BIR Ruling [DA-168-04]

April 5, 2004 BIR RULING [DA-168-04] 33; 23-2002 Philippines Samsung Electronics Corporation Block 6, Calamba Premiere International Park Barangay Batino, Prinza Calamba, Laguna Attention: Mr. Jeong Ho Park VP-Corporate Support Gentlemen : This refers to your letter dated November 15, 2001 requesting for a ruling exempting from income tax the following incentives provided to your employees: Meal allowance P1,200.00/month Rice subsidy 1,000.00/month Medicines/medical allowance 800.00/month Transportation allowance 1,000/month Total P4,000.00/month ============= It is represented that your company is located at the Calamba Premiere International Park (CPIP) in Bgy. Batino, Calamba, Laguna which is about an hour's travel from Makati or about one and a half or two hours travel from Manila; that since most of your key personnel come or reside in Metro Manila, while others opted to avail of dormitories in Calamba, Laguna to go home only on weekends, your company decided to provide the above incentives to promote health, goodwill, contentment and efficiency of your employees; and, that the non-taxability of the above incentives shall further enhance the purpose by which they were provided. In reply, please be informed that the following rules shall generally apply in considering the tax consequences of certain benefits given by employers to their employees, whether rank-and-file, supervisory or managerial: 1. Facilities or privileges that are categorized as de minimis benefits under pertinent rules and regulations shall not be included as items of gross income for income tax purposes. They shall not also be included in the computation of the P30,000 threshold for a determination of the items of income that are to be excluded from income under Section 32(B)(7)(e) of the Tax Code of 1997. 2. Corollary to this, de minimis benefits are neither subject to income tax on compensation nor to the fringe benefits tax. Furthermore, no withholding tax thereon shall be imposed in view of their exclusion and exemption from tax. 3. The gross benefits granted to rank-and-file, supervisory or managerial employees of entities, to the extent of the threshold of P30,000 mandated by 32(B)(7)(e) of the Tax Code of 1997, shall not be included as items of gross income and shall, therefore, be exempt from income taxation. Accordingly, such benefits given in excess of the threshold amount shall be taxable to the recipient employee. 4. The "other benefits" referred to in 32(B)(7)(e)(iv) of the Tax Code of 1997 include all benefits, other than the 13th month pay, such as, the annual Christmas bonus given by private entities, 14th month pay and the like, gifts in cash or in kind and other similar benefits and refer to those benefits received by an employee in a calendar year. 5. Revenue Regulations No. 3-98, as amended by Revenue Regulations No. 8-2000 and 10-2000 are illustrative and non-exclusive in the enumeration of what constitutes de minimis fringe benefits. Accordingly, we rule that the meal and food benefits granted, although not intended to be used for overtime work, may still be added in the enumeration of de minimis fringe benefits. However, in terms of de minimis threshold for regular meal and food benefit, the ceiling for benefits of similar nature under Revenue Regulations No. 8-2000 should be used as guidelines. Such being the case, meal and food benefits not exceeding 25% of the daily minimum wage may be considered de minimis meal benefit and therefore, tax exempt. The excess over this amount shall be considered other benefits as contemplated under Section 32(B)(7)(e)(iv) of the Tax Code of 1997. The excess of the meal and food allowance given over the de minimis ceiling shall still be exempt provided that it, together with the total amount of other benefits, shall not exceed Php30,000. ( BIR Ruling No. 23-2002 dated June 21, 2002 ) aSAHCE 6. In keeping with the spirit of the rules and regulations on de minimis benefits, we rule that there can be no aggregation of the values set for each item of benefit stated in Revenue Regulations Nos. 2-98 and 3-98, as amended by Revenue Regulations Nos. 8-2000 and 10-2000. The intent of the Regulations is to treat each item of de minimis benefit independently of each other, and we have to give life to that intent. Thus, the Regulations separately provide maximum values for rice allowance and for meal allowance. Accordingly, there can be no aggregation of de minimis values for rice and meal and food benefits. ( BIR Ruling No. 23-2002 dated June 21, 2002 ) In addition to the foregoing, it is the rule that the fringe benefits tax is a final tax on the employee, other than a rank-and-file employee, that shall be withheld and paid by the employer on a calendar quarterly basis as provided under Section 57(A) of Code of 1997. Being a final tax, however, the amount of fringe benefits given shall not be reported as income for the concerned employee's annual tax return consolidation. On the basis of the foregoing and according to the pertinent Revenue Regulations on the matter, we proceed to rule on the particular issues raised for our consideration. 1) Meal Allowance To be considered de minimis , only such daily meal allowance not exceeding 25% of the basic minimum wage, on a per region basis shall be recognized and allowed. (Revenue Regulations No. 8-2000, as amended by Revenue Regulations No. 10-2000) The excess given over the said ceiling is still exempt provided that it, together with the total amount of other benefits shall not exceed P30,000. 2) Rice Subsidy The rice allowance benefit in the amount of P1,000 per month is within the limitation set by Revenue Regulations No. 3-98, as amended by Revenue Regulations No. 8-2000 and 10-2000. Accordingly, the rice allowance in the amount of P1,000 per month is not subject to income tax nor to the fringe benefits tax. 3) Medicines/Medical Allowance De Minimis benefits are non-taxable fringe benefits. Accordingly, Section 2.79(D)(3)(d) of Revenue Regulations No. 2-98, as amended, provides that "[f]or purposes of determining whether the fringe benefit shall be considered payment of de minimis benefits, the employer shall submit a written representation to the commissioner Revenue Regulations No. 8-2000, as amended by Revenue Regulations No. 10-2000, recognize actual yearly medical benefits not exceeding P10,000 per annum as de minimis . On this basis, the grant of medical benefits consisting of medicines/medical allowance to your employees shall be considered de minimis to the extent of the maximum amount of P10,000 per annum of medical benefits, taken together with all the other medical benefits provided to such employees. 4) Transportation Allowance Since the above-mentioned transportation allowance is fixed in amount and are regularly received by your employees as part of their monthly compensation income, the same shall not be treated as taxable fringe benefits but the same shall be considered as taxable compensation income subject to the tax imposed under Section 24 of the Tax Code of 1997. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group