American Wire & Cable Co., Inc.

January 16, 2009 BIR RULING [SB-(004) 024-09] Section 32 (B) (6) (b) American Wire & Cable Co.,Inc. 8508 Km. 16 South Superhighway, Paraaque Attention: Mr. Edgar T. Celebre Finance Division Head Gentlemen : This refers to your letter requesting for a ruling that the separation benefits to be paid to your affected employees who are named hereunder by reason of redundancy are exempt from all taxes pursuant to Section 32 (B) (6) (b) of the Tax Code, as amended. ICDSca Documents submitted show that American Wire & Cable Co.,Inc. ("the Company" for brevity) is adopting a redundancy program in order to promote greater efficiency and economy of operations by undertaking a reorganization of its existing corporate structure. Ms. Marrie Ann B. Zagala and Mr. Cesar C. Gerna were separated from the company effective November 27, 2007 under the program. On October 26, 2007, the Company served the Department of Labor and Employment notice of termination of the affected employees due to redundancy. In reply, please be informed that pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997, as amended, 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 due to death, sickness or other physical disability or for any cause beyond the control of the said official or employee shall not be included in the gross income and shall be exempt from taxation under Title II of the Tax Code 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. 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 your affected employees is due to redundancy, and, therefore, beyond their control, any and all amounts to be received by them as a result thereof, 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 amended and as implemented by Revenue Regulations No. 2-98, as amended. Moreover, the terminal pay, i.e., commutation and payment of unused sick leave and vacation leave credits which is part of the tax-exempt separation pay is likewise not subject to income tax and consequently to the withholding tax ( Commissioner of Internal Revenue vs. Court of Appeals and Efren P. Castaeda, G.R. No. 96016 prom. October 17, 1991). cCEAHT It is, however, understood that this exemption does not include the payment of the separated employees' salaries. 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service