Pampanga II Electric Cooperative, Inc.

February 6, 2009 BIR RULING [SB-(008) 080-09] Sec. 32 (b) (6) (b); DA-386-07 Pampanga II Electric Cooperative, Inc. San Roque, Guagua, Pampanga Attention: Ms. Lady Joan CVM Guillermo HR Supervisor Gentlemen : This refers to your letter dated November 13, 2008 requesting in behalf of your employee, Conrado Guiao, for a ruling that the separation benefits due to physical disability are exempt from withholding tax. It is represented that Conrado Guiao was an employee of Pampanga II Electric Cooperative, Inc. located at San Roque, Guagua, Pampanga; that a Medical Certificate issued by Karen Velasco, MD of Jose B. Lingad Memorial General Hospital state that he was diagnosed to have HTN II, controlled; DM2, controlled; Dyslipidemia; and that considering his present health status, the chronicity of the illness make him unfit to resume work and was advised to stop working. 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 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 the gross income and shall be exempt from taxation under Title II of the Tax Code. Accordingly, this Office hereby holds that any and all amounts to be received by Conrado Guiao as a result of his separation from the service of Pampanga II Electric Cooperative, Inc. are exempt from income tax and consequently from the withholding tax prescribed by Section 79, Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, as amended. The payment of salaries, however, is subject to income tax and consequently to withholding tax (BIR Ruling No. DA-078-2000 dated February 2, 2000). EHACcT This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service