• 1000

As featured on PhilStar:  Clarifying rules on reporting and payment of WFH penalties  


The onslaught of the current global COVID-19 pandemic has caused various travel restrictions and quarantines. Inevitably, working conditions have transitioned from onsite work to more flexible and remote work arrangements to ensure compliance with health protocols. This resulted in the rise of Work from Home (WFH) arrangements. This is true even for the Registered Business Enterprises (RBEs) in the Information Technology-Business Process Management (IT-BPM) sector who are mostly Philippine Economic Zone Authority (PEZA) - registered enterprises (i.e., entities that are subject to the requirement of performing their registered activities within the ecozone). Now, with the government’s efforts to ease restrictions to help foster economic growth, regulations are in place to limit the allowed number of people on WFH for IT-BPM RBEs registered with PEZA and clarify rules on reporting and payment of penalties on the breach of the WFH threshold. 

Previous policy on WFH penalty computation

The Fiscal Incentives Review Board (FIRB) issued FIRB Resolution No. 19-21 dated 2 August 2021 which effectively allowed IT-BPM RBEs to conduct WFH for up to 90% of the total workforce until 31 March 2022. According to this rule, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 23-2022 which guides the applicable penalties in cases where the WFH threshold has been breached. Based on this issuance, such breach shall be meted with a suspension of income tax incentive on the revenue corresponding to the months of non-compliance. This BIR issuance considers annual net taxable income to arrive at the monthly net taxable income to be subjected to regular corporate income tax (RCIT) for the purpose of implementing the WFH penalty.

Applicable WFH Threshold

Recently, the FIRB issued FIRB Resolution No. 017-22 dated 21 June 2022 that allows WFH from 1 April 2022 until 12 September 2022 without adversely affecting their fiscal incentives under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act. Based on this issuance, the number of employees under WFH arrangement shall not exceed 30% of the total workforce of the RBEs, while the remaining 70% shall render work within the geographical boundaries of the PEZA ecozone, among other conditions. It provides that the total workforce refers to the total employees directly or indirectly engaged in the registered project or activity of the RBE but excludes third-party contractors rendering janitorial or security services and other similar activities. The latest issuance on the matter is FIRB Advisory 007-2022 which circularizes a memorandum of the FIRB Chairperson that provides for a provisional extension of the existing 30% WFH-70% onsite arrangement for IT-BPM RBEs under FIRB Resolution No. 017-22 effective 13 September 2022 until the FIRB decides on the PEZA’s request to extend the WFH arrangement.   

Rules on reporting and payment of WFH penalty

Following FIRB Resolution No. 017-22, the BIR issued RMC No. 120-2022 which lays down additional guidelines and procedures on the manner of payment of penalty on WFH threshold violations from 1 April 2022 to 12 September 2022, as follows: 

  • The issuance provides that IT-BPM RBEs in violation of the WFH threshold shall pay the penalty using a BIR Form No. 0605 on or before the due date prescribed for the filing or payment of quarterly income tax, subject to adjustment upon the filing of the annual income tax return (ITR).  RBEs with violations shall continue to file and pay quarterly ITR following their usual procedure of computation of the tax due as if no violation was committed. Accordingly, a separate computation for the penalty for breach of the WFH arrangement shall be provided in an additional schedule to be attached to BIR Form No. 0605 to present the actual tax due. While not expressly provided, this implies quarterly payment of the WFH penalty, subject to adjustment the guidelines to operationalize it, however, are not yet available. 
  • Based on this issuance, non-compliance with FIRB Resolution No. 017-22 for at least one day may result in the suspension of tax incentives for the month when the violation took place.
  • Violations committed beyond 13 September 2022 onwards may subject the RBEs to applicable taxes. There are no enumeration and definitions of what the applicable taxes are being referred to as penalty for violations after 13 September 2022. The application of this provision may have been tolled by the indefinite extension of the 30% WFH-70% onsite policy per FIRB Advisory 007-2022.
  • It must be noted that no guidance has been given yet by the BIR if the current WFH penalty computation and compliance requirements per RMC No. 120-2022 are extended in view of FIRB Advisory 007-2022.

It is crucial for significant policies such as the WFH for IT-BPM RBEs to not only be consistently implemented and enforced by the various government agencies concerned but to also be aligned with current procedures. It is clear even from issuances as early as RMC No. 23-2022 that the RCIT penalty for breaching the WFH threshold should consider net annual taxable income based on the annual ITR which is considered as the final adjustment return covering the total taxable income for the preceding calendar or fiscal year, pursuant to Section 76 of the Tax Code, as amended.

Now, pursuant to RMC No. 120-2022, penalties are to be computed quarterly. However, there are no guidelines on how to recoup possible overpayments of penalties as these are based on quarterly balances of sales and allowable deductions which may be subject to adjustments. Thus, taxpayers may be at a loss on how adjustments that arise after payment of penalties would affect WFH penalty payments, especially if such adjustments would ultimately lead to a lesser or perhaps even no penalty after all. It would be less burdensome if IT-BPM RBEs who have overpaid WFH penalties will be allowed to recover such overpayments via income tax credits. Indeed, it would be helpful if regulators can provide the needed clarification soonest so that IT-BPM RBEs can prepare the necessary documents, examine their records, and avail of means to recover excess payments (if any), in preparation for annual ITR filing. While the extension of the 30% WFH-70% onsite policy is a welcome development, clarifying penalty imposition and recovery of overpaid penalties would greatly benefit the industry players that have undoubtedly contributed significantly to the country's economy even during the pandemic.


Lyndon Pedro Jay B. Melchor, Jr.
KPMG in the Philippines

Lyndon Pedro Jay B. Melchor, Jr. is a Supervisor from the Tax Group of KPMG in the Philippines (R.G. Manabat & Co.), a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in Transfer Pricing Practice and General Corporate Tax Practice by the International Tax Review. For more information, you may reach out to Lyndon Pedro Jay B. Melchor, Jr through ph-kpmgmla@kpmg.com, social media, or visit www.home.kpmg/ph.

This article is for general information purposes only and should not be considered 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 in the Philippines.