New rule on deductibility of expenses not subjected to withholding tax

(Revenue Regulations No. 6-2018)

This Tax Alert is issued to inform all concerned taxpayers that RR 12-2013 has been revoked and that the rule on deductibility of expenses upon payment of deficiency withholding tax has been reinstated.

RR 12-2013 promulgated that no deduction will be allowed notwithstanding that the deficiency withholding tax is paid at the time of the audit. This rule is now revoked. RR 2-2018 reinstated the provisions of Section 2.58.5 of RR No. 14-2002, as amended by RR No. 17-2003 which allows the deduction provided the deficiency withholding tax is paid even at the time of audit or reinvestigation.

Pursuant to RR No. 06-2018, deduction from gross income will also be allowed in the following cases where no withholding of tax or incorrect withholding of tax was made:

a. Payee reports the income, pays the tax due, and the withholding agent pays the tax including the interest and surcharges, if applicable, incidental to the failure to withhold the tax.

b. Payee/recipient failed to report income on the due date, but the withholding agent/taxpayer pays the tax, including interest and surcharges, if applicable, incidental to the failure to withhold the tax.

c. Withholding agent erroneously withheld the tax but pays the difference between the correct withholding tax and the amount of tax withheld including interest and surcharges, if applicable, incidental to the error in withholding.