BIR Ruling [UN-223-94]

July 26, 1994 BIR RULING [UN-223-94] Investors & Assurance Corporation 3/F Philflex Building 407 Dasmarias Street corner David Street Binondo, Manila Attention: Mr . Jose Ma . S . Calangi Senior Vice-President Gentlemen : This refers to your letter dated January 28, 1994 stating that your employee, Mr. Francisco Quiones, has applied for an optional retirement at age 60; that he has been your employee since April 16, 1979; that you have no BIR-approved retirement benefit plan for your employees; that under Article 287 of the Labor Code, as amended by R.A. No. 7641, your company must pay Mr. Quiones, upon his retirement, his retirement benefit in an amount equivalent to at least one-half () month salary for every year of service. Based on the foregoing, you now request for information as to whether the said retirement benefit is subject to income tax and consequently to the withholding tax. cdtech In reply, please be informed that the retirement benefit which Mr. Francisco Quiones will receive from your Company in accordance with R.A. 7641, amending Article 287 of the Labor Code, is subject to the withholding tax on wages. This is so because Republic Act No. 7641 does not provide for the tax exemption of the retirement benefit to be received by the private sector employees under said Act. The exemption from income tax of retirement benefits to be received by private employees under Republic Act No. 4917 [now Section 28(b)(7)(A) of the Tax Code] cannot be applied to the retirement benefits to be received by the private sector employees under Republic Act No. 7641 because Section 28(b)(7)(A) of the Tax Code provides that in order to be exempt from income tax, the retirement benefits must be received by officials and employees of private firms, whether individuals or corporate, in accordance with a reasonable private benefit plan maintained by the employer provided that the employee had been in the service of the same private firm for at least ten (10) years, and (2) he is at least fifty (50) years old at the time of retirement. Moreover, the private retirement benefit plan must be submitted to this Office for determination of qualification as a reasonable retirement benefit plan within the contemplation of Section 28(b)(7)(A) of the Tax Code, as amended, and as implemented by Revenue Regulations No. 1-68 as amended by Revenue Regulations No. 1-83. (BIR Ruling No. 21-000-00-086-94 dated April 6, 1994). Very truly yours, ALICIA P. CLEMENO Acting Assistant Commissioner (Legal Service)