BIR Ruling [DA-078-04]

February 20, 2004 BIR RULING [DA-078-04] Sec. 32 (B) (7); RR 3-98; RR 10-2000 DA-23-2003; 057-98 Lacson & Lacson Insurance Brokers Inc. 15th Floor Burgundy Corporate Tower 252 Sen. Gil Puyat Avenue Makati City Attention: Mr. Salvador L. Lacson Managing Director Gentlemen : This refers to your letter dated December 17, 2003 requesting for a ruling whether medical benefits provided by a company clinic or hospital which are beyond the de minimis benefits of P10,000.00 are subject to fringe benefit tax for supervisory employees and income tax for rank and file employees, and the basis for such tax, if there is any. It is represented that you refer to companies that are required by law to provide clinic or hospital for its employees; that these clinics or hospitals are not operated for profit but merely serve the medical needs of the employees and their dependents; that the benefits provided by a company clinic or hospital are mandated by law, whatever else may be given are purely voluntary on the part of the management or a result of a collective bargaining agreement; that benefits given by a company clinic or hospital are given to the employees or their dependents for free; and that the costs of maintaining the company clinic or hospital are part of the company's overhead expense. In reply, please be informed that Revenue Regulations No. 10-2000, provides that "de minimis" benefits which are exempt from the fringe benefits tax shall, in general, be limited to facilities or privileges furnished or offered by an employer to his employees that are relatively of small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees, such as the following: "xxx xxx xxx "(e) Actual yearly medical benefits not exceeding P10,000.00 per annum ; "xxx xxx xxx." Applying the law by analogy, the portion of the medical benefits not exceeding P10,000.00 may be considered de minimis medical benefits, and therefore, tax exempt. The excess over this amount shall be considered as "other benefits" as contemplated under Section 32(B)(7)(e)(iv) of the Tax Code of 1997. The excess of the medical benefits given over the de minimis ceiling shall still be exempt provided that it, together with the total amount of other benefits, shall not exceed P30,000.00 (BIR Ruling No. 23-2002 dated June 21, 2002) Corollarily, any amount of fringe benefits paid by the employer that is in excess of the maximum values set in the stated Regulations shall be considered along with the "other benefits", in determining whether or not the P30,000.00 threshold has been exceeded and the excess thereof shall become taxable to the employee receiving the benefits. (Sec. 2.78.1(A)(3), Revenue Regulations No. 2-98 as amended by Revenue Regulations No. 8-2000 and 10-2000) Furthermore, medical benefits provided to the employees by companies may be tax-exempt, subject to the standards set for de minimis thresholds for fringe benefits under Revenue Regulations No. 3-98, as amended by Revenue Regulations No. 8-2000 and 10-2000, subject to the conditions set for the benefits to be exempt pursuant to the tests of convenience of the employer and the promotion of health, goodwill, contentment, or efficiency of the employees under Sec. 2.78.1(A)(2) and (3) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 8-2000 and 10-2000. The name and basis upon which the benefits are to be given are immaterial in determining whether such would constitute taxable income. Thus, whether or not the benefits are administered by the company itself would not be the determining factor, rather, the determination must be made according to the standards laid down in the implementing Regulations. In fine, the value of the medical benefits provided to an employee in addition to his remuneration for services rendered, if furnished to such employee for the convenience of the employer, shall not be added to the remuneration paid for the purpose of determining the amount of compensation subject to income and withholding tax. Neither shall facilities or privileges that are of relatively small value constitute compensation income if these are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees. (Sec. 2.78.1(A)(2) and (3), Revenue Regulations No. 2-98, as amended) cITaCS On the other hand, fringe benefit granted to rank and file employees which in the instant case pertains to the medical benefits, is in all cases exempt from the imposition of fringe benefits tax imposed by Section 33(A) of the Tax Code of 1997 since this is one of those enumerated under Subsection (C) item (3) thereof which provides for the non-taxability of benefits given to rank and file employees whether under a Collective Bargaining Agreement (CBA) or not, for fringe benefit tax purposes. (BIR Ruling No. 057-98 dated May 21, 1998) This ruling is 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group