Amendment to Revenue Regulations V-8, (Withholding Tax Regulations), as amended

January 8, 1976 REVENUE REGULATIONS NO. 02-76 SUBJECT : Amendment to Revenue Regulations V -8, (Withholding Tax Regu lations), as amended TO : All Internal Revenue Officers, Withholding Agents and Others Concerned SECTION 1. Pursuant to the provisions of Article 2(d) of Supplement A to Title II of the National Internal Revenue Code and Section 338 of the same Code, Section 18 of Revenue Regulations V-8 is hereby amended to read as follows: cdt SEC. 18. Non-deductibility of tax and credit for tax withheld . The tax deducted and withheld at the source upon wages shall not be allowed as a deduction either to the employer or to the recipient of the income in computing net income under Title II of the National Internal Revenue Code. The entire amount of wages from which the tax is withheld shall be included in gross income in the return required to be made by the recipient of the income without deduction for such tax. The tax withheld at source, however, is allowable as a credit against the tax imposed by the main provisions of Title II upon 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 upon office audit in the Bureau of Internal Revenue shall be refunded or credited to the recipient of the income at his option; Provided, however, That all employees to whom are owing refunds in an amount not in excess of thirty pesos (P30.00) shall be immediately paid or credited against the income tax which would otherwise be withheld from their wages during the current year by their employers, through a tax credit memo, to be denominated as credit memo for taxes withheld on wages. 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 Title II. If the tax has actually been withheld at source, credit or refund shall be made to the recipient of the income even though such tax has not been paid over to the Government by the employer. For the purpose of the credit, the recipient of the income is the person subject to the tax imposed under the main provisions of Title II upon wages from which the tax was withheld. SECTION 2. The following Section 18-A is hereby inserted after Section 18 of Revenue Regulations V-8: SEC. 18-A. Definition of Credit Memo for Taxes Withheld on Wages . A credit memo for taxes withheld on wages is a non-negotiable instrument which entitles the employee to an immediate payment of the amount stated therein or have it applied or credited against the income tax which would otherwise be withheld from his wages. It authorizes the employer to pay the refundable amount out of the remittable fund of income taxes withheld from wages, or credit the said amount against the income tax which would otherwise be withheld from the employee for the year in which payment or application is made. 1. The employee, after exercising his option to claim the refund or avail of a credit, through the use of the credit memo for taxes withheld on wages, shall sign and surrender the same to his employer. The employer can use all the accumulated credit memos for taxes withheld on wages as part of his remittance of the income taxes withheld by him monthly or quarterly, as the case may be, to the Bureau of Internal Revenue. 2. Remittance Procedure . Payment and remittance of income taxes withheld by the employer shall be accompanied with a reconciliation statement showing the total amount of credit memos paid out of such amount or applied to the income taxes which otherwise would have been withheld from wages for the quarter in which the payment or application was made. The statement shall be filed with the quarterly report of remittances (W-I), and the difference between the total income taxes withheld and the total of the credit memos paid or credited shall be paid to the collection agent of the municipality or city in which the employer has his or its business, or to any internal revenue officer authorized to receive payment. 3. Issuing Officer ; period of issuance and payment of the tax credit memo . It shall be the duty of the Commissioner of Internal Revenue or his authorized agent to issue the tax credit memo in proper cases not later than three months from the date of filing the income tax return of the employee or from the 15th day of April, whichever is later. The employer shall pay the employee the amount stated in the tax credit memo within forty days from its presentation out of the remittable funds of income taxes withheld. aisa dc SECTION 3. Effectivity . These regulations shall take effect on January 1, 1976. PEDRO M. ALMANZOR Acting Secretary Recommended by: EFREN I. PLANA Acting Commissioner of Internal Revenue TAN: 1456-040-3 ANNEX A March 15, 1976 The Secretary of Finance Manila Sir: I am submitting for your consideration a proposed revenue regulation defining "gross Philippine billings" in relation to the taxation of international carriers. As proposed, the basis of the tax on international carriers is the gross revenue realized from uplifts anywhere in the world by any international carrier doing business in the Philippines of passage documents sold therein, provided that in the case of cargo or mail, the same must have originated from the Philippines. The tax is thus imposed only on realized gross revenues. Incidentally, the definition is basically in accord with the consensus reached at the meeting of the representatives of this Bureau and the IATA group on May 29, 1974. A copy of the minutes of that meeting is attached for ready reference. The inclusion of the regular sale of tickets in the Philippines by off-line international airlines within the meaning of the phrase "doing business in the Philippines" is supported by R.A. No. 5455, otherwise known as the Foreign Business Regulations Act, which defines "doing business in the Philippines" to include, among other things, "the opening of offices, whether called 'liaison' offices, agencies, or branches, unless proved otherwise", and "any other act or acts which imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts, or works, or the exercise of some of the functions normally incident to, or in the progressive prosecution of commercial gain or of the purpose and object of the business organization". With this regulation, we aim to bring within the purview of Sec. 24(b)(2) of the Tax Code the business activities of off-line airline companies, in order to place them on equal footing with on-line airline companies for income tax purposes. There is an urgent need for us to define "gross Philippine billings". In the absence of a definition thereof, foreign international airlines would be on their own and they would naturally adopt a definition that is most advantageous to them, thus reducing the revenues collectible by the Philippine Government. On the other hand, if the BIR makes some deficiency assessment on said airlines, together with the corresponding penalties, they have a good reason to complain because their "mistake" in the computation of taxes would not arise from a violation of any law or rule but simply on account of the failure of the government to define "gross Philippine billings" for their guidance in the preparation of their income tax returns. Early approval of the herein proposed regulation is strongly recommended. Very truly yours, EFREN I. PLANA Acting Commissioner TAN 1456-040-3 Att.: A copy of the minutes of the meeting dated May 29, 1974