Eligibility for Tax Exemption

September 21, 1990 BIR RULING NO. 186-90 28 (B) (7) (B) 000-00 186-90 S i r : This refers to your letter dated April 18, 1990 stating that under the Benefit Plan of BENCO, an employee upon reaching the age of 65 shall be compulsorily retired, consequently he will be entitled to an equivalent amount provided for in the plan; that your client, Mr. Quevedo, an employee of Benco was one of the many TBB Co. employees absorbed by the employer company of your client as a result of a merger that took place in 1980; that said employee was already then 55 years old, and pursuant to the merger agreement he was considered a new employee of the company; that on December 1, 1990, said employee will be 65 years old, consequently he is considered to have completed 7 years and 11 months in service; that his retirement benefits shall be equal to the sum equivalent to one month's basic salary for every year of service (Sec. 1, Art. VI, Plan); that Mr. Quevedo may not invoke Section 28(b)(7)(A) of the Tax Code for purposes of tax exemption for the reason that he has been in the company for only eight (8) years; and that, however, Section 28(b)(7)(B) of the same Code requires the presence of two conditions in order that the employee benefit 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 said employee; and (2) the employer pays benefits to the official or employee or his heirs as a consequence of such separation. cdta Based on the foregoing representations, you now request a ruling on the eligibility for tax exemption of the benefits that may be received by Mr. Quevedo under the company's benefit plan. In reply, please be informed that the benefits that may be received by your client, Mr. Quevedo under the company's benefit plan are not eligible for tax exemption under Section 28(b)(7)(B) of the Tax Code, as amended. Under Section 28(b)(7)(B) of the Tax Code, the payment of benefits by an employer to an official or employee or the heirs of such official or employee in order to be exempt from income tax must be due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee. 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. Accordingly, this Office is of the opinion as it hereby holds that the phrase "for any cause beyond the control of the said official or employee" does not, for purposes of the tax exemption under said Section 28(b)(7)(B) of the Tax Code, contemplate an employee reaching the normal retirement age of 65 years, whether in the government or private sector. Very truly yours, (SGD.) JOSE U. ONG Commissioner