BIR Ruling [DA-188-99]

March 25, 1999 BIR RULING [DA-188-99] Cosmic Manufacturing Philippines, Inc. Severina Diamond Industrial Complex Km. 16 South Superhighway Paraaque City Attention: Mr . Romeo S . Rojas President Gentlemen : This refers to your letter dates June 16, 1998 requesting for a ruling that the separation benefits to be paid to the following employees by reason of retrenchment are exempt from income tax pursuant to Section 32(B)(6)(b) of the Tax Code of 1997, namely: 1. Abayon, Nori D. 6. Fuentes, Aberlie B. 2. Birot, Felixberto C. 7. Iligan, Jorge C. 3. Cadacio, Felix T. 8. Lambert, Froilan A. 4. Castolero, Ruben M. 9. Pama, Benjamin A. 5. Doroteo, Rosendo A. It is appears that Cosmic Manufacturing Philippines, Inc. is engaged in car assembly, particularly tire mounting and manufacturing of wheel weights; that due to the management's decision to reduce the number of your regular personnel (from 19 to 10) in order to survive the present economic crisis you opted to retrench the above-named employees. 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 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 above-mentioned employees are due to retrenchment, 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. The payment of said employees' salaries, however, is subject 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. aisadc Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)