BIR Ruling [UN-064-94]

February 18, 1994 BIR RULING [UN-064-94] Ongkiko & Dizon Law Offices 7th Floor, Kalaw-Ledesma Condominium 117 Gamboa St., Legaspi Village Makati, Metro Manila Attention: Atty . Mario E . Ongkiko Gentlemen : This refers to your letter dated June 28, 1993 seeking confirmation for the grant of tax exemption on the separation pay/benefits of your client, MR. HERNAN P. SAN LUIS, formerly employed as President of Paramount Insurance Corporation. cdi It is represented that your said client, MR. HERNAN P. SAN LUIS, was involuntarily separated from Paramount Insurance Company for the reason that the son of the Chairman of the Board was slated to take over his place as President of the said company; that he was granted separation pay/benefits in the amount of P2,500,000.00 and that partial payment in the amount of P1,750,000.00 was already made to him; and that the said company has offered to pay the balance of P750,000,000.00, but is deducting the amount of P407,175.00 as withholding tax. It is, however, your opinion that the aforesaid separation pay/benefits are tax exempt under Section 28(b)(7)(B) of the Tax Code, as amended. In reply, please be informed that under Section 28(b)(7)(B) of the Tax Code, as amended, 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 gross income and shall be exempt from taxation under Title II of the Tax Code, as amended. In view thereof, the separation/pay benefits to be received and already received by your client, MR. HERNAN P. SAN LUIS, who was involuntarily separated from his service with PARAMOUNT INSURANCE CORPORATION for the reason that the son of the Chairman of the Board took over his position as President thereof, are not subject to income tax and consequently to the withholding tax prescribed by Section 72, Chapter 10, Title II of the Tax Code, as amended by B.P. Blg. 135 and implemented by Revenue Regulations No. 6-82, as amended. It is however, understood that the salary to be paid or paid by PARAMOUNT INSURANCE CORPORATION to the said official shall be subject to income tax. cdtech Very truly yours, JAIME M. MAZA Associate Commissioner (Legal Service)