Separation Pay Received by an Employee Due to Causes Beyond His Control is Exempt from All Taxes

August 14, 1991 BIR RULING NO. 152-91 28 (b) (7) (B) 226-90 152-91 Gentlemen : This refers to your letter dated July 30, 1991 requesting a ruling as to whether the separation pay which your Head of Business Development and Controller will receive upon their forced termination is exempt from tax. cdt It is represented that your company is undergoing a business reorganization in view of the expected business slowdown; that as a result of poor investment projects, the Business Development Chief will be downgraded to only a technical staffer; that your auditor have advised also that the present job of Controller be split for purposes of prudent financial control into accounting and treasury which have present occupants; that as a result, the Head of Business Development and the Controller have no more jobs and their former positions are redundant; and that you have no recourse but to effect a forced termination on them. 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 or by his heirs from his employer as a consequence of separation of such official or employee from the service of the employer due to death, sickness or other physical disability or 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 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. Since the separation of your two officials as a result of the reorganization of your company is beyond their control, any and all amounts to be received by them 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, as amended. However, the tax exemption does not include your company's payment for salary and cash equivalent of accumulated vacation and sick leave credits, if any. Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner (Officer-in-Charge)