Housing Privilege Beyond 50 Meters from Work Premises Not Subject to Fringe Benefits Tax

April 23, 1999 BIR RULING NO. 055-99 055-99 ABB Power Inc. Km 20 South Superhighway, Sucat Paraaque City Attention: Mr . Job Asis Tax Manager Gentlemen : This refers to your letter dated October 1, 1998 requesting for confirmation of your opinion that the grant of housing privilege, which is beyond fifty (50) meters from the work premises or the high voltage power generation plant, to the employees of ABB Power Inc. is not subject to the Fringe Benefits Tax, for reasons of health and safety of its workers provided the housing complex is within a reasonable distance from the work premises of the employer. It is represented that ABB Power Inc. is a domestic corporation engaged as a subcontractor of a non-resident foreign corporation in the operation and maintenance of the 600MW Combined Cycle Plant located in Limay, Bataan; that the said engagement is under the Build Operate Transfer (BOT) scheme with the National Power Corporation (NPC) for a duration of 15 years; that during the initial years of its operation, the company suffered from a high employee turnover brought about by the geographical location of the site of the plant; that highly skilled engineers resigned from work due to the fact the plant site was very distant from the city; that they urged the company to rent a housing complex nearby to house its maintenance engineers and managers; that another reason that compelled the company to provide the housing facility was to ensure 24 hour access to skilled workers as power failure and trouble shooting may be required at any time of the day; that the said housing complex is located within three (3) kilometers from the plan site; that the rationale for the distance is that safety and health considerations is paramount among the interests of the company; and that a power plant generating electrical current of up to 600MW is not an area to annex a housing complex to. In reply, please be informed that fringe benefits means any goods, service or other benefit furnished or granted by an employer in cash or in kind, in addition to basic salaries, to an employee (except rank and file employee) such as housing. Section 33 (a) of the Tax Code of 1997 stipulates that fringe benefits which are "required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer" are not subject to the fringe benefit tax. If the living quarters are furnished to an employee for the convenience of the employer, the value thereof need not be included as part of compensation income subject to withholding. Moreover, Revenue Regulations No. 3-98, Section 2.33(B)(1)(g) implementing Section 33 of the National Internal Revenue Code of 1997 provides: "(g) A housing unit which is situated inside or adjacent to the premises of a business/factory shall not be considered as a taxable fringe benefit. A housing unit is considered adjacent to the premises of the business if it is located within the maximum of fifty (50) meters from the perimeter of the business premise." The exemption of any fringe benefit from the fringe benefit tax imposed under the aforementioned Section shall not be interpreted to mean exemption from any other income tax imposed under the Code except if the same is likewise expressly exempt from any other income tax imposed under the Code or under any other existing law. Thus, if the fringe benefit is exempted from the fringe benefits tax, the same may, however, still form part of the employee's gross compensation income which is subject to income tax, hence, likewise subject to a withholding tax on compensation income payment. LibLex Considering the exceptional circumstance of this case, it appearing that the 3 kilometer distance was for purposes of complying with the state policies on the promotion of the health and welfare of workers (Articles II, Sections 15 and 18 of the 1987 Constitution) and the constitutional mandate guaranteeing full protection to labor (Art. 13, Sections 3 and 14, ibid.), this situation falls within the purview of Section 33 of the Tax Code of 1997. Such being the case, the costs and related expenses associated with the lease of the condominium unit and residential house for the benefit of your employees are expenses directly attributable to the development, management, operation and/or conduct of your business pursuant to Section 34(A)(1) of the Tax Code, the same shall be deducted from the gross income of the company. As such, and considering that it is a fringe benefit for the convenience and advantage of the employer, it shall not be included as part of compensation income of the employee subject to withholding neither will it be subject to the fringe benefit tax under Sec. 33 of the Tax Code of 1997 as implemented by Revenue Regulation 3-98. 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 null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue