BIR Ruling [DA-200-99]

March 30, 1999 BIR RULING [DA-200-99] Fosroc Philippines 1109 Cityland Condominium 10 Tower II 6817 H.V. dela Costa St. cor. Ayala Avenue Salcedo Village, Makati City Attention: Ms . Ofelia F . Faina-Trinos Accounting Manager Gentlemen : This refers to your letter dated March 1, 1999 requesting for a ruling that the separation benefits to be paid to Mr . Loreto L . Talabucon, Jr . by reason of redundancy are exempt from income tax pursuant to Section 32(B)(6)(b) of the Tax Code of 1997. It appears that Fosroc Philippines, an operating company of Burmah Castrol Philippines, Inc. is engaged in the marketing of construction chemicals; that since the beginning of 1998 your construction business had suffered an appreciable decline due to a number of factors; that one of it is the drastic decline in the new construction market; that the situation is aggravated by the peso devaluation and high interest rates and the effect of competition from trading companies; that Fosroc Philippines decided to restructure its business and operations as well as its organization resulting in the declaration of the services of Mr. Loreto L. Talabucon, Jr. to be redundant effective March 15, 1999. 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 the above-mentioned employee is due to redundancy, and, therefore, beyond his control, any and all amounts to be received by him as a result thereof, is 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 the said employee's salary, 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. LLpr Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)