| PROVISIONS AFFECTED BY EOPT ACT | AMENDMENTS |
| RMC No. 11-2024 (Lease Accounting by Lesses) | RMC No. 11-2024 (Lease Accounting by Lesses) |
Q6: What shall be the income tax treatment of initial direct cost paid by the lessee in relation to the lease of an asset?
A6: For purposes of taxation, Inital Direct Costs shall be defined as payments which are directly related to the negotiation and execution of a lease agreement. The initial direct cost paid or incurred by the lessee in relation to the lease agreement shall be claimed as outright expenses in the year it was paid or incurred subject to substantiation and withholding requirements pursuant to Section 34 of the Tax Code, as amended. | Q6: What shall be the income tax treatment of initial direct cost paid by the lessee in relation to the lease of an asset?
A6: For the purpose of taxation, Initial Direct Costs shall be defined as payments which are directly related to the negotiation and execution of a lease agreement. The initial direct cost paid or incurred by the lessee in relation to the lease agreement shall be claimed as outright expenses in the year it was paid or incurred subject to substantiation requirements pursuant to Section 34 (A)(1)(b) of the Tax Code of 1997, as amended.
Furthermore, the same shall be subject to withholding tax pursuant to Section 9 of the Ease of Paying Taxes (EOPT) and Section 7 of RR No. 4-2024, as provided below:
“Section 7. Withholding of Tax at Source. Section 2.57.4 of RR No. 2-98, as amended, shall now read as follows:
‘Section 2.57.4. Time of Withholding. – The obligation of the payor to deduct and withhold the tax under Section 2.57 of these Regulations arises at the time an income has become payable. The term “payable” refers to the date the obligation becomes due, demandable or legally enforceable. The obligation of the payor to deduct withhold the tax arises at the time an income payment is accrued or recorded as an expense or asset, whichever is applicable, in the payor’s books, or at the issuance by the seller of the sales invoice or other adequate document to support such payable, whichever comes first.’
It was however clarified under RMC No. 60-2024 that the non-withholding of tax will no longer be a ground for the disallowance of the claimed deduction/expense for taxable year covering January 1, 2024 onwards. |
Q7: What shall be the income tax treatment of expenses paid or incurred by the lessee which are properly for the account of the lessor?
A7: The amounts paid by the lessee for certain expenses, which are properly for the account of the lessor as indicated in the contractual agreement between the parties, shall be allowed as deductions during the year the same has been paid or accrued pursuant to Section 34 of the Tax Code, as amended. Provided, however, that lessor shall issue invoices/receipts in the name of the lessee (e.g., realty tax, association dues, etc.) | Q7: What shall be the income tax treatment of expenses paid or incurred by the lessee which are properly for the account of the lessor?
A7: The amounts paid by the lessee for certain expenses, which are properly for the account of the lessor as indicated in the contractual agreement between the parties, shall be allowed as deductions during the year the same has been paid or accrued pursuant to Section 34 of the Tax Code of 1997 as amended, which shall be properly substantiated with invoices issued by the lessor in the name of the lessee. Thus, it will form part as gross sales of lessor and allowable as deduction on the part of the lessee. |
Q12: What are the business tax implications relative to leases?
A12: For business tax purposes, the following guidelines shall still be observed:
1. The corresponding input VAT shall only be creditable to the lessee upon payment of the rentals, which shall be evidenced by a VAT Official Receipt pursuant to Section 110 in relation to Section 113 of the Tax Code as amended. | Q12: What are the business tax implications relative to leases?
A12: For business tax purposes, the following guidelines shall still be observed:
1. The corresponding input VAT shall only be creditable to the lessee for the amount of rentals paid incurred/accrued, which shall be evidenced by a VAT Invoice pursuant to Section 10 in relation to Section 113 of the Tax Code, as amended. |
Q13: What are the withholding tax implications of leases?
A13: For contracts considered as leases, only the actual rental paid or accrued shall be subject to five percent (5%) Expanded Withholding Tax (EWT) pursuant to Section 2.57.2 (B) of RR No. 02-98, as amended. Hence, only the actual rental paid or accrued shall be considered as the tax base for EWT purposes, without regard to the depreciation expense from the ROUA. | Q13: What are the withholding tax implications of leases?
A13: The 5% withholding tax under Section 2.27.2 (B) of RR No. 02-98 shall be based on the amount payable which refers to the value paid/accrued or recorded as an expense or asset, whichever is applicable in the payor’s book or at the issuance by the seller of the sales invoice or other adequate document to support such payable whichever comes first pursuant to Section 7 of RR No. 4-2024. |
| RMC No. 12-2024 (FOREX Transactions) | RMC No. 12-2024 (FOREX Transactions) |
Q17: What will be the basis for the reportable amount of transactions denominated in foreign currency for taxes other than income tax (e.g., Value Added Tax (VAT), Gross Receipt Tax (GRT), Other Percentage Tax (OPT), Excise Tax, Documentary Stamp Tax (DST), etc)?
A17: Foreign Currency transactions are converted into Philippine Peso using the prevailing spot rate on the date of transaction. This is the basis of the reportable transactions of taxes other than income tax (e.g., VAT, GRT, OPT, Excise, DST, etc.)
For VAT Purposes, the reportable amount for sale of goods or properties shall be the gross selling price or the gross value in money as supported by a corresponding sales invoice; while for sale or exchange of services, including the use or lease of property, it shall be the gross receipts as supported by a corresponding official receipt.
For GRT and OPT, the reportable amount shall be the gross quarterly sales or receipts depending on the type of transaction subject to the said taxes.
For Excise, the reportable amount shall be the excise taxes imposed and based on weight or volume capacity or any other physical unit of measurement (specific tax) and imposed and based on selling price or other specified value of the goods (ad valorem tax) generally before the removal/release of the excisable products.
For DST, the reportable amount shall be based on the value of the documents subject to stamp tax.
For withholding taxes, in general, the reportable amount shall be the value of the taxable income payment at the time it is paid or payable or when it is accrued or recorded as an expense or asset whichever comes first. | Q17: What will be the basis for the reportable amount of transactions denominated in foreign currency for taxes other than income tax (e.g., Value Added Tax (VAT), Gross Receipt Tax (GRT), Other Percentage Tax (OPT), Excise Tax, Documentary Stamp Tax (DST), etc)?
A17: For taxes other than income tax (e.g., VAT,OPT, Excises, DST, etc.), the basis of reportable amount for foreign currency transactions shall be Philippine Peso-converted amount using the prevailing spot rate on the date of transaction.
In determining the date of transaction, the enactment of RA 11976 or EOPT Act shall be taken into consideration which provides the revised bases for the reportable amounts for VAT, OPT and withholding taxes, as follows:
For VAT purposes reportable amount for sale of goods, properties and sale or exchange of services shall be gross sales as supported by a corresponding VAT invoice;
For OPT, the reportable amount shall be the gross quarterly sales depending on the type of transaction subject to the said taxes;
For Excise, the reportable amount shall be:
a) Specific Tax. The excise taxes imposed based on weight or volume capacity or any other physical unit of measurement. b) Ad valorem tax. The excise tax shall be based on selling price or other specified value of goods before the removal/release of excisable products;
For DST the reportable amount shall be based on the value provided in the documents subject to stamp tax; and
For withholding taxes, in general, the reportable amount shall be the value of the taxable income payment at the time it has become payable, accrued or recorded as an expense or asset, whichever is applicable, in the payor’s books, or at the issuance by the seller of the sales invoice or other adequate document to support such payable whichever comes first. |
| RMC No. 19-2024 (Interest Expense) | RMC No. 19-2024 (Interest Expense) |
Q1: When can interest expense be claimed as a deduction from gross income?
A1: Interest paid or incurred within a taxable year on indebtedness in connection with the taxpayer’s profession, trade or business shall be allowed as a deduction from gross income, subject to certain limitations, when the following requisites, provided in Section 34 (B)(2) of the National Internal Revenue Code (NIRC) of 1997, as amended, and as implemented by Revenue Regulations (RR) No. 13-2000 and Section 7(B) of RR No. 5-2021, are met:
1. The indebtedness must be that of the taxpayer;
2. The interest must have been stipulated in writing;
3. The interest must be legally due;
4. the Interest payment arrangement must not be between related taxpayers as mandated in Sec. 34 (B)(2)(b), in relation to Sec. 36(B), both of the NIRC of 1997, as amended;
5. The interest must not be incurred to finance petroleum operations;
6. The interest was not treated as “capital expenditure” if such interest was incurred in acquiring property used in trade, business or exercise of profession; and
7. The interest shall be reduced to twenty percent (20%) of interest subject to final tax. However if final withholding tax rate on interest income of twenty percent (20%) will be adjusted in the future, the interest reduction shall be adjusted accordingly.
In addition, the taxpayer must have withheld the appropriate tax in order to claim the interest expense as a deduction from gross income.
| Q1: When can interest expense be claimed as a deduction from gross income?
A1: Interest paid or incurred within a taxable year on indebtedness in connection with the taxpayer’s profession, trade or business shall be allowed as a deduction from gross income, subject to certain limitations, when the following requisites, provided in Section 34(B)(2) of the National Internal Revenue Code (NIRC) of 1997, as amended, and as implemented by RR No. 13-2000 and Section 7(B) of RR No. 5-2021,are met:
1. The indebtedness must be that of the taxpayer;
2. The interest must have been stipulated in writing;
3. The interest must be legally due;
4. The interest payment arrangement must not be between related taxpayers as mandated in Sec. 34(B)(2)(b), in relation to Sec 36(B), both of the NIRC of 1997, as amended;
5. The interest must not be incurred to finance petroleum operations;
6. The interest was not treated as “capital expenditure” if such interest was incurred in acquiring property used in trade, business or exercise of profession; and
7. The interest shall be reduced by an amount equivalent to twenty percent (20%) of interest income subjected to final tax. However, if the final withholding tax rate on interest income of twenty percent (20%) will be adjusted in the future, the interest reduction shall be adjusted accordingly.
The requirement to withhold taxes in order to claim the interest expense as a deduction from the gross income was repealed under Section 5 of the EOPT Act, as implemented by Section 6 of RR No. 4-2024.
As clarified in RMC No. 20-2024, the non-withholding of tax will no longer be a ground for the disallowance of the claimed interest expense for taxable year covering January 1, 2024 onwards. However the obligation of the payor to withhold tax and remit the same under Q9 remains pursuant to Section 9 of the EOPT Act and as implemented by Section 7 of RR No. 4-2024, to wit.
“Section 7. Withholding of Tax at Source. Section 2.56.4 of RR No. 2-98, as amended shall now read as follows:
‘Sec. 2.57.4. Time of Withholding – the obligation of the payor to deduct and withholding the tax under Section 2.57 of these Regulations arises at the time an income has become payable. The term “payable” refers to the date the obligation becomes due, demandable or legally enforceable. The obligation of the payor to deduct and withhold the tax arises at the time an income payment is accrued or recorded as an expense or asset, whichever is applicable, in the payor’s books, or at the issuance by the seller of the sales invoice or other adequate document to support such payable, whichever comes first.’ |
