BIR Ruling No. 131-10

December 1, 2010 BIR RULING NO. 131-10 Secs. 32 (B) (6) (b) and 79; BIR Ruling No. 001-92; BIR Ruling No. 022-01 Ms. Nilna L. Martin No. 6 Danupra Street, Project 7 Quezon City Madam : This refers to your letter dated April 21, 2010 requesting for a ruling that the separation benefits to be paid to you by your employer Bank of the Philippine Islands by reason of your health condition are exempt from income tax and consequently from withholding tax. Documents submitted to this Office show that you are suffering from "MOVEMENT DISORDER SECONDARY TO A POSSIBLE AUTOIMMUNE DISEASE -VS- DEMYELINATING DISEASE" according to the Medical Certificate dated June 11, 2010 issued by Dr. Levi Rejuso, M.D.,FPCP, FPNA, of East Avenue Medical Center. In reply, please be informed that pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997, 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 because of death, sickness or other physical disability or for any cause beyond the control of the said official or employee is exempt from taxes regardless of age or length of service. The phrase "for any cause beyond the control of 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. IcSADC The above-mentioned law requires the presence of two (2) conditions in order that the employee benefits may be granted tax exemption, namely (1) the employee is separated 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, and (2) the employer pays benefits to the official or employee or his heirs as a consequence of such separation. ( BIR Ruling No. 022-01 dated June 13, 2001 ) In view thereof, this Office is of the opinion that since it appears that you could not continue to work because of your medical condition, your separation from work may be considered involuntary, hence, beyond your control. It is but proper that any and all amounts which these employees will received from you as a result of their separation from the service due to physical disability 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 implemented by Revenue Regulations No. 2-98, as amended by Revenue Regulations Nos. 6-2001 and 12-2001. ( BIR Ruling No. 001-92 dated January 3, 1992 ) 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. AcHCED Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue