The Insular Life Assurance Company, Ltd.

September 25, 2007 BIR RULING [DA-509-07] DA-139-05 The Insular Life Assurance Company, Ltd. IL, Corporate Centre, Corporate corner Commerce Avenue Filinvest Corporate City Alabang, Muntinlupa City Attention: Mr. Carlito V. Lucas Vice President and Head Worksite Marketing Division Gentlemen : This refers to your letter dated August 29, 2007 stating that your client, Yazaki-Torres Manufacturing, Inc., is a Philippine Economic Zone Authority (PEZA) registered enterprise; that it has agreed to purchase a Comprehensive Group Plan (CGP) for their employees from Insular Life Assurance Company, Ltd.; and that the CGP is a group universal life insurance product that provides the following benefits, to wit: 1. Life insurance for the covered employees, payable upon death; and 2. Cash value in the amount equivalent to the accumulated premiums/contributions less mortality and other expenses charges, if any, plus the interest earned thereon. In connection therewith, you now request for confirmation of your opinion that 1. The insurance premium that will be paid by the Yazaki-Torres Manufacturing, Inc. for the group insurance of its employees will be allowed as deduction for business expense; 2. The insurance premium payments borne by Yazaki-Torres Manufacturing, Inc. will not be subject to either fringe benefits tax (FBT) for managerial employees or withholding tax on compensation for its rank and file employees; and 3. The insurance proceeds to be received by the heirs upon death of the insured or to be received by the insured upon surrender of the policy will not be subject to fringe benefits tax. In reply thereto, please be informed that your opinion is hereby confirmed as follows: 1. Section 34 (A) of the Tax Code of 1997 provides that. "(A) Expenses. "(1) Ordinary and Necessary Trade, Business or Professional Expenses . (a) In General . There shall be allowed as deduction from gross income all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are directly attributable to, the development, management, operation and/or conduct of the trade, business or exercise of a profession . . ." Such being the case, the insurance premiums paid by the Yazaki-Torres Manufacturing, Inc. shall be deductible from the latter's gross income as business expense. (BIR Ruling No. DA-432-04 dated August 11, 2004) 2. Section 33, supra, provides that "Section 33. Special Treatment of Fringe Benefit . (C) Fringe Benefits Not Taxable . The following fringe benefits are not taxable under this Section: (1) Fringe benefits which are authorized and exempted from tax under special laws; (2) Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; (3) Benefits given to the rank and file employees, whether granted under a collective bargaining agreement or not; and (4) De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner." Corollarily, Section 2.33 (B) of Revenue Regulations No. 3-98, as amended, otherwise known as the rules and regulations implementing the FBT, provides that the cost of group life insurance premiums borne by the employer for his employee shall be considered as a non-taxable fringe benefit. The pertinent Section of the said regulations states as follows: "(1) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows . The cost of life or health insurance and other non-life insurance premiums borne by the employer for his employee shall be treated as taxable fringe benefit, except the following: (a) contributions of the employer for the benefit of the employee, pursuant to the provisions of existing law, such as under the Social Security System (SSS), (R.A. No. 8291), or similar contributions arising from the provisions of any other existing law; and (b) the cost of premiums borne by the employer for the group insurance of his employees." Accordingly, the premium payments to be borne by Yazaki-Torres Manufacturing, Inc. are non-taxable fringe benefits nor it is subject to the creditable withholding tax on compensation. (BIR Ruling No. 014-01 dated March 26, 2001) 3. Finally, Section 32 (B) (1) of the Tax Code of 1997 provides that "(B) Exclusion from Gross Income . The following items shall not be included in gross income and shall be exempt from taxation under this Title: a. Life Insurance. The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, whether in a single sum or otherwise, but if such amounts are held by the insurer under an agreement to pay interest thereon, the interest payments shall be included in gross income. xxx xxx xxx" Consequently, the proceeds from insurance to be received by the heirs upon the death of the insured or upon surrender of the policy by the insured are not subject to withholding tax on compensation nor to the fringe benefits 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