July 1, 2009

BIR RULING [SB-(030) 418-09]

Section 32 (B) (6); SB(025)358-2009;

SB(024)348-2009; SB(023)344-2009

First Balfour, Inc.

5F Benpres Building
Exchange Road cor. Meralco Ave.
Ortigas Center, Pasig City

Attention: Ma. Lourdes Gloria M. Raymundo

Vice President & Chief Finance Officer

Gentlemen :

This refers to your letter dated May 28, 2009, requesting a confirmation of your
opinion that the benefits that will be payable to the company's affected employees,
pursuant to Section 32 (B) (6) (b) of the Tax Code of 1997, is exempt from income tax
and consequently from withholding tax prescribed under Revenue Regulations No.
2-98 and that the redundancy package shall likewise be exempt from withholding tax.

It is represented that FIRST BALFOUR, INC. (First Balfour, for short), is a

domestic corporation engaged in the business of construction with principal office
address at the 5th Floor Benpres Bldg. Meralco Avenue cor. Exchange Road, Ortigas
Center, Pasig City; that the company has recently embarked in reorganizing its current
organizational set-up by streamlining operations and centralizing certain functions to
achieve higher employee efficiency and productivity, as well as to obtain
cost-effectiveness; that under the program, the company reviewed its needs vis--vis
the job positions that would prove to be vital and essential in obtaining its goals under
the present conditions; that as a result of its reorganization of its current
organizational set-up and the dissolution of the FMS Department, certain position of
the company have become redundant; that it is your position that the separation from
employment under the redundancy program may be considered as termination beyond
the control of the employees because the decision to scale down its activities came
Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia Second Release 2017 1
 solely from your company. Hence, your request.

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, 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 of 1997,
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. cIEHAC

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.

Such being the case, and since the separation of your employees/workers is due
to your redundancy program resulting from restructuring/reorganization, such
separation is therefore, beyond the control of said employees. Hence, any and all
amounts received by said employees 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 and implemented by Revenue Regulations No. 2-98.

The payment of their salaries, however, is subject to income tax and

consequently to withholding tax. (BIR Ruling No. SB-040-99 dated June 18, 1999)

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

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia Second Release 2017 2
 By:

(SGD.) JAMES H. ROLDAN

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2017 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia Second Release 2017 3