WITHHOLDING TAXES

1. What are the three basic principles of taxation? Discuss each.

1. Fiscal Adequacy — the proceeds of a tax must be sufficient to meet governmental
expenditures.
2. Administrative Feasibility — tax law must be convenient of effective enforcement.
3. Theoretical Justice/Equality — taxes must be just, fair and reasonable.

2. Which of the 3 aspects could you relate withholding taxes and why?
Administrative feasibility could be related to withholding taxes. Administrative
feasibility means tax laws and regulations must be capable of being effectively enforced
with the least inconvenience to the taxpayer. The withholding of taxes at source is an
effective way to enforce tax laws and regulations.

3. Define withholding taxes.

Withholding taxes are those which are to be deducted and withheld by the payor-
corporations and/or persons and to pay the same directly to the BIR. The taxes are
collected practically at the same time the transaction is made or when the taxable
transaction occurs. It is taxation at source.

4. What is the importance of withholding tax?

Since the withholding taxes are deducted by the withholding agents, who have control,
custody, or receipt of the funds, when the income payments are paid or payable, they are
described as "withholding taxes-at-source." The withholding of income tax is particularly
significant where the payee is a non-resident alien individual or a resident foreign
corporation over whom the Philippine government has no jurisdiction and cannot,
therefore, enforce collection of deficiency tax assessments. Collection of the taxes at the
level of the payors of income or withholding agents who are not so many and have good
accounting records is more efficient and expeditious than collecting the same amounts
and kinds of taxes from the recipients of income who are numerous and located in
different areas in the country. The withholding of the tax is also an effective way of
collecting income tax on interest on bank deposits of taxpayers who enjoy confidentiality
of their deposits under R.A. No. 1405 (Bank Secrecy Law).

5. Discuss the case of Chamber of Real Estate and Builders’ Association, Inc. v.
Executive Secretary, G.R. No. 160756, 9 March 2010
Facts: Chamber of Real Estate and Builders’ Associations, Inc. sought to nullify the
sections of RR 7-2003 which prescribe the rules and procedures for the collection of
CWT on the sale of real properties categorized as ordinary assets. Petitioner argue that
the imposition of creditable withholding tax (CWT) on gross selling price (GSP) or fair
market value (FMV) of real estate classified as ordinary assets deprives its them of their
property without due process of law because, in their line of business, gain is never
assured by mere receipt of the selling price. As a result, the government is collecting tax
from net income not yet gained or earned.

Issue: Whether or not the imposition of CWT on income from sales of real properties
classified as ordinary assets valid.
 Ruling: Yes. The CWT is creditable against the tax due from the seller of the property at
the end of the taxable year. The seller will be able to claim a tax refund if its net income
is less than the taxes withheld. Nothing is taken that is not due so there is no confiscation
of property repugnant to the constitutional guarantee of due process. The CWT does not
impose new taxes nor does it increase taxes. It relates entirely to the method and time of
payment.

The use of the GSP/FMV as basis to determine the withholding taxes is for purposes of
practicality and convenience. The withholding agent/buyer who is obligated to withhold
the tax does not know, nor is he privy to, how much the taxpayer/seller will have as its
net income at the end of the taxable year. Instead, the withholding agent’s knowledge and
privity are limited only to the particular transaction in which he is a party. In such a case,
his basis can only be the GSP or FMV as these are the only factors reasonably known or
knowable by him in connection with the performance of his duties as a withholding
agent.

6. What are the 2 kinds of withholding taxes and distinguish one from the other.
The two kinds of withholding tax are Final withholding tax (FWT) and Creditable
withholding tax (CWT) are distinguished as follows:
FWT CWT
a) The amount of income tax a) Taxes withheld on certain income
withheld by the withholding agent is payments are intended to equal or at
constituted as a full and final least approximate the tax due of the
payment of the income tax due from payee on said income.
the payee on the said income.
b) The liability for payment of the b) Payee of income is required to
tax rests primarily on the payor as a report the income and/or pay the
withholding agent. difference between the tax withheld
and the tax due on the income. The
payee also has the right to ask for a
refund if the tax withheld is more
than the tax due.
c) The payee is not required to file c) The income recipient is still
an income tax return for the required to file an income tax return,
particular income. as prescribed in Sec. 51 and Sec. 52
of the NIRC, as amended.

7. What is meant by income subject to “final tax”? Give at least two examples of
income of resident individuals that is subject to the final tax (BAR)
Income subject to final tax refers to an income wherein the tax due is fully collected
through the withholding tax system. Under this procedure, the payor of the income
withholds the tax and remits it to the government as a final settlement of the income tax
due on said income. The recipient is no longer required to include the item of income
 subjected to "final tax" as part of his gross income in his income tax returns. Examples of
income subject to final tax are dividend income and interest from bank deposits.

8. What is the case of Commissioner v. Malayan Insurance Co., Inc., 21 SCRA 944
Facts: Malayan Insurance Company, Inc., a domestic corporation which has reinsurance
contract with Orion Insurance Company, Ltd. of London, a nonresident foreign
corporation, without previous authorization, filed the Orion’s income tax return for 1958
and paid the tax due thereon. Finding later that ORION had commissioned another
domestic entity, Filipinas Compaña de Seguros to file the income tax return on its behalf,
and that the Filipinas paid the sum of P778.00 as corresponding income tax for the same
year, Malayan requested the Commissioner of Internal Revenue for the refund of the tax
it had paid.
CIR countered contending that Malayan had ceded to ORION reinsurance premiums on
which amount Malayan should have paid withholding tax and that even if Malayan is to
be credited with the sum which it had paid, there would still be a balance of the tax due.
CIR also contended that the payment by Filipinas of the supposed tax on the incomes
derived by Orion from Philippine sources did not relieve Malayan of its obligation to
withhold and pay the withholding tax on the reinsurance premiums it had ceded to Orion.
Issue: Whether or not the obligation of Malayan as withholding agent is affected by the
payment by Filipinas of the income tax of Orion for 1958.
Ruling: No, the payment by Filipinas of the tax on the incomes of Orion did not relieve
the withholding agent of its legal duty. The filing of the tax return and payment of the
income tax cannot be considered in this case as final in the absence of proof that the
return made by Filipinas for Orion included the reinsurance premiums ceded by Malayan.
The withholding provision of the NIRC is a device without which the Philippine
Government may not be able to collect the proper and correct tax on incomes, derived
from sources in the Philippines, by aliens who are outside of the taxing jurisdiction of this
country.

9. Is a non-resident alien who is not engaged in trade or business or in the exercise of

profession in the Philippines but derived rental income from the Philippines
required to file an income tax return on April of the year following his receipts pf
said income? Explain.
No, a non-resident alien not engaged in trade or business is not required to file an income
tax return because the withholding agent (payor) will do that for him. The payor of the
income is constituted by law as a withholding agent.

10. What are the three types of creditable withholding tax? Define each.
1. Expanded withholding tax (EWT) - a kind of withholding tax which is prescribed only
for certain payors and is creditable against the income tax due of the payee for the taxable
quarter year.
 2. Withholding tax on compensation (WTC) – applies to all employed individuals
whether citizens or aliens deriving income from compensation for services rendered in
the Philippines.

The employer is considered the withholding agent. Every employer making payments of
wages shall deduct from and withhold tax, except for MWEs. Employer shall be liable if
he fails to withhold and remit.

3. Withholding Tax on Government Money Payments – withheld by government offices

and instrumentalities, including government-owned or controlled corporations and local
government units, before making any payments to private individuals, corporations,
partnerships and/or associations
i. Percentage Taxes – taxes withheld by National Government Agencies (NGAs)
and instrumentalities, including government- owned and controlled corporations
(GOCCs) and local government units (LGUs), before making any payments to
non-VAT-registered taxpayers/suppliers/payees

ii. Value Added Taxes (VAT) – taxes withheld by National Government Agencies
(NGAs) and instrumentalities, including government-owned and controlled
corporations (GOCCs) and local government units (LGUs), before making any
payments to VAT-registered taxpayers/suppliers/payees on account of their
purchases of goods and services.

11. Discuss the following cases:

i. Ing Bank N.V. v. Commissioner of Internal Revenue, G.R. No. 167679, 22
July 2015;
Facts: ING Bank, N.V. Manila Branch liable was assessed for deficiency withholding tax
on compensation for the taxable years 1996 and 1997. However, ING Bank claims that it
is not liable for withholding taxes on bonuses accruing to its officers and employees
during taxable years 1996 and 1997. ING further argued that the supposed bonuses were
not distributed to the officers and employees in 1996 and 1997 but were distributed in the
succeeding year when the amounts of the bonuses were finally determined, and thus its
duty as employer to withhold the tax during these taxable years did not arise. The
bonuses were accrued or recorded as deductible expense in ING’s books.
Issue: Whether or not ING Bank is liable for deficiency withholding tax on accrued
bonuses for the taxable years 1996 and 1997.
Ruling: Yes. The obligation of the payor/employer to deduct and withhold the related
withholding tax arises at the time the income was paid or accrued or recorded as an
expense in the payor's/employer's books, whichever comes first.
ING Bank already recognized a definite liability on its part considering that it had
deducted as business expense from its gross income the accrued bonuses due to its
employees. There was already a constructive payment for income tax purposes as these
accrued bonuses were already allotted or made available to its officers and employees.
 ii. Benguet Corporation v. Commissioner of Internal Revenue, G.R. No. 141212,
22 June 2006
Facts: Benguet Corporation was assessed for withholding taxes on compensation of its
executives for specified months from 1988 to 1991. Petitioner protested the assessment
by stating that it had promptly remitted its withholding taxes within their due dates. It
stressed that these payments were evidenced by official POs and CRs issued by the BIR's
authorized employees and agent banks. The amounts covered by the MBTC checks were
admittedly paid to the BIR for the account of petitioner and credited to the account of the
BIR and/or the national treasury. L.C. Diaz and Co. was authorized by petitioner to
handle the remittances of withholding taxes to the BIR.
CIR , on the other hand, aside from asserting that the POs and CRs reflected in
petitioner's annual return were spurious, argued that the checks issued by petitioner for
the payment of the withholding taxes on compensation were actually used for the
purchase of loose documentary stamps by various taxpayers other than the petitioner as
discovered by BIR’s Special Projects Team.
Issue: Whether or not there were valid remittances to respondent by petitioner of its
withholding taxes during the specified period.
Ruling: There were no valid remittances of the withholding taxes.
Benguet Corporation, as a withholding agent, is burdened by law with a public duty to
collect the tax for the government. However, its payroll agent, L.C. Diaz and Company,
failed to remit to the BIR the withholding taxes on compensation. Hence, no valid
payment of the withholding taxes was actually made by petitioner. Codal provisions on
withholding tax are mandatory and must be complied with by the withholding agent. It
follows that the petitioner is liable to pay the disputed assessment.

12. Form 1601 Q, Form 1602, form 1601 C, Form 1601 E, Form 1606, form 2316
From the above-mentioned forms, determine which are used for final withholding
tax and for creditable withholding tax. What kind of taxes are involved and what
are the rates?

The following forms are used for final withholding tax:

a) 1601-FQ (Quarterly Remittance Return of Final Income Taxes Withheld)
Taxes Involved Rates
Interest on foreign loans payable to Non-Resident Foreign Corporations 20%
(NRFCs)
Interest and other income payments on foreign currency transactions/loans 10%
payable to Offshore Banking Units (OBUs)
Interest and other income payments on foreign currency transactions/loans
payable to Foreign Currency Deposit Units (FCDUs) 10%
10%
Cash dividend payment by domestic corporation to citizens and resident 30%
aliens/NRFCs
10%
 30%
Property dividend payment by domestic corporation to citizens and resident
aliens/NRFCs
Cash dividend payment by domestic corporation to NRFCs whose countries
allowed tax deemed paid credit 15%
(subject to tax sparing rule)
Property dividend payment by domestic corporation to NRFCs whose
countries allowed tax deemed paid credit 15%
(subject to tax sparing rule)
Cash dividend payment by domestic corporation to Non-resident Alien engage
in Trade or Business within the 20%
Philippines (NRAETB)
Property dividend payment by domestic corporation to NRAETB 20%
Share of NRAETB in the distributable net income after tax of a partnership
(except General Professional Partnership) of which he is a partner, or share 20%
in the net income after tax of an association, joint account or a joint venture
taxable as
a corporation of which he is a member or a co-venturer
On other payments to NRFCs 30%
Distributive share of individual partners in a taxable partnership, association, 10%
joint account or joint venture or consortium
All kinds of royalty payments to citizens, resident aliens and NRAETB (other
than WI380 and WI341), domestic and resident foreign corporations 20%
On prizes exceeding P10,000 and other winnings paid to individuals 20%
Branch profit remittances by all corporations except PEZA/SBMA/CDA 15%
registered
On the gross rentals, lease and charter fees derived by non-resident owner or 4.5%
lessor of foreign vessels
On the gross rentals, charters and other fees derived by non-resident lessor or 7.5%
aircraft, machineries and equipment
On payments to oil exploration service contractors/sub-contractors 8%
Payments to Non-resident alien not engage in trade or business within the
Philippines (NRANETB) except on sale of shares in domestic 25%
corporation and real property
On payments to non-resident individual/foreign corporate cinematographic 25%
film owners, lessors or distributors
Royalties paid to NRAETB on cinematographic films and similar works 25%
Final tax on interest or other payments upon tax-free covenant bonds,
mortgages, deeds of trust or other obligations 30%
under Sec. 57C of the National Internal Revenue Code of 1997, as amended
Royalties paid to citizens, resident aliens and NRAETB on books, other 10%
literary works and musical compositions
Informers Cash Reward to individuals/juridical persons 10%
Cash or property dividend paid by a Real Estate Investment Trust (REIT) 10%

b) 1602 (Quarterly Remittance Return of Final Taxes Withheld on Interest Paid on

Deposits and Deposit Substitutes/Trusts/Etc.)
Taxes involved Rate
Savings Deposit 20%
Time Deposit 20%
 Government Securities 20%
Deposit Substitutes/Others 20%
Pre-terminated Long-Term
Deposits/Investments
Holding Period Ra
te
Four (4) years to less than five (5) years 5%
Three (3) years to less than four (4) 12
years %
Less than three (3) years 20
%

Foreign Currency Deposit 15%

On Amounts Withdrawn from Decedent's 6%
Deposit Account

The following forms are used for creditable withholding taxes:

a) 1601-C (Monthly Remittance Return of Income Taxes Withheld on Compensation)
 REVISED WITHHOLDING TAX TABLE
Effective January 1, 2018 to December 31, 2022 
DAILY 1 2 3 4 5 6
Compensation P685 and P685 P1,096 - P2,192 - P5,479 - P21,918 and
Range  below -P1,095 P2,191 P5,478 P21,917 above
Prescribed 0.00 P82.19 P356.16 P1,342.47 P6,602.74
Withholding 0.00 +20% +25% over +30% over +32% over +35% over
Tax over P685 P1,096 P2,192 P5,479 P21,918
WEEKLY 1 2 3 4 5 6
P4,808
Compensation P4,808 - P7,692 - P15,385 - P38,462 - P153,846 and
and
Range P7,691 P15,384 P38,461 P153,845 above
below
0.00
Prescribed P576.92 P2,500.00 P9,423.08 P46,346.15
+20%
Withholding 0.00 +25% over +30% over +32% over +35% over
over
Tax p7,692 p15,385 P38,462 P153,846
P4,808
SEMI-
1 2 3 4 5 6
MONTHLY
P10,417
Compensation P10,417 - P16,667 - P33,333 - P83,333 - P333,333 and
and
Range P16,666 P33,332 P83,332 P333,332 above
below
0.00
Prescribed P1,250.00 P5,416.67 P20,416.67 P100,416.67
+20%
Withholding 0.00 +25% over +30% over +32% over +35% over
over
Tax P16,667 P33,333 P83,333 P333,333
P10,417
MONTHLY 1 2 3 4 5 6
P20,833
Compensation P20,833 - P33,333 - P66,667 - P166,667 - P666,667 and
and
Range P33,332 P66,666 P166,666 P666,666 above
below
0.00
Prescribed P2,500.00 P10,833.33 P40,833.33 P200,833.33
+20%
Withholding 0.00 +25% over +30% over +32% over +35% over
over
Tax 33,333 P66,667 P166,667 P666,667  
P20,833

b) 1601-C (Monthly Remittance Return of Income Taxes Withheld on Compensation)

 REVISED WITHHOLDING TAX TABLE
Effective January 1, 2018 to December 31, 2022 
DAILY 1 2 3 4 5 6
Compensation P685 and P685 P1,096 - P2,192 - P5,479 - P21,918 and
Range  below -P1,095 P2,191 P5,478 P21,917 above
Prescribed 0.00 P82.19 P356.16 P1,342.47 P6,602.74
Withholding 0.00 +20% +25% over +30% over +32% over +35% over
Tax over P685 P1,096 P2,192 P5,479 P21,918
WEEKLY 1 2 3 4 5 6
P4,808
Compensation P4,808 - P7,692 - P15,385 - P38,462 - P153,846 and
and
Range P7,691 P15,384 P38,461 P153,845 above
below
0.00
Prescribed P576.92 P2,500.00 P9,423.08 P46,346.15
+20%
Withholding 0.00 +25% over +30% over +32% over +35% over
over
Tax p7,692 p15,385 P38,462 P153,846
P4,808
SEMI-
1 2 3 4 5 6
MONTHLY
P10,417
Compensation P10,417 - P16,667 - P33,333 - P83,333 - P333,333 and
and
Range P16,666 P33,332 P83,332 P333,332 above
below
0.00
Prescribed P1,250.00 P5,416.67 P20,416.67 P100,416.67
+20%
Withholding 0.00 +25% over +30% over +32% over +35% over
over
Tax P16,667 P33,333 P83,333 P333,333
P10,417
MONTHLY 1 2 3 4 5 6
P20,833
Compensation P20,833 - P33,333 - P66,667 - P166,667 - P666,667 and
and
Range P33,332 P66,666 P166,666 P666,666 above
below
0.00
Prescribed P2,500.00 P10,833.33 P40,833.33 P200,833.33
+20%
Withholding 0.00 +25% over +30% over +32% over +35% over
over
Tax 33,333 P66,667 P166,667 P666,667  
P20,833
c) (1604-E) Annual Information Return of Creditable Income Taxes Withheld (Expanded)/
Income Payments Exempt from Withholding Tax

TAX
 DESCRIPTION 
RATE 

Professional fees (Lawyers, CPAs, Engineers, etc.)  

    - if the gross income for the current year did not exceed P3M  5%
    - if gross income is more than 3M or VAT registered regardlessof amount 10%
Professional fees (Lawyers, CPA's, Engineers, etc.)  
    - if gross income for the current year did not exceed P720,000 10%
    - if gross income exceeds P720,000 15%
Professional entertainer such as, but not limited to actors and actresses, singers,
 
lyricist, composers, emcees
    - if the gross income for the current year did not exceed P3M 5%
    - if gross income is more than 3M or VAT registered regardless of amount 10%
Professional entertainer such as, but not limited to actors and actresses, singers,
 
lyricist, composers, emcees
    - if gross income for the current year did not exceed P720,000 10%
    - if gross income exceeds P720,000 15%
Professional athletes including basketball players, pelotaris and jockeys  
    - if the gross income for the current year did not exceed P3M  5%
    - if gross income is more than 3M or VAT registered regardless of amount 10%
Professional athletes including basketball players, pelotaris and jockeys  
    - if gross income for the current year did not exceed P720,000 10%
    - if gross income exceeds P720,000 15%
All directors and producers involved in movies, stage, television and musical
 
productions
    - if the gross income for the current year did not exceed P3M 5%
    - if gross income is more than 3M or VAT registered regardless of amount 10%
All directors and producers involved in movies, stage, television and musical
 
productions
    - if gross income for the current year did not exceed P720,000 10%
    - if gross income exceeds P720,000 15%
Management and technical consultants  
    - if the gross income for the current year did not exceed P3M 5% 
    - if gross income is more than 3M or VAT registered regardless of amount 10% 
Management and technical consultants  
    - if gross income for the current year did not exceed P720,000 10%
    - if gross income exceeds P720,000 15%
Business and Bookkeeping agents and agencies  
     - if the gross income for the current year did not exceed P3M 5%
    - if gross income is more than 3M or VAT registered regardless of amount 10%
Business and Bookkeeping agents and agencies  
     - if gross income for the current year did not exceed P720,000 10%
    - if gross income exceeds P720,000 15%
Insurance agents and insurance adjusters  
     - if the gross income for the current year did not exceed P3M 5%
    - if gross income is more than 3M or VAT registered regardless of amount 10%
Insurance agents and insurance adjusters  
    - if gross income for the current year did not exceed P720,000 10%
    - if gross income exceeds P720,000 15%
Other Recipients of Talent Fees  
    - if the gross income for the current year did not exceed P3M 5%
    - if gross income is more than 3M or VAT registered regardless of amount 10%
Other Recipients of Talent Fees  
    - if gross income for the current year did not exceed P720,000 10%
    - if gross income exceeds P720,000 15%
Fees of Director who are not employees of the company  
    - if the gross income for the current year did not exceed P3M 5%
    - if gross income is more than 3M or VAT registered regardless of amount 10%
Rentals Oon gross rental or lease for the continued use or possession of personal
property in excess of P10,000 annually and real property used in business which
5%
the payor or obligor has not taken title or is not taking title, or in which has no
equity; poles, satellites, transmission facilities and billboards
Cinemathographic film rentals and other payments to resident indivduals and
5%
corporate cinematographic film owners, lessors and distributors
Income payments to certain contractors 2%
Income distribution to the beneficiaries of estate and trusts 15%
Gross Commission of service fees of customs, insurance, stock, immigration and
commercial brokers, fees of agents of professional entertainers and real estate
 
service practitioners (RESPs)(i.e. real estate consultants, real estate appraisers
and real estate brokers
     - if the gross income for the current year did not exceed P3M 5%
     - if gross income is more than 3M or VAT registered regardless of amount 10%
Gross Commission of service fees of customs, insurance, stock, immigration and
commercial brokers, fees of agents of professional entertainers and real estate
 
service practitioners (RESPs)(i.e. real estate consultants, real estate appraisers
and real estate brokers
   - if gross income for the current year did not exceed P720,000 10%
   - if gross income exceeds P720,000 15%
Professional fees paid to medical practitioners (includes doctors of medicine,
doctors of veterinary science & dentist) by hospitals & clinics or paid directly by  
HMO and/or other similar establishments
   - if the gross income for the current year did not exceed P3M 5%
   - if gross income is more than 3M or VAT registered regardless of amount 10%
Professional fees paid to medical practitioners (includes doctors of medicine,
doctors of veterinary science & dentist) by hospitals & clinics or paid directly by  
HMO and/or other similar establishments
   - if gross income for the current year did not exceed P720,000 10%
  - if gross income exceeds P720,000 15%
Payment by the General Professional Partnership (GPPs) to its partners  
   - if gross income for the current year did not exceed P720,000 10%
  - if gross income exceeds P720,000 15%
1% OF
1/2 of
Income payments made by credit card companies
gross
amount
Additional Income Payments to govt personnel from importers, shipping and
15%
airline companies or their agents for overtime services
Income Payment made by NGAs, LGU, & etc. to its local/resident suppliers of
1%
goods other than those covered by other rates of withholding tax
Income Payment made by NGAs, LGU, & etc. to its local/resident suppliers of
 2%
services other than those covered by other rates of withholding tax
Income Payment made by top withholding agents to their local/resident suppliers
1%
of goods other than those covered by other rates of withholding tax
Income Payment made by top withholding agents to their local/resident suppliers
2%
of services other than those covered by other rates of withholding tax
Commissions, rebates, discounts and other similar considerations paid/granted to
independent and/or exclusive sales representatives and marketing agents and sub-  
agents of companies, including multi-level marketing companies
     - if the gross income for the current year did not exceed P3M 5%
    -  if the gross income is more than P3M or VAT registered regardless of amount 10%
Gross payments to embalmers by funeral parlors 1%
Payments made by pre-need companies to funeral parlors 1%
Tolling fees paid to refineries 5%
Income payments made to suppliers of agricultural supplier products in excess of
1%
cumulative amount of P300,000 within the same taxable year
Income payments on purchases of minerals, mineral products and quarry
resources, such as but not limited to silver, gold, granite, gravel, sand, boulders 5%
and other mineral products except purchases by Bangko Sentral ng Pilipinas
Income payments on purchases of minerals, mineral products and quarry
resources by Bangko Sentral ng Pilipinas ((BSP) from gold miners/suppliers 1%
under PD 1899, as amended by RA No. 7076
On gross amount of refund given by MERALCO to customers with active
15%
contracts as classified by MERALCO
On gross amount of refund given by MERALCO to customers with terminated
15%
contracts as classified by MERALCO
On gross amount of interest on the refund of meter deposits whether paid directly 10%
to the customers or applied against customer's billings of Residential and General
Service customers whose monthly electricity consumption exceeds 200 kwh as
classified by MERALCO
On gross amount of interest on the refund of meter deposits whether paid directly
to the customers or applied against customer's billings of Non-Residential
10%
customers whose monthly electricity consumption exceeds 200 kwh as classified by
MERALCO
On gross amount of interest on the refund of meter deposits whether paid directly to the
customers or applied against customer's billings of Residential and General Service
10%
customers whose monthly electricity consumption exceeds 200 kwh as classified by
other by other electric Distribution Utilities (DU)
On gross amount of interest on the refund of meter deposits whether paid directly to the
customers or applied against customer's billings of Non-Residential customers whose
10%
monthly electricity consumption exceeds 200 kwh as classified by other electric
Distribution Utilities (DU)
Income payments made by political parties and candidates of local and national
elections on all their purchases of goods and services related to campaign expenditures,
and income payments made by individuals or juridical persons for their purchases of 5%
goods and services intended to be given as campaign contribution to political parties
and candidates
Income payments received by Real Estate Investment Trust (REIT) 1%
Interest income denied from any other debt instruments not within the coverage of
15%
deposit substitutes and Revenue Regulations 14-2012
Income payments on locally produced raw sugar 1%

d) (1606) Withholding Tax Remittance Return

TAX RATE TRANSACTION
FOR TRANSACTIONS INVOLVING REAL PROPERTY
0% a) Registered with and certified by the Housing and Land Use
Regulatory Board (HLURB) or HUDCC as engaged in
socialized housing projects pursuant to RA 7279 & its
implementing regulations.

The selling price of the house and lot or only the lot does not
exceed P 180,000 in Metro Manila and other highly
urbanized area or P 150,000 in other areas or on the adjusted
amount of selling price for Socialized Housing as maybe
determined later by the HLURB.
1.5% b) Not registered with Housing and Land Use Regulatory
Board (HLURB) as engaged in Socialized Housing projects
under RA 7279;
The seller / transferor is habitually engaged in real estate
business;
The selling price thereof is not over P 500,000.
3% c) Not registered with Housing and Land Use Regulatory
Board (HLURB) as engaged in Socialized Housing projects
 under RA 7279;
The seller / transferor is habitually engaged in real estate
business;
The selling price thereof is over P 500,000 but not over P
2,000,000.
5% d) Not registered with Housing and Land Use Regulatory
Board (HLURB) as engaged in Socialized Housing projects
under RA 7279;
The seller / transferor is habitually engaged in real estate
business;
The selling price thereof is over P 2,000,000.00
7.5% e) Seller / transferor is not habitually engaged in real estate
business.

e) (2316) Certificate of Compensation Payment/Tax Withheld

13. What are the responsibilities of a withholding agent?

The following are the responsibilities of a withholding agent:
 To register within 10 days after acquiring such status with the RDO having jurisdiction
over the place where the business is located
 To deduct tax from all money payments subject to withholding tax
 To remit tax withheld at the time prescribed by law and regulations
 To file the corresponding Annual Information Return at the time prescribed by law and
regulations
 To furnish Withholding Tax Certificates to recipient of income payments subject to
withholding

14. Who are the persons required to deduct and withhold?

The withholding taxes shall be withheld by the person having control over the payment
and who at the same time claims the expenses. The following persons are constituted as
withholding agents:
1. Juridical person, whether or not engaged in trade or business;
2. Individuals, with respect to payments made in connection with his trade or business;
3. Individual buyers, whether or not engaged in trade or business insofar as taxable sale,
exchange or transfer of real property is concerned; and
4. All government offices including GOCCs as well as provincial, city and municipal
governments and barangay (R.R. 2-98, Sec. 2.57.3).

15. Who are the persons exempt from being subject to expanded withholding tax?
The withholding of tax shall not apply to income payment to the following:
a. National Government and its instrumentalities including provincial, city or municipal
government and barangays, except GOCCs;
b. Persons enjoying tax exemptions;
 c. Exempt organizations, except income derived from real or personal properties or from
any activity conducted for profit;

The exemption shall be allowed only if the payee shall have presented to the payor a
certificate of tax exemption issued by the CIR.

16. What are the conditions for deductibility of income tax withheld?
The conditions for deductibility of income tax withheld are the following:
(1) it is shown that the income payment has been declared as part of the gross income;
and
(2) the fact of withholding is established by a copy of the withholding tax statement or
certificate duly issued by the payer to the payee showing the amount paid and the amount
of tax withheld.

17. This was a controversial ad used by the BIR as tax campaign for sole proprietors
and professionals who are practicing their professions. I do not intend anything bad
by this picture. Just that, I want you to reflect on what this picture means, in
relation to withholding tax. As future lawyers, where do you see yourself, and what
lesson is your take away from this.
As a future lawyer, I see myself as someone who will help enforce the power to taxation
instead of someone who takes the lead in circumventing them.

18. Give the Digest of the following cases:

a. Bank of America v. Commissioner, 234 SCRA 302;
Facts: Petitioner Bank of America NT & SA is a foreign corporation duly licensed to
engage in business in the Philippines with Philippine branch office at Manila. It paid 15%
branch profit remittance tax on profit from its regular banking unit operations and on
profit from its foreign currency deposit unit operations. The tax was based on net profits
after income tax without deducting the amount corresponding to the 15% tax.

Petitioner filed a claim for refund with the Bureau of Internal Revenue of that portion of
the payment which corresponds to the 15% branch profit remittance tax, on the ground
that the tax should have been computed on the basis of profits actually remitted not on the
amount before profit remittance tax.

Issue: Whether or not the petitioner is entitled to refund.

Ruling: Yes. The Tax Code provides that any profit remitted abroad by a branch to its
head office shall be subject to a tax of fifteen per cent. The law specifies its own tax base
to be on the "profit remitted abroad." There is nothing equivocal or uncertain about the
language of the provision. The tax is imposed on the amount sent abroad, and the law
(then in force) calls for nothing further.

b. Commissioner of Internal Revenue v. Court of Appeals 361 Phil. 103;

Facts: Don Andres was a stockholder of ANSCOR. When Don Andres died, ANSCOR
common shares which are previously declared as stock dividend from Don Andres’
estate. Revenue examiners proposed that ANSCOR be assessed for deficiency
withholding tax-at-source.
Issue: Whether or not ANSCOR is liable for withholding tax-at-source.
Ruling: Yes. If a corporation cancels or redeems stock issued as a dividend at such time
and in such manner as to make the distribution and cancellation or redemption, in whole
or in part, essentially equivalent to the distribution of a taxable dividend. Therefore,
ANSCOR's redemption of stock dividends is considered as essentially equivalent to a
distribution of taxable dividends for which it is liable for the withholding tax-at-source.
c. Chamber of Real Estate and Builders’ Association, Inc. v. Romulo, G.R. No.
160756, 09 March 2010;
Facts: Chamber of Real Estate and Builders’ Associations, Inc. sought to nullify the
sections of RR 7-2003 which prescribe the rules and procedures for the collection of
CWT on the sale of real properties categorized as ordinary assets. Petitioner argue that
the imposition of creditable withholding tax (CWT) on gross selling price (GSP) or fair
market value (FMV) of real estate classified as ordinary assets deprives its them of their
property without due process of law because, in their line of business, gain is never
assured by mere receipt of the selling price. As a result, the government is collecting tax
from net income not yet gained or earned.

Issue: Whether or not the imposition of CWT on income from sales of real properties
classified as ordinary assets valid.

Ruling: Yes. The CWT is creditable against the tax due from the seller of the property at
the end of the taxable year. The seller will be able to claim a tax refund if its net income
is less than the taxes withheld. Nothing is taken that is not due so there is no confiscation
of property repugnant to the constitutional guarantee of due process. The CWT does not
impose new taxes nor does it increase taxes. It relates entirely to the method and time of
payment.

The use of the GSP/FMV as basis to determine the withholding taxes is for purposes of
practicality and convenience. The withholding agent/buyer who is obligated to withhold
the tax does not know, nor is he privy to, how much the taxpayer/seller will have as its
net income at the end of the taxable year. Instead, the withholding agent’s knowledge and
privity are limited only to the particular transaction in which he is a party. In such a case,
his basis can only be the GSP or FMV as these are the only factors reasonably known or
knowable by him in connection with the performance of his duties as a withholding
agent.

d. Honda Cars Philippines, Inc. v. Honda Cars Technical Specialist and

Supervisors Unions, G.R. No. 204142, 19 November 2014;
Facts: The members of Honda Cars Technical Specialists and Supervisory Union were
receiving a monthly gasoline allowance which allowance answers for the gasoline
consumed by the union members for official business purposes and for home to office
travel and vice-versa. The gasoline not used may be converted into cash, subject to
whatever tax may be applicable.
Accordingly, the Honda Cars Philippines, Inc. deducted from the union members’
salaries the withholding tax corresponding to the conversion to cash of their unused
gasoline allowance.
The union opposed the company’s practice of treating the gasoline allowance that, when
converted into cash, is considered as compensation income that is subject to withholding
tax.
Issue: Whether or not the company wrongfully withheld income tax on the converted gas
allowance.
Ruling: No. Every employer has the duty to deduct and withhold upon the employee’s
wages a tax determined in accordance with the rules and regulations to be prescribed by
the Secretary of Finance, upon the CIR’s recommendation. As the Government’s agent,
the employer collects tax and serves as the payee by fiction of law. As the employee’s
agent, the employer files the necessary income tax return and remits the tax to the
Government.
Thus, if the BIR illegally or erroneously collected tax, the recourse of the taxpayer, and in
proper cases, the withholding agent, is against the BIR, and not against the withholding
agent. The union’s cause of action for the refund or non-withholding of tax is against the
taxing authority, and not against the employer.

e. PAGCOR v. Commissioner, G.R. No. 210704-90, 22 November 2017;

Facts: PAGCOR is a government instrumentality. Under the 1997 NIRC, PAGCOR was
included among the government-owned or -controlled corporations (GOCCs) exempt
from the payment of income tax. Subsequently, , RA No. 9337amended Section 27(C) of
the 1997 NIRC, by removing PAGCOR from the list of the GOCCs exempt from
payment of income tax. On June 20, 2007, PAGCOR's franchise under PD No. 1869 was
extended for another period of 25 years, renewable for another 25 years.
On August 11, 2008, PAGCOR was assessed on its alleged deficiency Fringe Benefit Tax
(FBT) taxable years 2005 and 2006. PAGCOR claimed that, under its Charter, it is liable
only for the 5% franchise tax which is in lieu of all kinds of national and local taxes,
levies, fees or assessments. It also claimed that it is not liable for the FBT as withholding
agent because the car plan extended to PAGCOR's officers inured to its benefit and is
required or necessary in the conduct of its business.
Issue: Whether or not PAGCOR is liable for FBT as a withholding agent.
Ruling: Yes. FBT is treated as a final income tax on the employee that shall be withheld
and paid by the employer on a calendar quarterly basis. As such, PAGCOR is a mere
withholding agent inasmuch as the FBT is imposed on PAGCOR's employees who
receive the fringe benefit. PAGCOR's liability as a withholding agent is not covered by
the tax exemptions under its Charter.
PAGCOR, in this case, did not adduce any proof, other than bare allegations, that the car
plan granted to its officers was ultimately for the benefit of its business or for its
convenience or advantage. Accordingly, PAGCOR should have withheld the FBT from
the officers who have availed themselves of the benefits of the car plan and remitted the
same to the BIR.

f. PAL v. Commissioner of Internal Revenue, G.R. No. 206079-80, 17 January

2018;
Facts: Philippine Airlines, Inc. (PAL) filed a claim for refund for final taxes withheld on
its interest income from its peso and dollar deposits with agent banks contending that it is
entitled to a refund of the withheld taxes because it is exempted from paying the tax on
interest income under its franchise. However, the Commissioner refused to grant the
claim, arguing that PAL failed to prove the remittance of the withheld taxes to the Bureau
of Internal Revenue.
PAL argued that it adequately established the withholding and remittance of final taxes
through the Certificates of Final Taxes Withheld issued to it by these Agent Banks.
Issue: whether or not proof of remittance is necessary for PAL to claim a refund under its
charter.
Ruling: Yes, PAL is entitled to its claim for refund for taxes withheld by the agent banks.
Remittance need not be proven. PAL needs only to prove that taxes were withheld from
its interest income. Considering that PAL is not liable to pay the tax on interest income
from bank deposits, any payments made for that purpose must be refunded.
The taxes on interest income from bank deposits are in the nature of a withholding tax.
Thus, the party liable for remitting the amounts withheld is the withholding agent of the
Bureau of Internal Revenue.

g. Edison Cogeneration Corporation v. Commissioner of Internal Revenue,

G.R. No. 201665, 30 August 2017;
Facts: Edison (Bataan) Cogeneration Corporation [EBCC] was assessed for, among
others, Final Withholding Tax (FWT) for taxable year 2000.
EBCC protested contending that it was not liable for the deficiency FWT assessment on
interest payments on loan agreements with Ogden Power International Holdings, Inc. for
taxable year 2000 since its liability for interest payment became due and demandable
only on June 1, 2002. The CIR, on the other hand, contended that EBCC was liable to
 pay the interest from the date of the execution of the contract on January 5, 2000, not
from the date of the first payment on June 1, 2002, as the loan agreement clearly
indicated that the interest was to be paid separately from the principal.
Issue: Whether or not EBCC is liable for deficiency final withholding tax for the year
2000.
Ruling: No, EBCC is not liable for deficiency final withholding tax for the year 2000.
Under Revenue Regulation (RR) No. 02-98, the obligation to withhold only accrues when
the loan is paid or becomes payable or when it becomes due, demandable or legally
enforceable, whichever comes first. Thus, the obligation of EBCC to deduct or withhold
tax only commenced on June 1, 2002 when the first payment took place.

h. Metrobank v. Commissioner of Internal Revenue, G.R. No. 182582, 17 April

2017
Facts: Solidbank Corporation extended a foreign currency denominated loan Luzon
Hydro Corporation. Metrobank subsequently acquired Solidbank, and consequently,
assumed the its rights and obligations under the loan agreement. Pursuant to the
Agreement, LHC withheld, and eventually paid to the BIR, the ten percent final tax on
the interest portions of the payments. According to Metrobank, it mistakenly remitted the
aforesaid amounts to the BIR as well when they were inadvertently included in its own
Monthly Remittance Returns of Final Income Taxes Withheld for the months of March
2001 and October 2001. Thus, on December 27, 2002, it filed a claim for refund of the
taxes withheld.
In view of CIR’s inaction, Metrobank filed its judicial claim for refund via a petition for
review filed before the CTA on September 10, 2003.
Issue: Whether or not Metrobank's claim for refund relative to its March 2001 final tax
had already prescribed.
Ruling: Yes. Under the NIRC, no credit or refund of taxes or penalties shall be allowed
unless the taxpayer files in writing with the Commissioner a claim for credit or refund
within two (2) years after the payment of the tax or penalty.
Both the administrative and judicial claims for refund should be filed within the two-year
prescriptive period and the claimant is allowed to file the judicial claim even without
waiting for the resolution of the administrative claim in order to prevent the forfeiture of
its claim through prescription.
Metrobank's final withholding tax liability in March 2001 was remitted to the BIR on
April 25, 2001. As such, it only had until April 25, 2003 to file its administrative and
judicial claims for refund. However, while Metrobank's administrative claim was filed on
December 27, 2002, its corresponding judicial claim was only filed on September 10,
2003. Therefore, Metrobank's claim for refund had clearly prescribed.