Tax Exemption of Separation Benefits to be Received by Employee Separated from Service Due to Redundancy

October 20, 1992 BIR RULING NO. 290-92 28 (b) (7) (B) 43-92 290-92 Trans-Philippines Exporters No. 10 Main Avenue, Severina Industrial Subdivision Km. 16, South Superhighway Paraaque, Metro Manila Attention: Ms . Lusviminda A . Balboa-Cham Administrative Assistant Gentlemen : This refers to your letter dated June 22, 1992, stating that one of your employees, Mr. Reynaldo Maynite, 44 years of age, will be involuntarily separated from Trans-Philippines Exporters effective end of working hours of July 15, 1992 after 20 years of service with the company due to redundancy. The separation of Mr. Maynite was clearly indicated in the termination letter by the President of the company dated June 15, 1992, stating that "as a result of the latest management review relative to our on-going efforts to further rationalize the efficiency of our organization, we have determined the position of Warehouse Assistant to be redundant; . . . as such, we are regretfully informing you of your termination from the company effective the close of working hours of Thursday, July 15, 1992, . . ." cdll Based on the foregoing representations, you now request a ruling as to where the separation benefits to be received by Mr. Maynite, an employee who was involuntarily separated from the service of your company, is exempt from income tax. In reply, please be informed that under Section 28(b)(7)(B) of the Tax Code, as amended, any amount received by an official or employee 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 , shall not be included in gross income and shall be exempt from taxation under Title II of the Tax Code. In view thereof, the separation benefits of your employee, Mr. R. Maynite, are not subject to income tax and consequently to the withholding tax prescribed by 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. This tax exemption however, is understood not to include the company's payment of salaries and bonuses to Mr. Maynite. LLjur Very truly yours, JOSE U. ONG Commissioner of Internal Revenue