BIR Ruling [DA-422-04]

August 4, 2004 BIR RULING [DA-422-04] Secs. 24 (A) & 101 (A) (3) DA 70-01 AOL Members Services Phils. Clark Special Economic Zone Clark Field, Pampanga Attention: Ms. Patricia A. Molloy General Manager Gentlemen : This refers to your letter dated March 12, 2003 indorsed to this Office by Rogelio A. Casiguran of the Department of Finance requesting for exemption from donor's and fringe benefits taxes on used computers. It is represented that you have a total of 432 used computers; that to benefit your community, 50 of these will be donated to various public schools and charitable institutions; that the remaining 382 will be raffled to your 1,000+ employees; that these computers are well used and have been in use for approximately 5 years, 24 hours a day, 7 days a week; and that you believe that the fair market value of each used computer based on usage is PhP3,000. In reply, please be informed as follows: 1) Donation to educational and charitable institutions is exempt from the payment of donor's tax pursuant to Section 101(A)(3) of the Tax Code of 1997, subject to the condition that not more than 30% of said gift shall be used for administration purposes. Moreover, the deed of donation is not subject to documentary stamp tax prescribed under Section 196 of the Tax Code of 1997, but only to the documentary stamp tax of P15.00 imposed under Section 188 of the same Code. 2) Section 2.78.1 of Revenue Regulations No. 2-98 re: Withholding Tax on Compensation Income, implementing the Tax Code of 1997 provides, viz : "Section 2.78.1. Withholding Tax on Compensation Income (A) Compensation Income Defined In general, the term "compensation" means all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Code. TcDaSI The name by which the remuneration for services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria, allowances, commissions (e.g. transportation, representation, entertainment and the like); fees including director's fees, if the director is, at the same time, an employee of the employer/corporation; taxable bonuses and fringe benefits except those which are subject to the fringe benefits tax under Section 33 of the Code; taxable pensions and retirement pay, and other income of a similar nature constitute compensation income. The basis upon which the remuneration is paid is immaterial in determining whether the remuneration constitutes compensation. Thus, it may be paid on the basis of piece-work, or a percentage of profits; and may be paid hourly, daily, weekly, monthly or annually. Remuneration for services constitutes compensation even if the relationship of employer and employee does not exist any longer at the time when payment is made between the person in whose employ the services had been performed and individual who performed them." In view of the foregoing, the used computer which will be given to your employees by way of raffle is subject to income tax as compensation income under Section 24(A) of the Tax Code of 1997 and consequently, to withholding tax which shall be creditable against the total income tax due of the employee. 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group