We’re nearly two years into the pandemic and another year is coming to an end. While businesses are expecting significant improvements in the results of their operations this year, they should also be mindful of various compliance requirements.
Before leaving 2021 behind, businesses must ensure that their taxes are in order and that reporting requirements with the Bureau of Internal Revenue (BIR) and Local Government Units (LGUs) are properly complied with.
BIR REPORTING REQUIREMENTS
Regardless of the accounting period used by the taxpayer, the following withholding tax reporting requirements must be complied with:
• Submission of Annual Withholding Tax Returns (BIR Forms 1604-C, 1604-F, and 1604-E), together with Alphabetical List of Employees/Payees
Every employer or withholding agent/payor required to deduct and withhold taxes on compensation paid to employees is required to submit the Annual Information Return of Income Taxes Withheld on Compensation (BIR Form 1604-C), together with the alphalist of employees, on or before Jan. 31 of the following year. As with BIR Form 1604-C, every withholding agent/payor required to deduct and withhold taxes on income payments subject to final withholding tax is also required to submit an Annual Information Return of Income Payments Subjected to Final Withholding Taxes (BIR Form 1604-F), together with the Alphalist of Payees, on or before Jan. 31 of the following year.
On the other hand, every withholding agent/payor required to deduct and withhold taxes on income payments subject to expanded withholding taxes or making income payments not subject to withholding tax but subject to income tax, is required to file BIR Form 1604-E, together with the Alphalist of Payees on or before March 1 of the following year.
For BIR Form 1604-C, to determine taxable income, non-taxable income, and withholding tax to be reported in the return and alphabetical list of employees, an annualization of compensation paid to the employees must be performed on the last month of employment or in December of the current calendar year. Pursuant to the Supreme Court’s ruling in the case of ING Bank N.V. Manila Branch vs. Commissioner of Internal Revenue (G.R. No. 167679, July 22, 2015), this would include accrued bonuses since the duty to withhold the tax on compensation arises upon its accrual. Hence, it is suggested that employers evaluate the impact of the ruling on their accrued bonuses required to be recognized at year-end in their books of account.
Also, to ensure that all income payments during the year which are required to be subjected to withholding tax on compensation, final, and expanded withholding taxes will be properly captured in the annual return and alphalist, it is suggested that withholding agents do annual compliance checks at the yearend. It must be ensured that income payments as reported in the tax returns can be reconciled with the books of account and other financial records.
A review of all the income payments made to nonresidents during the year must be accomplished. In case of availment of treaty benefits for all types of income, except capital gains, a company must ensure that a request for clarification (RFC)/tax treaty relief applications (TTRA) required by the BIR is filed any time after the close of the taxable year, but not later than the last day of the fourth month following the close of the taxable year. For capital gains, the RFC/TTRA must be filed any time after the transaction but cannot be later than the last day of the fourth month following the close of the taxable year when the income is paid or when the transaction is consummated.
Should there be income payments in 2020 and prior years but no TTRA or Certificate of Residence for Tax Treaty Relief (CORTT) Form was filed therefor, the withholding agent has until Dec. 31, 2021 to file an RFC with complete documentary requirements. Failure to file within the prescribed deadline triggers the provisions of Sections 250 and 255 of the Tax Code.
For income payments which were considered exempt from expanded withholding tax, it must be ensured that documents supporting exemption from withholding tax are secured from the income payees.
• Submission of BIR Form 2316 to Employees/BIR
Employers are required to issue the Certificate of Compensation Payment/Tax Withheld for Compensation Payment With or Without Tax Withheld (BIR Form 2316) to every employee on or before Jan. 31 of the following year.
For employees who are qualified for substituted filing, a copy of BIR Form 2316 must be submitted to the BIR on or before Feb. 28. As clarified in the recently issued Revenue Memorandum Circular No. 117-2021, scanned copies of BIR Form 2316 can be submitted via Universal Storage Bus (USB) memory stick or other similar storage devices in the absence of DVD-Rs. Note that the submission of scanned copies applies to all taxpayers whether registered or not registered with the Large Taxpayers Services (LTS) of the BIR. Manual submission of hard copies is no longer allowed. Hence, employers must ensure that required file naming conventions are followed to avoid invalid submission of certificates.
Note that expatriate employees who are not yet considered residents of the Philippines are not qualified for substituted filing, and therefore, are required to submit their own individual annual income tax returns on or before April 15, 2022.
In addition to the above year-end withholding tax reporting requirements, taxpayers who follow a calendar year are also required to submit their annual books of account with the BIR, as follows:
• Computerized Books of Account (CBA) — taxpayers must submit their computerized books in CD-R, DVD-R, or other optical media formats for the taxable year on or before Jan. 30.
All taxpayers who use CBAs are required to inform and register with the RDO/LT Office where they are registered on the use of CBAs. An Acknowledgement Certificate must be secured from the BIR to avoid the possible imposition of penalties on the use of unregistered CBAs.
• Loose-Leaf Books of Account — taxpayers must submit the bound books of account for the taxable year on or before Jan. 15. An affidavit must also be submitted confirming the type of books, number of pages, and volume number of books submitted.
An annual inventory list must be submitted on or before Jan. 30 of the following year. This covers companies maintaining inventory of stock-in-trade, raw materials, goods in process, supplies and other goods such as manufacturing, wholesaling, distributing/retailing sectors including real estate dealers/developers, and service companies (e.g., construction companies, building contractors, etc.). Note that the data/information contained in the schedules/lists should be reconciled with the amount declared in the financial statements and annual income tax returns.
An annual registration fee (ARF) in the amount of P500 for every head office and/or branch must also be paid on or before Jan. 31.
Finally, companies and taxpayers engaged in business are required to file an Annual Income Tax Return (BIR Form 1701 or 1702) on or before April 15. Attachments such as BIR Form 1709 and Audited Financial Statements (AFS) must be filed on or before April 30 via eAFS or manually.
LGU REPORTING REQUIREMENTS
Regardless of the accounting period used by the business, every taxpayer engaged in business is required to renew a business or mayor’s permit with the LGU where the business operates on or before Jan. 20 each year. Pursuant to the CREATE Act, registered business enterprises that pay 5% tax on gross income earned are exempt from local taxes. However, the exemption does not include fees and charges that may be imposed by LGUs.
The aforementioned reporting requirements may seem numerous and complex. However, adequate planning and periodic tax compliance health checks will help taxpayers leave 2021 behind worry-free.
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
As published in BusinessWorld, dated 30 November 2021