Being categorized as a “top” withholding agent (or TWA) could give the impression that a company is doing well. It could be an indication of increased revenue, or engaging in more business transactions that warrant a “top” classification.
In June, the BIR issued Revenue Regulations (RR) No. 7-2019 expanding the TWA criteria to include taxpayers with at least P12 million in gross sales, receipts, purchases or itemized deductions in the preceding year. TWAs under prior rules are to remain TWAs unless specifically delisted.
WHAT DOES IT MEAN TO BE A TWA?
Taxes withheld approximate the income taxes due on the part of the supplier, payee, or income earner — which are effectively collected in advance by the Government through identified withholding tax agents. Suppliers, who pay income taxes on their own, can then claim the taxes withheld throughout the year as credits to their yearend income tax liabilities. The claim of credit must of course be supported by sufficient documentation in the form of Creditable Withholding Tax Certificates issued by the withholding agents.
RR No. 2-98 provides an exclusive list of transactions or income payments subject to Expanded Withholding Tax (EWT). While the list is principally transaction-based, it seems to have included a taxpayer profile-based category — i.e., the payments made by top taxpayers, particularly “Top 20,000 Corporations” (TTTC) or “Large Taxpayers” (LT), to their “regular suppliers” — which are subject to EWT at the rates of 1% (for goods) or 2% (for services).
Notably, regular suppliers have long been defined in prior regulations as those suppliers that a payor or withholding agent has dealt with for at least six transactions, regardless of the amount involved, or for a single transaction worth more than P10,000, either in the previous or current year.
With the regularity of sales transactions among constant parties, as well as the growth in sales prices in today’s market, majority of transactions involving TWAs acting as payors will practically be subject to the 1% and 2% EWT. To this extent, the EWT system may be viewed as something that has shifted from being primarily transaction-based, to being transaction-based and top taxpayer-based, where TWAs as withholding agents are the ones usually enjoined to comply. Non-TWAs remain withholding agents on certain transaction-based obligations.
Unfortunately, the TWA’s failure to comply with the withholding obligation may result in a two-fold tax exposure on its part: one, for possible deficiency withholding tax, and another, for a deficiency income tax assessment arising from the disallowance of the corresponding expense deduction, which was not subjected to withholding tax. Both exposures are subject to interest and additional penalties.
Given the obligation to almost always withhold, as well as the risks of being penalized for failure to do so, a taxpayer might therefore ask: Would it still be favorable to be classified as a top taxpayer given today’s strict tax environment?
IS THERE AN ALL-IN-ONE LIST OF TWAS?
One may also be interested to know if there exists an official, all-in-one list of TWAs that can be referred to by taxpayers.
In the past, a taxpayer does not become a TWA who is required to withhold, unless written notice is issued by the BIR and is served on such taxpayer. However, this rule was changed by RR No. 11-2018 and succeeding regulations, where the publication of inclusion in a newspaper of general circulation or in the BIR website is considered sufficient notice. It is viewed that RR No. 11-2018 somehow relaxed the written notice requirement to be considered a TWA.
In addition, the BIR issued Revenue Memorandum Order (RMO) 26-2018, which prescribes the dissemination of the list of TWAs in three types of media: newspaper of general circulation, the BIR website, and through the issuance of a Revenue Memorandum Circular (RMC).
Sometime in October 2018, the BIR issued an Advisory stating that it published a consolidated list of TWAs in its website, and that said list supersedes previous ones. There are claims, however, that such list did not merely consolidate. According to some, the list either enlisted new taxpayers or delisted some taxpayers who were previously notified or included as TWAs. It is thus possible that any consolidated list of TWAs would likely be an “evolving” one.
Our tax authorities are constantly looking for ways to generate revenue, and one of the means they seem to employ is the expansion of tax bases, including the broadening of scope of taxpayers required to withhold taxes. The recent BIR issuances amending the definition of TWAs and the release of consolidated list of TWAs are a testament to this planned expansion.
Given these recent moves by the BIR, taxpayers are constantly reminded to diligently examine their transactions and see if there are indeed transactions subject to withholding of tax. Taxpayers should also be on the lookout for any new list of TWAs to ensure their compliance with all withholding tax requirements.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.
Mipps Mardie Semillano is a Tax Manager from Business Tax Services at SGV & Co.
