RETIREMENT BENEFITS UNDER R.A. 7641 ARE SUBJECT TO INCOME & WITHHOLDING TAX FOR FAILURE TO MEET THE AGE REQUIREMENT

F Co. is requesting an income tax exemption for the retirement benefits of their retiring employee, who is 50 years old and has a combined years of service of 24.8 years. The retiring employee is a previous worker of S Co., a company that was taken over by F Co., and remained subject to the Retirement Plan of the former which is unregistered with the BIR. In reply, the Bureau cited Section 32 (B)(6)(a) of the 1997 Tax Code, as amended, which provides that the retirement benefits received under Republic Act (R.A.) No. 4917, or “An Act Providing that Retirement Benefits of Employees of Private Firms Shall Not Be Subject to Attachment, Levy, Execution ” in accordance with a reasonable private benefit plan, shall be excluded from the gross income subject to tax, provided that the retiring employee is 50 years old and above with at least 10 years of service. However, if the company does not provide any retirement plan or is disapproved by the BIR as reasonable, Section 1 of R.A. No. 7641, otherwise known as the “Retirement Pay Law” shall apply. It provides the exclusion of retirement benefits from gross income provided that the retiring employee has reached the age of 60 but not beyond 65 and has served the employer for at least five (5) years. Since the retiring employee of F Co. failed to meet the age requirement of 60, the retirement benefits received shall be subject to income and withholding tax. [BIR RULING NO. 384-2022, SEPTEMBER 8, 2022]

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[EXERCISE OF THE OPTION TO CLAIM A REFUND OR ISSUANCE OF A TCC BARS THE OTHER OPTION TO CARRY-OVER THE EXCESS PAYMENT FOR APPLICATION IN THE SUBSEQUENT YEARS' TAX OBLIGATION] [UNJUST ENRICHMENT IS NOT APPLICABLE TO TAXPAYER'S OWN FAULT]

U Co. is requesting a clarification on whether its unutilized creditable withholding taxes (CWT) for taxable year 2006, which was the subject of a claim for issuance of a Tax Credit Certificate (TCC) before the courts and which claim was denied with finality by the Supreme Court, may be carried-over and credited against the estimated quarterly income tax liabilities on the taxable quarters of the succeeding taxable years, until fully utilized, as long as the fact of withholding of CWT was clearly established. In ruling, Section 76 of the 1997 Tax Code, as amended, is clear and unequivocal in providing that the carry-over option, once actually or constructively chosen by a corporate taxpayer, becomes irrevocable. Hence, when U Co. filed a Petition for Review with the Court of Tax Appeals for the application of TCC covering its unutilized CWT, U Co., from then onwards, became precluded from carrying over its excess CWT. Regarding the issue on unjust enrichment, the BIR held that the same is untenable. In this case, the denial of U Co.'s claim for TCC was due to its failure to comply with all the requisites to be entitled to a claim for refund or issuance of a TCC. Thus, the government is not unjustly benefited at the expense of or with damages to another considering that it is U Co. who failed to establish that it is entitled to a claim for refund or issuance of a TCC. [BIR RULING NO. 380-2022, AUGUST 31, 2022]

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[CIR’S RIGHT TO OBTAIN INFORMATION IS NOT VIOLATIVE OF DPA] [CIR IS AUTHORIZED BY THE TAX CODE TO OBTAIN INFORMATION FROM ANY PERSON IN ORDER TO EVALUATE TAX COMPLIANCE OF TAXPAYERS & TO DETERMINE ANY LIABILITY FOR INTERNAL REVENUE TAX]

S Co. is requesting clarification on whether S Co.’s disclosure of (1) the sales earned by T Co.; and (2) a list of all its partner merchants/sellers, in compliance with the request of the BIR will violate Republic Act No. 10173, otherwise known as the “Data Privacy Act of 2012” (DPA). In ruling, Section 4(e) of the DPA states that the provisions of the DPA do not apply to information necessary to carry out the functions of public authority. Hence, the BIR, being a public authority performing its state’s functions, has the right and/or authority to obtain information from any person in order to ascertain the correctness of any return, or to make a return when none has been made, or to determine the liability of any person for any internal revenue tax. Considering that the Requested Information relates to the performance of the BIR’s functions as a public authority, the disclosure of the same is not violative of the DPA as it is outside of its coverage. Thus, the BIR opined that the disclosure of the Requested Information by S Co. to the BIR is legal and not covered by the provisions of the DPA. [BIR RULING NO. 363-2022, AUGUST 12, 2022]

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THE EXTENT OF TAXABILITY & EXEMPTION OF THE TRANSFER OF OWNERSHIP OF MIAA TO NHA

The National House Authority (NHA) is requesting an exemption from any taxes that may incur on the transfer of certain land ownership from the Republic of the Philippines (RP) through the Manila International Airport Authority (MIAA), as well as the tax-exemption related to its Titling Works Project, pursuant to Republic Act (R.A.) No. 7279 or the Urban Development and Housing Act of 1992. The parcels of land, named after the ROP under the administration of MIAA, have been declared open for disposition to NHA, under Presidential Proclamation (P.P.) No. 144, as amended by P.P. No. 391, in which, the government executed three (3) Deeds of Conditional Assignment of Real Property, acknowledged by both parties. Likewise, the NHA hired various contractors for its titling works, following the notarization of such deeds. In reply, the conveyance of land ownership, supported by the deeds, is exempted from income tax, Capital Gains Tax (CGT), Expanded Withholding Tax (EWT), and Documentary Stamp Tax (DST), according to Sections 19 and 20 of R.A. No. 7279, as amended by R.A. No. 10884 or the “Balanced Housing Development Program Amendments,” and from VAT, under Sec. 109 (1)(P) of the 1997 Tax Code, as amended. On the contrary, as the land titling works do not fall under the definition of socialized housing as provided in Sec. 3(r) of R.A. No. 7279, as amended, the service fees paid to the contractors shall be subject to income and withholding tax. Moreover, their VAT exemption entitlement, under Sec. 20 (d)(3) of RA No. 7279, as amended, has been repealed by Sec. 86 (tt) and (uu) of R.A. No. 10963 or the “Tax Reform for Acceleration and Inclusion” (TRAIN) Law. Hence, the service fees shall be also subject to VAT, and before any payment, the NHA shall withhold a 5% creditable VAT, pursuant to Sec. 114(C) of the 1997 Tax Code, as amended. In this regard, only the transfer of land from MIAA to NHA is exempted from taxes, excluding the payments to the contractors. [BIR RULING NO. 358-2022, AUGUST 4, 2022]

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