July 29, 2010

BIR RULING NO. 020-10

Sec. 32 (B) (6) (b); BIR Ruling No. 054-
92;
BIR Ruling No. 101-91; BIR Ruling No.
054-92
Interadent Zahntechnik Phils., Inc.
InteraDent Building
Pascor Drive, Sto. Niño
Parañaque City
Attention: Ms. Rebecca F. Simbillo
Accounting Manager
Gentlemen:
This refers to your letter dated March 15, 2010 stating that Mr.
Nemesio M. Cusap (Mr. Cusap) was employed with InteraDent
Zahntechnik
Phils., Inc. for the period of December 1, 1990 to February 29, * 2010;
that he
has been diagnosed of RHD, Mitral Stenosis Severe, Aortic Regurgitation
Severe,
Functional Class II, Miotral Aortic valve Replacement with IOTEE Central
Catheter
Placement on January 28, 2009; that he was advised to rest for an
indefinite
period to recuperate and to take a rest and had underwent regular
consultations
to determine his health condition; that however, during his recuperation
period
he had two (2) episodes of post-operative cardiac arrest and two (2)
episodes of
syncope last December 4, 2009 and January 9, 2010; that his attending
physician
Dr. Mark Edward Anthony Maruya on November 10, 2009 determined his
permanent partial disability due to complication of his valve problem and
the risk
for recurrent loss of consciousness and/or possible cardiac arrest and/or
sudden
death; that in a 2nd Indorsement from the Chief, Medical, Dental and
Welfare
Division of the BIR, Dr. Maria Fe P. Pizarro certified that the above-
mentioned
complications made Mr. Cusap vulnerable to further attacks and makes
him unfit
to work; and that in support of his request, to have attached the following
documents, to wit:
a. Sworn affidavit executed by the employer's physician and the head
of office/entity, attesting to the fact that the retiring/separated
official or employee is suffering from a serious illness that affects
the performance of his duties and endanger his life, if he
continues working;
b. Clinical record of the employee/official concerned indicating the
history of illness initial diagnosis; and
c. Laboratory examination confirming the illness suffered by such
employee/official.
Based on the foregoing representations, you now request for
confirmation of your opinion that the separation pay that InteraDent
Zahntechnik (Phils.), Inc. gives to Mr. Nemesio M. Cusap due to illness
is
exempt from tax in accordance with Section 32 (B) (6) (b) of the Tax
Code of
1997.
In reply thereto, 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 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. 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. cTAaDC

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.
Since the separation of Mr. Nemesio M. Cusap is due to sickness and,
therefore, beyond his control, any and all amounts received by him 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.
The payment of his salaries, however, is subject to income tax and
consequently, to the withholding tax. (BIR Ruling No. 100-2000 dated
February 15, 2000)
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.
Very truly yours,

(SGD.) KIM S. JACINTO-HENARES

Commissioner of Internal Revenue