BIR Ruling [DA-254-99]

April 26, 1999 BIR RULING [DA-254-99] Mr. Oscar Rudijer T. Santiano 8 St. Agatha St., Maries Village II Marcos Highway, Mayamot Antipolo City S i r : This refers to your letter dated April 8, 1999 requesting for a ruling that the separation benefits to be paid to you, by reason of company reorganization are exempt from income tax and consequently from the withholding tax. cdta It is represented that on August 27, 1998, the new management of Philippine Communication Satellite (PHILCOMSAT) headed by Mr. Manuel H. Nieto took over the company; that on September 2, 1998, Mr. Nieto issued a memorandum that "in view of the election and assumption by new management and in recognition thereof, the submission of your courtesy resignation will be highly appreciated to enable the new management to perform their mandated task"; that because of that, you were forced to involuntarily submit your courtesy resignation as Vice President Comptroller/Internal Audit effective upon approval; that you do not have any intention to resign or retire at an early, but because of the memorandum of the President, your refusal to submit the courtesy resignation might be adversely construed against you or given different interpretation; that on February 12, 1999, you received a letter dated February 8, 1999 that your courtesy resignation has been accepted by the Board with finality effective February 15, 1999; and that a reorganization of the company was then effected. 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 laws 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 heir as a consequence of such separation. Since the separation of Mr. Oscar Rudijer T. Santiano as Vice President Comptroller/Internal Audit is due to company reorganization and, therefore, beyond his control, any and all amounts to be received by him 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 Mr. Oscar Rudijer T. Santiano's salaries, however, is subject to income tax and consequently to the withholding tax. cdti 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, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue