Grant of Retirement Benefits Flashcards
2018 IIIb
Kim, a Filipino national, worked with K-Square, Inc. (KSI), and was seconded to various KSI-affiliated corporations:
1) from 1999 to 2004 as Vice-President of K-Gold Inc.;
2) from 2004 to 2007 as Vice-President of KPB Bank;
3) from 2007 to 2011 as CEO of K-Com Inc.; and
4) from 2011 to 2017 as CEO of K-Water Corporation, where Kim served as CEO for seven years until his retirement last December 12, 2017 upon reaching the compulsory retirement age of 60 years.
All the corporations mentioned are majority-owned in common by the Koh family and covered by a BIR-qualified multi-employer-employee retirement plan (MEERP), under which the employees may be moved around within the controlled group (i.e., from one KSI subsidiary or affiliate to another) without loss of seniority rights or break in the tenure. Kim was well-loved by his employer and colleagues, so upon retirement, and on his last day in office, KSI gave him a Mercedes Benz car with Php 5 million as a surprise, with a streamer that read: “You will be missed. Good luck, Sir Kim.”
(b) Which internal revenue tax, if any, will apply to the grant of the car to Kim by the company?
It is subject to income tax. The value of the Mercedes Benz car is income to Kim. It is in the nature of a compensatory gift which is considered as income for the recipient. The car is in reality a recompense for Kim’s past services. Compensation for services in whatever form paid is part of gross income (Sec. 32(A)(1), NIRC; Commissioner vs. Duberstein, 363 US 278 (1960)).
2018 IIIb
Kim, a Filipino national, worked with K-Square, Inc. (KSI), and was seconded to various KSI-affiliated corporations:
1) from 1999 to 2004 as Vice-President of K-Gold Inc.;
2) from 2004 to 2007 as Vice-President of KPB Bank;
3) from 2007 to 2011 as CEO of K-Com Inc.; and
4) from 2011 to 2017 as CEO of K-Water Corporation, where Kim served as CEO for seven years until his retirement last December 12, 2017 upon reaching the compulsory retirement age of 60 years.
All the corporations mentioned are majority-owned in common by the Koh family and covered by a BIR-qualified multi-employer-employee retirement plan (MEERP), under which the employees may be moved around within the controlled group (i.e., from one KSI subsidiary or affiliate to another) without loss of seniority rights or break in the tenure. Kim was well-loved by his employer and colleagues, so upon retirement, and on his last day in office, KSI gave him a Mercedes Benz car with Php 5 million as a surprise, with a streamer that read: “You will be missed. Good luck, Sir Kim.”
(b) Which internal revenue tax, if any, will apply to the grant of the car to Kim by the company?
Alternative Answer
The car was given on account of merit and the services he rendered to KSI, which do not constitute a demandable debt, is remuneratory donation, and based on the generosity of KSI. It is a gift subject to donor’s tax, provided Kim accepts the car (Article 726, New Civil Code of the Philippines).
