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NOTES ON Work-Related FBs:

Sec. 2.33. (A) of RR No. 03-93:

There is NO Fringe Benefits Tax when:
(1) the fringe benefit is required by the nature of or necessary to the trade,
business or profession of the employer; or

(2) when the fringe benefit is for the convenience or advantage of the

SO Work-Related or Working-Condition Fringe Benefits are NOT taxable as


The NIRC in Sec. 33 also specifies fringe benefits which are NOT subject to FBT:

(1) Fringe benefits which are authorized and exempted from income tax under the
Code or under any special law;

(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, whether granted under a collective bargaining
agreement or not;

(4) De minimis benefits as defined in these Regulations;

(5) If the grant of fringe benefits to the employee is required by the nature of, or
necessary to the trade, business or profession of the employer; or

(6) If the grant of the fringe benefit is for the convenience of the employer.

ON #1
Because there other provisions of tax and in other special laws which provide NON-
TAXABLE Benefits
This provision also applied to benefits that may have been existing before the FBT was

ON #2
This refers to:
1. private retirement benefits under a reasonable private benefit plan and
2. the retirement benefits provided by the Labor Code of the Philippines
BECAUSE the above are covered by ANOTHER set of rules for taxation (so FBT does
NOT apply)

ON #3
Because Rank-and-File Employees are NOT subject to FBT
BUT are subject to Withholding tax on Compensation

ON #4
While these benefits employees --> their IMMATERIALITY did NOT warrant taxability
under FBT in PH
ON #5
Because FBs are BENEFICIAL to employees
SO ---> benefits required by the nature of business or necessary to the conduct of
trade --> NOT taxable
BECAUSE they tend to work FOR the business and NOT for the employee

ON #6
Refers to a Benefit provided by the Employer FOR the Employee BUT which would be
MORE beneficial to the employer THAN to the employee
SO NOT taxable as FBT

The above REMAIN to be DEDUCTIBLE expenses WITHOUT needing to pay FBT

US v. Gotcher (1968) (by US CA for the 5th Circuit):
1960 - Mr. and Mrs. Gotcher took a 12 day expense-paid trip (worth USD 1,372.30) to
Germany to tour the Volkswagen facilities
o Paid by: Economy Motors, Volkswagen of Germany, and Volkswagen of America

The Gotcher couple did NOT include any part of the cost for the expense-paid trip in
their 1960 income
Tax Commissioner: The Gotcher couple had realized income of USD 1,372.30 for the
expense paid trip
o Tax Deficiency Assesment: USD 356.79 + interest

Gotcher paid the Deficiency (356.79) + Interest (89.29)

o AND filed a SUIT for REFUND

o Cost of Mr. Gotcher's trip (USD 686.15) was NOT income to him
o Cost of Mrs. Gotcher's trip (USD 686.15) was income and is NOT deductible

Economic benefit will be taxable to the recipient only when the payment of expenses
serves no legitimate corporate purpose.

The dominant purpose of the trip is the critical inquiry AND some pleasurable
features will not negate the finding of an overall business purpose
It is the business reality of the total situation, not the colorful expressions in the
literature, that controls.

Thus --> it appears that the value of any trip that is paid by the employer or by a
businessman primarily for his own benefit should be excluded from gross income of
the payee on similar reasoning
In cases involving non-compensatory economic gains --> courts have emphasized that
the taxpayer still had complete dominion and control over the money to use it as he
wished to satisfy personal desires or needs.
o In this case, Mr. Gotcher did NOT have full control --> SO it should NOT be
taxable to him
RULE: economic benefit will be taxable to the recipient --> only when the payment of
expenses serves no legitimate corporate purpose.

When this indirect economic gain is subordinate to an overall business purpose --
> the recipient is not taxed

Mrs. Gotcher did NOT make the tours with her husband to see the local dealers or
attend discussions about the VW organization (it was just a vacation for her)
o This being so ---> the primary benefit of the expense-paid trip for the wife --->
went to Mr. Gotcher in that he was relieved of her expenses
o THEREFORE --> he should be taxed on the expenses attributable to his wife
o ALSO CANNOT be deductible because the wife's presence served NO bona fide
business purpose for her husband