BIR Ruling [DA-344-98]

July 27, 1998 BIR RULING [DA-344-98] Phil-International Footwear, Inc. 999 Gov. Pascual Avenue Malabon, Metro Manila Attention: Mr . Steward P . Chongson Executive Vice-President Gentlemen : This refers to your letter dated January 22, 1998 requesting exemption from income tax and consequently from withholding tax the separation benefits to be received by your employees as a consequence of their termination from employment due to the cessation of your business operation pursuant to Section 32 (B)(6)(b) of the Tax Code of 1997. casia It is represented that Philippine International Footwear, Inc. is a corporation duly organized and existing in accordance with the laws of the Republic of the Philippines with principal office address at 996 Gov. Pascual Avenue, Malabon, Metro Manila; that due to serious and heavy financial losses, poor market conditions, high administrative and operational costs, it was compelled to file on October 1, 1997 a notice of permanent closure with the Department of Labor and Employment; that the strike staged by your employees finally made it decide to cease from its business operations; and that it is obligated to pay the separation benefits to all of its affected employees. 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 employee due to death, sickness or other physical disability or for any cause beyond the control of the said official of employee shall be exempt from taxation regardless of age or length of service. The abovementioned law requires the presence of these conditions in order that the said employees benefits may be granted tax exemption: (1) the employees are 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 officials or employees; and (2) the employer pays benefits to the officials or employees or their heirs as a consequence of such separation. Since the separation of the affected employees of Phil-International Footwear, Inc. is beyond their control, any and all amounts to be received by them as a result thereof, are exempt from all taxes and consequently from the withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997. It is, however, understood that the payment of their salaries if any, are subject to income tax and consequently to the withholding tax. (BIR Ruling No. UN-017-96 dated January 10, 1996) 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, this ruling shall be considered null and void. LLjur Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)