Basis of Computation of Fringe Benefits Tax

June 16, 1999 BIR RULING NO. 076-99 Sec. 33, TC-000-00-076-99 Bush Boake Allen Philippines, Inc. 10-B Reliance cor. Brixton Streets, Pasig City, Metro Manila Attention: Ms . Nelia G . Corpuz Accounting/Finance Manager Gentlemen : You stated in your letter dated October 30, 1998, that your company is granting car plan to the managers and sales executive; that your company buys the car and retains the title for five years; that sixty percent (60%) of the cost is recorded as asset and depreciated for five (5) years in the books of accounts; that forty percent (40%) of the cost is recorded as receivable from the employee and collected within five (5) years interest-free ; and that at the end of the five (5)-year period, when sixty percent (60%) of the cost of the car is fully depreciated and the forty percent (40%) share of the employee is fully paid, title is transferred to the employee. Based on the foregoing, you now request for a ruling on the basis of the computation of the fringe benefit tax. In reply, please be informed that fringe benefits which have been furnished, granted or paid by the employer beginning January 1, 1998 shall be governed by Section 33 of the Tax Code of 1997, as implemented by Revenue Regulations No. 3-98. Pursuant to Section 2.33(B)(3)(e) of the said regulations: "(e) If the employer owns and maintains a fleet of motor vehicles for the use of the business and the employees, the value of the benefit shall be the acquisition cost of all the motor vehicles not normally used for sales, freight, delivery service and other non personal use divided by five (5) years. The monetary value of the fringe benefit shall be fifty percent (50%) of the value of the benefit. "The monetary value of the motor vehicle fringe benefit is equivalent to the following: "MV = [(A)/5] x 50% where: MV = Monetary value A = Acquisition cost" Hence, the fringe benefit in this particular case is to be computed as follows: Acquisition cost x 60% x 50% = annual FBT on motor vehicle 5 years Additionally, the company is further liable to fringe benefits tax under Section 2.33(B)(5)(a) on interest free loan to the employee computed at the benchmark interest rate of twelve percent per annum. Thus, the annual fringe benefit tax on interest-free loan for the 40% of the acquisition cost of the car should likewise be computed and this should be done in the manner of a usual financing transaction, as follows: 40% of the acquisition cost x 12% p.a. x 5 years = Annual FBT on interest 5 years 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