Better Late Than Never: Even With a Pending BIR Investigation, Taxpayers May Still Remit Withholding Taxes
Early this year, the BIR, thru Revenue Regulations No. (“RR”) 6-2018, reinstated the possibility for taxpayers to belatedly remit the expanded withholding tax (“EWT”) withheld during the period being investigated from income payments made to professionals, contractors, and other recipients whose income is subject to withholding, even when there is already a Letter of Authority or even during reinvestigation.
Under the Tax Code, an income payment, which is otherwise deductible, shall be allowed as a deduction from the payor’s gross income only if it is shown that the income tax required to be withheld has been paid. Thus, it has always been the practice during audit investigations by the BIR, where there are expenses found not to have bee subjected to withholding taxes, that the taxpayer is allowed to belatedly remit to the BIR the taxes withheld from the said income payments, so as to make the expenses deductible for income tax purposes. In 2013, however, much to the dismay of taxpayers, the Commissioner of Internal Revenue Kim (“CIR”) Jacinto Henares, issued RR 12-2013, forbidding such belated remittance, and stating in particular, that the same can no longer be done in the case where there is already issued against the taxpayer a Letter of Authority for the conduct of an audit investigation.
Verily, under Section 34 (K) of the Tax Code, what is prohibited by law from being allowed as deductions are those payments/ disbursements for which the withholding tax had not been withheld and remitted to the government. The law provided for no qualifications. This could only mean that once the taxpayer has remitted the EWT to the government, these disbursements must be already be allowed as valid deductions from taxable income, as in fact, this remedy has been available to taxpayers for as long as can be remembered, and which remedy has been recognized and permitted by the BIR. While the legislature thru the Tax Code granted the CIR the power to promulgate administrative rules to implement the law, such delegated authority is limited by the letter of the law itself, beyond which the CIR cannot go beyond. In other words, the CIR cannot issue and promulgate rules and regulations that are not consistent with the letter and spirit of the Tax Code.
Apparently realizing the mistake, the BIR under the leadership of CIR Ceasar R. Dulay, corrected itself thru the issuance of RR 6-2018 that expressly revokes and repeals RR 12-2013, and reinstated the previous taxpayer friendly practice. RR 6-2018, specifically instructs:
“A deduction will also be allowed in the following cases where no withholding of tax was made:
(A) The payee reported the income and pays the tax due thereon and the withholding agent pays the tax including the interest incident to the failure to withhold the tax, and surcharges, if applicable, at the time of the audit/investigation or reinvestigation/ reconsideration.
(B) The recipient/payee failed to report the income on the due date thereof, but the withholding agent/taxpayer pays the tax, including the interest incident to the failure to withhold the tax and surcharges, if applicable, at the time of audit/investigation or reinvestigation/ reconsideration.
(C ) The withholding agent erroneously under withheld the tax but pays the difference between the correct amount and the amount of tax withheld including the interest incident to such error, and surcharges, if applicable, at the time of the audit investigation or reinvestigation/ reconsideration.
Please refer to the following link for the entire text: https://www.bir.gov.ph/images/bir_files/internal_communications_1/Full%20Text%20RR%202018/RR%20No.%206-2018.pdf
