Amending Pertinent Provisions of Revenue Memorandum Order (RMO) No. 26-2011, Prescribing the Guidelines in the Tax Treatment of Separation Benefits Received by Officials and Employees on Account of Their Separation from Employment Due to Death, Sickness or Other Physical Disability and the Issuance of Certificate of Tax Exemption from Income Tax and from the Withholding Tax

December 6, 2016 REVENUE MEMORANDUM ORDER NO. 066-16 SUBJECT : Amending Pertinent Provisions of Revenue Memorandum Order (RMO) No. 26-2011, Prescribing the Guidelines in the Tax Treatment of Separation Benefits Received by Officials and Employees on Account of Their Separation from Employment Due to Death, Sickness or Other Physical Disability and the Issuance of Certificate of Tax Exemption from Income Tax and from the Withholding Tax TO : All Revenue Officials and Personnel and Others Concerned SECTION 1. Background. Revenue Memorandum Order (RMO) No. 26-2011, as amended by RMO 36-2011, transferred to the Revenue Regions/Large Taxpayers Service the processing of requests for rulings confirming that the amounts received by employee or by his heirs from the employer by reasons of death, sickness or other physical disability are exempt from income tax. The processing, however, of requests for tax exemption of separation benefits received by employees as a result of separation from employment due to other causes beyond the control of said employees has remained at the Law and Legislative Division in the National Office. This Order is being issued to further amend RMO No. 26-2011 by devolving also to the Revenue District Office or appropriate Large Taxpayer (LT) Office where the employer is registered the processing of requests for tax exemption of separation benefits received by an official or employee as a consequence of separation from employment due to other causes beyond the control of said official or employee , such as, but not limited to, retrenchment, redundancy, installation of labor-saving devices and closure of business. SECTION 2. Amendment. Item II of RMO No. 26-2011 is hereby amended to read as follows: II. DOCUMENTARY REQUIREMENTS In order to facilitate the processing of requests for tax exemption of separation benefits received by officials/employees or his/her heirs as a result of their separation from employment due to death, sickness or other physical disability or for any cause beyond the control of said officials or employees, regardless of age and length of service, the following documents are required to be submitted to the Revenue District Office (RDO) or appropriate Large Taxpayers (LT) Office where the employer is originally registered, to support such request: CAacTH 1) Letter request from the Official/Employee (or by his heirs) or the Employer for the exemption of separation benefits from income tax and withholding tax; 2) Death Certified true copy of Death Certificate; 3) Sickness/Physical Disability a) Sworn Affidavits to be executed by the employer's physician or the employee's attending physician and the Head of Office/Entity or his representative, attesting to the fact that the retiring/separated official or employee is suffering from a serious illness or physical disability that affects the performance of his duties and endangers his life, if he continues working; b) Clinical Record of the official/employee concerned indicating the history of illness/physical disability and initial diagnosis; and c) Laboratory examination confirming the illness suffered by such official/employee or medical certificate confirming the physical disability of the official/employee. 4) Installation of Labor-saving Devices a) Written notice to the employee and the appropriate Regional Office of the Department of Labor and Employment (DOLE) at least thirty (30) days before the effectivity of termination, specifying the ground for termination. b) Board Resolution, in case of a juridical entity, or sworn affidavit to be executed by the owner, in case of a sole proprietor, stating the following: i. That there has been an introduction of machinery, equipment or other devices, with brief description of the use of said machinery, equipment or device; ii. That the introduction of the machinery, equipment or other device has been done in good faith and for valid reason; iii. That there is no other option available to the employer than the introduction of machinery, equipment or other device; and iv. That the selection of employees to be terminated has been made in accordance with a fair and reasonable criteria. 5) Redundancy a) Written notice to the employee and the appropriate Regional Office of the Department of Labor and Employment (DOLE) at least thirty (30) days before the effectivity of termination, specifying the ground for termination. b) Board Resolution, in case of a juridical entity, or sworn affidavit to be executed by the owner, in case of a sole proprietor, stating the following: i. That there has been superfluous positions or services of employees; ii. That the positions or services are in excess of what is reasonably demanded by the actual requirements of the enterprise to operate in an economical and efficient manner; iii. That the redundant positions have been abolished in good faith; and iv. That the selection of employees to be terminated has been made in accordance with a fair and reasonable criteria. c) Adequate proof of redundancy such as but not limited to the new staffing pattern, feasibility studies/proposal, on the viability of the newly created positions, job description and the approval by the management of the restructuring. 6) Retrenchment a) Written notice to the employee and the appropriate Regional Office of the Department of Labor and Employment (DOLE) at least thirty (30) days before the effectivity of termination, specifying the ground for termination. b) Board Resolution, in case of a juridical entity, or sworn affidavit to be executed by the owner, in case of a sole proprietor, stating the following: i. That the retrenchment is reasonably necessary and likely to prevent business losses; ii. That the losses, if already incurred, are not merely de minimis , but substantial, serious, actual and real, or if only expected, are reasonably imminent, with appropriate supporting evidence of said losses; iii. That the retrenchment is made in good faith for the advancement of its interest and not to defeat or circumvent the employees' right to security of tenure; and IAETDc iv. That the selection of employees to be terminated has been made in accordance with a fair and reasonable criteria. 7) Closure or Cessation of Operation a) Written notice to the employee and the appropriate Regional Office of the Department of Labor and Employment (DOLE) at least thirty (30) days before the effectivity of termination, specifying the ground for termination. b) Board Resolution, in case of a juridical entity, or sworn affidavit to be executed by the owner, in case of a sole proprietor, stating the following: i) That the management has decided to close or cease operation of the company; ii) That the closure or cessation of operation has been made in good faith; and iii) That there is no other option available to the employer except to close or cease operation. The Bureau shall not be precluded from requiring additional documents to prove entitlement to tax exemption under the prevailing circumstances. Attached herewith are Annexes "A-1" to "A-4" for the checklists of documentary requirements in cases enumerated above. xxx xxx xxx SECTION 3. Item IV of RMO No. 26-2011 is hereby amended to read as follows: IV. Tax Exemptions and Incentives of Separation Benefits The separation benefits 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 said official or employee, regardless of age and length of service, shall have the following tax implications: xxx xxx xxx SECTION 4. Repealing Clause. Any revenue issuance which is inconsistent with this Order is deemed revoked, repealed, or modified accordingly. SECTION 5. Effectivity. This Order shall take effect immediately. All concerned are enjoined to give this Order a wide publicity as possible. (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue ANNEX A-1 Quezon City CHECKLIST OF REQUIREMENTS (FOR TAX EXEMPTION APPLICATION OF SEPARATION BENEFITS UNDER SECTION 32 (B) (6) (b) OF THE NIRC, AS AMENDED DUE TO INSTALLATION OF LABOR-SAVING DEVICES) [ ] Submitted [X] Not Submitted [N/A] Applicable Document Remarks 1. Application letter stating the factual and legal basis for tax exemption 2. Written notice to the employee and the appropriate Regional Office of the Department of Labor and Employment (DOLE) at least thirty (30) days before the effectivity of termination, specifying the ground for termination 3. Board resolution, in case of a juridical entity, or sworn affidavit to be executed by the owner, in case of a sole proprietor, stating the following: i. That there has been an introduction of machinery, equipment or other devices, with brief description of the use of said machinery, equipment or device; ii. That the introduction of the machinery, equipment or other device has been done in good faith and for valid reason; iii. That there is no other option available to the employer than the introduction of machinery, equipment or other device; and iv. That the selection of employees to be terminated has been made in accordance with a fair and reasonable criteria. Other documents submitted: ______________________________________________________________________________________________________________________________________ Instruction : Please complete and submit the foregoing documentary requirements to the Revenue District Office (RDO) having jurisdiction over the principal place of business of the employer for processing of the tax exemption confirmation. DcHSEa ANNEX A-2 Quezon City CHECKLIST OF REQUIREMENTS (FOR TAX EXEMPTION APPLICATION OF SEPARATION BENEFITS UNDER SECTION 32 (B) (6) (b) OF THE NIRC, AS AMENDED DUE TO REDUNDANCY) [ ] Submitted [X] Not Submitted [N/A] Applicable Document Remarks 1. Application letter stating the factual and legal basis for tax exemption 2. Written notice to the employee and the appropriate Regional Office of the Department of Labor and Employment (DOLE) at least thirty (30) days before the effectivity of termination, specifying the ground for termination 3. Board resolution, in case of a juridical entity, or sworn affidavit to be executed by the owner, in case of a sole proprietor, stating the following: i. That there has been superfluous positions or services of employees; ii. That the positions or services are in excess of what is reasonably demanded by the actual requirements of the enterprise to operate in an economical and efficient manner; iii. That the redundant position have been abolished in good faith; and iv. That the selection of employees to be terminated has been made in accordance with a fair and reasonable criteria. 4. Adequate proof of redundancy such as but not limited to the new staffing pattern, feasibility studies/proposal, on the viability of the newly created positions, job description and the approval by the management of the restructuring. Other documents submitted: ___________________________________________________________________ Instruction : Please complete and submit the foregoing documentary requirements to the Revenue District Office (RDO) having jurisdiction over the principal place of business of the employer for processing of the tax exemption confirmation. ANNEX A-3 Quezon City CHECKLIST OF REQUIREMENTS (FOR TAX EXEMPTION APPLICATION OF SEPARATION BENEFITS UNDER SECTION 32 (B) (6) (b) OF THE NIRC, AS AMENDED DUE TO RETRENCHMENT) [ ] Submitted [X] Not Submitted [N/A] Applicable Document Remarks 1. Application letter stating the factual and legal basis for tax exemption 2. Written notice to the employee and the appropriate Regional Office of the Department of Labor and Employment (DOLE) at least thirty (30) days before the effectivity of termination, specifying the ground for termination 3. Board resolution, in case of a juridical entity, or sworn affidavit to be executed by the owner, in case of a sole proprietor, stating the following: i. That the retrenchment is reasonably necessary and likely to prevent business losses; ii. That the losses, if already incurred, are not merely de minimis, but substantial, serious, actual and real, or if only expected, are reasonably imminent, with appropriate supporting evidence of said losses; iii. That the retrenchment is made in good faith for the advancement of its interest and not to defeat or circumvent the employee's right to security of tenure; and iv. That the selection of employees to be terminated has been made in accordance with a fair and reasonable criteria. Other documents submitted: ___________________________________________________________________ Instruction : Please complete and submit the foregoing documentary requirements to the Revenue District Office (RDO) having jurisdiction over the principal place of business of the employer for processing of the tax exemption confirmation. SCaITA ANNEX A-4 Quezon City CHECKLIST OF REQUIREMENTS (FOR TAX EXEMPTION APPLICATION OF SEPARATION BENEFITS UNDER SECTION 32 (B) (6) (b) OF THE NIRC, AS AMENDED DUE TO CLOSURE OR CESSATION OF OPERATION) [ ] Submitted [X] Not Submitted [N/A] Applicable Document Remarks 1. Application letter stating the factual and legal basis for tax exemption 2. Written notice to the employee and the appropriate Regional Office of the Department of Labor and Employment (DOLE) at least thirty (30) days before the effectivity of termination, specifying the ground for termination 3. Board resolution, in case of a juridical entity, or sworn affidavit to be executed by the owner, in case of a sole proprietor, stating the following: i. That the management has decided to close or cease operation of the company; ii. That the closure or cessation of operation has been made in good faith; and iii. That there is no other option available to the employer except to close or cease operation. Other documents submitted: __________________________________________________________________ Instruction : Please complete and submit the foregoing documentary requirements to the Revenue District Office (RDO) having jurisdiction over the principal place of business of the employer for processing of the tax exemption confirmation. ANNEX E Revenue District Office No. _____ Revenue Region ____ 1st Endorsement (Date) Respectfully forwarded to Regional Director _____________________ (Name of Director), Revenue Region No. ______ (RR number), ________________________ (Municipality/City), the hereto attached application for tax exemption of _____________________________ (Name of Requesting Official/Employee) employed with ___________________________ (Name of Employer) with principal office address at _____________________________________________ (Complete address), bearing the herein recommendation for the issuance of the corresponding Certificate of Tax Exemption to the requesting official/employee which has satisfactorily complied with the legal as well as documentary requirements prescribed under RMO 26-2011, as amended, for appropriate action. ___________________________ Revenue District Officer ANNEX F REVENUE REGION NO. ____ BIR CTE No. RR 01-RDO 001-10-00001 CERTIFICATE OF TAX EXEMPTION issued to (NAME OF OFFICIAL/EMPLOYEE) Registered Address Taxpayer Identification Number This certifies that the above-named taxpayer, employed with _____________________ (Name of Employer) with principal office address at _______________________________ (Complete address), has proven to have been separated from the service of the employer because of _______________________________ (reason for separation from employment), hence, the amount received by the above-named taxpayer or by his heirs from the employer as a consequence of separation from the service of the employer regardless of age or length of service, shall be excluded from his gross income and shall be exempt from taxation pursuant to Section 32 (B) (6) (b) of the 1997 Tax Code, as amended. Likewise, the separation benefits shall be exempted from withholding tax as prescribed by Section 79 of the 1997 Tax Code, as implemented by Revenue Regulations No. 2-98, as amended by Revenue Regulations Nos. 6-2001 and 12-2001. This certification shall continue to be valid unless revoked by this Office for violation of any provisions of RMO 26-2011, as amended, and other applicable rules and regulations of BIR, and the terms and conditions herein set forth. aTHCSE This Certificate of Tax Exemption is being issued on the basis of the facts and documents as represented and submitted. However, if upon investigation, the BIR ascertains that the facts are different, then this Certificate shall be considered null and void. Issued this _____ day of ________________, 20__. ___________________________________ NAME OF REGIONAL DIRECTOR Regional Director Revenue Region No. ___