International Broadcasting Corporation, Inc. vs. Amarilla
GR No. 162775; Oct. 27, 2006
DOCTRINE:
Pensions, retirement, and separation are exempt from WHT when the employer maintained a “reasonable private benefit plan”
- Approved by the BIR
- Retirees have been in the service for 10 years
- The retiree has not previously availed a privilege under the retirement benefit
FACTS:
Four (4) employees retired (years – 1995, 1998(2), 1996) from the company and received, on staggered basis, their retirement benefits under the 1993 Collective Bargaining Agreement (CBA) A P1,500.00 salary increase was given to all employees of the company, current and retired, effective July 1994. However, when the four retirees demanded theirs, petitioner refused and instead informed them that their differentials would be used to offset the tax due on their retirement benefits in accordance with the National Internal Revenue Code (NIRC).
The four (4) retirees filed separate complaints for unfair labor practice and non-payment of backwages before the NLRC. The complainants averred that their retirement benefits are exempt from income tax under Article 32 of the NIRC.
Petitioner averred that under Section 21 of the NIRC, the retirement benefits received by employees from their employers constitute taxable income. While retirement benefits are exempt from taxes under Section 28(b) of said Code, the law requires that such benefits received should be in accord with a reasonable retirement plan duly registered with the Bureau of Internal Revenue (BIR) after compliance with the requirements therein enumerated. Since its retirement plan in the 1993 CBA was not approved by the BIR, complainants were liable for income tax on their retirement benefits.
The NLRC held that the benefits of the retirement plan under the CBAs were subject to tax as the scheme was not approved by the BIR. However, it had also been the practice of petitioner to give retiring employees their retirement pay without tax deductions and there was no justifiable reason for the respondent to deviate from such practice.
ISSUES:
1. whether the retirement benefits of respondents are part of their gross income because the retirement plan under the CBA was not approved by the BIR
2. Whether the petitioner is bound and obliged to pay the withholding taxes on their retirement benefits
HELD:
1. YES. the retirement benefits of respondents are part of their gross income subject to taxes.
NIRC; Sec. 28. Gross Income. –
b) Exclusions from gross income. – The following items shall not be included in gross income and shall be exempt from taxation under this Title:
(7) Retirement benefits, pensions, gratuities, etc. – (A) Retirement benefits received by officials and employees of private firms whether individuals 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 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. For purposes of this subsection, the term “reasonable private benefit plan” means a pension, gratuity, stock bonus or profit-sharing plan maintained by an employer for the benefit of some or all of his officials or employees, where contributions are made by such employer for 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 official and employees.
Revenue Regulation No. 12-86, the implementing rules of the foregoing provisions, provides:
(b) Pensions, retirements and separation pay. – Pensions, retirement and separation pay constitute compensation subject to withholding tax, except the following:
(1) Retirement benefit received by official and employees of private firms under a reasonable private benefit plan maintained by the employer, if the following requirements are met:
(i) The retirement plan must be approved by the Bureau of Internal Revenue;
(ii) The retiring official or employees must have 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 retirement; and
(iii) The retiring official or employee shall not have previously availed of the privilege under the retirement benefit plan of the same or another employer.
Thus, for the retirement benefits to be exempt from the withholding tax, the taxpayer is burdened to prove the concurrence of the following elements: (1) a reasonable private benefit plan is maintained by the employer; (2) the retiring official or employee has been in the service of the same employer for at least 10 years; (3) the retiring official or employee is not less than 50 years of age at the time of his retirement; and (4) the benefit had been availed of only once. Respondents were qualified to retire optionally from their employment with petitioner. However, there is no evidence on record that the 1993 CBA had been approved or was ever presented to the BIR; hence, the retirement benefits of respondents are taxable.
2. NO. Under the CBA, it is not obliged to pay for the taxes on the respondents’ retirement benefits.The CBA has no provision where petitioner obliged itself to pay the taxes on the retirement benefits of its employees.
However, petitioner did not withhold the taxes due on their retirement benefits because it had obliged itself to pay the taxes due thereon. This was done to induce respondents to agree to avail of the optional retirement scheme. Petitioner had agreed to shoulder such taxes to entice them to voluntarily retire early, on its belief that this would prove advantageous to it. Respondents agreed and relied on the commitment of petitioner. For petitioner to renege on its contract with respondents simply because its new management had found the same disadvantageous would amount to a breach of contract.
