REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE. September 3, 2001 REVENUE REGULATIONS NO

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1 REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE September 3, 2001 REVENUE REGULATIONS NO SUBJECT: TO Amendments to Revenue Regulations No. 1-68, as amended by Revenue Regulations No. 1-83, otherwise known as the PRIVATE RETIREMENT BENEFIT PLAN REGULATIONS All Internal Revenue Officers and Others Concerned SECTION 1. Pursuant to Section 244, in relation to Section 32(B)(6)(a), both of the Tax Code of 1997, the following regulations amending Revenue Regulations No are hereby promulgated. SEC.2. follows: Section 1(B) of Revenue Regulations No is hereby amended to read as (B) Fees to be paid by the employer: 1. Upon issuance of the certificate of qualification- (a) employers not having more than 50 employee P2, (b) employers having more than 50 but not over 100 employees 3, (c) employers having more than 100 employees 5, Upon issuance of an amendatory certificate of qualification- (a) employers not having more than 50 employees P2, (b) employers having more than 50 but not over 100 employees 3, (c) employers having more than 100 employees 5, Provided, however, that employers not having more than five (5) employees shall be exempt from the fees prescribed by these regulations. Said fees shall accrue to the General Fund and shall be deposited with the National Treasury.

2 SEC. 3. EFFECTIVITY- These regulations shall take effect fifteen (15) days after publication in any newspaper of general circulation. JOSE ISIDRO CAMACHO Secretary of Finance RECOMMENDING APPROVAL: RENE G. BANEZ Commissioner of Internal Revenue A True Copy

3 Appendix H VERA SUSTAINS FEBRUARY RULING DATED AUGUST 11, 1970 REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE MANILA August 11, 1970 Messrs. Sycip, Gorres, Velayo & Co Ayala Avenue Makati, Rizal Gentlemen: This refers to your request for the reconsideration of the ruling of this Office contained in its letter dated February 16, 1970 to Mr. Enrique M. Zafra reading as follows: An actuary of an accounting firm cannot be considered an independent actuary within the purview of Revenue Regulations No with respect to actuarial reports he prepares on the retirement plans of employers of whom the accounting firm is external auditor. This is for the reason that an actuary employed by an accounting firm actually prepares the report not in his individual capacity but for the firm wherein employed. In effect, it is the opinion of this Office, that a person cannot be both an independent accountant and actuary of the same client. The word independent means free from the influence, control; or determination of another or others; free from influence, persuasion or bias (Webster s Dictionary, College Ed.) It is in this sense that the word independent is used in Revenue Regulations No To be really independent, therefore, a consulting actuary must, in the exercise of his profession be free from influence, control, persuasion or bias. The mere fact of employment may bring about the loss of such freedom although not always. An employee-actuary may qualify as an independent consulting actuary but his privilege to exercise his profession independent of his employment is of course a matter that purely concerns himself and his employer. Thus, duly accredited actuaries employed in insurance companies, banks or in any other entity may prepare the actuarial report or statement of actuarial assumptions and certify the same in connection with the determination of the costing of retirement plans provided that he or his employer bears to the employer whose retirement plan is under consideration, no business or professional relationship which may in any way affect the free exercise of his professional actuations.

4 But where an actuary is employed by a firm of certified public accountants which is the external auditor of the employer whose retirement plan is also being prepared or formulated by said firm, the actuarial report or statement of actuarial assumptions to be prepared by the actuary would in effect be prepared by him for his firms as an employee discharging functions requiring the application of his knowledge and not in his individual capacity as a professional. In such situation, there can be no doubt that the actuary may not be free from influence or bias or persuasion as the relationship of his employer to the client are factors that affect his freedom as an actuary. However, an actuary of an accounting firm may prepare the actuarial report as regards the costing of pension plans of employers of which the firm is not the external auditor. Financial interest and management participation are not all inclusive criteria that affect the freedom to exercise and apply one s profession. In fact, even the Accountancy Law and the rules of the Board of Accountancy admit this. As independence is generally conceded as a state of mind, it can be said that any and all factors that tend to affect such independence can and should be considered and taken into account in appreciating the independence of an actuary, such as employment. It is the essence of the law and the implementing regulations that the costing of retirement plans should be fixed and predetermined in accordance with sound actuarial assumptions. It is for this reason that the regulations require that the assumptions should be certified by an independent consulting actuary. It is not for the employer to determine at will how much he should contribute depending on his profits; otherwise, the requirement on the submission of the actuary s certification of actuarial assumptions would be an empty gesture. As regards your contention that an actuary, like a lawyer, will be guided by the ethics of his profession, suffice it to say that ethics of professional practice should be disassociated from the appreciation of independence. An accountant or actuary may indulge in unethical practices, yet his independence stands. On the other hand, such accountant or actuary may act strictly within the ethics of his profession and yet may not be considered independent. In view of all the foregoing, this Office is not inclined to modify or revoke the ruling in question. Accordingly, your request for the reconsideration of the same has to be as it is hereby denied. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue

5 Appendix I BIR Form No RETIREMENT BENEFIT PLAN INFORMATION SHEET NAME OF EMPLOYER: ADDRESS OF EMPLOYER: Indicate information by checking the appropriate box or boxes below by filling up the blanks. ==================================================================== 1. Name and type of the Plan 2. Accounting period of the plan A. [ ] Pension [ ] Calendar B. [ ] Stock Bonus [ ] Fiscal C. [ ] Profit Sharing D. [ ] Gratuity E. [ ] Provident Fund 3. Date of Effectivity 4. Check the category that best describe the groups covered by the plan. A. [ ] All Employees C. [ ] Salaried Employees B. [ ] Hourly Rate Employees D. [ x] Other (Specify) 5. Type of Business of Employer 6. Is the Plan a result of a Collective Bargaining Agreement? [ ] Yes [x ] No 7. Parties making contribution to the Plan A. [x] Employers C. [ ] Union (Out of Gen. Funds) B. [ ] Plan Participants D. [ ] Others (Specify) 8. Official Name or Title of Plan Administrator 9. Administrator of the Plan A. [ ] Joint-Employee-Employer B. [ ] Board of Trustee C. [ ] Others (specify) 10. Individual names and address Any other of persons constituting the Relationship if any to positions or administration under the act, Official Position with employer or employee employment as identified in 8 above. respect to the plan. organization. held.

6 The administrator of the Plan is defined as the person or persons designated by the terms of the Plan or the collective bargaining agreement with responsibility for the ultimate control, disposition or management of the money received or contributed. 11. Are any of the Plan benefits funded or provided through the medium of a trust or other separately maintained fund? [ x] Yes [ ] No If yes, list classes of benefits provided directly by trust: 12. Enter the amount contributed to the Plan during the period covered by this Report. A.Employees P B. Employers P C. Others P 13. State the numbers of employees covered by the Plan during the year up to the filing of this Information Sheet. 14. This item is to be completed only for benefits provided from a Trust Fund. A. Attach a statement of the actuarial assumptions used in determining the contributions. A copy of the latest actuarial report which includes a list may be submitted in lieu of the foregoing. 1. Statement of Actuarial Assumptions certified by an independent consulting actuary. [ x] Yes [ ] No 2. Actuarial Report certified by an independent consulting actuary. [ x] Yes [ ] No B. Amount of the following as of 1. Normal Cost P 2. Accrued Liability P 3. Amount in the Fund P 4. Covered Payroll P C. State number of employees covered. 1. Retired 2. Active 15. Submit the following documents: A. Copies of the Retirement Plan, Trust Agreement, or other instruments under which the Plan was established and is operated. CERTIFIED CORRECT: Authorized Representative

7 Appendix J CARIDAD ALITA Complainant Republic of the Philippines Department of Labor and Employment NATIONAL LABOR RELATIONS COMMISSION Quezon City FIRST DIVISION -versus- NLRC NCR CA NO (NLRC NCR CASE NO ) DOMINICAN SCHOOL / SISTER LORENZA SA JUL O.P., Respondents x x PROMULGATED: AUG 29, 1996 R E S O L U T I O N Acting on the complaint for non-payment of retirement benefits and accrued incentive leave credits, filed by Caridad Alita against the above-named respondents, Labor Arbiter Ernesto S. Dinopol rendered a decision 1 dated June 30, 1995 ordering Dominican School to pay the said complainant the sum of Sixteen Thousand Three Hundred Forty-Three & 72/100 Pesos (P16,343.72) by way of retirement pay differentials. On appeal by the respondent school, this Commission (First Division) promulgated a Decision 2 upholding anew complainant s entitlement to retirement pay differentials on consideration that Republic Act No can be made to apply retroactively insofar as it concerns the determination of complainant s period of actual service prior to the effectivity date of the law for the purpose of computing the amount of retirement benefits. While conceding that complainant s retirement pay is to cover the period of her employment prior to the effectivity of R.A. No. 7641, respondents however maintain, by way of a Motion for Reconsideration, that there was an erroneous interpretation of paragraph 4 of Article 287 in that, the addition to the one-half month pay for every year of an employee s service which pertains to one-twelfth (1/12) of the 13 th month pay and cash equivalent of not more than five (5) days service incentive leaves actually meant one-twelfth (1/12) not only of the 13 th month pay but also that of the five days incentive leave as the one-twelfth term qualities both benefits. Significant considerations hereafter set forth strongly militate against the full inclusion of the five-days incentive leave benefit in the determination of the retirement pay of the complainant. While not being unmindful of the mandate of the law to construe, in favor of 1 Records, pp Records, pp

8 labor, all doubts in the implementation and interpretation of the provisions of the Labor Code 3, where the legislative intent to the contrary is patent from the text thereof, an absurdity may arise if insistence is had on that favorable construction. The text of the provision under dispute reads as: Unless the parties provide for broader inclusions, the term one-half (1/2) month salary shall mean fifteen (15) days plus one-twelfth (1/12) of the 13 th month pay and the cash equivalent of not more than five (5) days of service incentive leaves 4 From the aforequoted, it can be noted that the legislature intended to obtain a fraction of the 13 th month pay which in turn is based on that which was actually earned for one month as an addition to the one-half month retirement pay, there being no dispute that the entire amount of an employee s thirteenth-month pay takes into consideration his total earnings for the immediately preceding twelve-month period, the average therefrom being obtained by getting the quotient from a divisor of twelve (12) which represents the period January to December in one calendar year. The benefit is, therefore one which accrued over all the months in a calendar year but made payable only at the end thereof. In the same vein, an employee s entitlement to the five-days service incentive leave pay is predicated upon an employment spanning to a period of at least one year 5. The amount of the benefit is much less in comparison to the 13 th month pay benefit as it relates to about a leave pay accruing at the rate of one-twelfth of an employee s five-days salary per month. Taking these factors into consideration, it is highly improbable that the framers of the law would assume a radically diverse course by according greater weight to a lesser benefit specially if note is further taken of the fact that the one-twelfth of the thirteenth month pay benefit and five days service incentive leave pay were intended to augment the main component of the retirement pay benefit which pertains to an employee s one-half (1/ 2) month salary. Finally, an examination of the subject provision notably bears a conjunctive term and reading as one-twelfth (1/12) of the 13 th month pay and the cash equivalent of not more than five (5) days of service incentive leaves. Pursuant to the rules of statutory construction if the conjunctive and is used, the various members of a sentence one to be taken jointly. Accordingly, where a qualification attends the first enumeration, the logical conclusion that proceeds therefrom is the inclusion of the subsequent enumeration within the coverage of the qualifying term. This consideration further buttresses the legislative intent in favor of the coverage of the one-twelfth (1/12) proportion limit not only to the 13 th month pay benefit but to the five-days service incentive leave pay, as well. In view of the foregoing, reduction of the amount of service incentive leave pay benefit as a component of complainant s retirement pay to one-twelfth (1/12) thereof is decreed. Hence, the amount of retirement benefits due to complainant shall be computed as follows: ½ month pay of P5, P2, Article 4, Labor Code, as amended 4 Paragraph 4, Article 287, Labor Code, as amended 5 Paragraph (a), Article 95, Labor Code, as amended, Section 2, Rule V, Implementing Rules & Regulations

9 1/12 of P 5, (13 th month pay) 1/12 of P1, (five days) service incentive leave pay TOTAL RETIREMENT COMPONENT P3, Multiplied by Number x 13 Of Years of Service TOTAL GROSS RETIREMENT PAY Less: Advances received By the complainant NET RETIREMENT PAY DUE THE COMPLAINANT P42, (P37,965.86) P4, ======== WHEREFORE, concordant with the foregoing, the Decision dated February 14, 1996 is hereby RECONSIDERED and SET ASIDE, and a new one entered decreeing, the reduction of complainant s retirement pay differentials to the sum of FOUR THOUSAND ONE HUNDRED ONE & 23/100 PESOS (P4,101.23). SO ORDERED. Quezon City, Philippines. WE CONCUR: BARTOLOME S. CARALE Presiding Commissioner VICENTE S. E. VELOS Commissioner ALBERTO R. QUIMPO Commissioner C E R T I F I C A T I O N Pursuant to Article 213 of the Labor Code, as amended, it is hereby certified that the conclusions in the above resolution were reached in consultation before the case was assigned to the writer of the opinion of the Commission. A True Copy BARTOLOME S. CARALE Presiding Commissioner

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