Scribd Logo
Upload

Welcome to Scribd!

  • 27 views

    Argument Retroactive Application of RR No. 6-2018

    Uploaded by

    Mark Domingo
    Revenue Regulations No. 6-2018 revoked RR No. 12-2013, which had disallowed tax deductions for expenses where the required withholding tax was not paid, even if later paid during an audit. The new RR reinstates the previous rule allowing deductions if withholding tax is paid belatedly during an audit, providing relief to taxpayers. However, whether the new RR applies retroactively remains unclear as the BIR may argue against retroactive application during audits.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Argument Retroactive Application of RR No. 6-2018

    Uploaded by

    Mark Domingo
    27 views5 pages
    Revenue Regulations No. 6-2018 revoked RR No. 12-2013, which had disallowed tax deductions for expenses where the required withholding tax was not paid, even if later paid during an audit. The new RR reinstates the previous rule allowing deductions if withholding tax is paid belatedly during an audit, providing relief to taxpayers. However, whether the new RR applies retroactively remains unclear as the BIR may argue against retroactive application during audits.

    Original Title

    Argument retroactive application of RR No. 6-2018 -

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Revenue Regulations No. 6-2018 revoked RR No. 12-2013, which had disallowed tax deductions for expenses where the required withholding tax was not paid, even if later paid during an audit. The new RR reinstates the previous rule allowing deductions if withholding tax is paid belatedly during an audit, providing relief to taxpayers. However, whether the new RR applies retroactively remains unclear as the BIR may argue against retroactive application during audits.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    27 views5 pages

    Argument Retroactive Application of RR No. 6-2018

    Uploaded by

    Mark Domingo
    Revenue Regulations No. 6-2018 revoked RR No. 12-2013, which had disallowed tax deductions for expenses where the required withholding tax was not paid, even if later paid during an audit. The new RR reinstates the previous rule allowing deductions if withholding tax is paid belatedly during an audit, providing relief to taxpayers. However, whether the new RR applies retroactively remains unclear as the BIR may argue against retroactive application during audits.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 5

    7/5/2019 No love withheld with RR No.

    6-2018

    | Philippines

    No love withheld with RR No. 6-2018


    Marion Castañeda Tax Manager, PwC Philippines
    14 February, 2018

    Love is a concept we do not usually associate with taxation. In fact, one could say
    that the two are quite the opposite: while love entails giving, tax involves taking.

    Nonetheless, taxpayers must have felt the love when they heard about Revenue
    Regulations (RR) No. 6-2018 in January. The RR explicitly revokes one of the notable
    tax regulations previously issued by the Bureau of Internal Revenue (BIR), specifically
    RR No. 12-2013, which was an amendatory regulation on the requirements for
    deductibility of certain expenses. So, why would taxpayers feel any love for this new
    RR?

    Revenue Regulations No. 12-2013

    Five years ago, RR No. 12-2013 amended Section 2.58.5 of the consolidated
    withholding tax regulations or RR No. 2-98, covering the requirements for
    deductibility of expenses. According to RR No. 12-2013, no deduction for income tax
    purposes shall be allowed where there was failure to withhold tax notwithstanding
    subsequent payment of such withholding tax at the time of audit investigation or
    reinvestigation/reconsideration.

    Effectively, a deficiency withholding tax assessment on an otherwise deductible


    expense would have also resulted in a deficiency income tax assessment since the
    expense would still be disallowed, regardless of the payment of deficiency
    withholding tax during a tax audit. Additionally, both of these deficiency taxes would
    also have been subjected to surcharge and interest penalties.

    https://www.pwc.com/ph/en/taxwise-or-otherwise/2018/no-love-withheld-with-rr-6-2018.html 1/5
    7/5/2019 No love withheld with RR No. 6-2018

    The 2013 RR was most impactful on taxpayers classified as Top 20,000 Private
    Corporations for withholding tax purposes since they are required to withhold taxes
    on their regular purchases of goods and services from local suppliers at the rate of
    1% and 2%, respectively. Most taxpayers would agree that no matter how diligent
    the finance people are in a company, there are practical challenges that make it
    difficult to be 100% compliant in terms of withholding taxes on suppliers.

    Revenue Regulations Bo. 6-2018

    With the issuance of RR No. 6-2018, the aforementioned 2013 regulation was
    revoked and the previous provisions of Section 2.58.5 of RR No. 2-98 have been
    reinstated. Accordingly, the prevailing rule now states that an expense shall be
    allowed as a deduction provided that the required withholding tax is remitted to the
    BIR, even if such remittance is done belatedly, during a tax audit and with the
    concurrent penalties as a result of under-withholding or non-withholding.

    Therefore, settlement of a deficiency withholding tax assessment during a tax audit


    will effectively address the issue on the disallowance of the related expense and
    correspondingly, the related deficiency income tax assessment should be cancelled.

    It must be emphasized that regardless of the applicable RR, the withholding tax
    requirement for the deductibility of expenses is clearly mandated under Section 34(K)
    of the Tax Code. However, the reinstated rule under RR No. 6-2018 qualifies that
    satisfying the requirement to pay withholding tax, even belatedly during a tax audit,
    will suffice for purposes of income tax deduction.

    Retroactive or prospective application?

    When does this reinstated rule actually become effective?

    RR No. 6-2018 states that the regulations shall take effect 15 days following its
    publication in any newspaper of general circulation. Generally, an RR has no
    retroactive effect. Does this general rule apply in the case of an issuance like RR No.
    6-2018, which revokes another RR and reinstates a previously effective rule?

    https://www.pwc.com/ph/en/taxwise-or-otherwise/2018/no-love-withheld-with-rr-6-2018.html 2/5
    7/5/2019 No love withheld with RR No. 6-2018

    The principle of non-retroactivity of rulings under Section 246 of the Tax Code
    provides that any revocation, modification, or reversal of any rules and regulations
    promulgated in accordance with the Tax Code (e.g., revenue regulations) shall not be
    given retroactive effect if the revocation, modification, or reversal will be prejudicial to
    the taxpayer.

    A careful reading of this provision reveals that the non-retroactivity of a revoked,


    modified, or reversed RR is couched on the condition that such revocation,
    modification, or reversal would prejudice the taxpayer. Inversely, if the revocation,
    modification or reversal is beneficial to the taxpayer, would the RR have retroactive
    effect?

    A 2011 Supreme Court case has tackled this question. In its decision, the high court
    applied a particular RR retroactively — the RR promulgated in 1999 was applied to a
    transaction in 1995 — and noted that “while revenue regulations as a general rule
    have no retroactive effect, if the revocation is due to the fact that the regulation is
    erroneous or contrary to law, such revocation shall have retroactive operation as to
    affect past transactions, because a wrong construction of the law cannot give rise to
    a vested right that can be invoked by the taxpayer.”

    Applying the ruling, if it can be successfully argued that RR No. 12-2013 was
    prejudicial to taxpayers and based on a wrong construction of the law, there may be
    basis to apply its revocation under RR No. 6-2018 retroactively. We can, however,
    expect that the BIR would most likely disagree with this argument during the course
    of a tax audit.

    But for now, the fact that RR No. 6-2018 was even promulgated is something
    taxpayers may consider laudable.

    It is a step in the right direction in terms of taxpayer-friendly rules and regulations.


    While the BIR’s tax campaign of “I love Philippines, I pay taxes” attempts to evoke a
    sense of patriotism among the taxpaying public, this author likewise wishes to appeal
    to the tax authorities’ love for their dutiful taxpayers by continuing to issue sensible,

    https://www.pwc.com/ph/en/taxwise-or-otherwise/2018/no-love-withheld-with-rr-6-2018.html 3/5
    7/5/2019 No love withheld with RR No. 6-2018

    reasonable, and practical rules and regulations, especially in light of the on-going
    evolution of our tax laws with present and future tax reform packages. Perhaps there
    is love in taxation after all.

    The views or opinions expressed in this article are solely those of the author and do
    not necessarily represent those of Isla Lipana & Co. The content is for general
    information purposes only, and should not be used as a substitute for specific
    advice.

    Contact us

    Marion Castañeda
    Tax Manager, PwC Philippines
    Tel: +63 (2) 845 2728 Ext. 2124
    Email

    Our Thought leadership: Careers About us


    services insights and reports
    Job search Our history News and
    and events
    Philippine Assurance PwC is the
    industries business and publications
    Our purpose
    place to be and values Join our
    investment
    Audit and Tax Find your mailing list
    guides Ethics and
    Assurance publications place in Team
    business Contact us
    CEO surveys PwC
    Risk Deals and conduct
    Our values
    Assurance Be with PwC
    as easy as Corporate photo-story
    Philippines Our partners
    ABC Finance
    Deals and Philippines
    publications Corporate
    Corporate PwC’s Gems
    responsibility
    Finance Needles in a Consulting Reimagining
    haystack publications Isla Lipana & VisMIn
    Consulting
    Co.
    Taxwise or Special titles My Philippine
    Tax Foundation
    Otherwise Experience
    Client Alumni Page
    Accounting
    https://www.pwc.com/ph/en/taxwise-or-otherwise/2018/no-love-withheld-with-rr-6-2018.html 4/5
    7/5/2019 No love withheld with RR No. 6-2018

    Services Client Philippine


    Advisory resiliency
    Japanese
    Letter
    Business National
    Development Accounting
    Teacher
    PricewaterhouseCoopers Award
    Business
    M&A
    Services
    Challenge
    Philippines

    Industries

    © 2015 - 2019 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms,
    each of which is a separate legal entity. Please see www.pwc.com/structure for further details.

    Transparency notice Cookie information Legal disclaimer About site provider Contact us

    https://www.pwc.com/ph/en/taxwise-or-otherwise/2018/no-love-withheld-with-rr-6-2018.html 5/5

    You might also like