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Gentlemen :
This refers to your letter dated May 28, 2009, requesting a confirmation of your
opinion that the benefits that will be payable to the company's affected employees,
pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997, is exempt from income tax
and consequently from withholding tax prescribed under Revenue Regulations No.
2-98 and that the redundancy package shall likewise be exempt from withholding tax.
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, 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 the gross
income and shall be exempt from taxation under Title II of the Tax Code of 1997,
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. cIEHAC
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.
Such being the case, and since the separation of your employees/workers is due
to your redundancy program resulting from restructuring/reorganization, such
separation is therefore, beyond the control of said employees. Hence, any and all
amounts received by said employees 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 and implemented by Revenue Regulations No. 2-98.
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.
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia Second Release 2017 2
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Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia Second Release 2017 3