BIR Ruling [DA-473-05]

November 18, 2005 BIR RULING [DA-473-05] Section 32 (B) (6) (b); BIR Rulings No. DA-165-03 Mariacola B. Lustre 392 F. Ortigas St. Mandaluyong City Dear Madam : This refers to your letter dated February 4, 1999 requesting for a refund of the taxes withheld from your retirement benefits in the amount of P147,626.24 by FEBTC in January 1998. Documents show that the U.S. management of Evenflo (Phils.), Inc. (Evenflo) decided to close its operation by end of year 2003. Due to cost cutting measures for Evenflo's worldwide operations, only the U.S. plant in Atlanta, Georgia and the plant in Mexico would be maintained and continue to operate. Hence, management retrenched the services of the staff of its Philippine operations. You were 52 years old when you were separated from Evenflo where you worked as Executive Secretary for 18 years from the period of February 1980 to January 1998. You were paid your retirement benefits under the Evenflo (Phils.), Inc. Salaried Employees Retirement Plan offered by Evenflo and as approved by the management on December 28, 1998, which scheme credited 90% of your monthly average salary for 18 years of your past services amounting to P606,547.76. FEBTC, the trustee of Evenflo (Phils.), Inc. Salaried Employees Retirement Plan reported your retirement benefits as compensation. In reply, please be informed that 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 pursuant to Section 32(B)(6)(b) of the Tax Code of 1997. The phrase "for any cause beyond the control of the 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 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. CEcaTH Since your separation is due to retrenchment and, therefore, beyond your control, any and all amounts received by you 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, as implemented by Revenue Regulations No. 2-98, as amended. The payment of salaries, however, is subject to income tax and consequently to withholding tax. This serves as an authority for the BIR-Revenue Regional Office to cause the refund of the taxes withheld from your separation benefits. 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service