Mr. Napoleon De Guzman

September 21, 2007 BIR RULING [DA-506-07] DA-391-05 Mr. Napoleon De Guzman No. 148 Gen Simon Caloocan City S i r : This refers to your letter dated August 13, 2007 requesting for exemption from the payment of income tax and consequently from the withholding tax on the retirement benefits to be paid to you by Lunar Steel Corporation. SCEHaD It is represented that Lunar Steel Corporation is a corporation duly registered with the Securities and Exchange Commission (SEC) with principal office address at Pasig Boulevard Extension, Maybunga, Pasig City; that you were employed by Lunar Steel Corporation for the past thirty (30) years; that at the time of your retirement, you were sixty one (61) years of age; and that you are retiring under Article XIX of the Collective Bargaining Agreement (CBA) maintained by your employer, which provides that ". . . the Company shall grant retirement pay to all union members in the amount equivalent to twenty two and a half days (22.5) per year of service as provided for by law." In reply thereto, please be informed that Section 32 (B) (6) (a) of the Tax Code of 1997, provides THEcAS "(a) Retirement benefits received under R.A. No. 7641 and those received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer: Provided, that the retiring official or employee has been in the service of the same employer for at least ten (10) years and is not less than fifty (50) years of age at the time of his retirement . . . . .,shall not be included in gross income and shall be exempt from taxation." In BIR Ruling No. DA391-05 dated September 14, 2005 , this Office had already occasioned to rule that "Accordingly, retirement benefits received under Republic Act (R.A.) No. 7641 shall not be included in gross income and shall be exempt from income tax effective January 1, 1998. . . . HDTCSI xxx xxx xxx R.A. No. 7641 will apply only in the absence of any retirement plan, collective bargaining agreement or other applicable employment contract in the establishment. Under the said Act, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) which is declared the compulsory retirement age, who has served at least five (5) years in the service of the employer, may retire and shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one (1) whole year. xxx xxx xxx It appears that your employer maintains a collective bargaining agreement providing for retirement benefits of its employees. Section 2 of Article X of said agreement between Venus Steel Corporation and Malayang Manggagawa sa Venus Steel Corporation-All Workers Alliance Trade Unions (AWATU) specifically provides, viz: EcSCHD "SEC. 2. The COMPANY shall provide retirement pay to all union members in the amount of thirty (30) day per year of service when they reached the age of sixty (60) years old or when disabled or with serious ailments." IN VIEW OF THE FOREGOING, this Office holds that since you are 61 years of age at the time of your retirement and has rendered at least 30 years of service, the retirement pay to be received by you pursuant to the aforesaid CBA is exempt from income tax and consequently from withholding tax prescribed in Section 79, Chapter XIII, Title II of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. THCASc Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service