Closer look at Top Withholding Agents (TWAs): Changes in Definition and Obligations

Tax regulations in the Philippines have undergone significant changes aimed at improving tax collection and ensuring tax compliance. One of these changes pertains to the number of top withholding agents and the criteria used to select them. Let’s delve deeper into the amendments made over the years.

Initially, Revenue Regulations No. 12-94 imposed the obligation to withhold a creditable income tax of one percent (1%) from income payments made to local suppliers of goods on the Top Five Thousand (5,000) corporations in the Philippines.

Subsequently, Revenue Regulations No. 17-03 expanded this requirement by increasing the number of top private corporations to Ten Thousand (10,000) and introduced the obligation to withhold taxes from income payments made to their local suppliers of services as well, at a rate of two percent (2%). The withholding tax rate for purchases of goods remained at 1%. This distinction aimed to account for the nature of the transactions.

To identify the private corporations qualifying as top withholding agents, the Bureau of Internal Revenue (BIR) established specific criteria. These criteria included:

a) Being classified and duly notified by the Commissioner of Internal Revenue (CIR) as a large taxpayer under Revenue Regulations No. 1-98

b) Net value-added tax (VAT) payment or payable of at least PHP 100,000 in the preceding year

c) Annual income tax payment or payable of at least PHP 200,000 in the preceding year

d) Percentage taxes paid of at least PHP 100,000 in the preceding year

e) Gross sales exceeding PHP 10,000,000 in the preceding year, and

f) Gross purchases exceeding PHP 5,000,000 in the preceding year.

It is important to note that meeting the criteria alone did not guarantee automatic classification as a withholding agent, except for large taxpayers. The CIR was responsible for notifying the corporation in writing, confirming its status as a withholding agent. Previously notified and classified Top 5,000 corporations under RR 12-94 continued to withhold 1% on goods and two percent 2% on services not covered by other withholding tax rates. Their previous notification issued by the CIR could be presented if required.

The introduction of Revenue Regulations No. 14-08 further increased the number of top private corporations to Twenty Thousand (20,000). This expansion included those previously listed in the Top 5,000 private corporations under RR 12-94 and those qualified as Top 10,000 private corporations under RR 17-2003. Consequently, these corporations were automatically included in the Top 20,000 private corporations.

Later, Revenue Regulations No. 06-2009 introduced an additional criterion for private corporations to qualify as one of the Top 20,000, which is a minimum total excise tax payment of P100,000 in the preceding year. Furthermore, the regulation mandated the Top 5,000 individual taxpayers engaged in Trade/Business or Practice of Profession, including non-resident aliens engaged in trade or business in the Philippines, to withhold taxes from their local suppliers of services at a rate of 2% and of goods at a rate of 1%. The same criteria used to identify the Top 20,000 private corporations were applied to determine the Top 5,000 individuals.

In 2018, Republic Act No. 10963, also known as the “Tax Reform for Acceleration and Inclusion (TRAIN) Law”, was enacted. To implement the amendments introduced by this law, Revenue Regulations No. 11-2018 consolidated the top private corporations and individuals into top withholding agents. These agents are determined based on the following criteria:

a)     They must be classified and duly notified by the Commissioner as any of the following, unless previously de-classified or no longer in operation:

·       A large taxpayer under Revenue Regulations No. 1-98, as amended

·       One of the Top 20,000 private corporations under RR No. 6-2009

·       One of the Top 5,000 individuals under RR No. 6-2009

b)     They must be taxpayers identified and included as Medium Taxpayers or under the Taxpayer Account Management Program (TAMP). According to Revenue Memorandum Order 20-2014, TAMP taxpayers are those identified by the Revenue District Office (RDO) responsible for at least eighty percent (80%) of the district’s tax collection. These taxpayers are strictly monitored for stop filer cases, significant changes in revenue payments, submission of required information returns and lists, and compliance with revenue rules and regulations.

Since 2018, the list of top withholding agents has been published in a newspaper of general circulation and made available on the BIR website. This publication serves as the official “notice” to the top withholding agents, replacing the previous method of receiving a letter notice of inclusion from the RDO. The published list includes both the additional top withholding agents and those that have been delisted, providing transparency and updated information to taxpayers and the public.

To further simplify the selection criteria, Revenue Regulations No. 07-19 provided a definition for top withholding agents as taxpayers whose gross sales/receipts, gross purchases, or claimed deductible itemized expenses, as applicable, amounted to at least Twelve Million Pesos (P12,000,000.00) during the preceding taxable year. Taxpayers who were previously classified as top withholding agents retained their status until they failed to meet the aforementioned criteria and were duly published as delisted from the existing list of top withholding agents.

We would like to emphasize that as of 2019, being a TAMP (Taxpayer Account Management Program) taxpayer no longer automatically qualifies an individual or corporation as a top withholding agent. The criteria for being classified as a top withholding agent are now based on specific thresholds and classifications outlined in the revenue regulations currently in effect. Therefore, being a TAMP taxpayer alone does not guarantee the status of a top withholding agent.

Revenue Regulations No. 31-20 has refined the definition of top withholding agents even further. The determination of top withholding agents is now based on the minimum thresholds established according to the existing group classifications of the RDOs where they are registered. The thresholds are as follows:

Ø  Groups A and B: Gross sales/receipts or gross purchases of at least Twelve Million Pesos (P12,000,000.00)

Ø  Groups C, D, and E: Gross sales/receipts or gross purchases of at least Five Million Pesos (P5,000,000.00) Lastly, it is noteworthy that the aforementioned revenue regulations mandate the obligation to withhold and remit these CWTs (Creditable Withholding Taxes) to the BIR only for taxpayers whose business operations have a significant economic impact contributing to the collection of revenues.

Disclaimer: This article is for discussion purposes only as summarized by the author and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for specific details applicable to your circumstances.

Leave a Reply