Tax Notes (Phils.)

Interest on Loan at less than market rate

▪ If the employer lends money to his employee free of interest or at rate lower than 12%, such interest foregone by the employer (the difference of the interest assumed by the employee and the rate of 12%) shall be treated as a taxable fringe benefit.

▪ The benchmark rate of 12% shall remain in effect until revised by a subsequent regulation.

▪ The regulation shall apply to installment payments or loans with interest rate lower than 12% starting January 1, 1998.

Sample Problem

A local bank approved a loan of P 680,000 in favor of an officer with interest thereon at special rate of 8% per annum. Term of the loan is 6 months. Compute the fringe benefit tax.

Solution:

Social and athletic club fees

Membership fees, dues and other expenses borne by the employer for his employee, in social and athletic clubs or other similar organizations shall be treated as taxable fringe benefits of employee in full.

Expenses for Foreign travel

a. Fringe benefit for foreign travel

▪ 30% of the cost of first class airplane ticket;

▪ Lodging cost in a hotel or similar establishment in excess of US $300 per day; and

▪ Travelling expenses paid by the employer for the travel of the family members of the employee

b. Fringe benefit of foreign travel which are not taxable

Reasonable foreign travel expenses of the employee paid by the employer for the employer for the purpose of attending business meetings or foreign conventions. Such expense includes:

▪ Inland travel expenses such as expenses for food, beverages and local transportation;

▪ The cost of lodging in a hotel or similar establishment amounting to an average of US $ 300 or less per day;

▪ Cost of economy and business class airplane ticket; and

▪ 70% of the cost of first class airplane ticket.

Household expenses

The following personal expenses of the employee which are borne by the employer shall be treated...