With vaccines and boosters being continuously administered, borders are slowly re-opening and airports are starting to be filled with travelers again. In many cases, companies now allow their employees to work from home or from wherever they want. With remote working comes changes to the Philippine individual tax landscape as well.
As vigilant taxpayers, we look back at how the regulators responded to the various circumstances of the past three income tax filing seasons, all of which are unique from one another.
Year 2019 (The customary)
This was the year after the implementation of Republic Act (RA) No. 10963 also known as the Tax Reform for Acceleration and Inclusion (TRAIN) Law. While we were adjusting to the changes brought about by TRAIN, we were also waiting for the Bureau of Internal Revenue (BIR) to issue implementing guidelines and revised BIR Forms. TRAIN provided individuals with a restructured personal income tax table. The changes included the option to avail of the 8% flat income tax rate and the use of the enhanced BIR Firm No. 1701 or the annual income tax return for mixed income earners, estates and trusts.
The BIR was also gradually expanding its digital platforms. They provided online web and mobile applications as additional channels of payment for internal revenue taxes.
However, one of the highlights during TRAIN implementation was the issuance of Revenue Memorandum Circular (RMC) No. 116-2019 which removed the preferential tax rate for alien individuals employed in the Philippines by Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies, Offshore Banking Units and Petroleum Service Contractors and Subcontractors. The RMC also provided additional requirements such as labeling the Certificate of Compensation Payment / Tax Withheld for Compensation Payment With or Without Tax Withheld (BIR Form No. 2316) of secondees with “seconded employees.” The additional administrative work was suggestive of how the BIR looked to increase its efforts in securing taxpayer information through additional disclosures.
Year 2020 (The turning point)
With a promise of a more prosperous new year, 2020 was an upset. Many struggled with the detrimental impact of COVID-19 on businesses and employment. Republic Act (RA) No. 11469 also known as the Bayanihan to Heal as One Act (Bayanihan One) was enacted to contain local transmission and mobilize assistance to affected sectors.
Bayanihan One did not forget about the taxpayers. It addressed the difficulties in filing returns and paying taxes due to lockdowns by issuing RR No. 11-2020. The tax filing and payment deadline for 2019 annual income tax returns was extended to 14 June 2020 (initially extended to 15 May 2020) without imposition of penalties to taxpayers. Early retirees were also given leniency as to the taxability of their retirement benefits subject to conditions.
The BIR also allowed the use of electronic signatures and reiterated the availability of the eAFS Facility as an option in submitting hard copies of electronically filed AITR and its attachments. The BIR’s technology was helpful to taxpayers, except when systems were down.
RMC No. 83-2020 attempted to address mobility and cross-border issues, providing guidelines on the application of the relevant treaty provisions and allocation of taxing rights between treaty partners in relation to international tax issues affecting stranded individuals in the country and their foreign employers. These issues include double taxation and the unintended creation of a permanent establishment (PE). While the RMC provided some answers to address treaty issues, questions on taxation of non-treaty country residents and applicability of domestic tax rules remained.
Year 2021 (The resurgence)
Unlike the previous year, there was no extension for tax filing for 2020. The government needed funds to sustain its programs and there may have been a conclusion that people have adjusted to the situation. RMC No. 46-2021 however, provided an allowance for filed returns to be amended on or before 15 May 2021 without imposition of penalties. Taxpayers whose amended returns will result in overpayment of taxes can opt to file for refund or carry over the overpaid tax as credit against the tax due for the same tax type in the succeeding period.
As no further guidelines were provided in relation to cross-border individuals, questions on the tax impact of work from home and work from anywhere continue to grow. The BIR issued Revenue Memorandum Order (RMO) No. 14-2021 to streamline the procedures and documents for the availment of treaty benefits. Lesser administrative requirements would have been welcomed as a relief. Moreover, clarification on how the rules apply to foreign nationals who have no constituted Philippine withholding agents would have been helpful.
More recently, the BIR issued RR No. 20-2021 providing guidelines on the taxation of foreign employees of Philippine Offshore Gaming Operations (POGO). The regulations require them to secure a Tax Identification Number (TIN) and pay 25% final withholding tax on gross income subject to certain provisions.
To digitize taxpayer services, the BIR also released the Mobile TIN Verifier App. The app is a service channel for taxpayers to send online TIN validation and inquiry and receive real-time response from BIR Offices. However, limitations on the extent of support provided and insufficient live agents make the use of the app less effective.
Year-end payroll activities are the final challenge to tackle. Changes to the year-end payroll reporting requirements include RMC No. 111-2021 that provides for the latest Offline Electronic Bureau of Internal Revenue Forms (eBIRForms) Package Version 7.9.2, and RMC No. 117-2021 which clarifies the manner of submission of BIR Form Nos. 2307 (Certificate of Creditable Tax Withheld at Source) and 2316 (Certificate of Compensation Payment/Tax Withheld for Compensation Payment With or Without Tax Withheld) under RR No. 16-2021. A tax advisory was issued as well to inform taxpayers that the BIR shall accept submission of the BIR Form No. 2316 without the employee’s signature provided that the same is signed by the authorized representative of the employer. Given the spike in Omicron cases, the BIR has directed its offices and agent banks to accept out of district submissions in areas under Alert Level 3.
Taxpayers are filled with questions for the future - will the BIR allow the continued use of electronic signatures? Will there be more digital payment facilities available? Will there be improvements to increase the reliability of the current tax filing system? In your experience, how many of these questions and scenarios match yours from a payroll and tax perspective?
We can expect the BIR to stick with the tax filing and payment deadlines as movement restrictions continue to ease up. The BIR does try to make it easier for taxpayers to file their income tax returns as it results in more collection. It is also active in attempting to address gray areas through consultations with the private and public sectors and issuance of RMCs. However, we find that at times, the circulars themselves cause further confusion requiring taxpayers to come up with their own interpretations.
Companies nowadays are undergoing a lot of transformations – reviewing compensation benefits and policies, addressing the workforce needs and considering remote or hybrid work arrangements. Other factors such as environment, social and governance (ESG) issues, health and safety, are also emerging as agents of change. The policies and programs therefore need to be agile with the eccentricities of these factors particularly in the changes in the income tax rules.
Theodore Roosevelt once said, “The more you know about the past, the better prepared you are for the future.” 2022 is here and it would do us good to prepare based on the facts of what has already transpired the past couple of years. We can’t ignore the massive changes in the income tax rules and they are becoming certainly more complex. It is important for us to look back and understand where we succeeded or went wrong in terms of compliance and of course, how to resolve these problems in the future. There are still a lot of things that the BIR should look at to adapt fully to the new reality of income tax reporting, domestic and international tax regulations, and technological advancements, gradually but hopefully, soon, these can be implemented.
Karen Jane S. Vergara-Manese is a Partner, the Global Mobility Services Country Lead and the Immigration Practice Head and Vichellene L. Gandecila-Viernesto a Director from the Tax Group of KPMG R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International. The firm has been recognized in 2021 as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG RGM&Co.
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