Reimbursements or Advances in Excess of the Actual Expenses

November 22, 1990 BIR RULING NO. 217-90 21 (a) 013-90 217-90 Gentlemen : In reply to your query as to whether representation and transportation allowances are excluded from the taxable gross compensation income, please be informed that Section 21 of the Tax Code, as amended, provides that a tax is imposed upon the taxable compensation business and other income received during each taxable year, from all sources, by every individual, whether a citizen of the Philippines or alien residing in the Philippines. Moreover, the term "gross compensation income" includes all income payments received as a result of an employer-employee relationship, such as salaries, wages, emoluments, honoraria, bonus, and the like, fringe benefits (monetary and non-monetary), allowances for transportation, representation, entertainment fees including director's fees, taxable pensions and retirement pay and other income of similar nature including compensation paid in kind. For purposes of the withholding tax, the term "compensation" means all remunerations for services performed by an employee for his employer unless specifically excepted under Sections 27, 28 (b) and 71 of the Tax Code. Fixed or variable transportation, representation and other allowances which are received by a public officer or employee is compensation subject to withholding. However, amounts paid specifically either as advances or reimbursement for transportation, representation or entertainment and other bonafide ordinary and necessary expenses incurred or reasonably expected to be incurred by the employee in the performance of his duties are not compensation subject to withholding, if the following conditions are satisfied. aisadc 1) It is for ordinary and necessary travelling and representation or entertainment expenses paid or incurred by the employee in the pursuit of the trade or business of the employer. 2) The employer is required to, and does, make an accounting/liquidation for such expense in accordance with the specific requirements of substantiation for each category of expense. If the reimbursements or advances exceed the actual expenses, the excess if not returned to the employer constitutes taxable compensation (Sec. 2, Revenue Regulations No. 6-82 as amended by Rev. Reg. No. 9-83, implementing Batas Pambansa Blg. 135). Very truly yours, (SGD.) JOSE U. ONG Commissioner