Exemption of Separation Pay and/or Retirement Benefits from Income Tax and Consequently from the Withholding Tax

July 12, 1989 BIR RULING NO. 144-89 28 000-00 144-89 Gentlemen : This refers to your letter dated September 27, 1988 requesting confirmation of your opinion to the effect that the separation pay and/or retirement benefits to be received by your client, Mr. Jose Ma. Ossorio are exempt from income tax and consequently from the withholding tax. It is represented that Mr. Ossorio is presently the Chairman of the Board of Victorias Milling Company, Inc.; that he is presently seventy-eight (78) years old being born on November 14, 1912; that he has rendered a total of fifty-five (55) years of service with the company having started in 1934; and that he is retiring from the service of the company due to old age and health reasons. In reply thereto, I have the honor to inform you that Section III(1), (2), (3) and (4) of the Pension Plan for certain employees of Victorias Milling Company, Inc. provides as follows: cdtech "SECTION III RETIREMENT "1. Normal Retirement A Participant's earliest Normal Retirement Date shall be the first day of the month coinciding with or next following his 60th birthday. A Participant may, or at the request of the Company a Participant must, retire on the first day of any month subsequent to such earliest Normal Retirement Date, provided that not later than at the age of 65 a Participant must retire except in the case under paragraph 3 below. "2. Advanced Retirement With the consent of the Company, a Participant may, or at the request of the Company a Participant must, retire on the first day of any month within ten years prior to his earliest Normal Retirement Date. Such date shall be referred to as his Advanced Retirement Date. "3. Postponed Retirement At the request of the Company, a Participant may postpone his retirement beyond the period during which he must retire on compulsory retirement. However, no additional benefits shall accrue to the Participant after the date of compulsory retirement. "4. Disability Retirement A Participant who becomes disabled to the extent that, in the Company's judgment, he cannot do the work to which he is assigned, will be retired (unless, at the Company discretion, he is assigned to another available job). The date of his retirement because of such disability, shall be his Disability Retirement Date. Under the aforesaid provisions of the Plan, the earliest normal retirement date is age 60 and the compulsory retirement date is age 65. However, at the request of the company, a participant may postpone his retirement beyond the compulsory retirement age. In such case, no additional benefits shall accrue to the participant after the date of compulsory retirement . Such being the case, since Mr. Ossorio is retiring under the "Postponed Retirement" and "Disability Retirement" provisions of the Plan at age 77 with 35 years of service with the company, benefits that have vested up to his compulsory retirement age of 65 shall be exempt from tax pursuant to Section 28(b)(7)(A) of the Tax Code, as amended. However, since no additional benefits shall accrue to Mr. Ossorio after his compulsory retirement date, benefits to be given to him in addition to his retirement benefits shall be subject to income tax and consequently to the 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. Finally, the tax exemption does not include company's payment for salary and cash equivalent of accumulated vacation and sick leaves, if any. cd Very truly yours, (SGD.) JOSE U. ONG Commissioner