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6/8/12 Archer Tax Journal 1/13 archertaxjournal.blogspot.com WEDNESDAY, NOVEMBER 02, 2005 ‘De Minimis’ and Other Tax-Exempt Fringe Benefits By Atty. Juris Bernadette M. Tomboc I. Introduction A general concern by employees as well as employers nowadays due to the spiraling prices of commodities is how to legally save on taxes paid by employees on their compensation income in order to increase their take-home pay. This paper summarizes the statutory provisions, rules and regulations, and some recent illustrative rulings on ‘de minimis’ and other tax-exempt fringe benefits in order to be able to assist both employers and employees in choosing and implementing compensation income tax avoidance strategies. Section 2.33 (C) of Revenue Regulations No. 3-98 as amended exempts the following fringe benefits from tax: (a) Fringe benefits which are authorized and exempted from income tax under the Code or under any special law; (b) Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans; (c) Benefits given to the rank and file, whether granted under a collective bargaining agreement or not; (d) ‘De minimis’ benefits as defined in the Regulations; (e) If the grant of fringe benefits to the employee is required by the nature of or necessary to the trade, business or profession of the employer; or (f) If the grant of fringe benefits is for the convenience of the employer. Links Legal Management (Part I) Archer Intellectual Property Law Forum Archer Intellectual Property Law Journal Archer Intellectual Property Law Review Archer Law Forum Archer Law Journal Archer Law Review Archer Tax Journal Falcon Law Bulletin Falcon Law Journal Falcon Law Reporter Falcon Law Review Falcon Lawyers Bulletin Falcon Lawyers Journal Falcon Lawyers Review Previous Posts ‘De Minimis’ and Other Tax- Exempt Fringe Benefits Archives November 2005 Archer Tax Journal A publication by the Legal Management Journal. Contributions do not necessarily reflect views by the Journal or its Editorial Board. Iulat ang Pag-abuso Susunod na Blog» Bumuo ng Blog Mag-sign in

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W E D N E S D A Y , N O V E M B E R 02 , 2005

‘De Minimis’ and Other Tax-Exempt Fringe Benefits

By Atty. Juris Bernadette M.

Tomboc

I. Introduction

A general concern by employees as

well as employers nowadays due to

the spiraling prices of commodities

is how to legally save on taxes paid

by employees on their

compensation income in order to

increase their take-home pay. This paper summarizes the statutory

provisions, rules and regulations, and some recent illustrative rulings

on ‘de minimis’ and other tax-exempt fringe benefits in order to be

able to assist both employers and employees in choosing and

implementing compensation income tax avoidance strategies.

Section 2.33 (C) of Revenue Regulations No. 3-98 as amended

exempts the following fringe benefits from tax:

(a) Fringe benefits which are authorized and exempted from income

tax under the Code or under any special law;

(b) Contributions of the employer for the benefit of the employee to

retirement, insurance and hospitalization benefit plans;

(c) Benefits given to the rank and file, whether granted under a

collective bargaining agreement or not;

(d) ‘De minimis’ benefits as defined in the Regulations;

(e) If the grant of fringe benefits to the employee is required by the

nature of or necessary to the trade, business or profession of the

employer; or

(f) If the grant of fringe benefits is for the convenience of the

employer.

Links

Legal Management (Part I)

Archer Intellectual Property Law

Forum

Archer Intellectual Property Law

Journal

Archer Intellectual Property Law

Review

Archer Law Forum

Archer Law Journal

Archer Law Review

Archer Tax Journal

Falcon Law Bulletin

Falcon Law Journal

Falcon Law Reporter

Falcon Law Review

Falcon Lawyers Bulletin

Falcon Lawyers Journal

Falcon Lawyers Review

Previous Posts

‘De Minimis’ and Other Tax-

Exempt Fringe Benefits

Archives

November 2005

Archer Tax JournalA publication by the Legal Management Journal. Contributions do not necessarily reflect views by the Journal or its

Editorial Board.

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II. ‘De Minimis’ Benefits in General

‘De minimis’ benefits that are exempt from the fringe benefits tax

are in general limited to facilities or privileges offered by an employer

which are of relatively small value and are furnished merely as a

means of promoting employee’s health, goodwill, contentment, or

efficiency. (Revenue Regulations No. 10-2000, amending Revenue

Regulations Nos. 2-98 and 3-98, as last amended by Revenue

Regulations No. 8-2000)

The following are classified as ‘de minimis’ benefits under Revenue

Regulations 10-2000 issued by the Bureau of Internal Revenue and

therefore not subject to income tax as well as withholding tax on

compensation income of both managerial and rank and file

employees:

(a) Monetized unused vacation leave credits of private employees not

exceeding ten (10) days during the year and the monetized value of

leave credits paid to government officials and employees;

(b) Medical cash allowance to dependents of employees not exceeding

P750.00 per employee per semester or P125.00 per month;

(c) Rice subsidy of P1,000.00 or one (1) sack of 50-kg. rice per month

amounting to not more than P1,000.00;

(d) Uniform and clothing allowance not exceeding P3,000 per annum;

(e) Actual yearly medical benefits not exceeding P10,000.00 per

annum;

(f) Laundry allowance not exceeding P300.00 per month;

(g) Employees’ achievement awards, e.g., for length of service or

safety achievement, which must be in the form of a tangible personal

property other than cash or gift certificate, with an annual monetary

value not exceeding P10,000.00 received by the employee under an

established written plan which does not discriminate in favor of highly

paid employees;

(h) Gifts during Christmas and major anniversary celebrations not

exceeding P5,000.00 per employee per annum;

(i) Flowers, fruits, books, or similar items given to employees on

special circumstances, e.g., on account of illness, marriage, birth of

baby, etc., and

(j) Daily meal allowances not exceeding twenty five percent (25%) of

the basic minimum wage for overtime work (Revenue Regulations No.

10-2000).

The amount of ‘de minimis’ benefits that are within the above-

enumerated threshold limits prescribed under Revenue Regulations

No. 10-2000 shall not be included in the P30,000.00 ceiling of “other

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benefits’ under Section 32 (B) (7) (e) of Republic Act No. 8424,

otherwise known as the National Internal Revenue Code of 1997 or the

“Tax Code” (Revenue Regulations No. 8-2000, amending Revenue

Regulations Nos. 2-98 and 3-98).

If an employer pays employees more than the threshold limits

prescribed under Revenue Regulations No. 10-2000, the excess shall

still not be taxable to the employee receiving the benefits as long as

they are within the P30,000.00 ceiling on total “other benefits”

received by the employee during the year. Any excess of the foregoing

benefits over the said P30,000.00 ceiling will be taxable to the

employee.

The “other benefits” referred to in Section 32 (B) (7) (e) of the Tax

Code include gross benefits received by employees such as

productivity incentives and Christmas bonus. It likewise includes the

14th month pay, if any, and benefits in excess of the limits prescribed

on ‘de minimis’ benefits under Revenue Regulations No. 10-2000.

The employer may deduct as expense any amount given as benefits to

employees whether classified as de minimis benefits or fringe

benefits (Revenue Regulations No. 8-2000).

III. Some Recent Illustrative Rulings on ‘De Minimis’ and Other

Exempt Fringe Benefits

A. Christmas Cash Gift

A P5,000.00 extra cash gift given to employees during Christmas in

addition to the P5,000.00 basic cash gift also given during Christmas,

or a total of P10,000.00, are ‘de minimis’ fringe benefits and

therefore tax exempt (BIR Ruling No. DA-266-2004 [May 17, 2004]

issued to the Office of the Ombudsman).

However, since the ceiling for gifts given during Christmas and major

anniversary celebrations is fixed at P5,000.00, the excess over the

P5,000.00 ceiling amount of the ‘de minimis’ fringe benefits shall be

considered as “other benefits” under Section 32 (B) (7) (e) (iv) of the

Tax Code (BIR Ruling No. DA-266-2004).

Thus, the excess of the gifts over the ‘de minimis’ ceiling shall still

be exempt provided that it, together with the total amount of other

benefits, shall not exceed P30,000.00 (BIR Ruling No. DA-266-2004).

B. Housing or Living Quarters

Fringe benefits means any good, service or other benefit furnished or

granted by an employer to an employee except rank and file

employees in cash or in kind, in addition to basic salaries, such as

housing.

Section 33 (a) of the Tax Code stipulates that fringe benefits which

are “required by the nature of or necessary to the trade, business or

profession of the employer or when the fringe benefit is for the

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convenience or advantage of the employer” are not subject to the

fringe benefit tax.

If the living quarters are furnished to an employee for the

convenience of the employer, the value thereof need not be included

as part of compensation subject to withholding. Section 2.33 (B) (1)

(g) of Revenue Regulations No. 3-98 implementing Section 33 of the

Tax Code provides:

“(g) A housing unit which is situated inside or adjacent to the

premises of a business/factory shall not be considered as a taxable

fringe benefit. A housing unit is considered adjacent to the premises

of the business if it is located within the maximum of fifty (50)

meters from the perimeter of the business premises.”

If the fringe benefit is for the convenience or advantage of the

employer, it may neither be included as part of compensation income

of the employees subject to withholding nor be subject to the fringe

benefit tax under Section 33 of the Tax Code.

A housing unit shall be considered to be for the convenience or

advantage of the employer if the same is within fifty meters from the

perimeter of the business premises and the employees are required to

be on-call due to the nature of the employer’s business operation.

(BIR Ruling No. DA-635-04 [December 15, 2004] issued to Foreign

Holiday Philippines, Inc. See also BIR Ruling No. DA-241-04 [May 7,

2004] issued to Sohbi Koghei (Phils.), Inc.)

C. Life or Health Insurance

Section 2.33 (B) of Revenue Regulations No. 3-98 implementing

Section 33 (C) of the Tax Code provides that premiums borne by an

employer for its employees’ group insurance shall be considered as

non-taxable fringe benefits, viz.:

“In general, except as otherwise provided under these Regulations,

for purposes of this Section, the term “fringe benefit” means any

good, service or other benefit furnished or granted by an employer in

cash or in kind, in addition to basic salaries, to an individual

employee (except rank and file employees as defined in these

Regulations) such as, but not limited to the following: xxx xxx xxx

(10) Life or health insurance and other non-life insurance premiums or

similar amounts in excess of what the law allows.”

For this purpose, the guidelines for valuation of specific types of

fringe benefits and the determination of the monetary value of the

fringe benefits are given below. xxx xxx xxx

(10) Life or health insurance and other non-life insurance premiums or

similar amounts in excess of what the law allows — The cost of life or

health insurance and other non-life insurance premiums borne by the

employer for his employee shall be treated as taxable fringe benefit,

except the following:

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(a) contributions of the employer for the benefit of the employee,

pursuant to the provisions of existing law, such as under the Social

Security System (SSS), (R.A. No. 8282, as amended) or under the

Government Service Insurance System (GSIS) (R.A. No. 8291), or

similar contributions arising from the provisions of any other existing

law; and

(b) the cost of premiums borne by the employer for the group

insurance of his employees.”

Hence, based on the foregoing, the premiums borne by an employer

under a Grepalife Group Plan for its employees constitute a non-

taxable fringe benefit. (BIR Ruling No. DA-432-2004 [August 11, 2004]

issued to SGV & Co. on behalf of Great Pacific Life Assurance

Corporation citing BIR Ruling No. DA-126-2003 [April 21, 2003]. See

also BIR Ruling No. DA-139-2005 issued to V. C. Mamalateo &

Associates on behalf of Philippine American Life and General

Assurance Company.)

D. Meal and Food Allowance

Meal and food benefits granted through meal and food vouchers,

although not intended to be used for overtime work may be

considered as ‘de minimis’ benefits and therefore exempt from

income tax provided that such meal benefits shall not exceed twenty-

five percent (25%) of the daily minimum wage. (BIR Ruling No. 023-

2002 [June 21, 2002] issued to Sodexho Pass, Inc.)

In rendering such an opinion, the Bureau of Internal Revenue

explained that Revenue Regulations No. 8-2000 and 10-2000 are

merely illustrative and non-exclusive in the enumeration of what are

considered as ‘de minimis’ benefits (BIR Ruling No. 081-03).

Any facility or privilege offered by an employer to his employees that

is of relatively small value and furnished merely as a means of

promoting the health, goodwill, contentment, or efficiency of

employees may be considered as ‘de minimis’ benefits (BIR Ruling No.

081-03).

The meal and food vouchers pass the test of convenience on the part

of the employer and the promotion of the health, goodwill,

contentment, or efficiency of employees. The voucher system

provides documentary support and ensures that the meal or food

allowance given to employees is actually used for purchasing food and

meals (BIR Ruling No. 081-2003).

Meal cash allowances are subject to standards set for ‘de minimis’

thresholds for fringe benefits under Revenue Regulations 3-98 as

amended by Revenue Regulations No. 8-2000 and 10-2000. They are

also subject to the tests of convenience of the employer and

promotion of employees’ health, goodwill, contentment, or efficiency

under Section 2.78.1 (A) (2) and (3) of Revenue Regulations No. 2-98

as amended by Revenue Regulations Nos. 8-2000 and 10-2000 (BIR

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Ruling No. 081-2003).

Meal and food benefits granted, although not to be used for overtime

work may still be added to the enumeration of ‘de minimis’ fringe

benefits. However, in terms of ‘de minimis’ threshold for regular

meal and food benefit the ceiling for benefits of similar nature under

Revenue Regulations No. 8-2000 should be applied. Such being the

case, meal and food benefits not exceeding twenty-five percent (25%)

of the daily minimum wage may be considered a ‘de minimis’ meal

benefit and therefore tax-exempt (BIR Ruling No. DA-205-2005 [April

21, 2005] issued to Capt. Orlando C. Alovera c/o Philippine Coast

Guard citing BIR Ruling No. 23-2002 [June 21, 2002]; BIR Ruling No.

DA-168-2004 [April 5, 2004] issued to Philippines Samsung Electronics

Corporation).

The excess of meal and food allowance given over the ‘de minimis’

ceiling shall still be tax exempt provided that it, together with the

total amount of other benefits, shall not exceed P30,000.00 (BIR

Ruling No. DA-264-2004 issued to Petron Corporation).

E. Medical Benefits

In general, fringe benefits granted to rank and file employees,

including medical benefits, are exempt from the fringe benefits tax

under the Tax Code. (BIR Ruling No. DA-078-2004 citing Section 33

(C) (3) of the Tax Code and BIR Ruling No. 057-1998 [May 21, 1998])

With respect to supervisory and managerial employees, the portion of

medical benefits not exceeding P10,000.00 may be considered as a

‘de minimis’ benefit and therefore tax-exempt. The excess over

P10,000.00 shall be considered as “other benefits” and still be

exempt provided that the total together with the amount of other

benefits shall not exceed P30,000.00 per annum. (BIR Ruling No. DA-

078-2004 [February 20, 2004] citing Section 32 (B) (7) (e) (iv) of the

Tax Code, issued to Lacson & Lacson Insurance Brokers, Inc.)

Thus, actual yearly medical benefits not exceeding P10,000.00 per

annum shall be considered as a ‘de minimis’ benefits not subject to

income tax as well as withholding tax on compensation income of both

managerial and rank and file employees (BIR Ruling No. 081-03 citing

Section 1 (A) (3) (e) of Revenue Regulations No. 10-2000).

Medical benefits provided to employees by companies to be tax-

exempt must likewise comply with the tests of convenience of the

employer and promotion of employees’ health, goodwill, contentment,

or efficiency. (BIR Ruling No. DA-078-04, citing Sec. 2.78.1 (A) (2)

and (3) of Revenue Regulations No. 2-98, as amended by Revenue

Regulations Nos. 8-2000 and 10-2000)

In addition, the following conditions must concur:

(a) The amount given to the employee must be for his own medical

expenses for a given taxable year;

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(b) The amount actually given and actually spent for medical reasons

shall not exceed P10,000.00 in any given calendar year. The term

“actual” connotes something that exists in fact or existing in reality

as distinct or contrasted with something that is potential, possible or

a mere expectancy;

(c) The employee must fully substantiate with official receipts in his

name the medical allowance so granted on or before the annualization

of withholding taxes in any given calendar year (BIR Ruling No. 081-

2003 citing BIR Ruling No. 019-2002 [May 9, 2002]).

F. Perfect Attendance Incentive

A system comprised of monthly perfect attendance incentives of

P200.00 per month from the month of December of the previous year

to November of the year in which the award is given to qualified

employees every December, quarterly perfect attendance incentive of

P600.00 per quarter awarded to qualified employees at the end of

every quarter, and annual perfect attendance incentive of P1,000.00

awarded to employees with perfect attendance for one year from

December of the previous year up to November of the year in which

the award is given to rank and file and supervisory employees may be

considered as a ‘de minimis’ benefit (BIR Ruling No. DA-159-2005

[April 14, 2005] issued to Punongbayan & Araullo on behalf of JAE

Philippines, Inc.).

In BIR Ruling No. DA-159-2005, the above-described perfect

attendance incentive system implemented by JAE Philippines, Inc. was

considered as exempt from the fringe benefits tax since it was

provided for the purpose of promoting employees’ contentment and

efficiency by encouraging them to limit their absences and the values

thereof are relatively small. (BIR Ruling No. DA-159-2005)

Thus, considering that the perfect attendance incentive system is a

‘de minimis’ benefit, it is not subject to income tax as well as to

withholding tax on income of both managerial and rank and file

employees. Further, the said incentives should not be included in the

“other benefits” for purposes of applying the P30,000.00 ceiling under

Section 32 (B) (7) (e) of the Tax Code (BIR Ruling No. DA-159-2005).

G. Performance Incentive

Monthly performance incentives given to rank and file employees are

not subject to the fringe benefits tax if given to rank and file

employees pursuant to Section 2.33 (C) (3) of Revenue Regulations

No. 3-98, as amended. The following were the amounts of monthly

performance incentives in BIR Ruling No. DA-169-2004: P500.00 for

engineers, P350.00 for line leaders, P200.00 for operators, P400.00

for staff, and P250.00 for quality control inspectors. (BIR Ruling No.

DA-169-2004 [April 6, 2004] issued to Mitsuwa Philippines, Inc.)

In addition, monthly perfect attendance incentives in the amount of

P150.00 and annual perfect attendance incentives in the amount of

P2,000.00 for one (1) year, P6,000.00 for two (2) years, and

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P15,000.00 for three (3) years given to rank and file employees were

also considered as exempt from the fringe benefits tax pursuant to

Section 2.33 (C) (3) of Revenue Regulations No. 3-98 as amended.

(BIR Ruling No. DA-169-2004)

The above-described performance and monthly and annual perfect

attendance incentives given to supervisory and managerial employees

were considered as ‘de minimis’ benefits since they are of relatively

small value and offered by the employer merely as a means of

promoting its employees’ health, goodwill, contentment, or

efficiency. Consequently, they were exempted from the fringe

benefits tax (BIR Ruling No. DA-169-2004).

H. Productivity Incentive Bonus

The productivity incentive bonus granted by Lufthansa Technik

Philippines, Inc. (“LTP”) to all its employees to encourage them to

achieve certain targets set by LTP in order to avoid payment of

penalties to customers was considered as “other benefits” under

Section 32 (B) (7) (e) of the Tax Code. As such, they need not form

part of the employees’ taxable income subject to withholding tax on

wages under Section 79 in relation to Section 24 (A) both of the Tax

Code. However, such “other benefits” inclusive of the said

productivity incentive bonus should not, in the aggregate, exceed

P30,000.00 when added to the 13th month pay (BIR Ruling No. DA-

026-2005 [January 21, 2005] issued to Lufthansa Technik Philippines,

Inc.).

Under the service contract agreement between LTP and its customers,

in case LTP incurs a delay in the delivery of services due to its own

fault, LTP shall pay the corresponding penalty. The bonus is given to

LTP employees subject to the following conditions: (1) achievement of

98 percent maintenance original dispatch reliability and (2) zero

technical incidents per week. That –

“Dispatch reliability means the percentage flights which depart

without incurring a delay or cancellation (both technically originated).

Technical incidents shall mean the following: (1) any new maintenance

overrun including AD/CN; (2) any damage to aircraft, engine,

components, or unsafe/non-airworthy condition thereof caused by

faulty workmanship and/or non-compliance with standard

practices/technical procedures and/or company procedures; (3) any

finding of faulty workmanship and/or non-compliance with standard

procedures that, if undetected, could have resulted in damage of an

aircraft, engine, components, or an unsafe/no-airworthy condition

thereof; and (4) any case of incompletely and/or improperly

accomplished release-to-service documentation. That the

performance is measured on a weekly basis xxx” (BIR Ruling No. DA-

026-2005)

Once the above-described two conditions are met, LTP employees will

be entitled to a performance bonus based on their job grade

classification: (1) job grades A to D – P350.00 per week; and (2) job

grades E to E – P700.00 per week (BIR Ruling No. DA-026-2005).

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Under Section 32 (B) (7) (e) (iv) of the Tax Code, “other benefits”

include all benefits other than the 13th month pay such as the annual

Christmas bonus given by private offices, 14th month pay, mid-year

productivity incentive bonus, gift in cash or in kind and other similar

benefits received by an employee in one calendar year, the total

amount of which including the 13th month pay is subject to the ceiling

of P30,000.00 (BIR Ruling No. DA-026-2005).

I. Rice Subsidy

Rice allowance benefit in the amount of P1,000.00 per month is within

the limitation set by Revenue Regulations No. 3-98 as amended by

Revenue Regulations Nos. 8-2000 and 10-2000. Accordingly, rice

allowance in the amount of P1,000.00 per month is neither subject to

income tax nor to the fringe benefit tax. (BIR Ruling No. DA-168-

2004)

In keeping with the spirit of the rules and regulations on ‘de minimis’

benefits, there can be no aggregation of the values set for each item

of benefit stated in Revenue Regulations Nos. 2-98 and 3-98 as

amended by Revenue Regulations Nos. 8-2000 and 10-2000. The

intent of the Regulations is to treat each item of ‘de minimis’ benefit

independently of each other. Thus, the Regulations separately provide

maximum values for rice allowance and for meal allowance and there

can be no aggregation of ‘de minimis’ values for rice and meal and

food benefits (BIR Ruling No. DA-168-2004, April 5, 2004, citing BIR

Ruling No. 23-2002 [June 21, 2002]).

J. Subsistence Allowance

In BIR Ruling No. DA-163-98 [April 12, 1998] the Bureau of Internal

Revenue considered the subsistence allowance in the amount of

P80.00 per day or P2,400.00 per month furnished by Yazaki-Torres

Manufacturing, Inc. to its employees in order to promote the latter’s

health, goodwill, contentment and efficiency as a ‘de minimis’ benefit

considering further that the same was of relatively small value.

Accordingly, the benefit was not subjected to the withholding tax

prescribed in Section 79 in relation to Section 24 both of the Tax Code

as implemented by Revenue Regulations No. 2-98 (BIR Ruling No. DA-

163-98 [April 22, 1998] issued to Yazaki-Torres Manufacturing, Inc.).

In the above-cited Ruling it was represented that the company’s main

office and place of production is in Calamba, Laguna. The company

maintained a Manila Liaison Office to facilitate communication and

dealing with government and private offices in Manila. Most of the

company’s employees assigned to its Manila Liaison Office were

coming from Laguna and Batangas. The company granted a daily

subsistence allowance in the amount of P80.00 to compensate its

employees for the additional expense in their daily subsistence (BIR

Ruling No. DA-320-99).

Facilities and privileges offered by employers to employees generally

will not be considered as income subject to withholding if the same

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are of relatively small value and furnished merely as a means of

promoting the health, goodwill, contentment, or efficiency of

employees. These facilities or privileges include entertainment,

medical service or so-called “courtesy” discounts on purchases (BIR

Ruling No. DA-320-99).

K. Transportation and Representation Allowances

In general, transportation and representation allowances that are

fixed in amount and regularly received by employees as part of their

monthly compensation income will be considered as taxable

compensation income subject to tax imposed under Section 24 of the

Tax Code (BIR Ruling No. 168-2004).

However, any amount paid specifically, either as advances or

reimbursements for traveling, representation and other bona fide

ordinary and necessary expenses incurred or reasonably expected to

be incurred by an employee in the performance of his duties may not

be considered as compensation subject to withholding, if the following

conditions are satisfied:

(a) It is for ordinary and necessary traveling and representation or

entertainment expenses paid or incurred by the employee in the

pursuit of the employer’s trade, business or profession; and

(b) The employee is required to account or liquidate for the same in

accordance with the specific requirements of substantiation for each

category of expenses pursuant to Section 34 of the Tax Code. The

excess of advances made over actual expenses shall constitute

taxable income if such amount is not returned to the employer.

However, reasonable amounts of reimbursements or advances for

traveling and entertainment expenses which are pre-computed on a

daily basis and paid to an employee while he or she is on an

assignment or duty are not subject to substantiation and withholding

(Revenue Regulations 8-2000).

Thus, pre-computed transportation allowance in the amount of two

thousand pesos (P2,000.00) per month or around ninety-one pesos

(P91.00) per day given to customer service representatives of

Philippine Long Distance Company subsidiaries, Parlance and

Vocative, while on duty, and three thousand pesos (P3,000.00) or

around one hundred thirty six pesos (P136.00) per day for coaches

were not considered as compensation subject to income tax and

consequently to withholding tax on wages in accordance with Revenue

Regulations No. 2-98, as amended (BIR Ruling No. DA-335-2004 [June

25, 2004] issued to Philippine Long Distance Company).

Moreover, since the transportation allowance is pre-computed on a

daily basis and are paid to the employee while on assignment or duty,

the said transportation allowance was not subjected to the

requirements of substantiation and to withholding pursuant to

Revenue Regulations No. 2-98, as amended.

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L. Uniforms and Clothing Allowance

Uniforms and clothing allowance not exceeding P3,000.00 per annum

may be considered tax-exempt benefits. Any excess over the

P3,000.00 limit prescribed under the Regulations shall be added to the

“other benefits” under Section 32 (B) (7) (e) of the Tax Code for

purposes of determining whether or not the P30,000.00 threshold has

been exceeded. The excess over P30,000.00 shall be taxable to the

employee receiving the benefits. (BIR Ruling No. DA-264-2004)

IV. Conclusion

Facilities and privileges that are considered as ‘de minimis’ under

pertinent rules and regulations and/or BIR rulings are excluded from

employees’ taxable gross compensation income. Further, they are

also excluded from “other benefits’ subject to the P30,000.00 limit on

the total amount thereof and are thus exempt from income tax under

Section 32 (B) (7) (e) of the Tax Code Further, ‘de minimis’ benefits

are not subject to withholding tax on compensation in view or their

tax exemption (BIR Ruling No. 168-2004).

Revenue Regulations No. 8-2000 and 10-2000 are merely illustrative

and non-exclusive in the enumeration of what are considered as ‘de

minimis’ benefits (BIR Ruling No. 081-03). Thus the Bureau of Internal

allowed ‘de minimis’ amounts of meal and food allowance not for

overtime work, perfect attendance and performance incentives, and

subsistence allowance as tax-exempt benefits although they are not

included in the enumeration under the Regulations.

In keeping with the spirit of the rules and regulations on ‘de minimis’

benefits, there can be no aggregation of the values for each item of

benefit pursuant to Revenue Regulations Nos. 2-98 and 3-98 as

amended by Revenue Regulations Nos. 8-2000 and 10-2000. The

intent of the Regulations is to treat each item of ‘de minimis’ benefit

independently of each other (BIR Ruling No. 168-2004).

Gross benefits granted to rank and file, supervisory or managerial

employees including the 13th month pay up to the extent of the

threshold of P30,000.00 mandated by Section 32 (B) (7) (e) of the Tax

Code are also excluded from gross income and therefore tax-exempt.

Benefits received by employees in excess of the said threshold of

P30,000.00 are considered as taxable income (BIR Ruling No. 168-

2004).

The “other benefits” referred to in Section 32 (B) (7) (e) of the Tax

Code include the 13th month pay, Christmas bonus, 14th month pay,

gifts in cash or in kind, other similar benefits, and benefits in excess

of the limits prescribed for each item under Revenue Regulations Nos.

2-98 and 3-98 as amended by Revenue Regulations Nos. 8-2000 and

10-2000.

V. Bibliography

A. Statute

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Republic Act No. 8424 [1997] otherwise known as the National Internal

Revenue Code of 1997 or the Tax Code

B. Revenue Regulations

Revenue Regulations No. 10-2000 [December 14, 2000] amending

Revenue Regulations Nos. 2-98 and 3-98, as last amended by Revenue

Regulations 8-2000.

Revenue Regulations No. 8-2000 [August 21, 2000] amending Revenue

Regulations Nos. 2-98 and 3-98.

Revenue Regulations 3-98 [May 21, 1998, effective starting January

1, 1998]. Implementing Section 33 of Republic Act No. 8424 Relative

to the Special Treatment of Fringe Benefits.

Revenue Regulations 2-98 [April 17, 1998]. Implementing Republic Act

No. 8424 Relative to the Withholding on Income Subject to the

Expanded Withholding Tax and Final Withholding Tax, Withholding of

Income Tax on Compensation, Withholding of Creditable Value-Added

Tax and Other Percentage Taxes.

C. BIR Rulings

No. DA-205-2005 [April 21, 2005] issued to Capt. Orlando C. Alovera

c/o Philippine Coast Guard

No. DA-159-2005 [April 14, 2005] issued to Punongbayan & Araullo

No. DA-139-2005 [April 11, 2005] issued to V. C. Mamalateo &

Associates on behalf of Philippine American Life and General

Assurance Company

No. DA-026-2005 [January 21, 2005] issued to Lufthansa Technik

Philippines, Inc.

No. DA-635-04 [December 15, 2004] issued to Foreign Holiday

Philippines, Inc.

No. DA-432-2004 [August 11, 2004] issued to SGV & Co. on behalf of

Great Pacific Life Assurance Corporation

No. DA-335-2004 [June 25, 2004] issued to Philippine Long Distance

Company

No. DA-266-2004 [May 17, 2004] issued to the Office of the

Ombudsman

No. DA-241-04 [May 7, 2004] issued to Sohbi Koghei (Phils.), Inc.

No. DA-264-2004 issued to Petron Corporation

No. DA-169-2004 [April 6, 2004] issued to Mitsuwa Philippines, Inc.

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posted by Legal Management Journal @ 1:07 PM

No. DA-168-2004 [April 5, 2004] issued to Philippines Samsung

Electronics Corporation

No. DA-078-2004 [February 20, 2004] issued to Lacson & Lacson

Insurance Brokers, Inc.

No. 081-2003 issued to Sodexho Pass, Inc.

No. 023-2002 issued to Sodexho Pass, Inc.

No. DA-163-98 [April 22, 1998] issued to Yazaki-Torres

Manufacturing, Inc.