BIR Ruling [DA-027-01]

March 6, 2001 BIR RULING [DA-027-01] 32 (B) (6) (b) 624-99 Sycip Gorres Velayo & Co . 5760 Ayala Avenue 1226 Makati City Attention: J . A . Osana Tax Division Gentlemen : This refers to your letter dated February 16, 2001 on behalf of your client, Philippine National Bank, requesting for confirmation of your opinion that the separation benefits to be received by your client's officers and employees to be separated from service under its Special Separation Plan (SSP) are exempt from income tax under Section 32(B)(6)(b) of the Tax Code of 1997. It is represented that the Philippine National Bank (PNB for brevity) has a pending request for approval of its rehabilitation program with the Bangko Sentral ng Pilipinas; that in line with said rehabilitation program, the PNB had decided to adopt a plan that would reduce its manpower complement in an effort to trim down its manpower cost as well as to improve its industry competitiveness; that to implement said manpower reduction program, the PNB's Board of Directors adopted on December 22, 2000 a Special Separation Plan (SSP for brevity), which, in general, would provide for separation benefits to its officers and employees who are identified and separated under the plan; and that under the SSP, PNB has the sole discretion to choose the employees and officers to be separated from service. In reply please be informed that this Office agrees with your opinion that the benefits to be received by your client's officers and employees under its Special Separation Plan are exempt from income tax under Section 32(B)(6)(b) of the Tax Code of 1997. In BIR Ruling DA-624-11-03-99, this Office ruled that under 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 separation of such official or employee from service because of death, sickness or other physical disability or for any cause beyond the control of the said official or employee is exempt from income tax regardless of age or length of service. In the same ruling this Office further ruled that for the separation to be considered beyond the control of said official or employee, the separation must not be asked for or initiated by him. Under Section 7 of the SSP, PNB has the sole discretion to choose the employees or officers to be separated from service and avail of the benefits granted under the said plan. Therefore, the separation of your client's officers and employees under its SSP is involuntary and beyond their control. Accordingly, any amount that will be received by said official or employee under the SSP is exempt from income tax regardless of age or length of service pursuant to Section 32(B)(6)(b) of the 1997 Tax Code. ADaEIH However, the payment of the said officers' and employees' salary and 13 th month pay, bonuses and other benefits in excess of P30,000 shall be subject to income tax and consequently to withholding tax (BIR Ruling Nos. DA-578-99 dated October 6, 1999 and DA-579-99 dated October 6, 1999). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be discovered that the facts are different, then this ruling shall be considered as null and void. Very Truly Yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group