Separation Pay - Tax Exempt

July 5, 1993 BIR RULING NO. 281-93 SEPARATION PAY TAX EXEMPT 28 (b) (7) (B) 94-93 281-93 Jimenez & Associates Law Office Suite 504-A, Pacific Bank Makati Bldg. 6776 Ayala Avenue, Makati, Metro Manila Attention: Atty . Ramon T . Jimenez This refers to your letter dated March 1, 1993 stating that the International Rice Research Institute (IRRI) advised the Department of a Special Separation Program (SSP) in response to an External Management Review (EMR) recommendation of the Consultative Group on International Agricultural Research (CGIAR); that the Group is composed of at least 30 donor countries and institutions, one of which is the Government of the Republic of the Philippines; that the present staff at IRRI includes 107 internationally recruited scientists, mostly based at the IRRI Headquarters in Los Baos, Laguna, with approximately 1,757 Filipino research and support staff; that IRRI has been faced with budgetary and financial challenges that have affected its operation and that these circumstances have compelled IRRI to prepare another staff reduction program to be able to restructure the organization. Based on the foregoing representations, you now request for exemption from income and consequently from withholding taxes of the separation benefits to be paid under the Program to IRRI employees who were involuntarily separated from the service of IRRI. 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. Accordingly, since the separation of the employees of IRRI is beyond their control, any and all amounts to be received by them from the Institute as a result thereof, are exempt from all taxes and consequently from the withholding tax prescribed by Section 72, Chapter X, Title II of the Tax Code, as amended and implemented by Revenue Regulations No. 6-82, as amended. This exemption however, does not include the Institute's payment of the concerned employees' salaries and bonuses. cdtech LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue