BIR Ruling [DA-270-00]

June 28, 2000 BIR RULING [DA-270-00] 32 (B) (6) (b) De los Santos College 201 E. Rodriguez Boulevard Quezon City Attention: Ms. Sandra P. Torresyap Personnel Manager Gentlemen : This refers to your letter dated July 29, 1999 requesting for a ruling as to the applicability of Section 32(B)(6)(b) of the Tax Code of 1997 on the separation pay of certain members of the faculty of De Los Santos College. It is represented that some of your nursing instructors would be unable to comply with the masteral degree requirement of the Nursing Act of 1991 within the period prescribed therein and/or by year 2000; that according to the concerned faculty members, their inability to fully comply with said law is due mainly to financial/economic constraints; that these faculty members, except for one who is a widow, are married but whose combined income with their respective spouses are only sufficient to support the basic needs of their family, which consists of about 4 to 6 children; that they have tried to comply, as in fact some of them have earned units in masteral degree; that, however, for the reason above-stated and compounded by the demands of being a mother, wife and co-provider, it has become physically impossible for them to continue and/or pursue their masteral degree program within the prescribed timeframe; that as a consequence thereof, the concerned faculty members opted to or will resign prior to the compliance date as provided for by the Nursing Act; and that in consideration of their past service, your institution has decided to give them financial assistance by way of separation pay. 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. However, the separation of your employees is anchored on Section 26(e) of the New Nursing Law which provides, viz.: "Sec. 26. Qualifications of the Faculty . A member of the faculty in a college or school of nursing must: xxx xxx xxx (e) Be a holder of a master's degree in nursing or other related fields conferred by a college or university duly recognized by the Government of the Republic of the Philippines: Provided, however, That nothing in this Act shall be construed to disqualify those who have already been considered qualified and actually occupying the position before the effectivity of this Act: Provided, further, That those occupying such position before the effectivity of this Act shall be given a period of five (5) years from the date of effectivity of this Act within which to qualify under the provisions hereof: Provided, finally, That, by the year 2000, all colleges of nursing shall only employ faculty members with a master's degree in nursing or in other related fields." Therefore, considering that the separation of your employees is not due to death, sickness or other physical disability or for any cause beyond the control of the said officials or employees but rather for reason that they opted to or will resign prior to the compliance date as provided for by the Nursing Act, hence voluntary on their part, we regret to inform you that their separation pay and benefits cannot be exempted 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. 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.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group