Taxability of Separation Pay of Hotel Employees Received as a Result of Sale of Stockholders' Share to Investors

January 10, 1985 BIR RULING NO. 003-85 29-c-7-B 093-84 003-85 Gentlemen : This refers to your letter dated January 7, 1985 requesting a ruling as to whether the separation pay which the employees of Hotel Mabuhay, Inc. will receive from the old management of the hotel as a result of the sale by its principal stockholders of their shares to a group of investors who are interested in managing, owning and operating the hotel, is subject to tax. In reply, I have the honor to inform you that pursuant to Section 29(c)(7)(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 the 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 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. In other words, the separation must not be of his own making or choice. (Sec. 2(b)(2), Revenue Regulations No. 6-82). In view thereof and considering that the separation of the aforementioned employees from the service of Hotel Mabuhay, Inc. due to the sale of the stockholdings of its principal stockholders to a group of investors is not of their own making, this Office is of the opinion as it hereby holds that any and all amounts which the employees will receive from their employer/old management as a result thereof are exempt from all taxes and consequently, from the withholding tax prescribed by Section 91, Chapter XI, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 6-82. It is however, understood that this tax exemption does not include payments for salary and cash equivalent of the accumulated vacation and sick leaves of the employees, if any. aisadc Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner