Siguion Reyna Montecillo & Ongsiako

July 13, 2009 BIR RULING [SB-(030) 433-09] Siguion Reyna Montecillo & Ongsiako 4th & 6th Floors, Citibank Center 8741 Paseo de Roxas Makati City Attention: Atty. Ferdinand M. Hidalgo Gentlemen : This refers to your letter dated July 6, 2009 stating that your client, Directories Philippines Corporation (the Company),is a corporation organized and existing under the laws of the Philippines with principal office address at DPC Plaza 2322 Don Chino Roces (formerly Pasong Tamo) Extension, Makati City; that since 1989 the Company has been engaged in the business of preparing, compiling and producing telephone directories and selling advertisements therein for telephone companies in the Philippines; that with over a hundred of employees in Metro Manila and Cebu, its operation indeed presents a viable prospect for the Company; that however, for the past several years, a number of factors such as operational inefficiency, competition, changing marketplace, and adverse economic conditions affected its profitability; that to address these issues, several remedial measures have been implemented by the Company; that unfortunately, these solutions seem ineffective and not enough as its operational revenue continues to fall short of its target; that impelled by this development, the Company decided that it will undertake further measures that require both strategic and organizational in nature; that foremost of these is the streamlining of its processes and functions that will trim excess and redundant positions in its current operation; that in line with this, the Company will embark on a separation program within this month of July 2009 to give way to a new, leaner and more functional table of organization; and that the basic features of this separation program are as follows: 1. The program shall cover all employees of the Company; 2. The Company shall have the sole prerogative on who shall be separated under the program. It means no employee, irrespective of his willingness, will be separated unless he falls or fits under the criteria of the program; 3. Selected employees and the Department of Labor and Employment will be notified of the selection and separation thirty (30) days prior to its effectivity; 4. Affected employees will be given a separation package that include Separation Pay Employee Category For Employees with For Employees with less than 10 years of at least 10 years of continuous service continuous service Rank and File/Confidential 125% 150% Supervisory/Managerial/Executive 200% 225% Other Benefits Medical Insurance Coverage (For employees only) - Below 10 years 1 year coverage - 10 years & above 3 year coverage Retirement gift of P50,000 for employees with at least 20 years tenure Retiree assistance programs - Outplacement counselling services - Services on other income opportunities; financial planning; entrepreneurship - Change Management learning sessions All affected employees shall also be paid their accrued and unpaid monetary benefits at the time of the effectivity of their separation. Based on the foregoing representations, you now request for an opinion that the separation package that the affected employees will receive under the Company's separation program is exempt from income tax and consequently from withholding tax pursuant to Section 32 (B) (6) (a) of the Tax Code of 1997. CASaEc In reply thereto, 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. 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. 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. (BIR Ruling No. SB-69-98 dated October 6, 1998) Considering that since the separation program will be initiated by the Company and that its implementation is in no way asked by the employees but rather brought about by the necessity of implementing remedial measures to address the factors that seriously affect the viability and continued operation of the Company which is beyond the control of the employees, the separation benefits to be paid to the affected employees are exempt from income tax and consequently from 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. 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service