Special InTAX: January 2024 Issue 1 | Volume 1

Department of Finance

 

The Department of Finance (DOF) issued Revenue Regulations (RR) No. 16-2023, 21 December 2023, to further amend the provisions of Section 2.57.2 and 2.57.3 of RR No. 2-98 to impose a withholding tax (i.e., expanded withholding tax or EWT) on gross remittances made by electronic marketplace (e-marketplace) operators and digital financial services providers to sellers/merchants for good and services sold/paid through the former’s platform/facility, as follows:

Income Payment

Tax Implication

Gross remittances* of e-marketplace operators and digital financial services providers to the sellers/merchants for the goods/services sold/paid through their platform/facility

1% EWT on ½ of the gross remittances, except for the following cases where EWT is not applicable: If annual total gross remittances for the past taxable year has not exceeded Php500,000; or If the cumulative gross remittances in a taxable year has not yet exceeded Php500,000; or If the seller/merchant is duly exempt from or subject to a lower income tax rate pursuant to any existing law or treaty, but subject to submission of proof of entitlement to the e-marketplace operator or digital financial services provider concerned.

 

* Gross remittances = total amount received by an e-marketplace operator or digital financial services provider from a buyer/consumer, less: (a) sales returns and discounts, separately billed delivery or shipping fee and value-added tax (VAT); and (b) consideration for the use of the e-marketplace and/or digital financial services platform.

Other pertinent provisions in the RR are as follows:

• The e-marketplace operator or digital financial services provider are now constituted as withholding agents in case the payment for the sale of goods or services were made through their platform or facility.
• The withholding tax requirement on the collection of the e-marketplace operator applies to the following payment arrangements:

a) Thru the electronic wallet (e-wallet) of the e-marketplace operator being maintained by the online consumer;

b) Thru payment of the online buyer/consumer using the e-wallet feature of a digital financial services provider (e.g., mobile payment services, banking services or credit card) for the account of the e-marketplace operator; and

c) Payment in cash which is personally collected from the buyers/consumers by persons or entities, on behalf of the e-marketplace operator, and deposited or transferred to the account of the e-marketplace operator (e.g., cash on delivery or COD mode of payment).

There can be two instances of withholding tax when transactions are made in the platform/facility of the e-marketplace operator and the payment was made through a credit card: first, the credit card company shall withhold 1% EWT on ½ of the gross amount paid to the e-marketplace operator; and second, the e-marketplace operator shall withhold 1% EWT on ½ of the gross remittances to the sellers/merchants.

• The withholding tax requirement on the collection of the digital financial services provider applies on its remittances to sellers/merchants relating to the buyers/consumers’ payment of the goods and services whether purchased directly by such buyer/consumer from physical stores or through the website or mobile application of the seller/merchant. However, if the issuer and acquirer are different, the withholding tax shall only be imposed on the remittances by the acquirer to the seller/merchant. The “Issuer” refers to the digital financial services provider that holds or has the duty to safekeep the money or financial assets or mobile payment service on behalf of the buyer/consumer while the “Acquirer” is a digital financial services provider that processes the transactions of credit or debit card payments on behalf of the seller/merchant.

• The sellers/merchants referred to in this RR pertain to local sellers/merchants for purposes of imposing the creditable withholding tax or EWT. In all payments/remittances/transfers covered under this RR, the seller/merchant’s account shall, at all times, be under the BIR-registered tradename of the seller/merchant.

• The withholding tax imposed under this RR shall be in addition to existing withholding tax obligations being imposed to the e-marketplace operators and digital financial services providers such as, but not limited to, EWT on transportation contractors for the carriage of goods and merchandise, and EWT on commissions on the goods and services actually sold, aside from the consideration for the use of the digital platform.

• E-marketplace operators shall require from their respective sellers/merchants the submission of their Certificate of Registration (COR) or BIR Form No. 2023 as this is required before the sellers/merchants’ commencement of business in an e-marketplace platform.

• Illustrative examples for certain scenarios are available in the RR.
  

 

The RR shall take effect 15 days following its publication in the Official Gazette or in a newspaper of general circulation, whichever comes first.

(R.G.Manabat & Co. Notes: Published in the Manila Bulletin on 27 December 2023.)

Here is the link to the full text of the issuance: RR No. 16-2023.