Revenue Memorandum Circular No. 14-2025

This Circular is issued to provide clarifications and realign inconsistencies on certain provisions of Revenue Memorandum Circular (RMC) No. 75-2024 relative to the mandatory requirements for Tax Credit Certifies or cash refund of excess/unutilized CWT on income under Section 76(C), in relation to Sections 204(C) and 229 of the Tax Code.

I. Clarification to certain provisions and requirements

• Q1: In the list of mandatory requirements under Annexes “A.1” for those taxpayers of going-concern status and “A.2” for taxpayers undergoing cessation or dissolution of business of RMC No. 75-2024, Annex “A.1” required original copies of duly accomplished Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307) whereas Annex “A.2) is silent whether the said documents should be original or copies only. Will this result in the disallowance of the CWT if the taxpayer submitted scanned, facsimile, photocopy or a notarized or certified copy of the original or electronic document in considered duplicate only?
  • A1: No. In the digital era, transmission of documents such as the BIR Form No. 2307 is not limited only to the physical delivery of documents from the sender to the receiver, which could also be through digital means such as but not limited to electronic mails, facsimile, cellphones, or other emerging technologies. Hence, the copies produced and submitted by the receipient of BIR Form No. 2307 may not necessarily be the original copy.
    
    Included in the verification procedures of the processing office is the validation of the authenticity and veracity of the claimed BIR Form No. 2307 by comparing the CWT claimed per Summary Alphalist of Withholding Tax at Source (SAWT) submitted by the taxpayer claimant with the annual or quarterly Alphalist of payees as attached in the BIR Form No. 1604E or 1601E submitted by the withholding agents of the taxpayer-claimant. If the data matched, the BIR can already be assured that the BIR Form 2307 claimed by the taxpayer-claimant is valid and authentic which makes the question as to whether or not the submitted document is an original copy already moot and academic.
    
    In this regard and consistency of application, the third item in Annex A.1 shall now read as: “Copies of duly accomplished Certificate of Creditable Tax withheld at Source (BIR Form No. 2307) or Withholding Tax Remittance Return for Onerous Transfer of Real Property Other Than Capital Asset (BIR Form No. 1606), whichever is applicable, issued by the payor (withholding agent) to the payee”.
• Q2: If the taxpayer claimant is engaged in real estate business, should the Withholding Tax Remittance Return for Onerous Transfer of Real Property Other Than Capital Asset (BIR Form No. 1606) be original as required in Annex “A.1”)
  • A2: No. The processing office is mandated to verify form the BIR database if the said return was indeed filed by the taxpayer claimant to establish the authenticity and veracity of the said document. A reproduction of the original copy of the said form would suffice.
• Q3: Section 76(c) of the Tax Code pertains to corporate claimants only. In case an individual taxpayer incurred unutilized CWT and intends to refund or credit the said excess income taxes, what will be the basis of the claim?
  • A3: It is confirmed that Section 76 of the Tax Code covers tax credit or refund claims of CORPORATIONS as defined under Section 22(B) of the Tax Code. For individual taxpayers, the claim may be anchored under Section 58(E), in relation to Section 204 of the Tax Code, to quote:
    
    Sec. 58. Returns and Payment of Taxes withheld at Source.-
    
    E. Income of Recipient – Income upon which any creditable tax is required to be withheld at source under Section 57 shall be included in the return of its recipient but the excess of the amount of tax so withheld over the tax due on his return shall be refunded to him subject to the provisions of Section 204.”
• Q4: RMC No. 75-2024, in relation to Revenue Memorandum Order (RMO) No. 25-2024, pertain to claims of income tax credit or refund filed under Section 76(C) of the Tax Code, which, consequently is for corporate individual taxpayer-claimants?
  • A4: Yes. A new set of mandatory requirements will be prescribed for individual taxpayers who intend to claim for tax credit or refund unutilized CWT pursuant to Section 58(E), in relation to Section 204 of the Tax Code. However, the general policies and guidelines in the mandatory documentary requirements in RMC No. 75-2024 and the procedures in the processing hereof pursuant to RMO No. 25-2024 remain the same for both corporate and individual taxpayer-claimants.
• Q5: What is the implication to claim of tax returns filed after filing of the income tax credit/refund claim or the issuance of the Electronic Letter of Authority (eLA), whichever comes first?
  • A5: Once the claim for income tax credit has been filed or an eLA has been issued covering the same period of the claim, the taxpayer-claimant is already precluded form amending the tax returns. In the existing procedures for processing of income tax credit/refund certain BIR Forms are no longer required to be submitted by the taxpayer claimants but the processing offices are mandated to verify and produce copies of the said tax returns filed by the taxpayer to be mandated to verify and produce copies of the said tax returns filed by the taxpayer to be attached to the corresponding tax docket of the claim. Once the application for income tax credit or refund has been officially received by the processing office of the BIR and the verification process commences, only the tax returns filed on or before the receipt of the application shall be considered in the evaluation of the claim. Should there be discrepancies, this may result in the disallowance of the portion of the claim or full denial thereto.

II. Changes in Documentary Requirements

To effect the changes above, Annex “A.1” is hereby renumbered as Annex “A.1.1” and Annex “A.1.2” is added as the mandatory requirements for individual taxpayer-claimant. Copies of the said Annexes are hereto attached for reference. This correspondingly amends Annexes “A.1”, “A.2” and “A.4” of RMC No. 75-2024.

By: Tax and Accounting Center Philippines

Under Section 2.58(B) of Revenue Regulations No. 2-1998, as amended (RR 2-98), every payor required to deduct and withhold taxes under the regulations shall furnish each payee with a withholding tax statement using BIR Form No. 2307 showing the income payments made and the amount of taxes withheld therefrom, for every month of the quarter. Let us share some features on the creditable withholding tax (CWT) in the Philippines covered by BIR Form No. 2307:

CWTs or BIR Form 2307 is an obligation of agent

Issuing a creditable withholding tax certificate or BIR Form No. 2307 is an obligation of the payor – withholding tax agent to the payee. In RMC 85-2011, this obligation of withholding tax agent is reiterated. For its failure, the regulations provide that the BIR could conduct a mandatory audit of its tax liabilities.

CWTs or BIR Form 2307 are business assets

In the books of accounts of the taxpayer,  creditable withholding tax certificate or BIR Form No. 2307 is accounted for as an asset. They are prepayments of income tax that has future economic benefits, being deductible from income tax due of the taxpayer on a quarterly income tax return and/or annual income tax returns. Upon receipt of income payment with creditable withholding tax, the sample entry may be made on the books of accounts in the Philippines (say P10,000 professional fee withheld 15% upon payment):

• Debit: Cash         P8,500
• Debit: Creditable withholding tax P1,500
• Credit: Professional fees P10,000

As an asset, we suggest that the taxpayer develop internal control procedures on how to safeguard the same and maximize the utilization of creditable withholding tax certificate or BIR Form No. 2307.

CWTs or Form 2307 are income tax credits

Creditable withholding tax is an advance income tax of the payee.  This would mean that even before filing the income tax return in the Philippines, the taxpayer had already remitted portion of its income tax liability through the payor who withheld and remitted the same to the BIR. Upon payment of quarterly income tax in the Philippines or annual income tax in the Philippines, the following sample entry may be made:

• Debit: Provision for income tax P1,500
• Credit: Creditable withholding tax P1,500

CWTs or BIR Form 2307 are look out of payee

As to the payee, creditable withholding tax certificate or BIR Form No. 2307 is important during filing of the quarterly income tax return or annual income tax return in the Philippines because this will serve as a proof of withholding and required to be attached to the income tax return. Without the creditable withholding tax certificate or BIR Form No. 2307, the taxpayer shall not be allowed to claim the same as a tax credit.

As such, we suggest that the payee taxpayer exert an amount of effort to see to it that their income payors provides the creditable withholding tax certificate or BIR Form No. 2307. Alternatively, it may request the payor to furnish creditable withholding tax certificate or BIR Form No. 2307 with the income payment (e.g. along with the check).

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at in**@************er.org.

Withholding tax is the most basic tax type that each and every taxpayer engaged in trade or business or in the practice of profession must learn. Upon registration of their respective business entities, withholding tax type is a must and it may come in three (3) tax types as sub classifications as follows:

1. Expanded withholding tax (EWT) or Creditable withholding tax (CWT) under monthly BIR Form No. 1601E and annual BIR Form No. 1604E with Alphalist of Payees;
2. Withholding tax on compensation (WC) under monthly BIR Form No. 1601C and part of annual BIR Form No. 1604CF with Alphalist of Employees;
3. Final withholding tax (FWT) under monthly BIR Form No. 1601F and part of annual BIR No. 1604CF with Alphalist of Employees/Payees;

To develop a deeper understanding of the withholding tax system in the Philippines, let us discuss some of its basic features.

1. Automatic constitution of resident payor of income as withholding agents.

By force of the law, a Philippine resident payor of specific income payments are mandated by law to withhold, whether he likes it or not. Non-resident foreign corporations and non-resident alien payors are not included because of obvious logical reasons – Philippine government does not have jurisdiction over them, and could not run after in case of non-compliance. Specific items of income payments are enumerated in the regulations and once the payment is made upon such items, withholding taxes applies. Example, if a taxpayer pays a rental for its office space, it is mandated to withhold 5% of the gross rental payment.

2. A system of advance collection of payee’s income tax liability

What is withheld is the income tax liability of the payee upon actual payment or upon accrual. Income tax returns are filed quarterly and annual and under pay-as-you-file system, income taxes are paid upon filing. However, with the withholding tax, the government gets the income tax on the 10^th day of the month following the month of payment or accrual, ahead of the quarterly payment of payees income. Example, Company A pays Atty. A professional fees amounting to P100,000 on January 2012 and the applicable withholding tax of 15% or P15,000 was withheld.  Atty. A is required to file and pay quarterly income tax (BIR Form No. 1701Q) on April 15, 2012, but, before he could file and pay, the government already collected in advance the P15,000 that was remitted by A Company not later than February 10, 2012 (BIR Form 1601E).

3. Amount withheld is a trust fund for the government

At provided in Section 57(A) of the Tax Code, 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. The withholding agent, as trustee of the funds withheld cannot use the funds in any other purpose, but should remit the same to the Bureau of Internal Revenue (BIR) through the authorized agent banks (AABs) or other payment facilities.

4. Amount withheld is creditable or final income tax due of the payees.

Expanded withholding tax rates are carefully studied and crafted to reasonably estimate payee”s income tax liability depending on the industry type and nature of payment. This is the reason why withholding tax rates are varying and is challenging to memorize for proper application. Upon filing of quarterly and/or annual income tax of the payee, the amount withheld will be deducted from its income tax liabilities and there would be fewer amounts due because of the withholding tax duly supported by creditable withholding tax certificates – BIR Form No. 2307/2316. On the other hand, final withholding taxes are the same rates imposed in the Tax Code for specific payments. As such, they constitute full payment of payees income tax and no additional tax liabilities would arise under final withholding tax on top of the amount withheld.

5. Check and balance mechanism

Monthly withholding tax returns of the payor attaches a monthly alphalist of payees (MAP) with the details of the payee and the income payments – the name address of payee, and the amounts of income payment and corresponding tax withheld. When the payee files a quarterly and annual income tax returns, it attaches the summary alphalist of  withholding taxes (SAWT) with the details of the payor and the income payment.  With these reports, the BIR could easily determine whether or not the payee declared the income payment, or whether or not the payor correctly declared the expense. As such, this becomes an easy tool in the third party information procedures of the BIR to catch up tax evaders.

6. A mandatory requirement for deductibility of an expense.

In effect, Section 34(K) of the tax Code, as amended, provides that if an expense is subject to withholding tax, it will not be allowed as a deduction for income tax unless it could be shown that withholding taxes has been paid to the BIR. This explains why assessment of withholding tax has a dual effect – disallowance of expense deduction in income tax computation for failure to withhold, and assessment for withholding tax liabilities. Upon payment of withholding taxes, the income tax assessment based on failure to withhold is automatically dropped.

7. Exclusive enumeration of items subject to withholding taxes.

Revenue Regulations 2-98, as amended, is the main regulation enumerating the income payments subject to creditable withholding tax. Enumeration of expanded withholding tax therein is exclusive and whatever is not included is deemed not subject to creditable withholding tax. This means to say that as a rule, not all expenses are subject to withholding. Exception to this rule is the rule on Top Twenty Thousand Corporation (TTC) or Top Five Thousand Individuals duly selected and notified as such by the BIR. On top of those enumerated in Revenue Regulations 2-98, as amended, they are mandated to withhold on income payments to regular supplies of goods – 1% or of services – 2%, and from casual purchases amounting to P10,000 in a single transaction.

Failure of the taxpayer to comply the obligation to withhold would expose a taxpayer-agent with the following consequences:

• Non-deductibility of a business expense for income tax computation for failure to withhold until after payment of the withholding tax and related penalties;
• Payment of the basic withholding tax that should have been withheld;
• One-time surcharge of 25%, or 50% for willful neglect or fraudulent filing;
• Interest on 20% on annual basis based on the basic withholding tax that should have been withheld;
• Compromise penalties ranging from P200 to P50,000 based on the amount of basic withholding tax that should have been withheld;
• Or worst, criminal prosecution and imprisonment for willful neglect or fraudulent filing of withholding tax returns

You would not enjoy paying the above penalties, and wasting your hard earned money from your business undertakings and simple ignorance of the above obligation. It’s the proper time now to educate and you have all the time and opportunity to do it before it is too late.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may also please send mail at info(@)taxacctgcenter.ph, or you may post a question at Tax and Accounting Center Forum and participate therein.

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