BIR Ruling No. 308-11

August 22, 2011 BIR RULING NO. 308-11 Section 32 (B) (6) (b) of the Tax Code, as amended; BIR Ruling No. 084-10; BIR Ruling No. 131-10; BIR Ruling No. SB-(D-001) 008-09 Ajinomoto Philippines Corporation Ajinomoto Building 331 Sen. Gil J. Puyat Avenue Makati City Attention: Kazuki Tsumagari Director-Finance and Corporate Treasurer Gentlemen : This refers to your letter dated February 24, 2011 requesting for a ruling that the separation benefits to be paid to your employee, Mr. Rogelio Villavicencio by reason of poor health condition are exempt from income tax pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997, as amended. Documents show that Mr. Rogelio Villavicencio, 55 years old, with a position of Specialist-Maintenance and General Services, was diagnosed to be suffering from "SPINAL CORD COMPRESSION WITH AN ACUTE BILATERAL LOWER LUMBER RADICULOPATHY AFFECTING L5-S1, ROUTE". The corporation's physician also stated in his medical report that patient's condition may worsen if he still performs his work entailing objects and stress related load. In reply, please be informed that pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997, as amended, any amount received by an official or employee or by his heirs from the 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 shall not be included in the gross income and shall be exempt from taxation under Title II of the same Code. (BIR Ruling No. SB-(D-001) 008-09 dated January 8, 2009 and BIR Ruling No. 084-10 dated October 6, 2010) The above-mentioned law requires the presence of two (2) conditions in order that the employee benefits may be granted tax exemption, namely (1) the employee is separated 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, and (2) the employer pays benefits to the official or employee or his heirs as a consequence of such separation. (BIR Ruling No. 131-10 dated December 1, 2010) In view thereof, this Office is of the opinion, as it hereby holds, that any and all amounts which Mr. Rogelio Villavicencio will receive as a result of his separation from the service of his employer due to the aforesaid poor health condition are exempt from income tax and consequently from withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997, as amended. (BIR Ruling No. 084-10 dated October 6, 2010) AHDcCT Please note, however, that the monetized unused vacation leave credits for ten (10) days or less of private employees are not subject to income tax and withholding tax. If the monetized unused vacation leave credits of said private employees exceed ten (10) days, the excess shall be subject to income tax and withholding tax. (Sections 2.78.1 (A) (3) (a) (b) and (A) (7) of Revenue Regulations (RR) No. 2-98, as amended by RR Nos. 5-2011 and 10-2000) But, this principle is not applicable to Sick Leave credits since an employee must actually go on sick leave to avail said leave credits. (BIR Ruling No. DA-594-04 dated November 23, 2004) It is, however, understood that the payment of Mr. Rogelio Villavicencio's salary is not exempt from income tax and consequently from withholding tax (BIR Ruling No. SB-(D-001) 008-09 dated January 8, 2009). This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue