January 3, 1995 REVENUE REGULATIONS NO. 02-95 SUBJECT : Implementing Republic Act No.

7833, An Act to Exclude the Benefits Mandated Pursuant to Republic Act No. 6686 and Presidential Decree No. 851, as Amended, and other Benefits from the Computation of Gross Compensation Income for the Purposes of Determining Taxable Compensation Income, Amending for the Purpose Section 28 (b) (8) of the National Internal Revenue Code, as Amended TO : All Internal Revenue Officers and Others Concerned SECTION 1. Scope. Pursuant to Section 245 and 72 of the National Internal Revenue Code (NIRC), as amended, in relation to Section 3 of Republic Act No. 7833, these Regulations are hereby promulgated to implement the provisions of Section 28 (b) (9) (6) of the NIRC, as amended, excluding from the computation of gross compensation income, for purposes of determining taxable compensation income, the 13th month pay and other benefits. SECTION 2. Definition of Terms. For purposes of these Regulations, the following definitions of words and phrases are hereby adopted: a) "Act" refers to Republic Act No. 7933. b) "Exclusions" shall mean the total benefits which are not included in the computation of gross compensation income for purposes of determining taxable compensation income and are, therefore, exempt from the withholding tax on wages. c) "Gross compensation income" means all remunerations for services performed by an employee for his employer, whether paid in cash or in kind, unless specifically excluded under Secs. 27 and 28 of the NIRC, as amended. d) "Immediately succeeding payroll period" refers to the payroll period beginning January, 1995. e) "Other benefits" refer to all benefits other than the 13th month pay, such as, the annual Christmas bonus given by private offices, 14th month pay, mid-year productivity incentive bonus, gifts in cash or in kind and other similar benefits received by an official or employee for one calendar year in an amount not exceeding Twelve Thousand Pesos (P12,000.00) as maximum limit. f) "Taxable compensation income" means gross compensation income less personal and additional exemptions provided for under Sec. 29 (l) of the NIRC, as amended. g) "13th month pay" refers to the mandatory one month basic salary of an official or employee of the National Government, Local Government Units, agencies and instrumentalities, including government-owned and -controlled corporations, and of private offices received after the 12th month pay. h) "Total benefits" refer to the sum of all the benefits received by an official or employee for one calendar year in accordance with the provisions of the "Act." i) "Which shall be integrated in" shall mean "which shall be added to". SECTION 3. Benefits Exempted from Income Tax. For purposes of determining the taxable compensation income, the following benefits shall be excluded from the gross compensation income, viz: a) 13th month pay equivalent to the mandatory one (1) month basic salary of officials and employees of the Government (whether national or local), including government-

owned and -controlled corporations, and of private offices received after the 12th month pay beginning CY 1994; and b) Other benefits, such as, Christmas bonus given by, private offices to their officials and employees, productivity incentives bonus, loyalty award, gifts in cash or in kind and other benefits of similar nature actually received by officials and employees of both Government and private offices in an amount not exceeding Twelve Thousand Pesos (12,000.00) for one (1) calendar year. The above-stated exclusions [(a) and (b)] shall cover benefits paid or accrued beginning January 1, 1994 but shall be limited only to an amount not exceeding Twelve Thousand Pesos (P12,000.00) in the case of the "other benefits" contemplated under paragraph (b) above, provided, however, that when added to the 13th month pay, the total amount of tax exempt benefits shall not exceed Thirty Thousand Pesos (P30,000.00). ILLUSTRATIONS: CASE NO. 1. During CY 1994, Mr. "A", and official of a private corporation, received the following 13th month pay and other benefits from his employer, such as: 13th month pay P30,000.00 Other benefits: Christmas bonus P15,000.00 14th month pay 30,000.00 Mid-year productivity bonus 10,000.00 55,000.00 TOTAL BENEFITS RECEIVED for CY 1994 P85,000.00 ======== In this illustration, Mr. "A" shall only be exempted on his 13th month pay of P30,000. His "other benefits" amounting to P55,000 are subject to the withholding tax on wages. CASE NO. 2. On the other hand, Mr. "B", a government employee, received the following 13th month pay and other benefits, such as: 13th month pay/Christmas bonus P8,000.00 Other benefits: Productivity incentives bonus P12,000.00 Cash gift 1,000.00 13,000.00 TOTAL BENEFITS RECEIVED for CY 1994 P21,000.00 ======== Mr. "B" shall only be exempt on a total of P20,000.00, representing 13th month pay of P8,000.00 plus "other benefits" of P12,000.00 only.

SECTION 4. Computation of Refundable/Creditable Taxes Withheld on the Exempt 13th Month Pay and Other Benefits. (a) In general. The employer shall compute the refundable/creditable amount of taxes withheld on the exempt 13th month pay and other benefits of employees through the annualized computation prescribed in Section 71(8)(2) (b) of Revenue Regulations No. 6-82, as amended by RR No. 4-93, implementing R.A. No. 7497, otherwise known as the "Final Withholding Tax on Compensation Income." (b) Refund/Credit to Employees of Excess Taxes Withheld. Any excess in the taxes withheld resulting from the annualized computation shall be credited/refunded to the employees. In return, the employer is entitled to deduct the amount refunded/credited from the remittable amount of taxes withheld from compensation income in the current month in which refund/credit was made, and in the succeeding months thereafter until the amount refunded/credited by the employer is fully repaid. ILLUSTRATIONS: 1. The year-end adjustment computation resulted to a REFUND. (aa) Employee with Only One Employee During the Year. ABC COMPANY Employee "A" (single) Salaries P78,000.00 13th month pay 12,000.00 Other Benefits 10,000.00 Gross Compensation Income P100,000.00 Less: Non-taxable Benefits: 13th month pay P12,000 Other benefits 10,000 22,000.00 P78,000.00 Less: Personal Exemption 9,000.00 Taxable Compensation P69,000.00 Tax Due P7,785.00 Less: Tax Withheld (13,675.00) AMOUNT TO BE REFUNDED by (P5,890.00) ABC CO. to Employee "A" ======== on or before JANUARY 25, 1995 OR TO BE CREDITED against Taxes Withheld due from the Employee for Succeeding Month/s Beginning following Sample Computation No. 1 (cc). (bb) Employee with Successive Employment Within the Year. Employee "B" (single)

 ABC Co. DEF. Co. (Previous Employer) (Present Employer) Jan.-June, 1994 Nov.-Dec., 1994 Salaries/Allowances P78,000.00 Salaries P20,000.00 13th Month Pay 12,000.00 13th month pay 8,000.00 Other Benefits 10,000.00 Other Benefits 3,000.00 P100,000.00 P31,000.00 Less: Personal ADD: Income From Exemption 9,000.00 Previous Employer 100,000.00 LESS: Net Taxable Non Taxable Income91,000.00 Benefits: 13th Month Pay TAX DUE P11,965.00 ABC Co. P12,000 TAX WITHHELD P11,965.00 DEF Co. 8,000 P20,000 *Other Benefits ABC Co. P10,000 DEF Co. 3,000 P13,000 10,000 30,000.00 P101,000.00 LESS: Personal Exemption 9,000.00 Taxable Compensation Income P92,000.00 TAX DUE TAX WITHHELD ABC Co. P11,965.00 DEF Co. 3,279.66 P12,155.00 (15,244.66)

AMOUNT TO BE REFUNDED BY DEF Co. to EMPLOYEE "B" on or before (P3,089.66) JANUARY 25, 1995 OR TO BE CREDITED against Taxes Withheld due from Employee for Succeeding Month/s beginning January 1995. (Please see Sample Computation No. 1 (cc).

(cc) Crediting of Refundable Amounts Against Taxes Withheld Due From Employees For The Succeeding Month/s. Amount of refund to be credited against taxes withheld due from Employee "B" [Based on Sample Computation No. 1 (bb) above) beginning January, 1995 P 3,089.66 Computation of Taxes Withheld for the month of January, 1995 Salaries/Allowances Taxable: P10,000.00 Tax Required to be Withheld for the month of January, 1995 (Use Line 2 Col. 8 of the Withholding Tax Table): P1,359.66 Less: Refund for CY 1994 due to Non-Taxability of Bonus and Other Benefits beginning Jan. 1995 (3,035.66) Balance to be credited in succeeding month/s (P1,730.00) February. 1995 Tax Required to be Withheld for the Month of February P1,359.66 Amount to be credited for February (1,730.00) Balance of Amount to be Credited for the Month of March (P370.34) March. 1995 Tax Required to be Withheld for the Month of March P1,359.66 Amount to be Credited for March (370.34) Amount to be Remitted for March on or before April 10, 1995 P989.32 =======

2. The year-end adjustment resulted to a COLLECTIBLE AMOUNT (instead of a refund). During CY 1994, an employee (single) of a private corporation, received the following compensation, month pay and other benefits: Salaries/allowances P5,000/mo. x 12 mos. P60,000.00 13th Month pay 5,000.00 Gift in kind 5,000.00 Cash gift 10,000.00 Christmas Bonus 5,000.00 Total Gross Compensation Income P85,000.00 Less: 13th Month Pay P5,000 Other Benefits 12,000 17,000.00 Gross Compensation Income After Deducting Exclusions Under RA 7333 68,000.00 Less: Personal Exemption 9,000.00 Taxable Compensation Income P59,000.00 Tax Due P3,925.00 Tax Withhold Jan.-Nov., 1994 P393.80/mo. x 11 mos. (4,331.80) Tax Collectible to be Withheld from P1,593.20 December salary ========= Note: NO REFUND OF WITHHOLDING TAX FOR BONUS AND OTHER BENEFITS WOULD RESULT DUE TO UNDER WITHOLDING IN PREVIOUS MONTHS OF THE YEAR. SECTION 5. Refund/Credit of Taxes Withheld from employees Separated from Employment. a) An employee separate from the service of his previous employer but is presently employed by another employer shall be refunded/credited the taxes withheld on his exempt 13th month pay and other benefits by his present employer. The present employer shall compute the aforesaid excess withholding tax using the annualized computation set forth in Section 7I (B) (2) (b) of RR No., 6-82, as amended by RR No. 493. (b) An employee who has been separated from a previous employer but has no present employment shall claim his refund of excess tax withheld on his 13th month pay and other benefits by filing with the BIR a refundable income tax return for CY 1994, provided that the refundable ITR for 1994 reflects the taxes withheld on his 13th month pay and other benefits. SECTION 6. Concurrent Multiple Employments. An employee is employed by two or more employers at the same time during the taxable year shall be refunded/credited the taxes withheld on his 13th month pay and "other benefits" by his main employer, e.g., the

employer paying the highest wage/salary. The said main employer shall determine the maximum allowable 13th month pay and "other benefits" received from both main and secondary employer/s in annualizing the taxable compensation income at year-end adjustment. For this purpose, the secondary employer/s shall furnish the main employer a certification as to the amount of the 13th month pay and other benefits received by the employee. SECTION 7. The Employee's Withholding Statement (W-2). The employer shall furnish each employee with the original and duplicate copies of BIR Form W-2 showing the name and address of the employer, employer's TIN, name and address of the employee, taxpayer/employee's TIN, amount of exemptions claimed, the sum of compensation paid (excluding the total non-taxable benefits), the amount of tax due and the amount of tax withheld during the calendar year. The statement must be signed by both the employer or other authorized officer and the employee and shall contain a written declaration that it is made under the penalties of perjury. If the employer is the Government of the Philippines, its political subdivision, agency or instrumentality or government-owned or controlled corporation, the statement shall be signed by the duly designated officer or employee. SECTION 8. Annual Return of Income Tax Withheld on Compensation. Every employer or other person required to deduct and withhold the tax shall, on or before January 31st of the succeeding year, file with either the Collection Agent or authorized Municipal Treasurer or Revenue District Officer or Commissioner of Internal Revenue the Annual Return of Income Tax Withheld on Compensation [BIR 1743-1R (Annex "A")] to be submitted with an alphabetical list of employees both in duplicate copies. The Annual Return of Income Tax Withheld on Compensation must show the following: a) Withholding agent's registered name, address and taxpayer's identification number (TIN); b) Amount and date of remittance for the 12 months of one calendar year; and c) Name of Bank, Bank Code/ROR (if any). The alphabetical list of employees must show the following: a) Name and TIN of employees/taxpayers; b) Gross compensation paid by all present and previous employers for the calendar year segregating the taxable from the non-taxable compensation income; c) Amount of exemptions; d) Tax required to be withheld computed in accordance with Section 21(a) of the Tax code; e) Tax withheld by all present and previous employers for the calendar year; and f) Adjustment, if any. The alphabetical list of employees shall be prepared indicating separate listings of the following: a. Employees as of December 31 of the taxable year; b. Employees terminated prior to the year-end adjustment computation showing the month of termination/month of last payment of compensation during the year of termination; c. Employees (non-resident citizen) whose services are rendered abroad; and d. Alien employees subject to final withholding tax.

SECTION 9. Transitory Provision. Employers who have already given the 13th month pay and "other benefits" to their employees and had withheld and remitted the tax due thereon prior to the approval of R.A. No. 7833 on December 8, 1994 shall, in annualizing and computing the annual income and the tax due from their employees, exclude the 13th month pay and "other benefits", which shall be limited only to an amount not exceeding Twelve Thousand Pesos (P12,000.00) in the case of the "other benefits" contemplated under Sec. 3, par, (b) of these Regulations and provided, further, that when the amount of these said "other benefits" is added to the "13th month pay" contemplated under Sec. 3, par. (a) also of these Regulations, the total amount of tax exempt benefits shall not exceed Thirty Thousand Pesos (P30,000.00). SECTION 10. Repealing Clause. All laws, decrees, orders, rules, and regulations and other issuances inconsistent with the "Act" and these Regulations are hereby amended, modified or repealed accordingly. SECTION 11. Effectivity. These Regulations shall take effect fifteen (15) days after its publication in a newspaper of general circulation. ROBERTO F. DE OCAMPO Secretary of Finance Recommending Approval: LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue Footnotes * The maximum allowable deduction for "Other Benefits" is P12,000.00. However, since the total 13th month pay and 'other benefits' should not exceed P 30,000, only P10,000.00 'other benefits" can be added to P 20,000, representing Mr. "B's" total 13th month pay from his previous and present employers. C o p y r i g h t 2 0 0 8 C D T e c h n o l o g i e s A s i a, I n c. ANNOTATIONS Revenue Regulations No. 02-95 Implementing RA No. 7833 1995 * Implements Republic Act No. 7833 entitled "An Act to Exclude the Benefits Mandated Pursuant to Republic Act No. 6686 and Presidential Decree No. 851, as Amended, and Other Benefits from the Computation of Gross Compensation Income for Purposes of Determining Taxable Compensation Income, Amending for the purpose Section 28(B)(8) of the National Internal Revenue Code, as amended" (effective December 8, 1994). With the enactment, however, of Republic Act No. 8424, as amended, entitled "An Act Amending The National Internal Revenue Code, As Amended" (effective January 1, 1998), specifically Section 32(B)(7)(e) of the NIRC of 1997, Republic Act No. 7833 was partly amended by deleting the P12,000 ceiling on other benefits such as productivity incentives and Christmas bonus.

See Revenue Memorandum Circular No. 36-94 (dated December 14, 1994) Re: Publishing the full text of Republic Act No. 7833 an Act excluding the benefits mandated pursuant to Republic Act No. 6686 and Presidential Decree No. 851, as amended, and other benefits from the computation of gross compensation income for purposes of determining taxable compensation income, amending for the purpose Section 28 (b) (8) of the National Internal Revenue Code, as amended; and Revenue Regulations No. 6-82 (effective October 1, 1982) Re: Collection at Source of Income Tax on Compensation Income of Employed Resident Citizens and Aliens, Non-Resident Citizens and Non-Resident Aliens engaged in trade or business in the Philippines, and subsequent amendment made by Revenue Regulations No. 4-93 (dated November 27, 1992) Re: Implementing Republic Act No. 7497, "An Act Amending Pertinent Provisions of the National Internal Revenue Code, as amended, relative to the Final Withholding Tax on Purely Compensation Income". See further, Presidential Decree No. 851 entitled "Requiring All Employers To Pay Their Employees A 13th Month Pay" (effective December 16, 1975); Republic Act No. 6686 entitled "An Act Authorizing Annual Christmas Bonus To National And Local Government Officials And Employees Starting Cy 1988" (approved December 14, 1988); and Republic Act No. 7497 entitled "An Act Amending Pertinent Provisions Of The National Internal Revenue Code, As Amended, Relative To The Final Withholding Tax On Purely Compensation Income" (approved May 15, 1992). See now Revenue Regulations No. 2-98 (dated April 17, 1998) Re: Implementing Republic Act No. 8424, "An Act Amending The National Internal Revenue Code, as Amended" Relative to the Withholding on Income Subject to the Expanded Withholding Tax and Final Withholding Tax, Withholding of Income Tax on Compensation, Withholding of Creditable Value-Added Tax and Other Percentage Taxes, and subsequent amendments made by Revenue Regulations No. 3-98 (effective January 1, 1998) Re: Implementing Section 33 of the National Internal Revenue Code, as Amended by Republic Act No. 8424 Relative to the Special Treatment of Fringe Benefits, Revenue Regulations No. 7-00 (dated June 16, 2000) Re: Amending Revenue Regulations No. 2-98, Revenue Regulations No. 8-00 (dated August 21, 2000) Re: Amending Sections 2.78.1(A) (1), (A)(3), (A)(6), (A)(7), and (B)(11)(b) of Revenue Regulations No. 2-98, as Amended, and Section 2.33(C) of Revenue Regulations No. 3-98, with Respect to "De Minimis" Benefits, Additional Compensation Allowance (ACA), Representation and Transportation Allowance (RATA) and Personal Economic Relief Allowance (PERA), Revenue Regulations No. 10-00 (dated December 14, 2000) Re: Further Amendments to Revenue Regulations No. 2-98 and 3-98, as Last Amended by Revenue Regulations No. 8-00, Revenue Regulations No. 6-01 (dated July 31, 2001) Re: Amending Pertinent Provisions of Revenue Regulations Nos. 1-98, 2-98, as Amended, and 7-95, as Amended, and Revenue Memorandum Circular No. 1-98 Relative to the Inclusion of Additional Taxpayers to be Subject to Final Withholding Tax, Revision of the Withholding Tax Rates on Certain Income Payments Subject to Creditable Withholding Tax, Time for the Filing of Various Tax Returns and Payment of the Taxes Due Thereon And Others, and Revenue Regulations No. 12-01 (dated September 7, 2001) Re: Amendment To The Pertinent Provisions Of Revenue Regulations No. 1-98, As Amended, Revenue Regulations No. 2-98, As Amended, And Revenue Regulations No. 6-2001, Relative To The Revision Of Withholding Tax Rates On Certain Income Payments Subject To Withholding Tax, The

Deferment Of The New Deadline Dates For Filing Selected Tax Returns, The Reporting Requirements For Recipients Of Talent Fees, And For Other Purposes. 1 Entitled "An Act to Exclude the Benefits Mandated Pursuant to Republic Act No. 6686 and Presidential Decree No. 851, as Amended, and Other Benefits from the Computation of Gross Compensation Income for Purposes of Determining Taxable Compensation Income, Amending for the purpose Section 28(B)(8) of the National Internal Revenue Code, as amended" (effective December 8, 1994). 2 Entitled "An Act Authorizing Annual Christmas Bonus to National and Local Government Officials and Employees Starting CY 1988" (effective December 14, 1988). 3 Entitled "Requiring All Employer to Pay Their Employees a 13th Month Pay" (effective December 16, 1975). Section 1 - Scope 4 Authority of Secretary of Finance to Promulgate Rules and Regulations, and Income Tax Collected at Source, respectively. Now Sections 244 and 79, respectively, NIRC of 1997. 5 Section 3, R.A. No. 7833 provides: "The Secretary of Finance shall, upon the recommendation of the Commissioner of Internal Revenue, promulgate the necessary rules and regulations for the effective implementation of the provision of this Act." 6 Exclusions from Gross Income (13th Month Pay and Other Benefits). Now Section 32(B)(7)(e), NIRC of 1997. Section 2 (c) - Definition of Terms; Gross Compensation Income 7 Taxable Income Defined, and Gross Income, respectively. Now Sections 31 and 32, respectively, NIRC of 1997. Section 2 (e) - Definition of Terms; Other Benefits 8 However, see now Section 32(B)(7)(e)(iv), NIRC of 1997. Section 2 (f) - Definition of Terms; Taxable Compensation Income 9 Allowance of Personal Exemption for Individual Taxpayer. Now Section 35, NIRC of 1997. Section 3 - Benefits Exempted from Income Tax 10 See now Section 2.78.1(B)(11), Revenue Regulations No. 2-98 and subsequent amendments thereto. Section 4 - Computation of Refundable/Creditable Taxes Withheld on the Exempt 13th Month Pay and Other Benefits 11 Dated October 1, 1982 Re: Collection at Source of Income Tax on Compensation Income of Employed Resident Citizens and Aliens, Non-Resident Citizens and NonResident Aliens engaged in trade or business in the Philippines. 12 Dated November 27, 1992 Re: Implementing Republic Act No. 7497, "An Act Amending Pertinent Provisions of the National Internal Revenue Code, as amended, relative to the Final Withholding Tax on Purely Compensation Income". 13 Entitled "An Act Amending Pertinent Provisions of the National Internal Revenue Code, as Amended, Relative to the Final Withholding Tax on Purely Compensation Income" (effective May 15, 1992). Section 7 - The Employee's Withholding Statement (W-2) 14 Amended by Section 2.83.1, Revenue Regulations No. 2-98 and subsequent amendments thereto.

Section 8 - Annual Return of Income Tax Withheld on Compensation 15 Amended by Section 2.83.2, Revenue Regulations No. 2-98 and subsequent amendments thereto. 16 Now Form No. 1604. 17 Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines. Now Section 24(A), NIRC of 1997. C o p y r i g h t 2 0 0 2 - 2 0 0 9 A c c e s s l a w , I n c.