RMC No. 13-2024: Clarification on the treatment of retirement benefits expense for financial reporting and tax purposes

Summary

RMC No. 13-2024 clarifies the treatment of retirement benefits expense for financial reporting and tax purposes, comparing PFRS/PAS accounting with the NIRC, RA No. 4917 and RA No. 7641.

Key points

1. Accounting versus tax. Under PFRS, employee benefit expense consists of service costs and net interest costs, and remeasurement gains and losses go to other comprehensive income. For tax, contributions to a tax qualified plan are deductible, and without such a plan only actual retirement benefits paid are deductible.
2. Tax qualified plan. With a Certificate of Tax Qualification under RA No. 4917, the employer deducts under Section 34(J) the Normal Cost contributions and contributions in excess of Normal Cost not previously deducted. The excess is spread equally over ten (10) consecutive years from the year of transfer or payment.
3. No qualified plan. Under RA No. 7641, only the actual retirement benefits paid to employees can be deducted from gross income.
4. Reverted funds. Retirement fund amounts in excess of the actuarially determined amount that revert to the employer are reported as income and taxed.
5. Certificate application. The employer applies to the BIR Legal and Legislative Division at the National Office for a Certificate of Qualification within thirty (30) days from the effectivity of the plan, or a penalty applies. It stays valid until revoked, and requirements include the latest Actuarial Valuation Report not more than three (3) years old, the Trust Agreement, and BIR Form 17.60.

Who is affected

• Employers with employee retirement benefit plans

Deadlines and effectivity

• Application for Certificate of Qualification within thirty (30) days from effectivity of the plan
• Valuation report not more than three (3) years prior to application

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.