BIR Ruling [DA-331-00]

August 28, 2000 BIR RULING [DA-331-00] 32 DA-11-97 Wenphil Corporation 2/F, Uni-Oil Building Commerce Avenue corner Acacia St. Madrigal Business Park, Ayala Alabang Muntinlupa City Attention: Ms . Julie R . Cruz Finance Director Gentlemen : This refers to your faxed letter dated October 28, 1998 stating that you are a company engaged in restaurant business; that as part of the benefits given to your regular and part-time employees, an employee meal privilege is given as follows: 1. a monthly meal privilege only from your menu items ranging from P250 to P750 for regular rank and file employees belonging to operations (stores); that this is only a consumable amount and not convertible to cash; 2. a monthly meal privilege only from your menu items ranging from P750 to P2,500 for higher-level employees belonging to operations and head office officers; that this is also a consumable amount and not convertible to cash; and 3. discount from your menu prices ranging from 30-50% for all other employees; that the underlying reason for giving the said privileges to your employees is to discourage them to leave the premises of your stores during store hours and encourage them on the other hand to patronize your products; that the said meal privilege is allowed only when the employee is on duty; that it cannot be availed of during absences or leaves; that you look at it as something that is necessary to your nature of business and that it is your advantage that your employees would rather consume your products; that there are no other benefits in cash or in kind that are given to the employees aside from that which is mandated by law; that a few of your officers is entitled to a car plan wherein 50% of the cost, not exceeding a certain amount is shouldered by the company while the other 50% is shouldered by the employee; that ownership of the car is placed in the name of the company; that the company purchases the car in cash with the employee giving his 50% share in cash or he can loan this amount from your company at market rates; that the amortization of the loan is over the useful life of the car not exceeding five years; and that at the end of the term, ownership of the car is transferred to the name of the employee. ATcaID In this regard, you now ask clarification as to the proper treatment of the above benefits given to your employees. In reply, please be informed that Section 2.33(C) of Revenue Regulations No. 3-98 provides, viz: "(C) Fringe Benefits Not Subject to Fringe Benefits Tax . In general, the fringe benefits tax shall not be imposed on the following benefits: xxx xxx xxx "(3) Benefits given to the rank and file, whether granted under a collective bargaining agreement or not; xxx xxx xxx "(6) If the grant of the fringe benefits is for the convenience of the employer." The meal privileges given to your employees are provided for your convenience and benefit to discourage them from leaving the premises of your stores during store hours and encourage them on the other hand to patronize your products. By providing your employees with meal privileges, you can expect them to be at their work place on time. However, facilities or privileges (such as entertainment, medical services, or so called courtesy discounts on purchases), furnished or offered by an employer to his employees, generally, are not considered as compensation subject to withholding tax if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees pursuant to Section 2.78.1(A)(3) of Revenue Regulations No. 2-98, implementing Section 32(B)(7)(e)(iv) of the Tax Code of 1997. Accordingly, the amount of P250 to P750 monthly meal privileges given to the regular rank and file employees belonging to operations (stores); the amount of P750 to P2,500 monthly meal privileges given to the higher-level employees belonging to operations and head office officers; and the 30-50% discount from your menu prices given to all other employees are neither subject to fringe benefits tax pursuant to Section 2.33(C) of Revenue Regulations No. 3-98 nor are they considered compensation income/wages pursuant to Section 2.78.1(A)(3) of Revenue Regulations No. 2-98, implementing Section 32(B)(7)(e)(iv) of the Tax Code of 1997 since these benefits are given for the convenience of the employer. Thus, it is not subject to the withholding tax prescribed by Section 79 in relation to Section 24(A) both of the Tax Code of 1997 since the said privileges are relatively of small value and offered by the employer to promote the health and efficiency of its employees. (BIR Ruling No. DA 11-97 dated January 9, 1997) The benefits given to the employees provided that the same fall under the definition of ordinary and necessary business expense as those enumerated under Section 34(A)(1)(a)(i) of the same Tax Code, are considered as valid deductible expenses of the Company. cITAaD Pursuant to Section 2.33 of Revenue Regulations No. 3-98 the computation of the fringe benefits tax in a situation where the ownership of the car is placed in the name of the company and the company purchases the car in cash with the employee giving his 50% share in cash or where he loans the amount from the company at market rates and ownership of the car is transferred in the name of the employee at the end of the 5-year term would entail (a) valuation of the benefit granted and (b) determination of the proportion or percentage of the benefit (i.e. 50%) which is subject to the fringe benefit tax. Accordingly, the monetary value of the fringe benefit shall be the entire value of the benefit (i.e. 50%) regardless of whether the motor vehicle is used by the employee partly for his personal purpose and partly for the benefit of his employer. The value of the benefit is the portion (i.e. 50%) of the amount of the purchase price of the motor vehicle which amount is shouldered by the employer. On the other hand, where the employer lends money to his employee for his car loan at a rate lower than twelve percent (12%) the difference of the interest assumed by the employee and the rate of twelve percent (12%) shall be treated as a taxable fringe benefit pursuant to Section 2.33 of Revenue Regulations No. 3-98. 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 null and void. TSDHCc Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group