BIR Ruling [DA-180-02]

October 8, 2002 BIR RULING [DA-180-02] 32 (B) (6) (b) 69-98 Wrigley Philippines, Inc. P.O. Box 1857 MCPO 1258 Makati City Attention: Mr. Paul Benedict A. Abastillas Director of People, Learning & Development Gentlemen : This refers to your letter dated December 3, 2001 requesting for a ruling that the separation benefits to be paid to your employees by reason of redundancy are exempt from income tax and consequently from the withholding tax. It is represented that your company maintains a private retirement plan which is trusted by the Trust and Investments Division of Rizal Commercial Banking Corporation; that on account of business rationalization, the company's Board of Directors adopted on September 3, 2001 a resolution approving a redundancy program; and that as required by Article 283 of the Labor Code, the company also filed a written notice of the termination of the said employee by reason of redundancy to prevent losses with the Department of Labor and Employment at least one (1) month prior to the effective date of their termination. 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. 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 your employees is due to redundancy, and, therefore, beyond their control, any and all amounts to be received by them as a result thereof, are exempt from income tax 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 employees' salaries, however, is subject to income tax and consequently to the withholding tax. ( BIR Ruling No. SB-69-98 dated October 6, 1998 ). aESHDA 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