BIR Ruling [DA-004-97]

January 7, 1997 BIR RULING [DA-004-97] Castro, Tan & Carag Suite 6B, Eisenhower Condominium No. 7 Eisenhower Street, 1500 Grenhills San Juan, Metro Manila Attention: Atty. Othelo C. Carag Gentlemen : This refers to your letter dated December 6, 1996 requesting for a ruling regarding the tax implications of the monthly rental paid by Mabuhay Holding Corporation (MABUHAY) for the lodging it provides for its Malaysian officers. It is represented that MABUHAY is a corporation duly organized and existing under Philippine laws and has under its employs as its officers, Malaysian nationals; that as part of its arrangement with the Malaysian officers. MABUHAY rents houses in Manila for said Malaysian officers and shoulders the monthly housing rental therefore; and that because of the position of the Malaysian officers, they rented houses to entertain visitors and guests of MABUHAY, especially clients coming from Malaysia. In reply, please be informed that pursuant to Revenue Memorandum Order No. 1-87, if an employee is provided by his employer with company housing or living quarters outside the business premises, and such employee, because of his position in the employer-company, also uses said house or living quarters for the benefit of the latter, like entertaining and putting up house guests and guests of employer-company, then fifty percent (50%) of such allowance, rental value, or depreciation if the living quarters are owned by the employer, shall be added to the compensation paid to such employee and be subject to the withholding tax on wages but the employer may deduct the said housing expense as a business expense. Such being the case, this Office hereby confirm your opinion that: 1. Fifty percent (50%) of the housing rental payment shall be added to the compensation paid to Malaysian officers and shall be subject to the withholding tax on wages but the same shall be deductible as business expense from the gross income of MABUHAY. 2. The remaining fifty (50%) of the housing rental expense will also be considered as business expense of MABUHAY and may likewise be deducted from its gross income. (BIR Ruling No. 269-91 dated December 23, 1991) Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: (SGD.) ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)