BIR Ruling No. 084-10

October 6, 2010 BIR RULING NO. 084-10 Section 32 (B) (6) (b), Tax Code; BIR Ruling No. 093-83; BIR Ruling No. 022-84; BIR Ruling No. 375-93; 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. Jowey S. Elpedes 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. caAICE Documents show that Mr. Jowey S. Elpedes is 38 years old, single and has been an employee of Toyota Autoparts Philippines, Inc. from February 21, 1992 to May 6, 2010. His last position held was Maintenance Technician of Machining (Gear 3) Section. Mr. Jowey S. Elpedes was diagnosed to be suffering from Stage IV Gouty Arthritis, Chronic Kidney Disease Secondary to Gouty and Hypertensive Nephropathy . His attending physician, Dr. Augusto O. Villarubin recommended a maximum of 3-4 working hours per day and advised him not to lift, push/pull objects weighing more than one (1) kilogram. Although these suggestions were strictly followed, Mr. Jowey S. Elpedes was still not able to provide 3-4 working hours per day. Moreover, there were occasional episodes of flaring up of his gout which aggravated his condition. Because of his health status, the company physician Dr. Arne S. Cruz, M.D. and City Health Officer Soledad Rosanna C. Cunanan, M.D. certified that Mr. Jowey S. Elpedes is deemed unfit for his job. 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. 373-93 dated September 17, 1993, 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. Jowey S. Elpedes 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. 373-93 dated September 17, 1993, 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. Jowey S. Elpedes'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. 373-93 dated September 17, 1993, 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. HTSIEa Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue