BIR Ruling

October 4, 1977 National Manpower and Youth Council Bookman Building Quezon Avenue, Quezon City Attention: Mr . Rony V . Diaz Director General Gentlemen : This refers to your letter dated September 7, 1977 regarding the adoption by that Council of a levy-grant-exemption scheme which would finance the establishment, maintenance and operation of the Industry Boards that you are empowered to create under Article 50 of Presidential Decree No. 442, as amended, or the Labor Code of the Philippines, quoted as follows: "ART. 50. Industry boards . The Council shall establish industry boards to assist in the establishment of manpower development schemes, trades and skills standards and such other functions as will provide direct participation of employers and workers in the fulfillment of the Council's objectives, in accordance with guidelines to be established by the Council and in consultation with the National Economic and Development Authority. The maintenance and operations of the Industry boards shall be financed through a funding scheme under such rates of fees and manners of collection and disbursement as may be determined by the Council." You would like to be informed on whether or not said levy on all the members firms equivalent to not more than one per cent (1%) of their payroll for one calendar year can be considered as business expenses and therefore deductible from their gross income in accordance with Section 30(a) (1) of the Tax Code. The primer that you submitted shows that as envisaged, the Industry Boards would benefit the private firms and their employees (a) through increased manpower efficiency that would enhance productivity; (b) through assurance of adequate supply of trained manpower according to the requirements of a particular industry; (c) through lower cost of training programs for employees, thus increasing their efficiency and competitiveness in the labor market; (d) through cooperation which is fostered among companies in an industry; (e) through matching of skills and job opportunities; (f) by offering a more systematic delivery of government subsidy to manpower development and (g) by serving as a ready forum for employers-government-employees dialogue on matters affecting working conditions and employer-employee relationship. In reply, please be informed that since the levy (assuming it has adequate statutory basis) that you proposed to collect from the member private firms would clearly be an expense which is appropriate and helpful in developing and maintaining the respective businesses of these firms (Welch V. Helvering, 290 U.S. 111, 78 L. Ed. 212), which is directly connected with, pertaining to or made in he interest of, business operation and which is reasonable and common to incur in a trade or business (See Mertens, Law of Federal Income Taxation, Volume 4A, pp. 38 et seq.), the same constitutes necessary and ordinary business expense. As such, the said levy would be deductible from the gross income of the abovesaid private entities, provided that the deduction would be made in the calendar year when the amount of levy is collected and that it is substantiated by sufficient proof. Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-P4519-F2828-A-8