Denial of Request for Waiver of Surcharge and Interest for Late Filing and Remittance of Withholding Taxes

September 8, 2003 BIR RULING NO. 009-03 58, 81, 248, & 249 ATS Construction International, Inc. 7/F, Jaka II Building Legaspi Village, Makati City Attention: Mr. Dominador P. Manangan, Jr. Manager-Finance and Accounting Gentlemen : This refers to your letters dated October 3, 2000 and October 10, 2000 requesting for waiver of surcharge and interest for late filing and remittance of your 1999 and 2000 withholding tax. It is represented that sometime in the years 1999 and 2000, ATS Construction, Inc., a domestic corporation, accrued a management fee payable to Showa Astec Company Limited, a non-resident foreign corporation based in Japan, in the amount of P16 million; that on September 2000, you discovered that management fees, whether accrued or paid must be subjected to final withholding tax of 25% under the RP-Japan Tax Treaty; that when you made the accrual in March, September, October, 1999 and February 2000, you overlooked to withhold and pay the corresponding 25% final withholding tax; that you did not immediately remit and file the corresponding tax because during that period you were suffering from financial losses and you did not have the ability to pay; that in your estimate, total surcharges and penalties will amount to P1.5 in plus; that your company continues to suffer from financial losses, operations have not been good to date and payment of such amount will have a material effect on your financial position; that this year you retrenched four (4) employees and transferred to a cheaper office space; and that you paid P4,102,917.50 representing payment of 25% of final withholding tax on the management fee. In reply, please be informed that the 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 "xxx xxx xxx "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." aTcIEH Finally, under Section 248 (a) (1) and (3) and 249, both of the Tax Code of 1997, the imposition of the surcharge and interest on delinquency is mandatory. Strong reasons of policy enjoin strict observance of the rule regarding the payment of tax. The laws imposing penalties for delinquencies are clearly intended to ensure tax payments or punish evasion or neglect of duty in respect thereof. If delays in tax payments are to be condoned for light reasons, the law imposing penalties for delinquencies would be rendered nugatory and the maintenance of the government and its multifarious activities would be as precarious as taxpayers are willing or unwilling to pay their obligations to the state on time. The imperatives of public welfare will not approve of this situation ( Jamora vs. Meer, 74 Phil. 22 ). In view thereof, your request for waiver of surcharge and interest for late filing and remittance of your 1999 and 2000 withholding taxes is hereby denied for lack of legal basis. Very truly yours, (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue