BIR Ruling [DA-350-04]

June 25, 2004 BIR RULING [DA-350-04] Sections 32 & 33 BIR Ruling No. DA-335-2003 Philippine Long Distance Company General Office P.O. Box 2148 Makati City Attention: Atty. Kathyrn A. Zarate Head Tax Planning Center Gentlemen : This refers to your letter dated February 9, 2004 requesting on behalf of your subsidiaries, Parlance Systems, Inc. ("Parlance") and Vocative Systems, Inc. ("Vocative") for a confirmation of your opinion that the transportation allowance being given by the two companies to its customer service representatives (CSRs) need not be subject to the requirement of substantiation and are not subject to income tax and consequently, to withholding tax on wages in accordance with Revenue Regulations No. 2-98, as amended. It is represented that Parlance and Vocative are corporations duly organized and existing under the laws of the Philippines; that both companies operate a call center on a 24-hour basis and whose main clients are foreign-based, specifically in the United States; that since the call centers clients are based in the United States, the call centers' peak hours are from 9 p.m. to 6 a.m.; that the call centers are being manned by customer service representatives (CSRs) who are being supervised by supervisors, also called coaches; that the CSRs and coaches usually commute to work during the hours of 9 p.m. to 6 a.m., which is when public transportation is unavailable and even unsafe, requiring the use of taxis; that while the two (2) corporations provide some form of shuttle service, these are available only at designated pick-up points which necessitate most of the CSRs and coaches still having to commute to the said pick-up points resulting in the lower usage of the said shuttle service or the outright need for the CSRs and coaches to just use taxis with pick-up service for safety reasons; that Parlance and Vocative shall grant a fixed pre-computed transportation allowance to all CSRs while they are on duty in the amount of Two Thousand Pesos (P2,000.00) per month or around Ninety One Pesos (P91.00) per day for CSRs and Three Thousand Pesos (P3,000.00) or around One Hundred Thirty Six Pesos (P136.00) per day for the coaches; and that the said transportation allowance will be given to its CSRs and coaches not only to promote the efficiency and well being, as well as the safety of its employees, but is also necessary to enable these employees to come to work on time without any untoward incident taking into account the lateness of the hour and the prevailing security situation in the country. In reply, please be informed that Section 2.33(C) of Revenue Regulations No. 3-98, as amended 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." Accordingly, if the transportation allowance in the amount of P2,000.00/month or P91.00/day given to your customer service representatives and P3,000.00/month or around P136.00/day given to your coaches are provided for Parlance's and Vocative's convenience and benefit, the said transportation allowance is not subject to fringe benefits tax pursuant to Section 2.33(C) of Revenue Regulations No. 3-98, as amended. However, if the above-mentioned transportation and representation allowances are fixed in amounts and are regularly received by the employees as part of their monthly compensation income, the same shall not be treated as taxable fringe benefits but the same shall be treated as allowances which shall form part of their taxable compensation income subject to income tax and consequently to the withholding tax prescribed under Section 79 of the Tax Code of 1997. Moreover, 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, if 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 the 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 Sec. 34 of the Code. The excess of advances made over actual expenses shall constitute taxable income if such amount is not returned to the employer. Reasonable amounts 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 (Section 2.78.1(A)(6)(b) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 3-98, 8-2000 and 10-2000). In view of the foregoing, this Office confirms your opinion that the transportation allowance being given by your subsidiaries, Parlance Systems, Inc. and Vocative Systems, Inc. to its customer service representatives are not compensation subject to income tax and consequently, to withholding tax on wages in accordance with Revenue Regulations No. 2-98, as amended. Moreover, since the transportation allowance is pre-computed on a daily basis and are paid to the employee while on an assignment or duty, the said transportation allowance is not subject to the requirements of substantiation and to withholding pursuant to Revenue Regulations No. 2-98, as amended. 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 as null and void. aDHCEA Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group