Ms. Carmencita F. Peña

July 31, 2009 BIR RULING [SB-(033) 475-09] Section 32 (B) (6) (b); BIR Ruling No. DA-385-05 Ms. Carmencita F. Pea Lot 1B New Society St.,Rosario V Subd., Sta. Lucia, Pasig City Madam : This refers to your letter dated June 9, 2009 requesting exemption from withholding tax of your separation benefits. It is represented that you have been working with Singer Philippines, Inc. and Singer Finance Corporation for 18 years; that since 2007, you have been diagnosed with Diabetes Mellitus Type 2, high cholesterol and triglycerides and just last April 2009, you developed hypertension; that your physical condition is aggravated by the recent findings of compression deformity in your mid-thoracic vertebrae; that your job requires you a lot of travelling nationwide and get fatigued easily; that continuous work pressure and stress has led to anxiety which results to your blood pressure shooting up as well as your blood sugar count due to erratic meal time schedule; that you underwent several surgical procedures for the removal of ovarian cyst, gall bladder and thyroid glands; that after a series of medical examinations consulting both private and government physicians, you were advised to discontinue work which involved stress, physical activity and much travelling which are necessary in your job; that according to the findings of said physicians, your current health conditions affect the performance of your work and would endanger your life if you continue working; and that because of this, the company has permanently terminated your employment due to health reasons. In reply, please be informed that 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 pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997. The phrase "for any cause beyond the control of the 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 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. Considering that your separation from the company is due to poor health condition, as attested to by both government and company physicians, which may worsen and jeopardize your life if employment is continued, and therefore, beyond your control, any and all amounts received by you as a result thereof, are exempt from all taxes 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. ESTcIA Furthermore, the tax exemption will include the company's payment for cash equivalent of accumulated vacation and sick leave credits of the said employee. (BIR Ruling No. 98-91 dated June 4, 1991, based on BIR vs. Castaeda and CTA ,G.R. 96016, October 17, 1991) 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service