BIR Ruling No. 057-11

February 25, 2011 BIR RULING NO. 057-11 Secs. 32 (B) (6) (b) and 79; BIR Ruling No. 001-92; BIR Ruling No. 022-01 Mikado Philippines Corporation Cavite Economic Zone Rosario, Cavite Attention: Ikuo Hashizume Vice President Ma. Imelda P. Cruz Senior Assistant Manager Gentlemen : This refers to your letter dated November 15, 2010 requesting the grant of tax exemption on the retirement benefits of your employee, Mr. RESTITUTO A. LACSON, by reason of his health condition. aSHAIC Documents submitted to this Office show that Mr. RESTITUTO A. LACSON, of B-14 L-26 Houskon Homes Julugan, Tanza, Cavite, is suffering from "CEREBROVASCULAR STROKE SECONDARY TO CEREBRAL INFARCT (R) MIDDLE CEREBRUM & FRONTAL LOBES WITH (L) HEMIPLEGIA" according to his attending physician Dr. Alfredo I. Trias, M.D., with the following medical recommendation: "Further work may aggravate his present condition since the risk factor can also be present in the workplace. Furthermore, subsequent attacks of the same condition may be detrimental to the patient's life. His medical condition is considered a permanent disability and sequelae of his illness prevents him from continuing with his work." 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 because of death, sickness or other physical disability or for any cause beyond the control of the said official or employee is exempt from taxes regardless of age or length of service. The phrase "for any cause beyond the control of 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. The above-mentioned law requires the presence of two (2) conditions in order that the employee benefits may be granted tax exemption, namely (1) the employee is separated 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, and (2) the employer pays benefits to the official or employee or his heirs as a consequence of such separation. (BIR Ruling No. 022-01 dated June 13, 2001) In view thereof, this Office is of the opinion that since it appears that your employee, Mr. RESTITUTO A. LACSON, could not continue to work because of his medical condition, his separation from work may be considered involuntary, hence, beyond his control. It is but proper that any and all amounts which your employee will receive from you as a result of his separation from the service due to physical disability are exempt from income tax and consequently from withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, as amended by Revenue Regulations Nos. 6-2001 and 12-2001. (BIR Ruling No. 001-92 dated January 3, 1992) CSDcTH 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue