BIR Ruling [DA-006-97]

January 8, 1997 BIR RULING [DA-006-97] Joaquin Cunanan & Co. 8th Floor, BA-Lepanto Building 8747 Paseo de Roxas Makati City Attention: Ms . Tomasa H . Lipana Managing Partner Tax and Corporate Services Gentlemen : This refers to your letter dated October 16, 1996 requesting for confirmation of your opinion in behalf of your client, DART Philippines Inc., (DART) that (a) monetization of unused vacation leave credits not exceeding ten (10) days paid each year are exempt from income tax and withholding tax; and (b) accumulated unused vacation leave credits to be paid one time this coming December will be entitled to tax exemption subject to 10 day limit each year. It is represented that the present policy of DART is that their employees can accumulated thirty (30) days sick leave (SL) and another (30) days vacation leave (VL) credits as "reserves"; that these reserves are used during extended leaves and any remaining balances are convertible to cash upon resignation or retirement; that DART will change the above policy which will involve eliminating the reserves as a matter of practice; that DART's employees will no longer accumulate any unused sick leave and vacation leave into reserves; that any unused credits will be convertible to cash at the end of each year; and that employees who have 30/30 days reserves or portions thereof will receive a one-time "cash payment" this coming December. In reply, please be informed that monetized vacation leave credits not exceeding ten (10) days during the year are not subject to income tax and consequently to the withholding tax. Conversely, the cash equivalent of vacation leaves exceeding ten (10) days is subject to tax. Moreover, the cash equivalent of the 30 days vacation leave or portion thereof which Dart's employees have accumulated over the past many years and which they will receive in the form of one time cash payment this December shall be subject to income tax and consequently to the withholding tax on wages since they constitute taxable compensation income. (Revenue Regulations No. 12-86) The exemption from income tax of the monetized vacation leave credits not exceeding ten (10) days during the year shall not apply to said payments. (BIR Ruling Nos. 033-93 dated January 15, 1993 and 060-93 dated February 10, 1993) cdta Very truly yours, ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)