Retirement Benefits to Be Received by Officers and Employee-Members from BF Retirement Plan Exempt from All Taxes

April 11, 1985 BIR RULING NO. 055-85 29 (c) (7) (B) 124-84 055-85 Gentlemen : This refers to your letter dated March 19, 1985 stating that on January 25, 1985, Banco Filipino (BF) was placed under receivership; that as a consequence thereof, some of its officers and employees may be eased-out of employment either by termination of constructive separation from the service of BF; and that officers and employees who are members of the BIR-approved BF Retirement Plan will be paid retirement benefits. cdti Based on the foregoing representations, you now request information as to the taxability of the retirement benefits received under the BF Retirement Plan by officers and employees who are less than fifty (50) years of age but had been in the service of BF for at least ten (10) years and who do not want yet to retire but are nonetheless being eased-out of employment either by termination or constructive separation on account of the placement of BF under receivership. In reply, I have the honor to inform you that pursuant to Section 29(c)(7)(B) of the Tax Code as amended, any amount received by an official or employee or by his heirs from his employer as a consequence of separation by 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 taxes regardless of age or length of service . The phrase "for any cause beyond the control of the 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. In other words, the separation must not be of his own making or choice. (Sec. 2(b)(2), Revenue Regulations No. 6-82 dated October 1, 1982) The separation of the officials and employees from the service of BF as a result of its closure when it was placed under receivership falls within the purview of said phrase. Such being the case, the retirement benefits to be received by officers and employee-members from the BF Retirement Plan are exempt from all taxes and consequently, from the withholding tax prescribed by Section 91, Chapter XI, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 6-28 supra . It is, however, understood that this tax exemption does not include BF's payment for salary and cash equivalent of accumulated vacation and sick leaves, if any, of its employees. Very truly yours, (SGD.) TOMAS C. TOLEDO Acting Commissioner