BIR Ruling [DA-617-99]

November 3, 1999 BIR RULING [DA-617-99] Vicente E. Reyes and Associates 22 Tirad Pass, Quezon City P.O. Box 2939 Attention: Mr . Amado P . Galang Partner Gentlemen : This refers to your letter dated August 25, 1999 requesting for a ruling on behalf of your client, Mercury Group of Companies, Inc . and its subsidiary companies that the additional maternity benefits to be given to its rank and file employees are not subject to income tax and consequently, to the withholding tax on compensation. It is represented that your client adopted a uniform policy of paying additional maternity benefits to its rank and file employees, computed as follows: Total amount of salaries lost due to maternity leave of absence . . . LESS: Maternity benefits received from the Social Security System . . . Difference = additional maternity benefits . . . and that the above policy is adopted by your clients as a means of promoting the health, goodwill and contentment of its employees as contemplated under Section 2 of Revenue Regulations No. 12-86. In reply thereto, please be informed that facilities or privileges (such as entertainment, medical services, or so called courtesy discounts on purchases) furnished or offered by an employer to his employees, generally, are not considered as compensation subject to withholding tax if such facilities or privileges are 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 pursuant to Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 3-98 implementing Section 32(B)(7)(e)(iv) of the Tax Code of 1997. Such being the case, the additional maternity benefits being granted to the rank and file employees of Mercury Group of Companies, Inc. and its subsidiary companies are not considered compensation income/wages. Accordingly, the same are not subject to the withholding tax prescribed by Section 79 in relation to Section 24(A) both of the Tax Code of 1997 since the allowances are relatively of small value and offered by the employer to promote the health and efficiency of its employees. (BIR Ruling No. 370-92 dated December 23, 1992 and DA-303-99 dated May 19, 1999) Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)