Clark International Airport Corporation Diosdado Macapagal International Airport

February 6, 2009 BIR RULING [SB-(007) 079-09] 32 (B) (6) (b);SB-69-98 Clark International Airport Corporation Diosdado Macapagal International Airport Corporate Office Bldg.,Civil Aviation Complex Clark Freeport Zone, Philippines Attention: Nancy C. Paglinawan Asst. Manager Accounting Madam : This refers to your letter dated December 2, 2008 requesting for a ruling that the medical termination/retirement benefits to be received by your employee, Mr. Nestor V. Asban (Mr. Asban),is exempt from tax pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997. It is represented that Mr. Asban is an employee of Clark International Airport Corporation, as Crash, Fire and Rescue Specialist under the Emergency Services Department (ESD);that he served the company from December, 1996 to August, 2008 with untarnished record of service as a firefighter; that in a Memorandum dated October 15, 2008, by the Corporate Physician Dr. Maria Clemencita D. Dobles, it was disclosed that in May 2008, he was admitted because of uncontrolled hypertension and stroke; that his present medical condition includes hypertension, diabetes and permanent blindness of left eye (with certification from ophthalmologist);and that in a Certification dated January 14, 2009 issued by Federico Primero, Jr.,ESD Manager, and per recommendations of Dr. Maria Clemencita D. Dobles, Manager of CDC Health Office and Jose B. Lingad Hospital, it is certified that he is no longer fit to perform the functions of the said position after a thorough assessment of his physical condition. In reply, please be informed that pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997, any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer because of death, sickness or other physical disability or for any cause beyond the control of the said official or employee is exempt from income tax. The phrase "for any cause beyond the control of said official or employee" connotes involuntariness on the part of the official or employee. The separation from the service of the official or employee must not be asked for or initiated by him. CTHDcE The above-mentioned law requires the presence of two (2) conditions in order that the employee benefits may be granted tax exemption, namely (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 separation of Mr. Asban was due to sickness and, therefore, beyond his control, any amount to be received by him as a consequence of said separation is exempt from income tax and consequently from the withholding tax prescribed under Section 79, Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, as amended. However, the payment of the 13th month pay and other benefits, in excess of the P30,000.00 threshold, and the salaries of the said employee are subject to income tax and consequently to the withholding tax. (BIR Ruling No. SB-69-98 dated October 6, 1998) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service