AFP Retirement and Separation Benefits System

December 27, 2007 BIR RULING [DA-685-07] DA 163-99 AFP Retirement and Separation Benefits System Camp General Emilio Aguinaldo Quezon City Attention: Atty. Rolando G. Borja Head, Legal Department Gentlemen : This refers to your letter dated August 21, 2007 stating that the AFP Retirement and Separation Benefits System (AFPRSBS) is a pension fund duly organized and existing under and by virtue of P.D. No. 361, as amended by P.D. No. 1656; that it is the owned of a parcel of land identified as Lot 8-A, Block 4, Sunnyside Heights Subdivision, Capitol Hills, Batasan, Quezon City covered by TCT No. N-257298; and that a portion of the aforesaid lot with an area of 166 square meters is the subject of a sale in favor of the Republic of the Philippines due to expropriation. aHcACI In connection therewith, you now request for an opinion that the proposed sale of the above-mentioned lot by AFPRSBS is exempt from income tax and consequently from withholding tax pursuant to Section 60 (B) of the Tax Code of 1997. In reply thereto, please be informed that Section 60 (B) of the Tax Code of 1997 provides that "(B) Exception. The tax imposed by Title II shall not apply to employee's trust which forms part of a pension, stock bonus or profit-sharing plan of an employer for the benefit of some or all of his employees (1) if contributions are made to the trust by such employer, or employees, or both for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan, and (2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees: ..." IaTSED SUCH BEING THE CASE, any gains to be derived from the sale of the abovementioned property owned by AFPRSBS, a qualified pension plan within the contemplation of R.A. No. 4917, as amended, is not subject to income tax and consequently to withholding tax prescribed under Revenue Regulations No. 2-98, as amended. 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. aAHSEC Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service