BIR Ruling [UN-167-95]

April 18, 1995 BIR RULING [UN-167-95] Siguion Reyna, Montecillo & Ongsiako 8755 Paseo de Roxas Philcom Building, Makati City Attention: Atty . Jose Lis C . Leagogo Gentlemen : This refers to your letter dated March 15, 1995 stating that your client, Philippine Global Communications, Inc. (Philcom) intends to terminate 106 of its employees by reason of redundancy due to the absorption of some of its corporate functions by PLDT; that it is restructuring some areas of its operations; that it is redesigning a number of jobs to absorb multiple functions and the foreseen business losses due to decline in market demands of services being offered by Philcom more particularly its telex services; and that the employee to be terminated shall be separated on schedular basis covering the period March 15 until the end of December 1995 to give them time to train the remaining employees absorbing their functions; and that the employees to be terminated shall receive a separation pay equivalent to 2 1/2 months for every year of service. In connection therewith, you are requesting a ruling to the effect that the separation pay to be received by the aforesaid employees to be separated by reason of redundancy is exempt from income tax. In reply thereto, please be informed that pursuant to Section 28(b)(7)(B) of the Tax Code, as amended, any amount received by an official or employee or his heirs from his employer as a consequence of separation of such official or employee due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee is exempt from income tax 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. Since the separation of your client's employees is due to redundancy, said separation is beyond their control. Such being the case, any and all amounts including their terminal pay (sick leave and vacation leave credits) they will receive as a result thereof, are exempt from income tax and consequently from the withholding tax prescribed by Section 72, Chapter X, Title II of the Tax Code, as amended by B.P. 135 and implemented by Revenue Regulations No. 6-82, as amended. It is however understood that the payment of their salaries, if any, is subject to income tax (BIR Ruling No. 28(b)(7)(B)-197-92-035-93 dated Jan. 15, 1993). Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)