8/4/2019 Disposition of Creditable Withholding Taxes

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Disposition of creditable withholding taxes

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Disposition of creditable withholding taxes

ITR preparation reminder: Disposition of creditable withholding taxesby Fulvio D. Dawilan

For most taxpayers, the month of April is the deadline for the filing of the annual income tax returns and the payment of

the annual income taxes due. The law requires the filing of the annual income tax returns on or before the 15 th day of the

4th month following the close of the fiscal year. The taxes due are likewise required to be paid at the time the return is

filed. Since most taxpayers are using the calendar year, the deadline falls on the 15th day of April.

This cutoff date should not be missed, since doing so may entail an enormous cost on the part of the taxpayer. Failure to

file the tax return and pay the tax due on or before the deadline would result in a penalty of 25% of the tax due, regardless

of the number of days delayed. In addition, a 20% interest per annum would be imposed on the taxes due.

And yes, the computation of the annual income taxes due requires the preparation of a complicated income tax return.

Nonetheless, any information indicated by the taxpayer in the return is his representation and would be considered finalunless subsequently changed through an amendment. Thus, all information required in the return should be correctlyindicated.

And speaking of amendment, a taxpayer has every right to modify, change or amend a return that he hadalready filed. But while a previously filed return can be amended, taxpayers should not take comfort in thisremedy. Note that the Bureau of Internal Revenue may already issue a letter of authority for the examination oftaxpayers just after the deadline for the filing of the return. This would then bar a taxpayer from amending hisincome tax return.

Thus, it is still prudent to file the return on or before the prescribed deadline should already contain the correctand final information.

One important thing to consider is the proper disposition of excess creditable withholding tax credits. Because almost allsales transactions are now required to be subjected to withholding taxes by the payors, it is not unusual for taxpayers to

accumulate unutilized creditable withholding taxes at the end of the year.

For these excess payments, the taxpayer has the right to choose whether to ask for a refund (either in the form of cash or

tax credit certificate) or to carry over the excess to the succeeding taxable years. The option to carry over or claim as

refund is an alternative remedy. A taxpayer cannot opt to carry over, and at the same time get a tax refund for the excess

income taxes paid.

The authority to identify the option is a matter that lies exclusively within the sound discretion of the taxpayer himself. Thatoption can be indicated by marking the appropriate box in the income tax return. And once the option is exercised, the sameshall be considered irrevocable.

It should also follow that the treatment of the prior years unutilized excess income tax payments in the currentyear should be consistent with the choice made in the previous year. Thus, there is a need to refer to theincome tax return of the previous year to determine which option was taken.

If the option indicated in the previous years return was for a refund (either in the form of cash or tax creditcertificate), the excess amount should not be carried forward in the current year. Instead, the taxpayer shouldappl y for the refund within two years from the date of filing of the annual income tax return from which theexcess income tax payment was incurred.

On the other hand, if the option for the prior years excess income tax payment was to carry forward in the succeeding

years, there should be no other option but to carry it forward in the current year. Any remaining balance shall be added to

the current years excess and carried forward to the subsequent years until the said amount is fu lly utilized.

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8/4/2019 Disposition of Creditable Withholding Taxes

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However, since the taxpayer is free to make another choice for the excess income tax payments arising from the current

year, a situation may arise where the taxpayer may opt for a refund for the current years excess while continuing to carry

over the prior years excess to the subsequent years. There would then be two choices for the accumulated excess as of the

end of the current year.

Apparently, this situation is not addressed by the present income tax return form.

Whatever option the taxpayer chooses, to be considered valid, should ensure that the creditable withholding

taxes claimed comply with the requirements.

The most important of these requirements but which is usually taken for granted is the establishment ofthe fact that the withholding of taxes had actually been made by the payors. While it should be theresponsibility of the withholding agents to issue the required withholding tax certificates, this responsibility issometimes disregarded.

Since its the recipient of the income who suffers the consequences, it has to ensure that these certificates are made

available by the withholding agents

(The author is a tax partner at Punongbayan & Araullo, a member firm within Grant Thornton International Ltd. Forcomments and inquiries, please e-mailtheauthoror call 886-5511.)

File Attachments:

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