Hotel Enterprises of Philippines, Inc.

April 12, 2007 BIR RULING [DA-222-07] 32 (B) (6) (b); DA-100-2000 Hotel Enterprises of Philippines, Inc. 2702 Roxas Boulevard Pasay City 1300, Philippines Attention: Ms. Elizabeth Ann Chan-Parpan Executive Vice-President Gentlemen : This refers to your letter dated March 7, 2007 requesting for a ruling that the separation benefits to be paid to the officers and employees of Hotel Enterprises of the Philippines, Inc. (HEPI) who will be separated from service on account of the cessation or termination of its business operations are exempt from income tax and consequently from the withholding tax pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997. EIDTAa It is represented that HEPI temporarily ceased operation of its Hotel formerly known as the "Hyatt Regency Manila" last January 2007, following the expiry of the Management Agreement between HEPI and Hyatt International Corporation. Hence, you request confirmation that in the event of permanent closure of the Hotel operation, both the retirement benefits and separation pay due the employees of Hyatt Regency Manila may be considered exempt from taxation pursuant to Sec. 32 (B) (6) (b) of the National Internal Revenue Code. 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 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 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. CHIScD 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 the employees is due to cessation of business operations, and, therefore, beyond the control of the affected employees, any and all amounts received by them 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 their 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. cDCHaS Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service