BDO Unibank, Inc.

October 4, 2021 BIR RULING NO. OT-364-2021 Sec. 60 (B), NIRC of 1997, as amended; BIR Ruling Nos. 076-2012 & 613-2018 BDO Unibank, Inc. Trust and Investment Group 16/F BDO South Tower, BDO Corporate Center 7899 Makati Ave., Makati City Attention: Nia B. Almeida AVP/Account Officer Gentlemen : This refers to your letter requesting confirmation that Provident Plan for Petron Corporation continues to be tax-exempt within the contemplation of Section 32 (B) (6) (a) of the National Internal Revenue Code (Tax Code) of 1997, as amended. It is represented that the Petron Corporation created the Provident Plan for Petron Corporation effective January 1, 1985 with the primary objective of supplementing and augmenting the benefits upon retirement for regular employees of the Company and to encourage employees to save and accumulate a portion of their earnings during employment, in order for the payment of definitely determinable benefits to such employees upon retirement. The Plan shall be financed from contributions made by the members and from the contributions of the Company. In reply thereto, please be informed that Section 60 (B) of the Tax Code, as amended, 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. . ." The above-cited provision lays down the following requirements in order that the earnings of a retirement fund may be exempt from income tax, to wit: 1) the contributions are made to the trust by the employer, or employees, or both; 2) such contributions are made 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 3) under the trust instrument it is impossible (in the taxable year and at any time thereafter prior to the satisfaction of all liabilities with respect to employees under the trust) for any part of the corpus or income to be used for, or diverted to, purposes other than for the exclusive benefit of the employees. CHTAIc It is noted that the foregoing conditions are present in Provident Plan for Petron Corporation , thus, it is exempt from income tax. Since the final tax and the withholding thereof are embraced within the title on "Income Tax," it follows that said trust is also exempt from the coverage of the withholding tax regulations. In the case of Commissioner of Internal Revenue vs. Court of Appeals, G.R. No. 95022 , promulgated on March 23, 1992, the Supreme Court upheld the judgment of the respondent Court of Appeals in affirming the decision of the Court of Tax Appeals, which ruled: " . . . it is significant to note that the GCL Plan was qualified as exempt from income tax by the Commissioner of Internal Revenue in accordance with Republic Act (R.A.) No. 4917 approved on June 17, 1967. This law specifically provided: Sec. 1. Any provision of law to the contrary notwithstanding, the retirement benefits received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer shall be exempt from all taxes and shall not be liable to attachment, levy or seizure by or under any legal or equitable process whatsoever except to pay a debt of the official or employee concerned to the private benefit plan or that arising from liability imposed in a criminal action; xxx xxx xxx And rightly so, by virtue of the raison de'etre behind the creation of employees' trusts. Employees' trusts or benefit plans normally provide economic assistance to employees upon occurrence of certain contingencies, particularly, old age retirement, death, sickness, or disability. It provides security against certain hazards to which members of the Plan may be exposed. It is an independent and additional source of protection for the working group. What is more, it is established for their exclusive benefit and for no other purpose. The tax advantage in R.A. No.1983, Section 56(b), was conceived in order to encourage the formation and establishment of such private plans for the benefit of laborers and employees outside of the Social Security Act. Enlightening is a portion of the explanatory note to H.B. No.6503, now R.A.1983, reading: "Considering that under Section 17 of the SocialSecurityAct, all contributions collected and payments of sickness, unemployment, retirement, disability and death benefits made thereunder together with the income of the pension trust are exempt from any tax, assessment, fee, or charge, it is proposed that a similar system providing for retirement, etc. benefits for employees outside the Social Security Act be exempted from income taxes." (Congressional Record, House of Representatives, Vol. IV, Part 2, No. 57, p. 1859, May 3, 1957; cited in Commissioner of InternalRevenue vs. VisayanElectric Co., et al., G.R. No. L-22611, May 27, 1968, 23 SCRA 715). 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. EATCcI 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), TaxCode). 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. If an employees' trust like the GCL enjoys a tax-exempt status from income, we see no logic in withholding a certain percentage of that income which it is not supposed to pay in the first place. xxx xxx xxx" In view of the foregoing, interest income derived by Provident Plan for Petron Corporation from its bank deposits, and yield or any monetary benefit from deposit substitutes, trust funds and similar arrangements, are exempt from income tax, and consequently, from final withholding tax. Provided, however, 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/officials or their beneficiaries. ( BIR Ruling No. 076-2012 dated February 15, 2012) 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.) CAESAR R. DULAY Commissioner of Internal Revenue