Kaisa Consulting Company, Inc.

June 1, 2007 BIR RULING [DA-323-07] 33 013-2002 Kaisa Consulting Company, Inc. 5/F Ramcar Bldg. 80-82 Roces Avenue Diliman, Quezon City Attention: Ms. Yekaterina A. Aguilon Finance Officer Gentlemen : This refers to your letter dated September 20, 2006 requesting a ruling, whether the field allowance given by Kaisa Consulting Company Inc. (KCCI) to its Senior/Junior Consultant employees thrice a week shall be considered as non-taxable fringe benefit even if the employees failed to account/liquidate and provide supporting receipts for the allowance and therefore, not subject to the fringe benefit tax (FBT) or withholding tax on wages. It is represented that KCCI is engaged in and carry on consultancy services involving all facets of general businesses for clients in such activities as information technology, maintenance and management projects; that KCCI sends its technical personnel, junior and senior consultants to regularly visit clients' offices in different parts of the Philippines for system implementation and support, installation and maintenance of computer hardware; that as a company policy, Kaisa pays for the actual expenses incurred by the employees deployed in clients' offices; that KCCI plans to give a fixed amount of Field Allowance to its employees who are sent to clients' offices outside Metro Manila with the following rates: a) Full Allowance given when the employees assigned is away from the head office for at least 16 to 24 hours Senior technical/SAP Consultants P1,500/day Junior technical/SAP Consultants 1,300/day b) Day allowance given when employee is away from the office for more than 4 hours but less than 16 hours Senior technical/SAP Consultants P900/day Junior technical/SAP Consultants P800/day and that the field allowance is required by the nature of or necessary to the trade, business or profession of KCCI. In reply, please be informed that as a general rule, Section 33 (A) of the Tax Code of 1997 imposes a final withholding tax of 32% on the grossed-up monetary value of fringe benefit furnished or granted to the employee (except rank and file employees) by the employer, whether an individual or a corporation. This general rule is not, however, without exception. The aforequoted section sets forth two scenarios wherein no fringe benefit tax will be imposed, i.e., (1) when the fringe benefit is required by the nature of or necessary to the trade, business or profession of the employer; or (2) when the fringe benefit is for the convenience or advantage of the employer. The Field Allowance, as you claimed, is given by KCCI to its Senior/Junior SAP Consultants who will be away from the office site for at least 4 hours to visit its clients for system implementation and support, installation and maintenance of computer hardware. The same is intended to cover meals and trip-related expenses in connection with their off-site visit to its clients including, but not limited to prepaid cell phone loads and other incidental expenses. AaHcIT The Field Allowance, therefore, is clearly required by the nature of or necessary to the trade or business of KCCI. Accordingly, this Office opines and so holds that the grant of the Field Allowance by KCCI to its Senior/Junior SAP Consultants employees is not subject to the fringe benefits tax prescribed in Section 33 (A) of the said Code. Consequently, the Field Allowance, not being part of the compensation income of the employee, is not subject to income tax and consequently to withholding tax. By the same token, the Field Allowance which may be incurred or expected to be incurred by the aforesaid employee in the performance of his duties cannot be considered as part of compensation subject to withholding tax even if the employee fails to account/liquidate the same considering that said expense is pre-computed on a daily basis and is paid to an employee while he is on an assignment or duty. (BIR Ruling No. 013-2002 dated April 5, 2002) Section 2 (6) (b) (ii) of Revenue Regulations No. 8-2000 specifically states that: "(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 Sec. 34 of the Code. 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 traveling and entertainment expense 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 requirements of substantiation and to withholding." (Emphasis supplied.) DCcHIS This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service