BIR Ruling [DA-366-04]

June 28, 2004 BIR RULING [DA-366-04] Sec. 2.78.1 (A); 014-2000; 043-2001 Bangko Sentral ng Pilipinas Maynila, Pilipinas Attention: Mr. Armando L. Suratos Deputy Governor Gentlemen : This refers to your letter dated October 22, 2001 stating that the Monetary Board recently approved the payment of back benefits to Central Bank of the Philippines (CBP)/Bangko Sentral ng Pilipinas (BSP) employees covering the period 1 July 1989 to 15 March 1999, specifically the Cost of Living Allowance (COLA) and Amelioration Allowance; that you are now preparing the payrolls for the scheduled payments not later than 31 October 2001 and 31 March 2002, respectively; and that you are requesting that BSP be allowed/granted the following: 1. Application of the corresponding ( i.e. 1989 to 1999) tax tables/rates on the COLA and Amelioration Allowance back pay presented as additional taxable income on a per year basis; 2. Centralized withholding tax collection and remittance of taxes due (RDO No. 33, Port Area, Manila); 3. Waiver of the filing of the individual amended ITRs on taxes due for the prior years by the CBP/BSP employees; and 4. Filing with RDO No. 33 an Alphabetical List of CBP/BSP Employees showing the additional taxable income as well as the tax due on a per year basis, together with the tax remittance. In reply thereto, 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 Code. IDCcEa The name by which the remuneration for 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. Remuneration for services constitutes compensation even if the relationship of employer and employee does not exist any longer at the time when payment is made between the person in whose employ the services had been performed and the individual who performed them. (Sec. 2.78.1 (A), Revenue Regulations No. 2-98) Please note that 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) In applying the above-cited regulations to the case of bar, the COLA and Amelioration Allowances to be received by the CBP/BSP employees form part of their compensation income subject to withholding tax. Thus, it is the liability of the employer, BSP, to withhold and remit the corresponding tax due on the said allowances to the BIR. Considering that such back benefits, i.e., COLA and Amelioration Allowances, constitute remunerations prior to the year 1989 when actually received by such employees, a liberal construction of the statute is called for in this particular case if only to protect employees from the payment of a tax heavier than what should have been imposed if the employer had promptly met its obligation. (BIR Ruling No. 346-88 dated July 21, 1988) Accordingly, in filing their annual income tax returns, they should report as income and pay their respective income taxes by allocating or spreading their back benefits for the years 1989 to 1999 or equivalent to a period of ten (10) years. With regard to the application of the yearly tax rates on COLA and Amelioration allowances, this Office interposes no objection to the manner by which BSP will compute the benefits to be received by the employees (BIR Ruling No. 014-2000 dated January 7, 2000). In this regard, please submit to this Office a sample of the computation format which will clearly show the taxes withheld from them during the years in question. EHACcT On the issue of centralizing the withholding tax collection and remittance of taxes due, Section 81 of the Tax Code of 1997 provides that except as the Commissioner otherwise permits, taxes deducted and withheld by the employer on wages of employees shall be covered by a return and paid to an authorized agent bank. Collection Agent, or the duly authorized Treasurer of the city or municipality where the employer has his legal residence or principal place of business, or in case the employer is a corporation, where the principal office is located. (Sec. 2.81, Revenue Regulations No. 2-98) 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 No. 2316, formerly Form No. W-2) on or before January 31, of the succeeding calendar year. (Sec. 2.83.1, supra) Considering that the processing and payment of the back benefits of the employees will be done at the BSP Central Office, your request to centralize the collection and remittance of the withholding tax is hereby granted. Thus, you are hereby authorized to remit to Revenue District Office No. 33 Ermita-Intramuros-Malate, the withholding tax due from the employees entitled to the back benefits corresponding to the years 1989 to 1999. Your request for the waiver of the filing of amended returns on taxes due for prior years covering the COLA and Amelioration Allowances is hereby granted. This office has already occasioned to rule that, in lieu of said amended returns, BSP should instead file with the concerned Revenue District Office an Alphabetical List of Employees who were given back benefits for 1989 to 1999 on a per year basis. This is for monitoring purposes to enable this Office to check if the income tax due from each employee tallies with what was actually remitted by them. Finally, taxes constitute the lifeblood of the nation and are greatly needed to support the government and its widely expanding services to the people. Thus, the collection and remittance of the withholding tax due on the back benefits to be received by the employees of BSP should never depend on the resolution of this Office but should instead arise at the time an income is paid or payable, whichever comes first. (Sec. 2.57.4 Revenue Regulations No. 2-98) ICHcTD This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group