BIR Ruling

October 18, 1973 Mr. Adriano D. Icasas 1089-A Pasong Tamo St. Makati, Rizal S i r : This refers to your letter dated October 10, 1973 requesting information on the following queries: "1. Are allowances, such as Transportation, Meal, Housing, Representation, etc., given to executives of business firms subject to withholding tax?" "2. These allowances will be included in the gross income of the executives concerned, in their individual income tax returns. Can they deduct from this income the expenses incurred for transportation, meals, representation, etc. in the computation of their net income?" In reply thereto, I have the honor to inform you that under Revenue Regulations No. V-8 as amended by Revenue Regulations No. V-70, implementing the collection at source of income tax on wages, it is provided under Section 2(c) thereof, viz: "(c) Traveling and other expenses . Amounts paid specifically-either as advance or reimbursements for traveling or other bona-fide ordinary and necessary expenses incurred or reasonably expected to be incurred in the business of the employer are not wages and are not subject to withholding. Traveling and other reimbursed expenses must be identified either by making a separate payment or by specifically indicating the separate amounts where both wages and expenses allowances are combined in a single payment." Pursuant to the foregoing provision, such fixed allowances for transportation and representation expenses of an executive of a corporation are not subject to withholding if they are mere advances which are to be accounted for. However, traveling and representation expenses given in lump sum to officers and employees of a corporation which are not to be accounted for are subject to withholding as part of compensation. In such cases, however, the taxpayer can deduct from gross income the actual amount of transportation and representation expenses expended if properly substantiated. Meal and housing allowances constitutes additional compensation of the executive and must be included as part of wages subject to withholding tax. cdtech Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."