BIR Ruling [DA-336-06]

May 22, 2006 BIR RULING [DA-336-06] 33 (A); DA159-05 PNOC Energy Development Corporation Energy Center, Merritt Road Fort Bonifacio, Taguig, Metro Manila Attention: Mr. Felicito A. Gesite Treasury Manager Gentlemen : This refers to your letter dated December 2, 2005 requesting for a ruling as to whether or not the annual cash award ranging from P7,500.00 to P15,000.00 given to your rank and file employees as a Performance Incentive Award shall be considered as a de minimis benefit and therefore exempt from income tax and consequently from withholding tax. In reply thereto, please be informed that in BIR Ruling No. DA159-05 dated April 14, 2005 , this Office had already occasion to rule on the matter, when it said that "The term "DE MINIMIS" benefits which are exempt from the fringe benefit tax shall, in general, be limited to facilities or privileges furnished or offered by an employer to his employees that 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. "Generally, fringe benefits granted or paid by the employer to the employee (except rank and file employees) is subject to a final withholding tax imposed under Section 33(A) of the Tax Code of 1997. However, said rule is not without exemptions, among them, is de minimis benefits as defined above. Accordingly, any benefit furnished by an employer is considered de minimis if it is among those benefits included in Revenue Regulations No. 3-98, as amended or it complies with the following conditions, to wit: (1) it is relatively of small value; and (2) it is provided by the employer merely as a means of promoting the health, goodwill, contentment or efficiency of his employees. TEAICc "WHEREFORE, inasmuch as JAE Phil. Provides the perfect attendance incentive for the purpose of promoting the contentment and efficiency of its employees by encouraging them to limit their absences through a reward system and the value thereof is relatively small, the aforesaid incentive (perfect attendance) to its supervisory employees is exempt from the fringe benefits tax. Moreover, since the perfect attendance incentive is considered as de minimis benefits , it is likewise not subject to income tax as well as to withholding tax on compensation income of both managerial and rank and file employees. Finally, the said incentive should not be considered in computing the P30,000.00 ceiling of " other benefits " provided under Section 32(B)(7)(e) of the Tax Code of 1997, considering that it is exempt from withholding tax on compensation." IN VIEW OF THE FOREGOING, this Office holds that the annual cash award to be given to your rank and file employees as Performance Incentive Award ranging from P7,500.00 to P15,000.00 shall be considered as de minimis benefits and therefore not subject to income tax and consequently to withholding tax. 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. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service