BIR Ruling No. 163-11

May 23, 2011 BIR RULING NO. 163-11 Tax Code of 1997, as amended, Section 32 (B) (6) (a); BIR Ruling No. DA-014-08 Isetann Department Store, Inc. C.M. Recto Ave., cor. Evangelista St. and Quezon Blvd., Quiapo, Manila Attention: Ms. Evangeline R. Mendoza OIC-Human Resources Division Gentlemen : This refers to your letter, dated January 7, 2011, requesting for tax exemption on the retirement benefits of your employees namely, Willie W. Flores, Roberto J. Almarines, Sr. and Lolita C. Bonilla . Documents submitted disclosed that the above-named employees have been employed by Isetann Department Store, Inc. Mr. Willie W. Flores held the position of Traffic Manager from July 27, 1976 up to February 3, 2011, approximately thirty four (34) years in service; Mr. Roberto J. Almarines, Sr. held the position of Officer-in-Charge of Traffic Department from June, 1997 up to March 9, 2011, approximately fourteen (14) years in service; and Ms. Lolita C. Bonilla held the position of Assistant Vice-President for Finance of Control Division from October 1, 1997 up to April 2, 2011, approximately thirteen (13) years of service; that the aforementioned employees were all sixty (60) years of age at the time of their retirement; and that your company has no retirement plan but maintains a collective bargaining agreement which expressly excludes supervisory and managerial employees, to which the above-named employees belong. In reply thereto, please be informed that pursuant to Section 32 (B) (6) (a) of the Tax Code of 1997, as amended, retirement benefits received under Republic Act No. 7641 shall not be included in the gross income and therefore not forming part of the taxable income. Under the said Act, in the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is declared the compulsory retirement age, who has served at least five (5) years in the service of the same employer, may retire and shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one whole year. (BIR Ruling DA-014-08 dated January 16, 2008.) Based on the foregoing and since at the time of retirement of the above-named employees, they were all sixty (60) years of age and have rendered thirty four (34), fourteen (14) and thirteen (13) years of service, respectively, the retirement benefits they received pursuant to R.A. 7641 are not subject to income tax and consequently to the withholding tax imposed under Section 79, Chapter XIII, Title II of the Tax Code of 1997. SEIDAC However, the tax exemption does not include the company's payment of salary to the said employees. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue