BIR Ruling [DA-137-03]

April 29, 2003 BIR RULING [DA-137-03] RR 2-98; RR 12-2001 DA-198-2002 Luisita Cruz-Valdes #3 St. Jude, Toro Hills, Quezon City M a d a m : This refers to your letter dated November 25, 2002 requesting for a refund of an over deduction and excess payment of your withholding tax as computed by your previous employer, GMA Network, Inc. It appears from the documents submitted that you were an employee of GMA Network, Inc. and you hold a regular position then as Production Unit Manager for News and at the same time rendering services as a talent therein; that under the terms of the Talent Agreement, GMA Network, Inc. engaged your services as its talent particularly as host and writer of I-Witness, Saksi, Brigada Siete and Unang Hirit; that there appears to be an over-deduction in your withholding tax because GMA Network failed to compute and erred in withholding taxes from you as a regular employee and as a talent separately at yearend resulting in an over-deduction or excess withholding in your income tax; that since GMA Network, Inc. already remitted the amount to the BIR, you now claim for refund from this Office; and that in support of your request, you submitted the following: (1) Computation of your final payment; (2) Recomputation of your withholding tax that should have been deducted by GMA Network, Inc.; (3) BIR Form 2316 and 2307 issued by GMA Network, Inc.; (4) Your letter to the Chief, Withholding Tax Division of the BIR, National Office dated September 9, 2002; (5) Letter reply from the Chief, Withholding Tax Division dated October 9, 2002 and (6) Talent Agreement. In reply, please be informed that the term "compensation income" means all remuneration for services performed by an employee for his employer under an employer-employee relationship, unless specifically excluded by the Tax Code. The name by which the remuneration for the services is designated is immaterial. Thus, salaries, wages, emoluments, and honoraria, allowances, commissions ( e.g., transportation, representation, entertainment and the like), fees including director's fees if the director is, at the same time, an employee of the employer/corporation taxable bonuses and fringe benefits, except those which are subject to the fringe benefits tax under Section 33 of the Tax Code, taxable pensions and retirement pay, and other income of a similar nature constitute compensation income. (Sec. 2.78.1, Revenue Regulations No. 2-98, as amended) The withholding tax on compensation income is a method of collecting the income tax at source upon receipt of the income. It applies to all employed individuals, whether citizens or aliens, deriving income from compensation for services rendered in the Philippines. The employer is constituted as the withholding agent. (Sec. 2.78, Ibid.) However, if an individual recipient receives talent fees in addition to salaries from the same payor, the said talent fees shall be constituted as supplemental compensation and, thus, be subject to the withholding tax on compensation. (Sec. 2.57.2(A) last paragraph, Revenue Regulations (RR) No. 2-98, as amended by RR 12-2001) In applying the above-cited Regulations, the talent fees you received from GMA Network, Inc., in addition to your salary as a regular employee, formed part of your compensation income subject to the withholding tax on compensation, and not to the creditable income tax, imposed under Section 3(A) of Revenue Regulations No. 12-2001. Thus, it was the liability of GMA Network, Inc., as your employer, to withhold and remit the corresponding tax due on the said talent fees to the BIR. (BIR Ruling No. DA-198-2002 dated November 8, 2002) ADEHTS It is to be emphasized, however, that every employer or other person who is required to deduct and withhold the tax on compensation shall furnish every employee from whose compensation taxes have been withheld the Certificate of Income Tax Withheld on Compensation (Form 2316, formerly Form No. W-2) on or before January 31 of the succeeding calendar year. (Sec. 2.83.1, Revenue Regulations No. 2-98) In view of the foregoing, this Office regrets to inform you that your request for refund cannot be granted for lack of legal basis. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group