REVENUE REGULATIONS NO. 10-2002 issued on July 18, 2002 imposes a ceiling on the amount of entertainment, amusement and recreational expenses claimed by the following taxpayers: 1) individuals engaged in business, including taxable estates and trusts; 2) individuals engaged in practice of profession; 3) domestic corporations; 4) resident foreign corporations; and 5) general professional partnerships, including its members. The term “entertainment, amusement and recreation expenses” includes representation expenses and/or depreciation or rental expense relating to entertainment facilities, as described in the Regulations. The following expenses are not considered entertainment, amusement and recreational expenses: 1) expenses treated as compensation or fringe benefits for services rendered under an employer-employee relationship; 2) expenses for charitable or fundraising events; 3) expenses for bonafide business meeting of stockholders, partners or directors; 4) expenses for attending or sponsoring an employee to a business league or professional organization meeting; 5) expenses for events organized for promotion, marketing and advertising; and 6) other expenses of similar nature. The requisites for the deductibility of said expenses, subject to the ceiling prescribed, are specified in the Regulations. There shall be allowed a deduction from gross income an amount equivalent to the actual entertainment, amusement and recreation expense paid or incurred within the taxable year by the taxpayer, but in no case shall such deduction exceed 0.50 % of net sales for taxpayers engaged in sale of goods or properties; or 1% of net revenue for taxpayers engaged in sale of services, including exercise of profession and use or lease of properties. If a taxpayer derives income from both sale of goods/properties and services, the allowable entertainment, amusement and recreation expense shall in all cases be determined based on an apportionment formula, taking into consideration the percentage of the net sales/net revenue to the total net sales/net revenue, but which in no case shall exceed the maximum percentage ceiling provided in the Regulations. The claimed expense shall be subject to verification and audit for purposes of determining its deductibility as well as compliance with the substantiation requirements, as provided in the Regulations. If after verification, a taxpayer is found to have shifted the amount of the entertainment, amusement and recreation expense to any other expense in order to avoid being subjected to the prescribed ceiling, the amount shifted shall be disallowed in its totality, without prejudice to such penalties as may be imposed by the Tax Code of 1997. The ceiling provided on the Regulations shall apply only to entertainment, amusement and recreation expenses paid or incurred beginning September 1, 2002, regardless of the taxpayer’s accounting period.