Exemption from Taxes Separation Benefits Received from Various Private Companies

January 19, 1989 BIR RULING NO. 004-89 28 (b) (7) (B) 076-88 004-89 Gentlemen : This refers to your letter dated January 11, 1989 requesting confirmation of your opinion to the effect that the separation benefits to be received by Mr. Roberto T. Villanueva from various private companies from which he will be separated by reason of his being appointed as Chairman of the Coordinating Council of the Philippine Aid Program is exempt from tax. It is represented that Mr. Roberto T. Villanueva is now either the Chairman or a member of the board or the President of various private companies, among which are Atlantic Gulf and Pacific Co., Trans-Philippines Investment Corporation and other private companies; that he has been tapped by the government to serve and will soon be appointed as Chairman of the Coordinating Council of the Philippine Aid Program; that as such official he will coordinate the various functions required to utilize the aid coming to the Philippines from various donor countries and channel the same into various industrial/commercial projects that will benefit Philippine economy; that in order that he can discharge his functions and duties as Chairman of the Coordinating Council of the Aid Program, he will have to devote his full time to the said office; that he will have to relinquish and abandon his positions in the various private companies he is now connected with; and that because he will not be drawing salary from the government for discharging his functions and duties as Chairman of the Coordinating Council of the Philippine Aid Program, the various private companies of which he is now an officer or director will award him separation benefits. In reply, please be informed that pursuant to Section 28(b)(7)(B) of the Tax Code, as amended, any amount received by an official or employee or by his heirs from his employer as a consequence of separation by 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 the said official or employee is exempt from taxes regardless of age or length of service. The abovementioned law requires the presence of these two 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; (2) the employer pays benefits to the official or employee or his heirs as a consequence of such separation. Since Mr. Villanueva has been tapped by the government to serve and will soon be appointed as Chairman of the Coordinating Council of the Philippine Aid Program, his leaving the private sector to join the government service is beyond his control. Accordingly, any and all amounts to be received by him as a result thereof, are exempt from all taxes and consequently from the withholding tax prescribed by Section 71, Chapter X, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135, and implemented by Revenue Regulations No. 6-82 dated October 1, 1982. It is, however, understood that the tax exemption does not include the commutations or company's payment for salary and cash equivalent of accumulated vacation and sick leaves, if any. Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner