Separation Pay - Tax-Exempt

March 10, 1993 BIR RULING NO. 094-93 SEPARATION PAY TAX-EXEMPT 28 (b) (7) (B) 43-93 094-93 Feria, Feria, Lugtu & Lao Ferlaw Building 366 Cabildo Street Intramuros, Manila Attention: Jose A . Feria, Jr . This refers to your letter dated January 21, 1993, stating that your client, Pilipino Telephone Corporation has recently terminated the services of the Marketing Director, Mr. Renato Garcia, and his staff due to the decision of FILTEL's Board to reorganize the marketing structure; that as a result of the reorganization, a redundancy was created when the management decided to market the cellular lines through authorized dealers and distributors, which resulted in the termination of the above employees. Based on the foregoing representation, you now request a ruling as to whether the separation benefits to be received by the Marketing Director-Cellular, Mr. Renato Garcia, and his staff, who were involuntarily separated from the service are exempt from income tax and consequently from withholding tax. In reply, please be informed that under Section 28(b)(7)(B) of the Tax Code, as amended, any amount received by an 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 gross income and shall be exempt from taxation under Title II of the Tax Code. In view thereof, the separation benefits to be received by Mr. Renato Garcia and his staff are not subject to income tax and consequently to the withholding tax prescribed by Section 72, Chapter 10, Title II of the Tax Code, as amended by B.P. Blg. 135 and implemented by Revenue Regulations No. 6-82 as amended. This tax exemption however, is understood not to include the company's payment of salaries and bonuses to Mr. Garcia and his staff. cdtech JOSE U. ONG Commissioner of Internal Revenue