Agnes VST Devanadera

December 16, 2008 BIR RULING [DA-(TSF-016) 542-08] 32 (B) (6) (a); DA 265-96 Agnes VST Devanadera Solicitor General OSG Bldg., 134 Amorsolo St. Legaspi Village, Makati City Madam : This refers to your letter dated November 10, 2008 wherein you requested that: a. The Office of the Solicitor General (OSG) Provident Fund be exempt from income tax and from filing an income tax return; b. The income of the OSG Provident Fund from its investments be 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 Fund members or their beneficiaries; c. The benefits to be received from the OSG Provident Fund by members upon retirement in addition to and as part of their retirement gratuity from the OSG be exempt from income tax; and d. The OSG Provident Fund be exempt from the final tax on interest and/or yield on deposit substitute instruments and on interest on its Philippine Currency bank deposits. In reply, please be informed that a perusal of the Rules and Regulations governing the said Fund, disclosed the following: (1) It is an employees' trust fund established by the Office of the Solicitor General effective November 10, 2008, for the exclusive benefit of its officials and employees; (2) It is duly trusteed; (3) It is contributory. The members shall contribute monthly to the Fund a sum equal to 5% of their monthly salary and the OSG shall pay to the Fund as its monthly contribution an amount equal to five percent (5%) of each member's current monthly salary; (4) The fund is accumulated by the trust; and HESIcT (5) The corpus or income of the fund is not used for or diverted to purposes other than for the exclusive benefit of the member-employees and their beneficiaries. In view thereof, this Office is of the opinion as it hereby holds that the OSG Provident Fund is an employees trust exempt from income tax under Section 32 (b) of the Tax Code, as amended and therefore, it need not file an income tax return; and that the income of the trust fund from its investments are exempt from income tax, provided, that in its investment activities, no part of the corpus or income of the fund shall be used for a diverted to purposes other than for the exclusive benefit of the member-employees or their beneficiaries. Moreover, the OSG Provident 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, G.R. No. 95022, March 23, 1993) In addition, the income or earnings from investments of the Fund, e.g., dividends, are taxable to the employee-member to the extent of the entire amount thereof, in the year so distributed, if the distribution is effected before his retirement from the company and that the income distributed shall not be diminished by the employee's personal contribution. Likewise, if the employee receives the OSG counterpart contributions plus earnings thereon before retirement, the entire amount is taxable to him in the year so distributed. Pursuant to Section 32 (b) (6) of the Tax Code, the benefits to be received from the OSG Provident Fund by the employee-members upon retirement in addition to and as part of their retirement gratuity from OSG shall be exempt from income tax. This means that, upon retirement, the total benefits which the employee shall receive consisting of his personal contributions, the OSG counterpart contributions and the income of the Fund to which the employee is entitled and is distributed to him shall be exempt from income tax. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service