Profit-sharing Given by Company to Employees Considered Compensation

June 18, 1993 BIR RULING NO. 262-93 PROFIT-SHARING GIVEN BY COMPANY TO EMPLOYEES CONSIDERED COMPENSATION 29 000-00 262-93 Hi-Eles Industrial Corporation 2643-P Taft Avenue Pasay City, Metro Manila Attention: Mr . Donato del Rosario General Manager This refers to your letter dated February 16, 1993 informing this Office that you have decided to give all regular employees profit sharing benefit payable during the first week of April of the following year; that you record the expense account in December and withhold and pay the corresponding tax upon payment of the incentive; and that you now request for a ruling on the tax consequences of the above profit sharing incentive. In reply, please be informed that the incentive to be granted to your employees by way of profit sharing is part of compensation for personal services performed by an employee for his employer, unless specifically excepted under Sections 27 and 28 of the National Internal Revenue Code. The name by which the remuneration for services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria, bonuses, allowances, (such as transportation, representation, entertainment, and the like, fringe benefits (monetary and non-monetary), fees, including director's fees, taxable pensions and retirement pay, and other income of a similar nature constitute compensation income. Likewise, the basis upon which the remuneration is paid, is immaterial in determining whether the remuneration constitutes compensation. Thus, it may be paid on the basis of piecework, or a percentage of profits; and may be paid hourly, daily, weekly, monthly, or annually (Revenue Regulations No. 12-86). Accordingly, the profit sharing benefit to be given to your employees is subject to income tax, and consequently, to the withholding tax pursuant to Section 21(a) of the Tax Code, in relation to Section 72, Chapter 10, Title II of the Tax Code, as amended by B.P. Blg. 135, and as implemented by Revenue Regulations No. 12-86. cdt LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue