BIR Ruling [DA-139-05]

April 11, 2005 BIR RULING [DA-139-05] V.C. Mamalateo & Associates Unit 6C, 20 Lansbergh Place 170 T. Morato Avenue, cor. Castor Street Quezon City Attention: Atty. Vic C. Mamalateo Tax Partner Gentlemen : This refers to your letter dated March 10, 2005 stating that your client, Philippine American Life and General Insurance Company (PHILAMLIFE),is a corporation organized under the laws of the Philippines; that it has been the premier life insurance organization in the Philippines for over five decades now; that it sells, among others, Group Permanent Plans (the Plan) to private companies; that the Plan is composed of individual life insurance policies for the eligible employees, both managerial and rank-and-file employees, of a private company, specifically a Philippine Economic Zone Authority (PEZA)-registered enterprise, availing of the Plan; and that the private company makes contributions as and by way of premium payments for its eligible employees availing of the Plan to PHILAMLIFE. Based on the foregoing representations, you now request for an opinion that the life insurance premium payments of corporate employers do not form part of the gross income of their employees (rank-and-file and managerial) hence, not subject to withholding tax on compensation nor fringe benefit tax. In reply thereto, please be informed that Section 33(B) of the Tax Code of 1997, as implemented by Revenue Regulations No. 3-98, as amended provides that the term fringe benefit means any good, service, or other benefit furnished or granted by an employer in cash or in kind, in addition to basic salaries, to an individual employee (except rank and file employee as defined in these regulations). DCSTAH Likewise, Section 33(C),supra, provides that (C) Fringe Benefits Not Subject to Fringe Benefit Tax In general, the fringe benefits tax shall not be imposed on the following fringe benefits: (1) Fringe benefits which are authorized and exempted from income tax under the Code or under any special law; (2) Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans ; (3) Benefits given to the rank and file, whether granted under a collective bargaining agreement or not; (4) De minimis benefits as defined in these Regulations; (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 the fringe benefit is for the convenience of the employer. In addition, Section 2.33(B)(10)(b) of Revenue Regulations No. 3-98, as amended, provides that 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. 8292, as amended) or under the Government Service Insurance System (GSIS) (R.A. No. 8291), or 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 made by the corporate employers for the benefit of its eligible employees (managerial and rank-and-file) are not subject to withholding tax on compensation nor to fringe benefits tax. Thus, this Office had already occasion to rule on the matter when it said in BIR Ruling No. 014-01 dated March 26, 2001 that "Therefore, the premium payments to be made by the employees on GE Life's Group Plan constitute non-taxable fringe benefits." WHEREFORE, in view of the foregoing ,this Office holds that premium payments made by a client of PHILAMLIFE relating to a group insurance for its eligible employees (managerial and rank-and-file) are not subject to withholding tax on compensation nor to fringe benefits 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. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group