Mr. Edmund R. Castillo

January 15, 2009 BIR RULING [SB-(003) 023-09] 32 (B) (6) (a); DA-071-02 Mr. Edmund R. Castillo 31-A Venus Street, Congressional Subd. II Banlat, Tandang Sora Quezon City Sir : This refers to your letter dated August 28, 2007 requesting for an opinion as to whether or not your separation pay benefits are exempt from income tax and consequently from withholding tax pursuant to Section 32 (B) (6) (a) of the Tax Code of 1997. IaAHCE It is represented that you were scheduled to permanently resign/retire from your present employer, Pharma Dynamic, Inc. with business address at PDI Building, 71 Maysilo Street, Mandaluyong City, effective January 16, 2008; that the reason is that you and your wife, together with your youngest son are migrating to Canada; that your application for permanent residency has been approved and you were slated to leave come April or May 2008; that you are fifty one (51) years of age and have served the company for twenty two (22) continuous years, meeting the requirements of RA 4917 that provides for at least 50 years of age and ten years of service to be exempt, that the company's Retirement Plan, however, requires 55 years of age to qualify for "early retirement", hence your case will fall under voluntary resignation/separation; and that both the Management and the Trustee Bank, Bank of the Philippine Island, contended that you should be subject to tax unless the Company's Retirement Plan is amended, lowering the requirement to fifty (50) years old. In reply, please be informed that under Section 32 (B) (6) (a) of the Tax Code of 1997, retirement benefits shall not be included in gross income and shall be exempt from taxation, viz. : "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: . . . ." The law provides for at least ten (10) years of service and not less than fifty years of age at the time of retirement in order that the retirement benefit to be given to the official or employee may be exempt from income tax and consequently from withholding tax. However, the Retirement Plan Rules and Regulations of a company may provide for a normal retirement and/or early/optional retirement dates of more than what the law requires. The Company retirement plan requires a minimum retirement age of 55 years old. While the law requires a minimum retirement age of 50 years, the same will not apply for the purpose of tax exemption of retirement benefits where the Company's Employees Retirement Plan provides for a higher retirement age. The availment of benefits must be in accordance with the Plan. Neither will it qualify for exemption under Sec. 32 (B) (6) (b) of the Tax Code because the resignation/retirement is within the employee's control. aIcDCA Thus, although you have rendered twenty two (22) continuous years of service, you, however, are only fifty one (51) years of age. Such being the case, the retirement/separation benefits to be received by you shall be subject to income tax and consequently to withholding tax. (BIR Ruling No. DA-071-02 dated August 12, 2002) 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service