Law Firm Reyes Cabrera & Associates

December 7, 2007 BIR RULING [DA-627-07] Sec. 32 (B) (6) (B) Law Firm Reyes Cabrera & Associates Unit 1502 Jollibee Plaza Condominium Emerald Avenue, Ortigas Center Pasig City Attention: Atty. Adolfo II Z. Reyes For the Firm Gentlemen : This refers to your letter dated August 6, 2007 requesting in behalf of your client Ms. Christine Dinah Lim (Ms. Lim, for brevity) for a confirmation that separation/redundancy pay is exempt from income tax and consequently from withholding tax. cSaATC It is represented that Ms. Lim was hired by Deutsche Bank AG on March 5, 2001 as Senior Relationship Manager under its Private Wealth Management Office; that on April 10, 2006, Ms. Lim filed a labor case before the National Labor Relations Commission, entitled " Christine Dinah Lim vs. Deutsche Bank, Cecille Chan and Kenneth Toong , Case No. NLRC-NCR-00-04-03115-06" (hereinafter referred to as "the Labor Case") for constructive illegal dismissal; that while the said labor case was pending, the Private Wealth Management Office of Deutsche Bank AG, under which Ms. Lim was formerly employed, had been abolished, all the other employees in said Private Wealth Management Office have been separated from their employment with Deutsche Bank AG by December, 2006 and have been paid their corresponding separation/redundancy pay; that Ms. Lim would have been given the same treatment and would have received a similar separation/redundancy pay calculated on the basis of her separation as of August, 2006 were it not for the pendency of the labor case; that the Honorable Labor Arbiter resolved the case in favor of Ms. Lim awarding her a total of P4,848,717.50; that an amicable settlement was entered into to obviate the long and tedious litigation and Deutsche Bank AG resolved to pay Ms. Lim P5,045,695.00 as separation and redundancy pay; that you now opine that said redundancy/separation pay is exempt from income tax and consequently from the withholding tax. In reply, please be informed that pursuant to Section 32 (B) (6) (B) of the Tax Code, as amended, 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 her. AScTaD The abovementioned law requires the presence of these two (2) conditions in order that the employee benefits may be granted tax exemption; (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 Ms. Lira's separation is due to redundancy and, therefore, beyond her control, any and all amounts received by her as a result thereof, is exempt from all taxes and subsequently from the withholding tax prescribed by Section 72, Chapter X, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 6-82, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. EcHTDI Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service