Retirement Benefits to Be Received from Employer-Bank Exempt from All Taxes

April 11, 1985 BIR RULING NO. 056-85 29 (c) (7) (B) 125-84 056-85 M a d a m : This refers to your letter dated March 5, 1985 requesting a ruling as to whether or not retirement benefits to be received by you from Banco Filipino Savings and Mortgage Bank as a result of involuntary separation, are exempt from withholding tax. cd It is represented that you are an officer of Banco Filipino Savings and Mortgage; and that since the bank has been ordered closed by the Central Bank on January 25, 1985, you have applied for the payment of your retirement benefits. 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 for any cause beyond the control of said official or employee is exempt from income tax. 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) The separation of the officials and employees as a result of the closure of the bank fall within the purview of said phrase. Such being the case, the retirement benefits to be received by you from the bank 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. 6-82 dated October 1, 1982. It is, however, understood that this tax exemption does not include the bank's payments for salary and cash equivalent of accumulated vacation and sick leaves, if any, of the employees. cdtech Very truly yours, (SGD.) TOMAS C. TOLEDO Acting Commissioner