Tax Exemption on the Retirement Benefits Received from Manilabank

November 9, 1988 BIR RULING NO. 534-88 28 (b) 130-87 534-88 M a d a m : This refers to your letter dated October 27, 1988 requesting a ruling as to whether the retirement benefits to be received by you from the Manilabank is exempt from income tax. It is represented that two months before winning your congressional seat, you were elected as president of Manilabank; that during your last meeting with the Monetary Board, you were informed by Governor Jose Fernandez that you can no longer continue holding the position of president of Manilabank; and that the Receiver of the Central Bank in Manilabank has started paying retirement benefits last October 28, 1988. In reply thereto, I have the honor to inform you 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 employee 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 your separation from the service of Manilabank is beyond your control, any and all amounts to be received by you as a result thereof, is exempt from all taxes and consequently from the withholding tax prescribed by Section 82, Chapter XI, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and implemented by Revenue Regulations No. 6-82. It must be understood, however, that any benefits given under the above must be under the terms of an existing plan or one that falls under the law, i.e., one half month for every year of service. Finally, 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