BIR Ruling [DA-614-06]

October 13, 2006 BIR RULING [DA-614-06] 32 (B) (6) (a); 60 (B); DA-377-2004; DA-345-2000 Pelaz Gregorio Gregorio & Lim Attorneys & Counsellors At Law Padilla Building, Emerald Avenue, Ortigas Center, Pasig City 1605 Attention: Atty. Vicente G. Gregorio Counsel Gentlemen : This refers to your letter dated September 20, 2006 requesting on behalf of your client Lantaka Hotel By the Sea, Inc . ("Lantaka" for brevity) for a ruling that its Employees' Retirement Fund deposited with several banks in Zamboanga City is exempted from the 20% final withholding tax imposed upon the amount of interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements. Background Lantaka Hotel By The Sea, Inc. established a Retirement Plan for its employees which qualified under Republic Act No. 4917 within the contemplation of section 28 (b) (7) (A) of the National Internal Revenue Code (now Section 32 (B) (6) (a) of the Tax Code of 1997, as amended by R.A. 9337) as amplified by Revenue Regulation Nos. 1-68 and 1-83, and was duly approved by the Bureau of Internal Revenue as a tax-exempt retirement fund on July 24, 1990. In the leading case of " Commissioner of Internal Revenue vs. Hon. Court of Appeals, Court of Tax Appeals and GCL Retirement Plan ", (G.R. No. 95022, March 23, 1992), the Supreme Court affirmed the decision of the Court of Appeals and held " that interest earnings of BIR-approved employees' trust derived from money market placements and purchase of treasury bills are exempt from the 20% final withholding tax imposed on interest from any Philippine currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements under Section 21(c) (1) of the Tax Code ." In the aforesaid case, GCL Retirement Plan, BIR-qualified employees' trust maintained by the employer, GCL, Inc., to provide retirement, pension, disability, and death benefits to its employees, filed a claim for refund of P11,302.19 representing the then 15% (now 20%) final tax withheld from its earnings from money market placements and purchase of treasury bills. aITECD In reply, please be informed that since Lantaka's Employees' Retirement Fund is an employees trust exempt from income tax under Section 60(B) of the Tax Code of 1997, as amended, it need not file an income tax return. Likewise, the income of the trust fund from its investments are also 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, Lantaka's Employees' Retirement 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 and BIR Ruling No. DA-377-2004 ) 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service