BIR Ruling [DA-064-98]

February 24, 1998 BIR RULING [DA-064-98] Siguion Reyna Montecillo & Ongsiako 8755 Paseo de Roxas, Philcom Bldg. Makati City Attention: Atty . Jose Lis C. Leagogo Gentlemen : This refers to your letter dated February 9, 1998 requesting for ruling on the taxability of the separation pay package that the redundant/laid off employees of your client, BA SAVINGS BANK (BANK),will receive as a result of their separation from the Service. It is represented that the bank will launch a Redundancy Program to downsize and reorganize because of the current economic crisis; that the program will entail the closure of no less than five (5) provincial branches and the abolition of positions in the remaining branches; that the bank's downsizing and restructuring and the consequent closure of some branches and the abolition of some positions are necessary because the bank is now focusing more on the generation of low cost deposits, selective lending, and on the aggressive collection, recovery and sale of acquired assets, that the separation from the service of the employees that the bank intends to implement is totally involuntary on the part of the employees and will be based on guidelines the bank will establish and implement; that the bank will pay the affected employees one (1) month salary for every year of service, in addition to the retirement benefits they may already be entitled under the BA Finance Corporation Retirement Plan; and that the bank undertakes to pay other benefits except the retirement benefits which is already part of the redundancy package to which the employees are entitled under current bank practices. IHaECA In reply thereto, please be informed that pursuant to then Section 28 (b) (7) (B) of the Tax Code, as amended (now 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 because of death, sickness or other physical disability or for any cause beyond the control of the said official or employee shall not be included in the gross income and shall be exempt from taxation under Title II of the Tax Code of 1997. Such being the case, and since the separation of the employees of your client, BA Savings Bank, is beyond their control, any and all amounts to be received by them as a result thereof, consisting of the separation pay package and other benefits, 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. (BIR Ruling No. 016-91 dated January 9, 1992) It is, however understood that the payment of the salary of the employees, if any, is subject to income tax and consequently to the withholding tax. 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 and Enforcement Group