February 15, 2000

BIR RULING [DA-100-00]

32 (B) (6) (b)

69-98

Joaquin Cunanan & Co.

14th Floor Multinational Bancorporation Centre
6805 Ayala Avenue, 1226 Makati City

Attention: Ms. Myrna M. Fernando

Partner
Tax Services

Gentlemen :

This refers to your letter dated September 21, 1999 requesting for a
ruling in behalf of your client, Lucent Technologies Philippines, Inc. (Lucent)
as to whether or not the separation benefits to be paid to their employees by
reason of redundancy/retrenchment are exempt from income tax and
consequently from the withholding tax pursuant to Section 32(B)(6)(b) of the
Tax Code of 1997.
It is represented that Lucent is in the business of telecommunications;
that its primary business involves the design, development and manufacture
of communications solutions; that the intense competition among the
existing players and possible threat of new entrants in the industry compel
Lucent to be more focused, cost effective and responsive to the changing
market; that to accomplish these objectives, the company is currently
undergoing organizational structuring that involves the realignment of
functions, transfers and/or abolition of positions consistent with regional and
global directives to streamline operations in order to enhance efficiency and
increase productivity; that as a result of this decision, a special separation
package is to be given to employees whose positions have been declared
redundant consisting of the following:

1. Separation pay computed at one month pay per year of service,

a fraction of at least 6 months considered as one whole year,
based on the salary at the date of separation. Such
separation shall be in lieu of and in full settlement of any and
all retirement benefits under the company retirement plan; cdasia

2. Cash equivalent of any earned and accrued vacation leave as of

the date of separation;
3. Pro-rated payment of the Lucent Award and Unit Award
equivalent to 12% of the Annual Earned Base Salary (6% LA
and 6% UA), otherwise given only in December of each year.
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 These are not given to employees who resign or are
terminated with cause;
4. Payment of yearly service award that is otherwise scheduled to
be given only on the employee's anniversary month. This
payment is given only to employees who are separated due
to redundancy or retrenchment even if they no longer reach
their anniversary month. It is not given to employees who
resign or are terminated with cause prior to reaching their
anniversary month;

5. Eligibility to exercise the Global Founders Grant and the Global

Stock Option Plan consistent with the guidelines on Company
initiated separation.

that Global Founders Grant (GFG) and Global Stock Option Plan (GSOP) are
the global Lucent Employee Stock Option Plans; that GFG was granted to all
eligible Lucent employees on October 1, 1996; that there exists a three-year
holding period within which the employees to whom shares were granted
shall remain in the employ of Lucent; that GFG is scheduled to be fully
vested and stock options exercisable beginning October 1, 1999; that GSOP
was granted to all eligible employees on September 1, 1998; that eligible
employees are also subject to four years holding period and the GSOP stock
options are scheduled to be fully vested and exercisable on September 1,
2002; that for both GFG and GSOP, upon vesting, the eligible employees may
purchase shares by exercising their stock options and sell only enough
shares to cover the option price; that employees may then hold on the
purchased shares as investment or opt to sell the shares immediately; that
both GFG and GSOP plans include a policy on the stock option status for
various circumstances when employment with Lucent is terminated; that the
policy states that if the employee is separated prior to the scheduled vesting
date due to a company-initiated action for a cause beyond the control of the
employee, there is immediate vesting upon termination; that on the other
hand, if the employee resigns or is terminated with cause prior to the vesting
date, the stock options will be canceled; and that on the other hand, after
the stock options under GFG and GSOP have been fully vested (October 1,
1999) and September 1, 2002, respectively, an employee may still exercise
his stock options even if he resigns or is terminated with cause or for
reasons beyond his control but only within 90 days from the date of
separation or termination.
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 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. 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
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 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. llcd

Since the separation of the employees is due to redundancy, and,

therefore, beyond the control of the affected employees, any and all
amounts received by them 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, as implemented by Revenue Regulations
No. 2-98.
The payment of their salaries, however, is subject to income tax and
consequently to the withholding tax. (BIR Ruling No. SB-69-98 dated October
6, 1998)
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, this ruling shall be considered null and void.
cdasia

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) SIXTO S. ESQUIVIAS IV

Deputy Commissioner
(Legal and Enforcement Group)

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