BIR Clarifies the Repeal of Section 6 of the NIRC through RMC No. 60-2024

On 23 April 2024, the Bureau of Internal Revenue (“BIR”) issued Revenue Memorandum Circular (“RMC”) No. 60-2024 to provide clarification and guidance on the amendments introduced by Republic Act No. 11976, otherwise known as the “Ease of Paying Taxes Act”, particularly on the repeal of Section 34 (K) – Additional Requirements for Deductibility of Certain Payments. The repealed provision provides, to wit:

“Any amount paid or payable which is otherwise deductible from, or taken into account in computing gross income or for which depreciation or amortization may be allowed under this Section, shall be allowed as a deduction only if it is shown that the tax required to be deducted and withheld therefrom has been paid to the Bureau of Internal Revenue in accordance with this Section, Sections 58 and 81 of this Code.”

With the repeal of the above provision, a particular income payment where a tax is required to be withheld can now be allowed as deduction from gross income, even if no tax was withheld, provided the same is necessary, ordinary, and duly substantiated expense related to the registered business of the taxpayer.

The question now is whether the repeal of Section 34 (K) may be applied to all assessed cases and on-going audits covering taxable periods prior to 22 January 2024.

All concerned are hereby advised of the following policies and clarifications:

1. On all ongoing audit covering taxable period prior to 1 January 2024 – expenses subject to withholding tax shall be allowed as deductions from gross income by the Revenue Officers (“RO”) only if the corresponding tax required to be withheld have been paid, whether prior to audit or submission of the audit report to the reviewing office.
2. Where the taxpayer failed to withhold the tax required to be withheld on expenses subject to withholding tax and the taxpayer did not pay the same prior to submission of the audit report to the reviewing office, the RO must recommend for the issuance of assessment notice both on income and withholding tax. This is in line with the provisions of BIR Revenue Regulations No. 6-2018.
3. On audit cases which are already submitted to the reviewing office:

1. Paid case – same application stated under item 1;
2. Assessed case – apply the requirement of deductibility under the then Section 34 (K) of the Tax Code, thus, assessment on both income tax and withholding tax shall be issued.

For taxable year covering 1 January 2024 onwards, expenses/income payments subject to withholding tax shall be allowed as deductions from gross income for purposes of computing taxable income even if no tax was withheld, provided that other requirements for deductibility have been met. However, the taxpayer shall still be liable for the payment of the corresponding withholding tax due on said income payments.