BIR Ruling [DA-238-03]

July 23, 2003 BIR RULING [DA-238-03] Secs. 32 & 33 BIR Rulings Nos. 23-02; 27-01 & DA250-02 Link2Support 5/F, TechnoPlaza One Bldg. Orchard Road, Eastwood City Cyberpark 188 E. Rodriguez Jr. Ave., Libis Quezon City Attention: Ms. Liwanag Catemprate Accounting Manager Gentlemen : This refers to your letter dated January 28, 2003 requesting for a ruling on the following; 1) Is meal allowance in the amount of Php 100.00 for every night's work given to your graveyard shift employees considered De Minimis and therefore exempt from tax? 2) Can the said meal allowance be considered reasonable so as not to subject you to substantiation requirements? It is represented that you are a call center company providing technical support service with 24 hours operations daily; that you employ around 500 employees and has a plan to expand within the year; and that in your objective to achieve high level of compliance to your revenue regulations while at the same time promote health and efficiency among your employees, you plan to provide your graveyard shift employees Php 100.00 meal allowance every night's worked. We proceed to rule on the particular issues raised for our consideration: 1) 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: a) In general, the term "compensation" means all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Tax Code of 1997. The name and basis by which the remuneration for services is designated is immaterial in determining whether the remuneration constitutes compensation. Thus, fringe benefits, unless specifically excluded from gross income and unless subject to the fringe benefits tax under Sec. 33 of the Tax Code of 1997, would generally, constitute compensation to the recipient (Sec. 2.78.1(A); Rev. Regs. No. 2-98, as amended). Furthermore, any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee, except rank and file employees as defined, shall generally be understood as fringe benefits, and as such, shall be subject to the fringe benefits tax, unless specifically excluded under the same Code, as implemented according to rules and regulations as are necessary to carry out efficiently and fairly the provisions of the Code (Sec. 33, Tax Code of 1997, as implemented by Rev. Regs. No. 3-98, as amended) . b) 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 Sec. 32(B)(7)(e) of the Tax Code of 1997. c) 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 exclusive and exemption from tax. d) 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 Sec. 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. e) The "other benefits" referred to in Sec. 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. f) Revenue Regulations No. 3-98, as amended by Rev. Regs. No. 8-2000 and 10-2000 are illustrative and non-exclusive in the enumeration of what constitutes de minimis fringe benefits. Accordingly, we have ruled 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 the de minimis threshold for regular meal and food benefit, the ceiling for benefits of similar nature under Rev. Regs. No. 8-2000 and Rev. Regs. No. 10-2000 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 Sec. 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. g) In keeping with the spirit of the rules and regulations on de minimis benefits, we have ruled that there can be no aggregation of the values set for each item of benefit stated in Rev. Regs. Nos. 2-98 and 3-98, as amended by Rev. Regs. 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 and BIR Ruling No. DA-250-02 dated December 18, 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 Sec. 57(A) of the Tax Code of 1997. Being a final tax, however, the amount of fringe benefits given shall not be reported as income in the concerned employee's annual tax return consolidation. In view of the foregoing, the Php 100.00 meal allowance given to your graveyard shift employees which is not intended to be used for overtime work may still be added in the enumeration of de minimis fringe benefits. The portion of the meal allowance 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 as "other benefits" as contemplated under Sec. 32(B)(7)(e)(iv) of the Tax Code of 1997. The excess of the meal 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 stated June 21, 2002). ACTISD 2. Section 34(A)(1)(a)(i) of the Tax Code of 1997 provides, viz. : "Sec. 34. Deductions from Gross Income . . . . (A) Expenses. (1) 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 . . . ." For an expense to be deductible, it 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. Nevertheless, 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; BIR Ruling No. 027-01 dated June 20, 2001 ). Accordingly, for purposes of considering the benefit as valid deductible expense on the part of your Company, official receipts or other adequate records must be submitted. 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