BIR Ruling [DA-462-99]

August 11, 1999 BIR RULING [DA-462-99] Family Planning Organization of the Philippines, Inc. 50 Doa M. Hemady St. New Manila, Quezon City Attention: Mr . Rogelio A . Fortez Executive Director Gentlemen : This refers to your request for a ruling that the separation benefits to be paid to your officers and employees by reason of redundancy are exempt from all taxes pursuant to Section 32(B)(6)(b) of the Tax Code of 1997. It is represented that in its first regular meeting for 1999, the Executive Committee of the Family Planning Organization of the Philippines, Inc. (FPOP), a duly registered non-profit, non-stock volunteer non-government organization, unanimously approved the Rationalization Plan of FPOP Operations at the Chapter level; that such rationalization has become extremely necessary in view of the following factors: a) computed deficit of PhP 9.2 million for one year 1999; b) the need to push the restructuring plan already implemented at the National Office on March 20, 1996; c) the need for cost-effectiveness in the Chapters; d) the need to realize the Organization's self-reliance and self-sustainability with the Strategic Plan (S.P.) period ending 2005; and e) the need to attain the SP goal of serving 230,000 eligible couples or 2% of the country's total family planning eligible population by the year 2000; and that as a result to this Rationalization, the positions of Chapter Administrative Officer, Accounts Clerk, Bookkeeper and Chapter Operations Officer in all of the FPOP provincial chapter have been declared redundant and that among the personnel affected are as follows: Chapter Affected Personnel Position Basilan Juan Taghap, Jr. Chapter Administrative Officer Leticia Morales Chapter Operations Officer Bulacan Selma Toribio Chapter Administrative Officer Camarines Sur Elvira Cabrera Chapter Administrative Officer Zenaida Babilonia Chapter Operations Officer Cavite Rowena Morada Chapter Administrative Officer Cebu Alberto E. Reboquio Accounts Clerk Cotabato Josefina T. Montes Chapter Administrative Officer Davao Analyn Robles Accounts Clerk Nancy C. Villaflor Chapter Operations Officer Iloilo Lydia H. Loquiano Chapter Administrative Officer Cristina de Guzman Chapter Operations Officer Laguna Marilyn Pinca Chapter Administrative Officer Manila Angelina C. Sampang Chapter Operations Officer Corazon Sebastian Accounts Clerk Masbate Alicia S. Amores Chapter Administrative Officer Misamis Oriental Lucila B. Naelga Chapter Administrative Officer Negros Occidental Leni Ruth Hechanova Accounts Clerk Nueva Ecija Elma P. Nuque Chapter Operations Officer Quezon Sonia C. Alcance Chapter Administrative Officer Marilyn Ayala Chapter Operations Officer Samar Felicito Magallanes Chapter Administrative Officer Sorsogon Rodelyn de Vera Accounts Clerk Surigao Aurelia M. Gionggo Bookkeeper Tarlac Noreen M. Duco Chapter Administrative Officer Zamboanga Ibnoraja Langa Chapter Administrative Officer 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 due to death, sickness or other physical disability or for any cause beyond the control of 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 or initiated by him. The abovementioned 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. cdlex Since the separation of your abovenamed employees is due to redundancy and, therefore, beyond their control, any and all amounts received by them as a result thereof, including their terminal leave pay (sick leave and vacation leave credits), are exempt from all taxes and consequently from the withholding tax prescribed by Section 79, Chapter X, Title II of the Tax Code of 1997. The payment of their salaries, however, is subject to income tax and consequently to the withholding tax. (BIR Ruling No. 40-97 dated June 16, 1997) Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)