VOLUNTEERS:

1. Del Rosario
2. Gamboa
3. Garcia
4. Mallari
5. Paneda
6. Santos
7. Cubelo
8. Chalwangco
9. Feliciano
10. Martinez
11. Da Jose
12. Macale
13. Escalada

TOTAL TIME:
AUDIO 1 - 00:35 -1:11:30 (1 Hr 10 Mins 55 Secs)
AUDIO - 00:00 - 26:10 (26 Mins 10 Secs)
-----------------------------------------------------
1 Hr 37 Mins 5 Secs
/ 12 People
-----------------------------------------------------
Approx. 8 Mins 5 Secs EACH

TIME STAMP PERSON ASSIGNED

AUDIO 1 0:35 - 8:40 (8 Mins 5 Secs) Del Rosario

AUDIO 1 8:40 - 16:45 (8 Mins 5 Secs) Gamboa

AUDIO 1 16:45 - 24:50 (8 Mins 5 Secs) Garcia

AUDIO 1 24:50 - 32:55 (8 Mins 5 Secs) Mallari

AUDIO 1 32:55 - 41:00 (8 Mins 5 Secs) Paneda

AUDIO 1 41:00 - 49:05 (8 Mins 5 Secs) Santos

AUDIO 1 49:05 - 57:10 (8 Mins 5 Secs) Cubelo

AUDIO 1 57:10 - 1:05:15 (8 Mins 5 Secs) Chalwangco

AUDIO 1 1:05:15 - 1:11:30 (6 Mins 15 Secs) Feliciano

AUDIO 2 00:00 - 1:50 (1 Min 50 Secs)

AUDIO 2 1:50 - 9:55 (8 Mins 5 Secs) Martinez

AUDIO 2 9:55 - 18:00 (8 Mins 5 Secs) Da Jose

AUDIO 2 18:00 - 26:10 (8 Mins 10 Secs) Macale

Del Rosario - 0:35 - 8:40

Dean: We will discuss the cases first on gross income. Konti lang naman yan, dalawa lang
nga pala.

Student #6 N. Chua: Ericsson Telecommunications v. City of Pasig. In this case, there was
an assessment notice issued by the City Treasurer of Pasig. The petitioner was assessed
business tax deficiency by Treasurer of Pasig City for the years 1998 and 1999 amounting to
P9,466,885.00 and P4,993,682.00, respectively, based on its gross revenues as reported in
its audited financial statements for the years 1997 and 1998. Petitioner filed a Protest
claiming that the computation of the local business tax should be based on gross receipts
and not on gross revenue. The City of Pasig issued another Notice of Assessment to based
on business tax deficiencies for the years 2000 and 2001, amounting to P4,665,775.51 and
P4,710,242.93, respectively, based on its gross revenues for the years 1999 and 2000.
Again, petitioner filed a Protest reiterating its position that the local business tax should be
based on gross receipts and not gross revenue. The protest of Ericsson was denied so it
filed for a petition for review (praying for the annulment and cancellation of petitioner's
deficiency local business taxes). The RTC canceled and set aside the assessments made by
respondent and its City Treasurer and the CA approved (sustained respondent's claim), on
appeal the CA rendered a decision dismissing the plaintiff/appellee's complaint. This issue
is WON what should be included in a tax assessment is gross receipts or the gross income.
The SC said that, the respondent should have assessed the deficiency of Local business tax
on contractors based on gross receipts as reported in the financial statements. The
respondent argued that gross receipts is synonymous with earnings and revenue which
includes uncollected earnings. However the petitioner said that only the portion of the
revenues which were actually and constructively received should be considered in
determining the tax based. The SC referred to Sec 143
In relation to in relation to Section 151 of the Local Government Code.
SEC. 143. Tax on Business. - The municipality may impose taxes on the following
businesses:
(e) On contractors and other independent contractors, in accordance with the following
schedule:
With gross receipts for the preceding calendar year in the amount of: xxx
The SC said that the above provision specifically refers to gross receipts which is defined
under Section 131 of the Local Government Code, as follows: x x x
(n) "Gross Sales or Receipts" include the total amount of money or its equivalent
representing the contract price, compensation or service fee, including the amount charged
or materials supplied with the services and the deposits or advance payments actually or
constructively received during the taxable quarter for the services performed or to be
performed for another person excluding discounts if determinable at the time of sales, sales
return, excise tax, and value-added tax (VAT); x x x
The SC said that the law is clear. Gross receipts include money or its equivalent actually or
constructivelyreceived in consideration of services rendered or articles sold, exchanged or
leased, whether actual or constructive. So the actual receipt of interest...The SC cited the
case of Commissioner of Internal Revenue v. Bank of Commerce: gross receipts as
including those which were actually or constructively received, viz.: Actual receipt of
interest income is not limited to physical receipt. Actual receipt may either be
physical receipt or constructive receipt.
In contrast, gross revenue covers money or its equivalent actually or constructively
received, including the value of services rendered or articles sold, exchanged or
leased, the payment of which is yet to be received. As the RTC said that revenue from
services rendered is recognized when services have been performed and are billable. It is
recorded at the amount received or expected to be received. In this case, the audited
financial statements reflects the income or revenue which accrued to it during the taxable
period although not yet actually or constructively received or paid. This is because the
petitioner uses the accrual method of accounting where the income is reportable when all
the events have occurred that fix the taxpayer's right to receive the income, and the amount
can be determined with reasonable accuracy; the right to receive income, and not the
actual receipt, determines when to include the amount in gross income. The SC said that the
imposition of local business tax based on petitioner's gross revenue will inevitably result in
the constitutionally proscribed double taxation - taxing of the same person twice by the
same jurisdiction for the same thing- inasmuch as petitioner's revenue or income for a
taxable year will definitely include its gross receipts already reported during the previous
year and for which local business tax has already been paid.

Dean: If you have seen your syllabus, for gross income, there is a portion there, that portion
after the Calasanz case, yung income from dealing a property, Sections 39-40, so ordinary
assets, ordinary gains, ordinary loss, capital gains and tax free exchange. We’ll take that up
after we’ve taken the rates of income for corporations and individuals. The reason why I say
so is because that’s actually a special topic in income taxes. Pag may time pa we will take
this up, kung wala na, that’s fine, that will still be covered under tax law review. Again, this is
a special topic noh. You need it more for the bar exam rather than on day to day dealings.
So okay lang yun kung hindi natin sya abutan. We’ll leave that part.

For tonight we start with Fringe Benefit Tax. What is Fringe Benefits? The coverage for
tonight is form Finge Benefits to Deductions from Gross Income right? (Yes po) What is
Fringe Benefits? Sec. 33.

GAMBOA - 8:40 - 16:45

Student (Ms. Rosales): Dean, Section 33 (B). Fringe benefit is 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.

Dean: Okay. And then it goes on, Ano? Parang putol ka Ms. Rosales.

Again, what is a fringe benefit?

Student (Ms. Rosales): Section 33 (B), NIRC

(B) Fringe Benefit defined. - For purposes of this Section, the term 'fringe benefit' means 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 herein) such as, but not
limited to, the following:
 (1) Housing;
(2) Expense account;
(3) Vehicle of any kind;
(4) Household personnel, such as maid, driver and others;
(5) Interest on loan at less than market rate to the extent of the difference between
the market rate and actual rate granted;
(6) Membership fees, dues and other expenses borne by the employer for the
employee in social and athletic clubs or other similar organizations;
(7) Expenses for foreign travel;
(8) Holiday and vacation expenses;
(9) Educational assistance to the employee or his dependents; and
(10) Life or health insurance and other non-life insurance premiums or similar
amounts in excess of what the law allows.

Dean: Okay. That paragraph in Section 33 (B) before the definition went into the
enumeration of what are the kinds of fringe benefits, what can we take from that? What is
the nature of a fringe benefit?

Student (Ms. Balingit): From what I understand po sa actual practice, yung mga fringe
benefits po, ito po yung parang sort of “perks” sa mga managerial employees pataas.
Minsan included yung mga supervisory, which are beyond yung sweldo, or yung mga
compensation and allowances nila. Usually po, mga sasakyan na binibigay.

Dean: Somewhat correct. Una, yes it is by reason of employment. So you do not just give
fringe benefits to your cousin, parents, children if they help in the store. No. There should be
an employer-employee relationship before fringe benefits are given.

Number 2, if you look at the compensation, it is furnished in cash or in kind by an employer

to an individual employee. So again, it is by reason of employment, except rank and file
employees. So, if it is “except rank and file employees”, sino yung binibigyan ng fringe
benefits?
Student (Ms. Balingit): Supervisory pataas po.

Dean: Okay. So, hindi lang minsan Ms. Balingit. If a fringe benefit is given to either
supervisory or managerial employees, following the definition in the Labor Code, that is
fringe benefit. Total definition, “except rank and file”.

Question: I am the president of the company, I am the owner. If I give a car to one of my
managerial employees, is it a fringe benefit or not?

For “Yes”, use the “thumbs up” reaction. Sa “No”, use the “wow” reaction.

Okay. So, yes it is a fringe benefit. According to the enumeration: ‘(3) Vehicle of any kind’.

Question: If I give a car to one of my rank and file employees, is it a fringe benefit?

“Thumbs up” for “Yes”, “wow” for “No”.

Okay, lahat kayo “No”. So, if it is not a fringe benefit if I give it to one of my regular staff
members rank and file, what is it then?

Student (Mr. Garcia): Compensation.

Dean: Mr. Garcia says compensation. Sino pa yung nag-unmute?

Student (Mr. Puno): Compensation income din po.

Dean: Okay. It is considered compensation income, because the rank and file employee still
got the car by reason of the employment. There is just a different treatment if the recipient is
a rank and file employee versus if the recipient is a supervisory or managerial employee.

What is the difference why would you want to differentiate between fringe benefit tax and a
regular compensation item?

So, like what we have mentioned earlier, “fringe benefits” means any good, service or other
benefit granted in cash or in kind other than basic compensation by an employer to an
employee such as, but not limited to, and then the enumeration.

Take note, that fringe benefits tax is shouldered by the employer whereas compensation tax
is shouldered by the employee. Again, fringe benefits tax is shouldered by the employer
whereas compensation tax is shouldered by the employee.

Example, remember our ever-example na ang compensation, there is a difference between

“gross compensation” and “net take home pay”.

[continuation]

GARCIA - 16:45 - 24:50

DEAN: Yung employer pagbayad niya ng sweldo ng empleyado, kakaltasan na niya ng

lahat - SSS, PHILHEALTH, withholding tax. Tapos yung winithhold na tax nung employer,
ibibigay na niya kay BIR as advance tax nung employee. Kaya yung matatanggap ng
employee sa ATM niya, the employee is free to spend it. 11.11 pa naman. So pwede na
niyang ipang-SHOPEE at LAZADA, meron na siyang pang-COD.

Ibig sabihin, when we were discussing impact and incidence, impact is on the employer kasi
siya yung nag-withhold at magreremit sa BIR. So, withholding tax on compensation. But the
incidence, the ultimate bearer of taxation is on the employee kasi siya yung nakaltasan eh.
Agree?

What do we mean when we say fringe benefit tax is shouldered by the employer?

Konting math, papasok na ang konting math. So how do you compute fringe benefits tax?
The fringe benefits tax starts with the determination of the actual monetary value. How do we
determine the actual monetary value? Balik tayo dito. Remember, there are different types of
fringe benefits tax - housing, vehicle, household personnel, interest, etc. And, I told you to
look at Revenue Regulations 3-98 right? The valuation rules are there. You follow the
valuation rules in 3-98. Do not worry, I will not ask you to compute in the exams promise. If
at most, it is the conceptual formula but I will not ask you to compute. So if you’re going to
ask me if need ba ng calculator sa exam, NO. I will not ask you to do that.

Let’s go back here.

You start with the actual monetary value. So let’s say, let’s take the case of holiday and
vacation expenses. Let us say it’s P100,000 granted to the VP for Finance. Edi definitely,
fringe benefits yan kasi yung recipient is not a rank-and-file. Sa P100,000, yun na yung
valuation (actual monetary value) mo. You have to divide it by 65% to get the gross up
monetary value. So, meron siyang P100,000 divided by .65. What do you get? P153,000
(may butal). The P153,000 is what you call the gross up monetary value. You multiply the
GMV or the gross up monetary value by 35% to get the fringe benefits tax payable to the
government. If you multiply the P153,846 by .35, you get P53,000 something. That is the
fringe benefits tax payable by the employer to the government on that benefit. Diba napaka-
ganda? Employer na nga ang nagbigay ng benefits sa empleyado, siya pa ang magbabayad
ng tax. Agree? It is so nice to be a supervisory or managerial employee in that sense. It is
the responsibility of the employer and to illustrate further, you have this.

What is the difference between fringe benefits tax and compensation tax?

Like illustrated earlier, the fringe benefits tax was given to the VP for Finance. Eto yun, yung
nasa left column. Value of benefit is P100,000, GMV is P153,000 and the FBT of P53,000 is
shouldered by the employer. So magkano yung inuwi nung employee - the net take home
benefit? P100,000. Walang bawas. And the company expense to be reported is P153,000.
Why? The value of the benefit plus the FBT to be shouldered by the company ay expense
niya lahat. So ibig sabihin ang expense niya on the transaction is P153,000.

What if it is compensation tax?

Kunyare, rank-and-file to ah tapos kumikita ng P100,000. So rank-and-file employee, just to

illustrate, ang value of compensation niya is P100,000. Pero yung compensation tax niya ay
P35,000 kasi at 35%. Remember this is shouldered by the employee. So magkano nalang
yung magiging net take home pay ng employee? P65,000 nalang. How much should the
company record as an expense? P100,000 parin - 60,000 na inuwi ng employee tsaka yung
P35,000.

That is the concept and nature of FBT.

MALLARI - 24:50 - 32:55

DEAN: Before we go to each of the types of fringe benefits, let’s take up first what are
excluded from the fringe benefits tax coverage.

WAYNE: Section 33 (C) provides those fringe benefits that are not taxable.
(C) Fringe Benefits Not Taxable. – The following fringe benefits are not taxable under this
Section:

(1) Fringe benefits which are authorized and exempted from tax under special laws;

(2) Contributions of the employer for the benefit of the employee to retirement, insurance
and hospitalization benefit plans;

(3) Benefits given to the rank and file employees, whether granted under a collective
bargaining agreement or not; and

(4) De minimis benefits as defined in the rules and regulations to be promulgated by the
Secretary of Finance, upon recommendation of the Commissioner.

DEAN: Okay. So, nandun na naman sa (3) yung benefits given to the rank and file
employees. So, as long as rank and file, hindi siya subject to fringe benefits tax. Pag
supervisory and managerial, it's subject to fringe benefits tax.

And then, you have there, de minimis benefits.

Q: What are de minimis benefits?

A (WAYNE): De minimis benefits are privileges of relatively small value offered by an

employer to the employees. These are not considered compensation subject to income tax if
these are offered or furnished by the employers as a means of promoting health, goodwill,
contentment, or efficiency of the employee.

DEAN: De minimis benefits are supposedly amounts of relatively small value. That's the
intention. Kaya excluded na 'yan from fringe benefits tax. And take note de minimis benefits
are also excluded from compensation income. So, hindi rin siya kasama sa computation ng
gross income. So, basically, de minimis benefits are tax-exempt items given by the employer
to the employee.

Let's go through the list one by one. Again, there are eleven (11) de minimis benefits. The
list is exclusive. Following the rules of construction, because these are exemptions or items
exempt from income tax, kung wala 'yan diyan sa 11, ibig sabihin it should be taxable.

Kung hindi 11 ang nasa listahan niyo, anong gagawin diyan sa reviewer niyo? Tapon,
sunugin, ibasura. Outdated na yan.

Q: #1?

A (LOZANO): Monetized unused vacation leave credits of private employees, not exceeding
10 days during the year.

DEAN: Nag-Labor 1 na kayo? Yes? So, you all know that vacation leaves are statutory
benefits. There is no law providing for vacation and sick leave. But it's common practice that
vacation and sick leave is granted to employees.
Q: What if 'yung company policy ang mino-monetize niya ay sick leave, papasok ba
siya dito sa #1?

A (BONDOC): No. Since we have said that it is exclusive.

DEAN: And it is to be construed strictly. So, ibig sabihin kung sick leave ang binibigay, take
note this is for private employees not government employees, that will be taxable.

De minimis benefits are supposed to be amounts or benefits of relatively small value. But
imagine, if you're the President of the company and you're earning 1 million a month, how
much would 10 days sick leave credit worth? Malaki 'di ba? P1,000,000/22=P45,000 a day.
P45,000 x 10 = P450,000. P450,000 'yung monetization ng unused vacation leave ni
President. It's tax-free. Isn't it nice to be the President of a company?

Q: #2?

A (RONQUILLO): Monetized value of vacation and sick leave credits paid to government
officials and employees.

DEAN: So, this one is for government officials and employees. What kind of leave credits
are covered?

A (RONQUILLO): Vacation and sick leave credits.

Q: Do you see any limits as to days?

A (RONQUILLO): No, there's no limit.

DEAN: Wala. So, kung umabot ng 700 days ang aking imomonetize, pwede? Tax-free?

A (RONQUILLO): Wala pong sinabi. Tax-free.

DEAN: In theory, yes. It should be tax-free kahit na gaano karami 'yung leave credits na
imo-monetize. However, in practice, meron 'yan limits according to DBM. Hindi naman
pwede na monetize ng monetize yung mga government employees.

Q: #3?

A (MARTINEZ): Medical cash allowance to dependents of employees not exceeding

P1,500/employee per sem or P250/month.

PANEDA - 32:55 - 41:00 (8 Mins 5 Secs)

DEAN: Amounts are important when it comes to de minimis.

A: Medical cash allowance to dependents of employees not exceeding P1,500/employee per

sem or P250/month.
DEAN: Who is given benefit? The employee?

A: No. Dependents.
DEAN: Third item refers to allowance to dependents of employees not the employees
themselves. The limit here is P1,500/employee per sem. Per year, that is 3,000. Number 4?

A: Rice subsidy of P2,000 or 1 sack of 50kgs of rice amounting to not more than P2,000.

DEAN: That is the common de minimis benefit given to employees. Kaso lang some
employers may not be updated because they give lang P1,000 per month. Pano yun kung
P1,000 lang per month lang binibigay? Is that still de minimis?

A: Yes. Pero kulang po.

DEAN: Can the employee demand dapat P2,000?

A: Not more than P2,000 daw po eh. So de minimis pa din.

DEAN: Yes it is still de minimis. Kasi the P2,000 is the maximum limit. If the benefit is lower
than that, no problem. The amount is still tax-exempt. The amount of benefits anyways
should be ideally contemplated in the employment contract. Sinabi ni employer dyan P1,000
lang rice allowance dito, eh di nasa sayo yun as employee kung pipirmahan yun or gusto
mong umalma. Before, in some employment contracts, I have seen employees negotiate
parking space as part of their employment contract benefit kasi nga naman napakahirap
magpark sa Makati. Number 5?

A: Uniform and clothing allowance not exceeding P6,000 per annum.

DEAN: Number 7?

A: Laundry allowance not exceeding P300 per month.

DEAN: Next?

A: Actual yearly medical benefits not exceeding P10,000.

DEAN: Who is the beneficiary in this case?

A: Employee.

DEAN: Take note, yung number 3 kanina, yung medical cash allowance of not exceeding
1,500 per semester is to be given to dependents of the employees. In this item just
mentioned, the medical assistance is given to the employee and the amount should not
exceed P10,000 per annum. Next?

A: Employee achievement awards, for length of service or safety achievement in the form of
tangible personal property other than cash or gift certificate, with an annual monetary value
not exceeding P10,000 received by the employee under an established written plan which
does not discriminate in favor of highly paid employees

DEAN: Take note, there should be a plan. Hindi yun parang naisip lang ng company na
bigyan ng achievement award, it should be pre-determined and it should not discriminate
highly paid employees. So, kung mga tipong stock option plan which are granted only to the
management plan, di yan pasok dito and it discriminates in favor of the management team.
This award mention is in favor of everyone. For this particular item, it should be in the form of
tangible personal property which is not cash or GC. What do you think is the most common
form of gift given under this item?

A: Service award for length of service

DEAN: Ano usually ang binibigay? Hindi pera, bawal nga eh.

A: Relo madalas. Pwede din plane ticket.

DEAN: Kung binigay cash or GC, that is taxable. Di yan papasok sa de minimis. The most
common is watch...

SANTOS - 41:00 - 49:05

... minsan may naka-engrave pa. But remember it should not exceed P10,000. Second most
common that I see is fountain pen. So yan yung mga usual na ibinibigay na commemorative
achievement award.

What’s the next item? Ito napapanahon. Malapit na.

A (Dayrit): Gifts made during Christmas and major anniversary celebrations not exceeding
P5,000 per employee per annum.

Q: Pwedeng cash?

A (Dayrit): Yes po.

Dean: Okay. This time pwede ng cash. If the Christmas gift given to all employees is P5,000
cash credited to their payroll account (ATM), it is tax exempt. (Kwento)

Next, 2nd to the last item.

A (Tolentino?): Daily meal allowance for overtime work and night/graveyard shift not
exceeding 25% of the basic minimum wage on a per region basis.

Q: Overtime, meaning?

A : Time rendered outside the usual routine work. Anything beyond the 8-hour shift.

Q: Night or graveyard shift, what’s the definition?

A: between 10 in the evening until 6am

Dean: Yes. (kwento). Take note, deminimi if the meal allowance does not exceed 25% of the
basic minimum wage as determined by the tripartite wages productivity board

Q: What’s the 11th?

A: Benefits received by an employee by virtue of a CBA and productivity incentives gift
provided that the total monetary value combined does not exceed 10,000 per employee per
taxable year.

Dean: Okay. so, this is the 11th one and the thing is it pertains to benefits under a cba or
productivity incentive scheme and it should not exceed 10,000 per employee per taxable
year

Q: what happens if lets say ang binibigay na rice allowance ng company is 3k per month
what happens?

A: the excess willb eincluded in the other benefits with a 90k ceiling.

Dean: Okay that's correct.

Q: what if the company gives cell card? Deminimi or not? As communication allowance? 3oo
per month

A: No. bcs the cell card is not include among the list. As the list should be exclusive

Dean: Allright, how bout gas allowance? 5k gas allowance, deminimi?

CUBELO - 49:05 - 57:10

Q: What do you guys think?

A: Di pa rin po Dean.

Dean: Di pa rin.. Okay. Would those communication allowance and gas allowance be
considered as fringe benefits?

A: Possible po Dean, kapag for example there is a CBA na where it was agreed that those
will be part of the benefits po.

Dean: Uy, uy. Kung may CBA magfafall under na sya sa Number 11. Therefore magiging De
Minimis na sya. Wouldn’t you agree Mr. Yalung?

A: Ma’am I was confused. Ano po uli ang tanong ma’am?

Dean: Di ba kanina nag agree tayo na kung magbibigay ang company ng cellcard and/or
gas allowance sa employee, it is not De Minimis because it is not among those listed sa 11
items.

Q: Would that now be considered as fringe benefits?

A: Not necessarily po.

Q: Why not?

A: It depends po on who will receive, the kind of employee po.

Dean: Very good. That’s correct.
If the recipient of the cell card kahit sabihin mong P300, P500 lang yan or the recipient of the
gas allowance na P5,000 is rank and file that’s compensation. But if the recipient is a
supervisor or managerial employee, it’s fringe benefits.

Balik tayo dun sa sinabi ni Ms. Feliciano. Pano kung ang rice allowance ay P3,000, taxable
ba o hindi? It depends. The excess of P1,000 is to be included in the computation of the
P90,000. Remember when we took up exclusions from gross income last week. Di ba
merong P90,000 for the 13th month pay and other items.

Example: Let us say a company gives P3,000 rice subsidy every month. Ang tumatanggap
ay associate. And the compensation of the associate is P30,000 a month. Would the excess
rice subsidy taxable? No. Kung P30,000 ang sweldo ni associate, magkano ang 13th month
nya? P30,000 din. Magkano ung excess sa rice allowance? P1,000 per month meaning
P12,000 per year. If you add P12,000 to the 13th month pay you will get P42,000. So pasok
na pasok pa sya dun sa P90,000 limit. Ibig sabihin exempt pa din sya.

What if the recipient is now the President. Let’s say ang sweldo nya ay P200,000 per month.
Sa 13th month pa lang ni President, magkano na ang 13th month nya? P200,000 din. So
ibig sabihin sa sweldo pa lang or sa 13th month pa lang nya used up na yung P90,000 limit.
So kung nakakatanggap din sya ng rice subsidy na P3,000 per month, meaning ang excess
ay P12,000 per year. Wala ng paglalagyan doon sa P90,000. Ibig sabihin yung excess ni
Pres. taxable na yun.

Kinds of Fringe Benefit.

Dean: I’ll discuss it. You can read the details in 3-98.
What’s important here is, aside from determining the determining the different kinds of fringe
benefits, you have to know when will the fringe benefit attach and when will the fringe benefit
be excluded.

So let’s go to each and every one.

1. HOUSING
If you look at 3-98 there are a lot of different scenarios under which an employer can
provide housing benefits to the employee. Pwede nyang upahan tapos bigay nya sa
employee. Pwedeng may property talaga si employer and then inassign nya sa
employee for the employee’s use. So its also possible that the employer purchases a
property and allows the employee to use the same.

Don’t worry, kasi iba iba ang magiging actual monetary value under each scenario. I
will not ask you what the actual monetary value are. So you don’t have to memorize
that. But know the different scenarios. Is this a fringe benefit or not?

Particularly for housing, what is important is to determine housing that is not

considered a fringe benefit. Madalas din itong tanungin sa bar exam.
1) Housing privileges of military officials of the AFP is not a fringe benefit.
2) Housing units which is situated inside or adjacent to the premises of a
business or factory. And there is a distance provided. Maximum of 50 meters.
Ibig sabihin nasa compound yan. It is also not taxable fringe benefit. Why?
Because this would fall under those items that are actually given to the
employee for the benefit or convenience of the employer.

CHALWANGCO - 57:10 - 1:05:15

Siyempre kung malapit lang ‘yung tinitirhan ng employee, edi paggising niya, tatlong
tumblings lang, nasa office na siya, ‘di ba. So, this actually more for the benefit of the
employer not of the employee.

3) Temporary housing for employees for three months or less is not a taxable
fringe benefit.

2. VEHICLE OF ANY KIND

TAKE NOTE: Same as housing, there are different scenarios by which the employer
can provide a motor vehicle to its employees. So, just know the different scenarios,
then you’re good. But what I want to highlight is the DIFFERENCE BETWEEN IF
WHAT WAS PROVIDED TO THE EMPLOYEE IS AN AIRCRAFT VERSUS WHAT
WAS PROVIDED TO THE EMPLOYEE IS THE USE OF A YACHT

Q: What is the difference? It’s there in 3-98.

A (LOZANO):

(g) The use of aircraft (including helicopters) owned and maintained by the
employer shall be treated as business use and not be subject to the fringe
benefits tax.

(h) The use of yacht whether owned and maintained or leased by the
employer shall be treated as taxable fringe benefit. The value of the benefit
shall be measured based on the depreciation of a yacht at an estimated
useful life of 20 years.

DEAN: So, ‘yun and difference ha. Kapag pinagamit ‘yung company jet, not a taxable
fringe benefit. PERO kapag ang pinagamit ay yacht, it is a taxable fringe benefit.
Usually, I go into the logic of why kings are? But for the life of we? Hindi ko alam bakit
may ganitong difference.

3. EXPENSE ACCOUNT

DEAN: Of course, kung magkano ang binigay na amount, that is the actual monetary
value.

Example:

Actually, dito papasok ‘yung example ko kanina: gasoline allowance. It’s different, let’s
say, for the sales course (legit ha), na meron silang gasoline allowance, then
kailangan nilang magsubmit ng resibo. Because, of course, as part of the sales
course, it is expected that your sales team will go out to make sales for your company.
So, legit ‘yung travel expenses nila.

For us, kung halimbawa, you’re giving gasoline allowance to your admin team. ‘Di ba
hindi naman nila trabaho magbenta. So, ‘yung sa sales course, that is a legitimate
business expense that is not subject to fringe benefit, kase, usually, it is by
reimbursement or advance. Whereas, if this is given to the admin team, ‘di ba hindi
naman nila kailangan, this is subject to fringe benefits tax, IF given to supervisor and
managerial employees.

Q: Can anybody think of other expense account? Aside from gasoline, ano pa ang
pwedeng ibigay sa empleyado?
 A (CUBELO): Before ‘yung blackberries... mobile phones or smartphones especially
for the executives.

DEAN: Communication allowance. Kase usually may kasamang plan (corporate

plans) ‘yon, ‘di ba? Pwede. Nung time na nagkaroon na ng limit sa data ng Globe and
Smart users, ang corporate plans ng Globe was unlimited at that time, mga 2015 ‘yon.

What else? Ano pang pwedeng idemand sa employers niyo?

A (MACASPAC): …. transportation… (inaudible 1:03:20)

DEAN: Pwede. Pero usually reimbursement lang ‘yon. Pwede siyang maging
representation allowance. ‘Yung parang, “Oh, ibibigay ko ito s aiyo whether or not
magastos mo ‘yan. ‘Yan na ‘yan sa’yo.” Very good. What else?

A (LISING): Wellness allowance po.

DEAN: Pwede. Gym membership, yoga, etc.

4. HOUSEHOLD PERSONNELS such as maid, driver, and others.

DEAN: “Meron palang ganyan, Ma’am?” Yes, meron. Lalo na kung ang inyong
employee ay expan (?? 1:04:10). Siyempre pinapunta niyo sa Pilipinas. Hinouse niyo
sa Forbes. Bibigyan niyo rin sila ng maids and drivers. ‘Yan ay subject to fringe
benefits tax.

5. INTEREST ON LOANS AT LESS THAN PREVAILING MARKET RATES

Then the fringe benefit is the difference between the loan rates and the prevailing
market rates.

Example:

Ang prevailing market rates ngayon sa car loans ay magkano? 8%? 10%? Sabihin na
nating 8%. And then there is this company na nagsasabi sa employees, “Oh, you can
take a car loan from us. We’ll just charge you a rate of 2%. So, how much is the fringe
benefit?

A: It will be at the 6% differential. Fringe benefit ‘yon.

6. MEMBERSHIP FEES, DUES, AND OTHER EXPENSES BORNE BY THE

EMPLOYER

FELICIANO - AUDIO 1 1:05:15 - 1:11:30 (6 Mins 15 Secs) & AUDIO 2 00:00 - 1:50 (1 Min
50 Secs)

6. Membership fees, dues and other expenses borne by the employer for the
employee in social and athletic clubs or other similar organizations

May free membership ang mga director sa Golf Clubs sa Arayat, or Subic Bay Yacht Club -
that's also fringe benefits.

7. Expenses for foreign travel

Please take note, there's a limit here. $300 per day or less shall not be subject to Fringe
Benefit Tax (FBT). Take note, economy and business class of plane tickets are also not
subject to FBT, however, 30% of the cost of first class ticket is subject to FBT. Kaya most
executives pinapalipad lang using business class, hindi na sila pinapa-first class :D kase
may fringe benefits na involved.

8. Holiday and vacation expenses

9. Life or health insurance and other non-life insurance premiums or similar amounts
in excess of what the law allows.

Please take note that the requirement here is that is given for specific employees. If what the
company gets is a group plan, meaning it's one insurance for all the employees, that is not
subject to FBT. But if the company gets specific health insurance plans for particular
employees, say the President and Vice President, that is now subject to FBT.

10. Educational assistance to the employee or his dependents

This is very important. Please take note, it shall not be treated as taxable fringe benefit if the
education 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.

Ang common example nito ay ang tinatawag nating training bond. Okay, magtraining ka dun
or mag-master's ka, pero pagbalik mo dapat magserve ka dito sa company ng 2 years.

When I was in law school, the audit firm where I was working actually had this. Ang
coverage ng training bond or educational assistance are tuition and books for law school. So
sabi, mag-avail ka na, qualified ka na. Tapos ang kapalit is 2 years nga na service bond.
Sabi ko, alam niyo ba magkano ang tuition sa UP? P5,000 per semester, so bakit ako
magpapatali ng 2 years para sa halagang P5,000. Wag na uy, kaya ko naman bayaran
yun :D

What if the company extends the scholarship or educational assistance to dependents?

Take note kanina, the educational assistance is to the employees. Ngayon, the educational
assistance is extended to the dependents. It will not be treated as taxable fringe benefit if the
assistance was provided thru a competitive scheme under the scholarship program of the
company.

Let's say sabi ng company, okay, we will have a qualifying exam or the children of our
employees that are taking up college are eligible to take the qualifying exam, and only the
top 5 or those who garnered 5 highest scores will be given the scholarship. That is not a
taxable fringe benefit. If it does not fall under that criteria, therefore, taxable yan.

Any questions?

Puno: In your example po earlier about the President receiving prize in excess of the de
minimis threshold, we discussed po that the excess is taxable, who will bear the burden po?
Will that be treated as FBT dahil managerial po siya or will it be borne by the President
himself?

Dean: It's treated as compensation. In practice ha, it's actually treated as compensation,
hindi fringe benefit. Parang hindi siya magffall dun sa mga fringe benefits item eh, it's not an
expense account.

(BREAK TIME)
We take allowable deductions. Just to refresh your memory about this formula that we have.
Remember Gross Income – this is governed by Sections 23, 32. The question is what is to
be included or excluded. In Section 32, we learn that income from whatever source is to be
included, whereas Section 32(b), de minimis at fringe benefits, are to be excluded. Yung
Section 23 naman will tell you about General Principles of Income Taxation in the
Philippines. Kung Resident Filipino Citizen, include everything – whether it’s worldwide or
Philippine income. Whereas, let’s say Non-Resident Citizen, Resident Alien, or Non-
Resident Alien, we include only items of income from within the Philippines, but exclude
items of income sourced from outside the Philippines. That’s the rule when it comes to Gross
Income.

And then now, we go to Allowable Deductions…

MARTINEZ - 1:50 - 9:55 (8 Mins 5 Secs)

Dean: The rule on Allowable Deductions is found under Sec 34. Gross income less
allowable deductions. You get Net income and we said you multiply this with the tax rate.
The tax rate is under Sections 24 to 28 which we will take up next week. Then you get the
tax due.

Illustration:

Gross income - (Sec 32) (kita)

Less: Allowable deductions (Section 34) (expenses)
------------------
Net Income x Tax Rate (Secs 24 to Sec 28)
------------------
Tax Due

Dean: So now we get to this portion, Sec 34. We will know what items are deductible from
gross income. So kabawasan, generally expenses. Dba ito kita, ito yung expenses.

REMINDER: these are deductions, therefore, they are construed strictly against the taxpayer
kasi kabawasan yan sa ibabayad niyong tax.

One thing when you study about allowable deductions, you have letters A to L actually
because letter M was vetoed by the president. So you only have letters A to L. My
suggestion is when you study this, as indicated in the syllabus, study this like you would
study the requisites of a felonies in Crim2 dba? Kung macheck lahat ng requisites ibig
sabihin this particular crime was committed.

Dito naman sa Section 34, there are requirements for each type of expense item. So
iba ang requirement ng losses, iba ang requirement ng depreciation, iba ang requirement ng
ganito ganyan, interest, donation and charitable institution iba ang requirements. So you look
at the requirements of each type of business expense at kung ma-hit yan or mameet lahat
ng requirements therefore the expense is deductible. If the requirements are not met, edi
non-deductible yan.

So just to go back. Kung ang question sa gross income is to be included or excluded. Sa

allowable deductions ang question is “is it to be allowed or disallowed” kung ma-hit lahat ng
requirements, allowed. Kung may kulang sa isa sa mga requirements, disallowed.

Dean: So let’s go through each and every one.

(A) Expense. What are the requirements to be deductible, business expenses?

Mr. Garcia (Student): the requisites po dean are:

1) the expense must be ordinary and necessary
2) it must have been incurred during the taxable year
3) it must have been paid or incurred in carrying on the trade or business and
4) it must have been supported by receipts, records or other pertinent papers.

Dean:

5) it must be in a reasonable amount

6) it must not be contrary to law, morals, public order or public policy

Dean: When will you consider an expense ordinary and necessary?

Mr. Garcia (Student):

1) Dean it is ORDINARY po when it is normal in relation to the business of the

taxpayer and it NEED NOT BE RECURRING.

2) It is NECESSARY when it is APPROPRIATE and HELPFUL in the development

of the taxpayer’s business and if it is intended to minimize losses or to maximize
profit.

Dean: Ok. Example ng ordinary and necessary expenses?

Mr. Garcia (Student): Salaries of the employees, dean.

Dean: Siyempre dapat may empleyado ka. What else guys? How about the other students?

Ms. Feliciano (Student): Dean, travel Expenses po.

Dean: depends on the business. Yes?

Ms. Feliciano (Student): If the requisites. Hmmn. It is reasonable po then or it is incurred or

paid while away from home within and without the country and it is incurred or paid in the
pursuit of trade, business or profession po.

Dean: Paano kung ang business mo ay sari-sari store? Edi walang travel expense? Sorry
Ms. Feliciano, what I’m trying to say is what is ordinary and necessary would depend on the
nature of the business dba? So yun nga paano kung ang business mo ay sari-sari store?

MACALE - 18:00 - 26:10 (8 Mins 10 Secs)

Dean: What are the requisites before an interest expense can be deducted?

Student (Puno): There are ten (10) requisites according to Revenue Regulation No. 30-
2000.

REQUISITES FOR DEDUCTIBILITY:

1. There is a valid and existing indebtedness.
2. The indebtedness is that of the taxpayer
3. The indebtedness is connected with the taxpayer‘s trade, profession, or business.
4. The interest must be legally due.
5. The interest must be stipulated in writing.
6. The taxpayer is LIABLE to pay interest on the indebtedness.
7. The indebtedness must have been paid or accrued during the taxable year.
8. The interest payment arrangement must not be between related taxpayers
9. The interest must not be incurred to finance petroleum operations.
10. In case of interest incurred to acquire property used in trade, business or exercise of
profession, the same was not treated as a capital expenditure,

Dean: Is there a limit as to interest expense? Or was this something removed by the
CREATE Law?

Student (Rosales): Before, the limit of the interest to be deductible would be reduced by an
amount equal to 33% of the interest income, which is what’s subjected to the 20% FWT.

But, under the CREATE Law, the interest expense that will be deducted will be reduced to
an amount equal to 20% of the interest income, which is what’s subjected to the 20% FWT.

Dean: Parang ang dating sa akin, pareho lang sinabi mo, wait lang ah, let me show you the
provision. Does everyone have a copy of the CREATE Law?

Well, ginawa na kasi nilang fixed eh. Dati kasi - this is what we call the ‘Tax Arbitrage Rule’ -
what does it mean? Before, interest income was subjected to 20% tax only, so ibig-sabihin,
yung kinita mong interest is only subjected to 20% tax. Parang ikaw yung nagpautang.
However, if ikaw naman ang nangutang, meaning you have interest expense - before
CREATE ha - your interest is subject to 30% tax. So, there is a tax benefit of 30%. So ibig
sabihin, yung income mo, taxed only at 20%, pero yung tax benefit mo from interest expense
is only 30%. Ibig sabihin, lugi ang government sa’yo. Again, you are claiming a tax benefit
from the government of 30%, whereas, ang kinikita lang ng government sa’yo on your
interest income ay 20%. So, lugi ang government ng 10% difference, which is ⅓ of the
expense.

So, to remedy that, the government said, “Taxpayers, you should slash your deductible tax
expense by ⅓ or 33%, kasi ibababa rin natin yung pwede mong i-claim as expense, yung
sakto lang sa’yo sa income mo. Kaya dapat i-slash rin siya ng ⅓.

Note: Basically, the allowable deduction for interest expense shall be reduced by an
amount equal to 20% of interest income that is subject to final tax, if any. The
percentage of reduction was adjusted from 33% as a result of the lower CIT of 25%
under the CREATE Law.

Under the TRAIN - i’ll show you the wording:

“The interest incurred shall be allowed as an expense, provided that the taxpayer’s
otherwise allowable deduction for interest expense, shall be reduced by 20% of the interest
income subjected to final tax. Provided, finally that if the interest income is adjusted in the
future -

Eto na yung ginawa nila, kasi parang sa former versions ng Tax Code, laging fixed, laging
sinasabi magkano, but this part here shows the intention of the law by saying, “let’s say-i-
adjust pa ulit income tax rate in the future -”

the interest expense reduction rate shall be adjusted according to the prescribed formula by
the Secretary of finance.”

So, magkakaroon na ng adjustments. The point is, if you have interest expense, and you
have interest income subjected to final tax, you cannot claim the entire interest expense,
dapat bawasan mo siya - that’s the rule.

Dean: Next, letter C. Taxes. When can you claim taxes and when can you claim taxes as a
deduction?

Wala na? Wala ng gasolina? [Stops sharing] Okay, feeling ko di na tayo nagiging productive
- let’s stop here.