Have you ever purchased something and later realized you paid too much, only to be told by the retailer that no refund would be given? It’s a frustrating experience—being stuck with the extra cost. Thankfully, taxpayers in the Philippines are not left in such a situation when it comes to excess creditable withholding taxes (CWT). The Tax Code provides remedies to recover unutilized tax credits, and recent issuances by the Bureau of Internal Revenue (BIR) have clarified the process for companies that are dissolving or ceasing operations.
Why Excess CWTs Arise
Under Philippine withholding tax rules, corporations often accumulate excess CWTs. While taxpayers may annually apply for refunds, many choose to carry forward credits to future years to avoid the tedious refund process. However, once a corporation decides to close its business, carry-over is no longer an option, leaving significant unutilized credits that must be addressed during dissolution.
Legal Basis
Section 5(B) of Revenue Regulation (RR) No. 5-2024 provides that dissolving corporations may file for a refund of unutilized income tax credits, exempting them from the irrevocability rule under Section 76 of the Tax Code. The BIR has two years from the date of dissolution or cessation of business to decide on the claim, starting from the filing of BIR Form No. 1905 with complete documentary requirements.
Refunds are released only after a mandatory audit of all tax liabilities for the preceding year and the short-period return.
RMC 25 2024 (Issued 13 February 2024)
What it’s about:
This circular amends earlier rules (RMC 16‑2024) on the submission of the Alphabetical List (Alphalist) of employees and payees. Notably, the Alphalist is the official list that employers and payors submit to the BIR showing the names of individuals from whom taxes were withheld. It’s a key compliance requirement because it allows the BIR to cross‑check withholding taxes against income tax returns.
Key Provisions Explained:
- Extended Deadline: Taxpayers now have 30 days from the posting of the BIR advisory (announcing the availability of the updated Alphalist Data Entry and Validation Module) to submit their Alphalists for taxable year 2023. In simple terms, you don’t have to rush; you’ll have a full month after the BIR announces that the updated system is ready.
- File Structures & Naming Convention: If you use your own software or extract programs to generate Alphalists, you must strictly follow the revised file formats and naming rules (see Annexes A & B).Therefore, incorrect file formats or filenames can cause rejection of your submission, which may be treated as non‑compliance.
- Coverage: This rule applies to all taxpayers required to submit Alphalists—basically, any employer or payor who withholds taxes from employees or other payees.
- Compliance Emphasis: Submitting late or incorrect Alphalists can lead to penalties under the Tax Code. Make sure your files are correct and submitted on time to avoid fines.
RMC 75 2024 (Issued 3 July 2024)
What it’s about:
This circular sets out the mandatory requirements for claiming tax credits or refunds of excess or unutilized Creditable Withholding Taxes (CWT). It aligns with the Ease of Paying Taxes Act (RA 11796), which aims to simplify tax processes.
If you’ve paid more withholding tax than necessary, this is the guideline you’ll follow to get a refund or apply the excess as a tax credit.
Key Provisions Explained:
- Jurisdiction: Applications must be filed using BIR Form No. 1914 with the appropriate office. It is either your local Revenue District Office (RDO), or the Large Taxpayers Audit Division/District Office (LTAD/LTDO) if you’re under the Large Taxpayers Service.Thus, file your claim where your business is registered or, if you’re a large taxpayer, with the designated LT office.
- Processing Period: Normally, refunds must be processed within 180 days under Sec. 204(C).
- Exception: If your business is dissolving or ceasing operations, the BIR has 2 years from the submission of BIR Form 1905 (for registration update/cancellation) and complete documents. Thus, this gives clarity on how long you should expect the process to take.
- Completeness Rule: Only applications with complete documentary requirements will be accepted. Missing even one required document means your application won’t be processed.
- Mandatory Requirements: You must submit the following documents to prove that your claim is valid and properly supported.
- Supporting documents (Annex A.1 or A.2).
- A comparative matrix of tax withheld (Annex A.3).
- A notarized taxpayer attestation (Annex A.4) certifying that everything is complete.
- Verification: The BIR may ask you to present your books of accounts and accounting records. Failure to cooperate can lead to partial or full denial of your claim. Hence, keep your records ready and organized.
- Tax Returns Consideration: The BIR will review your Quarterly and Annual Income Tax Returns (ITRs) filed before your refund application or before an electronic Letter of Authority (LoA) is issued. This ensures consistency between your filed returns and your refund claim.
In summary:
- RMC 25‑2024 is about giving taxpayers more time and clearer rules for submitting Alphalists.
- RMC 75‑2024 is about standardizing and tightening requirements for tax refund claims, ensuring only complete and well‑documented applications are processed.
Both circulars emphasize compliance and accuracy—late, incomplete, or incorrect submissions can lead to penalties or denial of claims.
Complementary Framework: RMC 25-2024 & RMC 75-2024
Reporting Pillar – RMC 25-2024
Purpose: Establishes clear rules for alphalist submission.
Key Elements:
- Revised file structures and naming conventions.
- Strict deadlines (30 days from BIR advisory posting).
- Compliance monitored through the BIR submission system.
Impact: Ensures accuracy and timeliness of withholding tax reporting, forming the foundation for refund or credit claims later on.
Relief Pillar – RMC 75-2024
Purpose: Provides taxpayers with a structured process to recover excess creditable withholding tax (CWT).
Key Elements:
- Mandatory checklist of documents, comparative matrix, notarized attestation.
- Timelines: 180 days (general cases), 2 years (dissolution cases).
- Processing through RDO or LTAD/LTDO.
- Grounds for denial: incomplete documentation, failure to present books, non-cooperation.
Impact: Offers a remedy for overpayment, but relies heavily on the integrity of reporting (as governed by RMC 25-2024).
How They Reinforce Each Other
- RMC 25-2024 ensures the data integrity of withholding tax records.
- RMC 75-2024 leverages that integrity to validate refund or tax credit claims.
Together, they create a compliance-to-relief cycle: Proper reporting → Reliable records → Stronger basis for refund claims.
In essence:
- RMC 25-2024 = Obligation to report correctly.
- RMC 75-2024 = Opportunity to recover excess payments.
They supplement one another by ensuring that taxpayers both fulfill their duties and can exercise their rights effectively.
What Still Needs Improvement
Despite these reforms, challenges remain. Refund processing is still tied to the BIR’s audit-heavy culture, where tax collection is prioritized over refunds. A potential solution is the creation of a dedicated refund division with performance metrics focused on timely processing. This would help balance the BIR’s dual role of collecting taxes and ensuring fairness in refunds.
Outlook
The BIR’s recent issuances are a step toward a more efficient and taxpayer-friendly system. If implemented effectively, they can restore confidence in the refund process, encourage compliance, and even attract foreign investors who value transparent tax administration.
🔗 You can view the official BIR Revenue Issuances here: BIR Revenue Memorandum Circulars (RMCs) – Bureau of Internal Revenue
RMC No. 75-2024 Digest.pdf and RMC No. 25-2024.pdf
Article written by: Laurence Philip Manlapaz
References:
- Revenue Regulation No. 5‑2024 – Provides the legal basis for refunding unutilized income tax credits of dissolving corporations, exempting them from the irrevocability rule under Section 76 of the Tax Code.
- Revenue Memorandum Circular (RMC) No. 25‑2024 (13 February 2024) – Amends rules on the submission of the Alphabetical List (Alphalist) of employees and payees, extending deadlines and clarifying file format requirements.
- Revenue Memorandum Circular (RMC) No. 75‑2024 (3 July 2024) – Sets mandatory requirements for claiming tax credits or refunds of excess/unutilized Creditable Withholding Taxes (CWT), aligning with the Ease of Paying Taxes Act (RA 11796).
- National Internal Revenue Code of 1997 (Tax Code), as amended – Governs income tax, withholding tax, and refund provisions.
- Ease of Paying Taxes Act (Republic Act No. 11796) – Framework law aimed at streamlining tax compliance and refund processes.
- Official BIR Revenue Issuances Portal – BIR Revenue Memorandum Circulars (bir.gov.ph in Bing)
