BIR Ruling [DA-280-97]

August 20, 1997 BIR RULING [DA-280-97] The Philippine National Red Cross National Headquarters Bonifacio Drive, Port Area Manila Attention: Ms. Jelma C. Dela Pena OIC-Director of Services Gentlemen: This refers to your letter dated June 11, 1997 stating that the Philippine National Red Cross (PNRC) in its Charter (Republic Act 75, as amended) is a voluntary organization officially designated to assist the government in its health and welfare services; that its employees enjoy the benefits provided under the Government Service Insurance System (GSIS); that on November 28, 1996, the PNRC Board of Governors approved the Accelerated Retirement Program (ARP) with the following objectives: 1) to give the opportunity to employees to retire early without losing his/her benefits; 2) to allow employees to seek other opportunities; 3) to have a lean organization; 4) to create vacancies and allow movements in the workforce; 5) to inject new blood and potential assets; and 6) to change non-performers in the organization. that the management shall have the right to approve or deny the application of a staff who wishes to avail of the ARP; that it shall not be under any obligation to approve any or all applications if it is deemed not favorable for the organization; and that the staff who are eligible to retire under the annuity benefit, i.e., 60 years old and above, cannot avail of this program. Based on the foregoing representations, you now request for a ruling as to whether the retirement benefits to be given to the employees of PNRC who wish to avail of the Accelerated Retirement Program are taxable. In reply, please be informed that under Section 28 (b) (7) (B) of the Tax Code, as amended, any amount received by an official or employee or by his heirs from his employer as a consequence of separation of such official or employee from the service of the employer due to death, sickness or other physical disability or for any cause beyond the control of 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. In other words, the separation must not be of his own making or choice. CAE CST However, in the instant case, the filing of an application of a staff of PNRC who wishes to avail of the ARP cannot be considered as an "involuntary separation" within the contemplation of Section 28 (b) (7) (B) of the Tax Code, as amended, the same being asked for or initiated by him. Consequently, separation benefits to be received by him shall be subject to income tax and to the withholding tax prescribed under Section 72, Chapter X, Title II of the Tax Code as implemented by Revenue Regulations No. 6-82, as amended. (BIR Ruling Nos. 12-91 dated January 29, 1991 and 20-91 dated February 14, 1991) Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV OIC-Assistant Commissioner (Legal Service)