BIR Ruling No. 334-2016

REPUBLICCTHPPHILIPPINES

BUREAU OF INTERNAL REVENUE DEPARTMSNTOF FINANCE Qteron City

Scction 32(B(6(b).1997 NRC

BIR Ruting No.5S5-2012 BIR Kuling No.425-201 BIR Ruling No.008-20t

1334-2016 6-29-2016

26 St.cor.3 Ave.Crescent Park West Bonifacio Global CityTaguig City Quisumbing Torres 12F.Net One Center

Attention : Attys.Dennis G.Dimagiba and Maria Ana Camila C.Jacinto-Lagustan

Gentlemen:

Diageo Philippines.Inc.(Diageo for brevity) for confirmation of opinion that the separation benefits received by the latter's employees who have been terminated from servicc pursuant This refers to your letter dated April 15.2015 requesting on behalf of your client

to an approved redundancy program due to the company's cost-cutting measures is exempt from income tax and conscquently from withholding tax pursuant to Scc.32(B6(b) of the 1997Tax Code.as amended.

Documents submitted show that Diageo (TIN is a domestic

434 6 were declared redundant.The employees and the relevant dates of their termination are export, manufacture, market, distribute, buy and sell, by wholesale, all kinds of beverages corporation registered with the Securities and Exchange Commission SEC under Company Reg.No. and liquors and to deal in any materials articles or things required in connection with or achieve a competitive advantage in the marketplace. it conducted a review of its incidental to the importation. exportation.manufacturing.marketing or distribution of such products.Diageo's production plant was previously located at I Technology Avenue. Laguna Tcchnopark, Binan Laguna. Due to Diageo's intention to become a customer driven organization that reduces cost. drives performance and promotes safety, and to manufacturing footprint in Asia Pacific with the intention of increasing its competitiveness by streamlining production and reducing costs.In 2012.Diageo sold its manufacturing assets and its production plant.In order to achieve its goals for global structuring.Diageo also streamlined certain corporate and technical positions. As a result. Diageo was 230-2013 issucd on June 20.2013.our Office confirmed that the separation benefits received by Diageo's manpower complement previously declared redundant were exempt from incomc tax and withholding tax.As of 31 March 2015.an additional 15 employees constrained to declare certain positions in the company as redundant. in BIR Ruling No. summarized herein below on September 30,1993.It is organized primarily to import

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Name of Employee TIN Termination Letter Date of Date of Notice to the DOLE

Elisa de Guman Rowena Nicerio Allan Mallari May 24,2012 June 22.2012 June 22.2012 June 21.2012 June 21.2012 May24.2012

Rommel Turingan Ishmael Ordonez Jonathan Dolor Aries Mayuga September 26.2012 June 22.2012 June 22,2012 June 22.2012 Scptember28.2012 June 21,2012 June 21.2012 June 21.2012

Armela Sison September 26.2012 September 28.2012

Vernon Patrick Lapid Jose Amando Alinas John Paul Guzman Alec Tempongko Ireneo Galicia September 26,2012 May 29,2014 May 29.2014 May29.2014 May 30,2013 Scptembcr 28 2012 May 29.2014 May 20.2013 May 29,2014 May 29.2014

Raymund Zamora Fe Olivia Mir February 23,2015 May 29,20|4 February 27,2015 May 20.2014

the employees whose services were terminated on ground of redundancy were each entitled

to receive a separation package consisting of: 1 separation pay of three 3 months for every year of service:2 commutation of accrued and unused vacation leave credits:and 3 final pay.The Establishment Employment Report was duly received by Department of Labor and Employment-NCR (MUNTAPARLAS Field Office) on several dates and the corresponding Notices of Termination due to Redundancy to the affected employees were also duly reccived by the afore-stated workers.

In reply.please be informed that pursuant to Section 32(B6(bof 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

control of the said official or employee is exempt from taxes regardless of age or length of employer because of death. sickness or other physical disability or for any cause beyond the

service.The phrase"for any cause beyond the control of said official or employee"connotes the official or employee must not be asked for or initiated by him. involuntariness on the part of the official or employee.The separation from the service of

the presence of two (2 conditions in order that the employee benefits may be granted ta heirs as a consequence of such separation. (BIR Ruling No.008-11 dated (9 January 2011 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 employeeand (2 the employer pays benefits to the official or employee or his This Office has had several occasions to rule that the above-mentioned law requires

O 4234 Sof Diageoas enumerated herein have proven to have been separated from the service of the employer because of redundancy. a cause beyond the control of said employees, any amount In view thereof. this Office is of the opinion that since it appears that the employees

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to be received by them as a consequence of said separation is exempt from income tax and consequently from the withholding tax prescribed under Section 79.Chapter X111.Title II of the Tax Code of 1997.as implemented by Revenue Regulations No.2-98.as amended by Revenue Regulations No.6-2001 and 12-2001

No. 425-11 dated 4 November 201) and the entire amount thereof shall be given to the entitied separated employee.(BIR Ruling Accordingly.no withholding taxes shall be deducted from the separation benefits

ten (10 days during the year are not subject to income tax and consequently to the i.e. commutation and payment of monetized unused vacation leave credits not exceeding withholding tax.Conversely.the cash equivalent of vacation leave exceeding ten (10 days is subject to tax. However. this same principle cannot apply to sick leave credits since an Ruling No. 425-11 dated 4 November 201 1) employee must actually go on sick leave to be able to avail of said leave credits.(BiR Also,pursuant to Section 2.78.1 A7 of RR 2-98.as amended, the terminal pay

separated employees' salaries and the payment of the 13th month pay and other benefits in excess of the Php82.000.00threshold under Section 2.78.1A3aandA7of RR2 98.as amended.BIR Ruling No.555-12dated September6.2012 It is. however. understood that this exemption does not include the pavment of the

ruling shall be considered null and void. However. if upon investigation. it will be disclosed that the facts are different. then this This ruling is being issued on the basis of the foregoing facts as represented.

Very truly yours.

102diageo K- Commissioner of Internal Revenue KIM S.JACINTO-HENARES 042346 JUN 2 4 2016

1 As amended by Revenue Regulations No. 3-2015 dated March 13, 2015