UPS International General Services Co.

October 10, 2007 BIR RULING [DA-534-07] BIR Ruling No. 013-02 UPS International General Services Co. 19th & 20th Floors Tower 2 Insular Life Corporate Centre Insular Drive, Filinvest Corporate City Alabang, Muntinlupa City Attention: Mr. Rolando A. Nierva Human Resource Manager Gentlemen : This refers to your letter dated June 18, 2007 requesting exemption from income tax of the "relocation allowance" given to relocated employees of the company. HTcDEa As represented, UPS International General Services Co. ("UPS" for brevity) with TIN No. 005-130-595-00, was established and registered in the Philippines as Regional Operating Headquarters (ROHQ) of a multinational company. As ROHQ, it is allowed to derive income in the Philippines by performing qualifying services to its affiliates, subsidiaries or branches in the Philippines, in the Asia-Pacific Region and in other foreign markets, as follows: general administration and planning; business planning and coordination; sourcing/procurement of raw materials and components; corporate finance advisory services; marketing control and sales promotion; training and personnel management; logistics services; research and development services and product development; technical support and maintenance; and data processing and communication. In the course of providing the above services to affiliates in the Philippines and/or Asia Pacific Region, UPS requires selected managers and/or employees to relocate from Manila to the affiliates, such as in Clark, Pampanga, Subic, Cebu, and/or other countries in the Asia Pacific Region. SHADEC To defray the expenses related to their relocation, such as hotel accommodation, apartment rental, taxi fare, gasoline expenses, food, and as a gratuity for the inconvenience in being uprooted from their home city, UPS provides the relocated employees what it calls "relocation allowance" which is given one-time only and not recurrent. With this one-time allowance, the relocated employees shoulder the aforementioned expenses on their own account. With the tax, the employees are practically left with minimal amount which is not enough to pay for such relocation-related expenses. In reply, please be informed that in BIR Ruling No. 013-02 dated April 5, 2002, a company gives a fixed amount of outstation allowance for meals, baggage services, laundry expenses, parking fees, toll fees, telephone fees and other incidental expenses to employees who are sent to locations beyond Metro Manila. This Office ruled in the said case as follows: CTHaSD ". . . as a general rule, Section 33(A) of the Tax Code of 1997 imposes a final withholding tax of 32% on the grossed-up monetary value of fringe benefit furnished or granted to the employee (except rank and file employees) by the employer, whether an individual or corporation. This general rule is not, however, without exception. The aforequoted section sets forth two scenarios wherein no fringe benefits tax will be imposed, i.e., (1) when the fringe benefit is required by the nature of or necessary to the trade, business or profession of the employer, or (2) when the fringe benefit is for the convenience or advantage of the employer. xxx xxx xxx The Outstation Allowance, therefore, is clearly required by the nature of or necessary to the trade or business of PGMC. Accordingly, this Office opines and so holds that the grant of the Outstation Allowance by PGMC to its managerial and supervisory employees are not subject to the fringe benefits tax prescribed in Section 33(A) of the said Code. Consequently, the Outstation Allowance, not being part of the compensation income of the employee, is not subject to income tax and consequently to withholding tax. AaECSH xxx xxx xxx" In view of the foregoing and since you represented that the one-time relocation allowance is being granted to relocated employees in the course of the business of UPS which provides qualifying services to its affiliates in the Philippines and/or Asia Pacific Region necessary to the business of UPS and redounds to the convenience and benefit of the company, said fringe benefit shall not be included as part of compensation income of the concerned employees subject to withholding tax prescribed under Section 79 of the Tax Code of 1997 neither will it be subject to the fringe benefits tax under Section 33 of the Tax Code of 1997, as implemented by RR No. 3-98, as amended. 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. ADSIaT Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service