BIR suspends Income Tax Incentives to RBEs violating Work-From-Home thresholds

21 June 2022
The Bureau of Internal Revenue (BIR) implements Memorandum Circular 23-2022, implements income tax suspension to registered business enterprises still implementing work-from-home (WFH) arrangements.

The Bureau of Internal Revenue (BIR) highlights a new course of action addressing all registered business enterprises (RBE) in the lnformation Technology - Business Process Management (IT-BPM) sector in the country, this new update introduces a suspension of Income Tax Incentives towards certain registered business enterprises due to their continued implementation of work-from-home (WFH) arrangements during the Covid-19 pandemic, by releasing Revenue Memorandum Circular (RMC) 23-2022 on March 9, 2022.  

The RMC highlights RBEs who demonstrate non-compliance with the conditions implemented under FIRB Resolution Nos. 19-21 and 23-21 are to be given a suspension of the income tax incentives on the revenue corresponding to the months of non-compliance. The RBE must pay the income tax using the regular rate of either twenty-five percent (25%) or twenty percent (20%), depending on the taxable net income of the months the RBE has had the violation. 

RBEs with no transactions relating to the regular income tax rate need to present the BIR Form 1702-MX, which will be used in the voluntary payment of the income tax due on the months with the reported violation. But if the RBE does have existing transactions relating to the regular income tax rate, they will need to make a voluntary payment through BIR Form 0605 and a bank-validated copy of which shall be attached in AITR to be filed. 

Updated Tax-Computation  

The computation for RBEs with no transactions and RBEs with transactions is as follows:  

Net Taxable Income* for the year/12 months ……………………………....                P xxxx.xx

Multiplied by the applicable rate of either 20% or 25% ……………………                      X%
Income Tax Due …............…………………………………………………………....                   P xxxx.xx

* Computations based on existing policies which is net of the allowable deduction

If the RBE cannot present a voluntary payment or if their voluntary payment is not sufficient, then they will be subjected to an audit following the Letter of Authority (LOA).

The circular then defined the term “workforce,” stating that it refers to the total employees that are directly or indirectly engaged in the registered project or activity of the RBE but does not include third-party contractors, including service contractors rendering janitorial or security services and other similar services.

The FIRB will then endorse the monthly reports (Annex “A”) submitted by Investment Promotion Agencies (IPA) about the violations committed by concerned RBEs to the BIR, addressed to the Assessment Service, Attention: Audit information, Tax Exemption and Incentives Division or thru email:

Procedures for RBEs 

  1. Audit lnformation, Tax Exemption and lncentives Division (AITElD)
    • To verify the corresponding Revenue District Office (RDO) code of the RBEs listed in the monthly report (Annex A) as endorsed by FIRB by matching the names with the BIR- Tax Registration System database.
    • To record the RBE's violations by accomplishing columns A to Q of Annex "8" per RDO jurisdiction.
    • To forward the partially accomplished Annex "8" to the concerned RDO/LTS using its dedicated office email address within ten (10) days from receipt of the last monthly report that completes the accounting period of the RBEs (i.e., Receipt of the December 2021 report of RBEs using the calendar year as the accounting period; Receipt of the January 2O22 report of RBEs where the taxable period is fiscal year ending January 31, 2022; etc.).
    • To maintain a database for the reports submitted by the RDO.
    • To provide the FIRB of the action taken on the violations committed by the RBEs within sixty (60) days from the statutory filing of the Annual Income Tax Return for taxable years 202L and 2022
  2. Revenue District Office (RDO) | Large Taxpayers Service (LTS)
    • To extract the Annual Income Tax Return filed and other pertinent documents (i.e., Audited Financial Statements, etc.) from the Bureau's database upon receipt of the partially accomplished Annex "B" from AITEID)
    • To check s if the RBE voluntarily paid the regular income tax due on the months it has reported violation and evaluate if the payment is correct based on declared data in the AITR and AFS (Audited Financial Statements). Suppose no payment was made or the submitted amount is not sufficient/correct. In that case, it is recommended they gather an issuance of a Letter of Authority to conduct an audit covering all internal revenue taxes.
    • To complete the fields provided in Annex "8" by filling-out columns R to Z within forty-five (45) days from receipt thereon. The status could either be "RBE paid the income tax due based on the regular income tax rate for the particular month it violated", or "issued LOA for the conduct of audit" if no voluntary payment is found in the filed AITR or if there is a discrepancy in the amount paid.
    • Completely the fully accomplished Annex "B" to AlTElD.

Five conditions for PEZA registered entities

RBEs of the IT-BPM sector who continue implementing WFH arrangements without adversely affecting their fiscal incentives until March 31, 2022 had to fulfil the following requirements:

1.) The number of employees under a WFH arrangement shall not exceed ninety percent (90%) of the total workforce of the RBE; Provided, that beginning January 1, 2022, the ceiling shall be reduced to seventy-five percent (75%) for the remainder of the period; Provided further, that if the State of Calamity due to COVID-19 is extended to any date beyond January 1, 2022, the ceiling shall be maintained at ninety percent (90%) until March 31, 2022.

2.) The number of computer laptops/other equipment of the RBE outside the ecozone should not exceed the number of its employees who are under WFH arrangement.

3.) Bonds shall be posted for all equipment (e.g. computer desktops and laptops) deployed by the RBE to their employees' homes, to ensure payment of taxes and duties if any such equipment is not returned to the site of the RBE after the WFH arrangement.

4.) Revenues from export as required shall be maintained regardless of the allowed ratio of employees who will work from home. Provided, that the current number of employees shall not be reduced regardless of whether the majority of their employees are working from home.

5.) The RBE shall comply with the reportorial requirements and site inspection, as may be required by the FIRB or lPA.

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