BIR Ruling [DA-115-01]

June 20, 2001 BIR RULING [DA-115-01] 34 000-00 SGV & Co . 6760 Ayala Avenue Makati City Attention: Atty . Cirilo P . Noel Gentlemen : This refers to your letter dated March 29, 2000 stating that your client, Mitsubishi Motors Philippines Corporation ( "MMPC" ) has existing Collective Bargaining Agreements with its two company unions, Chrysler Philippine Labor Union ( "CPLU" ) and Mitsubishi Motors Philippines Salaried Employees Union ( "MMPSEU" ); that as part of its benefits under said CBAs, MMPC provides hospitalization benefits to its employees and the latter's dependents; that recently, the Department of Labor and Employment ( "DOLE" ) issued rulings on the aforementioned CBAs allowing the submission of certified true copies of receipts for dependents' hospitalization on the CBA between MMPC and CPLU and dispensing with the presentation of original receipts by the employee for hospitalization expenses on the CBA between MMPC and MMPSEU. Based on the foregoing, you are requesting for confirmation of your opinion that the hospitalization benefits given by MMPC to its employees and the latter's dependents represent an ordinary and necessary business expense which may be claimed by MMPC as a deduction from gross income. Furthermore, you are requesting for an opinion as to whether or not for purposes of claiming these hospitalization benefits as a corporate business expense and hence, a deduction from gross income, the presentation of certified true copies of the official receipts is sufficient. In reply, please be informed that Section 34(A)(l)(a)(i) of the Tax Code of 1997, states as follows: "SEC. 34. Deductions from Gross Income . . . . (A) Expenses. (l) 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 of a profession . . . ." Consequently, the hospitalization benefits paid by MMPC to its employees and the latter's dependents represent an ordinary and necessary business expense. For income tax purposes, therefore, the same is a proper deduction from gross income (BIR Ruling No. 370-92 dated December 23, 1992), provided that such benefits, to the extent that the amount thereof exceeds the amount of de minimis benefits provided under Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 10-2000, have been subjected to the appropriate withholding tax, in accordance with Revenue Regulations No. 2-98, as amended. Furthermore, please be informed that an expense to be deductible must be substantiated by official receipts or adequate records. Generally, this Office only accepts the original copy of the receipt/s, which a taxpayer presents to substantiate deductible expense. However, the absence of original receipts or records does not prevent a taxpayer from proving by other evidence that the claimed deduction was really paid or incurred. (Zamora vs. Collector, L-15290, May 13, 1963; Visayan Cebu Terminal Co., Inc. vs. Collector, L-12798, May 30, 1960). Accordingly, this Office will accept certified true copies of the official receipts, certified by the hospital concerned, presented by the employee claiming reimbursement for his hospitalization only upon proof that the original of said receipts were actually lost or destroyed. For this purpose, you should require the employee concerned to execute an affidavit attesting to the fact of loss of the original receipt in order that the certified true copy of the same may be admissible as evidence of your claimed deductible expense. CcHDaA 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.) REN G. BAEZ Commissioner of Internal Revenue