G.R. No. 226064 , February 17, 2020
ANNA MAE B. MATEO, PETITIONER, V. COCA-COLA BOTTLERS PHILS. INC., RESPONDENT.

FACTS

Petitioner Anna Mae B. Mateo was employed by respondent Coca-Cola Bottlers Phils. Inc. as a Sales Supervisor and later promoted to District Team Leader. In February 2012, respondent informed petitioner that her position was considered redundant due to an enhanced Route to Market strategy, and her employment would be terminated effective March 31, 2012. She was to receive a tentatively computed amount of P676,657.15 as a consequence of her separation. Upon release, respondent deducted petitioner’s outstanding loan balance and an amount of P134,064.95 representing withholding tax from the computed sum, releasing only P402,571.85. Respondent justified the tax deduction by stating that the retirement benefit was no longer tax-exempt because petitioner had previously availed of a tax exemption upon her separation from a prior employer, Philippine Beverage Partners, Inc. (PhilBev). Petitioner sought clarification from the Bureau of Internal Revenue (BIR) and referenced a BIR Ruling indicating that separation benefits due to redundancy are exempt from income tax. Respondent denied her claim for reimbursement, prompting petitioner to file a complaint for illegal deductions, underpayment of separation pay, non-payment of salaries, and damages before the Labor Arbiter. The Labor Arbiter ruled in petitioner’s favor, ordering respondent to pay the deducted amount plus attorney’s fees. The National Labor Relations Commission (NLRC) affirmed the award but deleted the attorney’s fees. The Court of Appeals reversed the labor tribunals, dismissing the complaint, holding that the benefit received was a retirement benefit subject to tax and that petitioner, having been employed for less than five years and having previously availed of a tax exemption, was not entitled to tax exemption.

ISSUE

Whether respondent is liable for illegal deduction when it withheld tax from the amount received by petitioner as a consequence of her involuntary separation from service.

RULING

Yes, respondent is liable for illegal deduction. The Supreme Court ruled that the amount petitioner received was separation pay due to redundancy, not retirement pay. Petitioner was terminated due to redundancy under Article 283 of the Labor Code, entitling her to separation pay. While respondent’s Retirement Plan provided that an involuntarily separated employee is entitled to a benefit computed using the retirement formula or the termination benefit under law, whichever is higher, the use of the retirement formula did not convert the benefit into a retirement pay. The Plan explicitly characterized the benefit for involuntary separation as a “separation benefit.” Consequently, the amount received was separation pay, which is exempt from income tax under Section 32(B)(6)(b) of the National Internal Revenue Code, as it was received “for any cause beyond the control of said official or employee.” The conditions for tax exemption of retirement benefits under Section 32(B)(6)(a) do not apply. Therefore, respondent erroneously withheld tax, making it liable for illegal deduction. The Supreme Court granted the petition, reversed the Court of Appeals Decision and Resolution, and reinstated the NLRC Decision ordering respondent to pay petitioner the amount of P134,064.95 representing the illegally deducted tax.