BIR Ruling [DA-520-04]

October 6, 2004 BIR RULING [DA-520-04] RR 10-2000 Chato Eleazar Lagmay & Arreza Law Office 8th Floor, Strata 2000 Emerald Avenue, Ortigas Center Pasig City Attention: Atty. Wilfredo M. Chato Gentlemen : This refers to your letter dated January 8, 2004 requesting for a ruling, on behalf of your client Banco de Oro Unibank, on the taxability of the following benefits which are given to the bank's staff employees: a) Death Assistance Demise of employer min. of P50,000.00 to max. of P120,000.00 Demise of dependent min. of P25,000.00 to max. of P35,000.00 Demise of parents-in-law min. of P15,000.00 to max. of P20,000.00 b) Smart Shopping Privilege in the form of SM Gift Checks min. of P5,000.00 to max of P6,000.00 per year. It is represented that the death assistance benefit is Banco de Oro's way of expressing its condolence for its bereaved employees, while the gift checks given are meant to take care of their clothing allowance which amounts barely to P400.00P500.00 a month; and that since the above benefits are relatively of small value and are furnished by Banco de Oro merely as a means of promoting the goodwill, contentment and well-being of its employees, the same should not be subject to the fringe benefit tax. In reply, please be informed that Revenue Regulations No. 2-98 provides viz : "Sec. 2.57-1. Income Payments Subject to Final Withholding Tax. The following forms of income shall be subject to final withholding tax at the rates herein specified: xxx xxx xxx (J) Fringe Benefits Granted to the Employee (Except Rank and File Employee). There shall be imposed a final tax of 34% beginning January 1, 1998; 33% beginning January 1, 1999 and 32% beginning January 1, 2000 and thereafter, on the grossed-up monetary value of fringe benefits, granted or furnished by the employer to his employees (except rank and file as defined in the Code). Fringe benefits however, which are required by the nature of or necessary to the trade, business or profession of the employer, or where such fringe benefit is for the convenience and advantage of the employer shall not be subject to the fringe benefits tax. The term fringe benefit means any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees) such as but not limited to the following: (1) Housing; (2) Expense account; (3) Vehicle of any kind; (4) Household personnel, such as maid, driver and others; (5) Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted; (6) Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations; (7) Expenses for foreign travel; (8) Holiday and vacation expenses; (9) Educational assistance to the employee or his dependents; and (10) Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. Sec. 2.57-1 of RR 2-98 has been amended by Section 1 of Revenue Regulations No. 8-2000 as amended by Revenue Regulations No. 10-2000 which provides viz : "Section 1. Sections 2.78.1(A3), (6)(b)(ii) and (7) of Revenue Regulations No. 2-98, as last amended by Revenue Regulations No. 8-2000, is hereby further amended to read as follows: "Sec. 2.78.1. Withholding of Income Tax on Compensation Income. xxx xxx xxx (3) Facilities and privileges of relatively small value. xxx xxx xxx 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 monetized value of leave credits paid to the 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 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 per annum ; (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 tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 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 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." The said facilities and privileges furnished or offered by an employer to his employees must be of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees. Except for those enumerated in the aforesaid Revenue Regulations implementing Section 33 of the Tax Code of 1997, the same does not provide for any other exception, hence your request for exemption of the aforementioned death assistance can not be granted for lack of legal basis. However, with respect to the Smart Shopping Privilege in the form of SM Gift Checks which are meant to take care of the clothing allowance of the employees which amounts barely to P400.00P500.00 a month, the said Revenue Regulations provided for a clothing allowance not exceeding P3,000.00 per annum . Hence, the excess shall be considered as compensation subject to income and withholding tax. cDECIA 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, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group