Requirements for deductibility of certain expenses

In general, all expenses are deductible unless stated by law or regulations that are nondeductible or it requires certain requirements for deductibility of such expenses.

Requirements for deductibility of certain expenses is an intriguing tax issue based on Revenue Regulations (RR) No. 6-2018 that was issued by the bureau in the previous months. These regulations revokes RR No. 12-2013 Thereby Reinstating the Provisions of Section 2.58.5 of RR No. 14-2002, as Amended by RR No. 17-2003 of the Requirements for Deductiblity of Certain Expenses to read as follows:

"Sec. 2.58.5. Requirements for Deductiblity. - Any income payment which is otherwise deductible under the Code shall be allowed as a deduction from the payor's gross income only if it is shown that the income tax required to be withheld has been paid to the Bureau in accordance with Secs. 57 and 58 of the Code.

A deduction will also be allowed in the following cases where no withholding of tax was made:

(A) The payee reported the income and pays the tax due thereon and the withholding agent pays the tax including the interest incident to the failure to withhold the tax. and surcharges, if applicable, at the time of the audit/investigation or reinvestigation/reconsideration.

(B) The recipient/payee failed to report the income on the due date thereof. but the withholding agent/taxpayer pays the tax. including the interest incident to the failure to withhold the tax and surcharges" if applicable at the time of audit/investigation or reinvestigation/reconsideration.

(C ) The withholding agent erroneously underwithheld the tax but pays the difference between the correct amount and the amount of tax withheld including the interest. incident to such error. and surcharges, if applicable, at the time of the audit investigation or reinvestigation/reconsideration.

Items of deduction representing return of capital such as those pertaining to purchases of raw materials forming part of finished product or purchases of goods for resale. shall be allowed as deductions upon withholding agent's payment of the basic withholding tax and penalties incident to non-withholding or underwithholding.

Please refer: https://www.bir.gov.ph/images/bir_files/internal_communications_1/Full%20Text%20RR%202018/RR%20No.%206-2018.pdf of the full text of RR No. 6-2018.