Peregrina C. Lepaopao

February 18, 2009 BIR RULING [DA-(I-004) 097-09] S 32 (B); DA-377-04 Peregrina C. Lepaopao 26 Road 3, Project 6 Quezon City Emma T. Salvador 9 Bridal Bouquet St., Merville Subd. Tanza, Navotas City Mesdames : This refers to your letter dated May 26, 2008 requesting for an opinion from this Office relative to the taxability of the distribution to members of the employer's share in a provident fund. DaScHC It is represented that you have been employees of Prudential Bank, and presently, Bank of the Philippine Islands (BPI), for more or less 26 years of continuous service and are over fifty (50) years of age; that as employees, you contributed money to the Prudential Bank provident fund, the primary objective of which is to provide economic assistance to employees upon occurrence of certain contingencies; the provident fund of Prudential Bank was pre-terminated and distributed to its employees by reason of the merger of Prudential Bank with the BPI; that the pre-termination or dissolution of the provident fund was unilaterally decided by the new management (BPI) and was not due to the fault of members/employees; and that the employer's contribution to the provident fund was subjected to withholding taxes. In reply, please be informed that pursuant to Section 32 (B) (6) of the National Internal Revenue Code, the benefits to be received from the provident fund by the employee-members upon retirement shall be exempt from income tax. It appears however, that you were not retired as your employment was continued with BPI, the surviving corporation after the merger. Hence, the amounts you received from the provident fund are not 'retirement benefits' as contemplated under the said provision. Accordingly, the tax exemption under the said provision does not apply to your case. Moreover, in BIR Ruling DA-377-04 dated July 7, 2004, this Office ruled that if the employee receives the employer's counterpart contributions to the provident fund plus earnings thereon before retirement, the entire amount is taxable to him in the year so distributed. Thus, the amounts you received from the Prudential Bank provident fund, representing employer's share and earnings thereon, upon dissolution are subject to income tax. We trust that we have clarified your query. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service