BIR Ruling [DA-102-97]

March 18, 1997 BIR RULING [DA-102-97] International Rice Research Institute P.O. Box 933, Manila Attention: Atty . Ramon T . Jimenez External Counsel Gentlemen : This refers to your letter dated December 23, 1996 requesting exemption from taxes of the separation benefits to be received by your employees under your impending Separation Program. llcd It is represented that in response to a recommendation of the Consultative Group on International Agricultural Research (CGIAR), due to decreasing overall budget caused by the bigger number (13-18) of center being funded by CGIAR, change on research priority of the donor community, some increasing their support to research directly affecting the environment, a good number of nationality-recruited staff and internationally-recruited staff were retrenched and laid off in the two programs the last seven (7) years; that the present Staff Restructuring Program is designed to meet expected large 1997 shortfall which will be reflected and incorporated in the preparation of the 1998 to 2003 Mid-Term Plan; that IRRI's cost reduction program will, however, not be limited to staff reduction but will involve different areas as general operating costs, equipment, vehicles reduction, and importation of duty-free vehicles for IRS; that the Staff Structuring Program is set for January 7 to February 17, 1997 involving separation of approximately 500 employees. In reply thereto, I have the honor to inform that under Section 28(b) (7) (B) of the Tax Code, as amended, any amount received by an official or employee or by his heirs from his employer as a consequence of separation of such 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 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 the said official or employee" connotes involuntariness in the part of the official or employee. The separation from the service of the official or employee must not be asked or initiated by him. In other words, the separation must not be of his own making or choice. Since the separation of the employees of IRRI is beyond their control, any and all amount to be received by them from the company as a result thereof, are exempt from all taxes and consequently from the withholding tax prescribed by Section 72, Chapter X, Title II of the Tax Code, as amended and by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 6-82, as amended. cdt It must be understood, however, that any benefits given under the abovementioned circumstances must be in accordance with the terms of an existing plan or one that falls under the law, i.e., one half month for every year of service (Section 14, Rule 1, Book VI, Labor Code). Finally, the tax exemption does not include the company's payment for salary and cash equivalent of accumulated vacation and sick leaves, if any of its employees. Very truly yours, ALICIA L. TOMACRUZ Head, Revenue Executive Assistant (Legal Service)