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Taxation 2011
Code. And this exemption applies, even if R.A. No. 4917, under which the
GCHS Retirement Plan was established, requires at least ten years of service
and age fifty for the tax exemption of retirement benefits.
"We request a confirmation of the following opinion, because of the
growing confusion among banks as to whether it is the conditions of R.A. No.
7641 or R.A. No. 4917 that would apply to the two cases explained above."
In reply thereto, please be informed that Section 32(B)(6)(a) of the Tax Code
of 1997 provides as follows:
"(6) Retirement Benefits, Pensions, Gratuities, etc.
"(a) Retirement benefits received under R.A. No. 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: Provided, further, that the benefits
granted under this subparagraph shall be availed of by an official or employee
only once. . . . ."
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Thus, R.A. No. 7641 providing for Retirement Pay to Qualified Private Sector
Employees shall apply only in the absence of any Retirement Plan, collective
bargaining agreement or other applicable employment contract in the establishment.
Accordingly, under RA 7641, an employee upon reaching the age of sixty (60) years
or more, but not beyond sixty-five (65) years which is declared the compulsory
retirement age, who has served at least five (5) years in the said establishment, may
retire and shall be entitled to retirement pay equivalent to at least one half (1/2) month
salary for every year of service, a fraction of at least six (6) months being considered
as one whole year.
Under R.A. No. 4917 [now Section 32(B)(6)(a) of the Tax Code of 1997], it is
required that the following conditions must be present in order that the employee
benefits may be granted tax exemptions: (1) 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.
Thus, if there is a retirement plan duly approved by the BIR, collective
bargaining agreement or other applicable employment contract providing for
retirement benefits, the same shall be followed and R.A. No. 7641 shall not apply.
In your letter dated February 17, 2004, you opined that the tax exemption under
R.A. No. 7641 and the tax exemption under R.A. No. 4917 must be reconciled and
harmonized in a way that would not lead to such absurd results as:
1.
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can be qualify under R.A. No. 7641 because it applies only "in the
absence of a retirement plan or agreement providing for retirement
benefits"; here there is a retirement plan, although not approved by
the B.I.R., or
2.
And that you submit that the reasonable reconciliation of the tax exemption
under R.A. No. 4917 and R.A. No. 7641 is to hold:
1.
That any retiree who satisfies the requirements of R.A. No. 7641
(retirement under a CBA or other applicable employment, and
service for at least five years) is entitled to the tax exemption, even
if he is a member of a reasonable private benefit plan established
by his employer and approved by the B.I.R., if the retirement
benefit he receives from the Plan is equal to or less than the
minimum retirement benefit provided by R.A. No. 7641. This
would avoid the absurd situation where an employee who fails to
meet the 50 years retirement age or 10 years service requirements
will be taxed if he receives the retirement benefit from a B.I.R.
approved retirement plan, but not if his employer does not have
such a retirement plan or if the retirement plan is not B.I.R.
approved.
2.
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3.
However, if the employee receives from the BIR approved plan a retirement
benefit in excess of the minimum retirement benefit provided by R.A. No. 7641, he
must satisfy the requirements or conditions of R.A. No. 4917, which means that he
must be at least fifty (50) years old and must have served the company for at least ten
(10) years in order that his retirement benefits may be tax exempt. This is but fair
since it is clear that the retirement benefit comes from the BIR approved voluntary
plan and not from the requirement of R.A. No. 7641.
Finally, retirement benefits received by employees not from a BIR approved
retirement plan shall be governed by R.A. No. 7641.
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