BIR Ruling

June 25, 1970 Mr. Jose M. Dy Tioco 41 San Joaquin St. San Francisco del Monte Quezon City S i r : This refers to your letter dated June 22, 1970 requesting information as to whether or not to your separation pay is exempt from the payment of all taxes under Republic Act No. 4917. It is represented that on January 15, 1969 you were separated from the service of your employer. The reason for your separation is stated in a letter of your employer dated January 15, 1969 which we quote as follows: "Since experiencing several account losses during 1967 and the early part of 1968, the Agency has made a sincere effort to avoid major reductions in the size of our personnel staff. We had hoped to achieve significant new business gains to effect these account losses. Unfortunately, these gains have not been achieved. Further, we have only recently lost a very profitable account. We have no choice but to effect the unpleasant, but necessary move of reducing the current number of personnel. cdta "We are particularly sorry that you have been affected by this retrenchment, and regret to inform you that your services will be terminated effective the close of business hours today. For your past services, and especially for your loyalty, you are being severance pay." In reply thereto, I have the honor to inform you that Section 1 of Republic Act No. 4917 provides in part viz.: ". . . Provided, finally, That in case of separation of an official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee, any amount received by him or by his heirs from the employer as a consequence of such generation shall likewise be exempt as hereinabove provided." Section 4(f) of Revenue Regulations No. 1-68 dated March 25, 1968 implementing Republic Act No. 4917 states that the phrase "for any cause beyond the control of said official or employee" connotes involuntariness on the part of the official or employee. The separation from the service of the official or employee must not be asked for or initiated by him. In other words, the separation must not be of his own making. Obviously, if not for the retrenchment policy of your employer, your services would not have been terminated. In view thereof, and considering that your separation from the services of your employer is for a cause beyond your control, this Office believes and so holds that your separation pay as a consequence thereof is exempt from the payment of all taxes. casia Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue