BIR Ruling [DA-388-04]

July 20, 2004 BIR RULING [DA-388-04] SGV & Co. 6760 Ayala Avenue Makati City Attention: Mr. Joel L. Tan-Torres Partner, Tax Division Gentlemen : This refers to your letter dated April 20, 2004 requesting, in effect, for a ruling that the attached draft of a Retirement Plan which your client SUN LIFE FINANCIAL PLAN, INC. (SUNLIFE) will uniformly apply to employers who desire to comply with Republic Act (R.A.) No. 7641 requiring the payment of retirement benefit to qualified private sector employees whose employers do not maintain BIR qualified/accredited retirement benefit plan is within the contemplation of Section 32(B)(6)(a) of the Tax Code of 1997 so that the benefits and privileges of a reasonable retirement benefit plan shall apply to them. It is represented that your client, SUNLIFE, is a pre-need company engaged in the business of providing products and services to the public including offering the service to assist employers who want to set up private retirement plan as provided under R.A. No. 7641; that SUNLIFE helps its future clients (corporate) with their need to have a reasonable, adequately funded private retirement benefit plan through the following basic steps: (1) render free actuarial valuation of their retirement liability; (2) based on the actuarial valuation report, render free design of its retirement plan; (3) this proposal contains a programmed schedule of installment payments that the participating employer/company needs to make over a fixed period of time, usually just five or ten years, in order to fully fund the retirement liability; (4) the participating employer/company invests the initial installment payment to establish their retirement fund under its management and care; (5) SUNLIFE deposits their investment into a Trust Account specifically set up for this purpose; (6) SUNLIFE issues the participating employer/company a Group Plan Agreement and issue Certificates of Participation for each member; and (7) Once an employee becomes eligible for retirement, the participating employer coordinates with SUNLIFE, and the latter will instruct the Trustee Bank to release the retirement benefit to the eligible retire. In reply thereto, please be informed that retirement benefits under R.A. No. 7641 by private sector employees whose employer do not maintain BIR qualified/accredited retirement benefit plan within the contemplation of Section 32(B)(6)(a) of the Tax Code of 1997 are exempt from income tax. However, considering that as represented, the draft retirement plan has the following features: 1. The Plan is reasonable, based as it is on the benefit structure of R.A. No. 7641: 2. It extends tax-free benefit only to those who have been in the service of the same employer for at least ten (10) years and is not less than 50 years of age at the time of retirement; 3. The Plan is permanent and continuing program, unless sooner terminated by virtue of a valid business reason: 4. The Plan covers all employees and is non-discriminatory covering all regardless of their position, designation or status and irrespective of the method by which their wages are paid; 5. The Plan is non-contributory; 6. There is impossibility of diversion; 7. In line with R.A. No. 7641, right vested only on retirement dates; and 8. The Fund is administered by a trust. The same qualifies as a reasonable retirement benefit plan within the contemplation of Section 32(B)(6)(a) of the Tax Code of 1997 and as such, it shall be entitled to the following benefits and privileges, viz : 1. The retirement benefits to be received by the member-employees-shall be exempt from all taxes (Section 32(B)(6)(a) of the Tax Code of 1997); 2. The income of the Trust Fund from its investments are exempt from income (Section 60(B) of the Tax Code of 1997); and 3. The contributions of the company to the retirement fund are gross income (Section 34(A)(1)6) of the Tax Code of 1997). It is understood in this connection, that the individual retirement plan should be submitted to this Office for determination of its qualification under Section 32(B)(6)(a) of the Tax Code of 1997. [formerly Section 28(b)(7)(A) of the Tax Code, as amended, as implemented by Revenue Regulations No. 1-83, amending Revenue Regulations No. 1-68]. Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service