BIR to Suspend Income Tax Incentives Granted to Registered Business Enterprises in IT-BPM in Case of Violation of Prescribed Work-From-Home Threshold

On18 February 2022, the Bureau of Internal Revenue (“BIR”) issued BIR Memorandum Circular No. 23-2022 (“RMC 23-2022”) which covers registered business enterprises (“RBEs”) of the Information Technology – Business Process Management (“IT-BPM”) sector. The BIR reminded the RBEs to observe compliance with Fiscal Incentives Review Board (“FIRB”) Resolution Nos. 19-21 and 23-21 which allows RBEs to continue implementing work-from-home (“WFH”) arrangements without adversely affecting their fiscal incentives until March 31, 2022 subject to all of the following conditions:

1. The number of employees under a WFH arrangement shall not exceed ninety percent (90%) of the total workforce of the RBE; Provided, that beginning 01 January 2022, the ceiling shall be reduced to seventy-five percent (75%) for the remainder of the period; Provided further, that if the State of Calamity due to COVID-19 is extended to any date beyond 01 January 2022, the ceiling shall be maintained at ninety percent (90%) until 31 March 2022. 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;

2. The number of computer laptops/other equipment of the RBE outside the ecozone should not exceed the number of its employees who are under WFH arrangement;

3. Bonds shall be posted for all equipment (e.g. computer desktops and laptops) deployed by the RBE to their employees’ homes, to ensure payment of taxes and duties if any such equipment is not returned to the site of the RBE after the WFH arrangement;

4. Revenues from export as required shall be maintained regardless of the allowed ratio of employees who will work from home. Provided, that the current number of employees shall not be reduced regardless if the majority of their employees are working from home; and

5. The RBE shall comply with the reportorial requirements and site inspection, as may be required by the FIRB or Investment Promotion Agencies (“IPAs”).

The non-compliance with all the conditions prescribed under FIRB Resolution Nos. 19-21. and 23-21 shall be meted with suspension of the income tax incentive on the revenue corresponding to the months of non-compliance. Hence, the RBE shall pay the income tax using the regular rate of either twenty-five percent (25%) or twenty percent (20%) based on the taxable net income corresponding to the months the RBE has violation. In the absence of voluntary payment by the RBE or the voluntary payments made is not sufficient, the RBE shall be subjected to an audit pursuant to a Letter of Authority (“LOA”).

RMC 23-2022 likewise provides the procedures to carry out the determination of compliance by the RBEs and consequences of non-compliance:

1. Audit lnformation, Tax Exemption and lncentives Division (“AITEID”)

1. Verifies the corresponding Revenue District Office (RDO) code of the RBEs listed in the monthly report (Annex A) as endorsed by FIRB by matching the names with the BIR- Tax Registration System database;
   
   
2. Records the RBE’s violations by accomplishing columns A to Q of Annex “8” per RDO jurisdiction;
   
   
3. Forwards the partially accomplished Annex “B” to the concerned Revenue District Office (“RDO”)/ Large Taxpayers Service (“LTS”) thru its dedicated office email address within ten (10) days from receipt of the last monthly report that completes the particular accounting period of the RBEs (i.e., Receipt of the December,2A2! report of RBEs using calendar year as the accounting period; Receipt of the January,2O22 report of RBEs where taxable period is fiscal year ending January 31, 2022; etc.);
   
   
4. Maintains a database for the reports submitted by the RDO; and
   
   
5. Provides the FIRB of the action taken on the violations committed by the RBEs within sixty (60) days from the statutory filing of the Annual lncome Tax Return (“AITR”) for taxable years 202L and 2022.

2. RDO / LTS

1. Extracts the AITR filed and other pertinent documents (i.e. Audited Financial Statements (“AFS”), etc.) from the BIR’s database upon receipt of the partially accomplished Annex “B” from AITEID;
   
   
2. Checks if the RBE voluntarily paid the regular income tax due on the months it has reported violation and evaluate if the payment is correct based on declared data in the AITR and AFS. lf none was paid or the payment is not sufficient/correct, recommend the issuance of Letter of Authority for the conduct of audit covering all internal revenue taxes;
   
   
3. Completes the fields provided in Annex “B” by filling-out columns R to Z within forty-five (45) days from receipt thereon. The status could either be “RBE paid the income tax due based on the regular income tax rate for the particular month it violated”, or “issued LOA for the conduct of audit”, if there is no voluntary payment found in the filed AITR or if there is a discrepancy in the amount paid; and
   
   
4. Reverts the fully accomplished Annex “B” to AITEID.

RMC 23-2022 shall take effect immediately until 31 March 2022. A copy of RMC 23-2022 may be viewed here.