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NORTHERN CPA REVIEW

4th Floor Pelizloy Centrum, Lower Session Road, Baguio City, Philippines
REX B. BANGGAWAN, CPA, MBA

TAXATION
FRINGE BENEFIT TAXATION

FRINGE BENEFIT means any good, service or other benefit furnished or granted in
cash or in kind by an employer to an individual employee (except rank and file
employees).

Classification:
A.

Given to rank and file employees

Taxable Fringe Benefits to Rank and File Employees:


Meals furnished or subsidized by employer (except OT meal which is subject a de
minimis benefit)
Rental value of quarters furnished an employee.
Premium on life insurance of an employee where the insured employee is directly or
indirectly the beneficiary in essence a form of additional income for the employee.
Fixed or variable transportation, representation and other allowance given an
employee. Advance or reimbursement-type allowance is exempt.
Performance bonus, relay station allowance, and danger exposure allowance.
Personnel economic relief allowance (PERA) granted to government employees.
Salaries and allowances during leaves of absences (vacation and sick leave).
Fees received by an employee (including directors fees) for the performance of a
service for the employer.
Dismissal payments (this is different with separation pay).

Exempt Fringe Benefits to Rank and File Employees:

Meals, living quarters, de minimis entertainment, medical services, courtesy


discounts on purchases, sack or rice, etc given for the convenience of the employer
or for promoting the contentment, health, efficiency or goodwill of the employee.
Reimbursement-type traveling, representation and other allowance. Excess
advances retainable by the employee is taxable
Retirement and separation benefits exempt under the law

B.

Given to managerial or supervisory employees

Benefits subject to final tax:


Housing Benefits
Exception:
1.
Housing benefits provided to military officials of the Armed Forces of the
Philippines consisting of officials of the Philippine Army, Philippine Navy and
Philippine Air Force
2.
Housing unit which is within or adjacent to the premises of a business or
factory. Adjacent means within 50 meters of the perimeter of the business premises
of the employer.
3.
Temporary housing for an employee who stays in a housing unit for three
months or less.
Interest on loans at less than market rate or at 0% rate. The differential interest
from 12% (as fixed by regulation) shall be the taxable fringe benefit.
Membership fees, dues, and other expenses borne by the employer for the
employee in social and athletic clubs or other similar organizations these are
taxable employee benefits of the employee in full.
Expense for foreign business travel
a.

First class airplane ticket 30% of the cost of ticket

b.

Lodging cost in a hotel or similar establishment in excess of US$300 per day.

c.
Traveling expense paid by the employer for the travel of the family members
of the employee

In connection with this, there must be a documentary evidence to support that the
foreign travel was for business meetings or convention; otherwise the entire cost of
the ticket including hotel accommodation and other expenses incidental thereto
shouldered by the employer shall be treated as taxable fringe benefits.
business meetings to be supported by official communication from business
associates abroad indicating the purpose of the meeting
business conventions to be supported by invitations or communications from the
host organization or entity abroad
Reasonable foreign travel expenses are exempt under fringe benefit tax; hence,
inland travel expenses such as for food, beverages and local transportation; cost of
economy and business class airplane ticket; and those within the limits as set out in
4 a and b above.

Household personnel
If shouldered by the employer the following personal expenses shall be taxable
fringe benefit:
a.

Salaries of household help

b.
Personal driver of the employee (if not for the convenience of the employer
such as doctor on call)
c.
Similar expenses as payment for homeowners association duties, garbage
dues, etc.
Expense account
General Rule: expenses of the employees that are paid for the employer are taxable
fringe benefit:
a.
expenses of a reimbursement type ( direct payment by the employer is not
necessary since subsequent reimbursement for the expense of the employee,
makes him the indirect payer of the expense)
b.
personal expenses (groceries etc.) even if receipted in the name of the
employer

Exception:
a.
Regular fixed entertainment and representation allowance this is treated as
additional compensation to the employee

b.
Expenses connected with the trade of the employer and is duly receipted in
the name of the employer- these are expenses of the employer

Holiday and vacation expense


If incurred by the employees and shouldered by the employer, this constitute
taxable fringe benefit.

Life and Health insurance and other non-life insurance premium or similar amounts
in excess of what the law allows
Exception:
a.
contributions of the employer for the benefit of the employee pursuant to the
provision of existing laws, i.e.: SSS, GSIS, PhilHealth; etc
b.

the cost of premium by the employer for the group insurance of its employees

Vehicle of any kind; and


The same rules in housing benefits apply herein.
Exception:
a.
Aircraft or helicopter owned and maintained by the employer are treated as
for business purpose only and hence, not subject to fringe benefit tax. (Note: it is
very impractical to provide managerial or supervisory personnel with aircraft or
helicopter for personal use due to the cost of maintaining them.)
b.
Yatch, whether owned or leased by the employer is considered not for
business purpose (by nature for pleasure), and hence taxable fringe benefit. Note:
Yatch for purposes of determining the depreciation value is assumed to have a life
of 20 years.

Educational assistance granted by employer to


1.

the employee generally, taxable as a fringe benefit

Exception:
a.
the education or study involved is directly connected with the employers
trade, business or profession; and

b.
there is written contract that the employee is under an obligation to remain in
the employ of the employer for a period of time mutually agreed upon
2.

the dependents of employees generally, taxable as a fringe benefit

Exception: When the assistance is granted through competitive scheme under a


scholarship program of the company

Benefits not subject to fringe benefit tax (Sec. 33 (C), NIRC):


1.

Fringe benefits which are authorized and exempt form tax under special laws

2.
Benefits given to rank and file employee, whether given on a Collective
Bargaining Agreement or not
3.
Benefits given as required by the nature of, or necessary to the trade,
business or profession of the employer
4.

Benefits given for the convenience or advantage of the employer

5.
Contributions of the employer for the benefit of the employee to retirement,
insurance and hospitalization benefit plans; and
6.

De minimis benefits promulgated by the Bureau of Internal Revenue

Tax Rates for Fringe Benefits:


The final tax rates that apply to the gross-up monetary amount of the taxable fringe
benefit with the corresponding gross-up percentage are as follows:

If the employer paying the fringe benefit is a regular domestic or resident


corporation:

Final Tax
Gross-up rate
Effective January 1, 1998
34%
66%

Effective January 1, 1999


33%
67%
Effective January 1, 2000
32%
68%

If the taxpayer is subject to preferential rate:


1.
Non-resident alien employed by regional area headquarters, offshore banking
units of multinational companies shall be taxed at 15% of the gross up amount of
the benefits (i.e.: benefits / (100%-15%))
2.
NRA-NETB is subject to 25% of the gross up value of the benefits (i.e.:
benefits / (100%-25%))

Note to candidates:
The fringe benefit tax rates herein are complementary values of the final tax
(regular corporate income) tax and grossed-up value. It should be pointed out,
however, that the same is not a statutory formula and thus the rates will remain
unaffected even if the corporate income tax change unless specifically provided for
by an amendatory law.

Valuation of Taxable Fringe Benefits:


1.
If granted in money or is directly paid by the employer, the value is the
amount of granted or paid for
2.
If furnished by the taxpayer in property and ownership is transferred to the
employee, the value of the fringe benefit shall be the fair market value of the
property transferred.
3.
If furnished by the taxpayer in property without transfer of ownership, the
value of the fringe benefit is equal to the depreciation value of the property.
For this purpose, personal property is assumed a depreciable life of 5 years
(20%) while real property shall have a presumptive life of 20 years (5%)

Furthermore, since the supervisory or managerial employee cannot


reasonably be expected to use the property all the time, it is assumed that usage is
50% for business use and 50% for personal use.

Deductible Amount of Fringe Benefits:


General Rule: Deductible amount =taxable fringe benefits + fringe benefit tax
Exception Rule: Deductible amount = fringe benefit tax paid (If fringe benefit tax is
based on the depreciation value, zonal value or assessed value)

Filing of Return
The fringe benefit tax withheld by the employer shall be remitted to BIR within 10
days after the end of each calendar quarter; however, for EFPS , 5 days later

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