Eligibility for Tax Exemption of the Benefits Payable under the Rhone-Poulenc-Nattermann Pharma, Inc. Staff Reduction Program

November 2, 1988 BIR RULING NO. 523-88 28 (b) (B) 230-86 523-88 Gentlemen : This refers to your letter dated October 10, 1988 requesting in behalf of your client, Rhone-Poulenc-Nattermann Pharma, Inc. a ruling on the eligibility for tax exemption of the benefits that may be payable under the Rhone-Poulenc-Nattermann Pharma, Inc. staff reduction program, pursuant to Section 28(b)(7)(B) of the Tax Code, as amended. It is represented that last September 1, 1987, Rhone-Poulenc Phils. Inc. and Nattermann Phils. Inc. were merged into one new corporation called Rhone-Poulenc-Nattermann Pharma, Inc. ("the company"); that the merger unavoidably resulted in an oversized work force that is incompatible with the company's operational requirements; that to correct this problem and prevent further incurrence of unnecessary overhead expenses, the company intends to launch a staff reduction program for employees who express their willingness to be separated from the company, that these employees shall be paid separation pay and incentive benefits; and that the selection of the employees to be separated (from among the employees who express their willingness to be separated from the service) depends upon the reserved right, sole will, judgment and discretion of the company. 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 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 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. Since the contemplated separation of the employees from the service of Rhone-Poulenc-Nattermann Pharma, Inc. 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 72, Chapter X, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 6-82. 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. aisadc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner