Monetized Unused Vacation Leave Credits Not in Excess of Ten Days a Year Tax-Exempt

October 14, 1993 BIR RULING NO. 410-93 MONETIZED UNUSED VACATION LEAVE CREDITS NOT IN EXCESS OF TEN DAYS A YEAR TAX-EXEMPT 29 335-92 410-93 Wander (Philippines) Inc. 105 E. Rodriguez, Jr. Avenue Pasig, Metro Manila Attention: Mrs . Cynthia T . Ginete Human Resources Department This refers to your letter dated May 7, 1992 requesting a ruling on whether the monetized vacation leave credits of your employees are subject to income tax and consequently to the withholding tax. It is represented that under the existing collective bargaining agreement between you and the employees' union, the employees who have completed at least one (1) year of continuous service are granted at least fifteen (15) working days vacation leaves with pay per year; that these earned vacation leaves, if unused, shall be convertible to their cash equivalent payable in February of the succeeding year based on the employees' salaries as of December 31, of the year the vacation leaves were unused; and that these vacation leaves are not forfeited if unused by the end of the year but are automatically convertible to their cash equivalent. In reply, I have the honor to inform you that since as represented the vacation leave credits of your employees are not deemed forfeited if unused as of the end of the year but are automatically convertible to their cash equivalent, you in effect, have provided a facility or privilege as a means of promoting the health, goodwill and contentment of your employees as contemplated under Section 2 of Revenue Regulations No. 12-86. Such being the case, monetized unused vacation leave credits of your employees do not constitute additional compensation to them, and are therefore, exempt from withholding tax provided that the same shall not exceed ten (10) days during the year. cdt LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue