AFP Retirement and Separation Benefits System

November 20, 2008 BIR RULING [DA-(C-139) 449-08] DA 163-99 AFP Retirement and Separation Benefits System Camp General Emilio Aguinaldo Quezon City Attention: Ariel P. Palacios Executive Vice President/COO Gentlemen : This refers to the 1st Indorsement dated February 4, 2008 of Revenue District Office No. 40, Cubao, Quezon City, requesting for an opinion on whether or not the sale of a parcel of land together with the improvements thereon by AFP Retirement and Separation Benefits System (AFP-RSBS), a pension fund, is subject to capital gains tax and/or creditable withholding tax pursuant to Section 60 (B) of the Tax Code of 1997. AFP-RSBS is a pension fund organized and existing under and by virtue of Presidential Decree (P.D.) No. 361, as amended by P.D. No. 1656; that on the other hand, Base Point Corporation is a domestic family corporation organized and existing under the laws of the Philippines with office address at 68 K 3rd Street, Kamuning, Quezon City; that AFP-RSBS is the absolute and registered owner of a parcel of land together with the improvements thereon located at Block LCH 209 Lot 10 No. 12 Rimas Street, Project 2, Quezon City covered by TCT No. N-274147 issued by the Registry of Deeds for Quezon City with an aggregate area of 259.70 square meters; that on January 4, 2008, a Deed of Absolute Sale was executed by AFP-RSBS, as the Vendor, and Base Point Corporation, as the Vendee, whereby the former transferred to the latter the above-mentioned property for and in consideration of P1,950,000.00; and that on January 15, 2008, the corresponding documentary stamp tax in the amount of P41,580.00 had been paid as evidenced by BTR-BIR Deposit Slip of UCPB. 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: . . ." SUCH BEING THE CASE, any gains to be derived from the sale of the above-mentioned properties owned by AFP-RSBS, 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. AaSTIH 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