Pilots Occupational Disability Trust Fund Exempt from All Taxes

January 25, 1984 BIR RULING NO. 016-84 56-b-093-83-016-84 Gentlemen : This refers to your letter dated June 21, 1983 requesting a ruling as to whether the amounts to be received by members of the Air Line Pilots Association of the Philippines-Pilots Occupational Disability Fund (ALPAP-PODF) are subject to withholding tax as compensation income or to the expanded withholding tax. It appears that ALPAP-PODF consisting of all contributions made by the Philippine Airlines, Inc . (PAL) together with any income, repayments or gains, less all disbursement, losses, claims and liabilities and administrative expenses is held solely and exclusively for the benefit of its members who are employees of PAL. Thus, under B.I.R. Ruling No. 56-b-000-000-120-81 dated July 22, 1981, this Office ruled that ALPAP-PODF is an employees' trust exempt from income tax under Section 56(b) of the Tax Code; and that any and all amounts actually received or distributed from the trust fund to any employee or distributee over and above his personal contributions shall be taxable to him in the year in which so distributed. (Sec. 56(b), Tax Code). In reply, please be informed that any and all amounts received by the employee-members from the Pilots Occupational Disability Trust Fund prior to their complete separation from the service of PAL shall be subject to income tax, and consequently, to the withholding tax on wages at the rates prescribed by Section 21(a) in relation to Section 91 of the Tax Code as amended by B.P. Blg. 135 and as implemented by Revenue Regulations No. 6-82 dated October 1, 1982. However, pursuant to Section 29(c)(7)(B) of the Tax Code, as amended, any amount received by an official or employee or by his heirs from his employer as a consequence of separation of such official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee is exempt from taxes regardless of age or length of service. Accordingly, since the Pilots Occupational Disability Trust Fund is actually composed of employer PAL' contributions, any and all amounts received by the employee-members from the said fund as a result of their complete separation from the service of PAL due to disability are exempt from all taxes and consequently, from the withholding tax prescribed by Section 91, Chapter XI, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 6-82. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner