We have to transfer some of our senior employees from our own company to a sister company along with the reserve funds designated for those employees in case of retirement and resignation. Is there any tax point to be considered?

Answer:

When you transfer your employees from your company to work with your sister company which is considered a separate legal entity, along with the reserve funds designated for those employees in case of retirement and resignation, you are allowed to treat the transferred reserve funds as tax deductible expense for the purpose of computing net profit during the transfer period, without conflict with Section 65 ter. (1) and (9) of the Revenue Code. However, the transferred amount is not considered as income of your sister company because the transfer of reserve is considered a transfer of future payment obligations to the transferred employees. Accordingly, the sister company is not allowed to claim a deduction upon making payment (from the transferred reserve funds) to transferred employees upon their retirement or resignation.

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