Benefits Received by Employees Separated Under an Early Separation Package is Exempt from All Taxes

November 3, 1987 BIR RULING NO. 333-87 29 (b) (7) (B) 230-86 333-87 Gentlemen : This refers to your letter dated March 26, 1987 requesting opinion as to whether the benefits to be received by your officers and staff under your Early Separation Pay Plan is subject to tax. It is represented that the adoption of the proposed Early Separation Package for your 3 agencies, i.e., NHMFC, HDMF and HFC is to effect reduction of personnel from certain groups/units due to redundancy of position, major shift in corporate thrusts or diminished activities and as a cost-saving measure; and that the proposed Early Separation Package shall cover all officers and employees, both retirable and non-retirable, whose separation from the service have been found necessary by the management in the interest of public service. In reply, please be informed that pursuant to Section 29(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 by 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 abovementioned law requires the presence of these two conditions in order that the employee benefits may be granted tax exemption: (1) the employee is separated from the service of the employee 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. Since the separation of the officers and staff of your 3 agencies under your "Early Separation Package" is beyond their control, any and all amounts to be received by them as a result thereof, are exempt from all taxes and consequently from the withholding tax prescribed by Section 31, Chapter X, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 6-82 dated October 1, 1982. atdc It is, however, understood that the tax exemption does not include company's payment for salary and cash equivalent of accumulated vacation and sick leaves, if any. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner