BIR Ruling [DA-550-06]

September 14, 2006 BIR RULING [DA-550-06] 32 (B) (6) (a); 014-91 ATR Kim Eng Capital Partners, Inc. 17/F Tower One & Exchange Plaza Ayala Triangle, Ayala Avenue Makati City Attention: Ms. Nilaida S. Enriquez Trustee Gentlemen : This refers to your letter dated August 7, 2006 stating that your company has a retirement plan duly approved by the BIR as a reasonable retirement benefit plan; that in the said Plan, Article IV therein provides for the normal retirement of a member which is on "the first day of the month coincident with or next following the Participant's 60th birthday"; that your company has two (2) employees namely: Ramon B. Arnaiz who is 60 years old and has rendered 16 years of service, and Abelardo V. Cortez who is 60 years old and has rendered 9 years of service; and that your company has decided to retain their services without the two of them availing of their normal retirement benefits. In connection therewith, you now request for an opinion as to whether or not the late retirement benefits to be paid to the said employees are exempt from income tax and consequently from withholding tax. In reply thereto, please be informed that since your Plan has been qualified as a reasonable retirement benefit plan within the contemplation of Section 32(B)(6)(a) of the Tax Code of 1997, the retirement benefits to be received by the employees shall be exempt from all taxes upon their normal retirement. However, since the company decided to retain their services up to their compulsory retirement age of 65 under the late retirement, the benefits to be received by Ramon B. Arnaiz are exempt from tax but the benefits to be received by Abelardo V. Cortez are subject to income tax and consequently to withholding tax. Finally, whatever benefits they will receive in addition to their retirement benefits beyond age 65 shall be subject to income tax and consequently to withholding tax. ( BIR Ruling No. 014-91 dated January 30, 1991 ) aECSHI 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. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service