BIR Ruling [UN-143-94]

April 26, 1994 BIR RULING [UN-143-94] The Red Kettle Company, Inc. Rm. 305 A Bonaventure Plaza Ortigas Avenue, San Juan Metro Manila Attention: Ms . Carole O . Guevarra President Gentlemen : This refers to your letter dated April 11, 1994 stating that your company is engaged in the food and restaurant business; that as part of your invoice, you collect the equivalent of 10% service charge; that eighty five (85%) percent of the service charge collected is subsequently distributed among your employees who are entitled to receive a share on a monthly basis and that currently, as an authorized withholding agent of the BIR, you are deducting the corresponding withholding tax from the amount/share received by your employees. cdtech In connection therewith, you are requesting opinion on the following: (1) Whether or not the 85% service charge share of the employees is subject to the withholding tax on wages; and (2) Whether or not the 15% share of management allotted for breakages is subject to withholding tax. In reply thereto, please be informed that for purposes of withholding tax, the term "compensation" means all remuneration for services performed by an employee for his employer unless specifically excepted under Section 29 of the Tax Code, as amended. The name of 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, retirement pay and other income of a similar nature constitute compensation income. (Revenue Regulations No. 18-86 amending Revenue Regulations No. 6-82 as amended otherwise known as the Withholding Tax Regulations on Compensation). Accordingly, the 85% service charge share of your employees are subject to the withholding tax on wages. Moreover, your 15% share allotted for breakages is considered as part of your gross income subject to the 35% corporate income tax under Section 24 of the Tax Code, as amended. (BIR Ruling No. 175-89 dated April 17, 1989) aisadc Very truly yours, JAIME M. MAZA Assistant Commissioner (Legal Services)