BIR Ruling [DA-734-06]

December 19, 2006 BIR RULING [DA-734-06] DA 087-02; 60 (B) Phimco Industries, Inc. PHIMCO Compound Felix Manalo Street Punta, Sta. Ana Manila Attention: Ms. Eleanor B. Gutierrez Trustee Gentlemen : This refers to your letter dated October 9, 2006 stating that the Philippine Match Company, Ltd. Employees' Provident Fund is a non-contributory retirement plan for regular employees of Phimco Industries, Inc. (formerly Philippine Match Company, Ltd.); that the retirement plan is registered with the BIR and was granted tax exemption under then Republic Act (R.A.) No. 4917 on September 10, 1969; that the Plan's funds have been invested in both marketable equity securities and real estate, the proceeds from which will be used to pay the retirement benefits of employees covered by the Plan; and that the Fund is contemplating to dispose or sell its real estate investment to be able to pay the retirement benefits of resigned and retired members of the Plan. In connection therewith, you now request for an opinion as to whether or not the gain from the sale of the real property owned by the Fund is exempt from capital gains 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 "Sec. 60. (B) Exception . The tax imposed by Title II shall not apply to employees' 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 . . ." Considering that the Philippine Match Company, Ltd. Employees' Provident Fund is an employees' trust fund established under then R.A. No. 4917 for the exclusive benefit of all the employees and the corpus or income of the fund is not used for or diverted to purposes other than for the exclusive benefit of the members and their beneficiaries, this Office holds that its investments remain exempt from income tax and consequently from withholding tax. Accordingly, the gain derived by the Fund from the sale of its real property is not subject to the capital gains tax imposed under Section 24 (D) (1) of the Tax Code of 1997. ( BIR Ruling No. DA-673-99 dated December 12, 1999 ) CAcEaS 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