BIR Ruling [UN-012-95]

November 28, 1994 BIR RULING [UN-012-95] Bank of the Philippines Islands BPI Building, Ayala Avenue corner Paseo de Roxas St. Makati, Metro Manila Attention: Ms . Cynthia S . Makasiar Senior Manager and Mr . Fernandico M . Vinoya, Jr . Accounts Specialist Gentlemen : This refers to your letter dated September 28, 1994 stating that the Bank of the Philippine Islands Group of Companies Employees' Retirement Fund (BPIERF) of which you are the trustee bank is a qualified employees' trust fund; that the Plan was granted a certification by the BIR as a qualified and reasonable retirement benefit plan within the contemplation of Republic Act No. 4917, now Section 28(b) (7) (A) of the Tax Code (BIR Rulings dated February 6, 1981, August 10, 1990 and March 6, 1992); and that the income of the Trust Fund from its investments is exempt from income tax pursuant to Section 53(b) of the Tax Code, as amended. cdtech Based on the foregoing, you now request for a confirmation of your opinion that the sale of real estate properties owned by the Fund where the entire proceeds of the sale are earmarked for the Retirement Plan Fund, is exempt from Capital Gains Tax and consequently from the Creditable Expanded Withholding Tax. In reply, please be informed that pursuant to Section 53, of the Tax Code, as amended, pertinent portion of which reads: "xxx xxx xxx "(b) Exception . The tax imposed by this Title 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 the contributions are made to the trust by such employer or employees or both for the purpose of distributing to such employees the earning 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 the employees: Provided, that any amount actually contributed to any employee or distributee shall be taxable to him in the year in which so contributed to the extent that it exceeds the amount contributed by such employee or distributee." Exemption from income tax of the BIR-qualified employees trust fund applies to all income or earnings of any kind of property held by it in trust. (Commissioner of Internal Revenue vs. The Hon. Court of Appeals, the CTA, GCL Retirement Benefit Plan, G.R. No. 95022, promulgated March 23, 1992). It shall include interest income from bank deposits and yield from deposit substitutes, as well as gains realized from dealings in real property held as capital assets: Provided, that in the case of the latter, the entire proceeds of the sale shall form part of the retirement fund for the benefit of the member-employees/beneficiaries. In view thereof, the above-described transaction involving the sale of the Fund's capital assets wherein the entire proceeds of the sale are earmarked for the retirement plan fund established by the employer for the benefit of its employees shall be exempt from the capital gains tax and consequently from the creditable expanded withholding tax prescribed under Revenue Regulations No. 6-85, as amended. (BIR Ruling 53(b)-89-91-239-92; UN-110-94 dated March 28, 1994). cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)