BIR Ruling [DA-372-04]

July 5, 2004 BIR RULING [DA-372-04] Section 32 (B) (6) (b) BIR Ruling No. 1-95 Mr. Ambrosio D. Belara 1424 ATB Building Quezon Avenue Quezon City S i r : This refers to your letter dated May 5, 2004 requesting for a ruling that your separation benefits is exempt from income tax. It is represented that you are connected with Asiatrust Bank under the ATM Center as complaints assistant and that you would like to tender your resignation anytime this year due to (take a rest) health reason. In reply, please be informed that under 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 due to 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 phase "for any cause beyond the control of the said official or employee" in effect connotes involuntariness on the part of the official or employee. The separation from the service of the official or employee must not be of his own making (Sec. 4(f), Rev. Regs. No. 1-68 and Sec. 2(b)(2), Rev. Regs. No. 6-82, as amended). The abovementioned law requires the presence of these two sine qua non conditions in order that the separation pay of an official or employee may be exempt from taxes, viz : (1) The official or employee's separation from the service of his employer is due to death, sickness or other physical disability or for any cause beyond his control; and (2) The employer pays separation benefits to such official or employee separated from the service of his employer or to his heirs as a consequence of such involuntary separation. It is clear from the foregoing facts that your separation from the service of the company is of your own making. Such being the case, the separation benefits you will receive is subject to income tax and consequently to the withholding tax considering that your separation is voluntary or initiated by you. Only separation benefits paid to employees by their employer due to their involuntary separation therefrom as contemplated under Section 32(B)(6)(b) of the Tax Code of 1997 may be exempt from income tax (BIR Ruling No. 001-95 dated January 6, 1995 citing BIR Ruling No. 12-91 dated January 29, 1991). 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 as null and void. cDTSHE Very truly yours, Commissioner of Internal Revenue (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service