SyCip Gorres Velayo & Co.

December 15, 2009 BIR RULING [DA-(ECB-026) 778-09] RR 2-98; RR 3-98; RR 8-2000; DA-374-08; DA-013-08; DA-233-07; DA-023-06; DA-350-04 SyCip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty. Jules E. Riego Principal, Tax Services Gentlemen : This refers to your letter dated October 20, 2009 requesting for confirmation of your opinion: 1) That the taxi/transportation allowance of P100.00/day given by SGS Gulf to any employee who worked overtime beyond 10 p.m. or whose work shift starts at 10 p.m. onwards are not subject to the fringe benefits tax; and 2) That since the said benefits are pre-computed on a daily basis and are paid to the employees, while they are on assignment or duty, they are not subject to the requirements of substantiation and therefore not subject to income tax and to withholding tax. The facts as you represented are as follows: SGS Gulf is a foreign corporation duly registered with and licensed to do business by the Philippine Securities and Exchange Commission (SEC). Its principal office is located at 20th Floor Citibank Tower, 8741 Paseo de Roxas, Makati City. SGS Gulf provides business process insourcing services to the SGS network worldwide and is processing trade documents using the centralized web based single IT Platform twenty four (24) hours a day. SGS Gulf is servicing 90% of the volume for the global Governments and Institutions Services ("GIS") business line alone: 410 offices in Europe, 133 Offices in Asia and the Pacific, 128 offices in Africa/Middle East and some offices in the Americas. Expanded services catering to other global SGS business line include: data management on global contract prices, framework agreement, vessel inspection reports, analysis of the voice of the customers and data cleaning for the Oil & Gas Chemicals, Agriculture-Cotton and Continuous Improvement. SGS Gulf also provides global information technology services. It provides expertise in the fields of application support, web content publishing, software development, network and infrastructure support and software testing. Request for services come from the information technology group in the head office in Geneva, and some from the different global business sectors. Hence, the necessity and demands of the job of its employees often require them to render overtime work. Due to the nature of its business, there are also employees whose work shift schedules are between the hours of 10:00 p.m. and 7:00 a.m. of the following day. In this regard, in order to promote the welfare and safety of its employees, SGS Gulf instituted a taxi/transportation allowance of P100.00/day for employees rendering overtime work beyond 10:00 p.m. and those whose work shift schedules are from 10:00 p.m. to 7:00 a.m. The purpose of the taxi/transportation allowance is to allow the said employees to take a safer means of transportation considering their late time-out from work and the difficulty of travelling at night for those whose night shift starts at 10:00 p.m. onwards. ESTDcC In reply thereto, please be informed as follows: Section 2.78.1 (A) (3) of Revenue Regulations No. 2-98 provides "(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 benefit," 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 a means of promoting the health, goodwill, contentment, or efficiency of his employees." Corollarily, in Section 2.33 (C) of Revenue Regulations No. 3-98 provides that "(C) Fringe Benefits Not Subject to Fringe Benefits Tax In general, the fringe benefits tax shall not be imposed on the following fringe benefits: xxx xxx xxx (5) If the grant of fringe benefits to the employee is required by the nature of, or necessary to the trade, business or profession of the employer; or (6) If the grant of the fringe benefit is for the convenience of the employer." Finally, in Section 2.78.1 (A) (6) (b) of Revenue Regulations No. 8-2000 provides that "(6) Fixed or variable transportation, representation and other allowances. . . . xxx xxx xxx (b) Any amount paid specifically, either as advances or reimbursements for travelling, representation and other bona fide ordinary and necessary expenses incurred or reasonably expected to be incurred by the employee in the performance of his duties are not compensation subject to withholding, if the following conditions are satisfied: (i) It is for ordinary and necessary traveling and representation or entertainment expenses paid or incurred by the employee in the pursuit of the trade, business or profession; and (ii) The employee is required to account/liquidate for the foregoing expenses in accordance with the specific requirements of substantiation for each category of expenses pursuant to Section 34 of the Code. The excess of actual expenses over advances made shall constitute taxable income if such amount is not required to the employer. Reasonable amounts of reimbursements/advances for traveling and entertainment expenses which are pre-computed on a daily basis and are paid to an employee while he is on assignment or duty need not be subject to the requirements of substantiation and to withholding." Thus, in BIR Ruling No. DA-350-04 dated June 25, 2004, this Office ruled that "In view of the foregoing, this Office confirms your opinion that the transportation allowance being given by your subsidiaries, Parlance Systems, Inc. and Vocative Systems, Inc. to its customer service representatives are not compensation subject to income tax and consequently, to withholding tax on wages in accordance with Revenue Regulations No. 2-98, as amended. Moreover, since the transportation allowance is pre-computed on a daily basis and are paid to the employee while on an assignment or duty, the said transportation allowance is not subject to the requirements of substantiation and to withholding pursuant to Revenue Regulations No. 2-98, as amended." In the said ruling, Parlance and Vocative gave a fixed pre-computed transportation allowance to all customer service representatives in the amount of Two Thousand Pesos (P2,000.00) per month or around Ninety One Pesos (P91.00) per day and Three Thousand Pesos (P3,000.00) per month or around One Hundred Thirty Six Pesos (P136.00) per day for the coaches. The transportation allowance was given not only to promote the efficiency and well being, as well as the safety of its employees, but also to enable these employees to come to work on time without any untoward incident. CSDcTH This ruling was reiterated in BIR Ruling No. DA-023-06 dated January 27, 2006, wherein this Office ruled that the transportation subsidy ranging from P100/day to P220/day given by Sykes to its Customer Service Representatives whose work shift start or end at anytime between 10:00 p.m. to 6:00 a.m. and the transportation allowance provided to any employee who renders overtime work for at least four (4) hours per day are exempt from income tax and consequently from withholding tax and from fringe benefits tax. More recently, in BIR Ruling No. DA-013-08 dated January 16, 2008, this Office cited the aforementioned rulings in holding that the Overtime/Transportation Allowance and Duty Allowance on Night/Graveyard Shift ranging from P100/day to P200/day given by Metrobank Card Corporation (MCC) to its employees who are made to work overtime or made to work at designated hours at night are not subject to fringe benefits tax as these are for the convenience of MCC and are required by the nature of, or necessary to the trade or business of MCC . It was further ruled that since the benefits are pre-computed on a daily basis and are paid to the employees, while they are on assignment or duty, they are not subject to the requirements of substantiation and therefore not subject to income tax and to withholding tax. Similar pronouncements were also made in BIR Ruling No. DA-233-07, dated April 17, 2007 and in BIR Ruling No. DA-374-08, dated June 19, 2008, wherein it was confirmed that transportation allowance ranging from P1,500.00 to P3,000.00 per month is not considered compensation, hence, not subject to withholding tax and is not subject to the fringe benefits tax since it is required by the nature of the business of CSC and under the convenience of employer. In view of the foregoing, this Office hereby confirms your opinion that the taxi/transportation allowance of P100.00/day given by SGS Gulf to any employee who worked overtime beyond 10 p.m. or whose work shift starts at 10 p.m. onwards are not only considered "de minimis" benefit, but are also granted for the convenience of SGS and are required by the nature of, or necessary to the trade or business of SGS, hence, not subject to the fringe benefits tax pursuant to Section 2.33 (C) of Revenue Regulations No. 3-98, as amended. Moreover, since the said benefits are pre-computed on a daily basis and are paid to the employees, while they are on assignment or duty, they are not subject to the requirements of substantiation and therefore not subject to income tax and to withholding tax. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service