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Member, RSM International

Volume 2 Series 3

Tax View &


Compliance
Volume 2 Series 3
Revenue Regulation No.: 14-2008

EXPANDING THE COVERAGEOF WITHHOLDING TAX AGENTS FROM THE TOP


10,000 PRIVATE CORPORATIONS TO TOP 20,000 PRIVATE CORPORATIONS
The Bureau of Internal Revenue issued Revenue The term local/resident supplier of goods and
Regulation 14-2008 to amend the provision of services pertains to supplier from whom any of
Section 2.57.2(M) of Revenue Regulation 2-98. This the top 20,000 private corporations, as
new regulation expands the coverage of determined by the Commissioner, regularly makes
withholding agents required to withhold from its purchase of goods. As a rule, this term does
their local/resident supplier of goods and not include a casual purchase of goods, that is,
services, including non-resident alien engaged in purchase made from non-regular supplier and
trade or business in the Philippines, from the Top oftentimes involving single purchase. However a
10,000 private corporations to Top 20,000 private single purchase amounting to P 10,000 or more
corporation. For the supplier of goods the shall be subject to withholding tax. The term
withholding agent is required to withhold 1% and regular supplier refers to suppliers who are
2% from the supplier of services. engaged in business or exercise of
profession/calling with whom the taxpayer-buyer
To be included in Top twenty thousand (20,000) has transacted at least six (6) transactions,
private corporations, BIR will determine if the regardless of amount per transaction, either in
taxpayer will satisfy any of the following criteria: the previous year or current year.

a. Classified and duly notified by the The taxpayer will be notified in writing by the
Commissioner as a large taxpayer under Commissioner once it has been determined to
Revenue Regulation No. 1-98 as amended, qualify for Top 20,000 private corporations. The
or belonging to top five thousand (5,000) corporation shall remain a withholding agent
private corporations under RR 12-94, or unless the Commissioner notifies it in writing that
top ten thousand (10,000) private it shall cease to be one. The following are some of
corporations under RR 17-2003, unless the reasons that a taxpayer shall automatically
previously de-classified as such or had cease to be a withholding agent, and therefore no
already ceased business operations prior written notice is required, to wit:
(automatic inclusion).
a. closure/cessation of business/dissolution
b. Any taxpayer with the net VAT paid or (for taxpayers with notice of dissolution
payable for the preceding year of at least given to the BIR)
P 100,000;
b. merger/consolidation (for dissolved or
c. Any taxpayer with annual income tax paid absorbed corporation)
or payable for the preceding year of at
least P 200,000; c. any form of business combination
wherein by operation of law a corporate
d. Any taxpayer with percentage taxes for taxpayer loses its juridical personality
the preceding year of at least P 100,000;
The withholding agent is required to submit on a
e. Any taxpayer whose gross sales for the semestral basis a list of its regular supplier of
preceding year is over P 5,000,000; goods and services to the Large Taxpayer
Assistance Division/Large Taxpayers District
f. Any taxpayer whose gross purchase for Office in the case of large taxpayer duly notified
the preceding year is over P 5,000,000. as such pursuant to RR 1-98, as amended, or
Revenue District Office (RDO) having jurisdiction
The term “goods” pertains to tangible personal over the withholding agent’s principal place of
property. It does not include intangible personal business on or before July 31 and January 31 of
property, as well as real property. each year.
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Volume 2 Series 3
Revenue Regulation No.: 16-2008 - OPTIONAL STANDARD DEDUCTIONS

Revenue Regulation 16-2008 was issued by the incurred in bringing them to their present
Bureau of Internal Revenue to implement the location and use. Computation of cost of goods
provision of Section 34(L) of the Tax Code of sold depends on the nature of business of the
1997 as amended by Section 3 of Republic Act corporate taxpayers.
9504, dealing on the Optional Standard
Deductions (OSD) as allowed claim in lieu of The gross income under Section 32(A) of the
itemized deductions (i.e items of ordinary and Code, as amended, which are required to be
necessary expenses allowed under Section declared in the income tax return of the
34(A) to (J) and (M), Section 37, other special taxpayer for the taxable year are part of the
laws, if applicable), by the following taxpayers: gross income against which the OSD may be
deducted in arriving at taxable income. Passive
1. Individuals income that is subject to final tax at source
i. Resident Citizen shall not form part of gross income.
ii. Non-Resident Citizen
iii. Resident Alien As for the General Professional Partnership,
iv. Taxable estates and trusts since the net income of the partnership, for the
2. Corporations purpose of computing the distributive share of
i. Domestic corporation the partners, is computed in the same manner
ii. Resident foreign corporation as a corporation they may claim either itemized
deductions or it may opt to avail OSD. The net
In determining the OSD, we need to look into income determined by either claiming itemized
consideration the type of taxpayer availing OSD. deduction or OSD from the GPPs gross income
For individual taxpayers, the OSD allowed shall shall be the distributable net income from which
be a maximum of forty percent (40%) of gross the share of each partner is to be determined.
sales or gross receipts during the taxable year Each partner shall report as gross income his
depending on the accounting method used for distributive share, actually or constructively
his income and expenses. Cost of Sales and Cost received, in the net income of the partnership.
of Service are not allowed to be deducted for
the purpose of determining the basis of OSD For the Partners of GPPs, they have the option
pursuant to the provision of Section 3 of RA either to claim itemized deductions or OSD since
9504 which is specific as to the basis thereof their share in the net income of the GPP is
which states that for individuals, the basis of considered gross income in the hands of the
the 40% OSD shall be the “gross sales” or gross partner regardless of the method the GPP
receipts and not the “gross income”. computes its net income.

For corporate taxpayers subject to tax under When a taxpayer elected to avail of the OSD not
Section 27(A) and 28(A)(1) of the Code, as exceeding forty percent (40%) of gross sales
amended, the OSD allowed shall be in an amount or gross receipts for individual, or forty percent
not exceeding forty percent (40%) of their (40%) of gross income for a corporation, it shall
gross income. signify in his/its return such intention,
otherwise he/it shall be considered as having
Gross Income shall mean gross sales less sales availed himself of the itemized deductions. Once
returns, discounts and allowances and cost of the taxpayer avail the OSD, it shall be
goods sold. Gross sales shall include only sales irrevocable for the taxable year which the
contributory to income taxable under Section return was made. This means that if a taxpayer
27(A) of the Code. Cost of goods sold shall who initially filed a return availing OSD is
include the purchase price of cost to produce precluded from amending said return in order
the merchandise and all expenses directly to shift to itemized deductions.
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An individual who is entitled to and claimed the CONTACT DETAILS
OSD shall not be required to submit with his tax
return such financial statements otherwise DONNIES T. ALAS
Chairman / CEO
required under the Code. Provided, that, except Email Address: donniesalas@rsm-alasoplascpas.com
when the Commissioner otherwise permits, the
said individual shall keep such records pertaining MARYCRIS S. OPLAS
Managing Partner
to his gross sales or gross receipts. In the case of Email Address: marycrisoplas@rsm-alasoplascpas.com
a corporation, however, said corporation is still
MERCY M. RODRIGUEZ
required to submit its financial statements when Audit & Assurance
it files its annual income tax return and to keep Email Address: mercyrodriguez@rsm-alasoplascpas.com
such records pertaining to its gross income as GLESIE R. MARTINEZ
herein defined. Audit & Assurance
Email Address: glesiemartinez@rsm-alasoplascpas.com

In the filing of the quarterly income tax returns, ANNA LURENE B. SENDAYDIEGO
the taxpayers may opt to use either the itemized Internal Audit & Risk Management Advisory
Email Address: annasendaydiego@rsm-alasoplascpas.com
deductions or OSD. However, in filing the final
adjustment income tax return, the taxpayer must MARY GRACE L. VELANDRES
Accounting and Outsource
make a choice as to what method of deduction it Email Address: marygracevelandres@rsm-alasoplascpas.com
or he shall employ for the purpose of determining
its/his taxable net income for the entire year. The NESSA M. OPLAS
Branch Manager, Bacolod Office
taxpayer is, thus not allowed to use hybrid Email Address: nessaoplas@rsm-alasoplascpas.com
method in claiming its/his deduction for one
MA. LEONIFE R. OBANIANA
taxable year. Email Address: leonifeobaniana@rsm-alasoplascpas.com

CINDY MADONERO
Corporate and individual taxpayers can avail OSD Executive Assitant to Partners
for the computation of their taxable income for Email Address: cindymadonero@rsm-alasoplascpas.com
2008, but since the RA 9504 become effective
only on July 6, 2008, and for the simplification
and provide ease of administration during the
transition period, July 1, 2008 shall be considered
as the start of the period when the 40% OSD may
be allowed.

On the transition period, for the purpose of


availing OSD, individual taxpayer has the option to
use the itemized deductions or the 40% OSD in
the filing of its quarterly income tax return
covering the third quarter ending September 30,
2008. However, if in the filing of his annual income
tax return and he chooses OSD to be his method
of deduction, the rate of OSD to be applied for the
period covering January 2008 to June 30, 2008
shall be 10% of gross income while the rate of OSD
for the period covering July 1, 2008 to December
2008 shall be 40% of the gross sales/gross
receipts. The information contained herein is for
general reference purposes only and should
not be used or treated as professional advice.
For corporate taxpayers opting to use the OSD in Readers should seek professional advice
claiming its deductions when filing its annual before making any business decision or you
income tax return for the year 2008 shall be may call us for any questions or clarifications.
allowed to use the 40% OSD only in respect to the
period beginning July 1, 2008, while the method of
deduction to be used prior thereof shall remain to Alas, Oplas & Co., CPAs is an independent member firm
be under the itemized deduction method. of RSM International, an affiliation of independent
accounting and consulting firms.