BIR Ruling No. 039-10

August 27, 2010 BIR RULING NO. 039-10 Section 32 (B) (6) (b); BIR Ruling 093-83 PNOC Shipping & Transport Corporation S & L Building, 1500 Roxas Boulevard Manila Attention: Raul M. Trinidad Manager, Management Services Department Gentlemen : This refers to your letter dated December 18, 2009, which was referred to this Office by Revenue Region No. 6 on March 1, 2010, requesting a ruling that the medical termination benefits to be paid by your company, PNOC Shipping & Transport Corporation ("PNOC-STC" for brevity), to Mr. Ruperto G. Red are exempt from income tax pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997. It is represented that Mr. Ruperto G. Red is employed by PNOC-STC as a Chief Mate in the company's Domestic Tanker Operations. On January 29, 2009, Mr. Red reported to Sagrada Corazon Medical Center, Inc., the company's accredited medical clinic, for his Annual Medical examination but was recommended unfit for sea duty as his chest x-ray revealed a 5 mm nodular density in the right upper lobe and a positive Purified Protein Derivative skin test, suggestive of an early Pulmonary Tuberculosis (PTB). His medical condition was validated by two other specialists and he was soon placed under medical treatment and PTB leave for about seven (7) months. He was able to complete treatment and was cleared of PTB. However, on September 15, 2009, Mr. Red underwent a follow-up medical examination for return to work clearance, but was diagnosed anew of Chronic Asthma in exacerbation, and was recommended unfit to work. Per Department of Health's Administrative Order No. 2007-0025, Bronchial Asthma renders a seafarer unfit for sea duty, as this limits work performance when attack triggers, and eventually, may cause significant disability. This was also substantiated by the specialist who examined Mr. Red who rendered an opinion that the health condition of Mr. Red is unfit for his job as he is exposed to petroleum fumes when inhaled, and it will trigger his asthma attacks. cTADCH Upon the foregoing, Management of PNOC-STC recommended to terminate Mr. Red and grant his medical termination benefits in accordance with Company Policy. You now request for a ruling that the medical termination benefits to be paid by PNOC-STC to Mr. Red are exempt from income tax pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997. 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 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 the 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 which Mr. Red will receive as a result of his separation from the service of PNOC-STC, i.e., medical termination benefits, due to Mr. Red's sickness, are exempt from income tax and consequently from withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code. (BIR Ruling No. 093-83 dated June 1, 1983) It is, however, understood that the payment of Mr. Red's salary is not exempt from income tax and consequently from withholding tax. 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. HaDEIc Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue