Exemption from the Payment of Income Tax — Separation Pay

February 26, 1981 BIR RULING NO. 045-81 029-b-7-B 000-79 045-81 Tanauan Electric & Development Co., Inc. Tanauan, Batangas Attention: Dr . Enrique P . Sta . Ana Manager Gentlemen : This refers to your letter dated January 12, 1981 requesting a ruling as to whether or not the separation pay which will be received by the employees of the Tanauan Electric and Development Co., Inc. which has been purchased and taken over by the Batangas Electric Cooperative II are exempt from the payment of income tax and consequently, from the withholding tax. In reply thereto, I have the honor to inform you that pursuant to the final proviso of Section 1, Republic Act No. 4917 which was incorporated effective June 3, 1977 by Presidential Decree No. 1158-A in the Tax Code of 1977 as Section 29(b)(7)(B) thereof, 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 is exempt from tax. The separation of the said employees under the above circumstances is beyond their control. cdtech In view thereof, this Office is of the opinion, as it hereby holds, that any and all amounts to be received by the employees of the Tanauan Electric & Development Co., Inc. as a result of abovementioned separation from the service of said company are exempt from income tax and consequently, from the withholding provisions prescribed by Chapter XI of the Tax Code of 1977 as implemented by Revenue Regulations No. V-8 as amended by Revenue Regulations No. 9-75. It is, however, understood that this tax-exemption does not include company payments for the salary and cash equivalent of accumulated vacation and sick leave, if any, of the employees. Very truly yours, RUBEN B. ANCHETA Acting Commissioner