Whether the HDMF, Its Income from Investments, and Dividends and Retirement Benefits Received by its Members Are Tax-Exempt

August 22, 1985 BIR RULING NO. 130-85 56-b 280-82 130-85 Gentlemen : This refers to your letters dated April 9 and 10, 1985 requesting a ruling as to whether the Home Development Mutual Fund, its income from investments thereof, as well as the dividends and retirement benefits received by its members continue to be exempt from the payment of any and all forms of taxes, assessments and other charges as provided for under its Charter, P.D. No. 1530 as amended by P.D. No. 1752, notwithstanding the provisions of P.D. Nos. 1955 and 1931. cdta In reply, please be informed that P.D. No. 1752 amending P.D. No. 1530, created the Home Development Mutual Fund of 1980 (hereinafter referred to as the Fund) as a provident savings system and body corporate, private in character, owned wholly by the members thereof who are employees, private and public, administered in trust and applied exclusively for their benefit, replacing for this purpose the Home Development Mutual Fund established under P.D. No. 1530 (Secs. 3, 8 & 11, P.D. No. 1752). Section 8 of P.D. No. 1530 reading: "SEC. 8. Notwithstanding any provision of existing law, decrees executive or administrative order, rule or regulation to the contrary, the Fund, as well as the interests and dividends received by the members thereof, shall be exempt from the payment of any and all forms of taxes, tariffs and duties, fees, imposts and assessments, and other charges, and no law hereafter enacted shall repeal this provision unless it is provided therein that the same is applicable to the Fund by specifically stating its name." and containing a provision similar to that of Section 33 of P.D. No. 1146, the Government Service Insurance System (GSIS) Charter has been amended by Section 16 of P.D. No. 1752 which provides: "SEC. 16. Tax and Guarantee Benefits . Notwithstanding any provisions of existing law, decree, executive or administrative order, rule or regulation to the contrary, the Fund and all its assets, collections, receivables and increments, as well as all distributions therefrom, whether of contributions, ratable income of the Fund, or dividends paid to or received by the members thereof, of their heirs/beneficiaries, shall be exempt from the payment of any and all forms of taxes, assessments and other charges. All such provident payments shall not be liable to attachment, garnishment, levy or seizure by or under any legal or equitable process whatsoever, either before or after receipt by the persons entitled thereto, except to pay any debt of the covered member to the Fund. In addition, the Government of the Republic of the Philippines hereby guarantees the payment of employees' and employers' contributions and dividends to the members when they are due. Such being the case, B.I.R. Ruling No. 024-cc-000-00-280-82 dated November 10, 1982 that P.D. No. 1177 (now modified by P.D. No. 1931) did not revoke or even modify the tax exempt character of the GSIS since "the failure of P.D. No. 1177 to provide for explicit revocation indicates legislative authority to retain the immunity which it had conferred upon the GSIS" is not applicable to the Fund as well as to its investments and earnings because when P.D. No. 1955 was passed withdrawing from the Fund its tax exemption, the prevailing law on tax exemption insofar as the Fund is concerned is no longer Section 8 of P.D. No. 1530 but Section 16 of P.D. No. 1752 which does not anymore contain the tax exempting provision similar to that of Section 33 of the GSIS Charter (P.D. 1146). Moreover, subject to certain conditions, P.D. No. 1955 which took effect on October 15, 1984 withdrew all exemptions and preferential tax treatments and/or privileges granted under special laws, executive orders and letters of instructions to private business enterprises and persons engaged in any economic activity. Accordingly, beginning October 15, 1984 all persons heretofore enjoying exemptions from or any preferential treatment in the payment of internal revenue taxes under special laws like the Fund under P.D. No. 1530 as amended by P.D. No. 1752, are now subject to the regular taxes applicable to them under the National Internal Revenue Code. (See RMC No. 25-84 dated October 12, 1984) Thus, as aptly stated by FIRB Resolution No. 4-85 dated January 22, 1985, the benefits derived from the PAG-IBIG Fund under P.D. No. 1752 are now taxable by virtue of P.D. No. 1955. However, clarifying the scope of P.D. No. 1955, Ministry Order No. 39-84 provides that the withdrawal of exemptions from, or any preferential treatment in the payment of taxes does not apply to exemptions or preferential treatment embodied, among others, in the National Internal Revenue Code as amended. In view thereof, this Office is of the opinion as it hereby holds that as an employees' trust which may be integrated (Secs. 19 & 20. P.D. 1752) to form part of a pension, stock bonus or profit sharing plan of an employer for the benefit of his employees, the Fund shall be treated as an individual exempt from income tax under Section 56(b) of the Tax Code as amended and, therefore, need not file the regular income tax return but only the information return on or before April 15 each year as required by Revenue Regulations No. 1-83 dated October 28, 1982; 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 or diverted to purposes other than for the exclusive benefit of the member-employees or their beneficiaries and provided further that the interest income and/or yield from deposit substitutes as well as savings and time deposits paid or accrued beginning October 15, 1984 shall be subject to the final withholding tax of 15% pursuant to Sections 21(d) and 24(cc) in relation to Section 53(e)(1) all of the Tax Code as amended by P.D. No. 1959; that pursuant to Section 29(c)(7)(F) of the Tax Code, the benefits to be received from the Fund by a government employee-member upon retirement in addition to and as part of his retirement gratuity from his employer shall be exempt from income tax which means that upon retirement ,the total benefits that the government employee shall receive consisting of his personal contributions, his employer counterpart contributions and the income of the Fund to which the said employee is entitled and is distributed to him plus his GSIS benefits and retirement gratuity shall be exempt from income tax: that benefits to be received from the Fund upon retirement by a private employee-member in addition to his retirement benefits under a reasonable private retirement benefit plan duly approved by this Office shall be exempt from income tax pursuant to Section 29(c) (7)(A) of the Tax Code as amended; that pursuant to Section 56(b) of the Tax Code, any and all amounts actually distributed from the Fund to a private employee-member upon retirement from the service of his employer which does not maintain a BIR-approved private retirement benefit plan for its employees, over and above his personal contributions shall be taxable to said employee-recipient in the year in which so distributed; that the income or earnings from investments of the Fund, e.g.,dividends or interest income are taxable to the employee-member, government or private, to the extent of the entire amount thereof in the year so distributed, if the distribution is effected before his retirement from the service of his employer; and that, if the employee receives his employer counterpart contributions plus earnings thereon before retirement ,the entire amount is taxable to him in the year so distributed. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner