Christmas celebrations in the Philippines are considered the longest in the world. With all the parties, gift-giving, food, shopping and festivities, this celebration can be the most wonderful time of the year.
But we cannot forestall the inevitable -- taxes. While some may be savoring the cool Christmas air and enjoying the holidays, taxation does not stop. Every move appears to come with a tax consequence, and it pays to know the rules.
Christmas parties are everywhere. For entities with a number of employees, hosting a party could be a tedious and even an expensive occasion. But don’t fret, the expenses on this occasion can be deducted for income tax purposes. In a number of BIR rulings, the expenses are deemed helpful and beneficial in the development of business as it fosters the goodwill and camaraderie among employees. As a reminder though, expenses must comply with the substantiation requirements of the BIR. These must be corroborated with supporting documents under the name of the Company, such as official receipts or other adequate records which show the amount of expenses and the direct relation of the expense to the development of the business of the entity. Moreover, the official receipts and invoices must be BIR-registered.
Further, for companies belonging to the top 20,000 corporations, their purchases from regular suppliers (in addition to those specifically enumerated in the expanded withholding tax rules) are subject to withholding taxes at the rate of 1% for goods and 2% for services. This is important, as non-withholding of the appropriate taxes would expose the company to non-deductibility of the related expenses, aside from the withholding tax deficiency against the company-withholding agent.
Thus, for those Christmas and holiday events’ expenses, please always remember the two main factors -- substantiation and possible withholding tax.
Another common scenario this holiday season is the giving of donations to less fortunate beneficiaries. As regards donations, donors claiming donations and contributions to accredited non-stock, non-profit corporation/NGOs as deductions from their taxable business income should submit proof to the BIR. It must be noted that under a recent BIR circular, Revenue Memorandum Circular No. 64-2016, this proof pertains to the certificate of donation. The certificate will indicate that the donee indeed received the object of donation at the specified date.
Hence, to the noble donor-companies, please check the relevant tax rules on the documentation requirements as prescribed by the BIR.
On another note, with regard to BIR audits, unlike last year, the BIR audits are not suspended this holiday season pursuant to RMC 122-2016 prescribing all field audit and field operations to continue throughout December. As a consequence, taxpayers may unfortunately receive a notice of audit coming from the BIR. Upon receipt of this notice, taxpayers should be cautious that the number of days to respond pertains to “calendar days” and not “working days”. Hence, taxpayers should still be prudent about this.
Meanwhile, for those who have already received preliminary assessment notice, final assessment notice, and even final decision on disputed assessments, please note that the number of days to respond is not suspended by the holidays. This should be considered by the taxpayers in planning the timeline to address the BIR audit issues.
Still on another important note, while many of us are having our own December vacations, we may also remind ourselves as a heads-up that there are still to-dos after this year ends. Filings of periodic tax returns, renewals of registration, and submission of books of account are just few of the important things to do after the holiday season.
As specific examples, for the December returns of manual taxpayers, please note that the deadline for BIR Forms 1601C, 1601E, and 1601F is Jan. 16, 2017. For EFPS-filers, the dates for filing are based on the staggered filing dates per their respective groupings. Meanwhile, the due date for filing the BIR Form No. 1600 is Jan. 10. Please take note that these are just few of the dates to watch out after, and it would be a prudent action to always check the tax calendar to monitor compliance on tax deadlines.
With all the hustle and bustle of the season, we are reminded that even with the holiday rush, taxation never stops. Let’s not take this as an arduous task but rather, as a challenge to be more aware of the tax requirements to protect ourselves in the future. After all, even if taxes do not take a vacation, for us, taxpayers, this season is still a season to be merry.
Florence Kathrine Enriquez is a senior of the Tax Advisory and Compliance Division of Punongbayan & Araullo.
As published in BusinessWorld dated 27 December 2016