QuAMTO for TAXATION LAW (1991-2015)

end of the lease the building is worth only

The Commissioner of Internal Revenue taxed the P1 P900.000.00 due to depreciation. Will Mr. Domingo
Million as part of the gross compensation income of have income when the lease expires and becomes the
Quiroz who protested that it was excluded from owner of the building with a fair market value of
income because (a) it was a retirement pay, and (b) it P900.000.00? How much income must he report on
was a gift. the building? Explain. (1995)

a. Is Mr. Quiroz correct in claiming that the A: When a building is erected by a lessee in the leased
additional P1 Million was retirement pay and premises in pursuance of an agreement with the lessor
therefore excluded from income? Explain. that the building becomes the property of the lessor at the
b. Is Mr. Quiroz correct in claiming that the end of the lease, the lessor has the option to report
additional P1 Million was gift and therefore income as follows:
excluded from income? Explain. (1995) 1. The lessor may report as income the market value of
the building at the time when such building is
A: completed; or
a. No. The additional P1 million is not a retirement pay 2. The lessor may spread over the life of the lease the
but a part of the gross compensation income of Mr. estimated depreciated value of such building at the
Quiroz. This is not a retirement benefit received termination of the lease and report as income for
in accordance with a reasonable private benefit each year of the lease an aliquot part thereof.
plan maintained by the employer as it was not paid
out of the retirement plan. Accordingly, the amount Under the first option, the lessor will have no income
received in excess of the retirement benefits that he when the lease expires and becomes the owner of the
is entitled to receive under the BIR-approved building. The availment of the first option will require Mr.
retirement plan would not qualify as an exclusion Domingo to report an income of P1,000,000.00 during
from gross income. the year when the building was completed.
b. No. The amount received was in consideration of
his loyalty and invaluable services to the The second option will give rise to an income during the
company which is clearly a compensation income year of lease expiration of P90,000.00 or 1/10 of the
received on account of employment. Under the depreciated value of the building. A total of P900,000.00
employer's 'motivation test,' emphasis should be income will be reported under the second option but will
placed on the value of Mr. Quiroz services to the be spread over the life of the lease or P90,000.00 per year.
company as the compelling reason for giving him the
gratuity, hence it should constitute a taxable Prizes and other winnings
income. The payment would only qualify as a gift if
there is nothing but 'good will, esteem and kindness' Q: Mr. A, a citizen and resident of the Philippines, is a
which motivated the employer to give the gratuity professional boxer. In a professional boxing match
(Stonton vs. U.S., 186 F. Supp. 393). Such is not the case held in 2013, he won prize money in United States
in the herein problem. (US) dollars equivalent to P300,000,000. (2015)

13th month pay and other benefits a. Is the prize money paid to and received by Mr. A
in the US taxable in the Philippines? Why?
Q: State with reasons the tax treatment of the b. May Mr. A's prize money qualify as an exclusion
following in the preparation of annual income tax from his gross income? Why?
returns: 13th month pay (2005) c. The US already imposed and withheld income
taxes from Mr. A's prize money. How may Mr. A
A: 13th month pay is excluded from the gross income for use or apply the income taxes he paid on his prize
income tax purposes to the extent of P30,000.00* Any money to the US when he computes his income
excess will be included in the gross income per income tax liability in the Philippines for 2013?
tax return as part of gross compensation income. (Sec.
32(B)(7)(e), NIRC). A:
a. Yes. A citizen of the Philippines residing therein is
*NOTE: The amount of ₱30,000, specifically referring to the taxable on all income derived from sources within
total amount of 13th month pay and other benefits as and without the Philippines (Sec. 23 A, NIRC). Mr. A,
one of the exclusions from gross compensation income being a resident citizen, is taxable on the prize he
received by an employee, is increased to ₱82,000 (R.A. No. received in United States.
10653).The amount of ₱82,000 shall apply to the 13th b. No. All prizes and awards granted to athletes in local
month pay and other benefits paid or accrued beginning and international sports competitions and
January 1, 2015 (R.R. 3-2015, Sec. 3). tournaments, whether held in the Philippines or
abroad, and sanctioned by their national sports
Rental Income associations are excluded from gross income. The
exclusion find application only to amateur athletes
Q: Mr. Domingo owns a vacant parcel of land. He where the prize was given in an event sanctioned by
leases the land to Mr. Enriquez for ten years at a the appropriate national sports association affiliated
rental of P12,000.00 per year. The condition is that with the Philippine Olympic Committee and not to
Mr. Enriquez will erect a building on the land which professional athletes like Mr. A. Therefore, the prize
will become the property of Mr. Domingo at the end money would not qualify as an exclusion from Mr. A’s
of the lease without compensation or reimbursement gross income (Sec. 32 B [7] [d], NIRC).
whatsoever for the value of the building. Mr. c. Mr. A has the option to claim foreign income tax
Enriquez erects the building. Upon completion the either as a deduction from gross income or as a tax
14

building had a fair market value of P1 Million. At the credit. The option of Mr. A is mutually exclusive.

*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
 QUAMTO FOR TAXATION LAW (1991-2015)

sparing rule applies (Sec. 28(B)(5)(b), NIRC).

If the option of Mr. A is a deduction from gross Pursuant to this rule, the lower rate of tax would
income, the income tax on his prize money imposed apply if the country in which the non-resident foreign
in US is included among the itemized deductions of corporation is domiciled would allow as a tax credit
the taxpayer. against the tax due from it, taxes deemed paid in the
Philippines of 15% representing the difference
If Mr. A signifies in his return his desire to avail of the between the regular income tax rate and the
tax credit, he will be allowed a credit on his tax due preferential rate.
an amount equivalent to the income tax paid or
incurred in US during the taxable year but not to Q: State with reasons the tax treatment of the
exceed the limitation prescribed by law. (Sec. 34 following in the preparation of annual income tax
[C][1][b], NIRC) returns: Dividends received by a domestic
corporation from (i) another domestic corporation;
Q: Jose Miranda, a young artist and designer, received and (ii) a foreign corporation; (2005)
a prize of P100,000.00 for winning in the on-the-
spot peace poster contest sponsored by a local Lions A: Dividends received by a domestic corporation from
Club. Shall the reward be included in the gross another domestic corporation are not subject to income
income of the recipient for tax purposes? Explain. tax hence should not be declared in the income tax return
(2000) (Sec. 27 (D)(4), NIRC). A dividend received by a domestic
corporation from a foreign corporation is subject to
A: No. It is not includable in the gross income of the income tax and shall form part of the gross income. There
recipient because the same is subject to a final tax of is no law exempting this type of dividend from income tax
20%, the amount thereof being in excess of P10,000 (Sec. 32 (7), NIRC).
(Sec. 24[B][1], NIRC of 1997). The prize constitutes a
taxable income because it was made primarily in Q: On 03 January 1998, X, a Filipino citizen residing
recognition of artistic achievement which he won due to in the Philippines, purchased one hundred (100)
an action on his part to enter the contest [Sec. 32 shares in the capital stock of Y Corporation, a
(B)(7)(c), NIRC of 1997]. Since it is an on-the-spot contest, domestic company. On 03 January 2000, Y
it is evident that he must have joined the contest in order Corporation declared, out of the profits of the
to earn the prize or award. company earned after 01 January 1998, a hundred
percent (100%) stock dividends on all
Dividends stockholders of record as of 31 December 1999 as a
result of which X holding in Y Corporation became
Q: BBB, Inc., a domestic corporation, enjoyed a two hundred (200) shares. Are the stock dividends
particularly profitable year in 2014. In June 2015, its received by X subject to income tax? Explain. (2003)
Board of Directors approved the distribution of cash
dividends to its stockholders. BBB, Inc. has individual A: No. Stock dividends are not realized income.
and corporate stockholders. What is the tax Accordingly, the different provisions of the Tax Code
treatment of the cash dividends received from BBB, imposing a tax on dividend income only includes within
Inc. by the following stockholders: (2015) its purview cash and property dividends making stock
a. A resident citizen dividends exempt from income tax. However, if the
b. Non-resident alien engaged in trade or business distribution of stock dividends is the equivalent of cash
c. Non-resident alien not engaged in trade or or property, as when the distribution results in a change
business of ownership interest of the shareholders, the stock
d. Domestic corporation dividends will be subject to income tax (Sec. 24(B)(2);
e. Non-resident foreign corporation Sec. 25(A)&(B); Sec.28(B)(5)(b), 1997 Tax Code).

A: Q: What are “disguised dividends” in income

a. A final withholding tax of 10% shall be imposed upon taxation? Give an example. (1994)
cash dividends actually or constructively received
by a resident citizen from BBB, Inc. (Sec. 24(b)(2), A: Disguised dividends are those income payments made
NIRC). by a domestic corporation, which is a subsidiary of a non-
b. A final withholding tax of 20% shall be imposed resident foreign corporation, to the latter ostensibly for
upon cash dividends actually or constructively services rendered by the latter to the former, but which
received by a non-resident alien engaged in trade payments are disproportionately larger than the actual
or business from BBB, Inc (Sec. 24(a)(2), NIRC). value of the services rendered. In such case, the amount
c. A final withholding tax equal to 25% of the entire over and above the true value of the service rendered
income received from all sources within the shall be treated as a dividend, and shall be subjected to
Philippines, including the cash dividends received the corresponding tax of 35% (now 30%) on Philippine
from BBB, Inc (Sec. 25(b), NIRC). sourced gross income, or such other preferential rate as
d. Dividends received by a domestic corporation may be provided under a corresponding Tax Treaty.
from another domestic corporation, such as BBB,
Inc., shall not be subject to tax (Sec. 27(d)(4), NIRC). Example: Royalty payments under a corresponding
e. Dividends received by a non-resident foreign licensing agreement.
corporation from a domestic corporation are
generally subject to an income tax of 30% to be Q: A Co., a Philippine corporation, issued preferred
withheld at source (Sec. 28 (b)(1), NIRC). However, shares of stock with the following features:
a final withholding tax of 15% is imposed on the 1. Non-voting;
15

amount of cash dividends received from a

domestic corporation like BBB, Inc. if the tax

UNIVERSITY OF SANTO TOMAS TEAM BAROPS

FACULTY OF CIVIL LAW ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
2. Preferred and cumulative dividends at the rate of A: The amount payable under the agreement is in the
10% per annum, whether or not in any period the nature of a royalty. The term royalty is broad enough to
amount is covered by earnings or projects; include compensation for the use of an intellectual
3. In the event of dissolution of the issuer, holders property and supply of technical know-how as a means of
of preferred stock shall be paid in full or ratably enabling the application or enjoyment of any such
as the assets of the issuer may permit before property or right (Sec. 42(4) NIRC). The royalties paid to
any distribution shall be made to common the non-resident US Corporation, equivalent to 5% of the
stockholders; and revenues derived by ABC for the use of the program in the
4. The issuer has the option to redeem the Philippines, is subject to a 30% final withholding tax,
preferred stock. unless a lower tax rate is prescribed under an existing tax
treaty (Sec. 28(B)(1) NIRC).
A Co. declared dividends on the preferred stock
and claimed the dividends as interests deductible Interest Income
from its gross Income for income tax purposes. The
BIR disallowed the deduction. A Co. maintains that Q: State with reasons the tax treatment of the
the preferred shares with their features are really following in the preparation of annual income tax
debt and therefore the dividends are realty interests. returns: Interest on deposits with: (i) BPI Family
Decide. (1999) Bank; and (ii) a local offshore banking unit of a
foreign bank; (2005)
A: The dividends are not deductible from gross income.
Preferred shares shall be considered capital regardless of A: Interest on deposit with BPI Family Bank is a passive
the conditions under which such shares are issued and, income subject to a final withholding tax rate of 20%;
therefore, dividends paid thereon are not considered the interest on deposit with a local offshore banking unit
'interest' which are allowed to be deducted from the of a foreign bank is a passive income subject to a final
gross income of the corporation (Revenue Memorandum withholding tax rate of 7.5% (Sec. 24(B)(1), NIRC). Both
Circular No. 17-71, July 12, 1971). interest incomes are not to be declared as part of gross
income in the income tax return.
Royalty income
Q: In 2007, spouses Renato and Judy Garcia opened
Q: The MKB-Phils. is a BOI-registered domestic peso and dollar deposits at the Philippine branch of
corporation Licensed by the MKB of the United the Hong Kong Bank in Manila. Renato is an overseas
Kingdom to distribute, support and use in the worker in Hong Kong while Judy lives and works in
Philippines its computer software systems, including Manila. During the year, the bank paid interest
basic and related materials for banks. The MKB-Phils. income of P10,000 on the peso deposit and USS1,000
provides consultancy and technical services on the dollar deposit. The bank withheld final income
incidental thereto by entering into licensing tax equivalent to 20% of the entire interest income
agreements with banks. Under such agreements, the and remitted the same to the BIR.
MKB-Phils. will not acquire any proprietary rights in a. Are the interest incomes on the bank deposits of
the licensed systems. The MKB-Phils. pays royalty to spouses Renato and Judy Garcia subject to
the MKB-UK, net of 15% withholding tax prescribed income tax? Explain.
by the RP-UK Tax Treaty. Is the income of the MKB- b. Is the bank correct in withholding the 20% final
Phils. under the licensing agreement with banks tax on the entire interest income? Explain. (2008)
considered royalty subject to 20% final withholding
tax? Why? If not, what kind of tax will its income be A:
subject to? Explain. (2002) a. Yes. The interest income from the peso bank deposit
is subject to 20% FWT. The interest income from the
A: Yes. The income of MKB-Phils. under the licensing dollar deposit is subject to 7.5% final withholding tax
agreement with banks shall be considered as royalty but only on the portion of the interest attributable to
subject to the 20% final withholding tax. The term Judy or $500. The interest on the dollar deposit
royalty is broad enough to include technical advice, attributable to Renato, a non-resident is exempt from
assistance or services rendered in connection income tax (Sec. 24B(1) NIRC).
with technical management or administration of any b. No. Only the interest income on a peso deposit is
scientific, industrial or commercial undertaking, subject to 20% FWT. The interest income from a
venture, project or scheme (Sec. 42(4) (f), NIRC). dollar deposit is subject to 7.5% if the earner is a
Accordingly, the consultancy and technical services resident individual (Sec. 24[B] NIRC).
rendered by MKB-Phils, which are incidental to the
distribution, support and use of the computer Income from other sources
systems of MKB-UK are taxable as royalty.
Q: During the year, a domestic corporation derived
Q: ABC, a domestic corporation, entered into a the following items of revenue: (a) gross receipts
software license agreement with XYZ, a non-resident from a trading business; (b) interests from money
foreign corporation based in the U.S. Under the placements in the banks; (c) dividends from its stock
agreement which the parties forged in the U.S., XYZ investments in domestic corporations; (d) gains from
granted ABC the right to use a computer system stock transactions through the Philippine Stock
program and to avail of technical know-how relative Exchange; (e) proceeds under an insurance policy
to such program. In consideration for such rights, on the loss of goods. In preparing the corporate
ABC agreed to pay 5% of the revenues it receives income tax return, what should be the tax treatment
from customers who will use and apply the program on each of the above items? (1997)
in the Philippines. Discuss the tax implication of the
16

transaction. (2010)

*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.
 QUAMTO FOR TAXATION LAW (1991-2015)

A: The gross receipts from trading business is includible A: Mr. Adrian must report the imputed rental value of the
as an item of income in the corporate income tax return house and limousine as income. If the rental value
and subject to corporate income tax rate based on net exceeds the personal needs of Mr. Adrian because he is
income. expected to provide accommodation in said house for
company guests or the car is used partly for business
The other items of revenue will not be included in the purpose, then Mr. Adrian is entitled only to a ratable
corporate income tax return. The interest from money rental value of the house and limousine as exclusion from
market placements is subject to a final withholding tax of gross income and only a reasonable amount should be
20%; the dividends from domestic corporation are reported as income. This is because the free housing and
exempt from income tax; and gains from stock use of the limousine are given partly for the convenience
transactions with the Philippine Stock Exchange are and benefit of the employer (Collector vs. Henderson).
subject to transaction tax which is in lieu of the income
tax. ALTERNATIVE ANSWER:
Remuneration for services although not given in the form
The proceeds under an insurance policy equal to the loss of cash constitutes compensation income. Accordingly,
on goods is not a flow of wealth but merely a return of the value for the use of the residential house is part of his
capital hence not taxable. Any difference in the compensation income which he must report for income
proceeds of insurance policy and the loss on goods tax purposes. However, if the residential house given to
shall be considered either as a taxable gain or deductible Mr. Adrian for his free use as an executive is also used for
loss in the preparation of the corporate income tax the benefit of the corporation/employer, such as for
return. entertaining customers of the corporation, only 50% of
the rental value or depreciation (if the house is owned by
Fringe Benefits the corporation) shall form part of compensation income
(RAMO 1-87).
Q: A "fringe benefit" is defined as being any good,
service or other benefit furnished or granted in cash The free use of a limousine and the membership in a
or in kind by an employer to an individual employee. country club is not part of Mr. Adrian's compensation
Would it be the employer or the employee who is income because they were given for the benefit of the
legally required to pay an income tax on it? Explain. employer and are considered to be necessary incidents
(2003) for the proper performance of his duties as an executive
of the corporation.
A: It is the employer who is legally required to pay an
income tax on the fringe benefit. The fringe benefit tax Q: Capt. Canuto is a member of the Armed Forces of
is imposed as a final withholding tax placing the legal the Philippines. Aside from his pay as captain,
obligation to remit the tax on the employer, such that, if the government gives him free uniforms, free living
the tax is not paid the legal recourse of the BIR is to go quarters in whatever military camp he is assigned,
after the employer. Any amount or value received by the and free meals inside the camp. Are these benefits
employee as a fringe benefit is considered tax paid hence, income of Capt. Canuto? Explain. (1995)
net of the income tax due thereon. The person who is
legally required to pay (same as statutory incidence as A: No, the free uniforms, free living quarters and the free
distinguished from economic incidence) is that person meals inside the camp are not income to Capt. Canute
who, in case of non-payment, can be legally demanded to because these are facilities or privileges furnished by the
pay the tax. employer for the employer's convenience which are
necessary incidents to proper performance of the
Q: X was hired by Y to watch over V’s fishponds with military personnel's duties.
a salary of Php 10,000.00. To enable him to perform
his duties well, he was also provided a small hut, Q: What are de minim is benefits and how are these
which he could use as his residence in the middle of taxed? Give three (3) examples of de minimis benefits.
the fishponds. Is the fair market value of the use of (2015)
the small hut by X a "fringe benefit" that is subject to
the 32% tax imposed by Sec. 33 of the National A: De minimis benefits are facilities and privileges
Internal Revenue Code? Explain your answer. (2001) furnished or offered by an employer to his employees,
which are not considered compensation subject to
A: No. X is neither a managerial nor a supervisory income tax and consequently to withholding tax, if such
employee. Only managerial or supervisory employees facilities or privileges are of relatively small value and are
are entitled to a fringe benefit subject to the fringe offered or furnished by the employer merely as means of
benefits tax. Even assuming that he is a managerial or promoting the health, goodwill, contentment, or
supervisory employee, the small hut is provided for the efficiency of his employees. If received by rank-and-file
convenience of the employer, hence does not employees, they are exempt from income tax on wages, if
constitute a taxable fringe benefit (Sec. 33, NIRC). received by supervisory or managerial employees, they
are exempt from the fringe benefit tax (RR No. 2-98, as
Q: Mr. Adrian is an executive of a big business amended by RR No. 8-2000).
corporation. Aside from his salary, his employer
provides him with the following benefits: free use of
a residential house in an exclusive subdivision, free The following shall be considered as de minimis benefits:
use of a limousine and membership in a country club
where he can entertain customers of the corporation. 1. Monetized unused vacation leave credits of
Which of these benefits, if any, must Mr. Adrian private employees not exceeding 10 days during
report as income? Explain. (1995) the year;
17

UNIVERSITY OF SANTO TOMAS TEAM BAROPS

FACULTY OF CIVIL LAW ACADEMICS COMMITTEE 2016
 QuAMTO for TAXATION LAW (1991-2015)
2. Monetized value of vacation and sick leave credits Revenue Regulations No. 2-98 & Sec. 33, 1997 TRA as
paid to government officials and employees; implemented by Revenue Regulations No. 3-98 as
3. Medical cash allowance to dependents of employees, amended)
not exceeding P750 per employee per semester or
P125 per month; Exclusions from Gross Income
4. Rice subsidy of P1,500 or 1 sack of 50 kg rice per
month amounting to not more than P1,500; Proceeds of life insurance policies
5. Uniform and clothing allowance not exceeding
P5,000 per annum; Q: State with reasons the tax treatment of the
6. Actual medical assistance not exceeding P10,000 per following in the preparation of annual income tax
annum; returns: Proceeds of life insurance received by a child
7. Laundry allowance not exceeding P300 per month; an irrevocable beneficiary; (2005)
8. Employees achievement awards, e.g. for length of
service or safety achievement, which must be in the A: The proceeds of life insurance received by a child as
form of tangible personal property other than irrevocable beneficiary are not to be reported in the
cash or gift certificate, with an annual monetary annual income tax returns, because they are excluded
value not exceeding P10,000 received by the from gross income. This kind of receipt does not fall
employee under an established written plan which within the definition of income – “any wealth which flows
does not discriminate in favour of highly paid into the taxpayer other than a mere return of capital”.
employees. Since insurance is compensatory in nature, the receipt
9. Gifts given during Christmas and major is merely considered as a return of capital (Sec. 32(B)(1),
anniversary celebrations not exceeding P5,000 NIRC; Fisher v. Trinidad, 43 Phil. 73).
per employee per annum;
10. Daily meal allowance for overtime work and Q: On 30 June 2000, X took out a life insurance policy
night/graveyard shift not exceeding 25% of the on his own life in the amount of P2,000,000.00. He
basic minimum wage on a per region basis; designated his wife, Y, as irrevocable beneficiary to
11. Benefits received by an employee by virtue of a P1,000,000.00 and his son, Z, to the balance of
collective bargaining agreement (CBA) and P1,000,000.00 but, in the latter designation,
productivity incentive schemes provided that the reserving his right to substitute him for another. On
total annual monetary value received from both CBA 01 September 2003, X died and his wife and son went
and productivity schemes combines do not exceed to the insurer to collect the proceeds of X's life
P10,000 per employee per taxable year. insurance policy.
Are the proceeds of the insurance subject to
Q: State with reasons the tax treatment of the income tax on the part of Y and Z for their
following in the preparation of annual income tax respective shares? Explain. (2003)
returns: de minimis benefits; (2005)
A: No. The law explicitly provides that proceeds of life
A: De minimis benefits are non-taxable fringe benefits. insurance policies paid to the heirs or beneficiaries upon
They are also exempt from the imposition of the fringe the death of the insured are excluded from gross income
benefits tax. They are not to be reported in the income tax and is exempt from taxation. The proceeds of life
return because they are tax exempt, provided that the insurance received upon the death of the insured
benefits granted do not exceed the specific threshold constitute a compensation for the loss of life, hence a
provided for by law (Sec. 33(C), NIRC). return of capital, which is beyond the scope of income
taxation (Sec. 32(B)(1, NIRC).
Q: Nutrition Chippy Corporation gives all its
employees (rank and file, supervisors and managers) Q: Noel Santos is a very bright computer science
one sack of rice every month valued at P800 per sack. graduate. He was hired by Hewlett Packard. To entice
During an audit investigation made by the Bureau of him to accept the offer for employment, he was
Internal Revenue (BIR), the BIR assessed the offered the arrangement that part of is compensation
company for failure to withhold the corresponding would be an INSURANCE POLICY with a face value of
withholding tax on the amount equivalent to the one P20 Million. The parents of Noel are made the
sack of rice received by all the employees, contending beneficiaries of THE INSURANCE policy. (2007)
that the sack of rice is considered as additional
compensation for the rank and file employees and a. Will the proceeds of the insurance form part of the
additional fringe benefit for the supervisions and income of the parents of Noel and be subject to
managers. Therefore, the value of the one sack of rice income tax? Reason briefly.
every month should be considered as part of the
compensation of the rank and file subject to tax. For A: No, under the law, the proceeds of LIFE INSURANCE
the supervisors and managers, the employer should POLICY paid to the heirs or beneficiaries upon the death
be the one assessed pursuant to Sec. 33 (a) of the of the insured are excluded from gross income (Sec. 32
NIRC. Is there a legal basis for the assessment made [B][1], NIRC).
by the BIR? Explain your answer. (2007)
b. Can the company deduct from its gross income the
A: No, the monthly sack of rice not exceeding P1,500.00 amount of the premium? Briefly.
is a de minimis benefit not subject to tax. The rice is a
privilege the employer furnishes his employees, of A: Yes, the premiums paid are deductible business
relatively small value, offered to promote the health, expenses, provided the employer is not the
goodwill, contentment or efficiency of his employees. beneficiary. The premiums constitute ordinary and
(Revenue Regulations No. 02-98, [April 17. 1998]; BIR necessary expenses of the company (Sec. 36[A][4] and
18

Ruling No. 023-02 [June 21, 2002] citing Sec. 2.78[A], Sec. 34[A], NIRC).

*QUAMTO is a compilation of past bar questions with answers as suggested by UPLC and other distinct
luminaries in the academe, and updated by the UST Academics Committee to fit for the 2016 Bar Exams.