Separation Pay - Tax Exempt

January 15, 1993 BIR RULING NO. 015-93 SEPARATION PAY TAX EXEMPT 28 (b) (7) (B) 315-92 015-93 Coca-cola Bottlers Philippines, Inc. Feliza Building, 108 Herrera Street Legaspi Village, Makati, Metro Manila Attention: Mr . Mariano A . Linyap Senior Vice-President & Administration Director This refers to your request for a ruling that the separation benefits to be paid to Mr. Cesar C. Alvarez by reason of health condition are exempt from all taxes pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. Documents submitted show that your employee, Mr. Cesar C. Alvarez was certified by your Medical Services Director Dr. Luis C. Lugay, to have been confined at the N/P Ward of Makati Medical Center for the period from August 6, to August 12, 1992 and discharged with a diagnosis of Paranoid Schizophrenia; that this was his third hospital confinement; and that said illness affects the performance of his duties and endangers his life if he continues working. Said finding is confirmed by the BIR Medical Officer. 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 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 the said official or employee shall not be included in gross income and shall be exempt from taxation under Title II of the Tax Code. In view thereof, this Office is of the opinion as it hereby holds that any and all amounts including terminal leave pay (sick leave and vacation leave credits) which Mr. Cesar Alvarez will receive from you as a result of his separation from the service of your company due to his aforesaid health condition is exempt from income tax and consequently, from withholding tax as prescribed by Section 72, Chapter 10, Title II of the Tax Code, as amended by B.P. Blg. 135 and implemented by Revenue Regulations No. 6-82, as amended. It is however, understood that this exemption does not include your payments of Mr. Cesar C. Alvarez' salary. cdta JOSE U. ONG Commissioner of Internal Revenue