Chinese General Hospital and Medical Center

July 27, 2007 BIR RULING [DA-418-07] Sec. 32 (B) (7) (e) & RR 8-00 BIR Ruling No. 23-2002 Chinese General Hospital and Medical Center Manila Attention: Mr. Hector M. Hernandez Chief Internal Auditor Gentlemen : This refers to your letter dated January 23, 2006 requesting confirmation of your interpretation of Section 2.78.1. (A) (3) of Revenue Regulations (RR) No. 2-98 as amended by RR 8-2000, as follows: 1) The ceilings of all "de minimis" items are independent and separate from the PhP30,000 ceiling of "other benefits"; 2) The "de minimis" benefits of employees in excess of "de minimis" ceilings could be covered by the available balance or unused portion of the PhP30,000 "other benefits" ceiling and will remain as non-taxable; and 3) The "de minimis" benefits of employees in excess of "de minimis" ceilings that could not be covered by "other benefits" ceiling (due to reasons that the PhP30,000 amount was used up for benefits such as 13th month pay or other bonus) will be subjected to income tax. SDEHIa In reply, please be informed that the subject provision reads as follows: "Sec. 2.78.1. Withholding of Income Tax on Compensation Income . (A) . . . (1) . . . cHaCAS (3) Facilities and privileges of relatively small value. Ordinarily, facilities and privileges (such as entertainment, medical services, or so-called 'courtesy discounts' on purchases), otherwise known as 'de minimis benefits,' furnished or offered by an employer to his employees, are not considered as compensation subject to income tax and consequently to withholding tax, if such facilities are offered or furnished by the employer merely as means of promoting the health, goodwill, contentment, or efficiency of his employees. The following shall be considered as 'de minimis' benefits not subject to withholding tax on compensation income of both managerial and rank and file employees: (a) Monetized unused vacation leave credits or employees not exceeding ten (10) days during the year; xxx xxx xxx The amount of 'de minimis' benefits conforming to the ceiling herein prescribed shall not be considered in determining the P30,000 ceiling of 'other benefits' provided under Section 32(B)(7)(e) of the Code. However, if the employer pays more than the ceiling prescribed by these regulations, the excess shall be taxable to the employee receiving the benefits only if such excess is beyond the P30,000 ceiling. Provided, further, that any amount given by the employer as benefits to its employees, whether classified as de minimis benefits or fringe benefits, shall constitute as deductible expense upon such employer. DIETcC xxx xxx xxx" In view of the foregoing, this Office rules as follows: 1. The de minimis ceiling prescribed in the Regulations are independent and separate from the PhP30,000 "other benefits" ceiling under Section 32 (B) (7) (e) (iv) of the Tax Code of 1997. 2. The excess over the de minimis limit prescribed under the Regulations shall be considered, along with the "other benefits" under Section 32 (B) (7) (e) (iv) of the Tax Code of 1997, in determining whether or not the PhP30,000 threshold has been exceeded. 3. The amount in excess of the PhP30,000 threshold of "other benefits," after applying the de minimis limit to the available balance or unused portion of the PhP30,000, shall become taxable to the employee receiving the benefits. Applying the pertinent laws, regulations and rulings to the example you gave, the employee shall be exempted on his 10 days monetized unused vacation leave in the amount of PhP4,934.20, 13th month pay in the amount of PhP15,000 and performance bonus in the amount of 5,000. The excess over the 10 days monetized unused vacation leave limit prescribed under the Regulations shall be considered, along with the "other benefits" under Section 32 (B) (7) (e) (iv) of the Tax Code of 1997, in determining whether or not the PhP30,000 threshold has been exceeded. Thus, the amount in excess of the PhP30,000 threshold or PhP2,335.50 shall become taxable to the employee receiving the benefits as illustrated below: De minimis benefits: 10 days monetized unused vacation leave PhP4,934.20 13th Month Pay & Other Benefits: 13th Month Pay PhP15,000.00 Performance Bonus 5,000.00 Monetized Unused Vacation Leave 10,000.00 covered by the unused portion of the PhP30,000 ceiling 30,000.00 TOTAL NON-TAXABLE BENEFITS RECEIVED PhP34,934.20 ========== Please be guided accordingly. SCHIcT Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service