BIR Ruling

January 3, 1975 Messrs. Sycip, Gorres, Velayo & Co. P. O. Box 589, Manila Gentlemen : This refers to your letter dated November 6, 1974, requesting a ruling as to whether the separation pay granted by your client, Muller and Phipps Manufacturing Corporation (Muller), to approximately 170 of its employees is exempt from all taxes pursuant to Republic Act No. 4917. It is represented that your client has entered into an reorganization agreement effective January 1, 1975 with Pharma Industries, Inc. (Pharma) whereby both corporations will contribute certain properties connected with the manufacture of drugs and pharmaceuticals to a new corporation (Interphil Laboratories, Inc.) solely in exchange for all of the latter's subscribed shares of stock; that solely by reason of said reorganization and upon your client's sole initiative, the company is forced to separate said 170 employees, as a result of which, your client will grant them the said separation pay which consists of (1) at least month's salary for every year of service as provided by Article 322 of the New Labor Code (PD 442) and (2) vested monetary benefits earned by the employee under the company's Profit-Sharing Retirement Plan duly registered as a tax-exempt plan with this Office. In reply, I have the honor to inform you that, under the foregoing facts, the separation of the employees in question from the service of your client is involuntary on their part and is not of their own making. Accordingly, the separation pay is exempt from all taxes, in accordance with Section 4(f) of Revenue Regulations No. 1-68 implementing Republic Act. No. 4917. The exemption applies even if the employee at the time of the separation is less than 30 years of age or had rendered less than 10 year of service. Finally, your client as the employer is exempt from the withholding requirements of Supplement A to Title II of the Tax Code insofar as said separation pay is concerned. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN 1601-593-5