BIR Ruling No. 083-10

October 6, 2010 BIR RULING NO. 083-10 Section 32 (B) (6) (b), Tax Code; BIR Ruling No. 093-83; BIR Ruling No. 022-84; BIR Ruling No. 431-93; BIR Ruling No. 541-93; BIR Ruling No. UN-014-94; BIR Ruling No. SB-(D-001) 008-09 Toyota Autoparts Philippines, Inc. Toyota Santa Rosa (Laguna) Complex Special Export Processing Zone Barangay Pulong Sta. Cruz Santa Rosa, Laguna 4026 Attention: Ms. Anita P. Antonio GAD Department Manager Gentlemen : This refers to your letter dated June 15, 2010 requesting for a ruling that the separation benefits to be paid to your employee, Mr. Mariano S. Udarbe, Jr. by reason of poor health condition are exempt from income tax pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997, as amended. CHDAaS Documents show that Mr. Mariano S. Udarbe, Jr. is 34 years old, married and has been an employee of Toyota Autoparts Philippines, Inc. from July 13, 1994 to May 7, 2010. His last position held was Machine Operator of Machining (Gear 2) Section. Dr. Roland N. Macalalag, M.D. (nephrologist) certified on February 11, 2010 that he has examined and treated Mr. Mariano S. Udarbe, Jr. who was diagnosed to be suffering from Chronic Kidney Disease V Secondary to Chronic Glomerulonephritis (also known as end-stage renal disease, with associated destruction of the kidney cells) and underwent hemodialysis starting second week of August 2009. The first sessions were done three times a week. The succeeding sessions were done on a twice a week basis up to the present. He was advised to avoid strenuous activities, take immediate rest when he feels dizzy or if he has shortness of breath, and to work a maximum of four (4) hours. Although the suggestions of his attending doctor were strictly followed, Mr. Mariano S. Udarbe, Jr. was still not able to work for four (4) hours straight. Because of his condition, the company physician Dr. Arne S. Cruz, M.D. and City Health Officer Soledad Rosanna C. Cunanan, M.D. certified that Mr. Mariano S. Udarbe, Jr. is deemed unfit for work. In reply, please be informed that pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997, as amended, 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 shall not be included in the gross income and shall be exempt from taxation under Title II of the same Code. (BIR Ruling No. 093-83 dated June 1, 1983, BIR Ruling No. 022-84 dated January 30, 1984, BIR Ruling No. 431-93 dated November 11, 1993 and BIR Ruling No. SB-(D-001) 008-09 dated January 8, 2009) In view thereof, this Office is of the opinion, as it hereby holds, that any and all amounts which Mr. Mariano S. Udarbe, Jr. will receive as a result of his separation from the service of his employer including his terminal leave pay (sick leave and vacation leave credits), due to the aforesaid poor health condition 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 amended. (See Commissioner of Internal Revenue vs. Court of Appeals and Efren P. Castaeda , G.R. No. 96016 prom. October 17, 1991, BIR Ruling No. 431-93 dated November 11, 1993, BIR Ruling No. 431-93 dated November 11, 1993, BIR Ruling No. 541-93 dated December 28, 1993 and BIR Ruling No. UN-014-94 dated January 14, 1994) It is, however, understood that the payment of Mr. Mariano S. Udarbe, Jr.'s salary is not exempt from income tax and consequently from withholding tax (BIR Ruling No. 093-83 dated June 1, 1983, BIR Ruling No. 431-93 dated November 11, 1993, BIR Ruling No. UN-014-94 dated January 14, 1994 and BIR Ruling No. SB-(D-001) 008-09 dated January 8, 2009). 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. ACHEaI Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue