Taxability of All Monetary Benefits Paid to Employees Whose Position has been Abolished Due to Redundancy

June 25, 1992 BIR RULING NO. 189-92 28 (b) (7) (B) 238-91 189-92 Augusto S. Sanchez & Associates 5th Floor, EVEKAL Bldg. 855 Pasay Road, Makati, Metro Manila Attention: Mr . Arno V . Sanidad Gentlemen : This refers to your letter dated 4 March 1992 requesting in behalf of your client, NCR Corporation, (Philippines), for a ruling as to whether all monetary benefits that NCR shall pay to its employee whose position has been abolished due to redundancy are exempt from all taxes including withholding tax prescribed by Section 72, Chapter X, Title II of the Tax Code, as amended by B.P. Blg. 135 and implemented by Revenue Regulations No. 6-82, as amended. cdll It is represented that your client maintained a Clark depot as a field unit of its Customer Services Division supervised by the CSD Operations Manager prior to the pull-out of the U.S. Military facilities in Clark, Angeles City; that the Clark depot has three (3) personnel and was principally set up to service the Base Area; however due to the pull-out of the US Base, the Clark depot had to be closed; that the closure had resulted in the loss of substantial revenues of your client; that the absorption of the Clark personnel by the Manila office necessitated a streamlining program to eliminate redundant positions; and that your client decided to abolish the position of Operations Manager which was found to duplicate supervisory functions of the CSD Division Manager. In reply thereto, please be informed that pursuant to Section 28 (b) (7) (B) of the Tax Code as amended, any amount received by an official or employee or 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 for any cause beyond the control of 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 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 the employee of your client due to abolition of his position as Operation Manager, is beyond his control, any and all amount to be received by him as a result thereof are exempt from all taxes and consequently from the withholding tax prescribed by Section 72, Chapter 10, Title II of the Tax Code as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 6-82, as amended. However, this tax exemption does not include the payment by your client to its employee of his salaries. LLjur Very truly yours, EUFRACIO D. SANTOS Deputy Commissioner Officer-in-Charge