BIR Ruling [DA-311-00]

August 21, 2000 BIR RULING [DA-311-00] RR 2-98 139-95 DA-311-2000 House of Representatives Quezon City Attention: Ms . Celia M . Fontelera OIC, Accounting Services Executive Director, Finance Bureau Gentlemen : This refers to your letter dated May 30, 2000 requesting for a ruling on the following issues: 1. Whether or not you are required to include the representation and transportation allowances received monthly, through payroll, as part of compensation/other benefits of the concerned employees. 2. Whether or not the value of "Other Benefits" contemplated in Section 2.78.1(B)(11)(b) of Revenue Regulations No. 2-98 which exceeds the P30,000 threshold may still be excluded from compensation income subject to income tax and consequently to the withholding tax. In reply, please be informed that in general, fixed or variable transportation, representation and other allowances which are received by a public officer or employee or of a private entity, in addition to the regular compensation fixed for his position or office is compensation subject to withholding tax. EHaDIC However, any amount paid specifically, either as advances or reimbursements for travelling, representation and other bona fide ordinary and necessary expenses incurred or reasonably expected to be incurred by the employee in the performance of his duties are not compensation subject to withholding, provided the following conditions are satisfied: (i) It is for ordinary and necessary travelling and representation or entertainment expenses paid or incurred by the employee in the pursuit of trade, business or profession; and (ii) The employee is required to account/liquidate for the foregoing expenses in accordance with the specific requirements of substantiation for each category of expenses pursuant to Section 34 of the Tax Code of 1997. The excess of actual expenses over advances made shall constitute taxable income if such amount is not returned to the employer. Reasonable amounts of reimbursements/advances for travelling and entertainment expenses which are pre-computed on a daily basis and are paid to an employee while he is on an assignment or duty need not be subject to the requirement of substantiation and to withholding. [2.78.1(A)(6)(a) & (b) of Revenue Regulations No. 2-98] Such being the case, the representation and transportation allowance granted to the concerned employees of the House of Representatives may not be subject to the withholding tax, provided the foregoing two (2) conditions have been satisfied. (BIR Ruling No. 139-95 dated September 6, 1995) With regard to the second query, the aggregate value of "Other Benefits" and the "Thirteenth Month Pay" must not exceed the threshold of P30,000 in order that such benefits may be excluded from the computation of compensation income subject to income tax and consequently to the withholding tax. Any excess thereof, will form part of compensation subject to the withholding tax. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group