CIR vs VISAYAN ELECTRIC CO. Facts: 1. Visayan Electric Co.

established a pension fund for the benefit of its employees 2. The fund was later invested in stocks of San Miguel Brewery, for which dividends had been regularly received. These dividends, however, were not declared for tax purposes 3. The Provincial Auditor allowed VEC to declare the dividends as income for franchise tax purposes, thus tax exempt 4. The Revenue Examiner, however, argued that the dividend were subject to corporate income tax Issue: WoN the pension fund invested in stocks is tax exempt? Held: No The dividends were not income of VEC. They do not go to the general fund of the company The dividends were part of the pension fund which was solely for the benefit of the employees To qualify for exemption, the employees trust (pension) fund must refer to a definite program, scheme, or plan. It must be set up in good, actuarially sound, and not to be used or controlled in any way by the company. It must extend retirement and pension benefits for the employees Unquestionably, the VEC pension fund was created in good faith. It was meant for the benefit of the employees However, no sufficient data which would justify the Court to make a conclusive statement that the VEC pension fund qualifies as a trust under the Tax Code. 1) The requirements for the formation of employees trust funds for pension had not been strictly complied withe.g., the only record

evidence of its creation is the minutes of a board meeting; 2) No record to show that the fund was actuarially sound

Absent such data, the dividends are not tax exempt.

Reason: Exemptions in tax statutes are never presumed.