Metrobank Card Corporation

January 16, 2008 BIR RULING [DA-013-08] DA023-06 Metrobank Card Corporation 6778 Ayala Avenue Makati City Attention: Atty. Aileen Paulette Saavedra-De Jesus Gentlemen : This refers to your letter dated October 11, 2007 stating that Metrobank Card Corporation (MCC) is a corporation organized and existing under and by virtue of the laws of the Philippines; that MCC is engaged in the business of issuing credit cards to the general public; that to promote the efficiency of its employees in order for MCC to deliver the desired services to its credit cardholders, there are some units of MCC requiring 24/7 operation; that to man this operational set-up, certain personnel, amongst them, customer service agents (CSAs) and fraud personnel and some backroom employees of MCC are made to work at designated hours, including night time; that in some instances, these employees may have to work overtime even after their shift ends; that MCC, in recognition of the added risk that its employees take on to commute to and from work during the graveyard/night shift as well as those who extend their working hours during weekdays, weekends, or during holidays, provides them with Overtime/Transportation Allowance of and a Duty Allowance on Night/Graveyard Shift, to wit: cACEHI (a) Transportation Allowance are granted as follows: Officer: P200.00/day on a weekday after 9 pm P250.00/day on a weekend P300.00/day on holidays Rank-and-File P100.00/day on a weekday after 9 pm P200.00/day after midnight P100.00/day on a weekend/rest day provided employee rendered 4 hours of work and P200.00/day if 8 hours P250.00/day on a holiday for 8 hours work and P150.00 for 4 hours if work is rendered on a holiday (b) The Night Shift Allowance are as follows: Officer: P300.00/day Rank-and-file: After 9 pm P500.00 on a weekday and P100.00 on a weekend or holiday After midnight P100.00 on a weekday and P150.00 on a weekend or holiday that MCC believes that these allowances are meant not only to promote the efficiency and well being, as well as the safety of its employees, but are also necessary to enable these employees to come to work on time without any untoward incident taking into account the lateness of the hour and the prevailing security situation in the country; that in the conduct of its card business, it is necessary for MCC to promote and maintain good relations with merchants and retail establishments relative to its card acquiring business; that accordingly, MCC sends its employees to regularly visit merchants in different parts of Metro Manila or the country, to check whether the Point-of-Sale terminal/equipment they are using are in top condition, and to handle other concerns; that MCC likewise attends to the needs of the direct sales agencies/agents who promote its card products; that the employees assigned to conduct fieldwork for purposes of discharging their function are entitled to a meal allowance on fieldwork of P100/day or P110.00/day within and outside of Metro Manila, respectively; and that the employees who are sent to locations beyond Metro Manila for purposes of carrying the business operations of MCC are entitled to an Outstation or Out-of-Town Allowance as follows: ACIDSc i) Rank-and-File: Daily local allowance of P300.00 given when the employee is assigned outside of Metro Manila Daily foreign allowance of USD50.00 for Europe and Japan; USD40.00 for the USA and Asian countries ii) Officers: President P1,000.00/day AVP up P800.00/day Managers P600.00/day Foreign Trip President USD120-150/day FVP USD95-105/day VP USD90-100/day AVP USD75-85/day Managers USD65-75/day Based on the foregoing representations, you now request for confirmation of your opinion that the above-mentioned benefits for the convenience and benefits of MCC, if required by the nature of, or necessary to the trade or business of MCC, are not subject to the fringe benefit tax pursuant to Section 2.33 (C) of Revenue Regulations No. 3-98, as amended; and that since the aforesaid benefits are pre-computed on a daily basis and are paid to the employees while they are on assignment or duty, they are not subject to the requirements of substantiation and to any withholding tax pursuant to Revenue Regulations No. 2-98, as amended. ASDCaI In reply thereto, please be informed that Section 2.33 (C) of Revenue Regulations No. 3-98, as amended, provides "(C) Fringe Benefits Not Subject to Fringe Benefit Tax. In general, the fringe benefits tax shall not be imposed on the following fringe benefits: xxx xxx xxx (5) If the grant of fringe benefits to the employee is required by the nature of, or necessary to the trade, business or profession of the employer; or (6) If the grant of fringe benefits to the employee is for the convenience of the employer." DCcSHE Corollarily, Section 2.78.1 (A) (6) (b) of Revenue Regulations No. 8-2000 provides that "(6) Fixed or variable transportation, representation and other allowances. xxx xxx xxx (b) Any amount paid specifically, either as advances or reimbursements for traveling, representation and other bona fide ordinary and necessary expenses incurred or reasonably expected to be incurred by the employee in the performance of his duties are not compensation subject to withholding, if the following conditions are satisfied: (i) It is paid for ordinary and necessary traveling and representation or entertainment expenses paid or incurred by the employee in the pursuit of the trade, business or profession; and (ii) The employee is required to account/liquidate for the foregoing expenses in accordance with the specific requirements of substantiation for each category of expenses pursuant to Section 34 of the Code. The excess of actual expenses over advances made shall constitute taxable income if such amount is not required to the employer. Reasonable amounts of reimbursements/advances for traveling and entertainment expenses which are pre-computed on a daily basis and are paid to an employee while he is on an assignment or duty need not be subject to the requirements of substantiation and to withholding." In stressing the rationale of the above-mentioned principles, this Office elucidated on the matter in BIR Ruling No. DA350-04 dated June 25, 2004, as follows: CEaDAc "Transportation allowance being given by your subsidiaries, Parlance Systems, Inc. and Vocative Systems, Inc. to its customer service representatives are not compensation subject to income tax and consequently to withholding tax on wages in accordance with Revenue Regulations No. 2-98, as amended. Moreover, since the transportation allowance is pre-computed on a daily basis and are paid to the employee while on an assignment or duty, the said transportation allowance is not subject to the requirements of substantiation and to withholding pursuant to Revenue Regulations No. 2-98, as amended." The above-cited ruling was later reiterated in BIR Ruling No. DA-023-06 dated January 27, 2006, where it was held that "If the Outstation Allowance is clearly required by the nature of or necessary to the trade or business of the employer, the grant of such Outstation Allowance is not subject to the fringe benefits tax prescribed in Section 33(A) of the said Code. Consequently, the Outstation Allowance, not being part of the compensation income of the employee, is not subject to income tax and consequently to withholding tax. By the same token, the Outstation Allowance which may be incurred or expected to be incurred by the aforesaid employee in the performance of his duties cannot be considered as part of compensation subject to withholding tax even if the employee fails to account/liquidate the same considering that said expense is pre-computed on a daily basis and is paid to an employee while he is on an assignment or duty." HDTcEI IN VIEW OF THE FOREGOING, this Office hereby confirms your opinion that the above-mentioned benefits which are for the convenience of MCC and are required by the nature of, or necessary to the trade or business of MCC are not subject to the fringe benefits tax pursuant to Section 2.33 (C) of Revenue Regulations No. 3-98, as amended. Moreover, since the said benefits are pre-computed on a daily basis and are paid to the employees, while they are on assignment or duty, they are not subject to the requirements of substantiation and therefore not subject to income tax and to withholding tax. 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, then this ruling shall be considered null and void. CcADHI Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service