FRINGE BENEFIT TAX

Reference: Rex Banggawan

Other fringe benefits

As mentioned in the previous chapter, other fringe benefits not included or

classifiable as items of compensation income and which are not exempted under the
law are treated as follows:

1. For rank and file employees - included as "other benefits" under "13th month pay
and other benefits”.

2. For managerial and supervisory employees - excluded in compensation income

and are subjected to “final fringe benefit tax"

SCOPE OF THE FRINGE BENEFIT TAX

The fringe benefit tax covers only the taxable fringe benefits of managerial or
supervisory employees.

GENERAL CATEGORIES OF FRINGE BENEFITS SUBJECT TO FINAL

TAX

1. Management perquisite benefits

2. Employee personal expenses shouldered by the employer
3. Taxable de minimis benefits
a. Excess de minimis over their limits
b. Benefits not included in the de minimis list

1. Management perquisite benefits

Perquisite benefits, also called “management perks" are highly privileged incentives
given only to a special group of employees. These benefits are non-performance
based and are given as incentives to management employees. Perquisite benefits
are not considered as compensation income, but as fringe benefits subject to fringe
benefit tax.

In practice, the boundary between fringe benefits subject to final tax and
compensation income subject to regular tax sometimes overlaps. Based on past
rulings, however, the BIR seemed to maintain the view that performance-based
benefits are compensation income while benefits in the nature of incentive or
perks are fringe benefits.

2. Employee personal expenses

When an expense takes the nature of an employee personal expense or expenditure
and is paid or assumed by the employer in default of a proximate business
necessity, it is deemed a fringe benefit in its entirety even if the expense is receipted
in the name of the employer.

Illustration
Mr. Lakewood, a managerial expatriate employee, was granted by his employer a
P30,000 monthly housing allowance in addition to his regular salary. The actual
monthly rent of Mr. Lakewood's residence is P25,000.

The P25,000 personal expense assumed by the employer constitutes a taxable fringe
benefit subject to fringe benefit tax. The monthly fixed P5,000 excess is a taxable
additional compensation. (BIR Ruling No. 512-2011)

Hybrid expenses

When the employer incurs expenses which is purported partly for business and
partly for employee's incentive, only 50% of the expense representing the employee
incentive is subject to the fringe benefit tax.

The following are hybrid expenses under RR3-1998:

1. Housing benefits in the form of rental accommodation When an employer leases a

residential unit for the use of the employee and the business, the rental expense is
deemed half business expense and half fringe benefit to the employee.

2. Allowing an employee free use of business property

When the employer allows its employee to use business properties, the rental value
or depreciation value of the business property over the period of usage is deemed half
business expense and half fringe benefit to the employee.

Illustration 1

The University of Caceres pays for the P50,000 monthly rental of the residential unit
of its President.

The amount of taxable fringe benefits shall be P25,000 computed as 50% x P50,000

Illustration 2

A manufacturer and distributor of consumer products all over the Philippines leases
cars and other vehicles for the use of its employees. The company requires employees
to share at least 40% of the monthly rental deductible through their payroll while the
company books the 60% as rent expense.
The BIR opined that only 10% of the monthly rental is taxable as fringe benefit since
employees shouldered 40% of their 50% counterpart. (BIR Ruling No. 009-2000)

Exempt fringe benefits

The following fringe benefits are exempt from the fringe benefit tax:
1. Fringe benefits which are authorized and exempted from tax under special laws

Examples: Employer's contribution to SSS, PhilHealth, HDMF or group insurance,

except excess over the mandatory amounts set by law

2. Benefits required by the nature of, or necessary to the trade, business or

profession of the employer****

3. Benefit given for the convenience or advantage of the employer

4. Contributions of the employer for the benefit of the employee to retirement,

insurance and hospitalization benefit plans

5. Benefit given to rank and file employees whether or not granted under a
collective bargaining agreement

The taxable fringe benefits of rank and file employees are exempt from fringe benefit
tax, but are subject to regular income tax as part of compensation income.

6. De minimis benefits within their legal limits

****"Necessity or convenience of the employer" rule

If an expense is necessitated by the nature of the trade, business, or profession of the

employer, or is furnished principally for the employer's convenience or advantage, it
is an ordinary business expense. The personal advantage of the employee is merely
incidental to the expense. These fringe benefits are not viewed as taxable fringe
benefits under the NIRC.

Examples of exempt benefits under this rule:

1. Scholarship program for an employee to study and acquire competence for future
use of the business
2. Car incentives to medical doctors so they will be available for duty anytime
3. Free transportation services to employees working at distant facilities.
4. Mobile phone allowance to corporate secretaries who are required to handle of
duty client inquiries
5. Sleeping quarters to field engineers and staffs working on remote facilities
6. Helicopters assigned to fishing employees for locating schools of fish offshore o to
mining engineers for mineral exploration purposes
7. Personal aircraft to a chief executive officer managing business affiliates and
subsidiaries spread across different countries
8. Car incentive to a travelling company salesman
9. Sleeping quarters near the camp furnished to military personnel so they will be
available for duty at any time of insurgency
10. Housing units for an employee and his family near the employer's place of
business to ensure the employee's availability anytime when the employer needs him

THE FRINGE BENEFIT TAX

The fringe benefit tax is a final tax imposed on the fringe benefit furnished, granted
or paid by the employer to the employee, except rank and file employees (13 th month
pay and other benefits)

For the purposes of the fringe benefit tax, fringe benefit means any good, service, or
other benefits furnished or granted in cash or in kind by the employer to individual
employees (except rank and file employees) such as, but not limited to, the following:

1. Housing benefits
2. Expense account
3. Vehicles of any kind
4. Household personnel, such as maid, driver or others
5. Interest, for the difference between the market rate (12%) and the actual interest
granted
6. Membership fees, dues and other expenses borne by the employer for the employee
in social and athletic clubs or other similar organizations
7. Expense for foreign travel
8. Holiday and vacation expenses
9. Educational assistance to the employee or his dependents
10. Life or health and other non-life insurance premiums or similar accounts in excess
of what the law allows

CHARACTERISTICS OF THE FRINGE BENEFIT TAX

1. Final tax
The fringe benefit tax is a final tax which is withheld by the employer at source. Thus,
the employee need not report the fringe benefits in his income tax return.

2. Tax upon the fringe benefits of managerial or supervisory employees

3. Paid by the employer

4. Grossed-up tax

The monetary value or the amount of fringe benefit realized or taken home by
the employee is effectively net of the final tax which is to be withheld at source.
Hence, the monetary value is first grossed-up by the complement percentage of the
applicable fringe benefit tax rate before the fringe benefit tax rate is applied.

Monetary Value/ 65% or 75% multiply to 35 or 25% respectively.

5. Due quarterly

The fringe benefit tax is due for remittance quarterly based on the accounting period
(fiscal or calendar) selected by the employer. The monetary value of each taxable
fringe benefit is determined and reported quarterly through BIR Form 1603Q.
The quarterly fringe benefit tax is due on or before the last day of the month
following the quarter in which withholding was made.

PROCEDURES IN COMPUTING THE FRINGE BENEFIT TAX

1. Determine the monetary value.

Monetary value refers to the taxable amount of benefits taken home or realized by the
managerial or supervisory employee. The monetary value is presumed net o the final
tax.

2. Determine the gross-up rate and fringe benefit tax rate applicable for the
taxpayer.

The gross up rate is the complement of the fringe benefit tax rate.

Gross up rate Fringe Benefit Tax

 RC, NRC, RA, NRA-ETB 65% 35%
 NRA-NETB 75% 25%
3. Determine the grossed-up monetary value by dividing the monetary value by
the gross-up rate.

3. Determine the fringe benefit tax by multiplying the fringe benefit tax rate the
grossed-up monetary value.

Proforma Computation:

Monetary Value xxx,xxx

Divided by: Grosed up rate 65 or 75%
Grossed up monetary value xxx,xxx
FBT rate 35 or 25%
FBT XXX,XXX

RULES ON VALUATION OF FRINGE BENEFITS

1. Benefits paid in cash

When benefit is given in cash or paid for in cash, the monetary value is the amount
paid for in cash

Note: The only exception here is when the employer pays for the rent of the residence
of the employee. Monetary value is 50% of the rental payment.

2. Benefits paid in kind

When benefit is given in kind, the monetary value is the fair value of the thing given
unless its book value is higher. Book value is the cost less any provision for
depreciation for depreciable properties.

When ownership over the property is transferred to the employee, the monetary value
is the entire fair value of the property even if the property is partially used in the
business of the employer.

3. Benefits that are furnished

When the benefit is given in the form of free use of the employer's property, the
monetary value is 50% of the rental value of the property. If the property has no
available rental value, the depreciation value is used.

For purposes of the depreciation value, the presumptive useful lives of the property
are:

a. 20 years for real properties.

Hence, the depreciation value is computed as 1/20 or 5% of the value of the property.

b. 5 years for movable properties.

Hence, the depreciation value is computed as 1/5 or 20% of the value of the property.

Since the fringe benefit tax is paid quarterly, the valuation and reporting of monetary
value is also done quarterly. In case of use of employer properties, the reporting of
monetary value ceases from the month the free use is discontinued.

Illustration: Determination of depreciation value

A partnership transferred the use of a property with a fair value of P2,000,000 to its
supervisor

The annual depreciation value shall be:

1. If the property is an immovable such as a residential unit, the annual depreciation

value shall be P100,000 computed as P2,000,000 x 5%

2. If the property is movable such as a car or other motor vehicles, the annual
depreciation value shall be P400,000 computed as P2,000,000 x 20%.

In quarterly reporting for the fringe benefit tax, the quarterly monetary value is
determined by dividing dividing the annual value by 4.

SPECIAL GUIDELINES ON MONETARY VALUE DETERMINATION

1-Taxable Housing Benefits- Leasing of Property.

1. Employer leases a residential property for the use of his employee and the said
property is the usual residence of the employee.

Monetary value = 50% of the benefit

Illustration

A sole proprietorship business leases a residential house and lot for the use of his
business manager for P20,000/month.

The monetary value shall be:

Quarterly value = (P20,000 x 3 months) = P 60,000
Quarterly monetary value = P 60,000 x 50% = P 30,000

2. Employer owns a residential property and assigns the same for the use of his
employee as his usual place of residence; the annual value of the benefit is 5% of
whichever is higher of the zonal or assessed value of the land and improvement.

Monetary value = 50% of the annual value of the benefit

Illustration

Chamberly, Inc. allowed one of its unused realty investment costing P3,500,000 with
zonal value of P4,000,000 and assessed value of P3,000,000 to be used by its vice
president.

The monetary value shall be determined as follows:

Annual depreciation value = P4,000,000 x 5%= P 200,000
Quarterly value = P200,000/4 quarters P 50,000
Quarterly monetary value = P50,000 x 50%= P 25,000

3. The employer purchases a residential property on installment basis and allows

his employee to use the same as his usual place of residence; the annual value is 5%
or 1/20 of the acquisition cost, exclusive of interest.

Monetary value = 50% of the annual value of the benefit

This is the same with No. 2 except that the basis is the purchase price of the property.

Illustration

Cotabato Corporation purchased a residential property for the use of its manager. The
property is payable over 11 annual installments of P200,000 including Interests but
have a cash price of P2,000,000. For accounting purposes, Cotabato Corporation
opted to capitalize the interest and recorded the P2,200,000 contract price as
acquisition cost of the property.

The monetary value shall be determined as follows:

Annual depreciation value = P2,000,000 x 5% P 100,000
Quarterly value = P100,000/4 quarters P 25,000
Quarterly monetary value = P25,000 x 50% P 12,500

Note: The purchase price is the cost net of interest.

3. Purchase by the employer of residential property and transfer of name of the

employee, the value of the benefit is whichever is acquisition cost or zonal value

Monetary value = 100% of the value of the benefit ownership in the higher of the
benefits V

Illustration

A non-profit corporation bought a transferred ownership residential dwelling for

P5,000,000 and to its president. The property has P3,000,000 zonal value Corpo
ownership, the monetary value is the entire P5,000,000, Since there is transfer of the
higher of book value (i.e. cost in this case) and zonal value.

4. Purchase by employer of property and transfer of title to employee adequate

consideration, the value is [(fair market value or is higher) less consideration paid
by employee
Monetary value = 100% of the value of the benefit for less than ganbusines r zonal
value, whichever get person

Illustration

Denzy, a professional practitioner, transferred his residential property in the name of

his managerial employee for P2,000,000. The property has fair value per tax
declaration of P3,400,000 and P5,000,000 zonal value.

Since there is a transfer of ownership (ie, title), the monetary value is P3,000,000,
computed as P5,000,000 fair value less the P2,000,000 consideration paid.

Exempt housing privileges:

1. Military officials of the Armed Forces of the Philippines (AFP), Philippine Air
monet Force (PAF), Philippine Army, and Philippine Navy on their quarters which
are within or accessible from the military camp so they can be readily available on
call to meet the exigencies of their military service.

3. Housing unit situated or adjacent to the premises of a business or factory (within a

maximum of 50 meters) from the perimeter of the business premises. The 50-meter
rule may be relaxed when upon the basis of health or safety when requirements such
as in the case of chemical manufacturing, the housing needs to be located at a farther
location.
Though intended business, but because it poses danger for business though it
seems as benefit still the purpose is for the benefit of the business and therefore
exempt situated far from the business location
3. Temporary housing for an employee in a housing unit for 3 months or less not
exceeding one quarter)

Expense Account

Expenses incurred by an employee but which are paid by his employer or incurred
and paid by employee but reimbursed or advanced by the employer are taxable fringe
benefits. The monetary value is the amount paid by the employer

Properly documented employer expense

When the expense is receipted for and in the name of the employer and the
expenditure does not partake of the nature of a personal expense attributable to the
employee, it is not a taxable fringe benefit because it is a business expense.

Personal expenses of the employee such as groceries for the personal consumption
of his family, if paid or reimbursed by the employer, are taxable the employee and/or
fringe benefits whether or not receipted in the name of the employer.

Fixed and regular RATA are treated as part of regular compensation income and are
subject to creditable withholding taxes, not to fringe benefit tax.

Illustration

Denver Corporation paid for the following expenses which were liquidated by its
entire managerial employee:

Water and electricity bill at manager's home P 15,000

Meals and groceries at manager's home 18,000
Bill on business telephone 2,000
Bill on personal phone 1,000
Transportation from office to and from clients 12,000
Transportation from office to and from manager's home 10,000
Foods and beverages for visiting business clients 8,000

The monetary value of fringe benefits shall be computed as follows:

Water and electricity bill at manager's home P 15,000

Meals and groceries at manager's home 18,000
Bill on personal phone 1,000
Transportation from office to and from manager's home 10,000
TOTAL FB P 44,000

Note: Business telephone bills, office to client transportation and food and beverages
for client visitors are business expenses, not fringe benefits to the manager.

4. Motor Vehicles of Any Kind

1. Purchase by employer of motor vehicle in the name of the employee regardless of

whether the same is used partially in the business of the employer
Monetary value = 100% of the cost of the motor vehicle

Note that the monetary value shall be reported in the quarter of purchase.

2. Cash benefit to employee for the purchase of a vehicle, even if the vehicle is partly
used in the business of the employer

Monetary value = 100% of the cash benefit, except when the amount is subjected to
withholding tax on compensation

Car benefits that are paid in cash and are subjected to withholding tax on
compensation are subject to regular tax, not to fringe benefit tax. If subject to fringe
benefit tax, the monetary value shall be reported in the quarter of payment.

4. Purchase of car on installment basis by the employer with ownership placed in the
name of the employee even if the car is used partly for the employer's business, 1 the
benefit is the acquisition cost divided by 5 years

Monetary value = (1/5) or 20% of the acquisition cost

Illustration

An employer purchased a car for P1,000,000 payable in four installments plus 10%
interest on the outstanding unpaid balance of the car.

The entire acquisition cost shall be recognized as monetary value since there is
transfer of ownership but the regulation requires amortization over 5 years. Hence, the
employer shall recognize P1,000,000/5 or P200,000 monetary value annually for five
years. For every quarter, the employer shall report P200,000/4 or P50,000 monetary
value until the cost is fully reported over 5 years.

5. Employer shoulders a portion and is placed in the name of the employee, even
if partially used in business

Monetary value = the portion shouldered by the employer

Illustration

An employer assisted its managerial employee in purchasing a brand-new car for

P4,000,000; 60% of the value is deductible against future salaries of the managerial
employee.

The monetary value shall be P1,600,000 computed as P4,000,000 x 40% representing

the portion shouldered by the employer. This will be reported in the quarter the
employer's share is paid.

6. Fleet of motor vehicles owned for the use of the business and the employees,
the value of benefit is the cost of all motor vehicles not used for sales, freight,
delivery service, and other non-personal uses divided by 5 years
Monetary value = 50% of the value of benefit

It should be noted that the cost of motor vehicles not used in business is amortized
over 5 years. There being no transfer of title, 50% of the benefit is recognizable as
monetary value. The quarterly recognition of monetary value continues until the free
usage is terminated.

It must be noted that because of the inherent difficulty of tracing the realization of the
fringe benefits to a particular employee considering the collective enjoyment of the
benefit by the employees (managerial, supervisory, or possibly including rank and file
alike), the regulations simply subjected it to the final fringe benefit tax.

7. Fleet of motor vehicles leased for the use of the business and the employee, the
value of the benefits is the rental payments for motor vehicles not normally used
for sales, freight, delivery, service, and other non-personal use

Monetary value = 50% of the value of the benefit

7. Aircrafts including helicopters are deemed solely for business use; hence, they are
not subject to fringe benefit tax.

8. Yachts whether owned and maintained or leased by the employer are presumed not
for business use; hence, taxable as fringe benefits. If owned or maintained, the value
of the benefit is measured as the depreciation value over 20 years.

Illustration

Assume a corporation acquired a P10,000,000 yacht for the use of its executives.

The monetary value shall be determined as:

Annual depreciation value = P10,000,000/20 P 500,000

Quarterly monetary value = P500,000/4 P 125,000

A yacht is considered immovable by virtue of the fact that it is fixed and cannot
be removed from water. Hence, the 20-year presumptive useful life for real
properties is used. If this is leased, the entire rental payment is the monetary value.
Note that the 50% rule is not applied by the regulation.

Supposing the yacht is purchased and transferred to the name of the executive, the
monetary value shall be the entire P10,000,000.

Note on aircrafts and yachts

4. Household Expenses

Employee expenses borne by the employer for household personnel, salaries of

household help, personal driver of the employee, and other personal expenses such as
homeowners association dues, garbage dues, electricity, and water are taxable fringe
benefits. The monetary value is the amount paid.

Illustration

Henesy Corporation granted the following benefits to a managerial employee:

Salary of household personnel P12,000/month

Salary of personal driver 10,000/month
Home owner's association dues 4,000/year

The quarterly monetary value of the benefit shall be determined as follows:

Salary of household personnel P 12,000 x 3 P 36,000

Salary of personal driver P 10,000 x 3 30,000
Home owner's association dues P 4,000/4 1,000
P 67,000

Note: A year is composed of 4 quarters.

5.Interest on Loan at Less than Market Rate

The interest forgone by the employer representing the difference between 12%
and the actual interest charged is a taxable fringe benefit.

Illustration

Europa Cooperative lent its chief executive officer P1,000,000 at a minimal 3%

annual interest rate. The monetary value shall be computed as follows:

Annual monetary value = (12%-3%) x P1,000,000 P 90,000

Quarterly monetary values = P 90,000/4 P 22,500

6. Membership fees, dues, and other expenses borne by the employer for his
employees in social and athletic clubs or other similar organizations constitute taxable
fringe benefits. The monetary value is the amount paid.

7. Expenses for Foreign Travel

Reasonable business expenses for foreign travel for attending business meetings and
conventions are exempt, such as the following:

1. Inland travel expenses such as food, beverage and local transportation costs
2. Lodging costs in hotel or similar establishment amounting to an average of
$300/day or less.
3. Economy and business class airplane tickets
4. 70% of the cost of first-class ticket
Note that 30% of the cost of first-class ticket in foreign travels is considered de-
minimis.
Note also that the foregoing rules apply only on foreign travels. The cost of domestic
travel is generally considered as reasonable and hence deductible.

Substantiation requirement

The above rules apply of the expenses were supported by documentations proving the
actual occurrences of the meeting or convention; otherwise, they shall be subject to
fringe benefit tax.

A. Business meetings must be supported by an official communication from

business associates abroad indicating the purpose of the meeting.
B. Business conventions must be supported by an official invitation or
communication from the host organization or entity abroad.
C. Expenses for the family members of the employee shouldered by the employer
are taxable fringe benefits in full.

Illustration

MIG, Inc. allowed its VP Finance, Mr. Lasuna, to attend a convention abroad with the
privilege to bring his wife. The expenses of the foreign travel were:

Mr. Lasuna Mrs. Lasuna Total

First class plane ticket 70,000 70,000 140,000

Lodging cost P91,000 91,000 182,000
Foods & inland
Transportation 50,000 50,000 100,000
P 211,000 211,000 422,000

The applicable exchange rate is P52:$1; P52 x $350 x 5 days each to Mr. and Mrs.
Lasuna

The monetary value shall be determined as follows:

Items Remarks Amount

First class plane ticket:
Mr. Lasuna P70,000 x 30% P21,000
Mrs. Lasuna P70,000 x 100% 70,000

Lodging costs:
Mr. Lasuna ($350-$300) x P52 x 5 13,000
Mrs. Lasuna Fully taxable 91,000

Foods and local transportation

Mr. Lasuna Exempt de minimis 0
Mrs. Lasuna fully taxable 50,000
Total monetary value 245,000
Holiday and Vacation Expenses

Holiday and vacation expenses are taxable fringe benefits if shouldered by the
employer. The monetary value is the amount paid or shouldered by the employer.

Educational Assistance to the Employee or his Dependents

Educational assistance to the employee is generally taxable except when it is incurred

for the convenience or furtherance of the employer's business, such as:

1. the education or study is directly connected with the employer's trade, business or
profession; and
2. there is a written contract (i.e., employee bond) that the employee is under
obligation to remain at the employ of the employer for a period of time they mutually
agreed upon.

Educational assistance granted to dependents of the employee is generally taxable

except when the assistance was provided through a competitive scheme under a
scholarship program of the company.

Illustration

Cleopatra Marketing, a distributor of cosmetics products, provides educational

assistance to the following employees under an employment bond:

Position Field of study Amount per of

semester
VP for Management Doctor in Business
Administration 50,000
VP for Marketing Master in Marketing 35,000
Operations manager BS Cosmetology 25,000
Accounting supervisor BS Criminology 24,000
Accounting staff BS Accountancy P20,000

Only the tuition fee of the accounting supervisor is subject to fringe benefit tax and
shall be reported in the quarters it is paid. Even if covered by an employee bond, his
field of study is neither related to the nature of his job nor to the employer's business.
The fringe benefit of all the other employees will neither be subject to the fringe
benefit tax nor the regular income tax under the "convenience of the employer" rule.

Life or health insurance and other non-life insurance premiums or similar

amounts in excess of what the law allows

These are taxable fringe benefits except the following insurance or premium
contributions allowed or required by law:

1. Contributions of the employer for the benefit of the employee pursuant to the
provisions of existing law such as contributions to SSS, GSIS, PhilHealth, an HDMF
2. Cost of premium for group insurance of employees
Illustration

Queensdale Company made the following insurance premium payments during

calendar quarter:

-P30,000 premium for the life insurance of the Chief Executive Officer (CEO) with
Queensdale Company as the beneficiary of the policy
-P20,000 premium for the life insurance of the Company Chief Operating Officer
COO) with his wife as the beneficiary
-P15,000 insurance premium of the personal car of the company manager
-P40,000 premium for group insurance of employees
-P80,000 premium share in SSS, PhilHealth, and Pag-Ibig dues of employees
-P10,000 fire insurance premium for the company building

The quarterly monetary value of fringe benefits shall be computed as follows:

Life insurance premium of COO where his wife P 20,000

Is the beneficiary
Car insurance of company manager 15,000
Quarterly monetary value P 35,000

Note:

1. The insurance premium on the life of the CEO where the company itself is the
beneficiary is not a fringe benefit to the executive employee but a business expense.

2. Group insurance premiums and those required by special laws are not taxable. 3.
The premium for fire insurance on company building is a business expense.

FRINGE BENEFIT TAX RATES

The fringe benefit tax rates are as follows:

Year Employees
Residents or citizens Non-resident aliens

1998 34% 25%

1999 33%
2000 to 2017 32%
2018 and thereafter 35%

"Includes resident citizens, non-resident citizens, and resident aliens

GROSSED-UP MONETARY VALUE

The basis of the fringe benefit tax is the grossed-up monetary value of the fringe
benefit. The grossed-up monetary value is the monetary value of benefits divided by
the appropriate grossed-up rate for the employee. The grossed-up monetary value is
inclusive of the fringe benefit tax.

The following are the grossed-up rate:

Year Employees
Residents or citizens Non-resident aliens

1998 66% 75%

1999 67%
2000 to 2017 68%
2018 and thereafter 65%

Illustration

Assume an employer grants fringe benefits with monetary value of P58,500 to a

resident citizen managerial employee.

The grossed-up monetary value is computed as P58,500/65%=P90,000. If the

employee is a non-resident alien, the grossed-up monetary value shall be computed
as P58,500/75%=P78,000

ILLUSTRATIONS: FRINGE BENEFIT TAX COMPUTATIONS

Illustration 1: Resident citizen

In the last quarter of 2019, Alexander, a Filipino supervisory employee, was given
P13,000 worth of groceries for personal use.

Monetary value P 13,000

Divide by: Gross-up rate 65%
Grossed-up monetary value P 20,000
Multiply by: Fringe benefit tax rate 35%
Fringe benefit tax 7,000

Alternatively, the fringe benefit tax can be directly computed as P13,000X35%/65%

Illustration 2: Resident alien

An offshore banking unit (OBU) reimbursed the following personal expenses of its
managerial employee during a calendar quarter:

Golf club membership dues - 100% in the

name of the employer P 10,000
Groceries-50% in the name of the employer 24,000
Home owners' association dues 5,000
Total 39,000

The fringe benefits tax shall be computed as: P39,000X35%/65%=P21,000

Note: Personal expenses are taxable fringe benefits in full even if they are receipted in
full or in part in the name of the employer.

Illustration 2: Non-resident alien

On January 2014, Cyberspace Company purchased a P3,000,000 car and designated

for the personal use of its non-resident alien executive.

Monetary value (P3,000,000/5) x 50% P 300,000

Quarterly monetary value (P300,000/4) P 75,000

The fringe benefits tax shall be computed as P75,000X25%/75%=P25,000.

Note: The fringe benefit tax continues to be payable for as long as the employee uses
property for personal use and/or business use.

ACCOUNTING ENTRIES

Accounting entries shall be classified as follows:

1. Taxable benefits paid for in cash or in kind

2. Taxable benefits which do not involve payment of cash or transfer of property
3. Exempt benefits paid for in cash or in kind
4. Exempt benefits which do not involve payment of cash or transfer of property

1. Benefits paid for in cash or in kind

Taxpayers shall record fringe benefits paid for in cash or in kind in their books as

follows:

Fringe benefit expense (monetary value) XXX,XXX

Fringe benefit tax expense XXX,XXX
Cash/Tax basis of property given XXX,XXX
Fringe benefit tax payable XXX,XXX

Illustration 1: Rental accommodation

Plato Corporation paid P91,000 for the rental of a housing unit for the use of its
president.

Fringe benefit expense P 91,000

Fringe benefit tax expense 24,500
Cash P91,000
Fringe benefit tax payable 24,500

Fringe benefit tax = (P91,000 x 50%) x35%/65%

Illustration 2: Transfer of ownership over properties

Aristotle Company transferred ownership over a newly acquired investment property

costing P1,200,000 as residence of its supervisory employee. The property has a zonal
value of P1,300,000.

Fringe benefit expense P 1,200,000

Fringe benefit tax expense (P1.3M x 35%/65%) 700,000
Investment property P 1,200,000
Fringe benefit tax payable 700,000

2. Benefits which do not involve payment of cash or properties

Taxpayers shall record fringe benefits without outflow of cash or properties in their
books as follows:

Fringe benefit expense (monetary value) XXX

Fringe benefit tax payable XXX

Homer Realty Inc, designated a unit of its condominium property for the use of its
vice president for finance as his family residence. The rental value of the unit for the
past calendar quarter would have been P260,000,

Fringe benefit tax expense P 70,000

Fringe benefit tax payable P 70,000

Fringe benefit tax = (P260,000 x 50%) x 35%/65%

Note that the employer is not allowed to claim fringe benefit expense. A deductible
expense needs to be an actual outflow or depletion of resources. Anyway, the
employer can claim depreciation expense if the property is an ordinary asset. In case
of capital asset where no depreciation is allowable, fringe benefit tax rules shall not
inappropriately allow the claim of deduction. The rules of deductions will be
explained in Chapter 13.

Illustration 2: Interest free loans

Petrodrill, an oil exploration company, granted a P1,000,000 interest-free loan to a

non-resident managerial employee.

The following entry shall be made every quarter after the loan issue:

Fringe benefit tax expense P 10,000

Fringe benefits tax payable P 10,000

Fringe benefit tax = (P1,000,000 x 12%/4) x 25%/75%

Note also that the interest expense is not recognized as a fringe benefit expense
because it is not an expense involving actual payment or transfer of properties.

3. Exempt benefits paid for in cash or in kind

The taxpayer shall record exempt fringe benefits paid in cash or in kind as follows:

Fringe benefit expense (monetary value) XXX

Cash/Property given XXX

Illustration: Exempt fringe benefits

An employer paid P120,000 for the tuition fee of his supervisor who is taking an
advancement course in furtherance of the employer's business.

Fringe benefit expense P120,000

Cash P120,000

Illustration: Exempt free use of property

Philex is allowing its plant manager to use a residential property nearby its processing
plant to ensure the manager's close monitoring of the production processes. The rental
value of the property is P40,000 a month.

No entry is required

Integrated Illustration 1

Highland Miners Marketing Cooperative (HMMC) furnished its managerial

employees a car plan wherein HMMC will purchase cars of their choice worth
P1,300,000. 40% of the purchase price will be deductible against future salaries of the
employee. HMMC purchased a car for its sales manager.

Advances to officers (P1.3M x 40%) P 520,000

Fringe benefit expense (P1.3M x 60%) 780,000
Fringe benefits tax expense (780K x 35%/65%) 420,000
Cash P1,300,000
Fringe benefits tax payable 420,000

Note: The fringe benefit is taxable even if provided by an exempt employer (ie.
cooperative, non- profit or government agency) because the tax is imposed upon the
employee not upon the employer.

Integrated Illustration 2
Marco Realty Corporation transferred ownership over one of its residential property
inventories to its vice presidents a consideration of P450,000. The property was
acquired for P2,000,000 but has a fair value of P2,400,000 at date of transfer.

The fringe benefits expense shall be measured at the actual cost of the property given
by the employer but the fringe benefit tax shall be measured at the monetary value of
the benefit (P2,400,000 fair value-P450,000 received).

Hence,

Cash P 450,000
Fringe benefits expense (P2M-P450K) 1,550,000
Fringe benefits tax expense 1,050,000
Inventory P2,000,000
Fringe benefits tax payable
(P2,400,000-P450,000) x 35%/65% 1,050,000

Tax Treatment of the Total Fringe Benefit Expense

The total fringe benefit expense including the fringe benefit tax expense is a
deductible expense of the employer against his gross income in the computation of his
taxable income. It must be noted that a deductible fringe benefit expense exists only
when the benefit is paid in cash or in kind. The expense is measured at the actual cost
or tax basis of consideration given as fringe benefits.