you're reading...
Tax Updates

RR 12-2013: Requirements for deductibility of certain income payments (expenses)

As most of us maybe aware of, the Bureau of Internal Revenue (BIR) has required related withholding tax to be paid as a condition to deductibility of certain expenses.  This was set forth in section 2.58.5 of the Revenue Regulations (RR) No. 2-98 which reads as follows:

Sec. 2.58.5.  Requirements for Deductibility. — 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.

It should be noted that payment of withholding tax to the BIR is, of course, only applicable to those which are required to withhold.  Refer to the RR 2-98 for the requirement to withhold taxes.

The Requirements

RR No. 12-2013 amended Sec. 2.58.5 of the  RR 2-98 relative to the requirements for deductibility of certain income payments.  The amendment adds a paragraph that states that income payments are still not deductible despites of payment of withholding tax at the time of audit investigation or reinvestigation/reconsideration which reads as follows:

No deduction will also be allowed notwithstanding payments of withholding tax at the time  of the audit investigation or reinvestigation/reconsideration in cases no withholding of tax was made in accordance with Secs. 57 and 58 of the Code.


The provision of RR 12-2013 is effective after 15 days following the publication in any newspaper in general circulation.  RR 12-2013 was published in Manila Bulletin on July 13, 2013.


The requirements of RR 12-2013 is largely on the disallowance for deduction of expenses where payment of withholding tax is made only at the time of audit investigation or reinvestigation.  Therefore, following might be the implications:

  • Related expense might not be deductible, even if withholding tax has been paid at the time of the investigation/reinvestigation.
  • Deficiency income tax (regular corporate income tax, gross income tax, minimum corporate income tax), if any, as a result of the disallowed expenses shall be paid, including penalties, surcharges, interests and compromise.

If withholding tax is paid late but prior to any BIR audit investigation, it is generally presumed that the related expense is allowed to be deducted against the taypayer’s gross income unless disallowed by any ceiling or limits provided by related regulations.

To download a copy of Revenue Regulations No. 12-2013Click Here.

Tell us what you think! 🙂


About leecpa

Orlando Calundan is a Certified Public Accountant. He has exposures in audit of financial statements of entities in various industries such as real estate, food (quick service restaurants), manufacturing, service organizations and BPOs, automotive, holding/investment companies and more. He also has exposure on internal audit engagements.


2 thoughts on “RR 12-2013: Requirements for deductibility of certain income payments (expenses)

  1. Sir,

    In view of the above ruling if for example a corporation’s expenses especially direct cost were not properly withheld & decide to disallow those expenses in filing ITR is it allowed? Will it affect MCIT or conflict with IT? thank you

    Posted by Margie Concepcion | April 8, 2014, 9:19 am
    • you will also have a problem because the BIR, especially the bir examiners will charge you with undeclared income from the said undeclared expenses. ganyan sila . pag hindi ka magdeclare ng purchases o expenses, sasabihin nila me tinago ka na income. pero ang totoo, di mo ideneclare kasi hindi ka nakapagwithhold in the first place. so you are caught in a bind and you are forced to choose between two evils of the same degree. pero dont worry. nagdecide na ang court niyan in the case of agrinurture na allowed ka mag choose na hindi magdeclare at iyong expenses na hindi mo dineclare, hindi iyon undeclared income. ang problema, court of tax appeals case pa lang iyon. hindi supreme court. email me at if you have further clarifications. thanks sir orlando for this informative article.

      Posted by vic | March 19, 2015, 6:46 am

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s


Join the Social Network

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 1,023 other followers

Need an Accounting System?

Post Archives

Site Views

%d bloggers like this: