BIR Ruling [DA-307-00]

August 15, 2000 BIR RULING [DA-307-00] 32 (B) (6) (b) 69-98 Philippine Overseas Telecommunications Corporation Telecoms Plaza Building 316 Sen. Gil Puyat Avenue 1200 Makati City Attention: Mr . Rogelio A . Aronce Assistant Vice-President Gentlemen : This refers to your letter dated March 1, 2000 requesting for a ruling that the separation benefits to be paid to Mr. Francisco A. Eusebio by reason of abolition of position are exempt from income tax and consequently from the withholding tax. It is represented Philippine Overseas Telecommunications Corporation has decided to retire the services of Mr. Francisco A. Eusebio as Aircraft Mechanic effective March 31, 2000; that Mr. Eusebio is 51 years old and has served the company for 15 years; and that the management has decided to dispose the aircraft thus Mr. Eusebio's position is no longer necessary. 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 b asked for or initiated by him. HcDATC The above-mentioned law requires the presence of two (2) conditions in order that the employee benefits may be granted 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 the benefits to the official or employee or his heirs as a consequence of such separation. Since the separation of Mr. Francisco A. Eusebio is due to abolition of position, 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. Francisco A. Eusebio's salaries and 13th month pay, in excess of the P30,000 threshold, however, is subject to income ax 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. TSDHCc Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group