Monde Nissin Corporation

July 23, 2009 BIR RULING [DA-(ECE-020) 398-09] Section 32 (B) (7) (e) (iv); BIR Ruling No. DA-364-03, DA-168-04, DA-169-04 & DA-266-04 Monde Nissin Corporation 22/F, 6750 Office Tower Ayala Avenue, Makati City Attention: Ms. Corazon Sy Gonzales Personnel & Admin. Manager Gentlemen : This refers to your letters dated March 24, 2008 and May 22, 2008 proposing on behalf of Monde Nissin Corporation ("MNC") for an exemption from withholding tax of the following benefits given to your employees: 1) Excess from the PhP1,000.00 nontaxable rice subsidy to cover the price of one (1) sack of 50-kg. rice; 2) Company-products given every May 1 as Labor Day gift and every December as Christmas gift on top of the PhP5,000.00 nontaxable worth of gifts given during Christmas and major anniversary celebrations; 3) PhP75.00 meal allowance per day; 4) Uniform allowance in excess of the nontaxable PhP3,000 clothing allowance but not to exceed PhP5,000.00; and 5) Medical cash allowance to dependents of employees not exceeding PhP1,500.00 per semester or PhP250.00 per month. As represented, MNC has consistently been among the top corporations in the Philippines and is also considered as one of the industry leaders in both noodles and biscuit. You attribute these recognitions to your employees who have dedicated most of their times in producing quality products for Filipinos and prompted you to make this request in order to maintain the morale and satisfaction of your employees to enable them to continuously produce quality products. In reply, please be informed that the following rules shall generally apply in considering the tax consequences of certain benefits given by employers to their employees, whether rank-and-file, supervisory or managerial: 1. Facilities or privileges that are categorized as de minimis benefits under pertinent rules and regulations shall not be included as items of gross income for income tax purposes. They shall not also be included in the computation of the PhP30,000.00 threshold for a determination of the items of income that are to be excluded from income under Section 32 (B) (7) (e) of the Tax Code of 1997. AcIaST 2. Corollary to this, de minimis benefits are subject to neither income tax on compensation nor fringe benefits tax. Furthermore, no withholding tax thereon shall be imposed in view of their exclusion and exemption from tax. 3. The gross benefits granted to rank-and-file, supervisory or managerial employees of entities, to the extent of the threshold of P30,000.00 mandated by Section 32 (B) (7) (e) of the Tax Code of 1997, shall not be included as items of gross income and shall, therefore, be exempt from income taxation. Accordingly, such benefits given in excess of the threshold amount shall be taxable to the recipient employee. 4. The "other benefits" referred to in Section 32 (B) (7) (e) (iv) of the Tax Code of 1997 include all benefits, other than the 13th month pay, such as, the annual Christmas bonus given by private entities, 14th month pay and the like, gifts in cash or in kind and other similar benefits and refer to those benefits received by an employee in a calendar year. 5. Revenue Regulations No. 3-98, as amended by Revenue Regulations No. 8-2000 and Revenue Regulations No. 10-2000 are illustrative and non-exclusive in the enumeration of what constitutes de minimis fringe benefits. Accordingly, we rule that the meal and food benefits granted, although not intended to be used for overtime work, may still be added in the enumeration of de minimis fringe benefits. However, in terms of de minimis threshold for regular meal and food benefit, the ceiling for benefits of similar nature under Revenue Regulations No. 8-2000 and Revenue Regulations No. 10-2000 should be used as guidelines. Such being the case, meal and food benefits not exceeding 25% of the daily minimum wage may be considered de minimis meal benefit and therefore, tax exempt. The excess over this amount shall be considered other benefits as contemplated under Section 32 (B) (7) (e) (iv) of the Tax Code of 1997. The excess of the meal and food allowance given over the de minimis ceiling shall still be exempt provided that it, together with the total amount of other benefits, shall not exceed PhP30,000.00. 6. In keeping with the spirit of the rules and regulations on de minimis benefits, we rule that there can be no aggregation of the values set for each item of benefit stated in Revenue Regulations Nos. 2-98 and 3-98, as amended by Revenue Regulations Nos. 8-2000 and 10-2000. The intent of the Regulations is to treat each item of de minimis benefit independently of each other, and we have to give life to that intent. Thus, the Regulations separately provide maximum values for rice allowance and for meal allowance. Accordingly, there can be no aggregation of de minimis values for rice and meal and food benefits (BIR Ruling No. 23-2002 dated June 21, 2002). In addition to the foregoing, it is the rule that the fringe benefits tax is a final tax on the employee, other than a rank-and-file employee, that shall be withheld and paid by the employer on a calendar quarterly basis as provided under Section 57 (A) of the Tax Code of 1997. Being a final tax, however, the amount of fringe benefits given shall not be reported as income for the concerned employee's annual tax return consolidation. On the basis of the foregoing and according to the pertinent Revenue Regulations on the matter, we proceed to rule on the particular issues raised for our consideration. a. Rice Allowance The rice subsidy not exceeding PhP1,500.00 or one (1) sack of 50 kg. rice per month amounting to not more than PhP1,500.00 which is the limitation set by Revenue Regulations No. 3-98, as amended by Revenue Regulations No. 8-2000, as amended by Revenue Regulations No. 5-2008 is not subject to income tax on compensation and consequently withholding tax. Accordingly, the excess from the PhP1,000.00 rice subsidy given to your employees is not subject to withholding tax provided it does not exceed the PhP1,500.00 ceiling. Any excess given over the de minimis ceiling may be considered "other benefits" as contemplated under Section 32 (B) (7) (e) (iv) of the Tax Code of 1997 exempt from withholding tax provided that it, together with the total amount of "other benefits," shall not exceed PhP30,000.00. b. Gifts Given During Major Anniversary Celebrations Likewise, company-products given every May 1 as Labor Day gift and every December as Christmas gift in excess of the PhP5,000.00 limitation set by Revenue Regulations No. 3-98, as amended by Revenue Regulations No. 8-2000 may be considered "other benefits." The excess over the de minimis ceiling shall still be exempt provided that it, together with the total amount of "other benefits," shall not exceed PhP30,000. c. Meal Allowance For a meal allowance to be considered de minimis , only such daily meal allowance for overtime work not exceeding 25% of the basic minimum wage, on a per region basis shall be recognized and allowed (Revenue Regulations No. 8-2000, as amended by Revenue Regulations No. 10-2000). IHTASa The elements of the benefit are as follows: i. The meal allowance is being given on the occasion of overtime work; ii. The amount must be computed on a daily basis; and iii. The amount must not exceed 25% of the minimum wage applicable in the area (BIR Ruling No. DA-250-02 dated December 18, 2002). However, even if the meal allowance is not being given on the occasion of overtime work, it may still be considered de minimis meal allowance not subject to withholding tax on compensation. Section 2.33 (B) of Revenue Regulations No. 3-98, as amended by 8-2000 and as further amended by Revenue Regulations No. 10-2000 are illustrative and non-exclusive in the enumeration of what constitutes de minimis benefits (BIR Ruling No. 023-02 dated June 21, 2002). Accordingly, meal allowance although not given on the occasion of overtime work may still be added in the above enumeration. But in terms of de minimis threshold for meal allowance, the ceiling for benefits of similar nature under Revenue Regulations No. 8-2000 should be used as guidelines. Such being the case, meal allowance not given on the occasion of overtime work may be considered de minimis meal allowance being given on the occasion of overtime work and therefore, tax exempt. Whether the meal allowance is exempt from withholding tax will depend on the present daily minimum wage for the region. For instance, the daily minimum wage for the National Capital Region (NCR) is PhP325.00 - PhP362.00. Therefore, the PhP75.00 meal allowance per day is within the limit set by the Regulations, hence, not subject to income tax and withholding tax. d. Uniform Allowance To the extent of PhP4,000.00 per annum, any provision for uniform and clothing allowance shall be considered de minimis benefit. By implication the excess of PhP4,000.00 granted to all your employees as uniform allowance shall no longer be de minimis and therefore, subject to income tax and withholding tax (Revenue Regulations No. 8-2000, as amended by Revenue Regulations No. 5-2008). e. Medical Cash Allowance to Dependents Revenue Regulations No. 2-98 as amended by Revenue Regulations 8-2000, recognize medical cash allowance to dependents of employees not exceeding PhP750.00 per employee per semester or PhP125.00 per month as de minimis . On this basis, the grant of medical cash allowance to dependents of employees exceeding the aforesaid ceiling shall be subject to income tax and consequently to withholding tax. 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. cSDIHT Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service