Correcting withholding tax mistakes



In last week’s article, we discussed Revenue Regulations (RR) No. 11-2018, amending RR No. 2-98, which provides for the current withholding tax rates on income payments made to individual/corporate citizens, resident aliens, and non-resident aliens.

In particular, we discussed the amendments made on the creditable withholding tax (CWT) rates, particularly on the fees paid to professionals (i.e., lawyers, certified public accountants, doctors of medicine, architects, engineers). Under the regulations, professionals whose gross income for the current year do not exceed P3,000,000 are subject to CWT at 5 percent, while those who have breached the P3,000,000 threshold shall be subject to a 10 percentCWT. For corporate payees, a 10 percent CWT shall be imposed if the gross income for the current year does not exceed P720,000; the rate is increased to 15 percent if the gross income exceeds P720,000.

We also discussed the documentary requirements needed to be submitted by individual/corporate payees to all withholding agentsin order to avail of the lower CWT rates, which is a “Sworn Declaration of Gross Receipts” (sworn declaration), together with a copy of the BIR Certificate of Registration (COR), if applicable,otherwise, the higher CWT rates shall be applicable. A template of the sworn declaration (in Microsoft Word format) is available at the BIR website, the “Transitory Provisions” of RR No. 11-2018, individual/corporate payees originally had until April 6, 2018 to submit the sworn declaration and BIR COR to all withholding agents; this deadline has been extended by RR No. 14-2018 to April 20, 2018.

As for the withholding agents, they will have to submit to their corresponding BIR Revenue District Offices (RDOs) a sworn declaration (template also available at the BIR website) on the number of payees who have submitted their sworn declarations with the accompanying copies of their BIR COR (if applicable). Under RR No. 11-2018, such declaration was originally due on April 20, 2018. However, to give enough time for withholding agents to collate all the sworn declarations and BIR CORs, the deadline has also been extended by RR No. 14-2018 to April 30, 2018.

Moreover, it is worthy to note that the same Transitory Provisions of RR No. 11-2018 provides for a self-correcting mechanism in case a withholding agent mistakenly applied the higher CWT rate. As such, the withholding agent is required to refund to the payee the amount of the excess income tax withheld on the income payment.

To provide an example, let’s say that Mr. X (withholding agent) mistakenly withheld 10 percent on the P50,000 income payment made to Mr. A (a professional who submitted a sworn declaration that his gross receipts for the year does not exceed P3,000,000). In this case, Mr. X is required to return to Mr. A the amount of P2,500, representing the excess 5 percent mistakenly withheld by Mr. X on the P50,000 income payment. In turn, the amount of P2,500 will have to be reflected as an adjustment to the remittable withholding tax due in Mr. X’s first quarter withholding tax return. The adjusted amount of tax withheld should also be reflected in Mr. X’s “Alphabetical List of Payees” to be attached with the said first quarter withholding tax return. In addition, a list of payees who were given refunds by Mr. X, shall likewise be attached to the return, and shall be filed with the BIR on or before April30, 2018.

In case the Certificate of Tax Withheld at Source (BIR Form No. 2307) has already been given to Mr. A, he will have to return the same to Mr. X upon receipt of the P2,500. Mr. X will then provide Mr. A with the correct BIR Form No. 2307, if still applicable. Otherwise, the correct certificate may be given to Mr. A on or before the 20th day after the close of the firstquarter.

Atty. Maria Louella “Peaches” Aranas is a seasoned tax lawyer and Managing Partner at LMA Law office. She is also at the forefront of The Sandy Project, a dengue awareness and prevention advocacy that she started in 2013.


Please follow our commenting guidelines.

Leave A Reply

Please follow our commenting guidelines.