Separation Pay - Tax-Exempt

August 11, 1993 BIR RULING NO. 352-93 SEPARATION PAY TAX-EXEMPT 28 (b) (7) (B) 338-92 352-93 Kimberly-Clark Philippines, Inc. M.C. P.O. Box 451, 1299 Makati Metro Manila Attention: Mr . Mariano M . Abes Director, Human Resources This refers to your request for a ruling that the separation benefits to be paid to MS. CAROLINA C. GUEVARRA by reason of health condition are exempt from all taxes pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. cdtech Documents submitted disclosed that your employee, Ms. Carolina C. Guevarra was certified by your company physician, Dr. Nestor M. Apodaca, that said patient fell from a two-steps stairs hitting her left knee on an outstretch hand and flex lower extremity; that after that she began to experience limping of the lower left extremity; that when pain became severe, she was admitted at the Manila Doctors Hospital with the diagnosis of Vaginitis, Internal Hemorrhoids-Grade II, UTI and Meniscal Tear (L) Knee, and that said illness affects the performance of her duties and endangers her life if she continues working. Said finding is confirmed by the BIR Medical Center. In reply, please be informed that pursuant to 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 shall not be included in gross income and shall be exempt from taxation under Title II of the Tax Code. In view thereof, this Office is of the opinion as it hereby holds that any and all amounts, including terminal leave pay (sick leave and vacation leave credits) which Ms. Carolina C. Guevarra will receive from you as a result of her separation from the service of your company due to her aforesaid health condition are exempt from income tax and consequently, from withholding tax as prescribed under Section 72, Chapter 0, Title II of the Tax Code, as amended by B.P. Blg. 135 and implemented by Revenue Regulations No. 6-82, as amended. It is however, understood that this exemption does not include your payment of Ms. Carolina C. Guevarra's salary. cdt LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue