BIR Ruling No. 036-10

August 27, 2010 BIR RULING NO. 036-10 Section 32 (B) (6) (b); BIR Ruling No. 065-88; BIR Ruling No. 207-89; BIR Ruling No. 144-92; BIR Ruling No. 212-90; BIR Ruling No. 089-99 Cagayan Electric Power & Light Company, Inc. Eight Floor, Strata 100 Bldg., Emerald Avenue Ortigas Complex, Pasig Attention: Atty. Panfilo I. Paracuelles Head and Manager Human Resource Management Department Gentlemen : This refers to your letter dated September 1, 2009 requesting for a ruling on the tax consequences of the separation benefits to be received by Mr. Jovenchito D. Mijares from Cagayan Electric Power & Light Company, Inc. (CEPALCO). It is represented that Mr. Mijares, with Taxpayer's Identification No. 136-334-259, was a regular employee of CEPALCO, with Taxpayer's Identification No. 000-291-936, since May 1, 1987 or for 22 years; that he was holding the position as Customer Assistance Lineman of the company's Customer Service Department; that he is suffering from blurring of vision due to old central retinal vein occlusion and vitreous hemorrhage; and that it has become physically difficult for him to perform his tasks without endangering his life, hence, he was retired/separated effective September 1, 2009. In reply, please be informed that pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997, 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 because of 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 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 for or initiated by him. CAcIES The above-mentioned law requires the presence of two (2) conditions in order that the employee benefits may be granted tax exemption, namely (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 the separation of Mr. Mijares was due to blurring of vision due to old central retinal vein occlusion and vitreous hemorrhage and, therefore, beyond his control, any amount to be received by him as a consequence of said separation is exempt from income tax and consequently from the withholding tax prescribed under Section 79, Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98. However, the payment of his 13th month pay and salaries are subject to income tax and consequently to the withholding tax. (BIR Ruling No. 065-88 dated March 2, 1988; BIR Ruling No. 207-89 dated September 28, 1989; BIR Ruling No. 212-90 dated November 20, 1990; BIR Ruling No. 144-92 dated May 8, 1992 and BIR Ruling No. 089-99 dated July 6, 1999.) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue