Part 1 - Tax Rules & Regulations

“TAX RULES AND
REGULATIONS”
Association of Government Internal Auditors
December 12, 2018
Atty. Sofronia R. Perez-Onesa, CPA, CMA

SOURCES OF TAX LAWS
 Constitution
 The provisions of the Constitution dealing with taxation merely regulate and
limit the exercise of the power of taxation.
 Statutes
 The main statutory law on taxation is Presidential Decree No. 1158, as
amended by, among others, Presidential Decree No. 1994 and Executive Order
No. 273, otherwise known as the National Internal Revenue Code, is hereby
further amended by RA 8424, Tax Reform Act of 1997, as amended further by
RA 9504, RA 9337 and as recently amended by RA 10963, Tax Reform
Acceleration and Inclusion Law (TRAIN).
SOURCES OF TAX LAWS
 Tax Regulations
 The Secretary of Finance promulgated under his rule-making power, Revenue
Regulations No. 2 (as amended), otherwise known as the Income Tax
Regulations and other regulations to implement the tax law. This regulation
should be deemed amended by other regulations on income tax
subsequently issued.
 Administrative rulings and opinions
 Interpretations of tax laws which are issued from time to time by the
Commissioner of Internal Revenue. They are usually rendered upon request
of taxpayers to clarify certain provisions of the tax law.
 Judicial Decisions
 The decision of the Supreme Court (and the Court of Tax Appeals) applying or
interpreting tax laws constitute a major part of the jurisprudence of taxation.
SOME SPECIAL LAWS
 Pres. Decree No. 87, the “Oil Exploration and Development Act” as amended by
Pres. No. 1354;
 Exec. Order No. 226, the Omnibus Investment Code of 1987, as amended;
 Republic Act No. 9520, Cooperative Code of the Philippines;
 Republic Act Nos. 7916, the “Special Economic Zone Act of 1995”, as amended
Rep. Act No. 8748;
 Republic Act No. 7929, the “Urban Development and Housing Act of 1992”;
 Republic Act No. 8502, the “Jewelry Industry Development Act of 1998”;
 Republic Act No. 8479, “An Act Deregulating the Downstream Oil Industry and
For Other Purposes”.
HIERARCHY: LEGAL BASIS FOR
TAX ISSUES
Tax Code/Special Law
Revenue Regulations
Other BIR Issuances

(RMC’s, RMO’s, RMR’s, BIR Rulings)
US Jurisprudence
(for Income Tax)
ADMINISTRATIVE RULINGS AND
OPINIONS
 Revenue Memorandum Orders (RMOs)
 These are issuances that provide directives or instructions; prescribe
guidelines; and outline processes, operations, activities, workflows, methods
and procedures necessary in the implementation of stated policies, goals,
objectives, plans and programs of the Bureau in all areas of operations,
except auditing.
 Revenue Memorandum Circular (RMCs)
 These are issuances that publish pertinent and applicable portions, as well as
amplifications, of laws, rules, regulations and precedents issued by the BIR
and other agencies/offices.
OPINIONS
 Revenue Memorandum Rulings (RMRs)
 These are rulings, opinions and interpretations of the Commissioner of
Internal Revenue with respect to the provisions of the Tax Code and other tax
laws, as applied to a specific set of facts, with or without established
precedents, and which the Commissioner may issue from time to time for the
purpose of providing taxpayers guidance on the tax consequences in specific
situations. BIR Rulings, therefore, cannot contravene duly issued RMRs;
otherwise, the Rulings are null and void ab initio.
OPINIONS
 BIR Rulings
 These are official position of the Bureau to queries raised by taxpayers and
other stakeholders relative to clarification and interpretation of tax laws.
Binding Effect of Rulings Issued Prior to Tax Reform Act of 1997

 All rulings issued prior to January 1, 1998 will no longer have any binding effect.
 BIR Rulings issued prior to Jan. 1, 1998 are not to be used as precedent by any
taxpayer as a basis to secure rulings for themselves for current business
transaction/s or in support of their position against any assessment.
OPINIONS
Binding Effect of Rulings Issued Prior to Tax Reform Act of 1997
• All BIR Rulings issued prior to Jan. 1, 1998 are not to be used by any BIR action
lawyer in issuing new rulings for request for rulings involving current business
transaction/s.
• However, BIR Rulings issued prior to Jan. 1, 1998 remains to be valid but only:
 to the taxpayer who was issued the ruling; and
 covering the specific transaction/s which is the subject of the same ruling
unless expressly notified of its revocation or unless the legal basis in law for
such issuance has already been repealed/amended in the current Tax Code.
SOURCES OF TAX REVENUES
The following taxes, fees and charges are deemed to be national internal revenue
taxes:
(a) Income tax;
(b) Estate and donor's taxes;
(c) Value-added tax;
(d) Other percentage taxes;
(e) Excise taxes;
(f) Documentary stamp taxes; and
Such other taxes as are or hereafter may be imposed and collected by the Bureau
of Internal Revenue. (Section 21, NIRC)
COMPREHENSIVE LOOK AT
WITHHOLDING TAX
SYSTEM OF THE
PHILIPPINES
SCOPE OUTLINE
3-PART TOPICS:
I. Day 1 - Introduction and Withholding Tax on Wages (Compensation) with an
Overview on Fringe Benefits Tax
II. Day 2 - Expanded Withholding Tax
III. Day 3 - Final Withholding Taxes and Withholding Tax on Government Money
Payments
GENERAL PRINCIPLES OF
WITHHOLDING TAX
SYSTEM
WHY DEVISED A WITHHOLDING
TAX SYSTEM?
The withholding tax system was devised for three reasons:
 to provide the taxpayer a convenient manner to meet his probable income
tax liability;
 to ensure the collection of the income tax which could otherwise be lost or
substantially reduced through failure to file the corresponding returns; and
 to improve the government's cash flow.
(Citibank, N.A. v. Court of Appeals, G.R. No. 107434, October 10, 1997)
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WHY DEVISED A WITHHOLDING
TAX SYSTEM?
 The taxes withheld are considered trust funds held for the Government to be
maintained by the withholding agent in separate accounts (Section 2.58.1 of RR No.
2-98 relative to Section 58 of the Tax Code, as amended).
 A taxpayer, resident or non-resident who contributes to the withholding tax
system, does not really deposit an amount to the Commissioner of Internal
Revenue, but, in truth, to perform and extinguish his tax obligation for the
year concerned. In other words, he is paying his tax liabilities for that year.
Consequently, a taxpayer whose income is withheld at the source will be deemed
to have paid his tax liability when the same falls due at the end of the tax year.
(Gibbs v. Commissioner of Internal Revenue, G.R. No. L-17406, November 29, 1965)
15
NATURE OF WITHHOLDING TAX
SYSTEM
 In the operation of the withholding tax system:
i. The Payor is the withholding agent - a separate entity acting no more
than an agent of the government for the collection of the tax in order to
ensure its payments;
ii. the Payer is the taxpayer — he is the person subject to tax imposed by law;
and
iii. The Payee is the taxing authority.
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SYSTEM
 The agent-payor becomes a payee by fiction of law. The liability is direct and
independent from the taxpayer, because the income tax is still imposed on and
due from the latter.
 The agent is not liable for the tax as no wealth flowed into him — he earned
no income. The Tax Code only makes the agent personally liable for the tax
arising from the breach of its legal duty to withhold as distinguish from its
duty to pay tax since the government's cause of action against the withholding
agent is not for the collection of income tax, but for the enforcement of the
withholding provision of Section 53 of the Tax Code, compliance with which is
imposed on the withholding agent and not upon the taxpayer.
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SYSTEM
 The law sets no condition for the personal liability of the withholding agent to
attach. The reason is to compel the withholding agent to withhold the tax
under all circumstances. In effect, the responsibility for the collection of the tax
as well as the payment thereof is concentrated upon the person over whom the
Government has jurisdiction.
 The withholding agent is constituted the agent of both the Government and
the taxpayer. With respect to the collection and/or withholding of the tax, he is
the Government's agent. In regard to the filing of the necessary income tax
return and the payment of the tax to the Government, he is the agent of the
taxpayer. The withholding agent, therefore, is no ordinary government agent
especially because under Section 53 (c) he is held personally liable for the tax
he is duty bound to withhold; whereas the Commissioner and his deputies are
not made liable by law.
CTA Case No. 7153, July 2, 2008, reiterating PGC vs. CIR, G.R. No. L-22074, September 6, 1965.
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TYPES OF WITHHOLDING TAXES
Withholding taxes can be broadly classified as follows:
1. Creditable withholding taxes, such as:
i. Expanded withholding tax
ii. Withholding tax on wages (special kind)
iii. Percentage taxes on government money payments
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Cont’n.:
2. Final withholding taxes, such as:
i. Final taxes on certain passive income
ii. Fringe benefit tax
iii. Final withholding VAT on government money payments
iv. Final withholding VAT on non-resident payees
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NATURE OF CREDITABLE
WITHOLDING TAX
 It is a means of collecting taxes (income or business) in advance.
 It is creditable against the Payee’s related taxes liability.
 Taxes withheld on certain income payments are intended to equal or at least
approximate the tax due of the payee on said income.
 Payee must be resident of the Philippines (or generally be doing business in the
Philippines).
 Payee is required to file a final tax return for the particular income subjected to
withholding taxes.
 Income payments subject to creditable taxes are generally ordinary or active
incomes of the taxpayer.
 Creditable taxes are generally applicable to income payments subject to global
system of taxation.
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TAX CREDIT MECHANISM
Illustration:
Assume a government entity withholds 2% creditable withholding tax from a JO
personnel on its income payment in the amount of P300,000.
Consequences:
Payor:
1. A government entity shall record and remit the 2% withheld taxes to national
government:
2% Tax Withheld = P300,000 x 2% = P6,000.00
2. It shall issue the corresponding certificate of taxes withheld to JO personnel.
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TAX CREDIT MECHANISM
Cont’n:
Payee:
1. The Payee shall file his/her return, quarterly or annually
2. He/she shall credit the 2% tax withheld against his/her quarterly/annual
income tax due, as follows:
Annual income tax due (based on P400,000) P 30,000
Less: 2% creditable taxes withheld (2307) 6,000
Income Tax Still Due 24,000
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NATURE OF FINAL WITHHOLDING
TAXES
 It is constituted as a FULL and FINAL payment of the income tax due from
the payee on a particular type of income subject to FWT;
 Finality of withholding tax is limited only to the payee’s income tax liability
and does not extend to other taxes that may be imposed on said income;
 The liability for the payment of the tax rests primarily on the Payor as
withholding agent. The Payee is NOT required to file an income tax return
(or other applicable return) for the particular income subjected to FWT.
 Final withholding taxes are generally applicable to income payments subject
to schedular (or semi-global) system of taxation.
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CREDITABLE vs. FINAL
CREDITABLE FINAL
• Creditable against payee’s income tax • Constituted as full and final payment
liabilities of the income tax due from payee
• Payee must be resident of the Philippines • Payee may be domestic, resident
(except in case of payments to those foreign or non-resident foreign
doing business in the Philippines)
• Payee is required to file an income tax • Payee is NOT required to file an
return for the particular income subjected income tax return for the particular
to EWT. income subjected to FWT.
• Generally applicable to ordinary or active • Generally applicable to passive

income income (but not all passive income is
subject to final withholding tax)
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INDIRECT TAXES vs.
WITHHOLDING TAXES
 Indirect taxes, like VAT and excise tax, are different from withholding taxes.
 To distinguish:
 In indirect taxes, the incidence of taxation falls on one person but the burden
thereof can be shifted or passed on to another person, such as when the tax is
imposed upon goods before reaching the consumer who ultimately pays for it.
 In case of withholding taxes, the incidence and burden of taxation fall on the
same entity, the statutory taxpayer. The burden of taxation is not shifted to the
withholding agent who merely collects, by withholding, the tax due from income
payments to entities arising from certain transactions and remits the same to the
government.
 The deficiency VAT and excise tax cannot be "deemed" as withholding taxes merely
because they constitute indirect taxes.
Asia International Auctioneers, Inc. v. Commissioner of Internal Revenue, G.R. No. 179115, September 26, 2012
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 Under Section 57 of RA 8424, the types of income subject to withholding tax
are divided into three categories:
(a) withholding of final tax on certain incomes;
(b) withholding of creditable tax at source; and
(c) tax-free covenant bonds.
(Chamber of Real Estate and Builders' Associations, Inc. v. Alberto Romulo, G.R. No. 160756,
March 9, 2010)
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(A) Withholding of Final Tax on Certain Incomes. —
 The tax imposed or prescribed by Sections 24(B)(1), 24(B)(2), 24(C), 24(D)(1);
25(A)(2), 25(A)(3), 25(B), 25(C), 25(D), 25(E); 27(D)(1), 27(D)(2), 27(D)(3), 27(D)
(5); 28(A)(4), 28(A)(5), 28(A)(7)(a), 28(A)(7)(b), 28(A)(7)(c), 28(B)(1), 28(B)(2),
28(B)(3), 28(B)(4), 28(B)(5)(a), 28(B)(5)(b), 28(B)(5)(c); 33; and 282 of this
Code on specified items of income shall be withheld by payor-corporation
and/or person and paid in the same manner and subject to the same
conditions as provided in Section 58 of this Code.
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(B) Withholding of Creditable Tax at Source. —
 The Secretary of Finance may, upon the recommendation of the
Commissioner, require the withholding of a tax on the items of income
payable to natural or juridical persons, residing in the Philippines, by payor-
corporation/persons as provided for by law, at the rate of not less than one
percent (1%) but not more than thirty-two percent (32%) thereof (now 1% -20%
as amended by TRAIN), which shall be credited against the income tax liability
of the taxpayer for the taxable year.
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(C )Tax-free covenant bonds -
 Under Section 57 of the NIRC of 1997, if the seller-obligor agrees to pay the
required tax or a portion thereof or reimburse any portion of tax paid by the
buyer-obligee or to pay the interest without deduction for any tax which it
may be required or permitted to pay or to retain therefrom, it is incumbent
upon the seller-obligor to withhold and remit a tax equal to thirty percent (30%)
of the interest or other payments upon those bonds to the government.
 Does not mean that no tax is due and payable thereon. It is "tax-free" only on
the part of the buyer because it is not required to pay any tax as the seller of
the bonds obligates itself to shoulder whatever tax is imposed by the
government.
(Philippine Banking Corp. vs. Commissioner of Internal Revenue, CTA Case No. 6057, April 4, 2002)
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WITHHOLDING TAX ON
COMPENSATION WITH AN
OVERVIEW ON FRINGE
BENEFITS TAX
(PART I)
DISCUSSION OUTLINE
I. General Principles on Individual Taxation
A.Classification of Individuals
B.Individual as Employee
C.Employer
D.Employer-Employee Relationship
III. Nature of WTW
IV. Requirements for Withholding
DISCUSSION OUTLINE
V. Compensation Income
VII. Exemptions from Withholding Tax on Compensation Income
VIII. Time of Withholding
IX. Excess/Deficiency WTW
X. Tax administrative compliance
Part II. Overview on Fringe Benefits Tax

W
T GENERAL
PRINCIPLES
W
34
NATURE OF WTW
 A method of collecting the income tax at source upon receipt of the income.
 Applicable to all employed individuals whether citizens or aliens, deriving
income from compensation for services rendered in the Philippines.
 The employer is constituted as the withholding agent.
35
CLASSIFICATION OF INDIVIDUALS
1. A resident citizen is taxable on all income derived from ALL sources (within
and without the Philippines)
2. A non-resident citizen is taxable only on income derived from sources WITHIN
the Philippines
3. A Filipino citizen working and deriving income from abroad as an Overseas
Contract Worker is taxable only on income from sources WITHIN the
Philippines
4. An alien whether resident or non-resident is taxable only on income from
sources WITHIN the Philippines
GENERAL RULE:
TAXATION OF INDIVIDUALS
Classification of Taxable Income Tax Exemption Tax Rates
Individual Taxpayer (TRAIN Law)
I. Resident Citizen Income from sources within P250,000 20%-35% and/or 8%

and outside the Philippines (except for
compensation income)
II. Non-resident Income from sources within P250,000 20%-35% and/or 8%

Citizen (including the Philippines (except for
OFW) compensation income)
III. Resident Alien Income from sources within P250,000 20%-35% and/or 8%
the Philippines (except for
compensation income)
GENERAL RULE:
TAXATION OF INDIVIDUALS
Classification of Taxable Income Tax Exemption Tax Rates
Individual Taxpayer
IV. Non-resident Alien Income from sources within P250,000 20%-35% and/or 8%
ENGAGED in trade the Philippines (except for
or business compensation
income)
V. Non-resident Alien Income from sources within None 25%
NOT ENGAGED in the Philippines
trade or business
SOURCES WITHIN vs. SOURCES
WITHOUT (SERVICES)
 Compensation for services performed in the Philippines will be considered as
income from sources within the Philippines. (Sec. 42, NIRC)
 If a specific amount is paid for labor or personal services performed in the
Philippines, such amount shall be included in the gross income. (Sec. 155, RR 2)
 If no accurate allocation or segregation of compensation for personal labor or
personal services performed within the Philippines can be made, or when such
labor or service is performed partly within and without the Philippines, the
amount to be included in the gross income shall be determined by an
apportionment of the time basis, i.e., there shall be included in the gross income
an amount which bears the same relation to the total compensation as the
number of days performance of the services in the Philippines bears to the total
number of days of performance of labor or services for which the payment is
made.
WHO IS AN EMPLOYEE –
LABOR CODE
i. Rank and File Employees - All employees who are holding neither managerial
nor supervisory positions.
ii. Managerial Employees - Those who are vested with powers or prerogatives to
lay down and execute management policies and/or to hire, transfer, suspend,
lay-off, recall, discharge, assign or discipline employees.
iii. Supervisory Employees - Those, who, in the interest of the employer,
effectively recommend such managerial actions if the exercise of such
authority is not merely routinary or clerical in nature but require the use of
independent judgment.
WHO IS AN EMPLOYEE
– TAX CODE
 An individual performing services under an employer-employee relationship.
 Covers all employees, including officers and employees, whether elected or
appointed, of the Government of the Philippines, or any political subdivision
thereof or any agency or instrumentality.
 No distinction is made between classes or grades of employees. Thus
superintendents, managers, and others belonging to similar levels are
employees.
 An officer of a corporation is an employee of the corporation.
 An individual, performing services for a corporation, both as an officer and
director, is an employee subject to withholding on compensation, including
director's fees.
WHO IS NOT AN EMPLOYEE
– TAX CODE
 In general, individuals who follow an independent trade, business, or
profession, in which they offer their services to the public, are not employees.
 The measurement, method or designation of compensation is also immaterial if
the relationship of employer and employee in fact exists.
WHO IS AN EMPLOYER
 The term employer means any person for whom an individual performs or
performed any service, of whatever nature, under an employer-employee
relationship.
 It is not necessary that the services be continuing at the time the wages are
paid in order that the status of employer may exist.
 For purposes of withholding, a person for whom an individual has performed
past services and from whom he is still receiving compensation is an
"employer".
 An employer may be an individual, a corporation, a partnership, a trust, an
estate, a joint-stock company, an association, or a syndicate, group, pool, joint
venture, or other unincorporated organization, group or entity. A trust or
estate, rather than the fiduciary acting for or on behalf of the trust or estate, is
generally the employer.
WHO IS AN EMPLOYER
 The term "employer" embraces not only an individual and an organization
engaged in trade or business, but it also includes an organization exempt from
income tax, such as charitable and religious organizations, clubs, social
organizations and societes, as well as the Government of the Philippines,
including its agencies, instrumentalities, and political subdivisions.
“INDIRECT” EMPLOYER – TAX
PURPOSES
(A) Person for whom the services are or were performed does not have control.
 The term "employer" also refers to the person having control of the
payment of the compensation in cases where the services are or were
performed for a person who does not exercise such control.
Eg, where compensation, such as certain types of pensions or retirement pay, are
paid by a trust and the person for whom the services were performed has no
control over the payment of such compensation, the trust is deemed to be the
"employer"
PURPOSES
(B) Person paying compensation on behalf of a nonresident.
 The term "employer" also means any person paying compensation on behalf
of a non-resident alien individual, foreign partnership, or foreign corporation,
who is not engaged in trade or business within the Philippines.
 It is the responsibility of the employer to withhold, pay, or refund the tax and
furnish the statements required under these Regulations.
NOTE:
 The term "employer" as defined in (A) and (B) above is intended to determine
who is the withholding agent.
PURPOSES
(C) Compensation paid on behalf of two or more employers. (Subject to approval)
 If a payment of compensation is made to an employee by an employer
through an agent, fiduciary, or other person who has the control, receipt,
custody, or disposal of, or pays the compensation payable by another
employer to such employee, the amount of tax required to be withheld on
each compensation payment made through such agent, fiduciary, or person
shall, whether the compensation is paid separately on behalf of each
employer or paid in lump-sum on behalf of all such employers, be
determined based on the aggregate amount of such compensation payment
or payments in the same manner as if such aggregate amount had been paid
by one employer. Hence, the tax shall be determined based on the
aggregate amount of the compensation paid.
PURPOSES
Cont’n.
 In any such case, each employer shall be liable for the return and payment of a
pro-rata portion of the tax so determined in accordance with the ratio of the
amount contributed by each employer relative to the aggregate of such
compensation.
 A fiduciary, agent, or other person acting for two or more employers may be
authorized to withhold the tax under these regulations with respect to the
wages of the employees of such employers.
 Application for the authorization to perform such act should be addressed to the
Commissioner or his duly authorized representative.
EMPLOYER-EMPLOYEE
RELATIONSHIP EXISTS
 Employer and employee relationship exists when the person for whom
services were performed has the right to control and direct the individual who
performs the services, not only as to the result to be accomplished by the work
but also as to the details and means by which the result is accomplished.
 An employee is subject to the will and control of the employer not only as to
what shall be done, but how it shall be done.
 It is not necessary that the employer actually directs or controls the manner in
which the services are performed. It is sufficient that he has the right to do so.
 The right to dismiss an employee is also an important factor indicating that the
person possessing that right is an employer.
W
REQUIREMENT
T FOR
W WITHHOLDING
AND LIABILITY
50
GENERAL REQUIREMENT
 Every employer must withhold from compensation paid an amount computed in
accordance with these Regulations.
 Exception: No withholding of tax shall be required on the Statutory Minimum
Wage (SMW), including holiday pay, overtime pay, night shift differential and
hazard pay of Minimum Wage Earner’s in the private/public sectors as defined in
these Regulations.
 Exception to exception: An employee who receives additional compensation
such as commissions, honoraria, fringe benefits, benefits in excess of the
allowable statutory amount of P90,000.00 (as amended), taxable allowances
and other taxable income other than the SMW, holiday pay, overtime pay,
hazard pay and night shift differential pay, shall be taxable only on such
additional compensation received. (RR 2-98, as
amended and Soriano et.al. vs. SOF, January 24, 2017)
LIABILITY FOR BREACH OF DUTY
TO WITHHOLD
I. Employer
i. If the employer fails to withhold and remit the correct amount of tax. Total
withholding tax due together with the penalties or additions to the tax otherwise
applicable.
ii. Willful failure to collect such tax, or account for and remit such tax or willfully
assist in any manner to evade any payment thereof, shall in addition to other
penalties, provided for in the Code, as amended, be liable, upon conviction, to a
penalty equal to the amount of the tax not collected nor accounted for or
remitted.
iii. Any employer/withholding agent who fails, or refuses to refund excess
withholding tax not later than January 25 of the succeeding year shall, in addition
to any penalties provided in Title X of the Code, as amended, be liable to a penalty
equal to the total amount of refund which was not refunded to the employee
resulting from any excess of the amount withheld over the tax actually due on their
return.
TO WITHHOLD
I. Employer
iv. Failure to File Certain Information Returns — In the case of each failure to
file an information return, statement or list, or keep any record, or supply
any information required by this Code or by the Commissioner on the date
prescribed therefor, unless it is shown that such failure is due to
reasonable cause and not to willful neglect, there shall, upon notice and
demand by the Commissioner, be paid by the person failing to file, keep or
supply the same, one thousand pesos (P1,000) for each such failure:
Provided, however, That the aggregate amount to be imposed for all such
failures during a calendar year shall not exceed twenty-five thousand
pesos (P25,000) (Sec. 250 of the Code).
TO WITHHOLD
I. Employer
 Violation of Withholding Tax Provisions by government officer— The
following acts (of every gov’t officer or employee) shall, upon conviction
for each act or omission by a fine of P5,000 to P50,000 and imprisonment of
6 months and 1 day to 2 years or both:
i. Failing or causing the failure to deduct and withhold any internal revenue tax
under any of the withholding tax laws and implementing rules and regulations;
or
ii. Failing or causing the failure to remit taxes deducted and withheld within the
time prescribed by law, and implementing rules and regulations; or
iii. Failing or causing the failure to file return or statement within the time
prescribed, or rendering or furnishing a false or fraudulent return or statement
required under the withholding tax laws and rules and regulations."
(reiterated in RMO 23-2014, Section 272 , NIRC)
LIABILITY FOR REFUSAL
II. Employee
 Failure or refusal to file the Application of Registration or Certificate of
Update together with the attachments or willfully supplies false or
inaccurate information, after due written notice by the employer:
i. The tax otherwise to be withheld by the employer shall be collected
from him including penalties or additions to the tax from the due date
of remittance until the date of payment.
ii. The excess taxes withheld by the employer shall not be refunded to
the employee but shall be forfeited in favor of the government.
ADDITIONAL CIVIL PENALTIES
 Additions to tax:
i. A penalty equivalent to twenty five percent (25%) of the amount due;
ii. Interest on any unpaid amount of tax, at the rate of double the legal
interest rate for loans or forbearance of any money in the absence of an
express stipulation set by the BSP from the date prescribed for payment
until the amount is fully paid.
iii. Deficiency interest in the tax due, which interest shall be assessed and
collected from the date prescribed for its payment until the full payment
thereof, or upon issuance of a notice and demand by the Commissioner of
Internal Revenue, whichever comes earlier.
Note: If the withholding agent is the GO or any of its agencies, political subdivisions, or
instrumentalities or a GOCCs, the employee thereof responsible for the withholding and
remittance of tax shall be PERSONALLY LIABLE for the surcharge and interest imposed
herein.
GOV’T EMPLOYEE RESPONSIBLE
FOR WITHHOLDING
RMO 23-2014
 The following officials are duty bound to deduct, withhold and remit taxes:
a) For Office of the Provincial Government-province — the Chief Accountant,
Provincial Treasurer and the Governor;
b) For Office of the City Government-cities — the Chief Accountant, City
Treasurer and the City Mayor;
c) For Office of the Municipal Government-municipalities — the Chief
Accountant, Municipal Treasurer and the Mayor;
d) Office of the Barangay — Barangay Treasurer and Barangay Captain;
e) For NGAs, GOCCs and other Government Offices - the Chief Accountant and
the Head of Office or the Official holding the highest position (such as the
President, Chief Executive Officer, Governor, General Manager).
GOV’T EMPLOYEE RESPONSIBLE
FOR WITHHOLDING
COURAGE et.al., vs. CIR (G.R. No. 213446 xxx), July 4, 2018 – Partially revoked
Section VI of RMO 23-2014
 The Court finds that that CIR gravely abused its discretion in issuing Section VI
of the RMO 23-2014, insofar as it includes the Governor, City Mayor, Municipal
Mayor, Barangay Captain, and Heads of Office in agencies, GOCCs and other
government offices, as persons required to withhold and remit withholding
taxes, as they are not amount those officials designated by the 1997 NIRC, as
amended.
W TAXABLE
COMPENSATION
T INCOME
AND
W EMPLOYEE
BENEFITS
59
COMPENSATION INCOME
General rule:
 In general, the term "compensation" means all remuneration for services
performed by an employee for his employer under an employer-employee
relationship, unless specifically excluded by the Code.
 The name by which the remuneration for services is designated is immaterial.
 Remuneration for services constitutes compensation even if the relationship
of employer and employee does not exist any longer at the time when
payment is made between the person in whose employ the services had been
performed and the individual who performed them.
COMPENSATION INCOME
 The following constitute compensation income:
i. Salaries and wages;
ii. Emoluments and honoraria,
iii. Allowances, commissions (e.g. transportation, representation,
entertainment and the like);
iv. Fees including director's fees, if the director is, at the same time, an
employee of the employer/corporation;
v. Taxable bonuses and fringe benefits except those which are subject to the
fringe benefits tax under Sec. 33 of the Code;
vi. Taxable pensions and retirement pay; and
vii. Other income of a similar nature.
1. COMPENSATION PAID IN KIND
 Compensation may be paid in money or in some medium other than money,
(eg., stocks, bonds or other forms of property).
 If compensation is paid in kind, the value shall be as follows:
i. The fair market value of the thing taken in payment is the amount to be
included as compensation subject to withholding.
ii. If the services are rendered at a stipulated price, in the absence of evidence
to the contrary, such price will be presumed to be the fair market value of
the remuneration received.
iii. If a corporation transfers to its employees its own stock as remuneration for
services rendered by the employee, the amount of such remuneration is the
fair market value of the stock at the time the services were rendered.
(Note: Item iii is different from the rules on valuation of stock options granted to
employees under RMC 079-2014)
1. COMPENSATION PAID IN KIND
 The employer shall make necessary arrangements to ensure that the amount of
the tax required to be withheld is available for payment to the Commissioner.
2. LIVING QUARTERS OR MEALS
 General rule:
 The value to the employee of the quarters and meals so furnished shall be
added to the remuneration paid for the purpose of determining the amount
of compensation subject to withholding.
 Exception:
 If living quarters or meals are furnished to an employee for the convenience
of the employer, the value thereof need not be included as part of
compensation income.
3. FACILITIES AND PRIVILEGES OF
RELATIVELY SMALL VALUE
 Ordinarily, facilities, and privileges (such as entertainment, medical services, or
so-called "courtesy" discounts on purchases), otherwise known as "de minimis
benefits," furnished or offered by an employer to his employees, are not
considered as compensation subject to income tax and consequently to
withholding tax, if such facilities or privileges are:
i. of relatively small value; and
ii. are offered or furnished by the employer merely as means of promoting
the health, goodwill, contentment, or efficiency of his employees.
 “De Minimis" benefits 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;
(b) Monetized value of vacation and sick leave credits paid to government
officials and employees;
(c) Medical cash allowance to dependents of employees, not exceeding
P1,500 per employee per semester or P250 per month;
(d) Rice subsidy of P2,000 or one (1) sack of 50 kg. rice per month amounting
to not more than P2,000;
(e) Uniform and Clothing allowance not exceeding P6,000 per annum;
 “De Minimis" benefits (cont’n)
(f) Actual medical assistance, e.g., medical allowance to cover medical and
healthcare needs, annual medical/executive check-up, maternity
assistance, and routine consultations, not exceeding P10,000.00 per
annum;
(g) Laundry allowance not exceeding P300 per month;
(h) 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 received by the employee under an established written
plan which does not discriminate in favor of highly paid employees;
 “De Minimis" benefits (cont’n)
(i) Gifts given during Christmas and major anniversary celebrations not
exceeding P5,000 per employee per annum;
(j) Daily meal allowance for overtime work and night/graveyard shift not
exceeding twenty-five percent (25%) of the basic minimum wage on a per
region basis;
(k) Benefits received by an employee by virtue of a collective bargaining
agreement (CBA) and productivity incentive schemes provided that the
total annual monetary value received from both CBA and productivity
incentive schemes combined do not exceed ten thousand pesos
(Php10,000.00) per employee per taxable year;
 RMC 050-18, Q&A 5
Q5: What shall be the tax treatment of the "de minimis" benefits given to employees
which are beyond the prescribed amount of benefits?
A5: The benefits given in excess of the maximum amount allowed as "de minimis"
benefits shall be included as part of "other benefits" which is subject to the P90,000.00
ceiling. Any amount in excess of the P90,000 shall be subject to income tax, and
consequently, to the withholding tax on compensation.
 Where compensation is paid in property other than money, the employer shall
make necessary arrangements to ensure that the amount of the tax required to
be withheld is available for payment to the Bureau of Internal Revenue.
BIR Ruling No. DA (ECE-02)398-09), July 23, 2009
1. Facilities or privileges that are categorized as de minimis benefits under

pertinent rules and regulations shall not be included as items of gross income for
income tax purposes. They shall not also be included in the computation of the
PhP30,000.00 (now P90,000) threshold for a determination of the items of
income that are to be excluded from income under Section 32 (B) (7) (e) of the
Tax Code of 1997.
2. Corollary to this, de minimis benefits are subject to neither income tax on

compensation nor fringe benefits tax. Furthermore, no withholding tax thereon
shall be imposed in view of their exclusion and exemption from tax.
3. The gross benefits granted to rank-and-file, supervisory or managerial employees

of entities, to the extent of the threshold of P30,000.00 (now P90,000)
mandated by Section 32 (B) (7) (e) of the Tax Code of 1997, shall not be included
as items of gross income and shall, therefore, be exempt from income taxation.
Accordingly, such benefits given in excess of the threshold amount shall be
taxable to the recipient employee.
4. The "other benefits" referred to in Section 32 (B) (7) (e) (iv) of the Tax Code of
1997 include all benefits, other than the 13th month pay, such as, the annual
Christmas bonus given by private entities, 14th month pay and the like, gifts in
cash or in kind and other similar benefits and refer to those benefits received by
an employee in a calendar year.
5. Revenue Regulations No. 3-98, as amended by Revenue Regulations No. 8-2000

and Revenue Regulations No. 10-2000 are illustrative and non-exclusive in the
enumeration of what constitutes de minimis fringe benefits. Accordingly, we rule
that the meal and food benefits granted, although not intended to be used for
overtime work, may still be added in 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 and Revenue Regulations No. 10-2000 should be used as guidelines. Such
being the case, meal and food benefits not exceeding 25% of the daily minimum
wage may be considered de minimis meal benefit and therefore, tax exempt. xxx
6. In keeping with the spirit of the rules and regulations on de minimis benefits, we
rule that 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, and we have to give
life to that intent. Thus, the Regulations separately provide maximum values for
rice allowance and for meal allowance. Accordingly, there can be no aggregation
of de minimis values for rice and meal and food benefits (reiterated BIR Ruling
No. 23-2002 dated June 21, 2002).
BIR Ruling No. 439-13, Nov. 26, 2013
Issue: Is terminal leave pay of resigned government employees subject to WTW?
Ruling: xxx On the other hand, there is no limit as to the number of vacation and sick
leave credits that can be monetized and paid to a government official or employee
within a calendar year. This could only mean that even if the monetized value applied
for by a government official or employee exceeds 10 days, it would still be exempt
from income, as well as fringe benefits tax. Under the premise that the unutilized
vacation and sick leave credits form part or are merely components of terminal leave
benefits, it is logical to conclude that the terminal leave pay received by government
official or employee who was separated from the service either through retirement,
resignation, or separated thru no fault of his own is not subject to income and fringe
benefits tax.
BIR Ruling No. 001-07, October 01, 2007
Ruling: xxx, 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.
4. TIPS AND GRATUITIES
 Tips or gratuities paid directly to an employee by a customer of the employer
which are not accounted for by the employee to the employer are considered as
taxable income but not subject to withholding.
5. PENSIONS, RETIREMENT AND
SEPARATION PAY
 Pensions, retirement and separation pay constitute compensation subject to
withholding, except those (that qualify for exemption).
6. FIXED OR VARIABLE TRANSPORTATION,
REPRESENTATION AND OTHER ALLOWANCES
 General rule:
 Fixed or variable transportation, representation and other allowances which
are received by a public officer or employee of a private entity, in addition to
the regular compensation fixed for his position or office, is compensation
subject to withholding.
 Exceptions (1): (i) Representation and Transportation Allowance (RATA) granted

to public officers and employees under the General Appropriations Act and the
(ii) Personnel Economic Relief Allowance (PERA) which essentially constitute
reimbursement for expenses incurred in the performance of government
personnel's official duties shall not be subject to income tax and consequently
to withholding tax.
 Exception to exception: (iii) Additional Compensation Allowance (ACA) given to
government personnel shall not be subject to withholding tax pending its
formal integration into the basic pay. Consequently, and effective for the taxable
year 2000, ACA shall be classified as part of the "other benefits" under Section
32(B)(7)(e) of the Code which are excluded from gross compensation income
provided the total amount of such benefits does not exceed P30,000.00 (now
P90,000)
 Exceptions (2): Any amount paid specifically, either as advances or reimbursements
for travelling, representation and other bonafide ordinary and necessary expenses
are NOT compensation subject to withholding, if the following conditions are
satisfied:
(i) It is for ordinary and necessary travelling and representation or entertainment
expenses paid or incurred by the employee in the pursuit of the trade, business
or profession; and
(ii) The employee is required to account/liquidate for the expenses in accordance
with the specific requirements of substantiation for each category of expenses
pursuant to Sec. 34 of the Code. The excess of advances made over actual
expenses shall constitute taxable income if such amount is not returned to the
employer.
Note:
Reasonable amounts of reimbursements/advances for travelling and entertainment

expenses which are pre-computed on a daily basis and are paid to an employee while he is on
an assignment or duty need not be subject to the requirements of substantiation and to
withholding.
RMC 13-07
 These reimbursable expenses are considered as RATA or allowances given
to public officers and employees which essentially constitute
reimbursement for expenses incurred in the performance of government
personnel's official duties.
 These are expenses made by such government officials/employees in their
personal capacity even if reimbursed by the government agency. As such,
these expenses are not considered as government money payments and are
therefore, not subject to the withholding of 5% Final VAT.
7. VACATION AND SICK LEAVE
ALLOWANCES
 General rule: Amounts of "vacation allowances or sick leave credits" which are
paid to an employee constitute compensation. Thus, the salary of an employee
on vacation or on sick leave, which is paid notwithstanding his absence from
work constitutes compensation.
 Exception: (refer also to the list of de minimis benefits)

i. the monetized value of unutilized vacation leave credits of ten (10) days
or less which are paid to private employees during the year; and
ii. the monetized value of leave credits paid to government officials and
employees
shall not be subject to income tax and consequently to withholding tax.
8. DEDUCTIONS MADE BY EMPLOYER
FROM COMPENSATION OF EMPLOYEE
 Any amount which is required by law to be deducted by the employer from the
compensation of an employee including the withheld tax is considered as part
of the employee's compensation and is deemed to be paid to the employee as
compensation at the time the deduction is made.
9. REMUNERATION FOR SERVICES AS
EMPLOYEE OF A NONRESIDENT ALIEN
INDIVIDUAL OR FOREIGN ENTITY
 The term "compensation" includes remuneration for services performed by an
employee of a nonresident alien individual, foreign partnership or foreign
corporation, whether or not such alien individual or foreign entity is engaged
in trade or business within the Philippines.
 Any person paying compensation on behalf of a non-resident alien individual,

foreign partnership, or foreign corporation which is not engaged in trade or
business within the Philippines is subject to all provisions of law and
regulations applicable to an employer.
10. COMPENSATION FOR SERVICES
PERFORMED OUTSIDE THE PHILIPPINES.
 Remuneration for services performed outside the Philippines by a resident
citizen for a domestic or a resident foreign corporation or partnership, or for a
non-resident corporation or partnership, or for a non-resident individual not
engaged in trade or business in the Philippines shall be treated as
compensation which is subject to tax.
 A non-resident citizen is taxable only on income derived from sources within

the Philippines. In general, the situs of the income whether within or without
the Philippines, is determined by the place where the service is rendered.
 Employees assigned abroad for 20 months are “non-resident citizens” exempt

from income tax. (BIR RULING NO. 013-03)
10. COMPENSATION FOR SERVICES
PERFORMED OUTSIDE THE PHILIPPINES.
BIR Ruling No. 517-11, December 22, 2011
 xxx holds that S’s employees assigned to render the company's services abroad,
do not qualify as "non-resident citizens" under the definitions laid down under
Section 22 (E) of the Tax Code of 1997, as amended. They will be treated as
resident citizens for income tax purposes. As such, their compensation income
shall be subject to creditable withholding tax under Section 2.78.1 of RR 2-98, as
amended.
RMO NO. 23-2014, JUNE 20, 2014
Obligations of Government Agencies, Bureaus and Instrumentalities as
Withholding Agents
 Allowances, bonuses, and other benefits of similar nature received by

officials and employees of the Government of the Republic of the Philippines
or any of its branches, agencies and instrumentalities, its political
subdivisions, including government-owned and/or controlled corporations,
shall form part of the compensation income subject to withholding tax on
compensation.
RMO NO. 23-2014, JUNE 20, 2014
 Taxable benefits:
A. Legislative Branch. Allowances, bonuses, honoraria or benefits received
by employees and officials, such as anniversary bonus, Special Technical
Assistance Allowance, Efficiency Incentive Benefits, Additional Food
Subsidy, Eight (8th) Salary Range Level Allowance, Hospitalization
Benefits, Medical Allowance, Clothing Allowance, Longevity Pay, Food
Subsidy, Transition Allowance, Cost of Living Allowance, Inflationary
Adjustment Assistance, Mid-Year Economic Assistance, Financial Relief
Assistance, Grocery Allowance, Thirteenth (13th) Month Pay, Cash Gift and
Productivity Incentive Benefit and other allowances, bonuses and benefits
given by the Philippine Senate and House of Representatives to their
officials and employees, subject to the exemptions enumerated herein.
RMO NO. 23-2014, JUNE 20, 2014
 Taxable benefits:
B. Judicial Branch. Allowances, bonuses, honoraria or benefits received by
employees and officials, such as the Additional Compensation (ADCOM),
Extraordinary and Miscellaneous Expenses (EME), Monthly Special
Allowance from the Special Allowance for the Judiciary, Additional Cost of
Living Allowance from the Judiciary Development Fund, Productivity
Incentive Benefit, Grocery Allowance, Clothing Allowance, Emergency
Economic Allowance, Year-End Bonus, Cash Gift, Loyalty Cash Award
(Milestone Bonus), SC Christmas Allowance, anniversary bonuses and
other allowances, bonuses and benefits given by the Supreme Court of
the Philippines and all other courts and offices under the Judicial Branch
to their officials and employees, subject to the exemptions enumerated
herein.
RMO NO. 23-2014, JUNE 20, 2014
 Any amount paid either as advances or reimbursements for expenses
incurred or reasonably expected to be incurred by the official and employee
in the performance of his/her duties are not compensation subject to
withholding, if the following conditions are satisfied:
1. The employee was duly authorized to incur such expenses on behalf of the
government; and
2. Compliance with pertinent laws and regulations on accounting and
liquidation of advances and reimbursements, including, but not limited to,
withholding tax rules. The expenses should be duly receipted for and in the
name of the government office concerned.
RMO NO. 23-2014, JUNE 20, 2014
 Any amount not in compliance with the preceding requirements shall be
considered as part of the gross taxable compensation income of the
taxpayer.
 Intelligence funds not duly appropriated and not properly liquidated shall
form part of the compensation of the government officials/personnel
concern, unless returned.
Validity of this RMO was upheld by SC in the case of COURAGE et.al., vs. CIR
(G.R. No. 213446 xxx), July 4, 2018
W NON-TAXABLE
COMPENSATION
T INCOME
AND
W EMPLOYEE’S
BENEFITS
93
1. REMUNERATIONS RECEIVED AS AN
INCIDENT OF EMPLOYMENT
a. Retirement benefits received under Republic Act under 7641 and those received by
officials and employees of private firms, whether individual or corporate, under a
reasonable private benefit plan maintained by the employer which meet the following
requirements:
i. The plan must be reasonable;
ii. The benefit plan must be approved by the Bureau;
iii. The retiring official or employee must have been in the service of the same
employer for at least ten (10) years and is not less than fifty (50) years of
age at the time of retirement; and
iv. The retiring official or employee should not have previously availed of the
privilege under the retirement benefit plan of the same or another
employer.
b. Any amount received by an official or employee or by his heirs from the
employer due to death, sickness or other physical disability or for any cause
beyond the control of the said official or employee, such as retrenchment,
redundancy, or cessation of business.
 The phrase "for any cause beyond the control of the said official or employee"
connotes involuntariness on the part of the official or employee.
 The separation from the service of the official or employee must not be asked for or
initiated by him. The separation was not of his own making.
 Whether or not the separation is beyond the control of the official or employee,
being essentially a question of fact, shall be determined on the basis of prevailing
facts and circumstances. It shall be duly established by the employer by competent
evidence which should be attached to the monthly return for the period in which the
amount paid due to the involuntary separation was made.
b. Cont’n.
 Amounts received by reason of involuntary separation remain exempt from
income tax even if the official or the employee, at the time of separation, had
rendered less than ten (10) years of service and/or is below fifty (50) years of
age.
 Any payment made by an employer to an employee on account of dismissal,
constitutes compensation regardless of whether the employer is legally
bound by contract, statute, or otherwise, to make such payment.
b. Cont’n.
 Amounts received by reason of involuntary separation remain exempt from
income tax even if the official or the employee, at the time of separation, had
rendered less than ten (10) years of service and/or is below fifty (50) years of
age.
 Any payment made by an employer to an employee on account of dismissal,
constitutes compensation regardless of whether the employer is legally
bound by contract, statute, or otherwise, to make such payment.
RMO 066-16, December 6, 2016 – Processing of Requests for tax exemption of
separation benefits
Cause/ Documentary Requirements (Attachment to Letter request for the exemption of separation
Ground benefits from income tax and withholding tax)
Death Certified true copy of Death Certificate
Sickness/ i. Sworn Affidavits to be executed by the employer's physician or the employee's attending
Physical physician and the Head of Office/Entity or his representative, attesting to the fact that
Disability the retiring/separated official or employee is suffering from a serious illness or physical
disability that affects the performance of his duties and endangers his life, if he
continues working;
ii. Clinical Record of the official/employee concerned indicating the history of
illness/physical disability and initial diagnosis; and
iii. Laboratory examination confirming the illness suffered by such official/employee or
medical certificate confirming the physical disability of the official/employee.
Cont’n.
Cause/Ground Documentary Requirements
Installation of i. Written notice to the employee and the appropriate Regional Office of the DOLE at
Labor-saving least thirty (30) days before the effectivity of termination, specifying the ground for
Devices termination.
ii. Board Resolution, in case of a juridical entity, or sworn affidavit to be executed by
the owner, in case of a sole proprietor, stating the following:
a) That there has been an introduction of machinery, equipment or other devices,
with brief description of the use of said machinery, equipment or device;
b) That the introduction of the machinery, equipment or other device has been
done in good faith and for valid reason;
c) That there is no other option available to the employer than the introduction
of machinery, equipment or other device; and
d) That the selection of employees to be terminated has been made in accordance
with a fair and reasonable criteria.
Redundancy i. Written notice to the employee and the appropriate Regional Office of the DOLE at least
thirty (30) days before the effectivity of termination, specifying the ground for
termination.
ii. Board Resolution, in case of a juridical entity, or sworn affidavit to be executed by the
owner, in case of a sole proprietor, stating the following:
a) That there has been superfluous positions or services of employees;
b) That the positions or services are in excess of what is reasonably demanded by the
actual requirements of the enterprise to operate in an economical and efficient
manner;
c) That the redundant positions have been abolished in good faith; and
d) That the selection of employees to be terminated has been made in accordance
with a fair and reasonable criteria.
e) Adequate proof of redundancy such as but not limited to the new staffing pattern,
feasibility studies/proposal, on the viability of the newly created positions, job
description and the approval by the management of the restructuring.
Retrenchment i. Written notice to the employee and the appropriate Regional Office of the DOLE at
least thirty (30) days before the effectivity of termination, specifying the ground for
termination.
a) That the retrenchment is reasonably necessary and likely to prevent business
losses;
b) That the losses, if already incurred, are not merely de minimis, but substantial,
serious, actual and real, or if only expected, are reasonably imminent, with
appropriate supporting evidence of said losses;
c) That the retrenchment is made in good faith for the advancement of its
interest and not to defeat or circumvent the employees' right to security of
tenure; and
d) That the selection of employees to be terminated has been made in
accordance with a fair and reasonable criteria.
Closure or i. Written notice to the employee and the appropriate Regional Office of the DOLE at
Cessation of least thirty (30) days before the effectivity of termination, specifying the ground for
Operation termination.
a) That the management has decided to close or cease operation of the company;
b) That the closure or cessation of operation has been made in good faith; and
c) That there is no other option available to the employer except to close or
cease operation.
c. Social security benefits, retirement gratuities, pensions and other similar
benefits received by residents or non-resident citizens of the Philippines or
aliens who come to reside permanently in the Philippines from foreign
government agencies and other institutions private or public;
d. Payments of benefits due or to become due to any person residing in the

Philippines under the law of the United States administered by the United
States Veterans Administration;
e. Payments of benefits made under the Social Security System Act of 1954 as
amended; and
f. Benefits received from the GSIS Act of 1937, as amended, and the retirement
gratuity received by government officials and employees.
2. REMUNERATION PAID FOR
AGRICULTURAL LABOR
 Remuneration for services which constitute agricultural labor and paid entirely
in products of the farm where the labor is performed.
In general, however, the term, "agricultural labor" does not include services
performed in connection with forestry, lumbering or landscaping.
 All payments made in cash or other forms other than products of the farm
where labor is performed, for services constituting agricultural labor are not
within the exception.
3. REMUNERATION FOR DOMESTIC
SERVICES
 Remuneration paid for services of a household nature performed by an
employee in or about the private home of the person by whom he is
employed is not subject to withholding.
 In general, services of a household nature in or about a private home include

services rendered by cooks, maids, butlers, valets, laundresses, gardeners,
chauffeurs of automobiles for family use;
Exceptions:
 The services of household personnel furnished to an employee (except rank and

file employees) by an employer shall be subject to the fringe benefits tax
pursuant to Sec. 33 of the Code, as amended.
3. REMUNERATION FOR DOMESTIC
SERVICES
Exceptions: Cont’n.
 If the home is utilized primarily for the purpose of supplying board or lodging to
the public as a business enterprise, it ceases to be a private home and
remuneration paid for services performed therein is not exempted.
 The remuneration paid for the services which are performed in or about rooming
or lodging houses, boarding houses, clubs, hotels, hospitals or commercial offices
or establishments is considered as compensation;
 Remuneration paid for services performed as a private secretary, even if they are
performed in the employer's home is considered as compensation;
4.REMUNERATION PAID FOR CASUAL
LABOR NOT IN THE COURSE OF ER’s TRADE
 The term "casual labor" includes labor which is occasional, incidental or
regular.
 The expression "not in the course of the employer's trade or business" includes
labor that does not promote or advance the trade or business of the employer.
 Thus, any remuneration paid for labor which is occasional, incidental or

irregular, and does not promote or advance the employer's trade or business, is
not considered as compensation.
 Any remuneration paid for casual labor performed for a corporation is considered
as compensation.
Example 1:
Facts: A's business is that of operating a sawmill. He employs B, a carpenter, at an

hourly wage to repair his home. B's work is irregular and he spends, the greater
part of two days in completing the work.
Analysis: Since B's labor is casual and is not in the course of A's business, the
remuneration paid for such services is exempted.
 Any remuneration paid for casual labor, that is, labor which is occasional,
incidental or irregular, but which is rendered in the course of the employer's
trade or business, is considered as compensation.
Example 2:
Facts: E is engaged in the business of operating a department store. He employs

additional clerks for a short period.
Analysis: While the services of the clerks may be casual, they are rendered in the
course of the employer's trade or business and therefore the remuneration paid
for such services is considered as compensation.
5.COMPENSATION FOR SERVICES BY A CITIZEN OR
RESIDENT OF THE PHILS. FOR FOREIGN GOV’T OR
AN INT’L ORG.
 Remuneration paid for services performed as an employee of a foreign
government or an international organization is exempted.
 The exemption includes not only remuneration paid for services performed
by ambassadors, ministers and other diplomatic officers and employees but
also remuneration paid for services performed as consular or other officer or
employee of a foreign government or as a non-diplomatic representative of
such government.
6. DAMAGES
 Actual, moral, exemplary and nominal damages received by an employee or
his heirs pursuant to a final judgment or compromise agreement arising out
of or related to an employer-employee relationship.
7. LIFE INSURANCE
 The proceeds of life insurance policies paid to the heirs or beneficiaries upon
the death of the insured, whether in a single sum or otherwise, provided
however, that interest payments agreed under the policy for the amounts
which are held by the insured under such an agreement shall be included in
the gross income.
8. AMOUNT RECEIVED BY THE
INSURED AS A RETURN OF PREMIUM
 The amount received by the insured, as a return of premium or premiums
paid by him under life insurance, endowment, or annuity contracts either
during the term or at the maturity of the term mentioned in the contract or
upon surrender of the contract.
9. COMPENSATION FOR INJURIES
OR SICKNESS
 Amounts received through Accident or Health Insurance or under Workmen's
Compensation Acts, as compensation for personal injuries or sickness, plus
the amount of any damages received whether by suit or agreement on
account of such injuries or sickness.
10. INCOME EXEMPT UNDER
TREATY
 Income of any kind to the extent required by any treaty obligation binding
upon the Government of the Philippines. (This requires a ruling)
11. THIRTEENTH (13TH ) MONTH
PAY AND OTHER BENEFITS
 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 month pay; and
 Other benefits such as Christmas bonus, productivity incentives, loyalty

award, gift in cash or in kind, and other benefits of similar nature actually
received by officials and employees of both government and private offices,
including the Additional Compensation Allowance (ACA) granted and paid to
all officials and employees of the National Government Agencies (NGAs)
including State Universities and Colleges (SUCs), Government-Owned and/or
Controlled Corporations (GOCCs), Government Financial Institutions (GFIs)
and Local Government Units (LGUs).
 The above stated exclusions (a) and (b) shall cover benefits paid or accrued
during the year, provided that the total amount shall not exceed ninety
thousand pesos (P90,000.00).
RMC 50-2018, Q&A 7:
Q7 - What is the treatment for the Premium on Health Card paid by the employer
for the “rank and file” employees, as well as for those employees holding
“managerial or supervisory” function?
A7 - Premium on Health Card paid by the employer for all employees, whether
rak and file or managerial/supervisory, under a group insurance shall be included
as part of other benefits of these employees which are subject to the P90,000
threshold. However, individual premiums (not part of group insurance) paid for
selected employees holding managerial or supervisory functions are considered
“fringe benefits” subject to fringe benefit tax.
(Now deleted: RMC 96-2018)

RMC 50-2018, Q&A 7:
Q34 - What is the applicable withholding tax rate for director's fees?
A34 - If the director receiving the director's fees is also an employee of the same entity,
the fees shall form part of the compensation subject to withholding tax on compensation.
However, if the director is not an employee of the income payor then the subject taxpayer is
considered a professional subject to the creditable expanded withholding tax prescribed for
a professional, and subject also to the applicable business tax. Moreover, in the case of
government employee who seats as board member of other Government Owned &
Controlled Corporations (GOCCs) and is receiving director's fees, honoraria and/or other
benefits shall be subject to creditable withholding tax at the higher rate for professional at
10%. The said income shall be reported by the payee as other income to be included as part of
the compensation income in arriving at the total taxable income. The corresponding
withholding tax shall form part of the tax credits against the income tax due. (Deleted: RMC
96-2018)
RMC 034-2008, Taxability of Director’s fees:
 The fees received by the director who is not an employee of the

payor/corporation are subject to ten percent (10%) creditable withholding tax if
his gross income for the current year do not exceed P720,000.00 or fifteen
percent (15%) if his gross income exceeds P720,000.00 pursuant to Revenue
Regulations No. 30-2003. These payments fall under "Professional Fees, talent
fees, etc., for services rendered by individuals" which include under its purview
"Fees of directors who are not employees of the company paying such fees,
whose duties are confined to attendance at and participation in meetings of
the board of directors." (Section 2.57.2 (A) (9), RR No. 2-98). It is also
emphasized that the amount subject to the 10% or 15% creditable withholding
tax is not only confined to fees, but also per diems, allowances and any other
form of income payment made to the director.
 Aside from being liable to the payment of the income tax imposed under Title II
of the Code, these directors who are not employees, having received fees which
had been subsequently reported in their annual income tax returns as part of
their gross income should likewise be liable to pay business tax on account of
such receipt of income. They fall under the category of sellers of services under
Title IV of the Code who are liable to pay the 12% VAT on their gross receipts
pursuant to Section 108 thereof, or to the 3% percentage tax imposed under
Section 116, should they fail to meet the VAT threshold.
 Based on the foregoing, it is therefore apparent that the fees, per diems,
honoraria or allowances being given to a director of a corporation as such cannot
be considered as derived from an economic or commercial activity that have been
pursued "in the course of trade or business". Rather, said director's fees are
remunerations paid in the exercise of a right of an owner in the management of a
corporation. Thus, not "in the course of trade or business" as contemplated
under Section 105 of the Code. Such fees, per diems, allowances and other income
received by the director as such, are therefore, exempt from the imposition of the
12% VAT or 3% percentage tax, notwithstanding that the said payments are not
among those enumerated under Section 109 of the said Code.
 In view thereof, the penultimate paragraph of Revenue Memorandum Circular

No. 34-2008 stating that directors receiving fees, per diems, allowances, and the
like, from corporations of which they are directors but are not employees thereof
"fall under the category of sellers of services under Title IV of the Code who are
liable to pay the 12% VAT on their gross receipts pursuant to Section 108 thereof,
or to the 3% percentage tax imposed under Section 116, should they fail to meet
the VAT threshold", is hereby REPEALED.
12. GSIS, SSS, MEDICARE AND
OTHER CONTRIBUTIONS
 GSIS, SSS, Medicare and Pag-Ibig contributions, and union dues of individual
employees.
13. COMPENSATION INCOME OF
MINIMUM WAGE EARNERS (MWES)
 This applies to MWEs who work in the private sector and in the public sector
who are paid not more than SWM applicable to non-agricultural sector,
applicable to the place where he/she is assigned.
 'Statutory Minimum Wage' (SMW) shall refer to the rate fixed by the
Regional Tripartite Wage and Productivity Board (RTWPB), as defined by the
Bureau of Labor and Employment Statistics (BLES) of the Department of
Labor and Employment (DOLE).
 Aside from the SMW, the following shall likewise be covered by the
exemption:
i. Holiday pay,
ii. Overtime pay,
iii. Night shift differential pay, and
iv. Hazard pay.
“Hazard pay” shall mean the amount paid by the employer to MWEs who were
actually assigned to danger or strife-torn areas, disease-infested places, or in
distressed or isolated stations and camps, which expose them to great danger of
contagion or peril to life. Any hazard pay paid to MWEs which does not satisfy the
above criteria is deemed subject to income tax and consequently, withholding tax on the
said hazard pay.
 Requirements for hazard pay:
i. The employer shall indicate in the Alphabetical List of Employees, the
MWEs who received the hazard pay, the period of employment, the
amount of hazard pay;
ii. Justification for such payment as certified by the concerned DOLE/allied
agency, which certification is part of the attachment in the filing of the
Annual Information Return (BIR Form 1604-C).
iii. In the case of employees under the public sector, the document to be
attached is the Department of Budget Management (DBM) Circular
related to such payment of hazard pay.
 Additional compensation such as commissions, honoraria, fringe benefits,
benefits in excess of the allowable statutory amount of P90,000.00, taxable
allowances, and other taxable income given to an MWE by the same
employer other than those which are expressly exempt from income tax shall
be subject to withholding tax using the withholding tax table.
 Likewise, MWEs receiving other income from other sources in addition to

compensation income, such as income from other concurrent employers,
from the conduct of trade, business, or practice of profession, except income
subject to final tax, are subject to income tax only to the extent of income
other than SMW, holiday pay, overtime pay, night shift differential pay, and
hazard pay earned during the taxable year.
 Any income subject to income tax may be subject to withholding tax;
however, income exempt from income tax is consequently exempt from
withholding tax. Further, income not subject to withholding tax does not
necessarily mean that it is not subject to income tax.
 Any reduction or diminution of wages for purposes of exemption from

income tax shall constitute misrepresentation and therefore, shall result to
the automatic disallowance of expense, i.e., compensation and benefits
account, on the part of the employer. The offenders may be criminally
prosecuted under existing laws.
Illustration 13.1:
Facts:
 Ms. Alona is employed in CSO Corporation.
 She received the SMW for 2018 in the total amount of P175,000, inclusive of
the 13th month pay.
 In the same year, she also received overtime pay of P40,000 and night-shift
differential of P25,000.
 She also received commission income from the same employer of P20,000.
Computation:
Illustration 13.2
Facts:
 Ms. Cyril is employed in MAFD Corporation and is also a part-time real estate
agent for a real estate broker.
 In addition to the SMW of P180,000 she received from her employer, she
likewise received P75,000 as commissions from her real estate dealings for
the year 2018.
Illustration 13.2
Analysis/Computation:
 The amount subject to income tax and withholding tax shall be computed
depending on the income tax regime selected by Ms. Cyril, since she is
qualified to avail of such option (income from business/practice of profession
did not exceed P3,000,000).
 Such option was reflected in the payee's sworn declaration given by the
taxpayer to the payor/withholding tax agent-real estate broker.
Illustration 13.2
Illustration 13.2
2. Under the 8% Tax Regime:
Taxable Income Received P255,000.00

Less: Income Exempt from income Tax SMW 180,000.00
Taxable Income – Commission 75,000.00
Tax Due (P75,000 x 8%) 6,000.00

Computation of wages:
 The basis of the computation of the minimum wage rates prescribed by law
shall be the normal working time of eight (8) hours a day.
 The determination of the minimum wage on a monthly basis shall depend on

the following categories:
CATEGORY Factor (DAYS) (SMW)
I. Not considered paid on Saturdays and Sundays or rest days 262 days
II. Not considered paid on Sundays or rest days 313 days
III. Considered paid on rest days, special days and regular holidays 365 days
IV. Required to work everyday including Sundays or rest days, special 392.5 days
days and regular holidays.
Computation of wages:
(BIR RULING NO. 013-09, July 16, 2009)
 This simple process of comparing rates, however, will not apply if the employee
renders work for less than eight hours per day as in the case of part-time
employees who are paid by the hour. The difficulty arises because the RTWB does
not prescribe minimum wage rates for hourly paid workers.
 Hence, to determine whether a part-time employee qualifies as a MWE, his hourly

rate should first be multiplied by eight (8) hours to arrive at his daily rate. If the
product is equal to the minimum wage rate fixed by the RTWB, then the part-
time employee is a MWE entitled to the tax incentives under RA 9504.
RMC 091-10 – Clarifications on the Increase in the SMW and other Related Concerns
Q-10: A MWE was promoted during the latter part of the year (e.g., December)
and was given a raise in salary which is beyond the minimum wage. Is the entire
salaries earned during the calendar year taxable? How can the employer withhold
the required tax if the year-end adjustment was already made before the
effectivity of the promotion?
A-10: No, the MWE shall still be exempted from income tax during the time that
her salary does not exceed the SMW. He shall only be subjected to tax for the
month of December if his salary exceeds his personal and additional exemptions.
The employer should amend the year-end adjustment to reflect the adjustment in
salaries of the promoted employee.
Q-11: Can the employer of the MWE withhold tax from the salary of the MWE if
the employer has knowledge of the MWE's other source of income which are
beyond the employer's control?
A-11: No, since the law only requires employers to withhold the corresponding
income tax from income payments wherein they have control. However, the
employee is mandated to file an Income Tax Return to reflect the income from all
sources (employment, business or practice of profession), and pay the tax due, if
any.
Q-12: How can employers recover over-remitted taxes as a result of the

implementation of RA 9504?
A-12: The over-remitted taxes can be applied as payments in the immediately
succeeding months' remittable withheld taxes pursuant to the provision of
Section 79 (C) (1) of the Tax Code.
Q-13: Mr. D, a government employee of DPWH-Manila, receives P11,460.00

(P382/day x 30 days) as monthly regular compensation. However, on June 15, 2010,
he resigned and was subsequently employed in XYZ Corporation-Makati City on
July 1, 2010, with a monthly basic salary of P15,000 per month (above the SMW in
NCR). The BIR Form 2316 he submitted to his new employer did not reflect any tax
withheld from the previous employer. In the final year-end adjustment to be
conducted by the new employer, can the gross income from his previous
employment be included as part of gross income for the year and the taxable
income shall only be from July-December?
A-13: Being a MWE from January to June 15, 2010 (previous employer), his
income for that period shall be exempted from income tax. Only his
compensation income from July to December shall be subjected to
withholding tax by the present employer (if it exceeded his personal and
additional exemptions) since her daily salary during that period is above the
SMW. In the conduct of year-end adjustment to ensure tax due equals tax
withheld by the current employer, the gross income from his previous
employment shall be included as part of gross income for the year and the
taxable income shall only be from July-December.
NON-TAXABLE COMPENSATION
INCOME (GOV’T)
RMO 23-2014. Subject to existing laws and issuances, the following income received
by officials and employees in the public sector are not subject to income tax and
withholding tax on compensation:
A. 13th Month Pay and Other Benefits not exceeding Thirty Thousand Pesos
(P30,000.00), [now P90,000] paid or accrued during the year. This includes:
1. Benefits received by officials and employees of the national and local
government pursuant to Republic Act No. 6686 ("An Act Authorizing
Annual Christmas Bonus to National and Local Government Officials and
Employees Starting CY 1988") ;
2. Benefits received by employees pursuant to Presidential Decree No. 851
("Requiring All Employers to Pay Their Employees a 13th Month Pay") , as
amended by Memorandum Order No. 28, dated August 13, 1986;
INCOME (GOV’T)
A. Cont’n.:
3. Benefits received by officials and employees not covered by Presidential
Decree No. 851, as amended by Memorandum Order No. 28, dated August
13, 1986;
4. Other benefits such as Christmas bonus, productivity incentives bonus,
loyalty award, gift in cash or in kind and other benefits of similar nature
actually received by officials and employees of government offices,
including the additional compensation allowance (ACA) granted and paid
to all officials and employees of the National Government Agencies
(NGAs) including state universities and colleges (SUCs), government-
owned and/or controlled corporations (GOCCs), government financial
institutions (GFIs) and Local Government Units (LGUs).
INCOME (GOV’T)
B. Facilities and privileges of relatively small value or "De Minimis Benefits" as
defined in existing issuances and conforming to the ceilings prescribed therein;
C. Fringe benefits which are subject to the fringe benefits tax under Section 33 of
the NIRC, as amended;
D. Representation and Transportation Allowance (RATA) granted to public

officers and employees under the General Appropriations Act;
E. Personnel Economic Relief Allowance (PERA) granted to government

personnel;
F. The monetized value of leave credits paid to government officials and

employees (included in the list of “de minimis benefits”);
INCOME (GOV’T)
G. Mandatory/compulsory GSIS, Medicare and Pag-Ibig Contributions, provided
that, voluntary contributions to these institutions in excess of the amount
considered mandatory/compulsory are not excludible from the gross income
of the taxpayer and hence, not exempt from Income Tax and Withholding Tax;
H. Union dues of individual employees;
I. Compensation income of employees in the public sector with compensation

income of not more than the Statutory Minimum Wage (SMW) in the non-
agricultural sector applicable to the place where he/she is assigned;
J. Holiday pay, overtime pay, night shift differential pay, and hazard pay received
by Minimum Wage Earners (MWEs)
INCOME (GOV’T)
K. Benefits received from the GSIS Act of 1937, as amended, and the retirement
gratuity/benefits received by government officials and employees under
pertinent retirement laws;
L. All other benefits given which are not included in the above enumeration but
are exempted from income tax as well as withholding tax on compensation
under existing laws, as confirmed by BIR.
Confirmation of Tax Treatment

In case of doubt in the appreciation of the taxability of a compensation given by
a government agency or instrumentality falling under item IV (L) above,
Confirmation of Exemption of the benefit shall be secured through a ruling
issued by the Commissioner of Internal Revenue or his duly authorized
representative.
INCOME (GOV’T)
BIR RULING NO. 293-15, August 27, 2015 – issued to Public Sector Labor-
Management Council on Performance-based bonus
Issues:
a. treatment of amounts over the income tax-exempt De Minimis Collective
Negotiation Agreement (CNA) benefits received by employees in the public
sector, in relation to the increase in the exempt 13th Month Pay and Other
Benefits brought about by Republic Act (RA) No. 10653;
b. whether the performance-based bonus (PBB) is included in the term
"productivity incentive scheme".
INCOME (GOV’T)
Ruling:
a. CNA and Productivity Incentives Schemes Benefits shall only be exempt as de
minimis benefits if the total amount thereof do not exceed P10,000.00 per
taxable year. Otherwise, it shall be treated as "Other Benefits" under Section
32 (B) (7) (e) under the National Internal Code of 1997, as amended, the gross
of which, not exceeding P82,000.00, shall be excluded from gross
compensation income of the employee receiving the same.
INCOME (GOV’T)
Ruling:
a. In accordance with Section 2.78.1 (A) (3) (k) of RR No. 2-98, as amended, any
CBA or productivity incentive scheme benefit, the amount of which exceeds
P10,000.00, is no longer within the purview of a de minimis benefit.
However, the same en toto may be considered part of the term "Other
Benefits" in Section 32 (B) (7) (e) under the National Internal Code of 1997, as
amended, which is excludible from the employee's gross income so long as
the same, in addition to other benefits received, does not exceed P82,000.00.
Otherwise, it shall be subject to normal income tax rates.
INCOME (GOV’T)
Ruling:
b. Per Executive Order No. 80 dated July 20, 2012, one of the purposes of the
PBB is to motivate higher performance and greater accountability in the
public sector and ensure the accomplishment of commitments and targets.
Following the above discussion the PBB falls within the purview of a
productivity incentive scheme.
INCOME (GOV’T)
BIR Ruling No. 363-12, May 31, 2012- Exemption from Tax of Early Retirement Incentive Plan
Facts:
 It is represented that the Provincial Government of Tarlac will undertake a

reorganization program to its existing plantilla to pave way for the creation of a re-
engineered organizational set-up that will elevate the standards of public service;
streamline government functions and will effectively and efficiently respond to
government operations and services;
 Promulgated Rules and Regulations Implementing the Early Retirement Incentive Plan
for Tarlac Provincial Government Employees Ordinance (Provincial Ordinance No. 002-
2009 as amended by Provincial Ordinance No. 003-2010) and the Separation and/or
Gratuity & Loyalty Benefits to Casual & Job Order employees of the Provincial
Government of Tarlac (Provincial Ordinance No. 003-2009)
INCOME (GOV’T)
BIR Ruling No. 363-12, May 31, 2012- Confirmation of the Exemption from Tax of Early
Retirement Incentive Plan
Ruling:
 Pursuant to Section 32 (B) (6) (f) of the Tax Code of 1997, benefits received from the
GSIS under Republic Act No. 8291, including retirement gratuity received by
government officials and employees shall not be included in gross income and shall be
exempt from income tax.
 xxx thus, for officials and employees of the Provincial Government of Tarlac who are
already qualified to avail of the early retirement under Republic Act No. 8291, the
payment of the Early Retirement Incentive Plan benefits shall be considered as part of
their retirement gratuity and therefore exempt from the payment of income tax
pursuant to Section 32 (B) (6) (f) of the Tax Code of 1997.
INCOME (GOV’T)
BIR Ruling No. 363-12, May 31, 2012- Confirmation of the Exemption from Tax of Early
Retirement Incentive Plan
Ruling:
 However, for officials and employees, who are not yet qualified to avail of the early
retirement and who want to avail of the Early Retirement Incentive Plan by resigning
from their position, the benefits that they will receive under the Plan shall be
considered as part of their compensation income which are subject to income tax and
consequently to the withholding tax on wages xxx.
QUALIFIED EMPLOYER’S CONTRIBUTION
TO THE EMPLOYEE’S PERA
RR 17-11 October 27, 2011 (RMC 99-2018 December 07, 2018)
 Personal Equity and Retirement Account (PERA) — shall refer to a Contributor's
voluntary retirement account established from the Qualified PERA Contributions
and/or Qualified Employer Contributions, for the purpose of being invested solely
in Qualified/Eligible PERA Investment Products.
 Contributor — shall refer to a natural person who establishes and contributes to
a PERA, has a Tax Identification Number (TIN) and has the capacity to contract. A
person over fifty-five (55) years of age may still open a PERA and be a qualified
Contributor.
 Administrator — shall refer to an entity which had been pre-qualified by the
concerned Regulatory Authority in accordance with the PERA Rules, and
accredited by the BIR.
RR 17-11, October 27, 2011
 Qualified PERA Contributions — shall refer to the contributions of the
Contributor to his PERA, which shall not exceed P100,000.00 per calendar year (if
the Contributor is a non-Overseas Filipino), or P200,000.00 per calendar year (if
the Contributor is an Overseas Filipino or in representation of an Overseas
Filipino).
 Additional conditions:
 Submission of source of funds for the year or to be earned for the year, when
PERA contribution was made (RR No. 23-2018, November 21, 2018)
RR 17-11, October 27, 2011
MAXIMUM ANNUAL PERA CONTRIBUTIONS
Contributor Max QPC in Peso
Unmarried Filipino Citizen P100,000
Married Filipino Citizens and both spouses qualify as Contributor P100,000 for EACH
Married Filipino Citizens and only one spouse qualifies as Contributor P100,000
Unmarried Overseas Filipino P200,000
Married Overseas Filipino whose legitimate spouse is neither an P200,000
Overseas Filipino nor a qualified Contributor
Married Overseas Filipino whose legitimate spouse and children (not P200,000 cumulative for
otherwise disqualified as Contributors) of an Overseas Filipino who did the spouse and children
not directly open any PERA in representation of the
Overseas Filipino
RR 17-11, October 27, 2011
MAXIMUM ANNUAL PERA CONTRIBUTIONS
Contributor Max QPC in Peso
Married Overseas Filipino whose legitimate children are not Overseas P200,000
Filipino and are not qualified Contributors
Married Overseas Filipino whose legitimate spouse and children (not P200,000
otherwise disqualified as Contributors) of an Overseas Filipino who did
not directly open any PERA
 Tax Credit/Incentive:
 A Qualified Contributor shall be entitled to a tax credit in the amount of five
percent (5%) of the aggregate Qualified PERA Contributions made in one
calendar year.
 An employee qualified contributor shall be issued a Certificate of Entitlement
to 5% tax credit; a self-employed shall be issued a PERA TCC by the Bureau.
 The entitlement to 5% tax credit for an employee or one who is self-employed
shall be allowed to be credited only against the Contributor's income tax
liability.
 If the Contributor is an overseas Filipino, he shall be entitled to claim the 5% tax
credit against any national internal revenue tax liabilities (excluding the
Contributor's withholding tax liabilities as withholding agent).
 Qualified Employer's Contribution to the Employee's PERA:
 The Qualified Employer's Contribution to his/its employee's PERA shall be in
addition to, and not in lieu of, the employer's contribution to SSS and its
obligation to pay retirement benefits to his/its employees under the Labor
Code.
 The total of the employer's and the employee's contribution to his PERA and
all the benefits, including tax incentives and privileges arising therefrom, shall
all belong to the employee and shall not, in anyway, inure to the benefit of
the employer.
 The employer shall NOT be entitled to any 5% credit from its contribution to
an employee's PERA.
 The employee also retains the prerogative to make investment decisions
pertaining to his PERA, including the contribution made in his favor by the
employer.
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161
TIME OF WITHHOLDING
 Generally, the withholding of WTW shall be made every payroll period.
 Payroll period means the period of services for which a payment of
compensation is ordinarily made to an employee by his employer. It is
immaterial that the compensation is not always paid at regular intervals.
 Example
 For the purpose of determining the tax, an employee can have but one
payroll period with respect to the compensation paid by one employer
 Thus, if an employee is paid a regular compensation for the weekly
payroll and in addition thereto is paid supplemental compensation (for
example, taxable bonuses) determined with respect to a different
period, the payroll period is the weekly payroll period.
TIME OF WITHHOLDING
 Under Section 2.78 of RR 2-98, the withholding of tax on compensation
income is a method of collecting the income tax at source upon receipt of
the income.
 However, upon effectivity of RR No. 12-2001 further amending RR No. 6-
2001, the obligation of the payor to deduct and withhold the tax arises at
the time the income payment is paid or payable, or the income payment is
accrued or recorded as an expense or asset whichever is applicable in the
payor’s books, whichever comes first.
 The term “payable” refers to the date the obligation becomes due,
demandable or legally enforceable.
CONSTRUCTIVE RECEIPT
 The withholding tax on compensation shall apply to compensation actually or
constructively paid.
 Compensation is constructively paid within the meaning of these Regulations
when it is credited to the account of or set apart for an employee so that it may
be drawn upon by him at any time although not then actually reduced to
possession.
 To constitute payment in such a case, the compensation must be credited or set
apart for the employee without any substantial limitation or restriction as to
time or manner of payment or condition upon which payment is to be made,
and must be made available to him so that it may be drawn upon at any time,
and its payment brought with his control and disposition.
CONSTRUCTIVE RECEIPT
 A book entry, if made, should indicate an absolute transfer from one account to
another.
 If the income is not credited, but it is set apart, such income must be
unqualifiedly subject to the demand of the taxpayer.
 Where a corporation contingently credits its employees with a bonus stock, which
is not available to such employees until some future date, the mere crediting on
the books of the corporation does not constitute payment. (Section 2.83.6 of
RR 2-98)
TIMING OF WITHHOLDING
 The provision of Section 72 of the 1977 National Internal Revenue Code
(Section 79 of the 1997 National Internal Revenue Code) regarding withholding
on wages must be read and construed in harmony with Section 29 (j) of the 1977
National Internal Revenue Code (Section 34 (K) of the 1997 National Internal
Revenue Code) on deductions from gross income. This is in accordance with
the rule on statutory construction that an interpretation is to be sought which
gives effect to the whole of the statute, such that every part is made effective,
harmonious, and sensible, if possible, and not defeated nor rendered
insignificant, meaningless, and nugatory.
TIMING OF WITHHOLDING
 Reading together the two provisions, we hold that the obligation of the
payor/employer to deduct and withhold the related withholding tax arises at
the time the income was paid or accrued or recorded as an expense in the
payor's/employer's books, whichever comes first.
 Petitioner ING Bank accrued or recorded the bonuses as deductible expense in its
books. Therefore, its obligation to withhold the related withholding tax due
from the deductions for accrued bonuses arose at the time of accrual and not at
the time of actual payment.
(ING BANK N.V. vs. CIR [G.R. No. 167679. July 22, 2015.])
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TAX COMPLIANCE
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168
YEAR-END ADJUSTMENT
 On or before the end of the calendar year, and prior to the payment of the
compensation for the last payroll period, the employer shall determine the sum
of the taxable regular and supplementary compensation paid to each employee
for the entire year, including the last compensation to be paid and compute for
the amount of income tax on the annualized gross compensation income
 Taxable fringe benefits received by employees except those given to the rank and
file shall be subject to a final fringe benefits tax.
DEFICIENCY WITHHOLDING TAX
 The deficiency withholding tax shall be withheld from the last payment of
compensation for the calendar year.
 If the deficiency withholding tax is more than the amount of the last
compensation to be paid to an employee, the employer shall be liable to pay
the amount of tax which cannot be withheld from the employee's last
compensation for the year.
 The obligation of the employee to the employer arising from the advances
made by the employer of the amount of the required tax is a matter of
settlement between the employee and employer.
EXCESS WITHHOLDING TAX
 The excess withholding tax shall be credited or refunded to the employee not
later than January 25 of the following year.
 However, in case of termination of employment before December, the refund

shall be given to the employee at the payment of the last compensation during
the year.
 In return, the employer is entitled to deduct the amount refunded to the

employee/s from the remittable amount of taxes withheld from compensation
income for the current month in which the refund was made, and in the
succeeding months thereafter until the amount refunded by the employer is
fully repaid.
EXCESS WITHHOLDING TAX
 Any employer/withholding agent who fails, or refuses to refund excess
withholding tax not later than January 25 of the succeeding year shall, in
addition to any penalties, shall be liable to a penalty equal to the amount of
refund which was not refunded to the employee resulting from any excess of
the amount withheld over the tax actually due on their return.
EXCESS TAX CREDIT WITHHELD AT
SOURCE
 The entire amount of the compensation from which the tax is withheld shall be
included in gross income to be reported in the return required to be made by
the recipient of the income without deduction for such tax.
 The creditable tax withheld at source, however, is allowable as a credit against

the tax imposed by the NIRC to the recipient of the income.
 Any excess of the tax which was withheld on compensation over the tax due from
the taxpayer shall be returned not later than July 15 of the following year. Refunds
made after such time shall earn interest at the rate of six percent (6%) per annum,
starting after the lapse of the three month period up to the date when the refund
is made.
REGISTRATION OF COMPENSATION
EARNER
 The Application for Registration (BIR Form No. 1902) of employees shall be
accomplished by both employer and employee.
 Concurrent multiple employments –

 BIR Form No. 1902 shall be filed with his/her main employer (ie. employer to
whom the said employee's service is rendered for most of the time during
the taxable year)
 Furnish a copy of the duly received application with the secondary
employers (2nd, 3rd, etc. employers)
 Husband and wife shall each file a separate application with their respective
employers
REGISTRATION OF COMPENSATION
EARNER
 Successive multiple employments –
 An employee who transferred to another employer during the taxable year,
shall furnish the concerned new employer a copy of the Certificate of
Compensation Payment/Tax Withheld (BIR Form No. 2316) for compensation
payment with or without withholding tax during the taxable/calendar year
issued by previous employer/s.
 The employer shall transmit all copies of the completely filled-out Application
for Registration Information Update (BIR Form No. 1905) to the concerned
office of the LTS/RR/RDO where the employer is registered, on or before the
last day of the month of receipt from the employee.
FILING AND PAYMENT OF WTW
TAXPAYER (Withholding Agents) DUE DATE
I. BIR Form No. 1601-C – Withholding Tax on
Compensation
 Manual filer (e-birforms) On or before 10th day of the following month.
 EFPS filer 5 days later than the deadlines set for the
manual filer (10th day + 5 days or 15th day)
Return and Payment in Case Where the Government is the Employer. — If the Government
of the Philippines, its political subdivision or any agency or instrumentality, as well as government-
owned or controlled corporation is the employer, the returns of the tax may be made by the officer
or employee having control of payment of compensation or other officer or employee
appropriately designated for the purpose.
II. BIR Form No. 2316– Certificate of
Compensation Payment and Tax Withheld
 Manual filer and EFPS filer On or before January 31 of the succeeding

calendar year, or on the day on which the last
payment of compensation is made, in case of
termination.
 Should be prepared in 3 copies, which shall be distributed as follows:
1. Original – Employee’s copy;
2. Duplicate – BIR’s copy;
3. Employer’s copy – which shall be retained for a period of 1o years.
 The Certificate must be signed by both employer and employee;
 It is also required to be issued by every employer to employees classified as MWEs and to other
employees whose compensation were not subjected to withholding tax.
Cont’n.
 For employees qualified for substituted filing:
i. Affix the signatures in the Certificate to signify the intention to avail of the substituted filing
of ITR, and return to the employer the duly signed Certificates for the latter's signature;
ii. The employer shall give back to the employee qualified for substituted filing of ITR the
original copy while the duplicate copy shall be submitted by the employer to the concerned
BIR office not later than February 28 of the succeeding year, with accompanying Certified
List of Employees Qualified for Substituted Filing of ITR;
iii. The list shall be stamped "Received" by the concerned BIR office, which shall be tantamount
to the substituted filing of ITR by the qualified employees;
iv. In the event that the employee will need his/her Certificate BIR Form No. 2316) stamped
"Received," he/she shall request the concerned BIR office to have the Certificate stamped
"Received" accompanied with the submission of the employer's certification that he/she was
included in the list submitted by such employer to the BIR.
Cont’n.
 For employees NOT qualified for substituted filing:
i. Two (original and duplicate) copies of the subject certificate shall be given to the
employee to serve as proof of compensation received and tax credit, and the other
copy shall be retained by the employer.
ii. The certificate shall form part of the employee's Income Tax Return to be filed on
or before April 15 of the following year.
 Failure of the employer to furnish the employee of the Certificate shall be a ground for
the mandatory audit of payor's all internal revenue tax liabilities upon verified
complaint.
 In case of successive employments during the taxable year, an extra copy of the
certificate, duly certified by the previous employer, shall be furnished by the employee
to the new employer.
Cont’n.
 Extension of Time for Furnishing Statements to Employee. —
i. An extension of time, not exceeding thirty (30) days, within which to furnish the
Certificate;
ii. Only with respect to any employee whose employment is terminated during the
calendar year.
 Failure to comply with the filing/submission of the Certificate within the time required
by these Regulations, may be held liable under Section 250 of the Tax Code, as
amended, for each failure.
 Failure to comply for two consecutive years, may be held liable under Section 255 of
the Tax Code.
SUBMISSION OF BIR FORM 2316
In lieu of the submission of hard copies of the duplicate original, the following
procedures shall be strictly observed:
1. Scan the duplicate original copies of BIR Form No. 2316 through a scanning
machine or device;
2. Store the soft copies of BIR Form No. 2316 using the "PDF" file format with the
filenames alphabetically arranged in a Digital Versatile Disk-Recordable (DVD-
R). The filename shall be as follows:
Surname_TIN_Taxable Period; Example: Dela Cruz_131885220000_12312014
Cont’n.:
3. Label the DVD-R containing the soft copies of the said BIR forms in accordance
with the format prescribed below; and
Cont’n.
4. Submit the duly accomplished DVR-R to the BIR Office where the taxpayer is
duly registered not later than February 28 following the close of the calendar
year, together with a notarized Certification prepared according to the
prescribed format and duly signed by the authorized representative of the
taxpayer certifying that the soft copies of the said BIR form contained in the
DVD-R are the complete and exact copies of the original thereof.
III. BIR Form No. 1604CF– Annual Information
Return of Income Taxes Withheld and Final
Withholding Taxes (With Alphabetical List of
Employees)
On or before January 31 of the following year
 Manual filer and EFPS filer
 Employers with centralized accounting system, or those mandated to consolidate remittances
(e.g. large taxpayers), shall prepare alphalists on a regional basis or per branch office, due to the
identification of SMW per region where the employee is assigned, which shall be submitted to
the BIR where the head office is located.
 In cases where no information was provided by a previous employer, such fact shall be stated in
BIR Form No. 1604-CF and the present employer shall not be liable to any penalties.
III. BIR Form No. 1604CF – Cont’n.
 Alphalist of Payees:
i. Mandatory submission regardless of the number of employees;
ii. Submission thru any of the following modes:
1. As attachment in the Electronic Filing and Payment System (eFPS);
2. Through Electronic Submission using the BIR's website address at
esubmission@bir.gov.ph; and
3. Through Electronic Mail (email) at dedicated BIR addresses using the
prescribed CSV data file format.
iii. Alphalist where the income payments and taxes withheld are lumped into one
single amount (e.g., "Various employees", "Various payees", "PCD nominees",
"Others", etc.) shall not be allowed.
SUBSTITUTED FILING OF ITR
 In lieu of ITR (BIR Form No. 1700), the Certified List of Employees Qualified for
Substituted Filing of ITR, filed by the employer with the concerned BIR office
and stamped "Received" by the latter shall be tantamount to the substituted
filing of ITRs by concerned employees.
 Who are qualified (in general) - Individual taxpayers receiving purely
compensation income, regardless of amount, from only ONE employer in the
Philippines for the calendar year.
 Who are NOT qualified:
i. Individuals deriving compensation from two or more employers
concurrently or successively at any time during the taxable year.
 Who are NOT qualified: Cont’n.
ii. Employees deriving compensation income, regardless of the amount,
whether from a single or several employers during the calendar year, the
income tax of which has not been withheld correctly (i.e. tax due is not
equal to the tax withheld) resulting to collectible or refundable return.
iii. Individuals deriving other non-business, non-profession-related income in
addition to compensation income not otherwise subject to a final tax.
iv. Individuals receiving purely compensation income from a single employer,
although the income tax of which has been correctly withheld, but whose
spouse falls under i, ii, iii above.
v. Non-resident aliens engaged in trade or business in the Philippines deriving
purely compensation income, or compensation income and other non-
business, non-professional-related income.
 In case of H&W, who are still required to file returns (in those instances not
covered by the substituted filing of returns), only ONE return for the taxable
year shall be filed by either spouse to cover the income of the spouses, which
return shall be signed by the husband and wife unless it is physically
impossible to do so, in which case signature of one of the spouses would
suffice.
 Employees not qualified for substituted filing BUT are required to file the
Income Tax Return shall file the same not later than April 15 of the year
immediately following the taxable year.
END OF WTW
OVERVIEW ON
FRINGE BENEFIT TAX
NATURE OF FBT
 FBT shall be treated as a FINAL income tax on the employee (NON-RANK AND
FILE employee).
 The EMPLOYER, whether individual, professional partnership or a corporation,
regardless of whether the corporation is taxable or not, or the government and
its instrumentalities is LIABLE to FBT.
Note:
Fringe benefits furnished or granted to rank and file employees shall form part of
the employee’s gross compensation income subject to WTW.
WHAT ARE FRINGE BENEFITS?
 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 employee).
 Fringe benefits however, which are required by the nature of or necessary to
the trade, business or profession of the employer, or where such fringe benefit
is for the convenience and advantage of the employer shall not be subject to
the fringe benefits tax.
 Fringe Benefits include the following:
i. Housing;
ii. Expense account;
iii. Vehicle of any kind;
iv. Household personnel, such as maid, driver & others;
v. Interest on loans at less than market rate to the extent of the difference
between the market rate and actual rate granted;
vi. Membership fees, dues and other expenses borne by the employer for the
employee in social and athletic clubs or other similar organizations;
 Fringe Benefits include the following:
vii. Expenses for foreign travel;
viii. Holiday and vacation expenses;
ix. Educational assistance to the employee and his dependents; and
x. Life or health insurance and other non-life insurance premiums or similar
amounts in excess of what the law allows.
FBT RATE AND TAX BASE
 FBT Rate:
Effective January 1, 2018 – 35%
 Tax Base:
 Grossed up monetary value (GMV) of fringe benefits furnished, granted or
paid by the employer to the employees, EXCEPT rank and file employees.
 Where GMV = Value of Benefit plus FBT
 Effectively, GMV of the Fringe Benefit shall be determined by dividing the
monetary value (MV) of the benefit by 65% effective January 1, 2018.
OTHER FBT RATES AND BASE
RECIPIENT OF FRINGE BENEFITS TAX RATE TAX BASE
Non-resident alien Individual (not engaged 25% MV divided by 75%
in trade or business in the Philippines)
Employees in special economic zones, Subject to MV divided by
including Clark Special Economic Zone and normal rate of 75%/85%/68%, as the
Subic Special Economic and Free Trade FBT or the case may be
Zone special rates of
25% or 15% as
provided in the
preceding slides
FRINGE BENEFITS NOT SUBJECT
TO FBT
 Fringe benefits which are authorized and exempted from income tax under
the Code or under any special law;
 Contributions of the employer for the benefit of the employee to retirement,
insurance and hospitalization benefit plans;
 Benefits given to the rank and file, whether granted under a collective
bargaining agreement or not; (This item is now included in the list of “de
minimis” benefits pursuant to RR 2-2015)
 De minimis benefits;
 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
 If the grant of the fringe benefit is for the convenience or advantage of the
employer.
TO FBT
 The exemption of any fringe benefit from the FBT does not mean exemption
from any other income tax imposed under the Code EXCEPT if the same is
likewise expressly exempt from any other income tax imposed under the Code or
under any other existing law.
 Thus, if the fringe benefit is exempted from FBT, the same may, however, still
form part of the employee’s gross compensation income which is subject to
income tax, hence, likewise subject to withholding tax on compensation
income.
TO FBT
BIR Ruling DA-335-03 dated October 7, 2003
Facts:
 Transportation allowance. Supervisory or managerial employee who renders
overtime work for a minimum of 2 hrs on weekdays and 4 hrs on weekends
are given transportation allowance not to exceed P70 on weekdays and P140
on weekends.
 Annual Credit Card Fee. Nine of IFF’s managerial employees are entitled to
reimburse the annual credit card fees. These employees use their credit cards
for representation expenses incurred in behalf of the company.
TO FBT
Ruling:
 If the transportation allowance in the amount not exceeding P70/P140 and the annual
credit card fees for representation expenses given to supervisory and managerial
employees are provided for IFF’s convenience and benefit, the said transportation and
representation expenses are not subject to FBT pursuant to Section 2.33(C) RR No. 3-
98, as amended.
 However, if the above-mentioned transportation and representation allowances are
fixed in amounts and are regularly received by the employees as part of their monthly
compensation income, the same shall not be treated as taxable fringe benefits but the
same shall be treated as allowances which shall form part of their taxable
compensation income subject to income tax and consequently to the withholding tax
prescribed under Section 79 of the Tax Code of 1997 (BIR Ruling No. 025-01 dated June
13, 2001).
TO FBT
Ruling:
 If the transportation allowance in the amount not exceeding P70/P140 and the annual
credit card fees for representation expenses given to supervisory and managerial
employees are provided for IFF’s convenience and benefit, the said transportation and
representation expenses are not subject to FBT pursuant to Section 2.33(C) RR No. 3-
98, as amended.
 However, if the above-mentioned transportation and representation allowances are
fixed in amounts and are regularly received by the employees as part of their monthly
compensation income, the same shall not be treated as taxable fringe benefits but the
same shall be treated as allowances which shall form part of their taxable
compensation income subject to income tax and consequently to the withholding tax
prescribed under Section 79 of the Tax Code of 1997 (BIR Ruling No. 025-01 dated June
13, 2001).
FBT FORMULA
MV divided by 65% = GMV

GMV Multiply by 35% = FBT
GUIDELINES FOR FBT
COMPUTATION
The computation of FBT would generally entail the following procedures:
 Valuation of the benefit granted; and
 Determination of the proportion or percentage of the benefit which is subject to FBT.
Notes:
 Section 33(a) of the Tax Code allows for cases where only a portion (i.e., less than 100%)
of the fringe benefit is subject to FBT particularly 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 convenience or advantage of the employer”.
 Thus, in cases where the fringe benefits entail joint benefits to the employer and
employee, the portion which shall be subject to the FBT and the guidelines for the
valuation of fringe benefits are defined under the rules and regulations of RR No. 3-98,
as amended.
VALUATION OF THE BENEFIT
GRANTED – GENERAL RULE
If FB is granted in money, or is directly The value of the FB is the amount granted or
paid for by the employer paid for.
If the FB is granted or furnished by the The value of the FB shall be equal to the FMV
employer in property other than money of the property as determined in accordance
and ownership is transferred to the with Section 6 (E) of the Tax Code. (Authority
employee. of the Commissioner to prescribed Real
Property Values).
If the FB is granted or furnished by the The value of FB is equal to depreciation value
employer in property other than money of the property.
but ownership is NOT transferred to the
employee.
FB1: HOUSING PRIVILEGES’
VALUATION
Lease of residential property for residential MV = 50% x rental payments
use of employees Where: MV = Monetary Value of FB
Assignment of residential property for use MV = [5% (FMV or ZV, whichever is higher)]
of employee as his usual place of residence. x 50%
Purchase of residential property on MV = 5% x AC x 50%

installment basis for use of employees and Where: AC = Acquisition cost, exclusive of
ownership is not transferred to employees. interest
Purchase of residential property and MV = AC or ZV, whichever is higher

ownership is transferred in the name of the
employees
FB2: EXPENSE ACCOUNTS
SUBJECT TO FBT
 Expense incurred by the NRF employee but which are paid by his employer.
 Expenses paid for by NRF employee but reimbursed by his employer.
 However, if the above expenditures are duly receipted for in the name of the
employer and do not partake the nature of a personal expense attributable to
the NRF employee, the same shall NOT be subject to FBT. (Sec.2.33(B)(2)(a) and
(b), RR 03-98)
 Personal expense of the NRF employee (like purchases of groceries for the
personal consumption of the employee and his family members) paid for or
reimbursed by the employer to the NRF employee whether or not the same are
duly receipted for in the name of the employer shall be subject to FBT.
FB2: EXPENSE ACCOUNTS
SUBJECT TO FBT
 Representation and transportation allowances which are fixed in amounts and
are regularly received by the NRF employees as part of their monthly
compensation income shall not be treated as taxable benefits but the same shall
be considered as taxable compensation income subject to the tax imposed
under Sec. 24 of the Tax Code. (Sec. 2.33(B)(2)(d) of RR No. 03-98)
FB3: MOTOR VEHICLE
Purchase of motor vehicle in the name of employee MV = AC
Cash is given to the employee for the purchase of the MV = Cash received by the
vehicle, ownership is placed in the name of the employee. Employee
However, if the cash given by the employer to its employee is
subjected to WTW, the same shall not be subject to FBT
Purchase of car on installment basis, the ownership of MV = AC/5
which is placed in the name of the employee Where: AC = Acquisition Cost,
exclusive of interest
Employer shoulders a portion of the purchase price, the MV = Amount shouldered by the
ownership of which is placed in the name of the employee employer
The entire MV of the benefit shall be treated as taxable fringe benefit regardless of whether the motor vehicle is
used by the employee partly for his personal purpose and partly for the benefit of his employer. (Sec. 2.33(B)(3)
(a) to (d) of RR No. 03-98)
FB3: MOTOR VEHICLE
Employer owns and maintains a fleet of motor vehicles for use of the MV = (AC/5) x 50%
business and the employees
Exception:
Motor vehicles in the fleet which are used for sales, freight, delivery,
service and other non-personal use.
Employer leases and maintains a fleet of motor vehicles for the use of
the business and the employees. MV = 50% x rental
Payments
Exception:
Motor vehicles in the fleet which are used for sales, freight, delivery,
service and other non-personal use.
FB3: MOTOR VEHICLE
The use of aircraft (including helicopters) owned and maintained Not Applicable
by the employer shall be treated as used for business, thus, shall
NOT be subject to FBT.
Use of yacht, whether owned or maintained or leased by the MV = Depreciation over
employer estimated useful life of 20
years
FB4: HOUSEHOLD EXPENSES
SUBJECT TO FBT
 Expenses of the NRF employee which are borne by the employer for household
personnel, such as salaries of household help, personal driver of the employee
or other similar personal expenses (like payment for homeowners association
dues, garbage dues, etc.) shall be treated as taxable FBT. (Sec. 2.33(B)(4) of RR
No. 3-98)
FB5: INTEREST AT LESS THAN
MARKET RATE SUBJECT TO FBT
 If the employer lends money to his employee free of interest or at a rate lower
than twelve per cent (12%), such interest foregone by the employer or the
difference of the interest assumed by the employee and the rate of twelve per
cent (12%) shall be treated as a taxable fringe benefit.
 The benchmark interest rate of twelve per cent (12%) shall remain in effect until
revised by a subsequent regulation.
 This regulation shall apply to installment payments or loans with interest rate
lower than twelve per cent (12%) starting January 1, 1998.
FB6: MEMBERSHIP FEES AND OTHER DUES
TO SOCIAL AND ATHLETIC CLUBS SUBJECT
TO FBT
 Membership fees, dues and other expenses borne by the employer for his NRF
employee, in social and athletic clubs or other similar organizations. – These
shall be treated as taxable fringe benefits of the NRF employee in full. (Sec.
2.33(B)(6) of RR No. 3-98)
 However, where the fringe benefits are required by the nature of, or
necessary to the trade, business or profession of the employer, or is for the
convenience or advantage of the employer, the benefit shall not be subject to
FBT pursuant to Section 33 of the Tax Code. (BIR Ruling No. 055-99 dated April 23,
1999).
FB7: FOREIGN TRAVEL EXPENSES
SUBJECT TO FBT
 Reasonable business expenses which are paid for by the employer for the
foreign travel of his employee for the purpose of attending business
meetings or conventions shall not be treated as taxable fringe benefits.
 In this instance, inland travel expenses (such as expenses for food, beverages
and local transportation) except lodging cost in a hotel (or similar
establishments) amounting to an average of US$300.00 or less per day, shall
not be subject to a fringe benefit tax. The expenses should be supported by
documents proving the actual occurrences of the meetings or conventions.
 The cost of economy and business class airplane ticket shall not be subject to
a fringe benefit tax. However, 30 percent of the cost of first class airplane
ticket shall be subject to a fringe benefit tax (i.e., only 70% shall be exempt
from FBT)
FB7: FOREIGN TRAVEL EXPENSES
SUBJECT TO FBT
 In the absence of documentary evidence showing that the employee's travel
abroad was in connection with business meetings or conventions, the entire
cost of the ticket, including cost of hotel accommodations and other
expenses incident thereto shouldered by the employer, shall be treated as
taxable fringe benefits.
 Travelling expenses which are paid by the employer for the travel of the
family members of the employee shall be treated as taxable fringe benefits
of the employee.
FB7: HOLIDAY AND VACATION
EXPENSES
 Holiday and vacation expenses of the NRF employee borne by his
employer shall be treated as taxable fringe benefits.
FB8: EDUCATIONAL ASSISTANCE
 General Rule: Cost of educational assistance given to NRF employee is generally
treated as taxable fringe benefit;
 Exception: However, those extended under a scholarship grant to the employee
by the employer shall NOT be treated as taxable fringe benefit subject to the
following conditions:
 Education/Study is directly connected with employer’s trade or business; and
 With a written contract that employee shall remain employed with the
employer for a period of time mutually agreed upon by the parties
 Cost of educational assistance extended by an employer to the dependents of a
NRF employee shall be treated taxable fringe benefits of the employee UNLESS
the assistance was provided through a competitive scheme under the
scholarship program of the Company.
FB9: INSURANCE PREMIUMS
 General Rule: Life or health insurance and other non-life insurance premiums or
similar amounts are taxable fringe benefits.
 Exceptions:
i. The cost of premiums borne by the employer for the group insurance of his NRF
employees; and
ii. Contributions of the employer for the benefit of the NRF employee to the
Social Security System (SSS) (RA No. 8282, as amended) or under Government
Service Insurance System (GSIS) (RA No. 8291), or similar contributions arising
from the provisions of any other existing law.
 Premium payments by a Company for the individual life insurance of its key
employees designating as beneficiary the family of the insured, are considered
their additional salary or compensation, thus, subject to WTW or FBT. (BIR
Ruling No. 081-83 dated May 10, 1983 (Key Man Insurance)
FB10: STOCK OPTIONS
 In the event that option was granted by an employer involving the employer’s
own shares of stocks or shares it owns, upon the exercise of the option by an
employee occupying a supervisory or managerial position, the difference of the
book value/fair market value, whichever is higher, at the time of the exercise of
the stock option the price fixed on the grant date, shall be treated as fringe
benefit subject to fringe benefit tax imposed under Section 33 of the NIRC. (RMC
79-2014)
F
B FILING
T AND
PAYMENT
221
FILING AND PAYMENT OF FBT
FBT FILING AND PAYMENT
BIR Remittance Form BIR Form No. 1603
Filing and payment:
1.1 Manual filing and payment Not later than the last day of the month following the
close of the quarter during which the withholding was
made. (RR 11-2018)
1.2 EFPS filing and payment The deadline for e-filing and e-paying the FBT due from
employers enrolled in the EFPS, whether Large or Non-
Large Taxpayers, shall be five (5) days later than the
deadline set under the manual filing and payment system.
Annual Consolidated Report On or before January 31 of each calendar year, reported
under BIR Form No. 1604-CF
END OF
PRESENTATION
“Give everyone what you owe him: If you owe taxes, pay taxes; if
revenue, then revenue; if respect, then respect; if honor, then
honor.”
(Romans 13:6-7)

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Part 1 - Tax Rules &amp; Regulations

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“TAX RULES AND

Atty. Sofronia R. Perez-Onesa, CPA, CMA

Other BIR Issuances

Binding Effect of Rulings Issued Prior to Tax Reform Act of 1997

• Generally applicable to ordinary or active • Generally applicable to passive

Part II. Overview on Fringe Benefits Tax

I. Resident Citizen Income from sources within P250,000 20%-35% and/or 8%

II. Non-resident Income from sources within P250,000 20%-35% and/or 8%

1. Facilities or privileges that are categorized as de minimis benefits under

2. Corollary to this, de minimis benefits are subject to neither income tax on

3. The gross benefits granted to rank-and-file, supervisory or managerial employees

5. Revenue Regulations No. 3-98, as amended by Revenue Regulations No. 8-2000

Issue: Is terminal leave pay of resigned government employees subject to WTW?

 Exceptions (1): (i) Representation and Transportation Allowance (RATA) granted

Reasonable amounts of reimbursements/advances for travelling and entertainment

 Exception: (refer also to the list of de minimis benefits)

 Any person paying compensation on behalf of a non-resident alien individual,

 A non-resident citizen is taxable only on income derived from sources within

 Employees assigned abroad for 20 months are “non-resident citizens” exempt

 Allowances, bonuses, and other benefits of similar nature received by

d. Payments of benefits due or to become due to any person residing in the

 In general, services of a household nature in or about a private home include

 The services of household personnel furnished to an employee (except rank and

 Thus, any remuneration paid for labor which is occasional, incidental or

Facts: A's business is that of operating a sawmill. He employs B, a carpenter, at an

Facts: E is engaged in the business of operating a department store. He employs

 Other benefits such as Christmas bonus, productivity incentives, loyalty

(Now deleted: RMC 96-2018)

 The fees received by the director who is not an employee of the

 In view thereof, the penultimate paragraph of Revenue Memorandum Circular

 Likewise, MWEs receiving other income from other sources in addition to

 Any reduction or diminution of wages for purposes of exemption from

2. Under the 8% Tax Regime:

Taxable Income Received P255,000.00

Tax Due (P75,000 x 8%) 6,000.00

 The determination of the minimum wage on a monthly basis shall depend on

(BIR RULING NO. 013-09, July 16, 2009)

 Hence, to determine whether a part-time employee qualifies as a MWE, his hourly

Q-12: How can employers recover over-remitted taxes as a result of the

Q-13: Mr. D, a government employee of DPWH-Manila, receives P11,460.00

D. Representation and Transportation Allowance (RATA) granted to public

E. Personnel Economic Relief Allowance (PERA) granted to government

F. The monetized value of leave credits paid to government officials and

H. Union dues of individual employees;

I. Compensation income of employees in the public sector with compensation

Confirmation of Tax Treatment

 It is represented that the Provincial Government of Tarlac will undertake a

 However, in case of termination of employment before December, the refund

 In return, the employer is entitled to deduct the amount refunded to the

 The creditable tax withheld at source, however, is allowable as a credit against

 Concurrent multiple employments –

 Manual filer (e-birforms) On or before 10th day of the following month.

 Manual filer and EFPS filer On or before January 31 of the succeeding

MV divided by 65% = GMV

Purchase of residential property on MV = 5% x AC x 50%

Purchase of residential property and MV = AC or ZV, whichever is higher

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Part 1 - Tax Rules & Regulations

Part 1 - Tax Rules & Regulations