October 30, 2000

BIR RULING NO. 051-00

Far East Bank and Trust Company

Far East Bank Center
Senator Gil J. Puyat Avenue
Makati City

Attention: Atty. Mildred Maranan-Garcia

Gentlemen :

This refers to your letter dated November 24, 1998 requesting for a ruling on
the tax consequence of the withdrawal of contributions by some of its employees
representing their contributions to the said Fund.

It is represented that the Divine Word Educational Association Retirement Plan

was established to provide retirement benefits for qualified employees of schools,
colleges, universities and Society of Divine Word (SDV) Education Secretaries office
owned and/or operated by members of the SVD and other institutions, congregations
or orders which are subsequently accepted by the Retirement Board; that the Fund
was basically non-contributory; that, however, its members, may, prior to their
retirement elect to contribute an amount equal to at least 2% of their current monthly
salary; that the contributions shall be subject to the provisions of the Plan and shall
not be subject to withdrawal unless for causes provided therein; that due to the
prevailing economic crisis, a number of members who have exercised their option to
contribute to the Fund found themselves financially incapable of continuing their
contributions and that they in fact requested the withdrawal of the said contributions.

In reply, please be informed that Section 36 of the Income Tax Regulations

provides that income in the broad sense, means all wealth which flows into the
taxpayer other than a mere return of capital. Such being the case, any and all amounts
which represent a return of the personal contributions of the employees to the Fund,
who are still in the active service of SVD, shall not be subject to income tax, since the
same are considered as mere return of capital. DCATHS

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 However, the income or earnings derived from the personal contributions by
the employee-members' are subject to income tax since in a retirement plan under
R.A. No. 4917 [now Section 32(B)(6)(a) of the Tax Code of 1997], the employer, or
officials and employees or both, contribute to a trust fund for the purpose of
distributing to such officials and employees or their beneficiaries, the corpus and
income accumulated by the trust in accordance with the plan. Section 2(d) of Revenue
Regulations No. 1-68, as amended, provides for exemption from income tax only the
benefits received by officials or employees upon retirement, in accordance with the
BIR-approved Retirement Plan rules or written program. In other words, in order to be
exempt from the payment of income tax, the benefits must be paid or distributed to
the officials or employees upon their retirement from the service and not while they
are still in the employ of the company-employer. In the instant case, the
earnings/income of the personal contributions of the employees constitute benefits
(not retirement benefits envisaged by the trust fund trustee to the employee) not upon
their retirement but while they are still in the service of the school colleges,
universities and Society of Divine Word (SVD) Education Secretaries office owned
and operated by SVD. Consequently, pursuant to Section 60(B) of the Tax Code of
1997, any and all amounts actually distributed to said member-employees over and
above their personal contributions shall be taxable to them in the year in which so
paid or distributed, considering that such distribution has been effected before their
retirement from SVD. This means that, only upon retirement, the total benefits which
the employees shall receive consisting of their personal contributions, counterpart
contribution of the employer and the income of the Fund to which the employees are
entitled and are distributed to them shall be exempt from income 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.) DAKILA B. FONACIER

Commissioner
Bureau of Internal Revenue

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Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia 2017 3