May 19, 2008

BIR RULING [DA-302-08]

BIR Ruling No. 013-02, DA-081-03,

DA-335-03,
DA-146-04, DA-264-2004 & 001-2007

Punongbayan & Araullo

20th Floor, Tower 1,
The Enterprise Center
6766 Ayala Avenue
Makati City

Attention: Atty. Benedicta Du-Baladad

Tax Partner

Gentlemen :

This refers to your letter dated January 28, 2008 requesting on behalf of your
client, Fujitsu Ten Corporation of the Philippines ("Fujitsu" for brevity) for
confirmation of your opinion that the following benefits given by Fujitsu to its
employees are considered as de minimis benefits exempt from withholding tax on
compensation and fringe benefits tax:

Type of Benefits Amount & Nature Coverage

I. Part of Collective Bargaining Agreement

1. Transportation P650/month For all rank-and-file employees

allowance
2. Meal allowance P1,250/month For all rank-and-file employees
3. Maternity assistance P2,000 — normal For all rank-and-file employees
delivery
P4,000 — caesarian For all rank-and-file employees
delivery/miscarriage
4. Rice subsidy P1,000/month For all rank-and-file employees
Copyright 2016 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia 2015 1
 5. Birthday cash gift P500/year For all rank-and-file employees
6. Funeral assistance P6,500 — death of For all rank-and-file employees
dependent

II. Not Part of Collective Bargaining Agreement

1. Transportation and meal P4,500/month For all managerial employees

allowance
2. Official business trip P50 for employees who For all employees
meal allowance spend a minimum of 4
hours during official
business trip
3. Incentives for P50 — Level 1 For all employees
production and quality employee
P150 — Level 2
employee given to
employees for achieving
target for production
motivation schemes
4. Incentives (production P30 per employee For all employees
activity) P3,000 per line (2
consecutive months
without findings)
5. Perfect attendance P100 for 2 consecutive For all employees
months of no absence,
leave, lateness and
undertime; P600 for 6
consecutive months of
no absence, leave,
lateness and undertime;
P2,000 for 1 year of no
absence, leave, lateness
and undertime
6. Incentives for excellent P1,000 and plaque for 1 For all employees
attendance year with no absence or
leave and not more than
4 lateness or undertime
7. Incentives for good P500 for 1 year of not For all employees
attendance more than 2 absences or
leave, and not more
than 8 lateness or
undertime

As represented, Fujitsu is a domestic corporation organized and existing in

Copyright 2016 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia 2015 2
 accordance with Philippine laws and registered with the Philippine Economic Zone
Authority as an Ecozone Export Enterprise. Its principal place of business is located at
100 South Science Avenue, Laguna Technopark, Sta. Rosa, Laguna.

The Company is mainly engaged in the manufacture and sale of car audio
products, including deck mechanisms and components, softwares or microcodes for
microprocessors of car audio-video electronics systems as well as electrical equipment
and parts thereof.

In the conduct of its business, Fujitsu granted certain benefits to its

rank-and-file employees pursuant to a duly ratified Collective Bargaining Agreement
(CBA). Among these benefits were the following:

1. Transportation allowance amounting to P650 a month;

2. Meal allowance of P1,250 a month;

3. Maternity assistance of either P2,000 or P4,000 depending on the

delivery of birth;

4. Monthly rice subsidy of P1,000;

5. Annual birthday cash gift of P500; and

6. Funeral assistance of P6,000 in the event of a demise of an employee's

dependent, while the death of the employee is covered by the Group
Life Insurance.

Fujitsu likewise extends the following benefits to certain employees though

these were not mandated under the CBA:

1. Transportation and meal allowance provided to managers equal to

P4,500 a month;

2. Official business trip meal allowance of P50 given to employees

performing at least four (4) hours of official business trip;

3. Incentives for various production and quality related motivation

schemes amounting to P50 for Level 1 employees, and P150 for Level 2
employees;

4. Incentives for achieving any production activity schemes, if there are no

Copyright 2016 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia 2015 3
 findings for two consecutive months, equal to P50 for every employee
and P3,000 per line;

5. Incentives for perfect attendance: P100 for two (2) consecutive months
of no absence, leave, lateness and undertime; P600 for six (6)
consecutive months of no absence, leave, lateness and undertime;
P2,000 for one (1) year of no absence, leave, lateness and undertime;

6. Incentives for excellent attendance: P1,000 and plaque for one (1) year
with no absence or leave and not more than four (4) lateness and
undertime; and

7. Incentives for good attendance: P500 for one (1) year of not more than
two (2) absences or leave, and not more than eight (8) lateness and
undertime.

Based on the foregoing, you now request for confirmation of your opinion that
the abovementioned benefits granted to the employees for the convenience of the
employer are exempt from withholding tax on compensation income and/or fringe
benefits tax.

In reply, please be informed as follows:

Transportation Allowance

You represented that Fujitsu is located in Sta. Rosa, Laguna but many of its
employees are based in Metro Manila. Many employees of Fujitsu commute to work
and because of the distance of the office from Metro Manila, their usual mode of
public transport is a bus or a taxi. Since Fujitsu cannot provide shuttle service to its
employees, they deem it necessary to grant a fixed precomputed transportation
allowances to all employees on duty which is credited to the employees account.
Transportation allowance will ensure that Fujitsu's employees will arrive on-time to
deal with and give fast and efficient service to Fujitsu's customers and clients, a
trademark for which Fujitsu is well known for.

Transportation allowance may or may not be subject to withholding tax on

compensation. If the transportation allowances are fixed in amount and regularly
received as part of the employees' monthly compensation income, the allowances shall
be considered as taxable compensation income subject to tax imposed under Section
24 of the Tax Code of 1997, as amended. Corollary thereto, if the transportation

Copyright 2016 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia 2015 4
 allowances are not fixed in amount or regularly received as part of the employees'
monthly compensation income, the allowances shall not be considered as taxable
compensation income subject to tax. However, such expenses shall have to be
substantiated as prescribed under Section 34 of the same Tax Code.

Since the transportation allowance amounting to P650/month for all

rank-and-file employees, P4,500/month are fixed in amount and regularly received as
part of the employees' monthly compensation income, the allowances shall be
considered as taxable compensation income subject to tax imposed under Section 24
of the Tax Code of 1997, as amended.

Meal Allowance

You represent that since Fujitsu is located inside the economic zone, its
employees have limited food choices. There are no stores, canteens or malls nearby.
Thus, in order to promote the health and efficiency of its employees and for its own
benefit as well, Fujitsu finds it proper to grant meal allowance to its employees. In this
manner, the employees are encouraged to prepare packed food or buy food before
then enter the economic zone, instead of leaving the office for the sole purpose of
buying food.

Pursuant to Revenue Regulations (RR) No. 2-98, as amended by RR 3-98, RR

8-2000 and RR 10-2000, meal allowance not exceeding 25% of the daily minimum
wage may be considered de minimis meal benefit and therefore, tax exempt. The
excess over this amount shall be considered "other benefits" as contemplated under
Section 32 (B) (7) (e) (iv) of the Tax Code of 1997. The excess of the meal allowance
given over the de minimis ceiling shall still be exempt provided that it, together with
the total amount of other benefits, shall not exceed PhP30,000.

It is represented that the daily minimum wage in Laguna is P300. Accordingly,

the P1,250/month or P48/day meal allowance for rank-and-file employees and the
P1,950 a month or P75/day meal allowance for managerial employees is exempt from
tax.

Official Business Trip Meal Allowance

In BIR Ruling No. 013-02 dated April 5, 2002, a company gives a fixed
amount of outstation allowance for meals, baggage services, laundry expenses,
parking fees, toll fees, telephone fees and other incidental expenses to employees who
are sent to locations beyond Metro Manila. This Office ruled in the said case as
Copyright 2016 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia 2015 5
 follows:

". . . as a general rule, Section 33(A) of the Tax Code of 1997 imposes
a final withholding tax of 32% on the grossed-up monetary value of fringe
benefit furnished or granted to the employee (except rank and file employees)
by the employer, whether an individual or corporation.

This general rule is not, however, without exception. The aforequoted

section sets forth two scenarios wherein no fringe benefits tax will be
imposed, i.e., (1) when the fringe benefit is required by the nature of or
necessary to the trade, business or profession of the employer; or (2) when the
fringe benefit is for the convenience or advantage of the employer.

xxx xxx xxx

The Outstation Allowance, therefore, is clearly required by the nature

of or necessary to the trade or business of PGMC. Accordingly, this Office
opines and so holds that the grant of the Outstation Allowance by PGMC to
its managerial and supervisory employees are not subject to the fringe benefits
tax prescribed in Section 33(A) of the said Code. Consequently, the Outstation
Allowance, not being part of the compensation income of the employee, is not
subject to income tax and consequently to withholding tax.

xxx xxx xxx"

Applying the foregoing, and since you represented that the official business trip
meal allowance in the amount of P50 for each employee is given only to employees
who have spent at least four (4) hours doing official business trip, the said fringe
benefit shall not be included as part of compensation income of the concerned
employees subject to withholding tax prescribed under Section 79 of the Tax Code of
1997 neither will it be subject to the fringe benefits tax under Section 33 of the Tax
Code of 1997, as implemented by RR No. 3-98, as amended.

Maternity Assistance

Pursuant to the above regulations, if the medical benefits granted to the

employees do not exceed P10,000 per annum, the same shall be considered de minimis
benefits not subject to income tax as well as to withholding tax on compensation
income of both managerial and rank and file employees.

However, if the employer pays more than the P10,000 de minimis ceiling, the
excess of the benefit given over the de minimis ceiling shall still be exempt provided
Copyright 2016 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia 2015 6
 that it, together with the total amount of "other benefits" shall not exceed PhP30,000.

If the excess of the benefit given over the de minimis ceiling, when added to
the total amount of "other benefits" provided in Section 32 (B) (7) (e) of the Tax
Code, as amended, goes beyond the P30,000 ceiling, the same shall be taxable to the
employee receiving the benefits i.e., if pertaining to supervisory employees, the excess
shall be subject to fringe benefits tax while those pertaining to rank and file
employees, the excess shall be subject to withholding tax on compensation.

Considering that the P2,000 or P4,000 maternity benefits given to Fujitsu's

employees is within the P10,000 ceiling provided under the regulations, the said
benefits may be considered de minimis benefits exempt from tax.

However, the employee must fully substantiate with official receipts in his
name or adequate records the medical benefits so granted on or before the
annualization of withholding taxes in any given calendar year in order to be
considered as de minimis and a valid deductible expense on the part of Fujitsu.

Monthly Rice Subsidy

The rice allowance benefit in the amount of PhP1,000 per month is within the
limitation set by the regulations. Accordingly, the rice allowance in the amount of
P1,000 per month is subject to neither income tax on compensation nor fringe benefits
tax.

Annual Birthday Cash Gift

In BIR Ruling No. DA-335-03 dated October 7, 2003, this Office had occasion
to rule that birthday gift usually in the form of birthday cake, ice cream and/or noodles
is considered "other benefits" under Section 32 (B) (7) (e) of the Tax Code, as
amended that should be included in the consideration of the amount of gross benefits
not to be reported as taxable income under Title II (Income Tax) of the Tax Code, as
amended. Thus, birthday gift in the amount of P500 given to the employees of Fujitsu
is considered as "other benefits" exempt from tax.

Funeral Assistance

Funeral Assistance may be considered de minimis benefits exempt from the

fringe benefits tax if they are of relatively small value and offered or furnished by the
employer merely as a means of promoting the health, goodwill, contentment, or
efficiency of his employees. However, in the absence of any threshold for the
Copyright 2016 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia 2015 7
 abovementioned benefit, the same is considered as "other benefits" following the
principle of strictissimi juris in the grant of tax exemption considering that what may
be of relatively small value for one may not be so for another in the absence of a
ceiling.

Productivity and Perfect Attendance Incentives

In BIR Ruling No. 001-2007 dated January 10, 2007, this Office ruled as
follows:

". . . it is basic in statutory construction that where the law is clear and
unambiguous, there is no room for interpretation. Hence, the duty of this
Office is merely to apply the law.

Under Section 32(B)(7)(e)(iv) of the Tax Code of 1997, 'other benefits'

include all benefits other than the 13th month pay, such as, productivity
incentives and the annual Christmas bonus given by private offices, 14th
month pay, mid-year productivity incentive bonus, gifts in cash or in kind and
other similar benefits and refer to those benefits received by an official or
employee for one (1) calendar year, the total amount of which including the
13th month pay does not exceed P30,000.00. Section 32(B)(7)(e)(iv) of the
Tax Code of 1997 reads:

'(B) Exclusions from Gross Income. — The following items shall not
be included in gross income and shall be exempt from taxation under this
Title:

xxx xxx xxx

(7) Miscellaneous Items. —

xxx xxx xxx

(e) 13th Month Pay and Other Benefits. — Gross benefits received
by officials and employees of public and private entities: Provided, however,
That the total exclusion under this subparagraph shall not exceed Thirty
thousand pesos (P30,000) which shall cover:

xxx xxx xxx

(iv) Other benefits such as productivity incentives and Christmas

bonus: Provided, further, That the ceiling of Thirty thousand pesos (P30,000)
may be increased through rules and regulations issued by the Secretary of

Copyright 2016 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia 2015 8
 Finance, upon recommendation of the Commissioner, after considering,
among others, the effect on the same of the inflation rate at the end of the
taxable year.

xxx xxx xxx'

Section 2 of Rev. Regs. No. 8-2000, as amended, clarifies that 'other

benefits' and 'de minimis' benefits are not the same. For purposes of
determining the P30,000.00 ceiling in 'other benefits,' the two are treated
differently in that the amount of 'de minimis' benefits conforming to the limits
prescribed under Revenue Regulations (Rev. Regs.) No. 8-2000 shall not be
considered in determining the P30,000.00 ceiling of 'other benefits' provided
under Section 32(B)(7)(e) of the Code. The regulations does not provide for
ceiling with regard to 'de minimis' benefits. However, it provides for a limit in
the amount of each 'de minimis' benefit such that if the employer gives more
than the limit prescribed, the excess of the PhP30,000 ceiling/limit shall be
taxable to the employee receiving the benefits. Both 'other benefits' and 'de
minimis' benefits do not form part of the employees' taxable compensation
income and are, therefore, not subject to withholding tax on wages under
Section 79 in relation to Section 24(A) both of the Tax Code of 1997.

Moreover, Section 2.78.1(B)(11) of Rev. Regs. No. 2-98, as amended

provides viz.: EHTADa

'(B) Exemptions from withholding tax on

compensation. The following income payments are exempted
from the requirement of withholding tax on compensation:

xxx xxx xxx

(11) Thirteenth (13th) month pay and other

benefits. —

(a) Thirteenth (13th) month pay equivalent to

the mandatory one (1) month basic salary of officials
and employees of the government (whether national or
local), including government-owned or controlled
corporations, and or private offices received after the
twelfth (12th) month pay; and

(b) Other benefits such as Christmas bonus,

productivity incentive bonus, loyalty award, gifts in
cash or in kind and other benefits of similar nature

Copyright 2016 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia 2015 9
 actually received by officials and employees of both
government and private offices.

The above stated exclusions (a) and (b) shall

cover benefits paid or accrued during the year provided
that the total amount shall not exceed thirty thousand
pesos (P30,000.00) which may be increased through
rules and regulations issued by the Secretary of Finance,
upon recommendation of the Commissioner, after
considering, among others, the effect on the same of the
inflation rate at the end of the taxable year. ATCaDE

xxx xxx xxx'

In view of the foregoing, the performance bonus given by PLDT to its

rank and file employees as well as to supervisory employees can be equated to
a productivity incentive bonus which may be considered as falling within the
contemplation of 'other benefits' provided for under Section 32(B)(7)(e)(iv) of
the Tax Code of 1997, and therefore, need not form part of the employees'
taxable compensation income subject to withholding tax on wages under
Section 79 in relation to Section 24(A) both of the Tax Code of 1997,
provided, however, that such 'other benefits,' inclusive of the above
allowances/benefits, shall not, in the aggregate, exceed P30,000.00 when
added to the 13th month pay.

Any amount in excess of the P30,000.00 ceiling shall be taxable to the

employee receiving the benefits. Provided, further, that any amount given by
the employer as benefits to its employees, whether classified as 'de minimis'
benefits or fringe benefits, shall constitute as deductible expense upon such
employer pursuant to Section 2.78.1(A)(3) of Rev. Regs. No. 8-2000, as
amended.

Further, Section 33(C) of the Tax Code of 1997 as implemented by

Section 2.33(C) of Rev. Regs. No. 3-98, as amended by Rev. Regs. No.
8-2000 and 10-2000, provides, to wit: cEASTa

'(C) Fringe Benefits Not Subject to Fringe Benefits Tax —

The following benefits are not taxable under this
Section:

(1) Fringe benefits which are authorized and

exempted from income tax under the Code or
under any special law;
Copyright 2016 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia 2015 10
 (2) Contributions of the employer for the benefit of
the employee to retirement, insurance and
hospitalization benefit plans;

(3) Benefits given to the rank and file, whether

granted under a collective bargaining agreement
or not;

(4) De Minimis benefits as defined in these

Regulations;

(5) 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

(6) If the grant of the fringe benefit is for the

convenience of the employer.' (Emphasis ours.)

Accordingly, the performance bonus is not subject to the fringe

benefits tax also since it addresses PLDT's concern in encouraging good
performance as well as promoting contentment and efficiency among its
employees, which in effect redounds to the convenience of the employer.

xxx xxx xxx"

In view of the foregoing, it is the opinion of this Office that the incentives for
(1) various production and quality related motivation schemes in the amount P50 and
P150 given to Level 1 and Level 2 employees, respectively, (2) achieving any
production activity schemes in the amount of P30 for every employee and P3,000 per
line and (3) perfect/excellent/good attendance may be considered as falling within the
contemplation of "other benefits" provided for under Section 32 (B) (7) (e) (iv) of the
Tax Code of 1997 as implemented by Section 2.78.1 (B) (11) (b) of RR No. 2-98, as
amended, and therefore, need not form part of the employees' taxable compensation
income subject to withholding tax on wages under Section 79 in relation to Section 24
(A) both of the Tax Code of 1997, provided, however, that such "other benefits,"
inclusive of the above allowances/benefits, shall not, in the aggregate, exceed
P30,000.00 when added to the 13th month pay. TCASIH

Any amount in excess of the P30,000.00 ceiling shall be taxable to the

employee receiving the benefits. Provided, further, that any amount given by the
employer as benefits to its employees, whether classified as de minimis benefits or

Copyright 2016 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia 2015 11
 fringe benefits, shall constitute as deductible expense upon such employer pursuant to
Section 2.78.1 (A) (3) of Rev. Regs. No. 8-2000, as amended by Rev. Regs. No.
10-2000.

Further, Section 33 (C) of the Tax Code of 1997 as implemented by Section

2.33 (C) of Rev. Regs. No. 3-98, as amended by Rev. Regs. No. 8-2000 and 10-2000,
provides, to wit:

"(C) Fringe Benefits Not Subject to Fringe Benefits Tax — The

following benefits are not taxable under this Section:

(3) Fringe benefits which are authorized and exempted

from income tax under the Code or under any special
law;

(4) Contributions of the employer for the benefit of the

employee to retirement, insurance and hospitalization
benefit plans;

(7) Benefits given to the rank and file, whether granted

under a collective bargaining agreement or not;

(8) De Minimis benefits as defined in these Regulations;

(9) 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

(10) If the grant of the fringe benefit is for the convenience

of the employer". (Emphasis ours)

Accordingly, the above incentives are not subject to the fringe benefits tax also
since they aim to provide motivation, among others to meet performance targets
which in effect redound to the convenience of the employer.

This ruling is being issued on the basis of the foregoing facts as represented.
However, if upon investigation, it will be disclosed that the facts are different, then
this ruling shall be considered as null and void.

Very truly yours,

Copyright 2016 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia 2015 12
 (SGD.) JAMES H. ROLDAN
Assistant Commissioner
Legal Service
Bureau of Internal Revenue

Copyright 2016 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia 2015 13