BIR Ruling

January 22, 1969 The Managing Director Twentieth Century-Fox Philippines, Inc. Dee C. Chuan Building 627-637 Rizal Ave. Manila S i r : This refers to your letter dated January 16, 1969 requesting information as to whether or not the severance pay which you are to give to your retiring employees shall be subject to the income tax. You represented that your company is not maintaining any specific fund for severance pay purposes. However, you stated that you have sort of retirement payment payable out of your general fund. cdt In reply, I have the honor to inform you that, pursuant to Republic Act No. 4917, all amounts received by officials and employees or their heirs upon separation from the service of their employers by reason of death, sickness, or other physical disability or for any cause beyond the control of said officials or employees are exempt for all taxes. Inasmuch as you are not maintaining a retirement fund, it is the opinion of this Office as it hereby holds that the severance pay your give to your retiring employees falls within the coverage of the aforestated provision of Republic Act No. 4917 as a separation arising from physical disability and for a cause beyond their control. Such being the case, the severance pay that you shall give to your employees are exempt from the income tax pursuant to the aforesaid Act and, therefore, you need not have to withhold any tax thereon. Being exempt from income tax, the retirees need not also have to include such severance pay in their income tax returns. In this connection, however, please be further informed that if, after investigation, this Office finds that your supposed retired employees were separated from the service by reason of voluntariness on their part or of justifiable causes and not by reason of having reached the age of retirement, this Office shall hold your corporation personally liable for the income tax that would otherwise have been collected from the severance pay you have given them. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue