Exemption from Income Tax of Cash Dividends Declared and Paid to Employee-Members of LBP Provident Fund

March 7, 1984 BIR RULING NO. 052-84 56 (b)-036-83-052-84 Gentlemen : This refers to your letter dated June 6, 1983 requesting exemption from income tax of the cash dividends declared and paid to employee-members of the Land Bank of the Philippines (LBP) Provident Fund. It is represented that the LBP Provident Fund was established by the Board of Directors of the Land Bank of the Philippines pursuant to Republic Act No. 4537, otherwise known as "An Act Authorizing the Establishment of a Provident Fund in Government-Owned or Controlled Banking Institutions" consisting of "contributions made both by the Bank and by its officers or employees for the payment of benefits to such officers or employees or their heirs under such terms and conditions as its governing board may fix"; and that the earnings of the Fund consist, among others, of yields on its investments in government securities, interests derived from loans and advances granted to the employee-members and cash dividends out of said earnings/profits. In reply, please be informed that the LBP Provident Fund is an employees' trust exempt from income tax under Section 56(b) of the Tax Code and, therefore, it need not file an income tax return; that 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 or diverted to purposes other than for the exclusive benefit of the officer and employee-members or their beneficiaries; and that pursuant to Section 29(c)(7)(F) of the Tax Code of 1977 as amended, the benefits to be received from the LBP Provident Fund by the said members upon retirement shall be exempt from income tax. By and large, in order to be exempt from the payment of income tax, the benefits must be received from the LBP Provident Fund by the officer or employee-members upon their retirement from the service and not while they are still in the employ of the Bank. Consequently, the cash dividends declared out of the earnings of the Fund which dividends are actually distributed to an officer or employee-member in proportion to the amount of his contribution to the Fund shall be subject to the 15% final tax on the total amount thereof which shall be collected and paid as provided by Section 53 and 54 of the Tax Code [Sec. 21(e), Tax Code] Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner