BIR Ruling [DA-008-06]

January 13, 2006 BIR RULING [DA-008-06] Sec. 32 (B) (6) (b);BIR Ruling No. SB-042-97 Alba Romeo & Co.,CPAs 7/F, Multinational Bancorporation Centre 6805 Ayala Avenue Makati City Attention: Mr. Alba Romeo Gentlemen : This refers to your letter dated November 29, 2005 requesting on behalf of your client, Asian Finance and Investment Corporation ("AFIC") for confirmation of your opinion that the separation benefits to be given by AFIC to its employees that were terminated due to a change of ownership (change of stockholders in the head office [Singapore]) and will subsequently be rehired, are exempt from income tax and consequently from the withholding tax on wages. As represented, AFIC is a regional headquarter of AFIC Singapore in the Philippines. On June 7, 2005, all of the shares of stock of AFIC Singapore were sold to Actis AFIC Holdings Limited. The transfer of ownership was approved by the High Court of Singapore. As a result of such sale, all the employees of AFIC, including those in the Philippines were terminated. However, the corporation is planning to rehire for (4) employees out of the twenty-seven (27) that were terminated because of their experience and skills needed by the company. In reply, please be informed that any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer because of death, sickness or other physical disability or for any cause beyond the control of the said official or employee is exempt from taxes regardless of age or length of service pursuant to Section 32(B)(6)(b) of the Tax Code of 1997. The phrase "for any cause beyond the control of the 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. The law requires the presence of two (2) conditions in order that the employee benefits may be granted tax exemption, namely (1) the employee is separated 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; and (2) the employer pays benefits to the official or employee or his heirs as a consequence of such separation. ESDHCa Accordingly, this Office confirms your opinion that any and all amounts to be received by employees that were terminated due to a change of ownership and will subsequently be rehired, are exempt from income tax and consequently from the withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001 and 12-2001. The payment of salaries, however, is subject to income tax and consequently to withholding tax (BIR Ruling No. SB-042-97 dated June 25, 1997). Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service