BIR Ruling No. 340-13

September 2, 2013 BIR RULING NO. 340-13 000-00 Mr. Danilo A. Lihaylihay 25 Kaunlaran Street, Batasan Hills Quezon City Sir : This has reference to your letter dated 7 January 2013 requesting for refund in the amount of Twenty Two Thousand Nine Hundred Sixty Pesos and Seventy Seven Centavos (Php22,960.77) representing the 10% final tax which allegedly was erroneously withheld from your informer's reward under Confidential Information No. 45-97. Documents submitted disclose that you are entitled to informer's reward in the total amount of Two Hundred Twenty Nine Thousand Six Hundred Seven Pesos and Ninety Four Centavos (Php229,607.94) pursuant to the Decision of the Court of Tax Appeals (First Division) dated 23 November 2009 in C.T.A. Case No. 7515 entitled "DANILO A. LIHAYLIHAY vs. COMMISSIONER OF INTERNAL REVENUE" , the dispositive portion of which reads as follows: "WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby PARTIALLY GRANTED, Respondent is ordered to pay to Petitioner the amount of P229,607.94, computed as follows: cTSDAH 1996 deficiency income tax paid/credited P1,255,528.66 1996 deficiency withholding tax 275,191.00 Total Deficiency taxes P1,530,719.66 15% Informer's reward due P229,607.94 xxx xxx xxx." that you have received your informer's reward in the total amount of Two Hundred Six Thousand Six Hundred Forty Seven pesos and Fifteen Centavos (Php206,647.15) less the amount of Php22,960.77 as 10% final tax withheld per Disbursement Voucher No. 12-08-2339 dated 26 June 2012 and paid under Check No. 0000932974 dated 14 December 2012; that you request that you be refunded the amount of the tax withheld considering that the confidential information was given prior to the effectivity of Section 282 of the National Internal Revenue Code (NIRC) of 1997, as amended. CIDcHA In reply, please be informed that pertinent portion of Section 282 NIRC of 1997, as amended, provides that (Emphasis supplied): "SEC. 282. Informer's Reward to Persons Instrumental in the Discovery of Violations of the National Internal Revenue Code and in the Discovery and Seizure of Smuggled Goods . xxx xxx xxx The cash rewards of informers shall be subject to income tax, collected as a final withholding tax at the rate of ten percent (10%). xxx xxx xxx." However, Section 282 of the NIRC of 1997, as amended, also known as Republic Act (R.A.) No. 8424, took effect on 1 January 1998 and must be applied prospectively. A perusal of the above-quoted CTA Decision reveals that the grant of informer's reward in your favor was anchored on the provisions set forth under the NIRC of 1977, as amended, particularly Section 281 paragraph 1 thereof. There was nothing in the provision that state that the cash reward of informers shall be subject to final withholding tax at the rate of ten percent (10%). Furthermore, Section 50 of the NIRC of 1977, as amended, provides an enumeration of certain income payments subject to withholding tax and receipt of informer's reward is not among those specified. It should be noted that the receipt of income should be reported for income tax purposes on the year of receipt of such income pursuant to Section 44 of the NIRC of 1997, as amended, which provides, that, "the amount of all items of gross income shall be included in the gross income for the taxable in which received by the taxpayer." SDEITC Based on the foregoing, this Office is of the opinion that you are entitled to refund the amount of Twenty Two Thousand Nine Hundred Sixty Pesos and Seventy Seven Centavos (Php22,960.77) representing the 10% final tax which was erroneously withheld from your informer's reward considering that the confidential information subject to the informer's reward given was made prior to the effectivity of R.A. No. 8424. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue