BIR Ruling [DA-075-00]

February 2, 2000 BIR RULING [DA-075-00] 32 (B) (6) (b) SB-69-98 DA-075-2000 Alma Refrigeration & Cold Storage, Inc . Alencor Bldg., 41 Linaw Street, SMH Quezon City Attention: Mr . Alfredo B . Lagman, Sr . Chief Executive Officer Gentlemen : This refers to your letter dated November 24, 1999 requesting for a ruling that the separation benefits to be paid to your employees for involuntary separation by reason of economic losses are exempt from income tax and consequently from the withholding tax. It is represented that the following employees will be given 200% of present salary for every year of service to the company as separation pay and all the balance of their vacation leave credits as of time of separation: 1. Almario, Rolando P. 17. Dizon, Ronnie 2. Amemita, Ariel M. 18. Dolairas, Gilbert 3. Aragon, Jerry A. 19. Domingo, Ernesto 4. Aragon, Jessi A. 20. Domingo, Manolito 5. Astronomia, Lading E. 21. Duya, Ramon 6. Astronomia, Rufino 22. Duya, Rodolfo 7. Bernardino, Dulieta 23. Exconde, Alberto 8. Bernardino, Rolando 24. Francisco, Jorge 9. Bulgan, Margarita 25. Francisco, Lino 10. Cabalquinto, Reynaldo 26. Garcia, Renato 11. Caparas, Edilberto 27. Gawani, Francisco 12. Caparas, Edwin 28. Henson, Alfonso 13. Casipe, Victor 29. Henson, Crispin 14. Dacdac, Renato 30. Henson, John 15. Dacdac, Willie 31. Henson, Jorge 16. Dizon, Emmanuel 32. Henson, Jose 33. Henson, Romulo 55. Aracquel, Roque H. 34. Lansangan, Eduardo 56. Barrera, Rolly M. 35. Macatiag, Leonardo 57. Bulan, Ma. Teresa R. 36. Manalang, Orlando 58. Dandasan, Carmelita C. 37. Mimay, Dante 59. De Leon, Agustin M. 38. Orgaza, Eduardo 60. Gacutan, Sancho G. 39. Oribiana, Rolando 61. Garcia, Angelito G. 40. Paquillo, Raul 62. Lopez, Fructuoso B. 41. Paras, Reynaldo 63. Manabat, Noel D. 42. Rendon, Gerardo 64. Manalang, Crisanto O. 43. Resierdo, Domingo 65. Pasco, Ma. Elena G. 44. Rino, Dino 66. Santiago, Danilo P. 45. Rodriguez, Arman 67. Santos, Virgilio R. 46. Salvador, Paulino 68. Sumaginsing, Ignacio C. 47. Sevillana, Johnny 69. Sunga, Edbert P. 48. Sumaginsing, Benito 70. Tablate, Ammie 49. Sumaginsing, Fidel 71. Taruma, Francisco S. 50. Tasic, Rodel 72. Tasic, Carlos S. 51. Tayag, Manuel 73. Tiango, Rosario L. 52. Vertulfo, Nilo 74. Yadan, David M. 53. Yadan, Agustin 75. Yadan, Zandro G. 54. Yadan, Victoriano 76. Zito, Eduardo G. 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 employers 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. 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 economic losses, and therefore, beyond their control, any and all amounts to be received by them as a result thereof, 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, as implemented by Revenue Regulations No. 2-98. Moreover, the commutation and payment of unused sick leave and vacation leave credits are likewise not subject to income tax and, consequently, to withholding tax (CIR vs. CA & Efren P. Castaeda, G.R. 96016, prom. Oct. 17, 1991). The payment of the salaries of Alma Refrigeration & Cold Storage, Inc. employees, however, is subject to income tax and, consequently, to the withholding tax. (BIR Ruling No. SB-69-98 dated October 6, 1998) LibLex 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, 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)