BIR Ruling No. 329-13

August 28, 2013 BIR RULING NO. 329-13 Section 32 (B) (6) (b) of the Tax Code, as amended; BIR Ruling No. 199-11; BIR Ruling No. 084-10; BIR Ruling No. 131-10; BIR Ruling No. 021-10 Cemex Asia Pte. Ltd.-Philippine Headquarters 8th Floor Petron Mega Plaza 358 Sen. Gil J. Puyat Avenue Makati City Attention: Maria Virginia O. Eala Vice President, Human Resources Gentlemen : This refers to your letter dated 2 November 2011, requesting exemption from withholding tax of the separation pay to be received by the employees of CEMEX ASIA PTE. LTD.-PHILIPPINE HEADQUARTERS due to redundancy. It is represented that CEMEX ASIA PTE. LTD.-PHILIPPINE HEADQUARTERS is a domestic corporation duly registered under the laws of the Philippines; that the corporation is changing its focus to get closer to its customers and its market; that in order to make the corporation more agile, more market-oriented, more flexible and more entrepreneurial, a transformation effort has been implemented a flatter organization has been designed and is now cascading throughout the organization; that these corporate changes will require de-layering of the corporation's structure and eliminating redundancies requiring to permanently terminate the following employees, to wit: Employee Name Position Azanza III, Roman V. Regional Treasurer, Asia Co, Elsie N. Internal Control Manager Dela Cruz, Eduardo A. Process and Internal Controls Director Que, Dennis G. Planning Manager and that on 9 August 2011, CEMEX ASIA PTE. LTD.-PHILIPPINE HEADQUARTERS filed with the Department of Labor and Employment (DOLE) a Notice of Termination due to Redundancy of the foregoing employees and that Notices of Separation were served on 8 August 2011 informing them that the termination is effective on 7 September 2011. CITcSH 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. 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) Accordingly, the separation pay to be received by the above-stated employees deemed as occupying redundant positions as a result of their separation from the service are exempt from income tax and consequently from the withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, as amended. (BIR Ruling No. 021-10 dated July 30, 2010) Moreover, pursuant to Section 2.78.1 (A) (7) of RR 2-98, as amended, the terminal pay, i.e. , commutation and payment of monetized unused vacation leave credits not exceeding ten (10) days during the year are not subject to income tax and consequently to the withholding tax. Conversely, the cash equivalent of vacation leave exceeding ten (10) days is subject to tax. However, this same principle cannot apply to SICK leave credits since an employee must actually go on sick leave to be able to avail of said leave credits. (BIR Ruling No. 199-2011 dated June 29, 2011) It is, however, understood that this exemption does not include the payment of the separated employees' salaries and the payment of the 13th month pay and other benefits in excess of the Php30,000.00 threshold under Section 2.78.1 (A) (3) (a) and (A) (7) of RR 2-98, as amended. (BIR Ruling No. 199-2011 dated June 29, 2011) 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