Huawei Technologies Phil., Inc.

September 15, 2008 BIR RULING [DA-(ECB-003) 218-08] BIR Ruling No. DA-205-05, DA-518-07 & DA-302-08 Huawei Technologies Phil., Inc. Unit 5302 53/F PBCom Tower Ayala Ave. cor. Rufino St. Salcedo Village, Makati City Attention: Mr. Zulfie Salialam HR Director Gentlemen : This refers to your letter dated August 26, 2008 requesting for a ruling on whether the following benefits given by Huawei Technologies Phils., Inc. ("HTPI" for brevity) to its employees are considered as de minimis benefits exempt from withholding tax on compensation and fringe benefits tax: 1. Monthly rice subsidy of P1,500; 2. Clothing allowance of P4,000 per annum; 3. Medical cash allowance for dependents; 4. Medical benefits; 5. Laundry allowance; 6. ECOLA; 7. Transportation allowance amounting to field personnel while on duty in the amount of P150 per day; As represented, HTPI is a domestic corporation engaged in the telecommunications business. At present, it has an employee base of around three hundred (300) regular employees consisting of field and office personnel. AIDTHC In reply, please be informed that the term "de minimis" benefits which are exempt from the fringe benefit tax shall, in general, be limited to facilities or privileges furnished or offered by an employer to his employees that 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. The de minimis ceiling prescribed in Revenue Regulations (RR) No. 2-98, as amended by RR 3-98, 8-2000, 10-2000 and 5-2008 are independent and separate from the P30,000 "other benefits" ceiling under Section 32 (B) (7) (e) (iv) of the Tax Code of 1997, as amended. 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 same Code, in determining whether or not the P30,000 threshold has been exceeded. The amount in excess of the P30,000 threshold of "other benefits", after applying the de minimis limit to the available balance or unused portion of the P30,000 shall become taxable to the employee receiving the benefits. cISDHE On the basis of the foregoing and according to the aforesaid Regulations, we proceed to rule on the particular issues raised for our consideration. 1. Monthly Rice Subsidy The rice allowance benefit in the amount of PhP1,500 per month is within the limitation set by the Regulations. Accordingly, the rice allowance in the amount of P1,500 per month is not subject to income tax on compensation and fringe benefit tax. 2. Clothing Allowance Likewise, the clothing allowance in the amount of PhP4,000 is within the limitation set by the Regulations, hence, it is considered a de minimis benefit not subject to income tax and, consequently, to the withholding tax and fringe benefit tax. 3. Medical Cash Allowance for Dependents Medical cash allowance to dependent of employees not exceeding P750.00 per employee per semester or P125.00 per month is not subject to income, withholding and fringe benefit taxes. However, any amount in excess of the ceiling may further be considered as part of "other benefits", provided that the total benefits shall not exceed P30,000. The amount in excess of the P30,000 threshold of the total of "other benefits" shall be included as part of the taxable compensation. 4. Medical Benefits The Regulations recognize actual yearly medical benefits not exceeding PhP10,000 per annum as de minimis. To this extent, the grant of medical benefits taken together with all the other medical benefits provided to HTPI's employees is not subject to income, withholding and fringe benefit taxes. 5. Laundry Allowance The laundry allowance in the maximum amount of PhP300 per month is considered a de minimis benefit not subject to income and withholding taxes. 6. ECOLA This Office has consistently ruled that "compensation income" is defined as all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Code. Thus, salaries, wages, emoluments, and honoraria, allowances, commissions ( e.g., transportation, representation, entertainment and the like), fees including director's fees if the director is, at the same time, an employee of the employer/corporation, taxable bonuses and fringe benefits, except those which are subject to the fringe benefits tax under Section 33 of the Tax Code, taxable pensions and retirement pay, and other income of a similar nature constitute compensation income. Accordingly, ECOLA forms part of compensation income subject to the withholding tax. 7. Transportation Allowance 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: ". . . 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. SacDIE 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. xxx xxx xxx" Applying the foregoing, and since you represented that the transportation allowance in the amount of P150.00 per day is given only to field personnel on duty, the 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, as amended, 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. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service