BIR Ruling No. 171-11

May 25, 2011 BIR RULING NO. 171-11 Sec. 32 (B) (6) (a) NIRC; BIR Ruling DA-014-08 Isetann Department Store, Inc. C.M. Recto Ave., cor. Evangelista St., and Quezon Boulevard, Quiapo Manila Attention: Lolita C. Bonilla Asst. Vice-Pres. for Finance Gentlemen : This refers to your letter dated November 9, 2010, indorsed to this Office by Revenue Region No. 6 on November 11, 2010, requesting for exemption from the payment of withholding tax on retirement benefits of your retired employees pursuant to a Collective Bargaining Agreement (CBA). CEaDAc It is represented that ROLANDO SALONGA, JOHN S. GOBENGHUY and ROMEO TUBAC have been employed by ISETANN DEPARTMENT STORE, INC. Upon completion of eighteen (18), fifteen (15) and fourteen (14) years of service, respectively, they were retired after having reached the age of sixty (60). It is further represented that ISETANN DEPARTMENT STORE, INC. and NAGKAKAISANG MANGGAGAWA NG ISETANN (NMI-SUPER) UNION entered into a CBA, Section 13 of which provides, to wit: ". . . The Company agrees to give retirement pay pursuant to existing laws. . . ." In turn, Section 1 of Republic Act (R.A.) No. 7641, otherwise known as an "Act Amending Article 287 of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines, by Providing for Retirement Pay to Qualified Private Sector Employees in the Absence of any Retirement Plan in the Establishment" provides, viz. : "Section 1. Article 287 of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines, is hereby amended to read as follows: Art. 287. Retirement. Any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or other applicable employment contract. In case of retirement, the employee shall be entitled to receive such retirement benefits as he may have earned under existing laws and any collective bargaining agreement and other agreements: Provided, however, that an employee's retirement under any collective bargaining and other agreements shall not be less than those provided herein. 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) which is declared the compulsory retirement age, who has served at least five (5) years in the establishment, 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 (1) whole year." HICcSA In reply, please be informed that Section 32 (B) (6) (a) of the Tax Code of 1997 states, thus: "(a) Retirement benefits received under R.A. 7641 and those received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer: Provided, that the retiring official or employee has been in the service of the same employer for at least ten (10) years and is not less than fifty (50) years of age at the time of his retirement: . . ., shall not be included in gross income and shall be exempt from taxation." Considering that the CBA specifically provided that the provisions of the existing laws shall be applicable as regards the retirement benefits of its employees, R.A. 7641 will apply in this case. Under the said Act, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) which is declared the compulsory retirement age, who has served at least five (5) years in the service of the 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 (1) whole year. ISETANN DEPARTMENT STORE, INC. maintains a collective bargaining agreement adopting the provisions of R.A. No. 7641 regarding the retirement benefits of its employees. Accordingly, ROLANDO SALONGA, JOHN S. GOBENGHUY AND ROMEO TUBAC may be retired upon reaching the retirement age as provided for in R.A. No. 7641. Thus, any retirement benefits received pursuant to the Act is exempt from income tax and consequently, from the withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997 (BIR Ruling No. DA-527-2004 dated October 11, 2004). 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 as null and void. EICSDT Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue