Educational Assistance Granted by PLDT Not Taxable on Recipients and Deemed a Valid Deductible Business Expense

May 21, 1998 BIR RULING NO. 057-98 33 (C) (3) 34 (A) (1) (a) (i)- 000-00-057-98 Manggagawa ng Komunikasyon sa Pilipinas No. 22 Libertad Street, Mandaluyong City Attention: Mr . Pete Pinlac MKP-President Gentlemen : This refers to your letter dated February 11, 1998 requesting, on behalf of all the rank-and-file employees of Philippine Long Distance Telephone Company (PLDT), for a ruling that fringe benefit in the form of Educational Assistance granted by the PLDT Management in the recently concluded Collective Bargaining Agreement is not taxable on the part of the recipients thereof; that such educational assistance is a valid deductible business expense to PLDT. Furthermore, should this benefit be considered a valid deductible business expense, opinion is sought from this Office as to the maximum amount of educational assistance per rank-and-file employee that may be allowed as deduction. LexLib It is represented that the Manggagawa ng Komunikasyon sa Pilipinas (MKP, referred to as the "UNION" in the CBA) is the duly accredited/registered labor union of the rank-and-file employees of the Philippine Long Distance Telephone Company (PLDT referred to as the "COMPANY" in the CBA); that it has recently concluded its Collective Bargaining Agreement (CBA) with PLDT Management; that among the fringe benefits granted under the CBA is the Educational Assistance Program (EAP) which will effectively benefit the employees and/or their children; that conditioned on the UNION obtaining a BIR ruling, the COMPANY's contribution of Eighteen Thousand Pesos (P18,000) for each employee covered by the CBA as of November 9, 1997 to the Trust Fund created to finance the EAP is a valid deductible business expense; that if no such BIR ruling is obtained within two (2) weeks from the signing of the CBA, the COMPANY shall add the said amount to the one-time lump sum grant under the employee's progressive wage increases scheme: and that the CBA has been signed on February 7, 1998. In reply thereto, please be informed of the following: a. Fringe benefits whether or not received by the rank-and-file employees under the Collective Bargaining Agreement, are generally includible in the gross income of the recipient-employees pursuant to Section 32(A)(1) of the Tax Code of 1997; b. The only instance these benefits may be excluded in the gross income of the recipients, hence, exempt from income tax, is when the amounts received, when aggregated to amounts received as 13th month pay and other benefits, do not exceed the threshold limit of Thirty Thousand Pesos (P30,000) provided under Section 32(B)(7)(e) of same Code; c. Fringe benefit granted to rank-and-file employees, which in the instant case pertains to the educational assistance granted to the members of the MKP by PLDT, is in all cases exempt from the imposition of fringe benefits tax imposed by Section 33(A) of the Tax Code of 1997 since this is one of those enumerated under Subsection (C) item (3) there of which provides for the non-taxability of benefits given to rank-and-file employees whether under a CBA or not, for fringe benefit tax purposes; dctai d. Such benefits, regardless of the amount thereof given to such employees provided that the same fall under the definition of ordinary and necessary business expense as those enumerated under Section 34(A)(1)(a)(i) of the same Tax Code, are considered as valid deductible expenses of the Company. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the fact are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue