topic outline taxation of individuals engaged in providing services under a service contract with no...

TOPIC OUTLINE• Taxation of Individuals Engaged in Providing Services

under a Service Contract with no Employer-Employee Relationship

• Revenue Regulations No. 19-2011• Revenue Regulations No. 6-2012• Revenue Regulations No. 8-2012• Revenue Memorandum Circular No. 23-2012

Presented by:ROSANA P. SAN VICENTEChief, Withholding Tax Division

July 23, 20121

Taxation of Individuals Engaged in Providing Services under a Service Contract with no Employer-Employee Relationship

Registration Requirement:

Section 236 of the Tax Code –

“(A) Requirements.- Every person subject to any internal revenue tax shall register once with the appropriate Revenue District Officer:

(1) Within ten (10) days from the date of employment, or(2) On or before the commencement of business, or(3) Before payment of any tax due, or(4) Upon filing of a return, statement or declarations as required

in this Code.”

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Registration Requirement:

BIR Form to be accomplished –

BIR Form 1901, to be submitted to the RDO having jurisdiction over the place where the service is being rendered, with the following attachments:

> Birth Certificate or any document showing name, address and birth date of the individual;> Contract of Service /Job Order> Proof of payment of Annual Registration Fee of P500 [Sec. 236(B) of the Tax Code]

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Invoicing Requirement:

Section 237 of the Tax Code –

“Sec. 237. Issuance of Receipts or Sales or Commercial Invoices.- All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service: Provided, however, That in the case of sales, receipts or transfers in the amount of One hundred pesos (100.00) or more, or regardless of amount, where the sale or transfer is made by a

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Invoicing Requirement: cont…

person liable to value-added tax to another person also liable to value-added tax; or where the receipt is issued to cover paymentmade as rentals, commissions, compensation or fees, receipts or invoices shall be issued which shall show the name, business style, if any, and address of the purchaser, customer or client; Provided, further, That where the purchaser is a VAT-registered person, in addition to the information herein required, the invoice or receipt shall further show the Taxpayer identification Number (TIN) of the purchaser.”

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Invoicing Requirement: cont…

“The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time the transaction is effected, who, if engaged in business or in the exercise of profession, shall keep and preserve the same in his place of business for a period of three (3) years from the close of the taxable year in which such invoice or receipt was issued, while the duplicate shall be kept and preserved by the issuer, also in his place of business, for a like period.”

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Invoicing Requirement: SAMPLE OFFICIAL RECEIPT

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BIR Form to accomplish

BIR Form No. 1906 –Application for Authority to Print Receipts and Invoices, to be filed with the RDO where the individual is registered, with the following

attachments:

> Certificate of Registration> Proof of Payment of RF, current> Final and clear sample of Receipt/Invoice;> Previous ATP (for additional SI/OR to be printed);> Last booklet printed (for additional SI/OR to be

printed)8



Can the issuance of SI/OR be dispensed with?

> Under Sec. 237, the Commissioner may, in meritorious cases, exempt any person subject to an internal revenue tax from the compliance with the issuance of SI/OR

How?

The individual shall apply for the “substituted issuance of OR” pursuant to the provisions of RR 14-2003.

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Sec. 2 of RR 14-2003 – inserting new provisions under RR 2-98, as amended –“Sec. 5.128. xxxxxF) Substituted Official Receipt. - For sellers of services whose gross receipts have been subjected to the withholding of the 3% percentage tax, they shall be exempted from the obligation of issuing duly registered non-VAT receipts covering their receipt of payments for services sold. In lieu thereof, the issued “Certificate of Final Tax Withheld at Source” (BIR Form No. 2306), for payee with just one payor, or “Certificate of Creditable Tax Withheld at Source” (BIR Form No. 2307), for payee with several payors, shall be constituted and treated as the substituted official receipt, pursuant to the provisions of Section 237 of the Code” 10



Sec. 3 of RR 14-2003 – inserting new provisions under RR 2-98, as amended –“Sec. 9.245. xxxxxF) Substituted Official Receipt. - For sellers of services whose gross receipts have been subjected to 12% final VAT, they shall be exempted from the obligation of issuing duly registered VAT official receipts covering their receipt of payments for services sold. In lieu thereof, the issued “Certificate of Final Tax Withheld at Source” (BIR Form No. 2306), for payee with just one payor, or “Certificate of Creditable Tax Withheld at Source” (BIR Form No. 2307), for payee with several payors, shall be constituted and treated as the substituted official receipt, pursuant to the provisions of Section 237 of the Code”

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Seller of services whose gross receipts were subjected to withholding of 3% percentage tax/12% VAT are exempted from issuing Non-VAT/VAT receipts. In lieu thereof, the following shall be constituted and treated as the substituted OR:

“Certificate of Final Tax Withheld at Source” (BIR Form No. 2306) - for payees with just one payor;

“Certificate of Creditable Tax Withheld at Source” (BIR Form No. 2307) - for payees with several payors

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How will the payor know that the payee will avail of the “substituted OR” option?

Payee is required to submit to the withholding agent-payor a “Notice of Availment of the Option to Pay the Tax through the

Withholding Process”, copy-furnished Revenue District Offices having jurisdiction over the payor and the payee

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BIR FORM NO.__________Republic of the Philippines

Department of FinanceBUREAU OF INTERNAL REVENUE

Revenue Region No. ___Revenue District Office No. ___

______________________________________________________________________________________________

NOTICE OF AVAILMENT OF THE OPTION TO PAY THE TAXTHROUGH THE WITHHOLDING PROCESS

Date __________________Name of Taxpayer ______________________________________________________Address ______________________________________________________________Taxpayer Identification Number __________________________________________Class of Profession or Calling ___________________________________________

CERTIFICATIONThis is to certify that I am availing of the option to pay my percentage tax/VAT through the withholding process pursuant to the provisions of REVENUE REGULATIONS NO. ____; that, in accordance with the saidRegulations and Revenue Regulations No. 2-98, as amended, gross receipts on account of my sale of goods/service shall be withheld at 3% Percentage Tax or 10% VAT, as the case may be, by the withholding agent-payor; that, such tax withheld shall be constituted as a final tax provided that my source of incomecomes only from one payor, otherwise, the same shall be considered creditable which shall be applied against the total percentage taxes/VAT due for the month when such tax was withheld; and that, I have executed this Declaration under penalty of perjury, pursuant to the provisions of Section 267, National Internal Revenue Code of 1997.____________________________Taxpayer’s Name and Signature 14


Invoicing Requirement:Withholding agent-payor is required to prepare BIR Form Nos. 2306 or 2307 in quadruplicate, to be distributed as follows: (Note: BIR Form 2306 must be signed by both payor and payee)

2306

2307

2 copies for the payee

1 copy to the payor

1 copy to be attached by the payor to BIR Form 1600

2 copies for the payee

1 copy to the payor

1 copy to be attached by the payor to BIR Form 1600

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Bookkeeping Requirement:

“Sec. 232. Keeping of Books of Accounts.-(A) Corporations, Companies, Partnerships or Persons Required to Keep Books of Accounts.- All corporations, companies, partnerships or persons required by law to pay internal revenue taxes shall keep a journal and a ledger or their equivalents: Provided, however, That those whose quarterly sales, earnings, receipts, or output do not exceed Fifty thousand pesos (P50,000) shall keep and use simplified set of bookkeeping records duly authorized by the Secretary of Finance wherein all transactions and results of operations are shown and from which all taxes due the Government may

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readily and accurately be ascertained and determined any time of the year: Provided, further, That corporations, companies, partnerships or persons whose quarterly sales, earnings, receipts or output exceed One hundred fifty thousand pesos (P150,000), shall have their books of accounts audited and examined yearly by independent Certified Public Accountants and their income tax returns accompanied with a duly accomplished Account Information Form (AIF) which shall contain, among others, information lifted from certified balance sheets, profit and loss statements, schedules listing income-producing properties and the corresponding income therefrom and other relevant statements.”

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Registration of Books of Accounts – included in BIR Form 1901, the registered books of accounts shall be used until all the pages are consumed. However, if the taxpayer wishes to use separate books of accounts for every calendar year, the registration thereof must be made on or before December 31 of each year.

Preservation of Books of Accounts - … shall be preserved for a period beginning from the last entry in each book until the last day prescribed by Section 203 within which the Commissioner is authorized to make assessment.

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Filing of Required Tax Returns:

Income Tax Return –

BIR Form Due Dates

BIR Form No. 1701

On or before April 15 following the close of calendar year

BIR Form No. 1701Q

1st Quarter –On or before April 15 of the current CY;2nd Qtr - on or before August 15 of the current year3rd Qtr – on or before November 15 of the current year

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Percentage Tax Return –

Value Added Tax Return -

BIR Form Due Dates

BIR Form No. 2551 M

Within twenty days following the close of the month

BIR Form Due Dates

BIR Form No. 2550 M

Within twenty days following the close of the month

BIR Form No. 2550Q

Within twenty-five days following the close of the taxable quarter

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Option to Avail of the Substituted Filing of Percentage Tax Return/VAT return –

Who is qualified to avail?Individual with only one payor

How to avail of such option?

Individual must file with the RDO where he/she is registered the following:1. Notice of Availment of the Option to Pay the Tax Through the Withholding Process”,;2. Notice of Availment of the Substituted Filing of Percentage Tax Return 21





________________________________________________________________________________

NOTICE OF AVAILMENT OF THE SUBSTITUTED FILING OFPERCENTAGE TAX RETURN

Date __________________Name of Taxpayer ______________________________________________________Address ______________________________________________________________Taxpayer Identification Number __________________________________________Class of Profession or Calling/Business __________________________________

CERTIFICATIONThis is to certify that I am a NON-VAT registered person pursuant to the provisions of REVENUE REGULATIONS NO. ____; that, in accordance with the said Regulations, I have availed of the “Optional Registration under the 3% Final Percentage Tax Withholding, in lieu of the 3% Creditable Percentage Tax Withholding” System, in order to be entitled to the privileges accorded by the“Substituted Percentage Tax Return System” prescribed thereunder; that, this Declaration is sufficient authority of the Withholding Agent to withhold 3% Percentage Tax from payments to me on my sale of goods and/or services, in lieu of the said 3% Creditable Percentage Tax Withholding; and that, I have executed this Declaration under penalty of perjury pursuant to the provisions of Section 267, National Internal Revenue Code of 1997.____________________________Taxpayer’s Name and Signature

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________________________________________________________________________NOTICE OF AVAILMENT OF THE SUBSTITUTED FILING OF

VALUE-ADDED TAX RETURNDate __________________

Name of Taxpayer _________________________________________________Address _________________________________________________________Taxpayer Identification Number _____________________________________Class of Profession or Calling/Business______________________________

CERTIFICATIONThis is to certify that I am a VAT-registered person pursuant to the provisions of REVENUE REGULATIONS NO. ____; that, in accordance with the said Regulations, I have availed of the “Optional Registration under the 12% Final VAT Withholding, in lieu of the 12% Creditable VAT withholding,” in order to be entitled to the privileges accorded by the “Substituted VAT Return System” prescribed thereunder; that, this Declaration is sufficient authority of the withholding agent to withhold 12% VAT from payments to me on my sale of goods and/or services; that, I have executed this Declaration under penalty of perjury pursuant to the provisions of Section 267, National Internal Revenue Code of 1997.____________________________Taxpayer’s Name and Signature 23


SWORN DECLARATION AND WAIVER OF THE PRIVILEGE TO CLAIMINPUT TAX CREDITS UNDER SECTION 110 OF THE TAX CODE

In accordance with the provisions of Sections 106 and 108 of the National Internal Revenue Code of 1997, I hereby voluntarily depose and say:

1. That I am a VAT-registered seller of goods and/or service;2. That I availed of the option to be taxed at 12% VAT;3. That I hereby waive my right/privilege to claim input tax credits provided under

Section 110 of the National Internal Revenue Code of 1997 that may be otherwise claimed against the output tax due on my sale of goods and/or services; and

4. That this waiver shall be effective until cancelled through the execution of a notice prepared for the purpose.

I hereby declare under penalties of perjury that the foregoing representations are true and correct and the waiver of right/privilege is voluntarily and knowingly made in accordance with the provisions of the National Internal Revenue Code of 1997.

_______________________Date and Name of Taxpayer

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___________________________________________________________________________________NOTICE OF CANCELLATION OF AVAILMENT OF THE OPTION TO PAY THE TAX

THROUGH THE WITHHOLDING PROCESSDate __________________

Name of Taxpayer ______________________________________________________Address _______________________________________________________________Taxpayer Identification Number __________________________________________Class of Profession or Calling/Business _____________________________________

CERTIFICATION

This is to certify that in accordance with the REVENUE REGULATIONS NO.____, I have availed of the “Option To Pay The Tax Through The Withholding Process”; that, I am hereby cancelling and withdrawing my said NOTICE OF AVAILMENT TO PAY THE TAX THROUGH THE WITHHOLDING PROCESS effective ___________________, 200__; and that, I have executed this Declaration under penalty of perjury, pursuant to the provisions of Section 267,National Internal Revenue Code of 1997.____________________________Taxpayer’s Name and Signature

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________________________________________________________________________NOTICE OF CANCELLATION OF AVAILMENT OF

THE SUBSTITUTED FILING OF PERCENTAGE TAX / VAT RETURNDate _______________

Name of Taxpayer ______________________________________________________Address ______________________________________________________________Taxpayer Identification Number __________________________________________Class of Profession or Calling/Business __________________________________Type of Registration [ ] VAT Taxpayer [ ] Non-VAT Taxpayer

CERTIFICATIONThis is to certify that I am a Non-VAT/VAT -registered person pursuant to the provisions of REVENUE REGULATIONS NO. ____; that, in accordance with the said Regulations, I have availed of the “Optional Registration under the 3% final Percentage Tax on the Sale of Goods and/or Service /10% final VAT Withholding on the Sale of Goods and/or Service” in order to be entitled to the privileges accorded by the “Substituted Filing of Percentage Tax/VAT Return” prescribed thereunder; that, I am hereby cancelling and withdrawing my said NOTICE OF AVAILMENT OF THE SUBSTITUTED FILING OFPERCENTAGE TAX/VAT RETURN SYSTEM, effective ___________________, 200__; and that, I have executed this Declaration under penalty of perjury, pursuant to the provisions of Section 267, National Internal Revenue Code of 1997.____________________________Taxpayer’s Name and Signature 26



Notarized Sworn Declaration –

• To be prepared in three copies (2 for the BIR & 1 for the TP, but shall be photocopied so that all his current income payors shall be provided with a copy);

• To be submitted to the Collection Division having jurisdiction over the RDO where the individual is registered;

• To be submitted fifteen (15) days after the end of the month where the individual’s income reaches P720,000 or June 30 of each year, whichever comes earlier. (However, if after June 30, the individual’s income reaches P720,000, another sworn declaration must be submitted)

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> Register with BIR using BIR Form 1901;> Pay Annual Registration Fee of P500;> Keep Books of Accounts;> Issue Official Receipt for every receipt of

income (not applicable to those who opted to pay PT/VAT through the withholding

process);> File Required Tax Returns and information

return;> Submit required document as may be required in any future revenue issuance

SUMMARY OF THE TAX OBLIGATIONS OF INDIVIDUALS HIRED UNDER “CONTRACT OF SERVICE”

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REQUIRE THE INDIVIDUAL TO REGISTER WITH THE BIR AS INDIVIDUAL ENGAGED IN BUSINESS OR PRACTICE OF PROFESSION, WHICHEVER IS APPROPRIATE

CERTIFICATE OF REGISTRATION (COR) OF THE INDIVIDUAL ISSUED BY THE BIR UPON HIS REGISTRATION

OFFICIAL RECEIPT FOR EVERY PAYMENT OF INCOME/ BIR FORM 2306 DULY-SIGNED BY BOTH PAYOR AND PAYEE

COPY OF THE SWORN DECLARATION OF INCOME DULY RECEIVED BY THE BIR

WHAT THE HIRING AGENCY SHOULD REQUIRE FROM THE INDIVIDUALS HIRED UNDER THE “CONTRACT OF SERVICE”/ “JOB ORDER” SCHEME?

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INDIVIDUALS HIRED UNDER “CONTRACT OF SERVICE”

APPLICABLE WITHHOLDING TAX:

EWT PRESCRIBED UNDER SECTION 2.57.2 OF RR NO. 2-98

DEPENDS ON THE NATURE OF SERVICE RENDERED

IF THE NATURE OF SERVICE IS NOT AMONG THE EXISTING ENUMERATIONS UNDER RR NO. 2-98, AS AMENDED, APPLY THE REQUIRED WITHHOLDING AS GOVERNMENT ENTITY UNDER SEC. 2.57.2 (N) OF RR NO. 2-98, AS AMENDED

VAT OR PERCENTAGE TAX WITHHOLDING SHALL ALSO APPLY (REFER TO THE GOVERNMENT EXPENSE CHART)

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What are the objectives of RR 19-2011?1. To prescribe the use of new Income Tax

Returns (Annual) 2. Modify the provisions under RMC 57-2011

What are the new ITR forms?3. BIR Form 17004. BIR Form 17015. BIR Form 1702

REVENUE REGULATIONS NO. 19-2011

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BEFORE (BIR Form No. 1700) NOW (BIR Form No. 1700)

Marking of an “X” on all applicable boxes

Shading of all applicable circle

3 choices for ATC (II011; II 040; II041

2 choices for ATC (II041; II011)

No question as to “joint filing” With question as to “joint filing”

Information can be provided either through script writing or print

All information is required to be written in all capital letters on each box provided

No question as to “gender” With question as to “gender”

Email address is not being asked

Space is provided for the email address

Three digits for the branch code Four digits for the branch code


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For the information on qualified dependent children, there is no question if mentally or physically incapacitated

For the information on qualified dependent children, there is a question if mentally or physically incapacitated

Personal and additional exemption is lumped under one data field

Separate fields were provided for personal and additional exemption

No Part IV – the return is composed of three (3) parts only.

With Part IV – Supplemental Information

No space provided for “new address” in case the registered address is no longer the current address

Space is provided for the “new address” of the taxpayer, in case the registered address is no longer the current address


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What are the information required under Part IV?• Gross Income/Receipts subjected to Final Withholding

Tax on income• Gross Income/Receipts exempt from income tax

Under RMC 57-2011, declaration of information required under Part IV of the tax return is optional for calendar year 2011 but for 2012 onwards, the disclosure of these information is mandatory.

Under RR 19-2011, it amended RMC 57-2011 wherein the filling-up of the fields provided under Part IV is made optional. However, in case information shall be provided, the same must be properly documented and/or substantiated


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Marking of an “X” on all applicable boxes

Shading of all applicable circle

3 choices for ATC (II011; II 040; II041

2 choices for ATC (II041; II011)

No question as to “joint filing” With question as to “joint filing”

Information can be provided either through script writing or print

All information is required to be written in all capital letters on each box provided

No question as to “gender” With question as to “gender”

Email address is not being asked

Space is provided for the email address

Three digits for the branch code Four digits for the branch code


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For the information on qualified dependent children, there is no question if mentally or physically incapacitated

For the information on qualified dependent children, there is a question if mentally or physically incapacitated

Personal and additional exemption is lumped under one data field

Separate fields were provided for personal and additional exemption

Part III-Details of Payment Part III- Availment of Tax Income Incentives/Exemptions

No Part IV – the return is composed of three (3) parts only.

With additional parts (Part IV –IX) IV- Details of PaymentV- Breakdown of IncomeVI-SchedulesVII-Details of Income Tax Incentives/ExemptionsVIII- Applicable to Estate and TrustIX-Supplemental Information

Amended the EWT rate applicable on the purchase of minerals, mineral products and quarry resources – Section 2.57.2 (T) of RR 2-98, as amended


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Before Now

10% 5%

RR 7-2007 RR 6-2012

Amended RR 5-2011 –


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RR 5-2011 RR 8-2011

Uniform and clothing allowance not exceeding P4,000 per annum

Uniform and clothing allowance not exceeding P5,000 per annum

Subject of this RMC - Reiteration of the responsibilities of employees and officials of government offices for the withholding of taxes on certain income payments subject to withholding taxes and the imposition of penalties for non-compliance thereof

What are these responsibilities?1. register;2. require employee to accomplish registration/update form;3. withhold;4. remit;5. do the year-end adjustment (withhold deficiency tax or refund

excess tax withheld);6. Issue certificate of income paid and tax withheld (BIR Form 2316;

2306; 2307)7. file annual information return

REVENUE MEMORANDUM CIRCULAR NO. 23-2012

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Penalties for Non-Compliance:


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Violation Penalties Legal Basis

Non-withholding of required tax

Amount of tax not withheld Sec. 251, Tax Code

20% interest Sec. 249, Tax Code

Fine of not less than P10,000 and suffer imprisonment of not less than I year but nor more than 10 years, upon conviction

Sec. 255, Tax Code

Under-withholding of tax

Amount of Under-withheld tax

Sec. 251, Tax Code




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Non-remittances of taxes withheld

Amount of tax not remitted

Sec. 251, Tax Code


Fine of not less than P10,000 and suffer imprisonment of not less than I year but nor more than 10 years, upon conviction

Sec. 255, Tax Code

Late remittance /Late filing of withholding tax returns

25% surcharge on the amount remitted late

Sec. 248, Tax Code




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Failure to refund excess taxes withheld on compensation

Amount of tax not refunded20% interest

Sec. 252, Tax CodeSec. 249, Tax Code

Fine of not less than P10,000 and suffer imprisonment of not less than 1 year but not more than 10 years, upon conviction

Sec. 255, Tax Code

Failure to file withholding tax return or certain information return

P1,000 for each failure but not to exceed P25,000 during a calendar year

Sec. 250, Tax Code


Sec. 255, Tax Code



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Failure to supply correct and accurate information


Sec. 255, Tax Code

Violations of withholding tax regulations committed by Public Officers charged with the duty to deduct and withhold any internal revenue tax and to remit the same

Penalty of not less than P5,000 but not more than P50,000 or suffer imprisonment of not less than 6 months and 1 day but not more than 2 years, or both, for each act or omission, upon conviction

Sec. 272, Tax Code



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Acts or omissions penalized under the Tax Code committed by any corporation, association or general co-partnership

Fine of not less than P50,000 but not more than P100,000, for each act or omission, upon conviction

Sec. 256, Tax Code

Violations of any provision of the Tax Code or any rule for which no specific penalty is provided

Penalty of P1,000 or suffer imprisonment of not more than 6 months, or both, for each act or omission, upon conviction

Sec. 275, Tax Code

ADDITIONS TO THE TAX

•Liable for the payment of 25% surcharge for any of the following violations:

Section 248

Filing of tax return with an internal revenue other than

those with whom the return is required to be filed

Failure to pay the full or part of the amount of tax shown on any return required to be

filed under the provisions of the Tax Code , or the full amount of the tax due for which

no return is required to be filed, on or before the date prescribed for its payment

Failure to pay the deficiency tax within the time prescribed for its payment in the notice

of assessment

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ADDITIONS TO THE TAX

•Liable to the payment of interest on any unpaid amount of tax at the rate of twenty percent (20%) per annum, until the amount is fully paid

Section 249

•Liable to the payment of the tax supposed to be withheld but not withheld, or tax withheld but not remitted, inclusive of penalties for such failures

Section 251

•Liable to penalty equivalent to the amount not refunded to the employee , in case of failure to refund to the employee the excess tax withheld

Section 252

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CRIMINAL LIABILITIES

•Failure to file return, supply correct and accurate information, pay tax, withhold and remit tax and refund excess tax withheld on compensation – criminal penalty of not less than P10,000.00 or imprisonment of not more than 1 year but not more than 10 years

Section 255

•Penal Liability of Corporations/associations or general co-partnerships for any of the acts or omissions penalized under the Tax Code - Fine of not less than Fifty thousand pesos (P50,000) but not more than One Hundred Thousand pesos (P100,000)

Section 256

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CRIMINAL LIABILITIES

• Failure to withhold and remit tax withheld committed by a government officer or employee charged with the duty to withhold- Fine of not less than P5,000 but not more than P50,000 or imprisonment of not less than 6 months and I day but not more than 2 years, or both

Section 272

• Violation of other provisions of the Tax Code or revenue regulations – compromise penalty of P1,000

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Thank you

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topic outline taxation of individuals engaged in providing services under a service contract with no...

Documents

service contract

tax code

internal revenue tax

valueadded tax

tax divisionjuly

nature of service

a4 taxation of individuals

person subject