Alan T. Ortiz, Ph.D. President & Chief Executive Officer & Chairman, Provident Fund Board of Trustees Gentlemen : In reply to your letter dated April 14, 2004 requesting for the tax exemption of the National Transmission Corporation (TRANSCO) Provident Fund, please be informed that a perusal of the Rules and Regulations governing the said Fund, disclosed the following: (1) It is an employees' trust fund established by the National Transmission Corporation effective March 1, 2004, 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 basic salary and the Company shall pay to the Fund as its monthly contribution an amount equal to five percent (5%) of each member's current monthly salary; (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 TRANSCO Provident Fund is an employees trust exempt from income tax under Section 60(B) of the Tax Code of 1997 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 or diverted to purposes other than for the exclusive benefit of the member-employees or their beneficiaries. Moreover, the National Transmission Corporation 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 to 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 TRANSCO counterpart contributions plus earnings thereon before retirement, the entire amount is taxable to him in the year so distributed. Pursuant to Section 32(B)(7)(f) of the Tax Code of 1997, the benefits to be received from the TRANSCO Provident Fund by the employee-members upon retirement in addition to and as part of their retirement gratuity from National Transmission Corporation 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 TRANSCO 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. EDSAac Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service