BIR Ruling [DA-190-96]

June 6, 1996 BIR RULING [DA-190-96] Barbizon Philippines, Inc. No. 1 Phase III Veterans Road, Veterans Center, Taguig Metro-Manila Attention: Ms . Merriam Joyce F . Lugtu-Delim Internal Audit Manager Gentlemen : This refers to your letter dated January 9, 1996 stating that Barbizon Philippines, Inc. is a garment manufacturing company; that it has a policy to credit all regular employees who have rendered one (1) year continuous service with vacation leave of 14 to 18 days per year depending on length of service and level or ranking and to pay the cash equivalent of earned but unused vacation leave credits at the end of the year; that in BIR Ruling No. 29-92 dated January 17, 1992, this Office ruled that the "monetized unused vacation leave credit not exceeding ten (10) days are not subject to income tax," and that the problem arises when monetized vacation leave credits exceed ten (10) days, e.g. 14 days. Based on the foregoing representations, you now request for our opinion on whether the whole cash equivalent of vacation leave credits for fourteen (14) days is subject to tax or only the monetized vacation leave credits for four (4) days in excess of 10 days is taxable. In reply, please be informed that monetized vacation leave credits not exceeding ten (10) days during the year are not subject to income tax and consequently to the withholding tax. Conversely, the cash equivalent of vacation leave credits exceeding ten (10) days is subject to tax. Accordingly, only the excess of ten (10) days vacation leave credit, i.e. 4 days is taxable but not the whole amount of fourteen (14) days vacation leave credit. (BIR Ruling No. 060-83 dated February 10, 1993) cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)