Excess baggage not allowed

Large taxpayers, take heed: BIR is no longer interested in your excess baggage.

Revenue Regulation No. 02-2015 seems to be BIR’s way of telling large taxpayers to stop hauling in boxes and boxes of attachments when filing returns. Instead, large taxpayers are mandated to submit only DVD-Rs containing scanned copies of Certificates of Creditable Tax Withheld at Source (BIR Form No. 2307) and Employer’s Certificates of Tax Withheld for Compensation Payment (BIR Form No. 2316) as attachments to certain periodic returns. Go light, in other words, lest hold yourself liable for costs.

More particularly, said regulation provides that in lieu of manual submissions of BIR Form Nos. 2307 and 2316, the same are now required to be scanned and saved in PDF formats, then stored in DVD-Rs. These DVD-Rs will subsequently be submitted to the BIR accompanied by duly signed and notarized certifications attesting to the completeness and accuracy of the copies contained therein.

The process of submitting said forms is pursuant to the mandate of the Tax Code, which require both payors (acting as withholding agents) and payees (as income recipients) to submit certain returns covering the taxes withheld by or for them on certain income payments.

Revenue Regulation No. 02-2006 best explains this system: In the creditable withholding tax system, the Withholding Agent-Payor is required to withhold and remit taxes withheld, the details of which are declared in the appropriate tax return within the time prescribed by law. On the other hand, the Payee-Income Recipient, upon declaration of income received or earned, shall claim the corresponding creditable tax withheld in the filed return, likewise within the time prescribed by law. The return filed by the payee shall be accompanied by the Summary Alphalist of Withholding Taxes (SAWT), which is essentially a consolidated list of withholding agents from whom income was earned or received and subjected to withholding tax. The SAWT shall be substantiated and accompanied by BIR Form No. 2307 which, in turn, shall reflect the amount claimed as credits by the payee.

The importance of submitting BIR Form No. 2307 cannot be gainsaid. No less than the Court of Tax Appeals in the case of Mermac, Inc. vs. Commissioner of Internal has declared that claims for tax refunds or credits against creditable withholding taxes shall only be given due course when the income and withholding are established through copies of BIR Form No. 2307 issued by the income-payor to the recipient-payee. By ruling as such, the Court made BIR Form No. 2307 a pre-requisite for claiming refunds or credits, such that its non-submission amounts to failure in establishing the fact of withholding.

Considering the importance of duly presenting BIR Form No. 2307 in claiming tax refunds or credits, the impact of imposing additional steps in the process of submitting the same poses legitimate concerns.

The regulations do not only impose additional steps (i.e. scanning, labeling, and executing of notarized certifications) for the submission of the said certificates, but it also requires the execution of a sworn declaration certifying that the copies contained in the DVD-R are the complete and exact copies of the originals. The minimum interpretation is that the copies being submitted are all the original copies one has on hand and the scanned copies are not altered. In order to issue such a declaration, the taxpayer has to manually check the integrity of every scanned copy. Not an easy task, mind you, considering the main audience of the regulations are large taxpayers from whose end come the bulk of 2307 and 2316 submissions.

In addition to swearing to the integrity of the certificates, the taxpayer is also required to attest to its completeness. That is, the payee is certifying that the copies contained in the DVD-R are all complete copies necessary to support claims for pertinent refunds or credits – no more, no less. In a perfect world, such would not be a problem. This is, in fact, in consonance with the doctrine in Mermac and an effective move to curb the practice of claiming credits prior to the submission of the pertinent original attachments.

However, situations have arisen where despite diligent efforts by the payee, the payor still fails to timely issue the certifications required to support the payee’s claim. Previously, the late receipt of the certificates was remedied by filing amended returns and subsequently submitting the additional certificates. However, the current regulations are silent on possible remedial measures in such instances. Will the taxpayers need to file an amended return, attach the electronic copies of the missed forms, and re-execute another sworn declaration of completeness? If so, what is the process? Whether the same will involve re-attaching the whole gamut of files previously submitted or just the supplemental forms needs to be clarified by the BIR in a separate circular. The effect of the same vis-à-vis the certification of completeness needs to be further considered since the latter is made under the pain of perjury.

In any case, both interpretations put the taxpayer at risk of foregoing credits or refunds. By increasing the steps in the compliance procedure, timelines are tighter and the chances of late submissions run higher. Similarly, the failure to attach all the documents necessary to support credits and the absence of rules on how to go about subsequent submissions put the taxpayers at risk of failing to establish the fact of withholding. This might seem unfair, especially when the situation is such that the claimant has been diligent in performing his tax compliance duties. But until BIR addresses such scenario, it will do well for taxpayers to be extra judicious and persistent in the management of timelines and documentation. This rings especially true for large taxpayers, who stand to lose a great deal when they forego claims for credits or refunds.

Ana Margarita A. Mortel is a supervisor from the tax group of R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or RGM&Co. For comments or inquiries, please email [email protected] or [email protected].

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