As per RMC 44-07: the Bureau of Internal Revenue (BIR) has clarified that top ten thousand corporations (TTCs), government agencies and government-owned and -controlled corporations (GOCCs) are liable to withhold a 1% creditable withholding tax (CWT) on income payments to suppliers of agricultural products.
“Agricultural suppliers” refer to suppliers or sellers of agricultural, forest and marine food and non-food products, livestock and poultry used as or yielding food for human consumption, and breeding stocks and genetic materials.
It will be recalled that in 2003, the regulations expanded the withholding liability of TTCs and government to include a 1% CWT on payments for purchases of goods and created a new subparagraph (S) imposing a 1% CWT on payments to agricultural suppliers. The CWT on agricultural suppliers was, however, subsequently suspended in 2004.
The suspension led to an interpretation that all payments to agricultural suppliers are temporarily exempt from withholding tax considering that the 1% withholding liability of TTCs and government is not supposed to cover payments subject to other withholding rates, such as payments to agricultural suppliers.
The BIR clarifies that this is not so. When the CWT on agricultural suppliers was suspended, payments of TTCs and government to agricultural suppliers should have been subsumed under the general classification of payments to suppliers of goods, hence, subject to 1% CWT. In fine, the suspension did not in any way affect the taxability of agricultural suppliers for withholding tax purposes, insofar as their dealings with the top 10,000 private corporations and with the government are concerned.
The Bureau of Internal Revenue (BIR) recently issued Revenue Memorandum Circular (RMC) 44-2007 clarifying the taxability of agricultural suppliers for withholding tax relative to sales made to top 10,000 corporations (TTC) and to the government. However, rather than providing relief to affected taxpayers, the new issuance added to the frustrations that taxpayers have in the way taxes are being implemented in the Philippines.
By now, everyone in business is familiar with the complex system of creditable withholding taxes that we have in the Philippines. To determine whether or not a particular income payment should be subjected to withholding tax, one has to look at Revenue Regulations (RR) No. 2-98 which lists the different types of taxable income payments.
When it was issued in 1998, RR No. 2-98 did not include payments for purchases of agricultural products. It was only in 2003 that payments to agricultural suppliers by entities, such as, but not limited to hotels, restaurants, resorts, caterers, food processors, canneries, supermarkets, livestock, poultry, fish and marine products dealers, hardwares, factories, furniture shop and all other establishments were for the first time added to the list of income payments subject to withholding tax. In Sec. 2.57.(S) of RR No. 2-98, as amended by RR No. 17-2003, and subsequently, by RR 30-2003, it is provided that payments for agricultural products are subject to 1% withholding tax..
In the same regulations, income payments made by TCCs as well as by government agencies to their resident suppliers of goods, including non-resident aliens engaged in trade or business in the Philippines, were likewise made subject to 1% withholding tax under Sections 2.57.2(M) and (N), respectively.
The withholding liability of TTCs serves as a “catch-all” provision that applies on goods and services that are not covered by other rates of withholding tax in the regulations. Hence, it must be noted that there is a clear distinction between the withholding liability of TTCs and the requirement to withhold on agricultural suppliers. Section 2.57.2(S) speaks of income payments on specific goods (agricultural products) by any entity, irrespective of the classification of the withholding entity. On the other hand, Sections 2.57.2(M) and (N) refer to income payments to suppliers of goods in general by establishments of particular classification or designation (i.e., TTCs). Hence, upon effectivity of the regulations, TTCs were withholding on agricultural suppliers in connection with Sec. 2.57 (s) and not as income payment covered by the catch-all provision which in RR 17-2003 was described in Section 2.57.2(M) and (N).
Two months just after the effectivity of the last amendment, BIR issued RR 03-2004 suspending the application of Section 2.57.2(S) or the withholding of taxes on payments to agricultural suppliers. As explained in the issuance, this was done to allow the BIR to further educate the affected taxpayers as well as to establish controls and measures for its effective implementation.
The suspension of the implementation of the said provision generated questions especially on the part of the TTCs: should these income payments be construed as being made to suppliers of goods in general and therefore, subject to 1% withholding tax under Sections 2.57.2(M) notwithstanding the suspension?
With no official clarification issued by the BIR on the issue, some companies treated the suspension to be a temporary exemption of this type of income payments from withholding tax. Inasmuch as Sec. 2.57.2(S) of RR 2-98, as amended, was not repealed, the payments to agricultural suppliers are still to be treated as a separate type of income payment and, as such, cannot be covered by other withholding rates in the regulations, including the “catch-all provision” for TTCs and government under Section 2.57.2(M). Th is follows the rule observed that the imposition of different withholding tax rates on specific income payments should be regarded as separate and distinct from each section in the regulations.
The recently issued RMC No. 44-2007 now provides that notwithstanding the suspension of the withholding tax on payments to agricultural suppliers, income payments made to such suppliers by TTC shall still be subject to 1% withholding tax, not under Section 2.57.2(S) but under Section 2.57.2(M) of RR 2-98, as amended. The same position is also applicable to income payments made by government agencies.
Normally, clarification of ambiguous rules would be welcomed by taxpayers. However, the directive given to BIR revenue officers to verify the withholding tax compliance of the affected payors in so far as payments to agricultural suppliers are concerned from March 1, 2004, the effective date of RR 3-2004, has caused an outcry among TTCs. Effectively, BIR is taking the position that TTCs were required to withhold 1% on their payments for their agricultural products since 2004.
The issuance of the above clarification is already an indication that there was indeed confusion on the interpretation of the applicable BIR issuances. It is therefore inevitable to appeal to the BIR to implement its position only after the issuance of the RMC as the affected taxpayers may have had relied in good faith on their otherwise reasonable and educated interpretation of a rather ambiguous BIR regulation. After all, on the presumption that these suppliers of agricultural products had properly paid their income taxes, there is no actual revenue loss for government given that these suppliers did not apply any creditable taxes against their taxes.
ftp://ftp.bir.gov.ph/webadmin1/pdf/46694rr%20no.%206-2009.pdf
“Agricultural suppliers” refer to suppliers or sellers of agricultural, forest and marine food and non-food products, livestock and poultry used as or yielding food for human consumption, and breeding stocks and genetic materials.
It will be recalled that in 2003, the regulations expanded the withholding liability of TTCs and government to include a 1% CWT on payments for purchases of goods and created a new subparagraph (S) imposing a 1% CWT on payments to agricultural suppliers. The CWT on agricultural suppliers was, however, subsequently suspended in 2004.
The suspension led to an interpretation that all payments to agricultural suppliers are temporarily exempt from withholding tax considering that the 1% withholding liability of TTCs and government is not supposed to cover payments subject to other withholding rates, such as payments to agricultural suppliers.
The BIR clarifies that this is not so. When the CWT on agricultural suppliers was suspended, payments of TTCs and government to agricultural suppliers should have been subsumed under the general classification of payments to suppliers of goods, hence, subject to 1% CWT. In fine, the suspension did not in any way affect the taxability of agricultural suppliers for withholding tax purposes, insofar as their dealings with the top 10,000 private corporations and with the government are concerned.
The Bureau of Internal Revenue (BIR) recently issued Revenue Memorandum Circular (RMC) 44-2007 clarifying the taxability of agricultural suppliers for withholding tax relative to sales made to top 10,000 corporations (TTC) and to the government. However, rather than providing relief to affected taxpayers, the new issuance added to the frustrations that taxpayers have in the way taxes are being implemented in the Philippines.
By now, everyone in business is familiar with the complex system of creditable withholding taxes that we have in the Philippines. To determine whether or not a particular income payment should be subjected to withholding tax, one has to look at Revenue Regulations (RR) No. 2-98 which lists the different types of taxable income payments.
When it was issued in 1998, RR No. 2-98 did not include payments for purchases of agricultural products. It was only in 2003 that payments to agricultural suppliers by entities, such as, but not limited to hotels, restaurants, resorts, caterers, food processors, canneries, supermarkets, livestock, poultry, fish and marine products dealers, hardwares, factories, furniture shop and all other establishments were for the first time added to the list of income payments subject to withholding tax. In Sec. 2.57.(S) of RR No. 2-98, as amended by RR No. 17-2003, and subsequently, by RR 30-2003, it is provided that payments for agricultural products are subject to 1% withholding tax..
In the same regulations, income payments made by TCCs as well as by government agencies to their resident suppliers of goods, including non-resident aliens engaged in trade or business in the Philippines, were likewise made subject to 1% withholding tax under Sections 2.57.2(M) and (N), respectively.
The withholding liability of TTCs serves as a “catch-all” provision that applies on goods and services that are not covered by other rates of withholding tax in the regulations. Hence, it must be noted that there is a clear distinction between the withholding liability of TTCs and the requirement to withhold on agricultural suppliers. Section 2.57.2(S) speaks of income payments on specific goods (agricultural products) by any entity, irrespective of the classification of the withholding entity. On the other hand, Sections 2.57.2(M) and (N) refer to income payments to suppliers of goods in general by establishments of particular classification or designation (i.e., TTCs). Hence, upon effectivity of the regulations, TTCs were withholding on agricultural suppliers in connection with Sec. 2.57 (s) and not as income payment covered by the catch-all provision which in RR 17-2003 was described in Section 2.57.2(M) and (N).
Two months just after the effectivity of the last amendment, BIR issued RR 03-2004 suspending the application of Section 2.57.2(S) or the withholding of taxes on payments to agricultural suppliers. As explained in the issuance, this was done to allow the BIR to further educate the affected taxpayers as well as to establish controls and measures for its effective implementation.
The suspension of the implementation of the said provision generated questions especially on the part of the TTCs: should these income payments be construed as being made to suppliers of goods in general and therefore, subject to 1% withholding tax under Sections 2.57.2(M) notwithstanding the suspension?
With no official clarification issued by the BIR on the issue, some companies treated the suspension to be a temporary exemption of this type of income payments from withholding tax. Inasmuch as Sec. 2.57.2(S) of RR 2-98, as amended, was not repealed, the payments to agricultural suppliers are still to be treated as a separate type of income payment and, as such, cannot be covered by other withholding rates in the regulations, including the “catch-all provision” for TTCs and government under Section 2.57.2(M). Th is follows the rule observed that the imposition of different withholding tax rates on specific income payments should be regarded as separate and distinct from each section in the regulations.
The recently issued RMC No. 44-2007 now provides that notwithstanding the suspension of the withholding tax on payments to agricultural suppliers, income payments made to such suppliers by TTC shall still be subject to 1% withholding tax, not under Section 2.57.2(S) but under Section 2.57.2(M) of RR 2-98, as amended. The same position is also applicable to income payments made by government agencies.
Normally, clarification of ambiguous rules would be welcomed by taxpayers. However, the directive given to BIR revenue officers to verify the withholding tax compliance of the affected payors in so far as payments to agricultural suppliers are concerned from March 1, 2004, the effective date of RR 3-2004, has caused an outcry among TTCs. Effectively, BIR is taking the position that TTCs were required to withhold 1% on their payments for their agricultural products since 2004.
The issuance of the above clarification is already an indication that there was indeed confusion on the interpretation of the applicable BIR issuances. It is therefore inevitable to appeal to the BIR to implement its position only after the issuance of the RMC as the affected taxpayers may have had relied in good faith on their otherwise reasonable and educated interpretation of a rather ambiguous BIR regulation. After all, on the presumption that these suppliers of agricultural products had properly paid their income taxes, there is no actual revenue loss for government given that these suppliers did not apply any creditable taxes against their taxes.
ftp://ftp.bir.gov.ph/webadmin1/pdf/46694rr%20no.%206-2009.pdf
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