The Commissioner of Internal Revenue just recently issued the Revenue Memorandum Circular No. 39-2014 for the purpose in clarifying the Tax Treatment of Payouts by Employee Pension Plans.
Based on the circular, there are pension, stock bonus and profit-sharing plans that are permitted by their charters to disburse benefits (i. e., dividends) to the beneficiary-employees. As a general rule, Section 60(a) of the National Internal Revenue Code (NIRC) of 1997, as amended, subjects the income of any kind of property held in trust to income tax. By way of exception, Section 60(B) exempts from income tax an employee's trust which forms part of a pension, stock bonus or profit-sharing plan of an employer for the benefit of some or all of his employees subject to the following conditions:
1. Contributions are made to the trust by such employer, or employees, or both for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan; and
2. Under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees.
3. As an exception to the above exception, Section 60(b) subjects to income tax, in the year in which so distributed, any amount actually distributed to any employee or distributee to the extent that it exceeds the amount contributed by such employee or distributee.
Prescinding from the foregoing, the entire amounts of benefits paid by a pension, stock bonus or profit-sharing plan of an employer for the benefit of employees are taxable on the part of the employees in the year so distributed. This tax treatment, however, does not apply to payouts representing a return of an employee's personal contributions to the fund and to retirement benefits exempt under Section 32(B)(6)(a) of the NIRC.
Please refer ftp://ftp.bir.gov.ph/webadmin1/pdf/86328RMC%20No%2039-2014.pdf for the illustrations and full text of RMC No. 39-2014.
