October 30, 2000

BIR RULING NO. 052-00

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 June 15, 1999 stating that your client has a
trusteed retirement plan, with you acting as the trustee; that Section 3 of its Plan Rules
and Regulations provides —

"SEC. 3. Early/Optional Retirement. —

"Upon attainment of at least age 55 or upon completion of twenty-five

(25) years of service, a participant may be retired at the option of the Company
and shall be entitled to the actuarially reduced retirement pay equivalent to
eighty seven and a half percent (87.5%) of the normal retirement benefit less the
employer's accumulated value under the Pag-IBIG Fund."

that an employee of your client recently retired; that he is 51 years of age and has
rendered 23 years of continuous service; and that following the provisions of the Plan
Rules, the employee's retirement is not covered by the provision on Early/Optional
Retirement which requires at least 55 years of age or at least 25 years of service.

In connection therewith, you now request for an opinion/clarification as to

whether or not the retirement benefits to be received by the retired employee who is
51 years of age and has rendered 23 years of continuous service to the company are
exempt from income tax and consequently from withholding tax pursuant to Section
32(B)(6)(a) of the Tax Code of 1997.

In reply, please be informed that Section 32(B)(6)(a) of the Tax Code of 1997
provides —

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 "(a) Retirement benefits received under R.A. 7641 and those received
by officials and employees of private firms, whether individual or corporate, in
accordance with a reasonable private benefit plan maintained by the employer:
Provided, That the retiring official or employee has been in the service of the
same employer for at least ten (10) years and is not less than fifty (50) years of
age at the time of his retirement: . . . shall not be included in gross income and
shall be exempt from taxation."

There can be no uncertainty that the purpose of the above-quoted provision is

to exclude the retirement benefits from income tax. The first clause of Section 32
stated so in plain language. The sole object of the two (2) conditions enumerated is in
turn unmistakably to provide merely for the minimum requirement in order that the
retirement benefits to be given to the official or employee may be exempt from
income tax and consequently from withholding tax. However, the Retirement Plan
Rules and Regulations of the company may provide that the normal retirement date or
early/optional retirement date be more than what is required by the Tax Code.
Consequently, in case of conflict between the Tax Code and the Retirement Plan
Rules and Regulations, it is the latter that should prevail. ACHEaI

Such being the case, while Sec. 3 of the Retirement Plan Rules and
Regulations of your client provides that upon the attainment of at least age 55 or upon
the completion of twenty-five (25) years of service the employee may be retired at the
option of the company, the employee availing of the early/optional retirement must
have rendered ten (10) years of service to the company or must be at least age fifty
(50) years of age at the time of retirement, otherwise the retirement benefits to be paid
to him shall be subject to income tax and consequently to withholding tax.
Accordingly, the retired employee in this particular case, although he is 51 years of
age and has rendered 23 years of continuous service to the company is still not
covered under the early/optional retirement for failure to comply with the conditions
as provided in Section 3 of the said Plan i.e., attainment of at least age 55 or
completion of twenty-five (25) years of service. In fine, the retirement benefits to be
paid to the said retired employee shall be subject to income tax and consequently to
withholding tax prescribed under Section 57(B) of the Tax Code of 1997, as
implemented by Revenue Regulations No. 2-98.

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.

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 Very truly yours,

(SGD.) DAKILA B. FONACIER

Commissioner of Internal Revenue

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