Ms. Beatriz S. Orolfo

July 15, 2009 BIR RULING [SB-(032) 440-09] 32 (B) (6) (b);SB-69-98 Ms. Beatriz S. Orolfo Block 28, Lot 2, Silver Street North Springville, Camella Homes Molino, Cavite City Madam : This refers to your letter dated October 30, 2008 requesting for a ruling that the separation benefits to be received by you is exempt from tax pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997. It is represented that you are a regular employee of Canon Marketing (Philippines),Inc. and have rendered twenty (20) years of service; that you are 46 years of age; that you have been diagnosed by a Government Physician, Dr. Rosario P. Layao, Jr. of the Lung Center of the Philippines, disclosing several diagnosis: hypertension, vertigo, Hyperuricemia/Dyslipidemia; that due to your physical/health condition, it impairs and affects your daily function as Purchasing Officer of the company wherein you are required to physically go on fieldwork, thus the usual attacks of vertigo/hypertension affected your regular performance; that with your present health condition, your work with Canon Marketing (Philippines),Inc. has been greatly affected in terms of efficiency and productivity based on the job requirements; and that the continuance of your employment would therefore be detrimental to your well-being. 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 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. 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 your separation was due to sickness and, therefore, beyond your control, any amount to be received by you 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 your 13th month pay and other benefits, in excess of the P30,000.00 threshold, and your salaries are subject to income tax and consequently to the withholding tax. (BIR Ruling No. SB-69-98 dated October 6, 1998) AEIHaS 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