BIR Ruling [DA-365-00]

October 23, 2000 BIR RULING [DA-365-00] 32 (B) (6) (b) SB-69-98 Coca-Cola Bottlers Philippines, Inc. Feliza Building, 108 Herrera Street Legaspi Village, Makati City Attention: Mr . Nelson D . Empalmado Vice-President-Tax Counsel Gentlemen : This refers to your letter dated June 29, 2000 requesting for a ruling that the separation benefits to be paid and/or given by your company, Coca-Cola Bottlers Philippines, Inc. (CCBPI) to your employees who will be separated from the service due to the "Wage Costs Efficiency" Program adopted by CCBPI are exempt from income tax and consequently from the withholding tax and that the expenses incurred by CCBPI in providing the said benefits are deductible from gross income in computing the income tax liability of CCBPI. It is represented that since last year, CCBPI has been experiencing reduced sales volumes and increased costs which are taking toll on CCBPI's financial position; that because of this year's year-to-date sales volumes failed to meet the already reduced sales goals, CCBPI has determined that to bring itself back to a position of financial strength, it needs to reduced its operating expenses in all areas of operations; that CCBPI reviewed all aspects of its cost structure, which revealed that the biggest cost is salaries and wages; that based on said findings, CCBPI, early this year, undertook to streamline its organization, resulting in certain job positions being declared redundant and no longer necessary; that in addition thereto, CCBPI adopted a "Wage Costs Efficiency Program," a program which seeks to maximize the efficiency of wage costs; that under this program certain employees will be separated from the service of CCBPI and will be replaced with new employees who are more efficient but will accept same level of salary or, who are as efficient but will accept lower level of salary; that no cushion the effect of their separation from the service of the CCBPI, the affected employees will be paid and/or given the following separation benefits: FINANCIAL PACKAGE A. To be paid by CCBPI RETIREMENT PLAN 1. Separation pay equivalent to 100% of monthly salary for every year of service B. To be paid and/or given BY CCBPI 1. Displacement Assistance For employees with 15 years or more in service an amount equivalent to 75% of the separation pay For employees with less than 15 years of service, an amount equivalent to 50% of the separation pay 2. Commutation of unused sick and vacation leave credits 3. Proportionate 13th month pay 4. Annual Gratuity Pay of P5,000.00 each 5. Shares of stock in Coca-Cola Amatil Limited purchased by CCBPI and held by a trustee for the benefit of participating employees under the Employee Share Plan, which although not yet vested will nevertheless be awarded due to the said employees' separation from the services of CCBPI; EcIaTA 6. Medical Insurance for 5 years; SUPPORT PROGRAM To help the affected employees deal with the change and facilitate the transition, CCBPI has contracted the services of Foresight to guide the said employees through the process, step-by-step. Foresight's services include: 1. "Preparing For Change" seminar 2 days Financial Preparation; Personal Preparation; 2. "Job Hunting" seminar day Preparation of Bio-data; Strategies for Applying for a Job, including Preparation of Application Letter 3. One-on-One Consultancy Specific Advice on Career and Finances and that the following is the list of employees to be separated: PLANT NAME POSITION 1 Antipolo BATERINA, SALVADOR RSM 2 Antipolo BATHAN, SERAFIN B Accountant 3 Antipolo CATABIAN, RUSSEL IGNATIUS Basis Head 4 Antipolo DAUZ, DANILO S. Direct Sales Supervisor 5 Antipolo DAZO, NESTOR S. Wholesaler Devt. Coor. 6 Antipolo DIONISIO, RENATO R. Dealer Devt. Officer 7 Antipolo IBANEZ, RODERICK Market Devt. Coor. 8 Antipolo LAZO, LEONCIO T. JR. Wholesaler Devt. Coor. 9 Antipolo MANGAHAS, JESSIE R. Wholesaler Devt. Coor. 10 Antipolo MARTINEZ, GILBER Market Devt. Coordinator 11 Antipolo NEPOMUCENO, RICARDO T. Pre-Seller 12 Antipolo PALMA, ROLANDO P. Direct Sales Suprv. 13 Antipolo ROMERO, ROBERTO H. Market Devt. Coor. 14 Antipolo TAVORA, FIRMO S. Wholesaler Devt. Coor. 15 Antipolo VILLENA, EDGARDO A. Wholesaler Devt. Coor. 16 Bacolod CHAN, ROBERTO J. WDC 17 Bacolod CHUA, AUGUSTO H. WDC 18 Bacolod FERRER, HERNANI, JR. P. DSS 19 Bacolod GABAYERON, JOSE MDC 20 Bacolod GARAYGAY, JESUS JR. K. DDO 21 Bacolod GARDE, ROMEO C. DSS 22 Bacolod GONZALES, MANUEL B. MDC 23 Bacolod IMUTAN, JOSE MARI MSM 24 Bacolod JEREZA, ROMEO G. WDC 25 Bacolod LANSANGAN, TIRSO B. REF Foreman 26 Bacolod OMARREMENTERIA, VICENTE FOM 27 Bacolod PAYLODA, EMIL OM-BACOLOD/ILOILO 28 Bacolod SANZ, JOSEPH MDC 29 Bacolod SISON, JOHN J. MDC 30 Bacolod TORRES, JERRY T. MDC 31 Bacolod VALENCIA, CRISPIANO L. DSS 32 Bacolod VELEZ, MICHAEL MDC 33 Bacolod VITERBO, JOSE C. SDS 34 Bacolod ZALDIVAR, AMADO S. MDC 35 CAG FOOKSON, KEARNEY Material Supervisor 36 CAG MANLUCTAO, GERARDO BDU Coordinator 37 CAG PALER, EMILIANO SSG 38 CAG TENIO, GERRY G. Bottling Crew 39 Calamba BEDURAL, EUFEMIANO MDC 40 Calamba BOTE, RICARTE C. DSS 41 Calamba DIMACULANGAN, DENNIS DSS 42 Calamba DY PENILLA, GERARDO PPO 43 Calamba FRIOLO, ROMEO M. MDC 44 Calamba FRONDA, ARTEMIO M. Plant Security Officer 45 Calamba GARCIA, MARIO G. RSM 46 Calamba GENER, ANTONIO G. DSS 47 Calamba HIDALGO, RENATO C. DSS 48 Calamba MACATANGAY, VICTORIANO A. DSS 49 Calamba MAGLALANG, AURELIO RSM 50 Calamba MEDALLA, LEO AUREO T. Production Supervisor 51 Calamba MEDINA, ARISTEO G. PD Supervisor 52 Calamba NERY, ANTONIO G. Production Supervisor 53 Calamba RELOJO, NOEL C. Plant Finance Manager 54 Calamba REMULLA, MANUEL JR. A. GSM 55 Calamba RODRIGUEZ, GIL DSS 56 Calamba SANTOS, JULIUS II CDO 57 Calamba SOLIS, RENATO D. Production Supervisor 58 Calasiao AQUINO, MA. LUISA M. Quality Control Head 59 Calasiao CADUCIO, VICENTE C. OM-Calasiao/Carlatan 60 Calasiao DIAZ, ANDRES R. Dist. Sales Supv. 61 Calasiao ESQUIG, BENJAMIN R. Fountain Operations Mgr. 62 Calasiao SANGALANG, MANOLO C. Prod. Supervisor 63 Carlatan ACOSTA, MARIO E. Dist. Sales Supervisor 64 Carlatan AGANON, HONORATA Plant Accountant 65 Carlatan BIGORNIA, SANTOS L. JR. Dist. Sales Supervisor 66 Carlatan CORDERO, AGNES B. Quality Control Supt. 67 Carlatan DUMUK, AGNES E. Plt. Finance Officer 68 Carlatan GASPAR, LLOYD V. Reg. Sales Manager 69 Carlatan PIMENTEL, EDUARDO I. Sales Office In-charge 70 Carlatan RAQUIPO, EMILIANO B. Sales Office In-charge 71 Carlatan STO. TOMAS, REYNALDO S. Fnin. Opns. Manager 72 Cebu BALANE, RICHARD R. PD Supervisor 73 Cebu CANADA, BEBIANO F. District Sales Supervisor 74 Cebu CARVAJAL, TADEO A. District Sales Supervisor 75 Cebu CASTAEDA, SETH V. District Sales Supervisor 76 Cebu CERITA, GEORGE S. District Sales Supervisor 77 Cebu CORTES, FRANCISCO JR. C. District Sales Supervisor 78 Cebu CORTES, LYLE C. Route Salesman 79 Cebu ESPINOSA, MANUEL PFM 80 Cebu HEREDIA, VIDAL D. Pd Superintendent 81 Cebu LUGAY, CESAR P. Market Services Manager 82 Cebu MANGUBAT, CARLOS G. Market Dev. Coordinator 83 Cebu NOVAL, WARLITO T. BDS Coordinator 84 Cebu SALARITAN, ISIDRO S. Route Salesman 85 Cebu SANCHEZ, ZOSIMO PETER A. Region Sales Manager 86 Cebu SENO, ROLAND V. Market Dev. Coordinator 87 Cebu TEVES, SAMUEL A. Sales Office In Charge 88 Davao DEGRANO, ALBERTO Prev. Maintenance Foreman 89 Davao GUEVARRA, SAMUEL C. Direct Sales Supervisor 90 Davao MANDIN, ALEXANDER A. Transpo Head 91 Davao MATA, EDUARDO B. Direct Sales Supervisor 92 Davao SANTILLANA, CIRILO T. Wholesaler Dev't. Coord. 93 Davao TEVES, ARTHUR G. Group Sales Manager 94 GEN AMARILLA, MARIO MDC 95 GEN FRANCISCO, JOSE MARI PD Supervisor 96 GEN PERANTE, CESAR MDC 97 GEN WONG, REYNALDO DSS 98 HO ABAD SANTOS, CARLOS E. Area Logistics Manager 99 HO ASIA, ROMEO Area Manufact. Svcs. Engr. 100 HO DE OCAMPO, MARILES Account Supervisor 101 HO GILLERA, GILBERTO S. Area Opns. Mgr.- Mega Mla 102 HO NAJARRO, JOSE N. Area Operations Mgr-Luzon 103 HO REBOSURA, CORAZON JOYCE R. QA Mgr-Plant Operations 104 HO YPIL, EDGARDO Are Opn Manager-Visayas 105 ILA ALMAZAN, MARCELO DSS 106 ILA DALIT, MELCHOR Transportation Head 107 ILA DALOG, CORNELIO BAUTISTA DDC 108 ILA FERRER, NICANORA PFO 109 ILA GANACIAS, FERNANDO M. MDC 110 ILA GONZALES, MA. VISITACION PPO 111 ILA MACARILAY, CARLOS GATCHALIAN DDC 112 ILA MANALO, RICARDO PSO 113 ILA PEREDO, AURELIO PD Supervisor 114 ILC CATBAGAN, MIGUEL PD Supervisor 115 ILC FELIPE, JOHN PPO 116 ILC FLANDEZ, BOY DSS 117 ILC LAYUGAN, ESTEBAN Production Supervisor 118 ILC MADAMBA, JESUS HILARIO RACUYA Sales Office In-Charge 119 ILC PASCUA, EMILIO ACOSTA Maintenance Foreman 120 ILC PASCUAL ARNOLD DSS 121 ILC PASSION, RANDY RSM 122 ILC RAGUDO, NESTOR DSS 123 Iloilo CARMEN, RODEL Route Salesman 124 Iloilo GABO, ANDREW Channel Specialist 125 Iloilo GARCETO, ANTONIO Rt Salesman 126 Iloilo JALANDONI, LITO DSS 127 Iloilo JANITA, FRANKLIN Route Salesman 128 Iloilo JUMAYAO, JOSE WDC 129 Iloilo SORONGON, GIL DSS 130 Iloilo TORRES, LEO PD Supervisor 131 Manila ALBANO, EDGARDO Dealer Devt Officer 132 Manila ARCILLA, ARNULFO District Sales Supvr 133 Manila BALIBALOS, MANUEL District Sales Supvr 134 Manila BANEZ, BARTOLOME Key Accts Specialist 135 Manila BELARMINO, FERMIN Personnel Coord 136 Manila BULAORO, FRUTO Shop-in-Charge 137 Manila CAPULONG, ROLANDO Foreman Minor Repair 138 Manila COLIGADO, ARTURO Personnel Coord 139 Manila CONCEPCION, MARIO Dealer Devt Coord 140 Manila CORTEZ, ARMANDO District Sales Supvr 141 Manila DELA CRUZ, GERARDO Dealer Devt Coord 142 Manila DELOS SANTOS, SEAFIELD Region Sales Manager 143 Manila DOMINGO, SERGIO Foreman 144 Manila GARCIA, RAYMUNDO District Sales Supvr. 145 Manila JARA, ANTONIO PD Supervisor 146 Manila LEONCIO, ARMANDO Dealer Devt Coord 147 Manila LLAGAS, CASIMIRO JR PD Supervisor 148 Manila MEDINA, CESAR Sales Supervisor 149 Manila PADILLA, ERNESTO Shift Supervising Guard 150 Manila PANGANIBAN, FRANCISCO District Sales Supvr 151 Manila PEREZ, ALFONSO Personnel Coord 152 Manila POSADAS, TERESITA Key Accts Specialist 153 Manila PUNZALAN, JONATHAN Transpo Head 154 Manila SAMANIEGO, ARNIE RICK Dealer Devt Officer 155 Manila SAN JOSE, RICARDO Sales Supervisor 156 Manila SANCHEZ, AVELINO Dealer Devt Coord 157 Manila SANTOS, VICTORINO JR Dealer Devt Officer 158 Manila TIMBREZA, ARDELINO Dealer Devt Coord 159 Manila TOLEDO, VIVENCIO Region Sales Manager 160 Meycauayan BAGUHIN, ROMEO WDC 161 Meycauayan CHANCO, NOEL SDS 162 Meycauayan DE VERA, DAVID JONATHAN SDS 163 Meycauayan HENZON, VICTOR PSSO 164 Meycauayan LIWANAG, SILVESTRE Fountain Account Supervisor 165 Meycauayan REFRIMA, ELVIS DDC 166 Meycauayan SAMSON, SAMUEL MDC 167 Meycauayan SAN JOSE, JOE Personnel Coordinator 168 Meycauayan SANDICO, TONY WDC 169 NAG BARRAMEDA, ERNESTO DDO 170 NAG ESTIVA, BOY DSS 171 NAG JAVIER, LINO PD Supervisor 172 NAG MARCERA, CARLOS RSM 173 NAG MELIC, BENJAMIN Shift Supv. Guard 174 NAG PASUMBAL, VIC DDC 175 NAG PORDESIMO, VIC DDC 176 San Fernando BAMBA, ROMMEL B. DSS 177 San Fernando CABUG, REYNALDO C. MAIN. FOREMAN 178 San Fernando CAPULONG, EUSTAQUIO DSS 179 San Fernando CARLOS, DOMINGO P. DDC 180 San Fernando DAVID, ORLANDO S. DDS 181 San Fernando DIWA, LUCIANO T. ADV. FOREMEN 182 San Fernando DOMING, LILIAN C. CDO 183 San Fernando GASCON, GEORGE G. DDC 184 San Fernando GOMEZ, PONCIANO B. PFM 185 San Fernando LAZATIN, FLORANTE S. DISPENSER SUPERVISOR 186 San Fernando LIM, FROILAN Y. PD SUPERINTENDENT 187 San Fernando MACAPINLAC, ELMER S. DSS 188 San Fernando MANAHAN, CESARIO DSS 189 San Fernando MARZAN, TRANQUILINO L. DDC 190 San Fernando MENDOZA, ELOY M. DDC 191 San Fernando SALONGA, VICENTE C. PROD. SUPERVISOR 192 San Fernando SALVADOR, ANTONIO PD SUPERVISOR 193 San Fernando SANTIAGO, EDWIN D. TRANS. HEAD 194 San Fernando SISON, JESUS G. YARD FOREMAN 195 San Fernando STA. ANA, JOSEPH PRE-SELLER 196 San Fernando TORRES, ELINOR CDO 197 San Fernando VALENCIA, ROMEO L. DDC 198 San Fernando VILLAMIA, EMMANUEL C. DSS 199 Sta Rosa ACERVO, EDGARDO JR. T. Plant Manager 200 Tacloban ARIOLA, KENNETH Dealer Development Officer 201 Tacloban COLIBAO, EMILIO District Sales Supervisor 202 Tacloban DE VEYRA, ALBERTO Mktg Services Manager 203 Tacloban ENAGE, LEO District Sales Supervisor 204 Tacloban MEDALLA, EDWIN PD Supervisor 205 Tacloban MORING, DIOSDADO Route Salesman 206 Tacloban PELINO, DAVID Route Salesman 207 Tacloban POBRE, ANTERO C, JR. Region Sales Manager 208 Tacloban SERRANO, BENITO S. JR. District Sales Supervisor 209 Tacloban VILLABLANCA, FIEL P. District Sales Supervisor 210 Tagbilaran ALEGRADO, GENEROSO JR. M. MDC 211 Tagbilaran AVERGONZADO, JOSE A. Plant Personnel Supervisor 212 Tagbilaran FERNAN, HARRY E. DSS 213 Tagbilaran PARRAS, ALEXANDRIE RSM 214 Tagbilaran TABIGUE, VICENTE B. Sales Office Operation Head 215 Tagbilaran TORERO, GERARDO R. MDC 216 ZAM ANGELES, BENJAMIN DELA TORRE Security Supervisor 217 ZAM CHAVEZ, HUMBERTO PAZ PD Supervisor 218 ZAM COSCOLLUELA, ROMEO GRAGASIN Plant Accountant 219 ZAM DANS, PERCIVAL GREGORIO Transportation Head 220 ZAM EIJANSANTOS, EFREN BAUTISTA Shifts Supvsg Guard 221 ZAM ELOPRE, HERMINIGILDO DSS 222 ZAM FERNANDEZ, FERDINAND CALACALA Ref. Foreman 223 ZAM MALIGRO, GERRY RSM 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. Since the separation of the employee is due to wage costs efficiency and, therefore, beyond their control, any amount to be received by them 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. Moreover, the commutation and payment of unused sick leave and vacation leave credits are likewise not subject to income tax and, consequently, to withholding tax (CIR vs. CA & Efren P. Castaeda, GR 96016 prom. Oct. 17, 1991). The payment of the 13th month pay in excess of the P30,000.00 threshold, and the salaries of Coca-Cola Bottlers Philippines, Inc. employees, however, is subject to income tax and consequently, to the withholding tax (BIR Ruling No. SB-69-98 dated October 6, 1998) The income payments referred to in the last three paragraphs qualify as deductible items from the gross income of CCBPI, subject to compliance with the withholding tax regulations. However, the benefits under the CCBPI Retirement Plan is no longer deductible as a business expense by CCBPI, considering that the contributions to the plan for current and past service has already been deducted by the company from its gross income when it contributed such amount to the retirement plan. CDAEHS 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, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group