ValueGen Financial Insurance Company, Inc.

September 5, 2007 BIR RULING [DA-480-07] 32 (B) (6) (b); DA-078-00 ValueGen Financial Insurance Company, Inc. 11/F Exportbank Plaza Don Chino Roces Ave. cor. Exportbank Drive Makati City Attention: Mr. Renato A. Claravall General Manager Gentlemen : This refers to your letter dated July 5, 2007 requesting in effect, for a ruling that the separation benefit to be given to each terminated employee is exempt from income tax and consequently from the withholding tax. aSIETH It appears that ValueGen Financial Insurance Company, Inc. (ValueGen for brevity) is a domestic corporation duly organized under Philippine laws; that ValueGen intends to implement a Retrenchment Plan effective July 31, 2007 due to financial losses; that the said program was reported with the Department of Labor and Employment (DOLE) thru an Establishment Termination Report; that ValueGen will be paying each terminated employee a termination pay equivalent to one (1) month salary for every year of service; that it is your opinion that inasmuch as the cause of the termination of their employment is beyond their control, the same is exempt from income tax under Sec. 32 (B) (6) (b) of the 1997 Tax Code; and that you would like your employees to fully benefit from the undiminished termination pay and somehow assist them financially while they search for new employment. In reply, please be informed that 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 pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997. 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. The 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. CHATcE Accordingly, this Office hereby opines that any and all amounts to be received by your employees who may be affected by ValueGen's Retrenchment Plan are exempt from income tax 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, as amended. The payment of salaries, however, is subject to income tax and as such to withholding tax. (BIR Ruling No. DA-078-2000 dated February 2, 2000) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service