Tax Exemption of All the Compensation/Benefits Received by Affected Employees Relative to the Involuntary Separation Program

June 28, 1989 BIR RULING NO. 132-89 28 (b) (7) (B) 035-89 132-89 Gentlemen : This refers to your letter dated June 7, 1989 requesting tax exemption of all the compensation/benefits to be received by your affected employees relative to the Involuntary Separation Program to be implemented by you by the end of June 1989. casia It is represented that the program is the result of management decision to discontinue your Color Film Processing and Printing Services; and that the separation package consists of the following: (1) a month's salary for every year of service but a minimum of twenty (20) months; (2) vested rights for those who are qualified and payable from the Pension Trust Fund; and (3) Vacation leave credits. In reply thereto, 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 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 the said official or employee is exempt from taxes regardless of age or length of service. The abovementioned law requires the presence of these two conditions in order that the employee benefits may be granted tax exemption: (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. Since the separation of your employees from the service of the company is beyond their control, any and all amounts to be received by them as a result thereof, are exempt from all taxes and consequently from the withholding tax prescribed by Section 72, Chapter X, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 6-82. It is however, understood that the tax exemption does not include company's payment for salary and cash equivalent of accumulated vacation and sick leaves, if any. cdtech Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner