BIR Ruling No. 276-11

August 10, 2011 BIR RULING NO. 276-11 Sec. 60 (B); BIR Ruling No. 140-96; BIR Ruling No. DA-265-96; BIR Ruling No. DA-359-2005; BIR Ruling No. DA-232-08; BIR Ruling No. DA-(TSF-001)012-08 Philippine National Bank Trust and Banking Group-BDAMD 3rd Floor, PNB Financial Center, Pres. Diosdado Macapagal Boulevard, Pasay City Attention: Roy O. Sapanghila Assistant Vice President Rafael G. Ayuste, Jr. First Senior Vice President & Trust Officer Gentlemen : This refers to your letter dated 08 September 2010 requesting re-certification that interest income derived by BCDA EMPLOYEE'S PROVIDENT FUND, INC. from investments in money market placements and bank deposits, deposit substitutes, trust funds and/or similar or like arrangements/investments is exempt from the 20% final withholding tax under Section 60 (B) of the Tax Code of 1997. It is represented that the BCDA EMPLOYEE'S PROVIDENT FUND, INC. ("BEPF for brevity") , with TIN 004-657-481-000, is non-stock, non-profit corporation duly organized under the laws of the Republic of the Philippines; that in BIR Ruling No. RDA-RR-NO. LD-00261-2004 dated October 29, 2004, BEPF was held to be an employees' trust exempt from income tax under Section 60 (B) of the Tax Code of 1997; and 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. Moreover, BEPF is no longer subject to the 20% final tax on interest and/or yield on deposit substitutes instruments in its Philippine currency bank deposits." In reply thereto, please be informed that Section 60 (B) of the Tax Code of 1997 provides that "Sec. 60 (B). Exception. The tax imposed by Title II shall not apply to employees' trust which forms part of a pension, stock bonus, or profit-sharing plan of an employer for the benefit of some or all of his employees (1) if contributions are made to the trust by such employer, or employees, or both for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan, and (2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees. . . . ." Section 60 (B), supra specifically exempts employees' trust from income tax. Since the final withholding tax is embraced within the title "Income Tax", it follows that said trust is exempt from the coverage of the withholding tax regulations. Otherwise, the exemption becomes meaningless. In the case of Commissioner of Internal Revenue vs. Court of Appeals, G.R. No. 95022 promulgated on March 23, 1993 , the Supreme Court held "It is evident that tax exemption is likewise to be enjoyed by the income of the pension trust. Otherwise, taxation of those earnings would result in a diminution of accumulated income and reduce whatever the trust beneficiaries would receive out of the trust fund. This would run afoul of the very intent of the law. CaEIST xxx xxx xxx "There can be no denying either that the final withholding tax is collected from income in respect of which employees' trusts are declared exempt (Sec. 56(b), now Sec. 53(b), Tax Code). The application of the withholding system to interest on bank deposits or yield from deposit substitutes is essentially to maximize and expedite the collection of income taxes by requiring its payment at the source . . . xxx xxx xxx" IN VIEW OF THE FOREGOING, interest income derived by the BEPF from its currency bank deposit, deposit substitutes, trust funds and/or similar arrangements/investments in money market placements is exempt from the final withholding tax pursuant to Section 60 (B) of the Tax Code of 1997. (BIR Ruling No. 140-96 dated December 12, 1996; BIR Ruling No. DA-359-05 dated August 24, 2005; BIR Ruling No. DA-232-08 dated April 10, 2008) Moreover, the BEPF is no longer subject to the 20% final tax on interest and/or yield on deposit substitute instruments and on interest on its Philippine Currency bank deposits. (CIR vs. GCL Retirement Plan, G.R. No. 95022, March 20, 1993). (BIR Ruling No. DA-265-96 dated July 22, 1996; BIR Ruling No. DA-(TSF-001) 012-08 dated July 8, 2008) 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