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.

In the Philippines, the “busy season” commences for taxpayers and practitioners in the field of accounting and taxation, as the year ends. During this season, they begin to prepare for the filing of year-end tax compliance requirements. One of the most common year-end tax compliance requirements in the Philippines is the filing of the Annual ITR. The Annual ITR determines the net taxable income from operations related to the pursuit of business activity during a given taxable year. But what do they need to consider during the preparation of the 2023 Annual ITR in the Philippines?

Here are some points to consider in the preparation of 2023 Annual ITR in Philippines:

I. Income Tax Rate – 20%/ 25% / 2% MCIT/ 5% GIT / ITH

Republic Act (R.A.) No. 11534 otherwise known as Corporate Recovery for Tax Incentives and Enterprises (CREATE) Act, amending further the Tax Code of the Philippines, has changed, among others, the tax rate of corporations from 32% of taxable net income to 25%, in general, for domestic and resident foreign corporations in the Philippines. For domestic corporations however, if the net taxable income does not exceed Five Million Pesos (P5,000,000) and total assets do not exceed One Hundred Million Pesos (P100,000,000) excluding the land on which the business entity’s office, plant, and equipment are located, it shall be taxed at twenty percent (20%) income tax rate, instead of 25%.

Please note as well that the Minimum Corporate Income Tax (MCIT) in the Philippines (for domestic and resident foreign corporations is imposed on corporations, beginning on the fourth (4th) taxable year immediately following the year in which such corporation commenced its business operations if such MCIT is higher than the normal income tax for the taxable year) was generally 2% but was made 1% under CREATE and reverted to 2% by July 1, 2023. Notably, Revenue Memorandum Circular (RMC) No. 69-2023 provides that the MCIT rate has reverted from one percent (1%) to two percent (2%) beginning July 1, 2023, and in Revenue Regulation (RR) No. 5-2021, the BIR provided MCIT matrix rates for the transition period as follows:

For non-resident foreign corporations (NRFC), the income tax rate imposed through the final withholding tax scheme is also 25%, in general, but they are not generally required to file an Annual ITR as the withholding agent payor is the one required to account for the applicable income tax of the NRFC’s income in the Philippines.

II. Applicable Allowable Deductions for income tax purposes

Please be reminded that under the rules, a corporate taxpayer in the Philippines engaged in trade or business has the following options for allowable deductions from gross income in determining its annual income tax returns in Philippines as follows:

Itemized Deductions. This itemized deduction in the Philippines is applicable, in general, the corporate taxpayer in the Philippines engaged in trade or business determines its deductible expenses in the Philippines by identifying each item of expense incurred or paid during the taxable year relative to its conduct of trade, business, or profession. For an expense to be deductible for ITR purposes, the following requirements should be met:

A. It should be ordinary and necessary expenses paid/incurred during the taxable year for the development, management, operation, and/or conduct of the trade, business, or profession;

B. It should be substantiated by adequate proof – documented by official receipts or adequate records which reflect the (a) amount being deducted and (b) connection or relation of expense to business/trade;

C. Not contrary to law, morals, public policy, or order (e.g., bribes, kickbacks, or similar payments); and

D. The taxes required to be withheld, if applicable, have been properly withheld and remitted on time.

Additionally, for some expenses, please be reminded about the limitations or maximum amounts imposed by the rules:

A. Interest expense should be reduced by an amount equivalent to 20% of interest income subjected to final tax unless domestic corporations using 20% income tax rate in which case there will be no reduction of interest expense;

B. Representation expense should not exceed 0.5% of net sales for the seller of goods or 1% of net receipts for the seller of service, and the taxpayer engaged in the sale of goods and services, it should segregate the amounts for goods and services for the purpose; and

C. Charitable contributions should not exceed 5% based on taxable income derived from trade, business, or profession before deducting charitable contribution unless allowed full deductibility, e.g. donations to the government, to certain foreign institutions or international organizations, and to accredited nongovernment organizations are entitled to be deductible in full.

Non-compliance of the above requirements for deductibility or claiming expense beyond the limitations could result in BIR disallowing such expenses during tax examination in the Philippines and imposing income tax that should have been paid had those expenses not been considered in computing income tax and imposing penalties – e.g. 25% surcharge, 12% interest and compromise penalties in the Philippines.

Optional Standard Deduction (OSD) in the Philippines. A corporate taxpayer engaged in trade or business in the Philippines other than non-resident foreign corporations may use OSD for computing its tax due on its annual ITR in the Philippines and should be opted for OSD in its first quarterly ITR. The deduction is an amount not exceeding 40% of gross income, without regard to substantiation and withholding tax on such expenses required above for those under itemized deductions. However, please note that OSD in Philippines is for income tax computation only and does not exempt the taxpayer from maintaining books of accounts and related documentation for bookkeeping purposes along with observance of proper withholding of taxes on expenses, if applicable.

III. Maximize Tax Assets – Net operating loss carry-over (NOLCO), excess MCIT carry-over, Creditable withholding tax certificate (CWTs), Other Deferred Tax Assets (DTA)

In computing income tax due for the 2023 annual income tax return of a corporate taxpayer in Philippines, please note as well to maximize the following tax assets that could be available:

Net Operating Loss Carry-over (NOLCO) in the Philippines. Under the rules, net operating loss for any taxable year immediately preceding the current year, which had not been previously offset as a deduction from gross income shall be carried over as a deduction from gross income for the next three (3) consecutive taxable years following such taxable year of loss. NOLCO is normally presented separately shown in the ITR of the taxpayer and unused NOLCO is likewise presented in the notes to financial statement so the taxpayer can easily identify and properly use it for 2023 corporate annual income tax return in the Philippines.

Notably, for taxable years 2020 and 2021, the Net Operating Loss may be carried for the next five (5) consecutive taxable years or until 2025 and 2026, respectively, pursuant to R.A. No. 11494, otherwise known as Bayanihan to Recover as One Act, and as implemented by Revenue Regulations (RR) No. 25-2020.

Excess of MCIT Carry-over. Any excess of the MCIT over the normal income tax (NIT) shall be carried forward and credited immediately against the NIT of the taxpayer for the next succeeding three (3) taxable years.

Creditable Withholding Taxes (CWTs) – e.g. BIR Form No. 2307. Upon payments of clients/ customers of specific income payments during 2023, the rules required them to withhold taxes, e.g. 1-15% of expanded withholding tax (EWT) commonly called creditable withholding tax (CWT) in the Philippines and would issue you withholding tax certificate or BIR Form No. 2307 as proof of such withholding.

The EWT or CWT in Philippines is the taxpayer’s advance income tax payments, a taxpayer can deduct this against the 2023 annual income tax liability. Please ensure that the BIR Form No. 2307s would have complete information such as name, designation, TIN, and signature either wet-signed or e-signed should be reflected in the certificate. Please note also that the information in the claimed CWTs will be reported in the Summary Alphalist of Withholding Taxes (SAWT) to be submitted in the es*********@*****ov.ph.

Other Deferred Tax Assets (DTA). Aside from the above, a taxpayer may have to be conscious as well about those items that could be deductible for the 2023 corporate annual ITR in the Philippines. One example is a different treatment of certain expenses for income tax purposes and for accounting purposes where a taxpayer has already taken the expense as deductible for accounting but not for tax purposes. Examples are unrealized loss and NOLCO.

Other deductible non-cash items. In most cases, accounting books only take up cash items as deductible expenses, and absent proper adjustments, non-cash items are missed out as deductions. Unrecorded accrual of expenses is a common item under this – interest expense accruing at year-end, depreciation expense, and year-end purchases with supporting documents becoming available later. If a taxpayer is not conscious of these items, you might end up missing them and losing their tax benefits.

IV. BIR Forms to be used for AITR.

Equally important is to use the proper annual ITR Form for the 2023 corporate annual ITR. In general, a corporate taxpayers subject to regular income tax rate are required to use BIR Form No. 1702-RT; while those corporation whose income is exempt under the Tax Code, as amended and other special Laws are required to use BIR Form No. 1702-EX; and, those who have mixed income subject to multiple income tax rates or with income subject to special/preferential rate are required to use BIR Form No. 1702-MX.

The rules are silent on penalties for using the wrong form but using the wrong one could have some negative implications on the computations of the 2023 corporate annual ITR so it would be best to use the right one.

V. Filing and Payment of AITR

Annual ITR in the Philippines is normally due for filing not later than the 15th day of the 4th month following the end of the taxable year – e.g. April 15, 2024 (Monday) for the December 31, 2023, year-end. Taxpayers should be aware of the mode of filing and payment which may be in eBIRForms or the Electronic Filing and Payment System (EFPS). Taxpayers required to file in the EFPS but have filed in the eBIRForms without duly released advisory on the unavailability of EFPS, shall be tantamount to Wrong Venue Filing which is subject to a twenty-five percent (25%) surcharge.

Payment of the tax due shall be paid through any Accredited Authorized Banks (AABs) in the jurisdiction of the Revenue District Office where the taxpayer is registered (for eBIRForms filers) and EFPS-AABs where the taxpayer is enrolled (for EFPS filers). It should be noted that during 2022 AITR compliance, BIR has issued RMC No. 32-2023 that taxpayers may pay the tax due to any AABs, notwithstanding the RDO jurisdiction, without imposition of penalties for wrong venue filing. Hopefully, BIR will issue the same for 2023 AITR compliance.

VI. Attachments of AITR

Within fifteen (15) days from the deadline for filing of 2023 AITR or on April 30, 2024, a corporate taxpayer should submit the attachments of the AITR either manually or through Electronic Audited Financial Statements (eAFS). Here are the following applicable AITR attachments a corporate taxpayer should submit if applicable:

A. AITR with Tax Return Receipt Confirmation (for eBIR filers) / Filing Reference Number (for EFPS filers), and proof of payment, if any;

B. Audited Financial Statements (If gross sales/receipts exceed P3M and availing itemized deduction) or Financial Statements with Sworn Certification (if gross sales/receipts do not exceed P3M and availing itemized deduction);

C. BIR Form No. 2307 from customers/buyer or Certificate of creditable tax withheld as claimed as Tax credit, if applicable;

D. Summary Alphalist of Withholding Taxes with eSubmission Validation Report, if applicable. (shall be submitted to es*********@*****ov.ph);

E. BIR Form No. 1709 or Information Return on Transactions with Related Party, if applicable; and

F. Certificate of Entitlement to Tax Incentives, if any. (For PEZA, BOI, BMBE, etc.)

Summary

The government needs the contribution of its citizens to function and operate. This contribution is from the taxes paid by the taxpayers. Despite the fact that this contribution is indispensable to the existence of government, taxpayers must also prioritize their financial well-being by staying informed about the constantly changing tax regulations, to prevent them from paying huge amounts just for penalties.