BIR Ruling [DA-020-98]

January 28, 1998 BIR RULING [DA-020-98] Coca-Cola Bottlers Philippines, Inc. Feliza Building 108 Herrera Street, Legaspi Village Makati City Attention: Ms . Melita V . Reyes Vice President and Controller Gentlemen : This refers to your letter dated January 21, 1998 requesting for a ruling that the separation benefits to be received by your employees to be separated from the service as a result of the "Project New Start" Program are exempt from income tax pursuant to Section 32(B)(6)(b) of the Tax Code of 1997. cdta It is represented that Coca-Cola Bottlers Phils., Inc. (CCBPI) shall embark on new approaches and strategies in doing business; that changes shall be undertaken in the following areas: 1. sales distribution system 2. improvements in work processes 3. automation of clerical and administrative work 4. manpower productivity that affected employees of the organizational changes shall be paid the following separation benefits: Compensation Package 1. Separation pay equivalent to 100% of monthly basic salary for every year of service (as defined by the company's Retirement and Death Benefit Plan); 2. Displacement Assistance: with less than 15 years of service: 50% of separation pay with 15 years of service or more: 75% of separation pay 3. Commutation of unused sick and vacation leave credits 4. Proportionate 13th month pay 5. Accident and Life Insurance for 5 years 6. Group Hospitalization Insurance Program for 5 years Support Mechanisms Support mechanisms will be provided to assist your affected employees with livelihood options and opportunities outside CCBPI employment. Features : Distributions contract with CCBPI, whenever and wherever possible Seminars and consultation on small-scale business or cooperatives Maximum of P5,000.00 for skills training Assistance for outplacement In reply, please be informed that pursuant to Section 32(B)(6)(b) of the Tax Code of 1997, any amount received by an official or employee or by his heirs from the employer as a consequence of the separation of such 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 is exempt from taxes regardless of age or length of service. 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 or initiated by him. The above-mentioned law requires the presence of these two (2) conditions in order that the employee benefits may be granted tax exemption: (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. Since the intended organizational changes of CCBPI will result in the separation of affected employees which is beyond their control, any and all amounts received by them as a result thereof, are exempt from all taxes and subsequently from the withholding tax prescribed by Section 79 of the Tax Code of 1997. This tax exemption, however, is understood not to include CCBPI's payment of salaries and bonuses, including 13th month pay. (BIR Ruling Nos. 094-93 dated March 10, 1993; 517-93 dated December 23, 1993) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)