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Gentlemen :
that in the implementation of the said agreement, your Company does not
maintain a "plan" where contributions are made; and that instead, your
Company provides payments for the gratuity pay out of its general funds, as
the need arises.
In reply, please be informed that under Section 28(b)(7)(A) of the Tax
Code, as amended, retirement benefits, pensions, gratuities, etc. received by
officials and employees of private firms, whether individuals or corporate, in
accordance with a reasonable private benefit plan maintained by the
employer, shall not be included in gross income and shall be exempt from
taxation under Title II of the Tax Code. Provided, that the retiring official or
employee has been in the service of the same employer for at least 10 years
and is not less than 50 years of age at the time of his retirement and that
the benefits granted shall be availed of by an official or employee only once.
For this purpose, the term "reasonable private benefit plan" means a
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pension, gratuity, stock bonus or profit-sharing plan maintained by an
employer for the benefit of same or all of his officials or employees, or both,
for the purpose of distributing to such officials and employees the earnings
and principal of the fund thus accumulated, and wherein it is provided in said
plan that at no time shall any part of the corpus or income of the fund be
used for, or be diverted to, any purpose other than for the exclusive benefit
of the said officials and employees.
Pursuant to Section 6 of Revenue Regulations No. 1-68 of the Private
Retirement Benefit Plan Regulations, implementing Republic Act No. 4917
[now Section 28(b)(7)(A), Tax Code] before availing of the tax exemption
privileges, "employees must secure a prior determination of the
qualifications of the plan by submitting to the Commissioner of Internal
Revenue BIR Form No. 17.60 duly filled out and accompanied by the written
program constituting the plan and the trust instrument."
Such being the case, and since the gratuity pay you agreed to grant or
pay to your retiring employees pursuant to the Collective Bargaining
Agreement you signed with the International Oil Factory Workers' Union-
NATU representing your regular rank-and-file employees and laborers is not
in accordance with a reasonable private benefit plan as defined in Section
28(b)(7)(A) of the Tax Code and its implementing regulations, this Office is,
therefore, of the opinion as it hereby holds that the said gratuity pay does
not fall within the purview of Section 28(b)(7)(A) of the Tax Code, hence,
subject to tax under Title II of the same Code.
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