Tax Alert No. 11 [Revenue Memorandum Circular 23-2022 dated 18 February 2022, released on 9 March 2022]

Suspension of the Income Tax Incentives Granted to Registered Business Enterprises for Violating the Work-From-Home Threshold as Prescribed by the Fiscal Incentives Review Board

The Commissioner of Internal Revenue has issued RMC 23-2022 which imposed a penalty by way of suspending the income tax (IT) incentives granted to Registered Business Enterprises (RBEs) in the IT-BPM sector for failure to comply with the Work-from-home (WFH) threshold and conditions prescribed by the Fiscal Incentives Review Board (FIRB), which were detailed in FIRB Resolution Nos. 19-21 and 23-21.

As provided in the RMC, any non-compliance with the WFH threshold and conditions shall be penalized with suspension of the IT incentive of the RBE on the revenue corresponding to the months of non-compliance. Thus, the RBE shall be liable for IT at the regular rates of either twenty-five percent (25%) or twenty-percent (20%) based on the taxable net income attributable to the non-complying months.

For reporting purposes, if the RBE has no existing transactions subject to regular IT rates, BIR Form 1702-MX shall be used for the voluntary payment of the income tax due on the months with violation. Conversely, those with existing transactions subject to regular IT rates will have to report the payment through BIR Form 0605 and the bank-validated copy of the payment form shall be attached in the annual IT return to be filed. An illustration on how the IT due should be computed is provided in the RMC.

In case the RBEs fail to pay the IT due voluntarily or the voluntary payment is insufficient, the RBE shall be subjected to a tax audit.

The RMC likewise clarified that the term “total workforce” shall refer to the total employees that are directly or indirectly engaged in the registered project or activity of the RBE, but excludes third party contractors (e.g., service contractors rendering janitorial or security services and other similar services).

For tracking purposes, the FIRB shall submit the monthly reports (a copy of which was provided together with the RMC) submitted by the Investment Promotion Agencies, to the BIR.

The audit procedures that the BIR will perform in relation to the non-compliance reports endorsed by FIRB were also detailed in the RMC.

You may access the full version of the Advisory through the BIR website.