BIR Ruling [DA-253-04]

May 12, 2004 BIR RULING [DA-253-04] RR 2-98; 43-2001 Sanyo Philippines, Inc. Bo. Tanyag, Bagumbayan (Bicutan) Taguig, Metro Manila Attention: Mr. Paul B. Calvo Chief Accountant Gentlemen : This refers to your letter dated March 19, 2002 requesting for a ruling on the taxability of the Emergency Cost of Living Allowance (ECOLA) under Wage Order No. NCR-09 dated October 19, 2001. In reply thereto, please be informed that the term "Compensation Income" means all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Code. The name by which the remuneration for services is designated is immaterial, Thus, salaries, wages, emoluments and honoraria, allowances, commissions ( e.g., transportation, representation, entertainment and the like), fees including director's fees, if the director is, at the same time, an employee of the employer/corporation; taxable bonuses and fringe benefits except those which are subject to the fringe benefits tax under Section 33 of the Tax Code; taxable pensions and retirement pay; and other income of a similar nature constitute compensation income. DAHCaI Remuneration for services constitutes compensation even if the relationship of employer and employee does not exist any longer at the time when payment is made between the person in whose employ the services had been performed and the individual who performed them. (Sec. 2.78.1 (A), Revenue Regulations No. 2-98) (BIR Ruling No. 43-2001 dated September 21, 2001) Please note that the withholding tax on compensation income is a method of collecting the income tax at source upon receipt of the income. It applies to all employed individuals whether citizens or aliens, deriving income from compensation for services rendered in the Philippines. The employer is constituted as the withholding agent. (Sec. 2.78, Ibid.). In applying the above-cited regulations to the case at bar, the ECOLA to be received by Sanyo Philippines, Inc. (Sanyo) employees form part of their compensation income subject to withholding tax. Thus, it is the liability of the employer, Sanyo, to withhold and remit the corresponding tax due on the said allowances to the BIR. TcCDIS This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group