Stipend and Living Allowances Received Where No Employer-Employee Relationship Exists is Not Subject to Withholding Tax

July 8, 1991 BIR RULING NO. 131-91 71 000-00 131-91 Mesdames : This refers to your letter dated April 16, 1991 requesting in effect a ruling as to whether or not your monthly stipend and living allowance received from the World Rehabilitation Fund, Inc. (WRF) New York, U.S.A., are subject to withholding tax. It is represented that on the recommendation of the Ministry of Health of the People's Republic of China both of you were accepted to the two year training program on Physical Medicine & Rehabilitation, a joint special project of the Division of Rehabilitation Medicine of Santo Tomas University Hospital (USTM) and the World Rehabilitation Fund, Inc. (WRF), New York, U.S.A.; that your monthly allowance of P7,000.00/month is being paid by WRF through USTH; that USTH has been deducting withholding tax from your said allowance; that Dra. Liu started training in June 1989, thus, the income tax withheld from her allowance are as follows: June 1989 December 1989 P3,525.00 January 1990 December 1990 8,355.00 January 1991 March 1991 980.00 while Dra. Chen started her training in June 1990, hence, the income tax withheld from her allowance are as follows: June 1990 December 1990 P2,513.66 January 1991 March 1991 1,109.22 and that Dra. Liu will complete her training at the end of May 1991 and will be leaving for China immediately thereafter. In reply, please be informed that stipends are considered compensation for services performed by an employee for his/her employer hence, the same are subject to the withholding tax on wages. (Sec. 2, Revenue Regulations No. 6-82) However, it is noted that in the instant case, the monthly stipends and living allowance which both of you received are being paid by the World Rehabilitation Fund, Inc., New York, U.S.A. through the University of Santo Tomas Hospital, as the sponsor of the Two Year Training Program on Physical Medicine & Rehabilitation at Santo Tomas University Hospital, to which you were both accepted. Such being the case, said allowances are not considered as compensation for services performed by an employee for his/her employer, considering that an employee-employer relationship between both of you individually and the WRF does not exist. The said stipends and living allowance being received by both of you are not therefore, subject to the withholding tax on wages prescribed under Section 72 of the Tax Code, as amended, which requires as a condition for its imposition that an employee-employer relationship exist between the income payor and the recipient of such income. Moreover, they are not subject to the creditable withholding tax imposed under Revenue Regulations No. 6-85, as amended, otherwise known as the Revised and Consolidated Expanded Withholding Tax Regulations implementing Section 50(b) of the Tax Code, as amended, considering that under said Revenue Regulations, only payments to persons enumerated therein are subject to the expanded withholding tax. Since payments of stipends and living allowances to trainees in sponsored medical program are not among those specified in said Regulations, the above payments are not, therefore, subject to the expanded withholding tax. cdtech Very truly yours, (SGD.) JOSE U. ONG Commissioner