BIR Ruling [DA-418-00]

December 11, 2000 BIR RULING [DA-418-00] 32 (B) (6) (b) 69-98 Ayala Life Assurance Incorporated Ayala Life-FGU Center 6811 Ayala Avenue, Makati City Attention: Mr . Lauro L . Abano, Jr . Senior Vice President Gentlemen : This refers to your letter dated June 29, 2000 requesting for a ruling, on behalf of the employees of Ayala Life Assurance Incorporated (Ayala), that the separation benefits to be paid to the employees of Ayala whose services would be terminated effective June 30, 2000 due to manpower downsizing program of the company are exempt from income tax and consequently from the withholding tax. DcaECT Documents submitted disclosed that this is also in connection with the money value of the unused vacation leave credits which the employees will receive in connection with the termination of their employment, as the accrued vacation leaves or terminal leaves are being treated separately and would thus be subjected to withholding tax; and that the following is the list of separated employees: NAME OF EMPLOYEE DIVISION/DEPARTMENT Abella, Pascacio L. Jr. VR/OLO Alindogan, Oro G. Underwriting Asilo, Filomeno L. ISD Bada, Gerardo E. NELR/OLO Bayugo, Guillermo A. OCFO Berry, Benedicta B. Legal Bolo, Rodolfo G. MR/OLO Bonifacio, Librado D. MR/OLO Bravo, Rolando S. ISD Campos, Alina B. HRD Casaclang, Alberto B Underwriting Casaclang, Elena Joyce H. SBDT Castro, Armando R. NWLR/OLO De Jesus, Severina B. OCFO Delos Reyes, Falermo C. ECVR/OLO Desquitado, Vicente Jr. B. ECVR/OLO Gabrido, Marcelo Noel, Jr. A. WVR/OLO Gumba, Jose R. OCFO Hanopol, Victor P. MR/OLO Lim, Jeanne S. SBDT Binondo Lizardo, Pacita L. Underwriting Lumaban, Celso C. ISD Modina, Rolando G. MR/OLO Montilla, Ma. Teresa V. Corporate Communication Obana, Loreta R. Real Estate Division Olbes, Renato P. SLR/OLO Ortega, Marciluz B. AFISI Osorio, Ma. Nenita P. CAD Paig, Rosario C. ECVR/OLO Pining, Carlito P. CSMSD Pumanes, Veronidia OCFO Ramoso, Reynaldo R. SMR/OLO Sabiona, Ma. Theresa F. CSMSD Sangrador, Remedios C. OCFO Santos, Rodrigo Jr. A. SLR/OLO Sumulong. Semelito S. ISD Talens, Monina T. MLD Ulep, Narciso P. CSMSD Valenton, Leonardo A. Marketing-API Vila, Renato SMR/OLO Yap, Edmundo J. MR/OLO 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. DaESIC 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 Ayala Life Assurance Life Incorporated employees is due to manpower downsizing program of the company, 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. The payment of the employees' 13th month pay and other benefits, in excess of the P30,000.00 threshold, plus their salaries, is subject, however, to income tax and consequently to the withholding, tax. (BIR Ruling No. SB-69-98 dated October 6, 1998) 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). 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 and Inspection Group