BIR Ruling No. 160-14

May 30, 2014 BIR RULING NO. 160-14 Section 252 of the Tax Code of 1997; and 2.80 (A) (3) of Revenue Regulations No. 2-98 Managers Association Towards Unity Optimism and Development Lot 16 Block 3, Laurel Street, Model Com., Tondo, Manila Attention: Mr. Danilo S. Lopez President MATUOD Gentlemen : This refers to your letter dated May 15, 2012, requesting the Bureau of Internal Revenue (BIR) to refund the income tax withheld by your former employer, United Dockhandlers, Inc. (UDI),for taxable year 2010. It appears in your letter request that Managers Association Towards Unity Optimism and Development (MATUOD) is group of former employees of UDI. On the other hand, UDI, with office address at Road 10, corner Capulong Street, Tondo, Manila, is a cargo handler or contractor operating at Manila North Harbor specifically at Pier 6, 12, 14 and 16. On April 15, 2010, the operation of UDI stopped due to the takeover by Manila North Harbor Port, Inc. of the piers operated by UDI. Upon perusal of their BIR Form No. 2316, the members of MATUOD notice that UDI deducted withholding tax from their wages and salaries. However, the members claimed that their earnings derived from January 1, 2010 up to April 15, 2010 did not even reached the amount as taxable. On July 4, 2011, MATUOD members through their President wrote to this office to request for the urgent refund of their withholding tax. However, the letter request for refund has been endorsed to Revenue Region No. 6 for appropriate action as this office is without jurisdiction to address it. At this juncture, it should be emphasized that the above request has been resolved by Revenue District Officer (RDO) Rosemarie Ramos-Ragasa, Revenue District Office No. 29 on November 25, 2011. In fact, Revenue District Office No. 29 replied as follows: CAaDSI "In reply, please be informed that the employer UDI with TIN:004-567-523-000 and business address at Radial 10 cor Capulong Highway, Tondo, Manila has the obligation to refund excess or over withholding of income taxes of their employees pursuant to Section 2.80 of Revenue Regulations (RR) No. 2-98 as amended. A Memorandum dated May 26, 2011 was issued by the Commissioner of Internal Revenue to further emphasize the compliance of the provisions of the said regulation and to ensure the strict implementation of the non processing of refunds for taxpayers receiving purely compensation income and for failure to do so, a penalty shall be imposed pursuant to Section 3.80.3 of RR No. 2-98 ,to wit: '3.80.3. any employer/withholding agent who fails, or refuses to refund excess withholding tax not later than January 25 of the succeeding year shall, in addition to any penalties provided in Title X of the Code 116, as amended, be liable to a penalty equal to the total amount of refund which was not refunded to the employee resulting from an excess of the amount withheld over the tax actually due on their return.' In view of the above, you may file your request for refund to your employer UDI or if possible to the one which took over it, Manila North Harbor Port, Inc. (MNHPI)." With regard to your present request, it is represented that UDI, with office address at Road 10 corner Capulong Street, Tondo, Port of Manila, ceased operation on April 15, 2010; that the following employees of UDI were excessively deducted withholding tax for the taxable year 2010, to wit: TCDcSE Name Over Withheld Arturo Azarcon 9,279.53 Ernesto Castillo 8,560.76 Norman Grefiel 9,524.26 Allan Lacorte 10,247.45 Erich Legaspi 0 Danilo Lopez 7,754.93 Josephine Lopez 4,728.28 Paramon Lustiva 7,893.85 Manuel Marquez 4,532.09 Arnold Pagayon 11,550.00 Ricardo Rivera 8,400.00 Eduardo Semanes 4,525.79 Apolinario Tayad 7,000.00 Vicente Yongco Jr. 9,800.00 In reply, please be informed that Section 252 of the Tax Code of 1997, as amended, provides: "SEC. 252. Failure of a Withholding Agent to Refund Excess Withholding Tax. Any employer/withholding agent who fails or refuses to refund excess withholding tax shall, in addition to the penalties provided in this Title, be liable to a penalty to the total amount of refunds which was not refunded to the employee resulting from any excess of the amount withheld over the tax actually due on their return." In relation thereto is Section 2.80 (A) (3) of Revenue Regulations No. 2-98, to wit: "Section 2.80. Liability for Tax . (A) Employer. (1) ... HCITcA (2) ... (3) Any employer/withholding agent who fails, or refuses to refund excess withholding tax not later than January 25 of the succeeding year shall, in addition to any penalties provided in Title X of the Code, as amended, be liable to a penalty equal to the total amount of refund which was not refunded to the employee resulting from any excess of the amount withheld over the tax actually due on their return." Based on the above provisions, the employer is obligated to refund the excess tax (when the amount of cumulative tax already deducted and withheld is greater than the tax due) to the employee not later than January 25 of the following year. However, in case of termination of employment before December, the refund shall be given to the employee at the payment of the last compensation during the year. Verily, it appears that this is an isolated case wherein employees are claiming for refund from the BIR considering that they cannot anymore seek for refund from their employer, UDI, since it has already ceased operations in 2010. Moreover, Section 2.79 (H) of Revenue Regulations No. 2-98, provides: (H) Non-deductibility of Tax and Credit for Tax Withheld. The tax deducted and withheld at source on compensation income shall neither be allowed as a deduction from the employer's gross income nor from the recipient's gross compensation income. The entire amount of the compensation from which the tax is withheld shall be included in gross income to be reported in the return required to be made by the recipient of the income without deduction for such tax. The creditable tax withheld at source, however, is allowable as a credit against the tax imposed by the NIRC to the recipient of the income. Any excess of the tax withheld at source, over the tax ascertained to be due on the income tax return shall be refunded or automatically credited, at the taxpayer's option, to the recipient of the income. Such refund or credit shall be without prejudice to whatever adjustments may be proper after field investigation or upon information relative to the taxpayer's income tax liability under the main provisions of the Code, as amended. If the tax has actually been withheld at source, a credit or a refund shall be made to the recipient of the income even though such withheld tax has not been paid to the government by the employer. For the purpose of the credit, the recipient of the income is the person subject to tax, on whose compensation the tax was withheld. HIACEa Based on the foregoing, the return required to be made (and filed) by the recipient of the income and the fact that the tax has actually been withheld at source are essential in evaluating its claim for refund. Evaluation of the compliance to these requirement falls under the domain of the Revenue District Office which has jurisdiction over the person subject to tax. 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. aEAcHI Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue