Exemption of Certain Privileges and Facilities from Withholding Tax

August 10, 1989 BIR RULING NO. 171-89 021 529-88 171-89 Gentlemen : This refers to your letter dated June 27, 1988 stating that your client, United Laboratories, Inc. has the policy of providing certain privileges and facilities that promote goodwill, cooperative and harmonious relationship with the employees in furtherance of their health and that of their families; that such privileges and facilities have proved to have encouraged efficiency and productivity; and that among such benefits and privileges are the following: cdt "1. Milk ration The company gives to the children of their employees who are aged 5 and below canned milk as nutritional supplement necessary for growing children. A healthy child means less worry for the employees whose well-being is so essential in relation to his job performance; "2. Medical expenses In the same light, the company reimburses medical expenses of the employees' children at least P20.00 per employee. Although the amount is minimal, it contributes to goodwill in the relationship with the employees for which they in return give sufficient work; cd "3. Bereavement aid and marriage benefits The company gives a marriage benefit of P200.00 to single employees who marry. A bereavement aid of P500.00 is given to employees for the death of a parent or a child and P1,000.00 in case of the death of the spouse. Such amount is not a compensation but a token of goodwill gesture in keeping with Filipino tradition of condoling with the family. Such gesture creates feeling of concern by the company for the employees and the latter gets the feeling of belonging, thus promoting goodwill between the parties; "4. Educational benefit As part of its social consciousness and a contribution to the state's policy of developing enlightened citizenry through education, the company also assists the employees, nominally through a grant of token reward to children who have attained honors is their respective grades in the elementary or high school. This amount is P400.00 to P600.00 per child. Again such small assistance receives appreciation of the recipient families and consequently develops a belonging to the larger group of the United Family and they give their best efforts for the company." In reply thereto, I have the honor to inform you that Section 2(a) of Revenue Regulations No. 6-82 as amended by Revenue Regulations No. 12-86 implementing Section 28 of the Tax Code, as amended by Executive Order No. 37, provides that facilities or privileges (such as entertainment, medical services, or so called courtesy discounts on purchases) furnished or offered by an employer to his employees generally, are not considered as compensation subject to withholding tax if such facilities or privileges are of relatively small value and are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment or efficiency of his employees. Such being the case, since the milk ration, medical expenses and educational benefit for the children of the employees as well as the bereavement aid and marriage benefits furnished by your client to its employees are with the end in view of promoting the employees health, goodwill, contentment and efficiency, said benefits are not considered compensation income/wages, hence not subject to withholding tax prescribed under Section 21(a) in relation to Section 82 of the Tax Code as amended by Executive Order No. 37 and as implemented by Revenue Regulations No. 6-82 as amended by Revenue Regulations No. 12-86. cdtech Very truly yours, (SGD.) JOSE U. ONG Commissioner