BIR Ruling No. 125-84

July 27, 1984 BIR RULING NO. 125-84 29 (c) (7) (B)-207-83-125-84 Gentlemen : This refers to your letter dated July 18, 1984 requesting a ruling as to whether the benefit payments to your employees who will be separated from the service of that company under its retrenchment program are exempt from income tax. It is represented that under your company's Retrenchment Program, a number of employees will be forcibly terminated from employment; that part of the separation pay that has been packaged for the retrenched employees are the benefit payments under the Company Savings and Land/Home Ownership Plan; that normally, the employees become entitled to such benefit payments under the Plan only upon their retirement or voluntary resignation but that due to the said retrenchment, the retrenched employees will be paid their corresponding benefits in accordance with the Plan. In reply, I have the honor to inform you that pursuant to Section 29(c)(7)(B) of the Tax Code as amended, any amount received by an official or employee or by his heirs from his employer as a consequence of separation by 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 taxes regardless of age or length of service . The phrase "for any cause beyond the control of the 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. In other words, the separation must not be of his own making or choice (Sec. 2(b)(2) Revenue Regulations No. 6-82). The separation of the officials and employees as a result of the retrenchment program of the company fall within the purview of said phrase. Since the separation of the employees under the retrenchment program of that company is beyond the control of the said employees, any and all amounts to be received by them as a result thereof, inclusive of the benefit payments under the Company Savings and Land/Home Ownership Plan, are exempt from all taxes and consequently, from the withholding tax prescribed by Section 91, Chapter XI, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 6-82 dated October 1, 1982. It is however, understood that this tax exemption does not include the company's payments for salary and cash equivalent of accumulated vacation and sick leaves, if any, of the employees. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner