Legal Opinion de Minimis

8/19/2019 Legal Opinion de Minimis

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March 9, 2016

MR. MICHAEL T. ROSARIO

Vice President- Operations

Philippine Global Systems, Inc

Re: !e"al Opinion on the ta# treatment o$ employee bene%ts pro&ided $or by

Philippine Global Systems, Inc to its mana"erial, s'per&isory, and ran(-and-%le

employees

)ear Mr *osario+

ere is the opinion yo' re'ested .he $acts "athered $rom yo' and yo'r

doc'ments, are as $ollo/s+

Philippine Global Systems, Inc has &ario's employees o/in" dierent

positions $rom mana"erial, s'per&isory and ran(-and-%le employees side $rom

their compensations, yo'r employees also recei&ed other bene%ts .he $ollo/in" are

the bene%ts the company "i&es to all its employees re"ardless o$ position+

BENEFITS AMOUNT/ PURPOSE/ PARTICULARS*ice allo/ance Php 1,00 per month3ni$orm allo/ance Php 6,000 per month!a'ndry allo/ance Php 00 per monthMeal allo/ance 4non-o&ertime /or(5 Php 100 per day

.ransportation allo/ance Php 1,000 per monthSer&ice /ard /arded to an employee /ho has

rendered ,10,1,20 and 2 years o$

contin'o's ser&ice /ith the company

pla'e o$ reco"nition /orth Php 1,00

is "i&en to the employeeMedical bene%ts M7)I8I7 !!O:87+ Php 2,000 per

year

4s'pported by o;cial receipts5

<*77 M7)I8! 878= 3P+ not to

e#ceed Php 10,000 per year8ompany o'tin" mo'nt &aries ann'ally> to $oster

"ood/ill and camaraderie8hristmas Party mo'nt &aries ann'ally> to celebrate

8hristmas season and to $oster

"ood/ill

<rom these list, yo' are see(in" opinion on the ta# treatment on these

bene%ts partic'larly on de minimis bene%ts and $rin"e bene%ts I belie&e based on



the $acts yo' ha&e "i&en is that yo' are as(in" me to identi$y i$ any o$ these

bene%ts can be considered as de minimis, or $rin"e bene%ts in "eneral, and i$

other/ise, ho/ sho'ld it be treated $or income ta# p'rposes ?'t be$ore anythin"

else, I /o'ld li(e to brie@y disc'ss the t/o, and its nat're

De Minimis Benefts

De minimis bene%ts are those $acilities $'rnished to employees that are

relati&ely o$ small &al'e and are oered or $'rnished merely as a means o$

promotin" health, "ood/ill, contentment or e;ciency o$ employees 1 )e minims

bene%ts are not e#pressly pro&ided $or by the 199A .a# 8ode, b't it is re"'lated by

?I* *e&en'e *e"'lations partic'larly ?I* *e&en'e *e"'lation o -2011, as $'rther

amended by ** o B-2012, and as last amended by ** o 1-201 .hese bene%ts

are e#empt $rom income ta# and /ithholdin" ta#, e&en i$ recei&ed by ran(-and-%le

employees and s'per&isory or mana"erial employees 24<or a list o$ en'meration,

please see ** o B-20125

Fringe Benefts

<rin"e bene%ts on the other hand means any "ood, ser&ice, or other bene%t

$'rnished or "ranted in cash or in (ind by any employer to an indi&id'al employee

e#cept ran(-and-%le employees .he same section en'merates some o$ the $rin"e

bene%ts considered by la/, /hich is not e#cl'si&e .his pro&ision in the .a# 8ode is

ho/e&er $'rther s'pplemented by ** o -9B .he said re&en'e re"'lation

pro&ides that a %nal /itholdin" ta# called the <rin"e ?ene%ts .a# 4<?.5 is imposed

on the "rossed-'p monetary &al'e o$ $rin"e bene%t $'rnished, "ranted or paid by an

employer to an employee /ho is holdin" a mana"erial or s'per&isory position .he

said ta# is imposed on any employer re"ardless o$ its nat're, e#cept /hen+ 415 the

$rin"e bene%t is re'ired by the nat're o$ or necessary to the trade, b'siness or

pro$ession o$ the employer> or 425 /hen the $rin"e bene%t is $or the con&enience or

ad&anta"e o$ the employer 7ecti&e Can'ary 1, 2000 'p to present, it has the rate

o$ 2D

.o comp'te the payable ta#, a %nal /ithholdin" ta# o$ 2D shall be imposedin the "ross- 'p monetary &al'e o$ the bene%t recei&ed .he "rossed-'p monetary

&al'e o$ the $rin"e bene%t shall be determined by di&idin" the monetary &al'e o$

the $rin"e bene%t by 6BD E .he "rossed-'p monetary &al'e o$ the $rin"e bene%t

represents the /hole amo'nt o$ income realiFed by the employee /hich incl'des

the net amo'nt o$ money or net monetary &al'e o$ property /hich has been

recei&ed pl's the amo'nt o$ $rin"e bene%t ta# thereon other/ise d'e $rom the

employee b't paid by the employer $or and in behal$ o$ his employee

1 ** o B-2012

2 Id

Sec 4?5 199A ational Internal *e&en'e 8ode o$ the Philippines I*8H

E ?I* *e&en'e *e"'lation o -9B



:ith respect to ordinary e#penses inc'rred by the employer, they co'ld be

properly ded'cted $rom the comp'tation o$ his "ross income6

:e come no/ to the ta# treatment $or the dierent bene%ts yo' "i&e to yo'r

employees

As to the Rice Ao!"nce:

.he rice allo/ance o$ Php1, 00 "i&en by yo'r company to yo'r employees

may it be ran(-and-%le, s'per&isory or mana"erial is considered as de minimis

bene%t, as the la/ allo/s a ma#im'm o$ Php1, 00 monthly rice allo/ance A s

/hat yo' are pro&idin" $or is belo/ the threshold, then it still is considered as de

minimis, and hence e#empt $rom both income and /ithholdin" ta#

As to the Uni#or$ Ao!"nce:

.he la/ considers Php, 000 per ann'm 'ni$orm allo/ance as de minimis

bene%tsB ny amo'nt /hich e#ceeds Php, 000 is already s'bect to income ta# as

/ell as /ithholdin" ta# on compensation income by the employee, that is i$ it is in

e#cess o$ PhpB2,000 e#cl'sions allo/ed by la/ 'nder Sec 2 4?54A54e5 Per

comp'tations, as yo' are "i&in" Php6, 000 per month as 'ni$orm allo/ance to yo'r

employees, it /o'ld amo'nt to PhpA2, 000 per year Php, 000 o$ that is de

minimis, hence e#empt $rom ta# /hich /o'ld lea&e yo' Php6A, 000 more .his Php

6A, 000 can be considered as other bene%tsH entitled to Php B2,000 e#cl'sion

:hate&er e#cess o$ the Php B2, 000 threshold /o'ld be s'bect to income ta#ation+

$or ran( and %le a compensation /ithholdin" ta#, $or mana"erial and s'per&isory, a

$rin"e bene%t ta# rate as pro&ided abo&e

As to the L"%n&r' Ao!"nce:

.he la/ allo/s Php00 per month as la'ndry allo/ance as de minimis

bene%t9 s the la'ndry allo/ance yo' pro&ide is not in e#cess o$ the said threshold,

it is considered as de minimis, hence e#empt $rom income ta#

As to the Me" Ao!"nce:

Id

6 Sec E o$ the I*8 par 415 4i&5

A *e&en'e *e"'lation o 0-2011 par 4d5

B *e&en'e *e"'lation o 0B-2012 par 4e5

9 Supra note A, par 4"5



<or Meal allo/ance, it can only be considered as de minimis in t/o instances,

that is+ 415 $or o&ertime /or(, and 425 $or "ra&eyard shi$t10 O'tside o$ these

instances, no meal allo/ance can be considered as de minimis bene%ts, and is

there$ore s'bect to compensation income ta# .he allo/ance yo' are pro&idin" is

$or non-o&ertime /or(, hence it is s'bect to compensation income ta#, b't the

employee can claim it as an e#cl'sion 'nder Sec 2 4?54A54e5 as other bene%tsH I$

the allo/ance cannot be co&ered, the e#cess /o'ld $orm part o$ the compensation

income s'bect to /ithholdin" ta# o$ a ran( and %le employee I$ the recipient is a

mana"er or s'per&isor, an <?. as disc'ssed abo&e shall be imposed

As to the Tr"ns(ort"tion Ao!"nce:

.ransportation allo/ance is not one o$ the de minimis bene%ts en'merated

'nder ** o -2011, and so cannot be considered as de minimis, as the re"'lation

e#pressly pro&ides that all other bene%ts "i&en by employers /hich are not

en'merated 'nder the re"'lation shall not be considered as de minimis bene%ts,

and hence shall be s'bect to income ta# as /ell as /ithholdin" ta# on

compensation income 11 .his is $'rther s'pplemented by ** o 0-9B /hich states

that+ transportation allo/ances /hich are %#ed in amo'nts and are re"'larly

recei&ed by the employees as part o$ their monthly compensation income shall not

be treated as ta#able $rin"e bene%ts b't the same shall be considered as ta#able

compensation income s'bect to the ta# imposed 'nder Sec 2E o$ the .a# 8ode 12

.h's, the Php 1, 00000 transportation allo/ance per month is a ta#able income

s'bect to the sched'lar ta# system

As to the Ser)ice A!"r&s:

.he ser&ice a/ards yo'r company is pro&idin" $or yo'r employees is a de

minimis bene%ts, hence e#empt $rom income ta# *e&en'e re"'lation 0-2012

considers as de minimis 7mployees achie&ement a/ards, e" $or len"th o$ ser&ice

or sa$ety achie&ement, pro&ided that it is in the $orm o$ a tan"ible personal property/hich is not money or "i$t certi%cate, /hose monetary &al'e does not e#ceed

Php10, 000 ann'ally recei&ed by the employee 'nder an established /ritten plan

/hich does not discriminate in $a&or or hi"hly paid employees 1 s yo'r a/ards is

$or the p'rposes o$ len"th o$ ser&ice, and comes in a tan"ible personal property,

/hich is neither money nor "i$t certi%cate as it comes in the $orm a pla'e /hich

amo'nt is only Php1, 00 and is belo/ the threshold, it is de minimis, and e#empt

$rom income ta#

10 Id, at par 45

11 ?I* ** o 0-2011

12 ?I* ** o 0-9B Sec 2 4?5 425 4d5

1 Supra note 11, par 4h5



As to the Me&ic" Benefts:

.he Medical bene%ts yo' are pro&idin" to yo'r employees is classi%ed into t/o, that

is+ 415 Medicine allo/ance amo'ntin" to Php2, 000 and 425 Medical 8hec(-'p

amo'ntin" to Php10, 000 per year .hese allo/ances to be considered as de

minimis bene%ts, sho'ld be act'al e#penses as the re"'lation pro&ides that these

sho'ld be act'al medical assistance,1E meanin"> the amo'nt m'st ha&e been

act'ally spent $or medical p'rposes .h's, to be e#empt $rom income ta#, the said

e#penses m'st be s'pported by o;cial receipts $or the p'rchase o$ medicine or

chec(-'ps o/e&er, 'nder the re"'lations only a ma#im'm amo'nt o$ Php10, 000

can be considered as de minimis ny e#cess /o'ld then be s'bect to

compensation income ta# $or ran(-and- %le employees and <?. i$ s'per&isor or

mana"erial employee i$ it cannot be claimed as other bene%tsH 'nder Sec 2 4?5

4A54e5 o$ the .a# 8ode .h's, $or the medical bene%ts to be e#empt $rom income ta#,

it m'st be act'al and not o&er Php10, 000 ann'ally I$ yo' co'ld comply /ith s'ch,

then the medical allo/ance yo' are pro&idin" /o'ld be e#empt $rom income ta#

As to the Co$("n' O%ting "n& Christ$"s P"rt' E*(enses:

either can the 8ompany O'tin" nor the 8hristmas party e#penses be claimed as

de minimis bene%ts or $rin"e bene%ts as it is not one o$ the en'merations 'nder the

la/ .he de minimis bene%ts en'meration 'nder ** -2011 is e#cl'si&e o/e&er,

the same can be claimed as allo/able ded'ctions $rom the companyJs "ross income

'nder the .a# 8ode 3nder the said code, a reasonable allo/ance $orentertainment, am'sement and recreation e#penses d'rin" the ta#able year, that

are directly connected to the de&elopment, mana"ement, and operation o$ the

trade, b'siness or pro$ession o$ the ta#payer 1 <or yo'r company to be able to

claim these e#penses as ded'ctions $rom yo'r "ross income, yo' m'st be able to

s'bstantiate /ith s';cient e&idence, s'ch as o;cial receipts or other ade'ate

records+ 4a5 the amo'nt o$ the e#pense bein" ded'cted, and 4b5 the direct

connection or relation o$ the e#pense bein" ded'cted to the de&elopment,

mana"ement, operation andKor cond'ct o$ the trade, b'siness or pro$ession o$ yo'r

company16

Seein" that the p'rposes o$ the company o'tin" and 8hristmas party is $or the

de&elopment o$ yo'r company as it in&ol&es $osterin" the "ood/ill and camaraderie

amon" yo'r employees, /hich is essential $or all b'siness or"aniFations to "ro/,

yo' can &alidly claim s'ch e#penses as allo/able ded'ctions $rom yo'r ta#able

"ross income, by properly s'pportin" it /ith s';cient doc'ments

Please note that this opinion is solely based on the $acts yo' ha&e disclosed

to me, and is rendered based on applicable ta# la/s and ?I* *e&en'e *e"'lations

1E Supra note 11, par 4$5

1 I*8, Sec E 454154a54i&5

16 I*8, Sec E 454154b5



Sho'ld yo' ha&e $'rther 'estions and 'eries, please do not hesitate to cons'lt me

a"ain I$ there be any misapprehension o$ the $acts herein, it is important that yo'

in$orm me as soon as possible

.han( yo'L

Sincerely,

+O, I-EE O. ON

ttorney-at- !a/

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Legal Opinion de Minimis