BIR Ruling No. 208-99

December 28, 1999 BIR RULING NO. 208-99 33; 3-98-000-00-208-99 Toyota Autoparts Philippines Inc . Toyota Sta. Rosa (Laguna) Complex Special Export Processing Zone Barangay Pulong Sta. Cruz, Sta. Rosa Laguna Attention: Mr . Kenichi Yoshida Treasurer/Comptroller Gentlemen : This refers to your letter dated October 20, 1998 requesting for a ruling on the following issues: "1) Our company provides a housing assistance to our expatriates who are directors and at the same time receiving a fixed salary as officers of our company. Is it subject to the Fringe Benefit Tax? "2) If the housing allowance of the director/officer will be paid from the Retained Earnings, is it subject to Fringe Benefit Tax? "3) If the officer/director is not receiving a fixed monthly income but a remuneration as determined by the Board of Directors based on the Retained Earnings of the corporation, is housing assistance extended subject to .the Fringe Benefit Tax? "4) How about a director on a retainer basis enjoying a housing assistance from the company, is Fringe Benefit Tax applicable?" It is represented that your company, Toyota Autoparts Philippines, Inc . (TAP) is a PEZA registered company with a 95% Japanese ownership. In reply, please be informed of the following: 1. The term "fringe benefit" is defined under Section 33(B) of the Tax Code of 1997 as any good, service or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees). It includes, among others, housing benefit granted to the managerial and supervisory employees of the company. The Directors of TAP who are at the same time receiving fixed salaries as TAP officers, are considered as employees holding positions other than rank and file positions, i.e. managerial and/or supervisory positions. Such being the case, the housing assistance granted by your company, TAP, to your expatriates who are directors and at the same time holding managerial and supervisory positions, is considered as fringe benefit subject to the Fringe Benefit Tax under Section 33(B) of the Tax Code of 1997 and implemented by Revenue Regulations No. 3-98. 2. The source of the fringe benefit granted to the employees does not affect the taxability of the said fringe benefit. Thus, the housing allowance of the director/officer of TAP which is paid out of its Retained Earnings, is still considered as a fringe benefit subject to the fringe benefit tax imposed under Section 33(B) of the Tax Code of 1997 and implemented by Revenue Regulations No. 3-98. 3. Section 33 of the Tax Code of 1997 on fringe benefit applies to managerial and supervisory employees. It is a condition sine qua non that such recipients of the fringe benefits enumerated under the law must be employees of the company granting it. Thus, where the officer/director of TAP is considered as an employee, taking into consideration the following criteria: a) selection and engagement of the employee; b) payment of wages; c) power of dismissal; d) power to control the employee's conduct, the latter being the most important element (Phil. Bank of Communications vs. NLRC, 146 S 347) regardless of whether a fixed monthly income is given or their remuneration is determined by the Board of Directors based on the Retained Earnings of the corporation, the housing assistance granted to the said officers/directors are still subject to the Fringe Benefit Tax under Section 33 of the Tax Code of 1997 as implemented by Revenue Regulations No. 3-98. 4. On the other hand, where a director is being paid out on a retainer basis, no employer-employee relationship exist between the company and the director. Thus, the housing assistance granted to him shall not be considered as fringe benefit subject to the Fringe Benefit Tax under Section 33 of the Tax Code of 1997 and implemented by Revenue Regulations No. 3-98 but is considered as part of his gross income which is subject to the applicable tax rates under Section 24(A)(1)(c) of the Tax Code of 1997. LibLex Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue