Separation Pay - Tax-Exempt

October 14, 1993 BIR RULING NO. 407-93 SEPARATION PAY TAX-EXEMPT 28 (b) (7) (B) 276-93 407-93 Coca-Cola Bottlers Philippines, Inc. 108 Herrera Street, Legaspi Village Makati, Metro Manila Attention: Mariano A . Limjap Senior Vice-President & Administration Director This refers to your request for a ruling that the separation benefits to be paid to MR. PEDRO D. ARCIAGA JR. by reason of health condition are exempt from all taxes pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. cdta Documents submitted disclosed that your employee, Mr. Pedro D. Arciaga, Jr. was hit by a car on August 17, 1992 and sustained a lacerated wound on the right ear; that after a day, his sensorium deteriorated; that he was transferred to Makati Medical Center and a craniotomy was done on August 25, 1992 but he has been observed to have a disturbance in constructing written and verbal sentences (Expressive Aphasis) and with difficulty of range of motion of left lower extremities. Final diagnosis status post craniotomy with expressive aphasis, open reduction left hip, osteoarthritis, right and left knee; and that said illness affects the performance of his duties and endangers his life if he continues working. Said finding is confirmed by the BIR Medical Officer. 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 his 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 Mr. Pedro D. Arciaga, Jr. will receive from you as a result of his separation from the service of your company due to his aforesaid health condition are exempt from income tax and consequently, from withholding tax as prescribed under 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. It is however, understood that this exemption does not include your payment of Mr. Pedro D. Arciaga, Jr.'s salary. cd LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue