Exemption of Separation Benefits Received by the Employees under an Impending Separation Program from Taxes

September 28, 1989 BIR RULING NO. 207-89 28 (b) (7) (B) 131-84 207-89 Gentlemen : This refers to your letter dated September 19, 1989 requesting exemption from taxes of the separation benefits to be received by your employees under your impending Separation Program. cdtech It is represented that in 1987 an External Management Review Panel recommended a major restructuring of the International Rice Research Institute (IRRI) organization and staff including a drastic reduction of personnel as part of IRRI's 5-year plan; that IRRI's Board and the control institutions of the CCIAR system have approved and endorsed the Rationalization Plan; that you have agreed that the time has come for the IRRI to redirect its programs by increasing the range and degree of collaboration with different types of research institutes and systems; that this will help develop IRRI's capability and effectiveness in meeting its general objectives: (a) continuing relevant research; and (b) helping to develop national research capabilities; that as a consequence, effective implementation of this strategy will mean significant changes in the way research work will be undertaken in collaboration with other institutions; that manpowerwise, IRRI will be a learner institutions, partly organized and aimed at making better use of limited resources and personnel; that unforeseen expenses posed by RA 6727 reduced IRRI's financial resources; that because of a decline in donation to IRRI a recently core budget for IRRI's operations has been announced; that major changes are underway in response to planned organizational changes; that IRRI will mount a Separation Program on September 26, 1989 or thereabouts; and that the program will necessarily result in reduction of manpower at IRRI by 400, more or less. In reply thereto, I have the honor to inform you 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 for any cause beyond the control of the 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. In other words, the separation of the employees of IRRI is beyond their control, any and all amounts to be received by them from the company as a result thereof, are exempt from all taxes and consequently to 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. It must be understood, however, that any benefits given under the abovementioned circumstances must be in accordance with the terms of an existing plan or one that falls under the law, i.e., one half month for every year of service (Section 14, Rule 1, Book VI, Labor Code). Finally, the tax exemption does not include the company's payment for salary and cash equivalent of accumulated vacation and sick leaves, if any of its employees. Very truly yours, (SGD.) JOSE U. ONG Commissioner