Exemption from Withholding Tax of the Separation Benefit

March 7, 1989 BIR RULING NO. 034-89 28 (b) (7) (B) 323-88 034-89 M a d a m : This refers to your letter dated March 1, 1989 requesting exemption from withholding tax of the separation benefit which you will receive from your employer, General Telephone Electronics, Majalco Bldg., Legaspi Village, Makati, Metro Manila. cdta Documentary evidence submitted shows that upon the advice of your attending physicians, Dr. Nestor A. Falqui of Associated Medical Specialists and Dr. Angelina Arcilla Latonio of Veterans Memorial Hospital, you resigned from the service of the company due to ill health. In reply, I have the honor to inform you 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 said official or employee is exempt from income tax. In view thereof, this Office is of the opinion as it hereby holds that any and all amounts which you will receive from General Telephone Electronics as a result of your separation from the service of the company due to sickness are exempt from all taxes and consequently, from withholding tax prescribed by Section 72, Chapter XI, Title 11 of Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 12-86 amending Revenue Regulations No. 6-82. It must be understood, however, that any benefits given under the abovementioned circumstances must be in accordance with the terms of an existing plan or one that falls under the law, i.e., one-half month for every year of service. (Section 14, Rule I, Book VI, Labor Code) Finally, the tax exemption does not include the company's payment for salary and cash equivalent of accumulated vacation and sick leaves, if any. cdt Very truly yours, (SGD.) JOSE U. ONG Commissioner