Creditable Withholding Tax Certificate in the Philippines
By: Tax and Accounting Center Philippines
Under Section 2.58(B) of Revenue Regulations No. 2-1998, as amended (RR 2-98), every payor required to deduct and withhold taxes under the regulations shall furnish each payee with a withholding tax statement using BIR Form No. 2307 showing the income payments made and the amount of taxes withheld therefrom, for every month of the quarter. Let us share some features on the creditable withholding tax (CWT) in the Philippines covered by BIR Form No. 2307:
CWTs or BIR Form 2307 is an obligation of agent
Issuing a creditable withholding tax certificate or BIR Form No. 2307 is an obligation of the payor – withholding tax agent to the payee. In RMC 85-2011, this obligation of withholding tax agent is reiterated. For its failure, the regulations provide that the BIR could conduct a mandatory audit of its tax liabilities.
CWTs or BIR Form 2307 are business assets
In the books of accounts of the taxpayer, creditable withholding tax certificate or BIR Form No. 2307 is accounted for as an asset. They are prepayments of income tax that has future economic benefits, being deductible from income tax due of the taxpayer on a quarterly income tax return and/or annual income tax returns. Upon receipt of income payment with creditable withholding tax, the sample entry may be made on the books of accounts in the Philippines (say P10,000 professional fee withheld 15% upon payment):
- Debit: Cash P8,500
- Debit: Creditable withholding tax P1,500
- Credit: Professional fees P10,000
As an asset, we suggest that the taxpayer develop internal control procedures on how to safeguard the same and maximize the utilization of creditable withholding tax certificate or BIR Form No. 2307.
CWTs or Form 2307 are income tax credits
Creditable withholding tax is an advance income tax of the payee. This would mean that even before filing the income tax return in the Philippines, the taxpayer had already remitted portion of its income tax liability through the payor who withheld and remitted the same to the BIR. Upon payment of quarterly income tax in the Philippines or annual income tax in the Philippines, the following sample entry may be made:
- Debit: Provision for income tax P1,500
- Credit: Creditable withholding tax P1,500
CWTs or BIR Form 2307 are look out of payee
As to the payee, creditable withholding tax certificate or BIR Form No. 2307 is important during filing of the quarterly income tax return or annual income tax return in the Philippines because this will serve as a proof of withholding and required to be attached to the income tax return. Without the creditable withholding tax certificate or BIR Form No. 2307, the taxpayer shall not be allowed to claim the same as a tax credit.
As such, we suggest that the payee taxpayer exert an amount of effort to see to it that their income payors provides the creditable withholding tax certificate or BIR Form No. 2307. Alternatively, it may request the payor to furnish creditable withholding tax certificate or BIR Form No. 2307 with the income payment (e.g. along with the check).
Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at firstname.lastname@example.org.
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