Tax Exemption of the Separation Benefits Received by the Terminated Employees of the Bank of the Philippine Islands

January 29, 1992 BIR RULING NO. 043-92 28 (b) (7) (B) 029-91 043-92 Bank of the Philippine Islands BPI Building, Ayala Avenue Makati, Metro Manila Attention: Mr . Oscar L . Contreras Senior Vice-President HRD Gentlemen : This refers to the letter of Sen. Ernesto F. Herrera dated January 2, 1992, in effect requesting for a ruling that the separation benefits received by the terminated employees of the Bank of the Philippine Islands (BPI) be exempt from income tax and consequently from the withholding tax pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. It is represented that quite a number of your employees were involuntary separated by the BPI Management as a result of a recent labor dispute involving a collective bargaining deadlock; and that in order to buy peace, the BPI Management offered them a separation pay package with the involved employees were forced to receive in order to alleviate themselves and their respective families from their financial difficulties, especially, during the Christmas season. In reply, please be informed that under Section 28(b)(7)(B) of the Tax Code, as amended by E.O. 37, any amount received by an official or employee 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. On the basis of the foregoing, the separation benefits of your terminated employees is not subject to income tax and consequently to the 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. Such tax exemption is understood not to include the company's payment of salaries, BMS Differential, COLA Differential, Bonuses Differential, OT MTA Differential, Holiday Pay and Signing Bonus. Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue