Tan & Concepcion Law Offices

July 12, 2007 BIR RULING [DA-380-07] 32 (B) (6) (c); No. 295-93; UN-069-95 Tan & Concepcion Law Offices Suites 1501-1502, The Orient Square Building F. Ortigas Jr. Road, Ortigas Centre, Pasig City Attention: Attys. Fides C. Cordero-Tan and Fe L. Concepcion Gentlemen : This refers to your letter dated July 3, 2007, requesting on behalf of your client, Voluntary Service Overseas [VSO] International , for a ruling that benefits under a pension scheme are not subject to tax pursuant to Section 32 (B) (6) (c) of the Tax Code of 1997, as amended. Background: VOS is an international human development non-government organization (NGO) based in the United Kingdom. It sends professional volunteers to foreign countries, including the Philippines, for the following purposes: (1) to share and develop their skills and understanding and to share their experience with others on return; (2) to undertake or assist in works and projects of all kinds; and (3) to educate the public concerning the nature, causes and effects of poverty and limited education in other countries, to conduct and pursue research concerning these matters and to publish or otherwise make the results of such research available to the public. VSO has been sending volunteers to the Philippines since the 1960's through an Exchange of Notes between the Embassies of the Governments of the Republic of the Philippines and the United Kingdom. ADECcI On November 15, 2005, VSO was granted by the Securities and Exchange Commission a license to transact business in the Philippines through a branch office, Voluntary Service Overseas Philippines (VSOP). VSO set up, administers and exclusively funds a pension scheme for the benefit of full-time employees of VSOP. Based on the foregoing, you now request for confirmation of your opinion that the benefits received by the employees of VSOP under the VSO pension scheme are not subject to tax pursuant to Section 32 (B) (6) (c) of the Tax Code of 1997, as amended. In reply thereto, please be informed that Section 32 (B) (6) (c) of the Tax Code of 1997, as amended, provides, to wit: "SEC. 32. Gross Income . xxx xxx xxx (B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this title: IESAac xxx xxx xxx (6) Retirement Benefits, Pensions, Gratuities, etc. xxx xxx xxx (c) The provisions of any existing law to the contrary notwithstanding, social security benefits, retirement gratuities, pensions and other similar benefits received by resident or nonresident citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign government agencies and other institutions, private or public." From the aforequoted provisions of the Tax Code of 1997, it is clear that pensions received by resident or non-resident citizens of the Philippines are excluded from the gross income and shall be exempt from taxation. This Office had the occasion to rule on the matter in BIR Ruling No. 295-93 dated July 8, 1993, as follows: "In reply thereto, please be informed that pursuant to Section 28 (b) (7) (c) of the Tax Code, as amended, [now Section 32 (B) (6) (c)], social security benefits, retirement gratuities, pensions and other similar benefits received by resident or nonresident citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign government agencies and other institutions, private or public SHALL NOT BE INCLUDED IN THE GROSS INCOME. Such being the case, pensions received by retired Filipino personnel of the United Nations and other international organizations like ILO, WHO, IOM, are exempt from the Philippine income tax." Thus, this Office hereby confirms your opinion that the pensions received by the employees of VSOP under the aforesaid pension scheme are excluded from the gross income and consequently shall be exempt from individual income tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. ATCEIc Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service