Exemption of an Amount Slightly Less than Said regular Retirement Benefit from Income Tax

November 13, 1989 BIR RULING NO. 226-89 28 (b) (7) (B) 201-89 226-89 Gentlemen : This refers to your letter dated October 30, 1989 stating that your client, Mr. Hector J. del Rosario Jr. was formerly the Vice-President and General Manager of the La Funeraria Paz, Inc. (Corporation) prior to its take-over by Prudential Life Plan, Inc. and Pacific Memorial Plan, Inc. (Buyers) which bought all of the outstanding shares of stock of the corporation; that during the negotiations for the sale of said shares, the Buyers were quite emphatic and insistent that the services of your client should be terminated upon their take-over of the corporation since your client was holding a key and critical position in the corporation; that the separation of your client from the corporation was so important a consideration for the Buyer's planned take-over that they were willing to have the corporation pay your client in addition to the regular retirement benefit to which he was entitled, an amount slightly less than said regular retirement benefit; that prior to the agreed take-over the old Board of Directors of the corporation adopted a resolution to that effect which was confirmed and recognized by the corporation as taken over by the Buyers through the payment to your client of the required sum. casia In connection therewith, you now request confirmation of your opinion to the effect that the amount received by your client from the corporation is exempt from income tax. 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 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 must not be of his own making or choice. Since the separation of your client from the service of the corporation as a result of the sale and the take-over of its buyers is beyond his control, any and all amounts received by him from the corporation as a result thereof, are exempt from all taxes and consequently from the withholding tax prescribed by Section 72 of the Tax Code, as amended by Executive Order No. 37 and implemented by Revenue Regulations No. 12-86 dated August 1, 1986 amending Revenue Regulations No. 6-82. Finally, the tax exemption does not include the company's payment for salary and cash equivalent of accumulated vacation and sick leaves, if any. cd Very truly yours, (SGD.) VICTOR A. DEOFERIO, JR. Deputy Commissioner