Automotive Interiors Corporation

September 28, 2007 BIR RULING [DA-518-07] Sec. 32 (B) (7) (e) & RR 8-00 BIR Ruling No. 23-2002 Automotive Interiors Corporation c/o 1206 Hoise St. Moonwalk Village 2 Paraaque City Attention: Mr. Emiliano M. Manahan, Jr. Manager-Human Resources and Administration Gentlemen : This refers to your letter dated June 29, 2007 requesting for clarificatory ruling on the following: ECcDAH 1) The meaning and scope of de minimis benefits to your employees and their latest ceilings, if any; and 2) The tax treatment of amounts that may exceed the ceilings and if the excess can fall under the PhP30,000 "other benefits." In reply, please be informed that Section 2.78.1 of Revenue Regulations (RR) No. 2-98, as amended by RR 3-98, 8-2000 and 10-2000 provides, viz: "Sec. 2.78.1. Withholding of Income Tax on Compensation Income . (A) . . . (1) . . . (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. TDaAHS The following shall be considered as ' de minimis ' benefits not subject to income tax as well as withholding tax on compensation income of both managerial and rank and file employees: (a) Monetized unused vacation leave credits of private employees not exceeding ten (10) days during the year and the monetized value of leave credits paid to government officials and employees; (b) Medical cash allowance to dependents of employees not exceeding P750.00 per employee per semester or P125 per month; (c) Rice subsidy of P1,000.00 or one (1) sack of 50-kg. rice per month amounting to not more than P1,000.00; (d) Uniform and clothing allowance not exceeding P3,000.00 per annum; (e) Actual yearly medical benefits not exceeding P10,000.00 per annum; LLjur (f) Laundry allowance not exceeding P300.00 per month; (g) Employees achievement awards, e.g. for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000.00 received by the employee under an established written plan which does not discriminate in favor of highly paid employees; (h) Gifts given during Christmas and major anniversary celebrations not exceeding P5,000.00 per employee per annum; (i) Flowers, fruits, books or similar items given to employees under special circumstances e.g. on account of illness, marriage, birth of a baby, etc., and (j) Daily meal allowance for overtime work not exceeding twenty-five percent (25%) of the basic minimum wage. SDAaTC 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. xxx xxx xxx" 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. STIcEA 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. 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. Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service