BIR Ruling No. 373-14

October 3, 2014 BIR RULING NO. 373-14 Peregrina C. Lepaopao 26 Road 3, Project 6 Quezon City Emma T. Salvador 9 Bridal Bouquet St., Merville Subd. Tanza, Navotas City Mesdames : This refers to your letter dated November 20, 2013 requesting for a refund of the withholding tax that was deducted from your Prudential Bank Employee's Provident Fund contributions, by reason of the merger of Prudential Bank with the Bank of the Philippine Islands (BPI). It is represented that on September 10, 2006, the Provident fund of Prudential Bank was liquidated by BPI, the surviving corporation; that the employer's contribution to the Provident Fund was subjected to withholding taxes; and that on October 16, 2006, BPI withheld the amount of P135,53,806.03 as payment of said withholding tax to the Bureau of Internal Revenue. You request that the amount of taxes withheld on the amount you received from the Prudential Bank Employees' Provident Fund representing the employer's counterpart contributions be refunded. Our records show that in your letter dated May 26, 2008, you requested for an opinion from this Office relative to the taxability of the distribution to members of the employer's share in a provident fund. We replied in BIR Ruling DA-(I-004) 097-2009 dated February 18, 2009, as follows: "(P)ursuant to Section 32 (B)(6) of the National Internal Revenue Code of 1997, as amended, the benefits to be received from the provident fund by the employee-members upon retirement shall be exempt from income tax. It appears however, that you were not retired as your employment was continued with BPI, the surviving corporation after the merger. Hence, the amounts you received from the provident fund are not 'retirement benefits' as contemplated under the said provision. Accordingly, the tax exemption under the said provision does not apply to your case." If an employee receives the employer's counterpart contributions to the provident fund plus earnings thereon before retirement, the entire amount is taxable to him in the year so distributed. Thus, the amounts you received from the Prudential Bank provident fund, representing employer's share and earnings thereon, upon dissolution are subject to income tax. IN VIEW OF THE FOREGOING, this Office denies your request for refund of taxes withheld on the amount you received from the Prudential Bank Employees' Provident Fund representing the employer's counterpart contributions. AaECSH Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue