BIR Ruling [DA-109-96]

March 14, 1996 BIR RULING [DA-109-96] Ms. Aurora A. Marte c/o 2231 Chino Roces Avenue Makati City M a d a m : This refers to your letter dated January 26, 1996 requesting for a ruling as to whether or not the amounts you received under a Provident Fund due to involuntary retirement from the service of your employer, EAC (Philippines), Inc. are exempt from tax. It is represented that you were employed by EAC (Philippines), Inc., Timber Department for 18 years; that EAC Timber has closed and ceased its operations effective September 30, 1995 due to the Government's restrictions on export of timber products, which resulted in a drastic reduction in their business activities; that as a consequence thereof, all affected employees like you, were duly informed of "the Company's decision to close the business of EAC Timber effective at the end of business hours on September 30, 1995"; that your separation from the company became effective on December 31, 1995; and that as a consequence thereof, you will receive from the company your "separation pay, which is equivalent to one (1) month salary for every year of service you rendered to the Company." On February 13, 1996, this Office issued a certificate exempting your separation benefits from withholding tax. caIACE In reply, please be informed that 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 due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee is exempt from income tax regardless of age or length of service. The phrase "for any cause beyond the control of the 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. In other words, the separation must not be of his own making or choice. Since your separation from EAC (Phils.), Inc. was brought about by the Government's restrictions on export of timber products, which resulted in the cessation of business operations and closure of EAC Timber in the Philippines, your aforesaid separation is beyond your control and therefore, any and all amounts that you will receive from the company as a result thereof, including those under the Provident Fund, are exempt from income tax and consequently, from the withholding tax prescribed by Section 72, Chapter X, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 6-82, as amended. (BIR Ruling No. 013-93 dated January 14, 1993) Accordingly, EAC (Phils.), Inc. should refund to you whatever amount it has withheld from your benefits under the Provident Fund; otherwise, if said withheld amount has already been remitted to the BIR, you can file your written claim for refund thereof with the Appellate Division, National Office Building, BIR, Diliman, Quezon City, within two (2) years from your payment of the tax. TcSAaH Very truly yours, (SGD.) ALICIA P. CLEMENO Assistant Commissioner (Legal Service)