BIR Ruling No. 080-10

September 27, 2010 BIR RULING NO. 080-10 Section 32 (B) (6) (b); BIR Ruling No. 101-91; BIR Ruling No. 054-92; BIR Ruling No. DA-383-06 De Guzman Celis & Dionesio Law Offices Suite C, 15th Floor, STRATA 2000 Building F. Ortigas, Jr. Road, Ortigas Center, 1605 Pasig City Attention: Atty. Amalia E. Dionesio Gentlemen : This refers to your letter dated February 18, 2010 stating that Ms. Imelda Dionesio-Ebreo (Ms. Ebreo) is a regular rank and file employee of PS Bank for sixteen (16) years now; that however, she has been suffering from chronic otitis media AS/pheripheral vertigo and was on sick leave for several weeks and had already consumed all her company sick leave benefits and was on Social Security System (SSS) Sickness Leave; that although she wanted to return to work, she could not do so as she would feel that the environment is revolving around her which is coupled by vomiting; that this is also true whenever she looks at the monitor of her office computer; that this has become worse lately as she gets very dizzy upon looking at moving vehicles; that in several occasions, she was so dizzy that she fell on the ground while waiting for a ride to her office; that this is despite the medications given to her by her attending physician, Dr. Cesar A. de Leon; that her attending physician ultimately advised her that she is not fit to work due to her illness per attached copy of the medical certificate issued to her; that she now wants to resign as she cannot cope anymore with her illness; that she is afraid that she might fall again due to dizziness that might jeopardize her life; that in a 2nd Indorsement dated June 28, 2010, the Chief Medical, Dental & Welfare Division of the BIR certified that Ms. Ebreo is unfit to work as a result of her medical condition; and that a public health officer from the Mandaluyong Medical Center had likewise issued a Medical Certificate that she is not fit to work. Based on the foregoing representations, you now request for confirmation of your opinion that the gratuity pay that PS Bank gives to resigning employees in accordance with the existing Collective Bargaining Agreement (CBA) with the union is exempt from tax in accordance with Section 32 (B) (6) (b) of the Tax Code of 1997. In reply thereto, 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 pay benefits to the official or employee or his heirs as a consequence of such separation. EcDSTI Since the separation of Ms. Ebreo is due to sickness and, therefore, beyond her control, any and all amounts received by her as a result thereof, are exempt from all taxes and consequently from the withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98. The payment of her salaries, however, is subject to income tax consequently to the withholding tax. (BIR Ruling No. 100-2000 dated February 15, 2000) 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