New guidelines on Work-From-Home penalty violation payments
The Bureau of Internal Revenue (BIR) Reveals payment method guidelines for violations incurred during the Work-From-Home period.
The Bureau of Internal Revenue (BIR) released Revenue Memorandum Circular (RMC) 120-2022 on August 18, 2022, giving updated guidelines and procedures for paying any penalty incurred by Registered Business Enterprises (RBEs) within the Information Technology-Business Process Management (IT-BPM) sector for the period April 1, 2022, until September 12, 2022.
The RMC follows the conditions prescribed by the Fiscal Incentives Regulatory Board (FIRB) in its Resolution No. 17-2022. It mandates non-compliant RBEs will have their Income Tax incentives suspended for a whole month from the date of that violation.
It clarifies that employees under Work-From-Home (WFH) arrangements must not exceed thirty percent (30%) of that RBE; it’s mandated that the remaining seventy (70%) percent needs to operate in the geographic boundaries of the ecozone or Freeport area where the RBE is currently using at.
Non-compliant RBEs must pay the penalty of either twenty percent (20%) or twenty-five (25%) of their regular income tax for that month. RBEs will further be subject to applicable taxes if they incur more violations beyond September 13, 2022.
The RMC explains that RBEs need to use BIR Form No. 0605 to pay for incurred penalties.
The form needs to be completed by using the following guidelines:
- Choose the “Others” found below the "Voluntary Payment" section.
- Indicate the phrase "Penalty according to FIRB Res. No. 017-22" in the field provided.
- Ensure the tax type code is labelled “IT”.
- Indicate the ATC as “MC 200.”
Enterprises with violations still need to pay and file their Quarterly Income Tax Return. Afterwards, they will be given a separate computation for the WFH arrangement penalty violation through an added schedule attached to BIR Form No. 0605, which will be presented along with the actual tax due.
Regarding the Annual Income Tax Return, RBEs with an Income Tax Holiday (ITH) incentive must continue to file BIR form No. 1702-EX and BIR Form No. 1702-MX if they’re using Gross Income Tax (GIT) incentive or those with mixed transactions.
RBEs with the previous incentives are still required to complete the information regarding allowable deductions following the existing tax laws and regulations (i.e., Part VI-Schedule I for BIR Form No. 1702-EX and Part IV-Schedule 5 for BIR Form No. 1702-MX).
Note: BIR made a sample computation to clarify the process further, for more information, see the original document at the bottom.
The RMC then explains that the Net Operating Loss Carry Over (NOLCO) won’t be deducted from the RBE’s total taxable income since it isn’t considered a part of the tax penalty.
Suppose a violation happens during the last quarter of the fiscal year (e.g. fiscal year ending November 2022). In that case, the penalty will be based on the prescriptions given in Revenue Memorandum Circular (RMC) No. 39-2022.
Additionally, RBEs with violations of the provisions given by Resolution No. 19-21 will still follow the same filing, computation, and payment stated in this RMC.
RBEs incurring violations are required to pay for their penalty using BIR Form No. 0605 on or before the prescribed due date for paying the quarterly income tax, which still follows the adjustment made during the filing of the Annual Income Tax Return.
RBEs that have their returns filed and have already ended the fiscal quarter for the month of the violation will file and pay incurred penalties ten (10) days after being insured. Note that administrative penalties will be given if payments are made beyond the days and are related to income tax.
The RMC’s last announcement clarifies that the applicable procedures prescribed in Item IV of RMC No. 23-2022 are to be followed when deploying the list of RBEs with violations to the concerned Revenue District Office/Division in the Large Taxpayer Service and for proper monitoring of this undertaking.