Legal basis and covered predecessor rules
- Section 245, in relation to Section 50(b) of the National Internal Revenue Code authorizes these regulations to amend the Expanded Withholding Tax Regulations.
- These regulations amend specified sections—Sections 1, 2, 4, 6, and 10—of Revenue Regulations No. 6-85, as amended.
- Revenue Regulations No. 8-94 is referenced in the effectivity clause as governing the general rule on effectivity, but Revenue Regulations No. 12-94 controls its specific effectivity period (Section 7).
Policy and purpose
- These regulations implement changes to the expanded creditable withholding tax rules by adjusting:
- the income payments covered and the applicable withholding rates (Section 1);
- the persons required to withhold (Section 2);
- the exemptions from withholding (Section 3);
- the quarterly withholding tax statement requirement (Section 4);
- the mechanics for claims for tax credit or refund (Section 5);
- and a deferred implementation for exporter-related withholding (Section 6).
Effect on creditable income payments and rates
- The regulation provides that withholding applies to specified income payments to persons residing in the Philippines, subject to the exemptions (Section 1).
- Withholding applies “except as herein otherwise provided” and uses the rates specified for each class of payee and income item (Section 1).
- Section 1(j) sets withholding on the gross selling price or total amount of consideration (or its equivalent) paid to the seller/owner for the sale, exchange or transfer of real property, other than capital asset by different sellers and by different selling price bands:
- 1.5% when the seller/transferor is a seller/transferor not registered with the HLURB as engaged in Socialized Housing projects under Republic Act No. 7279, where the selling price (house and lot or lot only) is not over PHP 500,000.00, and the seller/transferor is habitually engaged in the real estate business (Section 1(j)1).
- 3% when the selling price is over PHP 500,000.00 but not over PHP 2,000,000.00, and the seller/transferor is habitually engaged in the real estate business (Section 1(j)2).
- 5% when the selling price is over PHP 2,000,000.00, and the seller/transferor is habitually engaged in the real estate business (Section 1(j)3).
- 7.5% for real property, other than capital asset, whether held as capital or ordinary asset, by a corporation not habitually engaged in the real estate business (Section 1(j)4).
- Habitual engagement for the purpose of these rates is determined as follows:
- the seller is automatically considered habitually engaged in real estate business upon submission of a certificate of accreditation issued by CREBA, NREA, or SHDA; otherwise, the seller submits evidence he is in fact habitually engaged (Section 1(j)).
- Section 1(m) imposes a 1% creditable withholding on the gross amount paid by any credit card company in the Philippines to any business entity (natural or juridical), representing the sales of goods/services made to cardholders (Section 1(m)).
- Section 1(n) imposes a 1% creditable withholding on income payments made by any of the top five thousand (5,000) corporations, as determined by the Commissioner of Internal Revenue, to their local suppliers of goods (Section 1(n)).
- Section 1(o) imposes a 1% creditable withholding on income payments made by government offices (including government-owned or controlled corporations and provincial, city, or municipal governments) on their purchase of goods from local suppliers (Section 1(o)).
- Where a government-owned or controlled corporation is simultaneously one of the top 5,000 corporations, it must withhold in its capacity as a government-owned or controlled corporation, rather than as a top 5,000 corporation—resulting in only one percent (1%) being withheld (Section 1(o)).
Withholding agents required to deduct and withhold
- The following are constituted as withholding agents for the taxes required to be withheld on the income payments enumerated in the preceding section (Section 2(a)-(c)).
- Individual withholding agents: an individual, with respect to payments made in connection with his trade or business; for taxable sale, exchange or transfer of real property specified in Section 1(j), individual buyers not engaged in trade or business are also withholding agents (Section 2(a)).
- Individual buyers under Section 1(j) do not need to register as withholding agents (Section 2(a)).
- Juridical person withholding agents: any juridical person, whether or not engaged in trade or business (Section 2(b)).
- Government withholding agents: all government offices, including government-owned or controlled corporations, as well as provincial, city or municipal governments (Section 2(c)).
Exemptions from withholding tax
- Withholding prescribed in the regulations shall not apply to income payments in the enumerated exemption cases (Section 3(a)-(e)).
- Withholding does not apply to income payments to:
- the national government and its instrumentalities, including provincial, city or municipal governments, and government-owned or controlled corporations (Section 3(a)).
- Withholding does not apply to income payments to persons enjoying exemption from income taxes under any law (general or special), including:
- sales of real property by a corporation registered and certified by the HLURB as engaged in socialized housing projects under Republic Act No. 7279, where the selling price of the house and lot or only the lot does not exceed PHP 150,000.00 or at such adjusted amount of selling price for socialized housing as later determined and adapted by the HLURB (Section 3(b)1);
- persons enjoying exemption from income taxes under the Omnibus Investment Code of 1987, as amended (Section 3(b)2).
- Withholding does not apply to exempt corporations under Section 26 of the National Internal Revenue Code, as amended, except income derived from real or personal property, or from any activity conducted for profit (Section 3(c)).
- Withholding does not apply to a payee who suffered net operating losses during the immediately preceding two (2) tax years (Section 3(d)).
- Exemption from withholding applies only if the payee furnishes the payor a copy of a Certificate of Exemption from withholding tax issued by the Commissioner of Internal Revenue (Section 3(e)).
- The certificate requirement does not apply for exemption cases falling under Section 3(a) and Section 3(b)(1) (Section 3(e)).
Quarterly withholding statements requirement
- Every payor required to deduct and withhold expanded withholding taxes must furnish each payee a withholding tax statement using the prescribed BIR Form (Section 4).
- The withholding tax statement must show the income payments made and the amount of taxes withheld (Section 4).
- The withholding tax statement must be furnished within thirty (30) days following the close of the taxable quarter employed by the payee in filing its quarterly income tax return (Section 4).
- Upon request by the payee, the payor must furnish the withholding tax statement simultaneously with the income payment (Section 4).
- The payee covered includes both individual and corporate payees (Section 4).
Claim for tax credit or refund mechanics
- Claims for tax credit or refund of income tax deducted and withheld are given due course only when:
- the return shows the income payment received was declared as part of gross income, and
- withholding is established by a copy of the Withholding Tax Statement duly issued by the payor, showing the amount paid and the amount of tax withheld (Section 5(a)).
- Excess expanded withholding tax credits are allowed in two ways (Section 5(b)):
- Automatic credit carry-over: excess credits for the taxable quarter/taxable year automatically become a credit for filing the income tax return for the taxable quarter/taxable year immediately succeeding the taxable period in which the excess arose, provided the taxpayer submits with the income tax return a copy of his income tax return for the prior taxable period showing the amount of the excess withholding tax credits (Section 5(b)).
- Optional cash refund or tax credit certificate: the taxpayer may make a written request for cash refund or a tax credit certificate for use in payment of other national internal tax liabilities (Section 5(b)).
- For written refund/credit requests, the Commissioner examines the taxpayer’s income tax return showing the excess withholding credits, and then determines the excess and orders refund/credit to the applicant (Section 5(b)).
- The refund/credit must be made within sixty (60) days from date of the taxpayer’s request, conditioned on submission, for audit, of all pertinent accounting records and that the records establish the veracity of the claim (Section 5(b)).
Deferred implementation for exporter-related withholding
- Implementation is deferred indefinitely for the expanded withholding tax on certain income payments to exporters, specifically:
- the gross amount paid by any bank in the Philippines to any exporter of goods/services representing the Philippine peso value of the foreign letter of credit of payment of the exporter’s export sales (Section 6).
- The indefinite deferment covers implementation of Section 1, Revenue Regulations No. 6-94 only as it pertains to the exporter-related withholding described above (Section 6).
Effectivity and publication rule
- These regulations take effect fifteen (15) days after publication in the Official Gazette or in any newspaper of general circulation, whichever comes first (Section 7(a)).
- The effectivity period is stated to control notwithstanding Revenue Regulations No. 8-94 (Section 7(a)).