November 14, 2002
November 14, 2002
BIR NUMBERED RULING
EMPLOYMENT BENEFITS LDC:
SECTION 33(B); 33(C) REV. REGS. 3-98, 8-2000
027-2001
041-2002
Samahang Manggagawa ng University of Santo Tomas
Main Building, UST
Espaa, Manila
Attention: Mr. Edward O. Santos
President
Gentlemen:
This refers to your letter dated September 19, 2000 requesting
for a ruling on the
following:
1 Whether the cost of educational benefits to employee and
dependents of the employees and the hospitalization benefit given
to employees is a fringe benefit tax or a withholding tax on
compensation?
2. Who will determine whether or not your educational fringe
benefit shall form part of the employee's gross compensation
income?; and
3. What will qualify a rank and file to this taxation
scheme?
In reply, please be informed that Section 2.78.1 of Revenue
Regulations No. 2-98, as amended by RR 8-2000 and RR 10-2000
provides, viz:
"Sec. 2.78.1. Withholding of Income Tax on Compensation Income.
-
xxx
xxx
xxx
(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 are offered or furnished by the employer merely as means
of promoting the health, goodwill, contentment, or efficiency of
his employees.
The following shall be considered as "De Minimis" benefits not
subject to income tax as well as withholding tax on compensation
income of both managerial and rank and file employees:
(b) Medical cash allowance to dependents of employees not
exceeding P750.00 per employee per semester or P125 per month."
Therefore the medical cash allowance to the extent of P750.00
per employee per semester or P125.00 per month given as a de
minimis benefit is not subject to income tax and consequently, to
withholding tax of both managerial and rank and file employees. RR
8-2000 provides that if the employer pays more than the ceiling
prescribed, the excess shall be taxable to the employee, if such
excess is beyond the P30,000.00 ceiling provided for 13th month pay
and other benefits, otherwise, it is not.
On educational benefits, Section 2.33(B) of Revenue Regulations
No. 3-98 defined fringe benefits as follows:
"Sec. 2.33. Special Treatment of Fringe Benefit
xxxxxxxxx
(B) Definition of Fringe Benefit - In general, except as
otherwise provided under these regulations, for purposes of this
Section, the term "Fringe Benefit" means any good, service, or
other benefit furnished or granted by an employer in cash or in
kind, in addition to basic salaries, to an individual employee
(except rank and file employee as defined in these regulations)
such as, but not limited to the following:
xxx
xxx
xxx
(9) Educational assistance to the employee or his dependents"
(emphasis supplied)
Pursuant to the said Revenue Regulations, the cost of the
educational assistance to the employee which is borne by the
employer shall, in general, be treated as taxable fringe benefit.
However, a scholarship grant to the employee by the employer shall
not be treated as taxable fringe benefit if the education or study
involved is directly connected with the employer's trade, business
or profession, and there is a written contract between them that
the employee is under obligation to remain in the employ of the
employer for a period of time that they have mutually agreed upon.
In this case, the expenditure shall be treated as incurred for the
convenience and furtherance of the employer's trade or
business.
Furthermore, the cost of educational assistance extended by an
employer to the dependents of an employee shall be treated as
taxable fringe benefits of the e employee unless the assistance was
provided through a competitive scheme under the scholarship program
of the company.
To determine whether or not the educational fringe benefit shall
form part of the employees' gross compensation income, it is
necessary to determine whether or not said employee is a managerial
or supervisory employee or a rank and file employed
Under Sec. 2.33(A) of Revenue Regulations No. 3-98, the term
rank and file employees' means all employees who are holding
neither managerial nor supervisory position. The Labor Code of the
Philippines, as amended, defines "managerial employee" as one who
is vested with powers or prerogatives to lay down and execute
management policies and/or hire, transfer, suspend, lay-off,
recall, discharge, assign, or discipline employees. "Supervisory
employees" are those who in the interest of the employer,
effectively recommend such managerial actions if the exercise of
such authority is not rarely routinary or clerical in nature but
requires the use of independent judgment.
Section 2.78.1(A) of Revenue Regulations No. 2-98. as amended,
includes fringe benefits as part of compensation income, "except
those which are subject to fringe benefit tax under Section 33 of
the Code," which means that if the recipient is a managerial or
supervisory employee, then the provisions of Section 33 shall apply
with respect to the imposition of a final tax on fringe benefits.
But if the recipient is a rank and file employee, the fringe
benefit will still be subject to withholding tax on compensation
and consequently, to income tax, but not to final tax on fringe
benefits. The benefits apply to both managerial/supervisory and
rank and file employee but will be subject to different tax
treatment (e.g. final FBT or income tax). Nonetheless, both types
of employees shall be subject to the P30.00.00 threshold test
pursuant to Section 32(B)(7)(e) of the Tax Code of 1997.
Therefore, the imposition of either a final tax on fringe
benefit or withholding tax on compensation will depend on the
employees' classification. Educational benefits received by
managerial/supervisory employees shall be subject to the final tax
on fringe benefits, while educational benefits of rank and file
employees shall be subject to withholding tax on compensation,
which shall be creditable to the taxpayers' income tax that shall
become due and payable at the end of their taxable year.
Please be guided accordingly.
Very truly yours,
EDMUNDO P. GUEVARA
Deputy Commissioner
Legal and Inspection Group
Copyright 2 0 0 4 ACCESSLAW, Inc.
BIR Ruling No. 040-2002
November 14, 2002
BIR NUMBERED RULING
R.A. Nos. 7459, 7227;
Section 129
040-2002
Lan-Gas Manufacturing
315 Manuel L. Quezon St., Lower Bicutan
Taguig, Metro Manila
Attention: Mr. Rudy N. Lantano
Inventor
Gentlemen:
This refers to your letter dated August 31, 2002 which was filed
with us on September 30, 2002 requesting for a confirmatory ruling
to the effect that Mr. Rudy N. Lantano, an inventor duly certified
by the Filipino Inventor's Society, is entitled to the incentives
and tax exemptions granted under R.A. 7459, otherwise known as "The
Inventors and Invention Incentives Act of the Philippines",
wherever he may be located and doing business in the
Philippines.
BACKGROUND OF THE CASE
The following are the facts of the case as represented by the
taxpayer.
Mr. Rudy N. Lantano is an inventor duly certified by the
Filipino Inventor's Society Screening Committee and a patent holder
of various environment-friendly petroleum-based fuels,
particularly, ALCO-DIESEL covered by Patent No. 28424; LAN-GAS
covered by Patent No. 13594; and SUPERBUNKER FORMULA L covered by
Patent No. 29089, all issued by the Philippine Patents Office. He
has been issued various confirmatory rulings on the tax exemptions
of the aforementioned invention products by the Bureau of Internal
Revenue to wit:
1. Ruling No. DA-37-02-04-98;
2. DA-280-07-01-98;
3. DA-281-07-01-98:
4. DA-145-99; and
5. BIR Ruling No. 155-98.
Thereafter, Mr. Lantano started his operations as manufacturer
seller of the above mentioned invention products. During his first
two (2) years of operation, he was located inside the Incubation
Site of the DOST Compound, Taguig. In year 2001, he left the Site
and temporarily relocated his plant at a nearby place, also in
Taguig. He was, however, forced to slow down his operation after
his Supply, Process and Lease Agreement ("Agreement") with
Pilipinas Shell Petroleum Corporation (PSPC) expired last June
2002. Since Mr. Lantano does not own a refinery plant where he can
process the crude oil into other petroleum products and yields
which are actually the main components of his invention products,
he can no longer manufacture the invention products at the same
cost as before, and the tax saving/exemption portion is eaten up by
the manufacturing costs of the products, practically, yielding the
tax incentives granted under R.A. 7459 to nothing. Likewise, since
the Taguig plant is located in a very densely populated and limited
area and taking into consideration the lack of refinery and storage
facilities, as well as the manufacturing costs of the invention
products and the location of his plant. Mr. Lantano relocated his
plant at Subic Bay Economic and Freeport Zone (SBFZ), mainly, for
purposes of producing the invention products at a lower cost, and
thereby sustaining the production of the same.
The raw materials will be sourced within SBFZ from one of the
petroleum companies located inside the Free-port Zone. Mr. Lantano
will manufacture the invention products inside SBFZ, and
thereafter, transfer the same to his storage tanks in Taguig where
they will be stored until withdrawn for sale. In all cases, Mr.
Lantano will either sell the finished invention products through
wholesale or retail. In case of wholesale, the invention finished
products will be available to petroleum new players or commercial
buyers, and in case of retail selling, he will sell the invention
products through his pumping outlets located in various places in
Metro Manila and nearby provinces.
Mr. Lantano has been granted a Locational Clearance and Permit
to Operate a Blending Facility by SBMA through Investment
Processing Department. However, as a sole proprietor, Mr. Lantano
is not qualified to register as a SBFZ enterprise.
POSITION OF MR. LANTANO
In connection with the foregoing, Mr. Lantano is now requesting
confirmation of the following:
"1. The tax incentives availing under R.A. 7459 ("The Inventors
and Invention Incentives Act of the Philippines") apply to a
Filipino inventor wherever located in the Philippines e.g. Subic
Bay Economic and Freeport Zone and other Ecozones.
"The applicability of the law is within the Philippine
jurisdiction. While ecozones are deemed covered by special laws,
specifically delineating the areas from customs territory, they are
nonetheless within the Philippine territory. It is therefore, my
humblest opinion that R.A. 7459 cannot be limited by the provisions
of special laws creating these ecozones.
"2. The transfer of [inventor's] invention products manufactured
inside the Special Economic and Freeport Zone (in the Philippines)
to [his] storage tanks located within the Customs Territory is
exempt from taxes and; duties on importation there being no
consumption or sale between [the inventor] as consignor and
consignee. While excise taxes is imposed on imported goods, in
[inventor's] case, however, the invention products cannot be
categorized as imported goods considering that [he] produced the
products pursuant to the "Inventors and Inventions Incentives Act
of the Philippines" which Act is applicable to all Filipino
inventors wherever located in the Philippines. There is no sanction
under the Act prohibiting Filipino inventors to relocate inside the
economic zone. The purpose of the Act is to encourage
commercialization of the inventions in the Philippines.
"Furthermore, the sale of said invention products either through
wholesale or retail is also exempt from all taxes availing under
R.A. 7459. As implemented by Section 3 of Revenue Regulations No.
19-93 dated July 27, 1993 implementing R.A. No. 7459, the inventor
is exempt from the payment of the following taxes for which he
shall be directly liable to pay, to wit:
"a) Income tax on the net income derived from the sale of
invention products resulting from newly discovered/developed
technologies by local researchers or new technology adopted from
foreign sources whether it be patented machine, product, process
including implements or tools and other related gadgets of
invention, utility model and industrial design patents;
"b) Value-added tax (VAT) on the gross receipts/revenues derived
from the sale of said invention products, provided, however, that
you shall not be exempt from taxes for which he is not directly
liable, e.g. VAT on the purchases of raw materials, supplies and
equipment/machineries, which may be shifted as part of the cost of
goods sold or for services rendered and
"c) Excise taxes directly payable in connection with the sale of
invention products.
Further, in support of the above representation, the following
documents were submitted:
1. Photocopy of Patent No. 28424 issued by the Philippine
Patents Office on August 31, 1994 for ALCO DIESEL invention;
2. Photocopy of Patent No. 13594 issued by Philippine Patents
Office for LAN-GAS invention;
3. Photocopy of Patent No. 29089 issued by the Philippine
Patents office for SUPERBUNKER FORMULA L invention;
4. Copy of BIR Ruling No. DA-37-02-04-98;
5. Copy of BIR Ruling No. DA-280-07-01-98;
6. Copy of BIR Ruling No. DA-281-07-01-98;
7. Copy of BIR Ruling No. 155-98;
8. Copy of Locational Clearance, Permit to Operate and
Certification to that effect duly issued by the SBMA;
9. BIR Registration;
10. Copies of Minutes of Meetings Bicameral Committee
Conference, Deliberations of both Houses of Representatives and
Senate
REQUESTED RULING
1. Section 2 of Republic Act No. 7459 (RA 7459), otherwise known
as the inventors and Invention Incentives Act of the Philippines",
to wit:
"SECTION 2. Declaration of National Policy and Program. ~ It is
hereby declared to be the national policy to give priority to
invention and its utilization on the country's productive system
and national life; and to this end provide incentives to inventors
and protect their exclusive right to their invention, particularly
when the invention is beneficial to the people and contributes to
national development and progress.
"Pursuant to the national policy, the Government shall provide a
program to set up a climate conducive to invention and innovation,
give encouragement and support to inventors who are creative and
resourceful, as well as imbued with a deep sense of nationalism,
and maximize the capability and productivity of inventors though
incentives and other forms of assistance and support." (Italics
supplied.)
Apparently the intention of the law is to promote invention and
extend assistance and support to the Filipino inventors in the hope
of maximizing their capability and productivity. 1 With respect to
eligibility to the benefit and application of RA 7459, the Minutes
of Proceedings on HB No. 240801 2 disclose that Filipino inventory
residing in the Philippines can avail of the Bill's benefits. The
Bill excludes Filipino inventors based abroad since it is assumed
that they had already changed their citizenship and thus, their
inventions are most probably presented to the foreign governments
where they are now residing.3 Thus, benefits and incentives granted
under RA 7459 is availing to a Filipino inventor for as long as he
resides in the Philippines.
The fact that the blending facility is relocated at Subic Bay
Special Economic and Free Port Zone (SBFZ) which is a delineated
area from Customs Territory pursuant to the provisions of Republic
Act No. 7227 (RA 7227), otherwise known as "Bases Conversion and
Development Act of 1992", does not disqualify Mr. Lantano from
availing of the tax exemption and incentive benefits under RA
7459.
II. The ultimate objective of RA 7227 is the conversion of
military bases into alternative productive uses and the subsequent
creation of Special Ecozones, among which is the SBFZ, and to
develop such Ecozones into a self sustaining industrial,
commercial, financial and investment centers to generate employment
opportunities in and around the zone and to attract and promote
productive foreign investment. Under Section 12 of Republic Act No.
7227 (RA 7227), the area covering the SBFZ is within the
territorial jurisdiction of the Province of Bataan. The delineation
of the area covering SBFZ as a separate customs territory is to
ensure the free flow or movement of goods and capital within, into
and exported out of Special Economic Zone.
In the process, incentives such as tax and duty free
importations of raw materials, capital and equipment are made part
of the package. But in all respect, however, SBFZ-registered
enterprises are subject to five percent (5%) of the gross income
earned in lieu of paying taxes which shall be distributed as
follows: 3% to the National Government; 1% each to the local
government units affected by the declaration of the zone; and, 1%
to Special Development Fund. It can therefore, be readily
ascertained that the five percent (5%) is actually a tax commuted
into a single rate, and which amount is ultimately remitted to the
National Government and local government units concerned in
accordance with the above sharing ratio.
Further, as provided for in RA 7227, the exportation or removal
of goods from the SBFZ to the customs territory is subject to
customs duties and taxes under the Tariff and Customs Code and
other relevant tax laws of the Philippines. 4 Such exportation by
an SBF locator is deemed to be an importation by the buyer from
customs territory.
In this connection, there are national internal revenue taxes
that may be directly levied on imported petroleum goods, e.g., the
VAT and the excise tax on imported petroleum goods or articles.
Importation of petroleum products (except lubricating oil,
processed gas, grease, wax and petrolatum) subject to excise tax
are exempt from VAT. 5 In the instant case, since the invention
products, i.e., Lan-Gas, Alco-Diesel and Superbunker Formula L, are
petroleum products, they are exempt from VAT.
As to whether the said invention petroleum products are exempt
from excise taxes, Section 6 of RA 7459 provides as follows:
"SECTION 6. Tax Exemption. - To promote, encourage, develop and
accelerate commercialization of technologies developed by local
researchers or adapted locally from foreign sources including
inventions, any income derived from these technologies shall be
exempted from all kinds of taxes during the first ten (10) years
from the date of first sale, subject to the rules and regulations
of the Department of Finance. Provided, that this tax exemption
privilege pertaining to invention shall be extended to the legal
heir or assignee upon death of the inventor.
"The technologies, their manufacture and sale, shall also be
exempt from payment of license; permit fees, customs duties and
charges on imports." (Italics supplied)
The term "technology" means the application of knowledge or
science which shall include all others, such as inventions,
innovations and results of researches. 6
What is exempt under the above-mentioned provision is the income
of the inventor. The excise tax on the movement of the inventions
from SBFZ in the customs territory is an importation, for which the
law subjects the importation/importer to the corresponding excise
tax. The importer does not enjoy the exemption granted to the
inventor under the abovementioned provision of R.A. No. 7459. If,
on the other hand, the inventor himself is the importer, he is
likewise not exempt from the excise tax, because as stated, what
the law exempts is the income derived from the sale of the
invention, and not the importation thereof.
Accordingly, the request for exemption from payment of excised
taxes on the movement of the aforementioned invention products from
the inventor's blending facility in SBFZ to his storage facility in
Taguig which is located within the customs territory is hereby
denied for lack of legal basis.
Very truly yours.
GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue.
____________________________
1 Sponsorship Remarks of Senator Mercado during the Bicameral
Committee Conference dated February 7, 1992; Sponsorship Speech of
Sen. Lina during the Senate Committee Meeting dated January 30,
1992; Remarks of Atty. Vicente Alvarez as Presiding Officer during
the Committee Hearing of Joint Senate Committee on Science and
Technology and Committee on Trade and Commerce held on February 11,
1999.
2 House Bill entitled "An Act Providing Incentives to Filipino
Inventors in the Country and appropriating Funds Therefore" later
consolidated with Senate Bill No. 1758 (Incentives for Inventions
to come up with RA 7459.
3 Interpellation of Mr. Escudero on HB No. 24801 dated August 2,
1990
4 Section 12(b), RA 7227.
5 Section 109(c) of the Tax Code of 1997.
6 Sec. 3(c), R.A. 7459
Copyright 2 0 0 4 ACCESSLAW, Inc.
BIR Ruling No. 039-2002
November 11, 2002
BIR NUMBERED RULING
000-00
039-2002
PUYAT JACINTO & SANTOS
12/F Manilabank Building
6772 Ayala Avenue
Makati City
Attention: Atty. David B. Puyat
and
Atty. Virginia B. Viray
Gentlemen:
This refers to your letter dated July 24, 2001 on behalf of your
clients, TA Bank of the Philippines, Inc. ("TA") and The Manila
Banking Corporation ("TMBC"), the pertinent portion of which is
quoted as follows:
"TA is a corporation organized and existing under Philippines
laws, engaged primarily in commercial banking, and with principal
address at the Grnd. Floor Octagon Bldg., Emerald Avenue, Ortigas
Center, Pasig City.
"TA has a total authorized capital of Five Billion Pesos
(PhP5,000,000,000.00) divided into Twenty Five Million (25,000,000)
common shares and Twenty Five Million (25,000,000) preferred
shares, each with a par value of PhP 100.00 per share.
"Its outstanding capital consists of One Billion Two Hundred
Fifty Million Pesos (PhP1,250,000,000.00), divided into
PhP625,000,000 in preferred shares 1 an PhP625,000,000 in common
shares. 2
"All of the outstanding shares of TA are wholly owned by TMBC
and its nominees.
"TMBC is likewise a corporation organized and existing under
Philippine laws, engaged in business primarily as a thrift bank,
and with principal address at the TMBC Building, 6772 Ayala Avenue,
Makati City 1226, Metro Manila.
"TA is planning to decrease its authorized capital stock to
1,129,020 common shares, with a par value of PhP100.00 per share,
and a total value of One Hundred Twelve Million Nine Hundred Two
Thousand Pesos (PhP 112,902,000.00) ["Plan"].
"Under the Plan, all of TA's outstanding preferred shares, and
5,120,980 of its outstanding 6,250,000 common shares shall be
surrendered by TMBC and cancelled immediately upon approval by the
TA stockholders, the Securities and Exchange Commission ("SEC") and
the Bangko Sentral ng Pilipinas ("BSP") of the said decrease.
"In exchange for the surrender of the abovesaid shares by TMBC,
TA shall transfer to TMBC both real and personal, tangible and
intangible properties listed hereunder, and referred to hereinafter
as "Distributed
Assets."
LIST OF DISTRIBUTED ASSETS
A. LOAN PORTFOLIO 3
(Amounts in Thousand)
ACCOUNT NAMEBALANCE OF PRINCIPAL
AS OF MAY 31, 2001
ANDRES BORJA 5,000
ATLANTA GROUP 91,563
PHILIPPINE WIRELESS 47,231
MONDRAGON 31,667
MARICHRIS/MA. THERESA 65,000
GOTESCO 190,000
SUSAN LIM 5,000
E. UYTIEPO2,600
GEORGE GO44,531
FIL-ESTATE LAND 6,928
ASIAN GLOBE77,990
IPII44,536
ACTIVE REALTY13,251
METROPOLITAN1,613
FIL-ESTATE LAND200,000
J. RODRIGUEZ III30,000
REYNOLDS PHIL.6,576
LA. FIRMACION2,744
DJJ & SONS22,397
EL BUEN ASENSO17,100
LU FIRMACION6,800
JAIME CANCIO 300
C. QUIAMBAO2,954
R. RUBIO 906
A. DOMINGO300
AMA COMPUTER925
ATSUSHI HARADA1,094
CONCEPCION, PS186
DAVID DALISAY870
DE ROCA, DARL1TO925
DE ROCA, RIC650
MICLAT, ROMY & ANICETA186
CORTEZ, FELIX & MARISSA 840
TOTAL
922,663
B. ACQUIRED ASSETS
FORMER OWNER
DESCRIPTION/LOCATION
Active Realty Dev't Corp.146 lots located at Town & Country
Southville,
Bian, Laguna with a total area of 23,604 sq.m. 9 lots located at
Town & Country Southville, Bian, Laguna with a total area of
1,193 sq.m. 6 lots located at Town & Country North Marilao,
Bulacan with a total area of 2,696 sq.m. 8 Mount Malarayat Golf
& Country Club shares
Agusan River
Lot with residential building located at #57 12th
Street, New Manila, Quezon City with lot area of 1,001.5
sq.m.
DJJ and Sons
5 units located at the 14th Flr. World Trade
Exchange Center, Juan Luna St., Binondo
Fil Estate Land, Inc.
A parcel of land situated in dela Paz, Antipolo,
Rizal with a lot area of 473 sq.m. and covered by TCT-361115
12 lots situated in Parkridge Estate Phase V Antipolo, Rizal
(5,757.50 sq.m.) 6 lots situated in Sherwood Hills, Trece Martires
City, Cavite (4,254 sq.m.)
Ladislao Firmacion
A parcel of land along Francisco Road, Brgy.
Francisco with area of 1,173 sq.m.
Gotesco Properties
148 lots located at Calamba, Laguna
Gloria Lanuza
2 storey old residential building at no. 348
Nanirahan St., Villarica Subdivision, Mandaluyong City with lot
area of 298 sq.m.
Gallardo Lopez
2 storey residential building located at #20-B Jose
Abad Santos St., Bayview Subd., Paraaque City with lot area of
553.45 sq.m.
Ma. Theresa CommercialState Theater Building (5 storey) located
at Rizal
avenue, Sta. Cruz, Manila with lot area of 1,238.67
sq.m.
Metropolitan Land Corp.
4 CCTs located at the 11th Flr., Trafalgar Plaza HV
dela Costa St., Salcedo Village, Makati City with total area of
913.20 sq.m.
Meridien Dev't. Inc.
A parcel of land located at lot 2, Blk. 7, Fort
Bonifacio Global City, Taguig, Metro Manila with area of 1,600
sq.m.
C. REAL ESTATE PROPERTY DESCRIPTION/LOCATION
Upper Ground, Unit 2, World Trade
Exchange Building. No. 215 Juan Luna
St., Binondo, Manila with area of
294.72 sq.m.
with 2 parking slots
Based on the foregoing, you now request a confirmation of your
opinion that:
"1. TA shall not be liable for income tax either for its receipt
of the surrendered shares, or its transfer of the Distributed
Assets to TMBC as liquidating dividends.
"2. No documentary stamp tax under Section 176 of the Tax Code
is due on the surrender by TMBC of the TA shares and the subsequent
cancellation thereof.
"3. The transfer by TA to TMBC of real property as liquidating
dividend is not subject to documentary stamp tax on sale or
transfer of real property under Section 196 of the Tax Code.
"4. Transfer by TA of its Loan Portfolio to TMBC is not subject
to documentary stamp tax under Section 180 of the Tax Code.
"5. The transfer or assignment of any mortgage which stands as
security for TA's Loan Portfolio shall be subject to documentary
stamp tax under Section 195 of the Tax Code, based on the
outstanding balance of the original loan.
"6. TMBC shall realize capital gain or loss when it surrenders
its shares in TA in exchange for the assets distributed by TA as
liquidating dividends, and such capital gain or loss shall be
subject to final tax under Section 27(D)(2) of the Tax Code."
In reply, please be informed as follows;
1. TA shall not be liable for income tax either on its receipt
of the surrendered shares, or its transfer of the Distributed
Assets to TMBC as liquidating dividends.
In BIR Ruling No. 171-92 dated May 28, 1992, this Office ruled
that the transfer by the liquidating corporation of its remaining
assets to its stockholders is not considered a sale of these
assets. Thus, a liquidating corporation does not realize gain or
loss in partial or complete liquidation. (W.P. Fox & Sons,
Inc., Petitioner, v. Commissioner of Internal Revenue, Respondent,
15 BTA 115; Jordan Petroleum Company, 13 AFTR 2d 1692; 227 F. Supp.
174; J.T,S. Brown & Son Company v. Commissioner of Internal
Revenue, 10 TC 840, cited in SIR Ruling No. 196-010-90-059-90 dated
April 17, 1990).
Conversely, neither is a liquidating corporation subject to tax
on its receipt of the shares surrendered by its shareholders
pursuant to a complete or partial liquidation (BIR Ruling No.
171-92, supra).
Accordingly, TA Bank is not liable for income tax on either the
transfer of its assets to its stockholders, or on its receipt of
the shares surrendered by the shareholder, TMBC.
2.No documentary stamp tax ("DST") is due on the surrender and
cancellation of the TA shares.
The Tax Code of 1997 imposes a DST on the sale, assignment or
transfer of shares of stock under Section 176 thereof, which in
part reads:
"Stamp tax on sales, agreements to sell, memoranda of sales,
deliveries or transfer of due-bills, certificates of obligations or
shares or certificates of stock. - On all sales, or agreements to
sell, or memoranda of sales, or deliveries, or transfer of
due-bills, certificates of obligations, or shares or certificates
of stock in any association, company or corporation, or transfer of
such securities by assignment in blank, or by delivery, or by any
paper or agreement, or memorandum or other evidences of transfer or
sale whether entitling the holder in any manner to the benefit of
such due-bills, certificates of obligation or stock, or to secure
the future payment of money, or for the future transfer of any
due-bill, certificate of obligation or stock, there shall be
collected a documentary stamp tax of One peso and fifty centavos
(P1.50) on each Two hundred pesos (P200.00), or fractional part
thereof, of the par value of such due-bill, certificate of
obligation or stock ...xxx." (emphasis supplied)
No DST under the above quoted provision shall be due on the
surrender by TMBC of the shares of stock to TA. The surrender of
the shares does not constitute a sale, assignment or transfer
because TA is not taking title to the surrendered shares, and the
shares are retired and not retained as treasury shares. In effect,
TA does not realize any benefit, as owner or otherwise, from its
receipt of the shares.
3.Transfer by TA to TMBC of real property is not subject to DST
on sale or transfer of real property.
Section 189 of Revenue Regulation No. 26, otherwise know as the
"Documentary Stamp Tax Regulations" provides, viz:
"SECTION 189. Conveyances by Corporation to Owner of All the
Capital. - A conveyance of real estate by a corporation without
valuable consideration to an owner of all its capital stock in
consequence of its dissolution is not subject to tax."
(Underscoring & italics supplied)
Under the above-quoted provision, a distribution in liquidation,
without consideration, of the assets of a corporation consisting of
real estate is not subject to DST imposed under Section 196 of the
Tax Code of 1997. Accordingly, the distribution of the assets of
TA, consisting of, among others, parcels of land, to its
controlling and sole stockholder, TMBC, without monetary
consideration, is not subject to DST as prescribed under Section
196 of the Tax Code of 1997. (BIR Ruling No. DA-214-96 dated June
26, 1996 and BIR Ruling No. 092-99 dated July 8, 1999 citing BIR
Ruling No. 059-90.) In addition, Section 196 of the Tax Code speaks
of "all conveyances, deeds, instruments, or writings, x x x,
whereby any land, tenement or other realty sold shall be granted,
assigned, transferred, or otherwise conveyed to the purchaser, or
purchasers, or to any other person designated by such purchaser or
purchasers, x x x". Since it has been held that a corporation that
distributes its assets to its shareholders as liquidating dividends
is not deemed to be selling such assets to the latter, then Section
196 of the Tax Code of 1997 shall not apply. However, the notarial
certification on this deed or deeds of assignment is subject to the
documentary stamp tax of P15.00, pursuant to Section 188 of the Tax
Code of 1997.
4. Transfer by TA of its Loan Portfolio to TMBC is not subject
to DST.
The pertinent provisions in the Tax Code of 1997 as regards this
issue are as follows:
"Sec. 180. Stamp tax on all bonds, loan agreements, promissory
notes, bills of exchange, drafts, instruments and securities issued
by the Government or any of its instrumentalities, deposits
substitute debt instruments, certificates of deposits bearing
interest and others not payable on sight or demand. - On all bonds,
loan agreements, including those signed abroad, wherein the object
of the contract is located or used in the Philippines, bills of
exchange (between points within the Philippines), drafts,
instruments and securities issued by the Government or any of its
instrumentalities, deposit substitute debt instruments,
certificates of deposits drawing interest, orders for the payment
of any sum of money otherwise than at sight or on demand, on all
promissory notes, whether negotiable or non-negotiable, except bank
notes issued for circulation, and on each renewal of any such note,
there shall be collected a documentary stamp tax of P0.30 on each
P200.00, or fractional part thereof, of the face value of any such
agreement, bill of exchange, draft, certificate of deposit or
note...xxx" (emphasis supplied)
SEC. 198. Stamp tax on assignments and renewals of certain
instruments. - Upon each and every assignment or transfer of any
mortgage, lease or policy of insurance, or the renewal or
continuance of any agreement, contract, charter, or any evidence of
obligation or indebtedness by altering or otherwise, there shall be
levied, collected and paid a documentary stamp tax, at the same
rate as that imposed on the original instrument, (emphasis
supplied).
The above-quoted Sections clearly provide for the imposition of
DST on the renewal or continuance of loan agreements and promissory
notes. In the instant case, DST shall not be imposed on the
assignment by TA of its Loan Portfolio (loan agreements and
promissory notes) to TMBC, since the same is not for renewal or
continuance (BIR Ruling No. 139-97 December 29, 1997). The term
"assignment or transfer" in Section 198 of the Tax Code of 1997
applies only to "mortgage, lease or policy of insurance". Thus, in
BIR Ruling No. 041-86 dated April 8, 1986, this Office defined the
term "renew" within the context of Section 198 of the Tax Code of
1997 as follows:
" x x x. One of the definitions of the word "renew" found in
Webster's New International Dictionary is: "To grant or obtain
extension of; to continue in force for a fresh period; as to renew
a note or a bond". As commonly used with reference to notes and
bonds, the word "renewal" imports a postponement of the maturity of
the obligation dealt with, an extension of the time in which that
obligation may be discharged. (Emphasis supplied, Campbell River
Timber Co. v. Vierhus, 198 American Law Reports, 763; 86 F. (2d)
673) In other words, the term "extension" has the same connotation
as "renewal" which means the continuance of the old
obligation."
5. Transfer or Assignment of any mortgage which stands as
security for TA's Loan Portfolio shall be subject to DST.
Pursuant to Section 198, as above quoted, the assignment of any
mortgage shall be subject to DST at the same rate as the original
document.
Under Section 195 of the 1997 Tax Code, on every mortgage or
pledge of lands, estate or property, real or personal, there shall
be collected a DST at the following rates:
(a) When the amount secured does not exceed P5,000.00,
P20.00;
(b) On each P5,000.00, or fractional part thereof in excess of
P5,000.00, an additional tax of P10,00.
Since the DST on mortgage is based on the amount secured, the
DST on the assignment of mortgage, if any, shall be based on the
outstanding balance of the original loan at the time of the
transfer or assignment. (BIR Ruling No. 139-97, id.)
6. TMBC shall realize capital gain or loss when TA distributes
its assets as liquidating dividends.
The tax treatment of liquidating dividends depends on the
characterization of the income in the form of such dividends
received by shareholders as a result of the dissolution of the
corporation in which they hold shares.
The second paragraph of Section 73(A) of the Tax Code of 1997
states:
"Where a corporation distributes all of its assets in complete
liquidation or dissolution, the gain realized or loss sustained by
the stockholder, whether individual or corporate, is a taxable
income or a deductible loss, as the case may be."
In the case of Wise & Co., Inc., et al, vs. Bibiano L. Meer,
Collector of Internal Revenue (78 Phil 655 [1947]), the Supreme
Court, in interpreting a similarly worded provision as above cited
as in Section 25(a) of Act No. 2833 ("Income Tax Law"), as amended
by Section 4 of Act No. 3761 [which is partially lifted from
section 201 (c) of the US Revenue Act of 1918], adopted the
judicial construction of the US Supreme Court in the case of
Hellmich vs. Hellman (276 US 233), where it was held that the
amounts distributed in the liquidation of a corporation shall be
treated as payments in exchange for stock or shares, and any gain
or profit realized thereby shall be taxed to the distributee as
other gains or profits. The Supreme Court also stated that "(W)hen
the corporation was dissolved and in the process of complete
liquidation and its shareholders surrendered their stock to it and
it paid the sums in question to them in exchange, a transaction
took place, which was no different in its essence from a sale of
the same stock to a third party who paid therefor".
In BIR Ruling No. 190-84 dated December 21, 1984, the issue
raised was precisely whether the liquidating gain (that is, the
difference between the fair market value of the properties received
and the cost basis of the shares to the stockholders) derived by an
individual stockholder is subject to the then 10%/20% tax rates
under Section 34(g) of the then Tax Code or to the graduated income
tax rates under then Section 21(b). This Office ruled that such
gain should be subject to the tax rates under then Section 21(b).
The same conclusion was reached in other rulings of the BIR (BIR
Ruling Nos. 322-87 dated October 19, 1987; 136-88 dated April 12,
1988; 021-89 dated February 13, 1989; 270-91 dated December 23,
1991; DA-223-98).
In effect, following the interpretation of these rulings,
liquidating gain is to be treated as the gain from the sale or
exchange of shares, consistent with the decision of the Supreme
Court in Wise & Co., Inc., supra, subject, however, not to the
5%/10% final tax rate under Sections 24(C), 25(A)(3) or (B),
27(D)(2), 28(A)(7)(c) and (B)(5)(c) of the Tax Code of 1997, but to
the ordinary income tax rates provided under Sections 24(A)(1),
25(A)(1) and (B) [that is, the 25% rate], 27(A) or (E), 28(A)(1) or
(2) and (B)(l) of the Tax Code of 1997, depending on the status of
the shareholder/stockholder (for instance, whether the shareholder
is a corporation or an individual, resident or non-resident).
Finally, this Office also notes that a similar treatment has
been given to corporate shareholders of a dissolving corporation,
in that the liquidating gain realized is subject to the ordinary
corporate income tax rate rather than to the then 10%/20%; or the
current 5%/10% final tax rates. (see for instance BIR Ruling Nos.
DA-214-96 dated June 26, 1996 and 171-92 dated May 28, 1992)
This Office also takes note of BIR Ruling No. DA-367-99 dated
January 24, 1999 issued under designated authority, and similar
rulings where the BIR departed from the above-mentioned rulings,
and ruled that the liquidating gain is subject to the 5%/10%
capital gains tax rate. The basis for this ruling was BIR Ruling
No. 015-82 dated January 20, 1982, where the BIR held that the
liquidating gain received by individual shareholders is subject to
the then 10%/20% final tax, but, this ruling was effectively
overturned in the subsequent BIR Ruling No. 190-84 and many other
similar rulings mentioned above. Thus, BIR Ruling No. DA-529-99 and
rulings similar to it have no basis, having been based on a ruling
that had already been revoked.
Accordingly, this Office rules once and for all that:
1.Liquidating gain or loss is in the nature of capital gain or
loss, as the case may be, and therefore treated in the manner
stated in Section 39 of the Tax Code of 1997.
2.Liquidating gain, while characterized as gain from sale or
exchange of shares, is subject to the ordinary income tax rates
provided under Sections 24(A)(1)(c), 25(A)(1), 27(A) and (E),
28(A)(1) and (2) and (B)(l) of the Tax Code of 1997, depending on
the status of the shareholder, and not to the 5%/10% final tax.
This ruling is being issued on the basis of the foregoing facts
as represented. However, if upon investigation, it will be
disclosed that the facts are different, then this ruling shall be
considered null and void.
Very truly yours,
GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue
____________________________
1 Divided into 6,250,000 shares, with par value of P100.00 per
share;
2 Divided into 6,250,000 shares, with par value of P100.00 per
share;
3 Transfer shall include interest accrued or to be accrued on
the loan.
Copyright 2 0 0 4 ACCESSLAW, Inc.
BIR Ruling No. 037-2002
October 15, 2002
BIR NUMBERED RULING
R.A. # 7459 Sections 148 & 131, NIRC; RR 19-93
BIR Ruling # 155-98: DA 280-98, 281-98 & 037-98
037-2002
NILA N. MENDIOLA & ASSOCIATES
Unit 2106 21st Floor Cityland 10 Tower I
H.V. dela Costa Streets, Salcedo Village
Makati City
Attention: MS. NILA N. MENDIOLA
Certified Public Accountant
Gentlemen:
This refers to your letter dated March 18, 2002 requesting on
behalf of your client. Mr. Rudy L. Lantano, for confirmation of
your opinion that the importation of diesel. naphtha, gasoline and
other yields, as direct and base raw materials in the manufacture,
sale and commercialization of ALCO-DIESEL, LAN-GAS and SUPERBUNKER
FORMULA-L, is exempt from excise tax imposed under Section 148 of
the Tax Code of 1997.
It is represented that your client. Mr. Rudy Lantano, is an
inventor duly certified by the Filipino Inventor's Society and
confirmed by the Filipino Inventor's Screening Committee; that he
is a patent holder of various environment friendly petroleum-based
fuels, particularly ALCO-DIESEL covered by Patent No. 28424 dated
August 31, 1994, LAN-GAS covered by Patent No. 13594 dated July 30,
1980 and SUPERBUNKER FORMULA-L covered by Patent No. 29089 dated
September 7, 1995, all issued by the Philippine Patents Office;
that he has been issued a tax exemption certificate by the Bureau
of Internal Revenue under BIR Ruling No. DA-37-02-04-98; that in
relation to the manufacture, sale and commercialization of the
aforementioned invention products, your client intends to import
diesel, naphtha, gasoline and other yields to be used as direct raw
materials; that it is your position that the said importation is
exempt from excise taxes imposed under Section 148 of the 1997 Tax
Code, pursuant to Section 6 of Republic Act No. 7459, otherwise
known as the "Inventions and Inventors Incentives Act of the
Philippines", which provides, viz:
"Section 6. Tax Exemption. - To promote, encourage, develop and
accelerate commercialization of technologies developed by local
researchers or adapted locally from foreign sources including
inventions, any income derived from these technologies shall be
exempted from all kinds of taxes during the first ten (10) years
from the date of the first sale, subject to the rules and
regulations of the Department of Finance: Provided, that this tax
exemption privilege pertaining to invention shall be extended to
the legal heir or assignee upon the death of the inventor.
The technologies, their manufacture and sale, shall also be
exempt from payment of license, permit fees, customs duties and
charges on imports."
In reply, please be informed that your request cannot be granted
by this Office for lack of legal basis. Section 3 of Revenue
Regulations No. 19-93 which implemented the aforequoted provisions
of RA No. 7459 provides that -
"3. The inventor shall be exempt from the following taxes for
which otherwise he shall have been directly liable:
"xxxxxxxxx
(c) Excise taxes directly payable in connection with the sale of
invention products."
The aforequoted provision itself will readily show that the
exemption of Mr. Lantano from the excise tax imposed under Section
148 of the 1997 Tax Code covers only the sale of his invented
ALCO-DIESEL, LAN-GAS and SUPERBUNKER FORMULA L. We cannot agree
that Section 3 of RR 19-93 intends to grant excise tax exemption to
Mr. Lantano on his importation of raw materials directly needed in
the manufacture of his invented products. Tax exemption cannot be
created by implication because exemptions from taxation are highly
disfavored in law and one who claims exemption from tax must be
able to justify his claim by clearest grant of organic or statute
law. An exemption from the common burden cannot be permitted to
exist on vague implication. (Collector vs. Manila Jockey Club,
Inc., L-875, March 23, 1956; Petroleum Co. vs. Llanes, 49 Phil.
466) To be exempted from payment of taxes, it is the taxpayer's
duty to justify the exemption "by words too plain to be mistaken
and too categorical to be misinterpreted. Laws granting exemption
from tax are construed strictissimi juris against the taxpayer and
liberally in favor of the taxing power. Taxation is the rule and
exemption is the exception. The burden of proof rests upon the
party claiming exemption to prove that it is in fact covered by the
exemption so claimed. (Commissioner of Internal Revenue vs.
Mitsubishi Metal Corporation, G.R 80041 Jan 22,1990)
Section 129 of the 1997 Tax Code provides that excise taxes
apply to goods manufactured in the Philippines for domestic sale or
consumption or for any other disposition and to things imported
which shall be in addition to the value-added tax imposed under
Title IV thereof. As importer of the raw materials needed in the
manufacture and commercialization of his products, Mr. Lantano
shall pay the excise taxes due on his imported articles prior to
the release of the same from customshouse, pursuant to Section 131
(A) of the same Code.
This constitutes our final decision on the matter.
Very truly yours,
GUILLERMO PARAYNO, JR.
Commissioner of Internal Revenue
Copyright 2 0 0 4 ACCESSLAW, Inc.
BIR Ruling No. 036-2002
October 09, 2002
BIR NUMBERED RULING
Section 33, NIRC
Rev. Regs. 3-98
000-00
036-2002
TAX COUNSELING INTEGRATED
Unit 2204-C. PSE Centre Tower 1
Exchange Road, Ortigas Center
Pasig City
Attention: Atty. Reynoso B. Floreza
Gentlemen:
This refer to your letter dated May 18, 2000 requesting that
your client, BECHTEL OVERSEAS CORPORATION (Bechtel), be allowed to
pay their fringe benefit tax (FBT) through the use of its Tax
Credit Certificate (TCC).
As borne out of the docket of the case, the following facts have
been established.
On November 18, 1999, Bechtel, through counsel, filed a claim
for tax credit of excess value added tax (VAT) in the amount of
P52,508,690.20 (excess input of P54,489,808.05 plus overpaid VAT of
P1,018,882.15). It was alleged that the said claim was being
applied as tax credit because the construction project in Mauban,
Quezon would be 100% completed by December 1999, and Bechtel does
not have any other project when said excess input could be
tax-credited against the company's VAT liabilities.
On January 5, 2000, TCC No. SN 000971 was issued in the amount
of P52,508,690.20 in favor of Bechtel for excess input and
overpayment of VAT covering the period from April 1997 to September
1999.
On April 14, 2000, Bechtel applied for a Tax Debit Memo
amounting to P541,389.50 in payment of their FBT for the 1st
quarter of 2000 utilizing the said TCC which, however, was denied
by the Collection Service on the ground that "FBT is a final
withholding tax which is an exception to the usage of TCCs under
Section 204(c) of the NIRC".
In your supplemental letter dated April 9, 2002, you reiterated
your position that FBT is the direct liability of employers and
further stated that there could be no valid imposition of the civil
penalties because Bechtel voluntarily filed the return and tendered
payment of the tax within the statutory period. This ruling is
based solely on the facts represented and covers only the legal
issue of whether an employer's TCC however issued, may be used to
pay the FBT on fringe benefits granted to the employer's managerial
and supervisory employees.
In reply, please be informed of the following:
The second paragraph of Section 204(C) specifically prohibits
the application of a Tax Credit Certificate (TCC for brevity)
against withholding tax liabilities of a taxpayer. Thus.
"SECTION 204. Authority of the Commissioner to Compromise, Abate
and Refund or Credit Taxes. The Commissioner may
xxx
A Tax Credit Certificate validly issued under the provisions of
this Code may be applied against any internal revenue tax,
excluding withholding taxes, for which the taxpayer is directly
liable. Any request for conversion into refund of unutilized tax
credits may be allowed, subject to the provisions of Section 230 of
this Code: Provided, That the original copy of the Tax Credit
Certificate showing a creditable balance is surrendered to the
appropriate revenue officer for verification and cancellation:
Provided, further. That in no case shall a tax refund be given
resulting from availment of incentives granted pursuant to special
laws for which no actual payment was made.
xxx"
(Emphasis supplied.)
The rationale for the above-stated prohibition is that the
withholding tax is not considered a direct liability of the
taxpayer. The tax withheld is actually payment made by the taxpayer
other than the withholding agent who merely holds the tax withheld
in trust for the government.
The issue is whether the FBT is a direct liability of the
employer or whether the employer merely acts as withholding agent
in paying the FBT.
Section 33 of the 1997 Tax Code specifically states that:
"SECTION 33.Special Treatment of Fringe Benefit.
(A) Imposition of Tax. A final tax of thirty-four percent (34%)
effective January 1, 1998; thirty-three percent (33%) effective
January 1, 1999; and thirty-two percent (32%) effective January 1,
2000 and thereafter, is hereby imposed on the grossed-up monetary
value of fringe benefit furnished or granted to the employee
(except rank and file employees as defined herein) by the employer,
whether an individual or a corporation (unless the fringe benefit
is 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). The tax herein imposed
is payable by the employer which tax shall be paid in the same
manner as provided for tinder Section 57(A) of this Code, xxx"
(Emphasis supplied)
The clear intention of Congress can be gathered from the minutes
of the proceedings before the Committee On Ways And Means that
deliberated on the said Section. Thus.
"Mr. Medalla (continuing)...." Now, another feature of the
reform is fringe benefits taxation which is a feature of the tax
system of Australia and many other countries. Since under the
present system fringe benefits are already taxable but of course,
many of them are not declared for tax purposes, this is really not
new tax. This is on example of how the tax reform raises revenue,
not by raising new taxes but by making the administration of
existing taxes easier...
The loophole that the FBT seeks to plug is the fact that many
executives are able to avoid taxation by being paid fringe benefits
rather than straight salaries" (See pages 000026 and 20007,
Minutes, Committee on Ways and Means, February 20,
1996/ELP/V-1)
Quite evidently, the purpose of the afore-quoted provision is to
hold the employer directly liable for the FBT so as "to plug" the
so-called loophole and to ensure that the same is paid. This to
this Office's mind, is the reason for the special treatment of the
FBT.
The second paragraph of Section 2.33(A) of Revenue Regulations
No. 3-98 is instructive stating that:
"SEC. 2.33. SPECIAL TREATMENT OF FRINGE BENEFITS
XXX
The tax imposed under Sec. 33 of the Code shall be treated as a
final income tax on the employee which shall be withheld and paid
by the employer on a calendar quarterly basis as provided under
Sec. 57 (A) (Withholding of Final Tax on certain Incomes) and Sec.
58 A (Quarterly Returns and Payments of taxes Withheld) of the
Code." (Emphasis supplied.)
Furthermore, Revenue Regulations No. 5-2000 defines a direct
internal revenue tax liability as "...taxes for which the taxpayer
is made statutorily liable. In essence, direct internal revenue tax
liability pertains to the liability of a person mandated by law to
file the tax return and pay the tax due thereon. "
From the foregoing discussion, it is quite clear that FBT is a
withholding tax on the employee although payment thereof is made
directly by the employer. It is a direct internal revenue tax
liability of the employee, and not the employer. Such being the
case, Bechtel cannot use its TCC to pay the FBT because of the
prohibition under Section 204(C) of the 199 Tax Code.
As to your request for non-imposition of civil penalties on the
ground that a voluntary tender of payment of the tax through the
use of the TCC has been made, this Office finds no basis for the
abatement of the civil penalties. Sec 204 of the 1997 Tax Code
clearly provides that the TCC cannot be applied against withholding
tax payment. Furthermore, Section 2.33 of RR 3-98 provides that FBT
is a final withholding tax.
Hence, whatever interpretation the taxpayer has is of no moment
considering that the provision of law, rules and regulations
provide for its proper classification, i.e., final withholding
tax.
Applying the aforementioned provisions, payment in the form of
TCC is not valid and to be considered as no payment at all,
Bechtel, having failed to pay the tax on time, the penalties
thereon should attach.
This ruling is being issued on the basis of the foregoing facts
as represented. However, if upon investigation, it will be
ascertained that the facts are different, then this ruling shall be
considered void.
Very truly yours,
GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue
Copyright 2 0 0 4 ACCESSLAW, Inc.
BIR Ruling No. 035-2002
August 29, 2002
BIR NUMBERED RULING
035-2002
LAYA MANANGHAYA & CO.
22/F Philamlife Tower
8767 Paseo de Roxas
Makati City
Attention: ATTY. REMIGIO A. NOVAL
Partner, Tax & Corporate Services
and
ATTY. MA. GEORGINA J. SOBERANO
Director, Tax & Corporate Services
Gentlemen:
This refers to your letter dated February 19, 2002 stating that
your client, Siemens Power Operations, Inc. (SPOI), is a duly
organized domestic corporation which is 100% owned by Siemens A.G.
(SAG), a corporation duly organized and existing under the laws of
Germany; that SAG in turn, is a publicly-held international company
whose stocks are held by approximately one million (1,000,000)
shareholders; that of this multitude of shareholders, only one (1)
entity, the Siemens Vermogensverwaltung GmbH, is known to hold more
than five percent (5%) or to be exact, six and one-half percent
(6.5%) of the capital, and that under German Law, any stock owner
holding five percent (5%) or more of the capital of a company is
required to report the same.
Based on the foregoing representations, you now request for a
ruling that SPOI, being a publicly-held corporation, is not covered
by the improperly accumulated earnings tax prescribed in Section 29
of the Tax Code of 1997.
In reply thereto, please be informed that Section 29(A) and (B)
of the Tax Code of 1997, as implemented by Revenue Regulations No.
2-2001, provides that in addition to other taxes imposed by Title
II of the Tax Code of 1997, there shall be imposed for each taxable
year a tax equal to 10% of the improperly accumulated taxable
income of corporations formed or availed of for the purpose of
avoiding the income tax with respect to its shareholders or the
shareholders of any other corporation, by permitting tie earnings
and profits of the corporation to accumulate instead of dividing
them among or distributing them to the shareholders.
Thus, this kind of tax is being imposed in the nature of a
penalty to the corporation for the improper accumulation of its
earnings, and as a form of deterrent to the avoidance of tax upon
shareholders who are supposed to pay dividends tax on the earnings
distributed to them by the corporation. However, the improperly
accumulated earnings tax shall not apply to, among others,
publicly-held corporations.
Under Section 4 of Revenue Regulations No. 2-2001, closely-held
corporations are those corporations at least fifty percent (50%) in
value of the outstanding capital stock or at least fifty percent
(50%) of the total combined voting power of all classes of stock
entitled to vote is owned directly or indirectly by or for not more
than twenty (20) individuals. Domestic corporations not falling
under the aforesaid definition are, therefore, publicly-held
corporations. For purposes of determining whether the corporation
is a closely-held corporation, it is provided that stock owned
directly or indirectly by or for a corporation, partnership, estate
or trust shall be considered as being owned proportionately by its
shareholders, partners or beneficiaries.
In BIR Ruling No. 025-2002 dated June 25, 2002, this Office
ruled that:
"Such being the case, since Abbott-Phils. is a wholly-owned
subsidiary of Abbott-US, such shares will be considered as being
owned proportionately by the Abbott-US shareholders. The ownership
of a domestic corporation for purposes of determining whether it is
a closely held corporation or a publicly held corporation is
ultimately traced to the individual shareholders of the parent
company. Thus, where at least 50% of the outstanding capital stock
or at least 50% of the total combined voting power of all classes
of stock entitled to vote in a corporation is owned directly or
indirectly by at least 21 or more individuals, the corporation is
considered publicly-held corporation as the term is defined under
the Regulations."
"Further, Section 29 of the Tax Code of 1997 provides, viz:
"Sec. 29. Imposition of Improperly Accumulated Earnings Tax
-
(A)xxx xxx xxx
(B)Corporations Subject to Improperly Accumulated Earnings Tax.
-
(1) In General. - The improperly accumulated earnings tax
imposed in the preceding section shall apply to every corporation
formed or availed for the purpose of avoiding the income tax with
respect to its shareholders or the shareholders of any other
corporation, by permitting earnings and profits to accumulate
instead of being divided or distributed.
(2) Exceptions - The improperly accumulated earnings tax. as
provided for under this Section shall not apply to:
(a)Publicly-held corporation;
(b)Banks and other non-bank financial intermediaries; and
(c)Insurance companies.
XXX
XXX
XXX
XXX
Accordingly, this Office confirms your opinion that
Abbott-Phils. is considered a publicly-held corporation exempt from
the Improperly Accumulated Earnings Tax (IAET), based on the
representation that as of the year-end 2000, Abbott-US had 101,272
shareholders holding a combined 1,545,934,133 shares of common
stock and the twenty largest shareholders of Abbott-US as of
September 30, 2001 own an aggregate of 30.1 percent of Abbott-US
issued and outstanding shares."
IN THE LIGHT OF ALL THE FOREGOING, this Office holds that since
the parent company of SPOI is a corporation publicly listed in
Germany, whose stocks are owned and held by more than 20
stockholders, SPOI is not subject to the 10% improperly accumulated
earnings tax prescribed in Section 29 of the Tax Code of 1997, as
implemented by Revenue Regulations No. 2-2001.
This ruling is being issued on the basis of the foregoing facts
as represented. However, if upon investigation, it will be
disclosed that the facts are different, then this ruling shall be
considered null and void.
Very truly yours,
EDUMUNDO P. GUEVARRA
Deputy Commissioner
Legal & Inspection Group
Copyright 2 0 0 4 ACCESSLAW, Inc.
BIR Ruling No. 030-2002
August 07, 2002
BIR NUMBERED RULING
030-2002
PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT
Republic of the Philippines
IRC Building, #82 EDSA
Mandaluyong City
Attention: COMM. HAYDEE B. YORAC
Chairperson
Gentlemen:
This refers to your letter dated May 6, 2002 on your request for
a ruling on the propriety of imposing capital gains tax and
documentary stamp tax on the consolidation of title of the property
surrendered as ill-gotten wealth in favor of the Republic of the
Philippines.
The facts, as represented, are as follows:
In 1986, Jose Y. Campos surrendered, among others, the
Independent Realty Corporation (IRC for brevity) and its properties
to the Republic of the Philippines through the Presidential
Commission on Good Government (PCGG for brevity) as part of the
Marcos ill-gotten wealth. Since then, the corporation and its
properties have been under the control of the Republic.
On April 2, 2002, the IRC and the PCGG consolidated the title of
the Republic over a parcel of land and the building in such land
covered by TCT No. 390163 and registered in the name of IRC.
Your good Office now requests whether capital gains tax and
documentary stamp tax should be imposed on such transfer and
consolidation.
In reply, please be informed that the Department of Justice, in
DOJ OPINION NO. 108, s. 1987 dated October 16, 1987, has already
rendered an opinion on the same matter, which this Office fully
subscribes to and is hereby reproduced as follows:
This refers to your request for opinion on whether the Republic
of the Philippines is exempt from payment of capital gains tax,
transfer tax, real property tax and other fees in connection with
the transfer in its favor of several real properties by Independent
Realty Corporation (IRC). Said real properties were voluntarily
surrendered to the Presidential Commission on Good Government
(PCGG) by Jose Yao Campos being part of Marcos' ill-gotten wealth
and which in turn were formally transferred to the Department of
Agrarian of Agrarian Reform (DAR) by PCGG.
The accompanying documents disclose that Jose Y. Campos is the
principal stockholder of Independent Realty Corporation (IRC); that
he voluntarily surrendered in favor of the Philippine Government,
the title and ownership of IRC and all its subsidiaries; that
thereafter on April 1, 1986, the Philippine Government through the
PCGG, formalized the sequestration of the said corporation and all
its subsidiaries under the control of the PCGG; that in pursuance
of the aforestated sequestration order, the Board of Directors of
IRC passed a resolution authorizing the transfer of all properties
in the name of IRC and its subsidiaries to the Republic of the
Philippines, that the PCGG and DAR entered into a Memorandum of
Agreement covering said surrendered properties; and that since IRC
is deemed to be now owned by the Philippine Government, IRC
executed a Deed of Transfer transferring, conveying, and assigning
all its rights, interest and titles to all the properties listed in
Annex "A" of said document in favor of the Republic of the
Philippines.
You contend that since the Republic of the Philippines is the
owner of the real properties in question, the; registration of the
same should be exempt from the payment of capital gains tax, real
property tax, transfer tax, and other fees being required by the
Register of Deeds of Laguna and Cavite.
We find your contention tenable.
Taxes are financial burdens imposed for the purpose of raising
revenues with which to defray the cost of the operation of the
Government. The general rule is that, independently of constitution
or statute, property belonging to the state or a political division
thereof is not taxable on the theory that such taxation would
merely have the effect of taking money out of one pocket and
putting it in another (Cooley on Taxation, Sec. 621, 4th Edition).
Taxing such property would not serve, in the final analysis, the
main purpose of taxation. What is more, it would tend to defeat it,
on account of the paper work, time and consequently, expenses it
would entail (The Law on Local Taxation, by Justiniano V.
Castillo). It is axiomatic that when public property in involved
exemption is the rule and taxation, the exception (Social Security
System vs. City of Bacolod, 115 SCRA 412; National Waterworks and
Sewerage Authority vs. Quezon City, 23 SCRA 286; Board of
Assessment Appeals vs. Court of Appeals, 8 SCRA 225). This implied
exemption is generally reinforced by express provisions in the
constitution or statutes exempting such property. (Cooley.
Ibid.)
Accordingly, Section 40 of Presidential Decree No. 464, as
amended (Real Property Tax Code), exempts from real property tax
real property owned by the Republic of the Philippines or any of
its political subdivisions and any government-owned corporation so
exempt by its charter unless the beneficial use of which has been
granted to a taxable person. Gifts or donations made to or for the
use of the National Government or any entity created by any of its
agencies which is not conducted for profit or to any political
subdivision of said government are exempt from the donors (gift)
tax under Section 104(2) of the National Internal Revenue Code.
Certificates placed upon documents, instruments and papers for the
national, provincial, city or municipal government, made at the
instance and for the sole use of some other branch of the national,
provincial, city or municipal government, are exempted from
documentary stamp tax (see Section 212[2], NIRC). With regard to
the capital gains tax, no such tax is due because there is no
capital gain to be taxed, there being no sale or exchange of
capital assets involved (see Section 34[2] of the National Internal
Revenue Code) since the subject properties were voluntarily
surrendered to the Republic of the Philippines which is the real
owner of the same.
For all the foregoing, we reiterate the view that the transfer
in favor of the Government of the subject properties may be
effected without the payment of the taxes being required to be paid
by the Registers of Deeds of Laguna and Cavite.
Incidentally, it may be mentioned that Executive Order No. 286
dated July 25, 1987, which created the Sequestered Assets
Disposition Authority (SADA) to oversee the disposition of, among
others, assets and properties voluntarily surrendered to the PCGG,
provides for the exemption of SADA from the payment of taxes, fees
and charges under Section 5 thereof, which reads as follows:
SEC. 5. Exemption from Taxes, Fees and other Charges. - The
provisions of any law to the contrary notwithstanding, the
Authority as well as the sequestered corporations and assets
transferred to it, shall be exempt from all taxes, fees, charges,
imposts, and assessments arising from or occasioned by the passing
of title over such corporations or assets from the said
corporations to the Authority and/or from the National Government
to a private acquisition or buyer imposed by the National
Government or any subdivision thereof; Provided, that in cases
where government institutions acquired the said assets by
foreclosure, the non-payment of similar taxes, fees, charges,
imposts, and assessments shall not be a bar to the consolidation of
title in the foreclosing institutions and the subsequent passing of
title to the Authority.
The sale or transfer of such corporations of assets shall not be
enjoined or hindered by the existence of any liens by way of taxes,
charges or other assessments in favor of the government at the time
of sale or transfer; Provided, that the proceeds from such sale or
transfer shall be subject to the tax lien and shall first be
applied to satisfy such obligations secured by such liens."
(Emphasis supplied)
In view thereof, this Office is of the opinion and hereby holds
that the consolidation of title of the property surrendered by IRC,
as ill-gotten wealth, in favor of the Republic of the Philippines
is exempt from capital gains tax and documentary stamp tax.
For your information and guidance.
Very truly yours,
RENE G. BAEZ
Commissioner of Internal Revenue
Copyright 2 0 0 4 ACCESSLAW, Inc.
BIR Ruling No. 029-2002
July 31, 2002
BIR NUMBERED RULING
RR 2-98; 79; RR 3-2002
000-00
029-2002
Atty. Maria Elena C. Ramiro
2423 Zarnora Street
Pasay City
Madam:
This refers to your letter dated November 8, 2001 requesting for
a ruling in behalf of your clients, Loida P. Kahulugan, Rhodora M.
Medel, Ma. Luisa N. Hibionada, Araceli S. Alegria and Jean D. Pena,
on the following withholding tax issues. It is your contention
that:
1.The nature of a withholding tax on compensation income of
government employees is creditable since it can be allowed as
credit against the income tax liability of the taxpayer for the
taxable year pursuant to Section 79(C)(2) of the National Internal
Revenue Code; and
2.Any deficiency or excess in the monthly withholding taxes on
such compensation income duly remitted to the Bureau of Internal
Revenue may be reconciled or adjusted at year-end, particularly
during the last payroll period of the employee in accordance with
Sec. 22(a) and (b) of Revenue Regulations No, 6-82, as amended by
RR 12-86, otherwise known as the "Withholding Tax Regulations on
Compensation."
In reply, please be informed that Section 2.57(B) of Revenue
Regulations No. 2-98, implementing Republic Act No. 8424, "An Act
Amending The National Internal Revenue Code, as amended" relative
to the Withholding on Compensation, provides, viz:
"Sec. 2.57. Withholding of Tax at Source -
(A) xxx xxx xxx
(B) Creditable Withholding Tax Under the creditable withholding
tax system, taxes withheld on certain income payments are intended
to equal or at least approximate the tax due of the payee on said
income. The income recipient is still required to file an income
tax return, as prescribed in Sec. 51 and Sec. 52 of the NIRC, as
amended, to report the income and/or pay the difference between the
tax withheld and the tax due on the income. Taxes withheld on
income payments covered by the expanded withholding tax (referred
to in Sec. 2.57.2 of these regulations) and compensation income
(referred to in Sec. 2.78 also of these regulations) are creditable
in nature."
Thus, the withholding tax on compensation income of government
employees is creditable in nature. Therefore, pursuant to Section
79(C)(2) of the Tax Code of 1997, the amount deducted and withheld
during any calendar year shall be allowed as a credit to the
recipient of such income against the tax imposed under Section
24(A).
As regards any deficiency or excess in the monthly withholding,
Step 6 of Section 2.79(B)(5)(b) of Revenue Regulations No. 2-98
provides that the deficiency tax (when the amount of tax computed
in Step 5 is greater than the amount of cumulative tax already
deducted and withheld or when no tax has been withheld from the
beginning of the calendar year) shall be deducted from the last
payment of compensation for the calendar year. If the deficiency
tax is more than the amount of last compensation to be paid to an
employee, the employer shall be liable to pay the amount of tax
which cannot be collected from the employee. The obligation of the
employee to the employer arising from the payment by the latter of
the amount of tax which cannot be collected from the compensation
of the employee must be settled between the employee and
employer.
The excess tax (when the amount of cumulative tax already
deducted and withheld is greater than the tax computed in Step 5)
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
from the remittable amount of taxes withheld from compensation
income in 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.
On the basis of the foregoing, the deficiency or excess in the
withholding tax on compensation income of government employees,
which is creditable in nature, may be reconciled or adjusted at
year-end, more particularly during the last payroll period of the
employee pursuant to Section 79(C)(2) of the Tax Code of 1997 as
implemented by Revenue Regulations No. 2-98.
Moreover, Revenue Regulations No. 3-2002 dated March 22, 2002
provides that employees receiving compensation income from only one
employer for one taxable year whose tax due is equal to tax
withheld qualify for substituted filing of Income Tax Return
(ITR).
In substituted filing of ITR, the employer's annual information
return (BIR Form No. 1604-CF) may be considered the "substituted"
ITR of the employee inasmuch as the information he would have
provided the BIR in his own ITR (BIR Form No. 1700) would have been
exactly the same information contained in the employer's annual
information return. This being the case, the taxpayer has the
option not to file his ITR for the taxable year involved.
In addition, substituted filing applies only if all the
following circumstances are present:
1.The employee receives purely compensation income (regardless
of amount) during the taxable year;
2.The employee receives the income only from one employer during
the taxable year;
3.The amount of tax due from the employee at the end of the year
equals the amount of tax withheld by the employer; and
4.The employee's spouse also complies with all the three (3)
conditions stated above.
Furthermore, RR 3-2002 shall cover taxable year 2002 and
succeeding years although substituted filing is optional on the
part of the employee for income earned for taxable year 2001.
This ruling is being issued on the basis of the foregoing facts
as represented. However, if upon investigation, it will be
disclosed that the facts are different, then, this ruling shall be
considered null and void.
Very truly yours,
RENE G. BAEZ
Commissioner of Internal Revenue
Copyright 2 0 0 4 ACCESSLAW, Inc.
BIR Ruling No. 024-2002
June 21, 2002
BIR NUMBERED RULING
22(DD); 28(A)(6)(a)
047-2001
024-2002
BOARD OF INVESTMENTS
Industry & Investments Building
385 Sen Gil J. Puyat Avenue,
Makati City
Attention: ADELINA E. BATALLONES
OIC Director One-Stop Action Center
Gentlemen:
This refers to your letter dated 27 February 2002 forwarding the
request of Philippine Australia Business Council regarding the
assistance sought by Indophil Resources Head Office
(Melbourne).
It is represented that Indophil Resources Head Office
(Melbourne) ("Indophil", for brevity) is an Australian Company
licensed by the Securities and Exchange Commission in 1999 to
establish a Regional Headquarters. Based on this, Indophil requests
the issuance of a certifications/statement from the Bureau of
Internal Revenue on the following:
1. Expats/alien executives occupying managerial and technical
positions, employed by Regional or Area Headquarters (RHQ) and
Regional Operating Headquarters (ROHQ) are subject to withholding
tax of 15% on compensation income.
2. Regional or Area Headquarters are exempt from payment of
corporate income taxes.
In reply, please be informed that-
1. Section 10 of the Rules and Regulations Implementing Article
61 of R.A. 8756 provides that alien executives occupying managerial
and technical positions employed by the regional or area
headquarters and regional operating headquarters of multinational
companies shall be subject for each taxable year upon their gross
income received as salaries, wages, annuities, compensations,
remuneration, and emoluments to a final tax equal to fifteen
percentum (15%) of such gross income.
In relation thereto, Section 2.57.1(D) of Revenue Regulations
No. 2-98, as amend by Revenue Regulations 6-2001, also provides
that a final withholding tax equivalent to fifteen percent (15%)
shall be withheld by the withholding agent from the gross income
received by every alien individual occupying managerial and
technical positions in regional. or area headquarters and Regional
Operating Headquarters established in the Philippines by
multinational companies as salaries, wages, annuities,
compensation, remuneration, and other emoluments, such as honoraria
and allowances, except income which is subject to the fringe
benefits tax, from such regional or area headquarters and regional
operating headquarters.
Thus, expats/alien executives occupying managerial and technical
positions employed by regional or area headquarters and regional
operating headquarters are subject to withholding tax of 15% on
compensation income.
2. Section 28(A)(6)(a) of the Tax Code of 1997 provides that
regional or area headquarters as defined in Section 22(DD) of the
said Code shall not be subject to income tax.
Section 22(DD) of the Tax Code of 1997 defined the term
"regional or area headquarters" as "a branch: established in the
Philippines by multinational companies and which headquarters do
not earn or derive income from the Philippines and which act as a
supervisory, communications and coordinating center for their
affiliates, subsidiaries or branches in the Asia-Pacific Regional
and other foreign markets,"
Likewise, Article 63 of Executive Order No. 226, otherwise known
as the Omnibus Investments Code as amended by R.A. 8756, provides
that regional or area headquarters established in the Philippines
by multinational companies and which headquarters do not earn or
derive income from within the Philippines and do not participate in
any manner in the management of any subsidiary or branch office it
might have in the Philippines nor solicit or market goods and
services whether on behalf of its mother company or its branches,
affiliates, subsidiaries and any other company and which acts as
supervisory, communications and coordinating centers for their
affiliates, subsidiaries, or branches in the Asia Pacific Region
and other foreign markets shall not be subject to income tax.
It must be noted that for tax purposes, a regional or area
headquarters, in acting as a supervisory, communications and
coordinating center for its affiliates in the region, shall not
render any of the following qualifying services:
General administration and planning;
Business planning and coordination:
Sourcing/procurement of raw materials and components;
Corporate finance and advisory services;
Marketing control and sales promotion;
Training and personnel management;
Logistic services;
Research and development services, and product development;
Technical support and maintenance;
Data processing and communication; and Business development,
which functions are applicable to a Regional Operating
Headquarters pursuant to Section 4(b) of the Rules and Regulations
implementing R.A. No. 8756.
Accordingly, Indophil will not be subject to income tax as long
as in performing its functions and in acting as a supervisory,
communications and coordinating center for its affiliates in the
region, it shall not render any of the foregoing qualifying
services. Otherwise, it shall be taxed as a Regional Operating
Headquarters.
It is understood that Indophil's books of accounts and other
pertinent records shall be subject to periodic examination by
revenue enforcement officers of this Bureau for the purposes of
ascertaining whether Indophil is complying with the conditions
under which it is granted tax exemption or tax incentives and its
tax liability, if any, pursuant to Section 235 of the Tax Code of
1997.
This ruling is being issued on the basis of the foregoing facts
as represented. However, if upon investigation, it will be
ascertained that the facts are different, then this ruling shall be
considered void.
Very truly yours,
RENE G. BANEZ
Commissioner of Internal Revenue
Copyright 2 0 0 4 ACCESSLAW, Inc.
BIR Ruling No. 023-2002
June 21, 2002
BIR NUMBERED RULING
Sections 32 & 33
023-2002
Joaquin Cunanan & Co.
29/F Philamlife Tower
8767 Paseo de Roxas
Makati City
Attention: Ms. Tomasa H. Lipana
Managing Partner
Tax Services
Madam:
This refers to your letter dated April 17, 2001 requesting on
behalf of your client, Sodexho Pass International (Sodexho for
brevity), for confirmation of the following opinions:
1. That meal and food benefits provided by client companies
through Sodexho meal and food vouchers may be considered tax-exempt
benefits;
2. That a meal and food allowance of no more than Php 100.00 per
day is considered de minimis benefit; and,
3. That de minimis rice allowance of Php 1,000 per month given
to the employees may be aggregated with the meal allowance through
Sodexho meal and food vouchers and shall still be exempt from both
withholding tax on compensation and fringe benefit tax.
It is represented that Sodexho, a foreign corporation organized
and existing under the laws of France, is a service company engaged
in operating innovative systems (the issuance of service vouchers)
to manage employee benefits given by private companies, national
government agencies, including universities and colleges,
government-owned and/or controlled corporations, and more
generally, any other organization to improve the health, goodwill,
contentment or efficiency of their employees, members or
beneficiaries or their dependents; that in the Philippines, Sodexho
proposes to introduce administration of food and rice subsidy
benefits given by Philippine employers to their employees through
the following procedures:
1. Client company transfers to Sodexho the amount allotted for
its employees' annual or monthly meal and food allowance and/or
rice subsidy with instructions on the amount to be allotted per
employee in conformity with a de minimis threshold that would be
established;
2. Sodexho issues meal and food vouchers (intended for each
employee with the value allotted for the respective employee's
benefit per working day) and delivers the same to the client
company. The face value of the vouchers shall be equivalent to the
amount transferred by the client company to Sodexho;
3. Client company distributes the vouchers to its employees;
4. Employee uses these vouchers for meals and/or food at an
accredited establishment (e.g., restaurant/food outlet) of his
choice;
5. Accredited outlet sends back used vouchers to Sodexho for
reimbursement;
6. Sodexho reimburses the store/outlet.
We reply as follows.
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
Tax Code of 1997. The name and basis by which the remuneration for
services is designated is immaterial in determining whether the
remuneration constitutes compensation. Thus, fringe benefits,
unless specifically excluded from gross income and unless subject
to the fringe benefits tax under Section 33 of the Tax Code of
1997, would generally constitute compensation to the recipient.
(Sec. 2.78.1(A), Revenue Regulations No. 2-98) Furthermore, any
good, service or other benefit furnished or granted in cash or in
kind by an employer to an individual employee, except rank and file
employees as defined, shall generally be understood as fringe
benefits, and as such, shall be subject to the fringe benefits tax,
unless specifically excluded under the Tax Code of 1997, as
implemented according to rules and regulations as are necessary to
carry out efficiently and fairly the provisions of the Code.
(Section 33, Tax Code of 1997, as implemented by Revenue
Regulations No. 3-98, as amended.)
De minimis benefits are facilities or privileges furnished or
offered by an employer to his employees that are of relatively
small value and offered or furnished by the employer merely as a
means of promoting the health, goodwill, contentment, or efficiency
of his employees, and as such, they are subject to neither
compensation income tax nor fringe benefits tax. They are,
therefore, not subject to withholding tax as well. (Sec.
2.78.1(A)(3), Revenue Regulations No. 2-98, as amended by Revenue
Regulations 8-2000; Sec. 2.33.(C), Revenue Regulations No. 3-98,
implementing Section 33(C)(4) of the Tax Code of 1997.)
Accordingly, the amount of de minimis benefits conforming to the
maximum values prescribed for each of the benefits enumerated in
Revenue Regulations Nos. 3-98, as amended by Revenue Regulations
Nos. 8-2000 and 10-2000 shall not be considered in determining the
Php30,000 threshold of "Other Benefits" provided in Section
32(B)(7)(e) of the Tax Code of 1997. However, any amount of fringe
benefits paid by the employer that is in excess of the maximum
values set in the stated Regulations shall be considered, along
with the "Other Benefits", in determining, whether or not the
Php30,000 threshold has been exceeded, and the excess thereof shall
become taxable to the employee receiving the benefits. (Sec. Sec.
2.78.1 (A)(3), Revenue Regulations No. 2-98, as amended by Revenue
Regulations 8-2000).
On the basis of the foregoing, we proceed to respond to your
specific concerns.
1. The meal and food benefits provided by the client-companies
to their employees through Sodexho meal and food vouchers may be
considered tax-exempt benefits.
The meal and food benefits provided to their employees by client
companies through Sodexho meal and food vouchers may be tax-exempt,
subject to