BIR Ruling [DA-187-03]

June 16, 2003 BIR RULING [DA-187-03] 58, 251 & 255; BIR Ruling No. 65-00 Clemente J. Celso, CPA 662 Guillermo St. Gagalangin, Tondo M a n i l a S i r : This refers to your letter dated September 6, 2002 requesting that your client, SENCOR be allowed to avail of the provisions of Section 204, paragraph A(2) of the 1997 Tax Code. It is represented that your client, SENCOR, is a registered domestic corporation; that it is engaged in data conversion of documents mostly coming from the U.S.A.; that it had under its original employment almost 800 employees; that due to financial reverses it suffered, and is still suffering, your client has terminated the services of most of its employees leaving a balance of only 200 employees as of date; that SENCOR has withheld from the salaries of its employees and other withholding taxes in the amount of P20,294,643.45 and due to financial difficulties, it has failed to remit the same to the BIR; that it has suffered a total deficit of P187,111,966.52 against paid-up capital of P3,250,000.00 or capital impairment of 5,757%; and that to support your claim that SENCOR is presently in deep financial difficulties, you are attaching a copy of its audited financial statement as of December 31, 2001 clearly demonstrating its inability to pay assessed withholding tax. In reply, please be informed that taxes deducted and withheld by the withholding agent shall be held as a special fund in trust for the government until paid to the collecting officers pursuant to Section 58 in relation to Section 81 of the Tax Code of 1997. Moreover, paragraph 2 of Section 2.58.1 of Revenue Regulations No. 2-98 implementing Section 58 of the Tax Code of 1997 provides that "The taxes withheld by the withholding agents shall be maintained in separate accounts and should not be commingled with any other funds of the withholding agent. They shall be considered as a trust fund held for the government until they are remitted." On the other hand, Sections 251 and 255 of the Tax Code of 1997, provides, viz.: "SEC. 251. Failure of a Withholding Agent to Collect and Remit Tax . Any person required to withhold, account for and remit any tax imposed by this Code or who willfully fails to withhold such tax, or account for and remit such tax, or aids or abets in any manner to evade any such tax or the payment thereof, shall, in addition to other penalties provided for under this Chapter, be liable upon conviction to a penalty equal to the total amount of the tax not withheld, or not accounted for and remitted." aSTAcH xxx xxx xxx "SEC. 255. Failure to File Return, Supply Correct and Accurate information, Pay Tax, Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation . Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax, make a return, keep any record, or supply correct and accurate information, who willfully fails to pay such tax, make such return, keep such record, or supply such correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year but not more than ten (10) years." It is clear that for failure to remit taxes withheld, the imposition of the penalties prescribed therein is mandatory, as shown from the language and content, and therefore, cannot be waived. Finally, any person required to collect, account for, and remit any tax imposed by the Tax Code of 1997, who willfully fails to collect such tax, or account for and remit such tax or willfully assists in any manner to evade .any such tax or the payment thereof, shall, in addition to other penalties provided for in Chapter I and II, Title X of the Tax Code of 1997, be liable to a penalty equal to the total amount of the tax not collected, or not accounted for and remitted. In view of the foregoing, this Office regrets to deny your request. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group