BIR Ruling [DA-069-00]

February 2, 2000 BIR RULING [DA-069-00] 32 (B) (6) (b) SB-69-98 Ropells Inc. Room 405 FMSG Bldg. No. 9 Balce Drive, Quezon City Attention: Januario Sason President Gentlemen : This refers to your letter dated September 14, 1999 requesting for a ruling that the separation benefits to be paid to the employees of Ropells Inc. by reason of closure of the company are exempt from income tax and consequently from the withholding tax. IDCScA It is represented that the Ropells, Inc. will cease operation at the close of business hours on September 30, 1999; that this decision by the management was arrived at after due consultations with the employees; that a consensus was reached that it is for the best interest of the employees and management to stop business operations; that it is mainly due to the company's uncompetitive position in the market and the deterioration of credit term extensions, plus the difficulty in the collection of accounts receivables; that the Department of Labor and Employment, National Capital Region was notified of the closure of the establishment on September 13, 1999 together with the list of employees that will be terminated on September 30, 1999, to wit: 1. Christopher A. Asadon 2. Remigio G. Asadon 3. Genaro B. Baga 4. Anatalio T. Castanas 5. Noel A. Casurao 6. Jimmy R. Delos Reyes 7. Greico E. Galanza 8. Jose G. Geguera 9. Nestor G. Guevarra 10. Corazon M. Lepura 11. Thelmo B. Mentino 12. Roque G. Meronio 13. Theodora C. Pagcaliwangan 14. Roberto T. Pepito 15. Vicente E. Robles, Jr. 16. Randy C. Rubin 17. Yolanda I. Rubin 18. Januario S. Sason 19. Sydney Y. Sason 20. Sylvia Y. Sason 21. Edmarlon M. Sevilla 22. Jessi S. Sibulangcal 23. Roger C. Solis 24. Francisco A. Tagamtam 25. Miguel T. Tagamtan 26. Isidro T. Tagudando 27. Mario T. Tagudando 28. Marcelino G. Bordon 29. Judgie O. Bongabong 30. Nicanor O. Yabes 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 or employee 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 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 for or initiated by him. cHAaCE The above-mentioned law requires the presence of two (2) 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 closure of the establishment, and, therefore, beyond their control, any and all amounts to be received by them as a result thereof, are exempt from the income tax and consequently from the withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98. The payment of the salaries of the Ropells, Inc. employees, however, is subject to income tax and consequently to the withholding tax. (BIR Ruling No. SB-69-98 dated October 6, 1998) 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)