BIR Ruling [DA-493-99]

August 31, 1999 BIR RULING [DA-493-99] Asiatrust Bank 1424 Quezon Avenue Quezon City Attention: Mr . Ambrosio D . Belara Gentlemen : This refers to your letter dated July 26, 1999 requesting for a ruling that the separation benefits to be paid to the employees of Asiatrust Bank by reason of redundancy are exempt from income tax and consequently from the withholding tax. It is represented that the computerized system acquired by Asiatrust Bank in 1997 has enabled branches to operate in an on-line environment; that the ICBS paved the way towards branch efficiency through automation of frontline transactions and primary back-office transactions, as well as centralization of other back-office transactions at the Head Office; that ICBS provided the opportunity to reconfigure manpower complement relative to specific job positions and to redefine job functions towards marketing and/or multi-tasking; that the focus of the branch personnel under the ICBS environment is business-driven and value-added customer service; that with the upgrading of the computerized system at the Branch level as well as the upscaling on technical proficiency of the Frontline Branch Personnel, there is a capability to perform more tasks with less people at the Branch; that the following job positions ceased to exists under the ICBS environment: 1. Branch Accountant 2. Supervising Teller 3. Distributing Assistant 4. Bookkeeper that the implementation process shall be conducted within the period of three (3) months starting May, 1999; that such job positions will be redundant or abolished effective August 31, 1999; that in consideration of the impact of the Redundancy Program to each of the affected or separated employee, Asiatrust Bank commits to provide a Redundancy Separation Package as follows: 1. One month pay for every year of service or application of the Bank's Retirement Program, whichever is higher; cdll 2. Cash Conversion of unavailed leave credits as of August 30, 1999; and 3. Tax Free and that the following employees will be terminated because their job position ceased to exist under the ICBS environment. prcd 1. Alexander Barbasa Mataac - Branch Accountant 2. Tessie B. Ecopre - Supervising Teller 3. Nora P. Reyes - Branch Accountant 4. Roselle M. Depalobos - Branch Accountant 5. Ma. Luisa S. Andrade - Branch Accountant 6. Elvira T. Serrano - Branch Accountant - Head 7. Evangeline B. Viquiera - Supervising Teller 8. Felicisimo G. Santos, Jr. - Bookkeeper 9. Victorino Duran - Distributing Assistant 10. Ma. Lourdes B. Bagtas - Supervising Teller 11. Gloria P. Gamit - Unit Head 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 employees is due to redundancy, and, therefore, beyond their control, any and all amounts 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 salaries of the Asiatrust Bank employees, however, is subject to income tax and consequently to the withholding tax. (BIR Ruling No. SB-69-98 dated October 6, 1998) llcd 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)