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Ceiling On Entertainment, Amusement, and Recreation Expense

The Bureau of Internal Revenue issued Revenue Regulations No. 10-2002 authorizing a ceiling on entertainment, amusement, and recreation expenses for individuals and businesses engaged in the sale of goods or services. The regulation limits these expenses to 0.5% of net sales for goods sellers and 1% of net revenue for service providers. It provides a formula for allocating expenses between goods and services when a company has both, and specifies that any improperly shifted expenses will be fully disallowed.

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443 views2 pages

Ceiling On Entertainment, Amusement, and Recreation Expense

The Bureau of Internal Revenue issued Revenue Regulations No. 10-2002 authorizing a ceiling on entertainment, amusement, and recreation expenses for individuals and businesses engaged in the sale of goods or services. The regulation limits these expenses to 0.5% of net sales for goods sellers and 1% of net revenue for service providers. It provides a formula for allocating expenses between goods and services when a company has both, and specifies that any improperly shifted expenses will be fully disallowed.

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anne
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Ceiling on Entertainment, Amusement, and Recreation Expense

The bureau has issued the Revenue Regulations No. 10-2002 authorizing the Imposition of a
Ceiling on "Entertainment, Amusement and Recreational Expense".
Coverage:
1. Individuals engaged in business, including taxable estates and trust;
2. Individuals engaged in the practice of profession;
3. Domestic corporations;
4. Resident foreign corporations;
5. General professional partnerships, including its members
Actual entertainment, amusement and recreation (EAR) expenses paid or incurred with the
taxable year by the taxpayer, but in no case shall such deduction exceed 1/2 of 1% of net sales
(i.e., gross sales less sales returns/allowances and sales discounts) for taxpayers engaged in sale
of goods or properties; or 1% of net revenue (i. e., gross revenue less discounts) for taxpayers
engaged in sale of services, including exercise of profession and use or lease of properties.
APPOINTMENT FORMULA:
NET SALES/NET REVENUE
X ACTUAL EXPENSE
TOTAL NET SALES AND NET REVENUE
ILLUSTRATION: EAR Corporation is engaged in the sale of goods and services with net
sales/net revenue of P200,000 and P100,000, respectively. The actual entertainment, amusement
and recreation expense for the taxable quarter totaled to P3,000.
Appointment Formula:
Sales of Goods (P200,000 / P300,000 x P3,000) = P2,000
Sale of Services (P100,000 / P300,000 x P3,000) = P1,000
Maximum Percentage Ceilings:
Sales of Goods (P200,000 x .50%) = P1,000
Sales of Services (P100,000 x 1%) = P1,000
Allowable amount to be claimed as Entertainment, Amusement, and Recreation (EAR)
Expense (Whichever is lower of Appointment Formula and Maximum Percentage
Ceilings):
Sales of Goods = P1,000
Sales of Services = P1,000
However, if after verification a taxpayer is found to have shifted the amount of the entertainment
of the entertainment, amusement and recreation expense to any other expense in order to avoid

being subjected to the ceiling herein prescribed, the amount shifted shall be disallowed in its
totality.

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