Exemptions from Withholding Tax of the Retirement Benefits

May 2, 1989 BIR RULING NO. 090-89 25 (b) (7) (B) 034-89 090-89 M a d a m : This refers to your letter dated April 16, 1989 requesting exemptions from withholding tax of the retirement benefits which you will receive from GTE Directories Corporation, Majalco Bldg., Benavidez St., Legaspi Village, Makati, Metro Manila. Documentary evidence submitted shows that upon the advice of your company physician, a physician of the Manila Doctors Hospital and a government physician, you resigned from the service of the company due to ill health. In reply, I have the honor to inform you that pursuant to Section 28(b)(7)(B) of the Tax Code, 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 said official or employee is exempt from income tax. In view thereof, this Office is of the opinion as it hereby holds that any and all amounts which you will receive from GTE Directories Corporation as a result of your separation from the service of the Company due to physical disability are exempt from all taxes and consequently, from withholding tax prescribed by Section 72, Chapter XI, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 12-86 amending Revenue Regulations No. 6-82. It must be understood, however, that any benefits given under the abovementioned circumstances must be in accordance with the terms of an existing plan or one that falls under the law, i.e., one-half month for every year of service (Section 14, Rule I, Book VI, Labor Code) Finally, the tax exemption does not include company's payment for salary and cash equivalent of accumulated vacation or sick leave, if any. cdtech Very truly yours, (SGD.) JOSE U. ONG Commissioner