Amount Transferred or Paid to Retirement Benefit and Investment Plan Allowed as a Deduction Under Certain Conditions

February 20, 1974 BIR RULING NO. 002-74 Amount transferred or paid to Retirement Benefit and Investment Plan allowed as a deduction under certain conditions . In reply to your letter dated January 31, 1974 requesting a ruling on a query, pertinent portion of which is quoted hereunder as follows: cdta "An American Investor, Client of this Law Firm, decided to phase out its excess equity in the Company of its Filipino workers and employees under a financing plan whereunder the American Investor will advance the money for the payment of the shares of stock to be transferred to the Filipino workers and employees. Part of the financing, representing the down payment for this acquisition of the excess equity, shall be paid out of past service contributions to be made by the Company to a Retirement Benefit and Investment Plan adopted by the Company for its workers and employees. xxx xxx xxx." "Considering the special nature of the transaction, which enables Filipino workers and employees to own the controlling stock of the equity of a foreign-controlled corporation covered by the Constitutional Limitation of 60/40, can the past service contributions, if paid by the Company into the Retirement Benefit and Investment Plan at one time which will enable the workers and employees, using said amount, to pay the minimum requirements for the purchase of the shares of stock, thereby gaining control of the corporation, be deductible in full from the current year earnings by the Company, instead of the 1/10 allowed under the National Internal Revenue Code?" I have the honor to inform you that the amount transferred or paid to the plan during the taxable year to cover, in whole or in the part prior service liability or pension liability for years prior to the taxable year shall be allowed as a deduction provided that such amount has not been previously allowed as a deduction and provided that it is prorated within a period of only ten (10) consecutive years, beginning with the year when the actual transfer or payment was made, pursuant to Section 30(j) of the Tax Code, in relation to Section 118 (a) of Revenue Regulations No. 2. Accordingly, only one-tenth (1/10) of the contributions by your client to fund past service costs may be deducted for the taxable year in which the contributions are made and for each of the nine succeeding taxable years, regardless of whether the down payment of the purchase price of the shares of stock which will be transferred to its Filipino workers and employees will be paid out of such past service contributions. Moreover, payments or disbursements from past service contributions which form part of the Trust or Retirement Fund for the aforestated purpose are not retirement benefits, said payments being made before retirement of the employee-members. The employee-members, who are, therefore, benefited by said payments are proportionately and individually liable for income tax on the amount so paid for their account. cdt