International Wiring Systems, (Phils.) Corp.

June 30, 2009 BIR RULING [SB-(029) 413-09] Sec. 32 (B) (6) (b); DA-067-00 International Wiring Systems, (Phils.) Corp. Luisita Industrial Park Special Export Processing Zone, San Miguel, Tarlac City Attention: Ms. Digna S. Remolana Vice-President Personnel and Administration Department Gentlemen : This refers to your letters dated March 11, April 28, May 5, May 16, and May 29, all in 2008, on behalf of the employees of International Wiring Systems (Phils.), Corp. ("IWS" for brevity), requesting exemption of the separation benefits due to sickness and permanent disability. HETDAa Documents submitted show that the said employees have been separated from IWS due to sickness and disability as summarized in the matrices appended as Annex "A" hereof and which are made an integral part of this Ruling; that the company physician has diagnosed them to be suffering from various ailments such as but not limited to hypertension, arthritis, peptic ulcer, asthma, postural vertigo and others; that said company physician has issued certifications recommending permanent disability of the employees; that copies of the employees' medical certificates supporting the company physician's findings were obtained from the City Health Center of Tarlac City, Tarlac; and that you have attached copies of the employees' laboratory and medical records in support of your request. 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. In order to avail of the above tax exemption, the "serious illness" must be one which affects the employee's performance of his duties and endangers his life if he continues working as provided under Revenue Memorandum Order (RMO) No. 25-91. After a careful perusal of the medical records of each and every IWS employee, the BIR National Office Chief of Medical, Dental and Welfare Division found that the illnesses/diseases were not of a serious nature so as to render the employees permanently disabled although the highly technical medical terms used seem to make the condition more serious that what they really were. Almost all medical conditions of the employees are manageable diseases, treatable and can be controlled with proper medications. It was also noted that the employees' respective medical records and laboratory results presented were actually annual physical examination findings which were mostly normal and have no bearing with the claimed medical conditions. Furthermore, records show that the said employees incurred numerous absences most of them exceeding the allowed leave credits and were caused by the recurrence of their illnesses and can be attributed to their poor compliance with the medications prescribed to them. Moreover, considering that most of the IWS employees that were separated due to sickness were in their early 30's, the said employees can still engage in other gainful employment and/or their medical conditions are not expected to deteriorate or cause death if they continue to be engaged in their present employment. Such being the case, your request for tax exemption of the separation pay of the foregoing IWS employees is denied for lack of legal basis since their illnesses are not sufficient to warrant exemption from income tax and consequently from withholding tax, pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997 as implemented by RMO No. 25-91. Finally, let it be said now as it has been said time and again, that in this jurisdiction, taxation is the rule and exemption is the exception. Any claim for tax exemption is strictly construed against the claimant. (Cyanamid Philippines, Inc. vs. Court of Appeals, 322 SCRA 639; Light Rail Transit Authority vs. Central Board of Assessment Appeals, 342 SCRA 693). 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