BIR Ruling [DA-133-97]

March 31, 1997 BIR RULING [DA-133-97] C.F. Sharp Crew Management, Inc. Casa Rocha 290-292 General Luna Street Intramuros, Manila Attention: Mr. Raul V. Austria Comptroller Gentlemen : This refers to your letter dated June 6, 1995 requesting in effect for a ruling on the following issues: "1. What will be our basis in computing the withholding tax? Amount paid to beneficiaries (80% allotment + Balance wages) or gross income including those income account paid onboard? 2. Do we have to prepare a year-end adjustment to show that Tax Withheld = Tax Due? 3. Do we have to include the income from his previous employers? 4. Do we have to require a seafarer for every renewal of contract to submit the following documents? a duly filled-up W4 a W-2 Certificate issued by the previous employer 5. When do we refund the seafarer? CTacSE end of contract year end" It is represented that you are a newly established company engaged in the recruitment of seafarers for employment to international vessels owned by your foreign principals; that it is the practice of your company to divide the payment of said salaries into two components, that is, 80% of which is paid to the family or beneficiary of the seafarer and the balance of 20% is paid to the seafarer upon his arrival by the local manning agent; that others opted the payment of 100% of their salaries to their beneficiaries; that the other supplementary income account such as overtime (fixed or per hour), vacation leave, seniority pay are sometimes paid onboard directly to the seafarer; and that the manner of payment of the salaries of seafarers are embodied in the contract of employment. In reply thereto, please be informed as follows: 1. The term "taxable income on compensation" means gross compensation income as defined in Section 2 (2) of the Revenue Regulations No. 6-82 as amended by Revenue Regulations No. 12-86 less the authorized deductions under Section 30 (1) now Section 29 (1) of the Tax Code, as amended. Thus, the basis in computing the withholding tax on wages paid to seafarers shall be the gross compensation income for services performed by the seafarers including the income account paid on board. ESTDIA 2. On or before the end of the calendar year, but prior to the payment of the compensation for the last payroll period, the employer shall determine the sum of the gross compensation paid to each employee for the entire year, including the last compensation to be paid and computed for the amount of income tax on the annualized gross compensation income in accordance with Section 21 of the National Internal Revenue Code. The tax due from each employee for the entire year shall be decreased by the sum of the taxes withheld from the salary of such employee from January to November. The difference shall be the amount to be withheld in December of the current calendar year or amount to be refunded by the employer to the employee, if the sum of the taxes withheld from January to November is greater than the tax due from such employee for the entire year. The total amount actually refunded by the employer to his employees resulting from the year-end adjustment shall be repaid from the remittable amount of taxes withheld for the month of December of the current year and succeeding months of the following year until the total amount actually refunded is fully paid." (Sec. 6, Revenue Regulations No. 12-86 amending paragraphs (a) and (b) of Sec. 22 of Revenue Regulations No. 6-82, as amended) Hence, a year-end adjustment is necessary in order to determine the tax due from each employee on their taxable compensation income for the entire taxable year in accordance with Section 21 (a) of the Tax Code. aATCDI 3. The income of the seafarers from their previous employer may be included by you in the computation of their gross compensation income subject to withholding tax if you have the legal control of the payment of their compensation for the services rendered to their previous employer. (Sec. 6, Revenue Regulations No. 6-82 as amended by Revenue Regulations No. 12-86) 4. The answer is in the affirmative. A duly filled up W-4 and W-2 should be submitted by the seafarer concerned for every renewal of their contract of employment to arrive at the correct amount of tax to be deducted and withheld from their compensation income. 5. Refund shall be given to the seafarer at year-end. The tax due from each employee for the entire year shall be decreased by the sum of the taxes withheld from the salary of such employee from January to November. The difference shall be the amount to be withheld in December of the current calendar year or amount to be refunded by the employer to the employee, if the sum of the taxes withheld from January to November is greater than the tax due from such employee for the entire year. The total amount actually refunded by the employer to his employees resulting from the year-end adjustment shall be repaid from the remittable amount of taxes withheld for the month of December of the current year and succeeding months of the following year until the total amount actually refunded is fully paid. (Sec. 22 (b), of Revenue Regulations No. 6-82 as amended by Revenue Regulations No. 12-86) (BIR Ruling No. 215-86 October 14, 1986; 179-90 September 17, 1999) Very truly yours, (SGD.) ALICIA L. TOMACRUZ Head Revenue Executive Asst. (Legal Service)