Tax notes: FBT on educational assistance

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Monday, February 24, 2014


THE cost of educational assistance borne by the employer for an employee shall be treated as a taxable fringe benefit under Section 2.33 of the Revenue Regulations (RR) No. 3-98 or commonly known as the fringe benefits tax (FBT) regulations. Except in certain cases, the scholarship grant given by the employer to the managerial/supervisory employee shall not be treated as taxable fringe benefit, if the education or study 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 the obligation to remain in the employ of the employer for the period of time that they have mutually agreed upon.

This is the case that the cost of the educational assistance shall be treated as incurred for the convenience and furtherance of the employer’s trade or business.

In the case, the Bureau of Internal Revenue (BIR) assessed a non-stock, non-profit educational institution for deficiency FBT including surcharges, interest and compromise penalty on its failure to subject to FBT the educational assistance extended to its faculty members occupying managerial position in the form of tuition and subsidies for graduate studies, thesis writing and attendance at seminars.

To prove that educational financial assistance granted by the taxpayer to its personnel who pursue graduate studies is exempt from FBT, the taxpayer presented various contracts of agreement, which were duly signed by the recipient employees of its scholarship programs. The contracts provided a condition that after finishing graduate studies; the concerned personnel will have a return service of two years for every year of scholarship (Lourdes College, v. Commissioner of Internal Revenue, CTA Case No. 8038, December 12, 2013).

The Court of Tax Appeals (CTA) held that although the educational financial assistance may be treated as incurred for the convenience and furtherance of the employer’s trade or business based on the contracts of agreements, the taxpayer did not submit other documentary evidence to prove or confirm that the amount spent by the taxpayer was indeed incurred and paid in connection with the scholarship program granted to its personnel.
Thus, for its failure to present proof or evidence that the educational assistance was paid for the scholarship program of the employees, the CTA upheld the deficiency FBT assessment against the taxpayer.

(Source: Punongbayan & Araullo)

Published in the Sun.Star Cebu newspaper on February 25, 2014.

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