BIR Ruling [DA-068-00]

February 2, 2000 BIR RULING [DA-068-00] 32 (B) (6) (b) 69-98 Barclays Bank PLC Manila Offshore Branch 4th Floor, Dolmar Gold Tower 107 Carlos Palanca, Jr. Street Legaspi Village, 1229 Makati City Attention: Mr . Allan S . Anderson Senior Vice-President Gentlemen : This refers to your letter dated January 13, 1997 requesting that the additional benefits you paid to your terminated employees from the residual balance of your retirement funds be exempt from income tax on the part of the said employees. cCSHET It is represented that you have earlier advised some of your staff of the termination of their employment following your decision to close your office; that you have completed the payments due to the staff qualifying under the rules of the retirement plan; that there remains some small residual balance in the Fund; and that there being staff who, through no fault of their own, failed, before termination, to reach the ten year qualifying levels for the initial payments, you have decided to pay away the residual balance to all the staff who have been terminated in the form of additional retrenchment payment benefits to the following staff, viz: 1. J.A. Agregado 2. Mrs. Cymbie Valdez 3. Mrs. Cory Sales 4. Mrs. Malu Servando 5. Mrs. Maritess Guillamun 6. Mrs. Gay Tancingco 7. Mrs. Judy Laquihon 8. Miss Yolly Laguesta 9. Mr. Ernesto Mateo 10. Mr. Roy Donnes 11. Miss Moppet Cruz 12. Mrs. Rose Acosta 13. Mrs. Chari Fajardo 14. Mrs. Polly Comia 15. Mr. Felipe Nalandasan 16. Miss Peregrina Gubaton 17. Mr. Andres Aguanza 18. Mr. Rene Bataller In reply thereto, 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 from the service of the employer due to death, sickness, or other physical disability or for any cause beyond the control of said official or employee is exempt from taxes regardless of age or length of service. The above-mentioned law requires the presence of two 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. Since the separation of the employees is due to the bank's decision to close beyond their control, any and all amounts received by them as a result thereof are exempt from all taxes and consequently from the withholding tax prescribed by Section 79, Chapter 13, Title II of the Tax Code of 1997 and as implemented by Revenue Regulations No. 6-82, as amended. In view of the foregoing, the separation benefits, including terminal leave pay of your said employees, are exempt from income tax and consequently from the withholding tax. Likewise, the additional benefits to be given from the residual balance of the retirement funds are exempt from income tax. Finally, the tax exemption does not include the company's payment of the said terminated employees' salary. (BIR Ruling No. 069-98 dated October 6, 1998). Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)