BIR Ruling [DA-264-04]

May 17, 2004 BIR RULING [DA-264-04] RR 8-2000; 10-2000 23-2002 Petron Corporation Petron Megaplaza 358 Sen. Gil Puyat Avenue Makati City 12000 Attention: Atty. Liberador V. Villegas General Counsel Gentlemen : This refers to your letter dated January 9, 2001 requesting for a clarification and/or modification of certain portions of Revenue Regulations No. 8-2000 referring to the so-called " de minimis benefits" not subject to withholding tax on compensation of both managerial and rank and file employees. You state that with the amendments to Section 2.78.1 (A)(3)(d) of the said Revenue Regulations, and considering the current prices of textile and the cost of having the same made or tailored, you found the allowance of P3,000.00 per annum extremely insufficient and unrealistic; that you suggest that the "cap" of the amount that would not be subject to withholding tax be increased to P10,000.00 per annum; that even at this suggested amount, the allowance would not depart from the stated purpose of the Tax Code in providing for the benefits, i.e. , to promote goodwill, contentment and efficiency of your employees; that in relation to the amendments to Section 2.78(A)(3)(j), should the basic minimum wage be interpreted as the current basic minimum wage of P250.00 for the National Capital Region, a meal allowance of P62.50 based in today's living and economic conditions is certainly unrealistic; that this is in fact lower than the overtime meal allowance granted under your Collective Bargaining Agreement with one of the unions in the Company; that on May 5, 1999, the BIR ruled, through BIR Ruling No. 061-99 that overtime meal allowance in the amounts of P150.00 for managerial professional and technical employees and P80/90/100 for rank and file employees of Petron are not subject to the fringe benefit tax and income tax respectively; that you believe that Petron's justification that entitled it to BIR Ruling 061-99 still holds today as it did when issued; and that it is your contention that said Ruling be reinstated or the amount ceiling of " de minimis benefits" be adjusted upwards to the limits set by the aforecited BIR Ruling. We reply as follows: 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 Section 33 of the Tax Code of 1997, would generally constitute compensation to the recipient. (Sec. 2.78.1(A), Revenue Regulations No. 2-98) 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 Tax Code of 1997, as implemented according to rules and regulations as are necessary to carry out efficiently and fairly the provisions of the Code. (Section 33, Tax Code of 1997, as implemented by Revenue Regulations No. 3-98, as amended.) De minimis benefits are facilities or privileges furnished or offered by an employer to his employees that are of relatively small value and offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees, and as such, they are subject to neither compensation income tax nor fringe benefits tax. They are, therefore, not subject to withholding tax as well. (Sec. 2.78.1(A)(3), Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 8-2000; Sec. 2.33(C), Revenue Regulations No. 3-98, implementing Section 33(C)(4) of the Tax Code of 1997.) Accordingly, the amount of de minimis benefits conforming to the maximum values prescribed for each of the benefits enumerated in Revenue Regulations Nos. 3-98, as amended by Revenue Regulations Nos. 8-2000 and 10-2000 shall not be considered in determining the P30,000 threshold of "Other Benefits" provided in Section 32(B)(7)(e) of the Tax Code of 1997. However, any amount of fringe benefits paid by the employer that is in excess of the maximum values set in the stated Regulations shall be considered, along with the "Other Benefits," in determining whether or not the P30,000 threshold has been exceeded, and the excess thereof shall become taxable to the employee receiving the benefits. (Sec. 2.78.1(A)(3), Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 2-98, as amended by Revenue Regulations 8-2000). On the basis of the foregoing and following the pertinent Revenue Regulations on the matter, we proceed to rule on the particular issues raised for our consideration. 1. The uniforms and clothing allowance not exceeding P3,000.00 per annum may be considered tax-exempt benefits. Any excess over the P3,000.00 limit prescribed under the Regulations shall be considered, along with the "other benefit" under Section 32(B)(7)(e) of the Tax Code of 1997, in determining whether or not the P30,000.00 threshold has been exceeded. The excess thereof shall become taxable to the employee receiving the benefits. 2. Similarly, 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 benefit" 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 P30,000.00. Moreover, BIR Ruling No. 061-99 dated May 5, 1999 holding that the overtime meal allowances of P80.00/P90.00/P100.00 given by you to your rank and file employees, the same being of relatively small value and the amount of P150.00 given to your supervisory, professional and technical employees under the convenience of the employer rule, issued in your favor was anchored at Revenue Regulations Nos. 2-98 and 3-98. Said Revenue Regulations were effectively superseded by Revenue Regulations Nos. 8-2000 and 10-2000, rendering such parts of the aforesaid ruling ineffective. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be discovered 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