Since the issuance of Revenue Regulations No. 12-2013, withholding the correct taxes has become a matter of paramount importance. Under the regulations, failure to withhold the proper tax would result in the disallowance of the related expenses or deductions for income tax purposes, even if the withholding tax is paid in the course of a tax audit. Consequently, in a deficiency withholding tax assessment, the withholding agent would be liable for the deficiency income tax on top of the assessed withholding tax. Effectively, the withholding agent would be liable for 30+x% in basic taxes, where “x” is equivalent to the withholding tax rate on the transaction, plus applicable penalties (surcharge and interest) for non-withholding or under-withholding of taxes. Such is the “double whammy” that withholding agents may face if they are unable to dutifully comply with withholding tax rules.
Jul 222015