BIR Ruling [DA-168-02]

September 17, 2002 BIR RULING [DA-168-02] 32 (B) (6) (c) SB-057-2000 Mr. Jesus R. Sagun 58B Topaz Street, Greenpark Village Cainta, Rizal S i r : This refers to your letter dated May 22, 2002 requesting for opinion on the applicability of BIR Ruling No. RR-12-19-2000 whereby the amount you received representing retirement benefits under the Goodyear Saving Plan, was subjected to compensation tax. Documentary evidence submitted to this Office disclosed that you were employed by Goodyear Philippines, Inc. (Goodyear) for seventeen (17) years; that in view of the decreased sales and production, and to prevent losses, Goodyear embarked into a retrenchment program; and that effective April 30, 2002 you were effectively retrenched; that Goodyear's termination benefits include: 45 days' per year of service (15 days will come from the Pension Fund and 30 days from the Company), fractions of 13th and 14th month pay, longevity pay, emergency leave and any earned and unused vacation and/or sick leave; and that March 30, 2002 was your last day of work but was paid up to April 30, 2002 to enable you to look for an employment elsewhere. In reply, please be informed that this Office has issued numerous rulings both numbered and unnumbered, to the effect that under 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. Under Sec. 2-78(B)(1)(b) of Revenue Regulations No. 2-98 implementing Sec. 32 of the Tax Code, 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 separation was not of his own making." Hence, there is no question that your separation from Goodyear by reason of retrenchment is an involuntary separation and therefore properly falls within the purview of the phrase " for any cause beyond the control of said official or employee ." Accordingly, any and all amounts received by you including benefits received from the Retirement Savings and Landownership Plan, as a result of your involuntary separation from service due to retrenchment are exempt from income tax and consequently from the withholding tax under Section 79, Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, as amended. DTCSHA 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, GR 96016, prom. Oct. 17, 1991 ). The payment of the separated employees' 13th month pay and other benefits, in excess of the 30,000.00 threshold, plus their salaries, is subject, however, 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service