MA. ISABEL T. SANTOS v.

SERVIER PHILIPPINES

CASE NO.: G.R. No. 166377

DATE:  November 28, 2008

PONENTE: HONORABLE JUSTICE ANTONIO EDUARDO B. NACHURA

DOCTRINE: Separation pay is a statutory right designed to provide the employee with the
wherewithal during the period that he/she is looking for another employment. On the other hand,
retirement benefits are intended to help the employee enjoy the remaining years of his life,
lessening the burden of worrying about his financial support, and are a form of reward for his
loyalty and service to the employer. Hence, they are not mutually exclusive.

FACTS: Petitioner Ma. Isabel T. Santos was the Human Resource Manager of
respondent Servier Philippines, Inc. On March 26 and 27, 1998, petitioner attended a
meeting held in Paris, France, where she also filed for vacation leave effective March 30,
1998.

On March 29, 1998, while having dinner at Leon des Bruxelles petitioner complained of

stomach pain, then vomited. Eventually, she was brought to the hospital known as
Centre Chirurgical de L'Quest where she fell into coma for 21 days and stayed at the
Intensive Care Unit (ICU) for 52 days. Petitioner's hospitalization expenses, as well as
those of her husband and son, were paid by respondent. She was then confined at the
St. Luke’s Medical Center for rehabilitation. During the period of petitioner’s
rehabilitation, respondent continued to pay the former’s salaries; and to assist her in
paying her hospital bills.

Petitioner's physician concluded that the former had not fully recovered mentally and
physically.  Therefore, respondent was constrained to terminate petitioner's services
effective August 31, 1999 respondent offered a retirement package amounting to
P1,063,841.76, only P701,454.89 was released to petitioner's husband, the balance thereof
was withheld allegedly for taxation purposes.

Petitioner, represented by her husband, instituted the instant case for unpaid salaries;
unpaid separation pay; unpaid balance of retirement package plus interest; insurance
pension for permanent disability; educational assistance for her son; medical assistance;
reimbursement... of medical and rehabilitation expenses; moral, exemplary, and actual
damages, plus attorney's fees.

ISSUE: Whether the retirement benefits are taxable.

RULING: On the basis of the above-mentioned retirement plan, respondent offered the
petitioner a retirement package which consists of retirement plan benefits, insurance
pension, and educational assistance. The amount of P1,063,841.76 represented the
disability retirement benefit provided for in the plan. As declared in Aquino v. National
Labor Relations Commission that the receipt of retirement benefits does not bar the retiree
from receiving separation pay.  Separation pay is a statutory right designed to provide
the employee with the wherewithal during the period that he/she is looking for another
employment. On the other hand, retirement benefits are intended to help the employee
enjoy the remaining years of his life, lessening the burden of worrying about his
financial support, and are a form of reward for his loyalty and service to the employer.
Hence, they are not mutually exclusive.  This is only true if there is no specific
prohibition against the payment of both benefits in the retirement plan and/or in the
Collective Bargaining Agreement (CBA).

In the instant case, the Retirement Plan bars the petitioner from claiming additional
benefits on top of that provided for in the Plan.

Section 2, Article XII of the Retirement Plan provides: NO DUPLICATION OF

BENEFITS

There being such a provision, petitioner is entitled only to either the separation pay
under the law or retirement benefits under the Plan, and not both.

We answer in the affirmative.

Thus, for the retirement benefits to be exempt from the withholding tax, the taxpayer is
burdened to prove the concurrence of the following elements: (1) a reasonable private
benefit plan is maintained by the employer; (2) the retiring official or employee has been
in the... service of the same employer for at least ten (10) years; (3) the retiring official or
employee is not less than fifty (50) years of age at the time of his retirement; and (4) the
benefit had been availed of only once. Petitioner was qualified for disability
retirement... petitioner was only 41 years of age; and had been in the service for more or
less eight (8) years. The above provision is not applicable for failure to comply with the
age and length of service requirements. Therefore, respondent cannot be faulted for
deducting from petitioner’s total retirement benefits the amount of P362,386.87, for
taxation purposes.

FALLO: WHEREFORE, the petition is DENIED for lack of merit. The Court of Appeals
Decision