BIR Ruling [DA-057-99]

February 5, 1999 BIR RULING [DA-057-99] Joaquin Cunanan & Co. 14th Floor, Multinational Bancorporation Centre 6805 Ayala Avenue Makati City Attention: Mary Assumption S . Bautista Principal Tax and Corporate Services Gentlemen : This refers to your letter dated August 28, 1998 stating that your client, Concrete Aggregates Corporation (CAC), is a domestic corporation and is primarily engaged in the production of ready mix concrete, bituminous concrete mix, pre-stressed/pre-cast products, concrete hollow blocks, powercore building system, and construction services; that being faced with the worsening economic situation that has adversely affected the construction industry, CAC has decided to take drastic decisions and measures that would streamline its present organizational structure to make it leaner and efficient; that these measures included the merger of some of its divisions and the non-utilization of idle equipment which resulted in redundancy of some positions and unavoidable excess manpower; and that the affected employees will be retrenched and shall be paid their separation benefits/financial package in accordance with CAC's Early Retirement Package and the cash equivalent of their unused vacation and or/sick leave credits. prLL In connection therewith, you are requesting for a ruling to the effect that the separation pay to be received by the employees to be retrenched is exempt from income tax. 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 separation of such official 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. The abovementioned law requires the presence of two (2) conditions in order that the employees 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; (2) the employer pays benefits to the official or employee or his heirs as a consequence of such separation. Since the separation of the employees was due to retrenchment and beyond their control, any and all amounts received by them or as a result thereof are exempt from all taxes and consequently from the withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997. The tax exemption is understood not to include the Company's payment of salaries an pro-rated 13th month pay of the concerned employees. (BIR Ruling No. 276-93 dated January 24, 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, and/or any of the requirements set forth in this letter are not complied with, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)