Taxability of the Separation/Retirement Pay Received by a Senior Vice-President

September 4, 1989 BIR RULING NO. 191-89 28 (b) (7) (B) 076-88 191-89 Gentlemen : This refers to your letter dated August 17, 1989 requesting a ruling in behalf of your client, Philippine Commercial International Bank (PCIB) on the taxability of the separation/retirement pay received by its Senior Vice-President, Mr. Manuel A. Reyes. It is represented that in a letter dated May 4, 1989, Mr. Jesus P. Estanislao, Chairman of the Board of the Development Bank of the Philippines requested Mr. Manuel Reyes to consider and accept the position of Head Wholesale Banking Group of DBP; and that the letter further states "that this offer will entail financial sacrifice as there will be a transition of service from the private sector, which offers more lucrative opportunities, to a government-controlled corporation. We also understand that your retirement benefits at PCIBank may just provide a temporary relief in your financial sacrifice but believe that you are duty bound by patriotism to serve the public sectors". 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 Mr. Manuel A. Reyes cannot refuse the request of Mr. Jesus P. Estanislao to serve a government controlled corporation, his leaving the private sector to join a government controlled corporation is beyond his control. Accordingly, any and all amounts received by Mr. Manuel A. Reyes as a result thereof, are exempt from all taxes and consequently from the withholding tax prescribed by Section 71, Chapter X, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 6-82 dated October 1, 1982. It is however, understood that the tax exemption does not include the commutations of company's payment for salary and cash equivalent of accumulated vacation and sick leaves, if any. Very truly yours, (SGD.) JOSE U. ONG Commissioner