Banco de Oro

February 9, 2009 BIR RULING [SB-(009) 087-09] Section 32 (B) (6) (b);BIR Ruling No. SB-69-98 Banco de Oro 12 ADB Ave.,Ortigas Center Mandaluyong City Attention: SVP Perla F. Toledo Head-HR Management Gentlemen : This refers to your letter dated November 25, 2008, requesting exemption from taxes, the separation benefits to be received by Ms. CARMINDA G. IPAC, as a consequence of her sickness pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997. It is represented that Ms. Carminda G. Ipac, was your former employee, who resigned from office on September 1, 2008; that she had been employed in your bank from February 1, 1988 to August 31, 2008; that after more than 20 years of service, she decided to leave the bank due to her health condition; that she was diagnosed to have breast cancer last 2003 and thereafter, underwent medication and chemotherapy; that it was unfortunate that the cancer metastasized and spread to her lungs in 2006 and now has continuously spread to her bones and brain; that she is currently undergoing continued medication to prevent the further growth of cancer cells in her body; that she has been on continued sick leave since June 2007; that her failing health condition greatly affected her attendance in her work and she can no longer do her functions as a branch teller effectively; that her medical doctor advised her to rest and resign from work, to refrain from excessive physical stress and to spend time with family. In reply, please be informed that pursuant to Section 32 (B) (6) (a) and (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 taxes regardless of age or length of service. 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. DEcSaI 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 Ms. Carminda G. Ipac was due to sickness and, therefore, beyond her control, any amount to be received by her 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. 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