new Income Tax Returns ITR Form - RMC No. 40-2011

BIR issues new Income Tax Returns ITR Form - Revenue Memorandum Circular (RMC) No. 40-2011

Quezon City, 07 September 2011 – As part of its continuing efforts to streamline its processes, the Bureau of Internal Revenue (BIR) issued RevenueMemorandum Circular (RMC) No. 40-2011 dated September 5, 2011 notifying all concerned of the new Income Tax Return Forms for individual and corporate taxpayers that will be used starting this year covering taxable year 2011.

Released under the said RMC were enhanced versions asof June 2011 of BIR Form No. 1700 (Annual Income Tax Return for IndividualsEarning Purely Compensation Income), BIR Form No. 1701 (Annual Income TaxReturn for Self-Employed Individuals, Estates and Trusts) and BIR Form No. 1702(Annual Income Tax Return for Corporation, Partnership and Other Non-IndividualTaxpayer).

The issuance also provides that all juridical entities following the fiscal year of reporting are likewise required to use the new BIR Form No. 1702 starting with those covered by fiscal year ending January 31, 2012.

BIR Form No. 1700 is filed by employees except those expressly exempted by law from filing the same and except employees qualified under the “substituted filing scheme.” With the issuance of the new BIR Form 1700, however, pure compensation income earners whose annual taxable income derived from within the Philippines exceeds P500,000.00 and on which income the correct income tax has been correctly withheld are now required to file. Those employees deriving compensation income concurrently from two or moreemployers at any time during a taxable year shall likewise file the saidreturn, including Part IV thereof.

Part IV of the return refers to supplementalinformation on gross income/receipts subject to Final Withholding Tax and grossincome/receipts Exempt from Income Tax.

Also required to file the return but only Part I and Part IV thereof are individuals, estates and trusts whose sole income has been subjected to final withholding tax in excess of P125,000.00 annually, whether remitted or not to the BIR and individuals whose sole income is exempt from income tax where the total annual (exempt) income exceeds P500,000.00.

For BIR Form 1701, those required under the law to file the same should also fill up Part VIII thereof. Part VIII of the returnrefers to supplemental information on gross income/receipts subject to FinalWithholding Tax and gross income/receipts Exempt from Income Tax.

The new BIR Form No. 1702 now includes a Section onTaxpayer Activity Profile and a Section on Tax Relief Availment. 

As of this writing, the RMC 40-2011 is still mysteriously missing from the bureau's official website.

Exemption from Expanded Withholding Tax

RR 14-2000 increase the coverage of withholding tax agents required to withhold 1% on goods and 2% on services from top 10,000 to top 20,000 private corporations.  For someone who was has been notified as such, it is nothing but a headache.  These corporations serves as agents of government to remit taxes nevertheless, during investigation, examiners haphazardly make a table assessment for non-withholding and disallowance of items not subjected to withholding tax.  During an audit, examiners normally just pick up the figures from your abstract or financial statements, making an assumption that all are subject to withholding tax, shifting the burden of proof to the taxpayer that it is not so.

It is important to be informed that there are income payments exempt from withholding tax. Sec 2.57.5 of RR 2-98 lists the income payments exempted from withholding, thus withholding of creditable withholding tax prescribed in RR2-98 shall not apply to income payments made to the following:

A.) National government and its instrumentalities, including provincial, city or municipal governments;
B.) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following:
(1) sales of real property by a corporation registered with HLURB or HUDCC...
(2) Corporations registered with the Board of Investments (BOI) and enjoying exemption from the income tax (income tax holiday) provided by RA 7916 and the Omnibus Investment Code of 1987.
(3) Corporations which are exempt from income tax under Sec. 30 of NIRC to wit, GSIS, SSS, PHIC, PCSO, PAGCOR....


Other common issues assessed by examiners which are exempt from withholding tax:

• Income payment to General Professional Partnerships   

Chapter III, SEC. 26 of NIRC prescribes the Tax Liability of Members of General Professional Partnerships. - A general professional partnership as such shall not be subject to the income tax imposed under this Chapter. Persons engaging in business as partners in a general professional partnership shall be liable for income tax only in their separate and individual capacities.

Income payment to International Carrier

Sec. 28 (A)(3)(b)
An international carrier doing business in the Philippines shall pay a tax of two and one-half percent (2 1/2%) on its 'Gross Philippine Billings'

ftp://ftp.bir.gov.ph/webadmin1/pdf/14572rmc04_72.pdf

Using Personal Credit Cards for Company Expenses

Good and bad news.  

1.  Using personal credit card for company expenses can be allowed for deduction for income tax purposes provided the requirements of deductibility are met.


2.  However, for companies required to withhold, RMC 72-2004 provides reprieve on exemption of withholding only to those corporate credit cards.


See full text of RMC 72-2004 here: ftp://ftp.bir.gov.ph/webadmin1/pdf/14572rmc04_72.pdf



http://www.punongbayan-araullo.com/pnawebsite/pnahome.nsf/section_docs/YM581L_30-1-07

Using personal credit cards for company expenses

by Shirley S. Go

Representation and entertainment (R&E) expenses or other reimbursable costs incurred by officers and employees on behalf of their companies  cause a lot of tax problems.  Because of this, most companies apply for company credit cards to be issued to its authorized officers and agents.    In some cases, companies would rather ask their officers or marketing agents to advance the cost of these business meetings, and subsequently have these costs reimbursed by the company.   These employees would usually use their own personal credit cards.

For taxation, is there is difference between a reimbursement scheme through the use of a personal credit card, as compared with the use of a company issued credit card?

In both cases, the reimbursement would be considered as a valid deductible expense of the company as long as 1) the entertainment expenses will not exceed the ceiling of 0.50% of net sales for those engaged in sale of goods or properties; or 1% of net revenue for those engaged in sale of services, including the exercise of profession and use or lease of properties; and 2) that the requisites for deductibility are complied with.
One of the requisites for deductibility is that the reimbursement be substantiated by official receipts, or invoices, or bills or statements of accounts issued in the name of the taxpayer claiming the deduction.  For a holder of a company issued credit card, the official receipts issued by the seller will automatically be under the company’s name, thus making it more convenient to meet this requisite.     In contrast, for holders of personal credit cards, the receipts will generally be issued in the name of the cardholder unless a specific request is made by the holder that it be issued in the name of the company.
How about the withholding tax?

A reprieve is provided to a company that has provided its employee with a company-issued credit card.    Under Revenue Memorandum Circular (RMC) 72-2004, a top ten thousand corporation (TTC)  or a government agency is exempted from the 1% or 2% withholding tax requirement on purchases of goods and services if payment is made through the use of a company-issued credit card.   It can be inferred from the wordings of the RMC that the rationale of this exemption is that the credit card company is required to withhold 1% of 50% of the gross amount when it pays the merchants for the purchases of the cardholders.   Thus, without this exemption, the business entity will be subjected to withholding tax twice - the first coming from the customer (i.e., 1% or 2%) and the second from the credit card company (i.e., 1% of 50%).
This exemption, however, has not been extended to employee reimbursement where payment is made using the employee’s personal credit card.  Would you not say that the same rationale could be applied?    Thus, if the Company presented the charge slip as proof that the purchase was paid using the personal credit card of the employee, shouldn’t that be sufficient to claim an exemption from withholding?

Hence, in the absence of such exemption, employers continue to be bothered on how to efficiently implement this withholding on reimbursable expenses.

Under the RMC, it is required that the employee issue a Certificate of Taxes Withheld at Source (BIR Form No. 2307) as proof that a tax has been withheld.  Such certificate will be used by the seller to claim a tax credit against income taxes due from it.   It is also provided that the said certificate should be issued only by the duly authorized representative of the employer-withholding agent.
This would give rise to problems in implementation, both on the part of the buyer and the seller.  For instance, would the signatory of the certificate agree to issue a signed certificate but without an amount indicated therein? & ;nbs p; On the other hand, would a seller be willing to accept a withholding certificate from just anyone?  How could it ensure that the withholding agent is legitimate?

It appears that the requirement to withhold on all valid and legitimate reimbursable business expenses initially paid through personal credit card of employees would be quite difficult or even impractical to implement. Couldn’t the exemption granted on purchases using company-issued credit cards be liberally applied?

(The author is a tax manager at Punongbayan & Araullo, member of Grant Thornton International.  For comments and inquiries, please e-mail the author or call 886-5511.)
 

Electronic Letter of Authority as per RMO 62-2010

Revenue Memorandum Order No. 62-2010 prescribes the supplemental guidelines on the electronic issuance of Letters of Authority (LA) and related audit policies and procedures.

A very important provision that taxpayers need to know is under point #6... Taxpayers who are in possession of manually prepared LAs/TVNs shall not entertain any Revenue Officer relative to the audit of his internal revenue taxes for the taxable year 2009 unless replaced with an eLA.


How does an eLA look like?  Funny as it is, the examiners are ignorant themselves how it looks.  As prescribed under point#8 same type of paper being used in printing of Certificate of Registration will be used.  As of the moment, it will look like a plain sheet of paper unlike the usual LA.  

What the RDOs are doing now, is issuing LAs and backdating them to June 25; nevertheless, it does not excuse them from complying with the above RMO.

Download full text here:
ftp://ftp.bir.gov.ph/webadmin1/pdf/52266RMO%2062-2010.pdf

Duties and Responsibilities of SSS Members

What are the duties and responsibilities of SSS employee-members?An SSS member should:

1. secure their SS numbers;
2. ensure that they are reported for coverage under the SSS by their employers;
3. pay their monthly share of contributions and ensure that these contributions are remitted to the SSS by their employers;
4. ensure that SSS Form R3’s (Contributions Collection Lists) where their name are included, are submitted to the SSS by their employers;
5. pay their monthly loan amortization, if any, thru salary deduction and to ensure that these payments are remitted to the SSS by their employers;
6. update or correct their personal records with the SSS by submitting a duly filled-up SSS Form E-4 (Member’s Data Amendment) and supporting document/s to avoid delays in the processing of benefit claims; and
7. be conscious of changes and improvements in SSS policies and benefit structure.

What are the duties and responsibilities of an SSS employer-member?
An employer is obliged to:

1. require the presentation of the SS number of a prospective employee;
2. report all employees for SS coverage within thirty (30) days from the date of employment by submitting an accomplished SSS Form R-1A (Employment Report ) at the nearest SSS office;
3. deduct from the employees the monthly SS contributions based on the schedule of contributions; pay their share of contributions including Employees’ Compensation (EC) and remit these contributions to the SSS or accredited banks within the first the (10) calendar days following the month when said contributions are due and applicable.
4. Submit a summary of all employees’ contributions thru SSS Form R-3’s (Contribution Collection List) together with a copy of the Special Bank Receipt (SBR) and SSS Form R-5 ( Payment Return Form) within 10 days after the applicable quarter;
   
   An employer may also participate in the SSSNet, a computer service using the electronic data interchange technology, designed to hasten the posting of employees contributions for faster processing and availment of benefits and loan privileges.
   
   Or, the employer may opt to participate in the R3 Tape/Diskette Project which allows the submission of the monthly summary of employees’ contribution thru a computer tape or diskette. This system is a better alternative to manual reporting as its minimizes encoding errors and processing time.
   
5. issue official receipts and maintain official records of employment and deductions for all contributions subtracted from their employees every month or indicate such deductions from the employees’ pay envelopes;
   
   A household employer should submit an accomplished SSS Form R-3 (Contributions Collection List) and indicate in the appropriate box as a household employer. Submit this together with the SSS Form R5’s at the nearest SSS office. Household employers may enroll in the Auto-Debit Arrangement System which allows the one-time enrollment of the employer’s bank account for the automatic payment of monthly SSS contributions and loan repayments. This arrangement is open at the United Coconut Planters Bank, Equitable-PCI Bank, Bank of the Philippine Islands, Metropolitan Bank and Trust Co., Philippine National Bank; Asia Trust Bank; Philippine Savings Bank; Development Bank of the Philippines; and more bank soon.
   
6. remit to the SSS all salary, educational, stocks investment or privatization loan amortization of their employees and submit an accomplished SSS Form ML-1 (Monthly Salary/Calamity/Emergency/Stock Investment Loan Payment Return) to any of the SSS accredited banks within the first ten (10) calendar days following the month when said amortizations are due and applicable;
   
   
7. submit a summary of all employees’ loan amortization thru an accomplished SSS Form ML-2 (Collection List) with copies of the SBRs and SSS Form ML-1 on or before the tenth day following the applicable month to the nearest branch;
   
   An employer may also participate in the Salary Loan Repayment Tape/Diskette project which allows the submission of the monthly summary of employees’ loan repayment thru a computer tape or diskette. This system provides employers with convenience and hastens the posting of member’s loan repayments.
   
   
8. advance SS and EC sickness benefits due their employees once these are approved by the SSS;
   
   
9. advance SS maternity benefits due to qualified female employees;
   
   
10. file for reimbursement for all legally advanced sickness and maternity benefits;
    
    
11. keep their employees updated on the changes in SSS policies and increases in their benefits;
    
    
12. ensure that all forms submitted are properly and accurately accomplished;
    
    
13. inform SSS of any change in company address, business name or temporary/permanent cessation of business operations through the submission of a duly notarized SSS Form R-8 ( Employer Data Change Request);
    
    
14. submit annually an updated SSS Form L-501 (Specimen Signature Card); and,
    
    
15. certify SSS-related documents for the employees when required for purposes of their claims.
    
    

What are the duties and responsibilities of a voluntary/self-employed member?
Self-employed/voluntary members should:

1. pay their monthly contributions using SSS Form RS-5 (Contributions Payment Return Form) monthly in accordance with the prescribed schedule;
   
   Beginning 01 January 2004, self-employed and voluntary members, including OFWs may change their MSC monthly. The change may be by one or two salary brackets without requiring the submission of documents to prove their earnings. In case the change will result to an MSC of lower than P5, 000.00, or where the change will result to more than the present MSC, a Declaration of Earnings must be submitted to support the new earnings. However, if the age of the member is 55 years or older and the present MSC is more than P10, 000.00, the allowed increase is only one salary bracket regardless of whether the supporting documents are submitted or not.
   
   For Overseas Filipino Workers (OFWs), the minimum MSC was increased from P3, 000.00 to P5, 000.00, or beginning 01 January 2004
   
   
2. update or correct their personal records with the SSS by submitting a duly filled-up SSS Form E-4 (Member’s Data Amendment) with supporting documents.
   
   
3. be conscious of changes and improvements in SSS policies and benefit structure.
   
   Self-employed and voluntary members may enroll in the Auto-Debit Arrangement System which allows the one-time enrollment of the employer’s bank account for the automatic payment of monthly SSS contributions and loan repayments. This arrangement is open at the United Coconut Planters Bank, Equitable/PCI Bank, Bank of the Philippine Islands, Metropolitan Bank and Trust Co., Philippine National Bank, Asia Trust Bank, Philippine Savings Bank, Development Bank of the Philippines; and more banks soon.

SSS Sickness Benefits - Frequently Asked Questions

What is the sickness benefit?

The sickness benefit is a daily cash allowance paid for the number of days a member is unable to work due to sickness or injury.

How does an SSS member qualify for the sickness benefit?

A member is qualified to avail of this benefit if:

1. unable to work due to sickness or injury and confined either in a hospital or at home for at least four days;
2. at least three months of contributions within the 12 month period immediately before the semester of sickness has been paid;
3. all company sick leaves with pay for the current year has been used up;
4. the employer has been notified, or, if a separated, voluntary or self-employed member, the SSS directly.

How much sickness benefit is a member entitled to receive?

The amount of a member’s sickness benefit per day is equivalent to ninety percent (90%) of the member’s average daily salary credit.

How is the sickness benefit computed?

1. Exclude the semester of sickness.
   
       A semester refers to two consecutive quarters ending in the quarter of sickness.
       A quarter refers to three consecutive months ending March, June, September or December.
2. Count 12 months backwards starting from the month immediately before the semester of sickness.
3. Identify the six highest monthly salary credits within the 12-month period.
   Monthly salary credit means the compensation base for contributions and benefits related to the total earnings for the month. (The maximum covered earnings or compensation is P15,000 effective Jan 1, 2002).
   Please refer to the following table:

   Range of Compensation	Monthly Salary Credit
   1,000 - 1,249.99	1,000
   1,250 - 1,749.99	1,500
   1,750 - 2,249.99	2,000
   2,250 - 2,749.99	2,500
   2,750 - 3,249.99	3,000
   3,250 - 3,749.99	3,500
   3,750 - 4,249.99	4,000
   4,250 - 4,749.99	4,500
   4,750 - 5,249.99	5,000
   5,250 - 5,749.99	5,500
   5,750 - 6,249.99	6,000
   6,250 - 6,749.99	6,500
   6,750 - 7,249.99	7,000
   7,250 - 7,749.99	7,500
   7,750 - 8,249.99	8,000
   8,250 - 8,749.99	8,500
   8,750 - 9,249.99	9,000
   9,250 - 9,749.99	9,500
   9,750 - 10,249.99	10,000
   10,250 - 10,749.99	10,500
   10,750 - 11,249.99	11,000
   11,250 - 11,749.99	11,500
   11,750 - 12,249.99	12,000
   12,250 - 12,749.99	12,500
   12,750 - 13,249.99	13,000
   13,250 - 13,749.99	13,500
   13,750 - 14,249.99	14,000
   14,250 - 14,749.99	14,500
   14,750 - O V E R	15,000

   
   
   
4. Add the six highest monthly salary credits to get the total monthly salary credit.
5. Divide the total monthly salary credits by 180 days to get the average daily salary credit.
6. Multiply the average daily salary credit by 90 percent to get the daily sickness allowance.
7. Multiply the daily sickness allowance by approved number of days to arrive at the amount of benefit due.

For example, let us say that an SSS member gets sick or injured in October 2004 for 20 days:

1. The semester of sickness would be from July 2004 to December 2004.
2. The 12-month period would be from July 2003 to June 2004 within which the six highest monthly salary credits will be chosen.
3. Let us assume that the six highest monthly salary credits are P15, 000 each. The total monthly credit would be P90, 000 (P15, 000 x 6).
4. The total monthly salary would be divided by 180 to get the average daily salary credit or P500 (P90, 000/180).
5. The sickness benefit due is P9,000 (P450 x 20 days).

How many days in a year can a member avail himself of the sickness benefit?

A member can be granted sickness benefit for a maximum of 120 days in one calendar year. Any unused portion of the allowable 120 days sickness benefit cannot be carried forward and added to the total number of allowed compensable days for the following year.

The sickness benefit shall not be paid for more than 240 days on account of the same illness. If the sickness or injury still persists after 240 days, his claim will be considered a disability claim.

Who should an employee notify regarding his sickness or injury?

A member should notify the employer within five (5) calendar days after the start of sickness or injury. The employer, in turn, must notify the SSS of the confinement within (5) calendar days after receipt of the notification from the employee member.

Notification to the employer is not necessary if the member’s confinement is in a hospital or if the member got sick or was injured while working or was within the company premises. In this case, the employer must notify the SSS within five (5) calendar days from the start of the employee’s sickness or injury while working or was within the company premises.

What is the procedure for notification for unemployed, self-employed and voluntary members?

Unemployed, self-employed or voluntary paying members should notify the SSS directly within five (5) calendar days after the start of confinement, unless such confinement is in the hospital,in which case, notification is not necessary.

What are the effects of failure or delay in notification?

1. If the employee notifies the employer, or the SSS, in the case of an unemployed, self-employed or voluntary paying member, beyond the prescribed five-day period, the confinement shall be deemed to have started not earlier than the fifth day immediately preceding the date of notification.
2. If the employer notifies the SSS beyond the five (5) calendar days after the receipt of the notification from the employee, the employer shall be reimbursed only for each day of confinement starting from the 10th calendar day immediately preceding the date of notification to the SSS.
3. If the employee has given the required notification to the employer, but the employer fails to notify the SSS of the confinement within the prescribed period resulting in the reduction of the benefit or denial of the claim, the employer shall have no right to recover the daily sickness allowance advanced to the employee.

SSS Emergency Loan - Frequently Asked Questions

What is an EC emergency loan?

It is a loan granted to workers in the private sector who were separated from employment as a result of the currency crisis.

Who may qualify for an emergency loan?

1. A member who has been separated from employment not earlier than 01 July 1997 due to mass lay-off, or who has been temporarily separated or retrenched following the suspension of his firm's operation due to the currency crisis.
   
   A member who has not been laid off but whose income or wages have been effectively reduced due to job rotation or reduced working hours is also qualified.
   
   
2. He has paid and remitted at least six monthly contributions prior to the semester of separation or temporary lay-off from employment or depletion of income.
   
   
3. He has not yet been granted a refund of contributions, retirement or total permanent disability benefits.
   
   
4. He must be up-to-date in the payment of all member loan obligations, including the following, prior to his separation from employment:
   
   

   	salary loan
   	calamity loan
   	educational loan
   	emergency loan
   	stock investment loan
   	privatization fund loan
   	special educational loan for vocational and technical students
   	special educational loan for Y2K conversion training
   	member assistance for the development of entrepreneurship (MADE), and
   	housing loan granted through the SSS, National Home Mortgage Finance Corporation (NHMFC) and Home Development Mutual Fund (Pag-IBIG).

   
   
   
5. He has no outstanding balance on any previous emergency loan granted by the Employees' Compensation Commission (ECC).
   
   
6. He has not been disqualified by the Social Security Commission (SSC) for having filed a fraudulent loan application with the SSS.
   

How much is the loanable amount?

An emergency loan is equivalent to twice the member-borrower's latest monthly salary credit posted in the SSS master file, but not to exceed P12,500.

How much is the interest charged on an emergency loan?

An emergency loan is charged an interest of six per cent a year, deductible in advance.

What is meant by monthly salary credit?

The monthly salary credit is the basis of the computation of benefits and loans (Please see the schedule of contributions).

In case a loan is not paid, how much is the delinquency interest?

Any balance of the loan not paid on time will be charged an interest of one per cent a month until it is fully paid.