BIR Ruling [UN-110-94]

March 29, 1994 BIR RULING [UN-110-94] Bank of the Philippine Islands BPI Building, Ayala Avenue corner Paseo de Roxas Makati, Metro Manila Attention: Ms . Lourdes B . Montelibano Manager Mr . Fernandico M . Vinoya, Jr . Account Specialist Gentlemen : This refers to your letter dated December 15, 1993 stating that the PAL Pilots Retirement Plan Fund, is a qualified employees' trust fund under Republic Act No. 4917, now Section 28(b)(7)(A) of the Tax Code, of which you are one of the trustee banks, (BIR Rulings dated September 12, 1973 and April 22, 1981); 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. Based on the foregoing, you now request for a confirmation of your opinion that the gains realized from the sale of real property belonging to the Fund to its employee-members are likewise exempt from capital gains tax. In reply, please be informed that pursuant to Section 53 of the Tax Code, pertinent portion of which reads: cdtech xxx xxx xxx "(b) Exceptions . 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 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 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: Provided, that any amount actually distributed to any employee or distributee shall be taxable to him in the year in which so distributed to the extent that it exceeds the amount contributed by such employee or distributee". xxx xxx xxx 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, prom. 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 capital gains tax and consequently from the creditable expanded withholding tax prescribed under Revenue Regulations No. 1-90. (BIR Ruling No. 53(b)-89-91-239-92). Very truly yours, ALICIA P. CLEMENO Head, Revenue Executive Assistant Officer-in-Charge (Legal Service)