Pension Plan for the Benefit of the Employees

July 21, 1959 BIR RULING NO. 370-59 Messrs. Leido, Andrada, Perez & Associates 601-603 Soriano Bldg. Plaza Cervantes, Manila Gentlemen : In reply to your letter dated June 15, 1959 with respect to Section 30(j) of the Tax Code, I have the honor to quote hereunder the applicable revenue regulations, the provisions of which are self-explanatory: aisadc "An employer who adopts or has adopted a reasonable pension plan, actuarially sound, and who establishes, or has established, and maintains a pension trust for the payment of reasonable pensions to his employees shall be allowed to deduct from gross income reasonable amounts paid to such trust, in accordance with the pension plan (including any reasonable amendment thereof), as follows: "(a) If the plan contemplates the payment to the trust, in advance of the time when pensions are granted, of amounts to provide for future pension payments, then (1) reasonable amounts paid to the trust during the taxable year representing the pension liability applicable to such year, determined in accordance with the plan, shall be allowed as a deduction for such year as an ordinary and necessary business expense, and in addition (2) one-tenth of a reasonable amount transferred or paid to the trust during the taxable year to cover in whole or in part the pension liability applicable to the years prior to the taxable year, or so transferred or paid to place the trust on a sound financial basis, shall be allowed as a deduction for the taxable year and for each of the nine succeeding taxable years." "(b) If the plan does not contemplate the payment to the trust, in advance of the time when pensions are granted, of amounts to provide for future pension payments, then (1) reasonable amounts paid to the trust during the taxable year representing the present value of the expected future payments in respect of pensions granted to employees retired during the taxable year shall be allowed as a deduction for such year as an ordinary and necessary business expense, and in addition (2) the trust during the taxable year to cover in whole or in part the present value of the expected future payments in respect of pensions granted to employees retired prior to the taxable year, or so transferred or paid to place the trust on a sound financial basis, shall be allowed as a deduction for the taxable year and for each of the nine succeeding taxable years." (Sec. 118, Revenue Regulations No. 2, otherwise known as the Income Tax Regulations.) No special permits from the Bureau of Internal Revenue is necessary to set up a pension plan for the benefit of the employees. However, before the amounts set aside therefor can be allowed as a deduction for income tax purposes, the pension plan must conform with the provisions of section 118 of Revenue Regulations No. 2. prcd Very truly yours, (SGD.) MELECIO R. DOMINGO Acting Commissioner of Internal Revenue