Housing Benefits Given to Mr. Montoya, an OCW in the Kingdom of Saudi Arabia, Being Part of His Compensation Package, Forms Part of His Remuneration Subject to Income Tax

January 15, 1997 BIR RULING NO. 003-97 28 (a) (1) 596-88 003-97 Mr. Mustapha M. Gandarosa Revenue Attache Philippine Embassy P.O. Box 94315. Riyadh 11693 Kingdom of Saudi Arabia Dear Mr. Gandarosa : This refers to your letter dated July 31, 1996 explaining in detail the reasons why you issued income tax assessment notices to Mr. Arcadio Montoya, an overseas contract worker (OCW), for his failure to include in his income tax returns the equivalent money value of his free housing benefits in the Kingdom of Saudi Arabia for the taxable year 1994. In reply, please be informed that relative to this, Section 2(2) of Revenue Regulations No. 6-82, as amended by Revenue Regulations No. 16-86 provides as follows: xxx xxx xxx "The name by which the remuneration for services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria, bonuses, allowances (such as transportation, representation, entertainment and the like), fringe benefits (monetary and non-monetary), fees, . . . and other income of a similar nature constitute compensation income. "Compensation may be paid in money or in some medium other than money, . . . If a person receives as remuneration for services rendered a salary and in addition thereto living quarters or meals, the value to such person of the quarters and meals so furnished shall be added to the remuneration otherwise paid for the purpose of determining the amount of compensation subject to withholding. If, however, LIVING QUARTERS or meals ARE FURNISHED TO AN EMPLOYEE FOR THE CONVENIENCE OF THE EMPLOYER, THE VALUE THEREOF NEED NOT BE INCLUDED AS COMPENSATION SUBJECT TO WITHHOLDING." In other words, for taxation purposes, the general rule is that the monetary value of the housing benefits to the employee shall be added to his remuneration for the purpose of determining the gross compensation income, EXCEPT where the living quarters are furnished to him for his employer's convenience. The question of when is the providing of living quarters can be considered as for the employers convenience can be determined on who will benefit more if living quarters are provided to an employee. In this instant case, we are of the opinion that the benefit is more on the part of the employee rather than to that of the employer because when an overseas contract worker applied and accepted an employment contract abroad, he is aware that he will have to rent a house there. So that if living quarters are provided to him, that would mean that he will not incur additional expenses for his living quarters and therefore, savings on his part. As you have said, the free accommodation furnished to Mr. Montoya is part of the non-monetary fringe benefits granted to him as per the Employment Contract which is actually an incentive which forms part of his compensation and that it is provided not for the convenience of the employer but as part of the compensation package of the OCW. In view thereof, this Office hereby concurs with your opinion that the housing benefits given to Mr. Montoya, an OCW in the Kingdom of Saudi Arabia, being part of his compensation package, should form part of his remuneration which is subject to income tax pursuant to Sec. 2(2) of Revenue Regulations No. 6-82, as amended by Revenue Regulations No. 16-86. (BIR Ruling No. 596-88 dated December 23, 1988). Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue