Mr. Adriano M. Dulu

February 16, 2009 BIR RULING [SB-(011) 097-09] DA506-07 Mr. Adriano M. Dulu No. 19 Dona Maria Street Don Jose Heights Subdivision Fairview, Quezon City Sir : This refers to your letter dated December 8, 2008 requesting for an opinion as to whether or not the retirement benefits to be paid to you by Machinebanks Corporation is not subject to income tax and consequently to withholding tax. It is represented that you have been connected with the Machinebanks Corporation for the past 33 years and holding the position of industrial sales group manager; that the said company has no retirement plan duly approved by the BIR as a reasonable retirement benefit plan under Section 32 (B) (6) (a) of the Tax Code of 1997; that it has no Collective Bargaining Agreement (CBA) with its employees; and that since you are already 60 years old, you decided to retire from the company pursuant to Article 287 of the Labor Code. In reply thereto, please be informed that Section 32 (B) (6) (a) of the Tax Code of 1997 provides that retirement benefits received under Republic Act (RA) No. 7641 . . . shall be excluded from gross income. Section 1 of RA No. 7641, otherwise known as an Act amending Article 287 of Presidential Decree No. 442, as amended, otherwise known as The Labor Code of the Philippines, by Providing for Retirement Pay to Qualified Private Sector Employees in the Absence of any Retirement Plan in the Establishment provides, viz. : Section 1, Article 187 of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines, is hereby amended to read as follows: TAIaHE "Art. 287. Retirement. Any employee may be retired upon reaching the retirement age established in the collective bargaining agreement or other applicable employment contract. In case of retirement, the employee shall be entitled to receive such retirement benefits as he may have earned under existing laws and any collective bargaining agreement and other agreements: Provided, however, that an employee's retirement benefits under any collective bargaining and other agreements shall not be less than those provided herein. In the absence of a retirement plan or agreement providing for retirement benefits of employees in the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at least five (5) years in the said establishment, may retire and shall be entitled to retirement pay equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six (6) months being considered as one whole year. xxx xxx xxx" The above provisions merely provide for the minimum retirement benefits of one-half month for every year of service, in the absence of a retirement plan duly approved by the BIR or other employment contract for employee who is at least 60 years old and has rendered at least 5 years of service. Accordingly, the retirement benefits to be paid to you by Machinebanks Corporation, after rendering 33 years of service to the company and at the time of retirement you are already 60 years of age, are exempt from income tax and consequently from withholding tax. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service