Separation Pay - Tax-Exempt

May 18, 1993 BIR RULING NO. 226-93 SEPARATION PAY TAX-EXEMPT 28 (b) (7) (B) 089-92 226-93 Coca-Cola Bottlers Philippines, Inc. 108 Herrera St., Legaspi Village Makati, Metro Manila Attention: Mariano A . Limjap Senior Vice-President & Director Administration This refers to you request for a ruling that the separation benefits to be paid to MR. PAULINO C. RIVERA by reason of health condition are exempt from all taxes pursuant to Section 28(b) (7) (B) of the Tax Code, as amended. Documents submitted disclosed that your employee, Mr. Paulino C. Rivera, was certified by his attending physician, Dr. Nestor R. Baisac, to be suffering from impaired vision secondary to retinal detachment, and that said illness affects the performance of his duties and endangers his life if he continues working. Said finding is confirmed by the BIR Medical Officer. cdtech In reply, 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 by his heirs from his employer as a consequence of separation of such official or employee from the service of his employer due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee shall not be included in gross income and shall be exempt from taxation under Title II of the Tax Code. In view thereof, this Office is of the opinion as it hereby holds that any and all amounts including terminal leave pay (sick leave and vacation leave credits) which Mr. Paulino C. Rivera will receive from you as a result of his separation from the service of your company due to his aforesaid health condition are exempt from income tax and consequently, from withholding tax as prescribed under Section 72, Chapter 10, Title II of the Tax Code, as amended by B. P. Blg. 135, and implemented by Revenue Regulations No. 6-82, as amended. It is however, understood that this exemption does not include your payment of Mr. Paulino C. Rivera's salary. VICTOR A. DEOFERIO, JR. Deputy Commissioner of Internal Revenue