The Insular Life Assurance Company, Ltd.

January 24, 2007 BIR RULING [DA-035-07] DA 139-05 The Insular Life Assurance Company, Ltd. IL, Corporate Centre, Corporate corner Commerce Avenue Filinvest Corporate City Alabang, Muntinlupa city Attention: Mr. Carlito V. Lucas Vice President and Head Worksite Marketing Division Gentlemen : This refers to your letter dated November 23, 2006 stating that your company is the largest Filipino life insurance company; that it has always been a leading provider of life insurance to many individuals and corporations in the Philippines; that at present, you are negotiating with a duly-registered private company for a Group Life Insurance Plan for a specific category of eligible employees, both managerial and rank-and-file; and that the employer will pay for the premium. In connection therewith, you now request for confirmation of your opinion that 1. The insurance premium payments of the client-employer are deductible as business expense; 2. The insurance premium payments borne by the client-employer are non-taxable fringe benefits; and 3. The proceeds from insurance are not subject to withholding tax. In reply, thereto, please be informed that your opinion is hereby confirmed as follows: 1. Section 34 (A) of the Tax Code of 1997 provides that "(A) Expenses . "(1) Ordinary and Necessary Trade, Business or Professional Expenses. (a) In General. There shall be allowed as deduction from gross income all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are directly attributable to, the development, management, operation and/or conduct of the trade, business or exercise or a profession . . . " Such being the case, the insurance premiums paid by the client-employer shall be deductible from the latter's gross income as business expense. ( BIR Ruling No. DA432-04 dated August 11, 2004 ) 2. Section 33, supra , provides that "Section 33. Special Treatment of Fringe Benefit . (C) Fringe Benefits Not Taxable. The following fringe benefits are not taxable under this Section: (1) Fringe benefits which are authorized and exempted from tax under special laws. (2) Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; (3) Benefits given to rank and file employees, whether granted under a collective bargaining agreement or not; and (4) De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner." Corollarily, Section 2.33 (b) of Revenue Regulations No. 3-98, as amended, otherwise known as the rules and regulations implementing the FBT, provides that the cost of group life insurance premiums borne by the employer for this employee shall be considered as a non-taxable fringe benefit. The pertinent Section of the said regulations states as follows: "(1) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows . The cost of life or health insurance and other non-life insurance premiums borne by the employer for his employee shall be treated as taxable fringe benefit, except the following: (a) contributions of the employer for the benefit of the employee, pursuant to the provisions of existing law, such as under the Social Security System (SSS), (R.A. No. 8291), similar contributions arising from the provisions of any other existing law; and (b) the cost of premiums borne by the employer for the group insurance of his employees." Accordingly, the premium payments to be borne by the client-employer are non-taxable fringe benefits. ( BIR Ruling No. 014-01 dated March 26, 2001 ) 4. Finally, Section 32 (b) (1) of the Tax Code of 1997 provides that "(B) Exclusion from Gross Income . The following items shall not be included in gross income and shall be exempt from taxation under this Title: (1) Life Insurance . The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, whether in a single sum or otherwise, but if such amounts are held by the insurer under an agreement to pay interest thereon, the interest payments shall be included in gross income. xxx xxx xxx Consequently, the proceeds from insurance are not subject to withholding tax on compensation. EHTADa 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. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service