BIR Ruling [DA-016-97]

January 14, 1997 BIR RULING [DA-016-97] Joaquin Cunanan & Co. 8th Floor, BA Lepanto Building Paseo de Roxas, Makati, Metro Manila Attention: Ms . Tomasa H . Lipana Partner Gentlemen : This refers to your letters dated September 13, 1994 and January 11, 1995 filed in behalf of your client, Unilever Philippines (PRC), Inc., requesting for a ruling on the correct interpretation of the provisions of Sections 3 and 9 of the Expanded Withholding Tax Regulations 6-85), in relation to the provisions of Sections 29 (j) and 39 of the Tax Code, as amended. Specifically you seek a clarification on the following questions: LexLib 1. When is the appropriate time to withhold and remit taxes it reckoned from the time (a) the income subject to withholding is paid or (b) the income becomes payable? 2. May the accrued expense, which is subjected to withholding tax at the time it becomes paid or payable whichever is earlier, be allowed as a deduction from gross income in the taxable year it is recognized in the books? In reply, please be informed that: 1. The appropriate time to withhold taxes arises at the time the amount is paid or payable, whichever is earlier . Hence, for Philippine internal revenue tax purposes, the liability to withhold and pay the income tax withheld at source from certain payments attaches at the time of the accrual of said payments and not at time of actual remittance or payment thereof (BIR Ruling No. 71-003). Upon withholding the required tax, the withholding agent shall be required to remit the same within ten (10) days after the end of each calendar month. Applying the foregoing, if an expense is incurred and the liability is booked as of December 31 but is payable 90 days thereafter or on March 31 (based on the supplier's invoice), the withholding tax must be remitted on or before January 10. This is because the expense is recognized on December 31 following the accrual method of accounting, it is payable as of that date, then, the obligation to withhold arises on the said date. An expense accrued based on mere estimate as of December 31 and the corresponding supplier's invoice dated January 29 is received on January 31, with payment term of 30 days (or due February 28), the reckoning date for the withholding tax is December 31. Remittance of the tax must be made 10 days thereafter, that is, on or before January 10. 2. Deductions shall be taken for the taxable year in which "paid or accrued" or "paid or incurred" dependent upon the method of accounting upon the basis of which the net income is computed, unless in order to clearly reflect the income, the deductions should be taken as of different period. Accordingly, should your client employ and accrual method of accounting, the expenses are deductible in the year the same is accrued or recognized in the books, provided it is subjected to withholding tax at the time it becomes "paid or payable", whichever is earlier, as explained in No. 1 above. (BIR Ruling No. 555-88 dated September 23, 1988). LexLib Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal)