[Ask the Tax Whiz] Updates on tax credit/refund processing for excess withholding tax on income

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The Philippine Tax Whiz explains the clarifications on the processing of tax credit/refund of excess Creditable Withholding Tax on income pursuant to Revenue Memorandum Order 8-2025.

How are tax credits earned and utilized by taxpayers?

Tax credits are earned when a taxpayer overpays taxes through Creditable Withholding Tax (CWT) or Excess Quarterly Tax Payments

1. Creditable Withholding Tax (CWT) occurs when a business has taxes deducted from its income before receiving payment. 
2. Excess Quarterly Tax Payments happen when a business pays more in quarterly income tax than what is actually due for the year. 

These tax credits can be used to reduce future tax payments. Once earned, they can be utilized in two ways: 

1. Carryover – tax credits can be carried over to offset future tax liabilities. However, this option is irrevocable for the particular taxable period, meaning the taxpayer cannot later request a refund or a Tax Credit Certificate (TCC).
2. Refund or TCC – If the carryover is not selected, the taxpayer can apply for a refund or a Tax Credit Certificate to offset future taxes.

If tax credits remain unutilized, they can be carried over indefinitely to future periods. However, if a business permanently ceases operations, it can still claim a refund, even if it initially chose the carry-over option. If neither option is utilized within the two-year period, the tax credits will expire.

Our company is entitled to a tax credit or refund of the excess income taxes paid during the previous year. How would the Bureau of Internal Revenue (BIR) verify the authenticity of the claimed tax credit if we decided to carry-over the said excess during the year? 

In order to claim tax credit/refund, the authenticity of the BIR Form 2307 or 1606 is verified. With the recently issued Revenue Memorandum Order (RMO), such verification is clarified to be done through checking the Alphalist of Payees submitted by the payor-withholding agent. The reason behind this rule is the added burden on the payee-taxpayer (claimant of credit/refund), which is deemed unfair because remittance of tax withheld rests upon the payor. Thus, the withholding agent shall be responsible for remittance through BIR Form 0619E/1601EQ, and consequently, payees claiming tax credit/refund must appear in their submitted QAP & AAP.

What if instead of carrying over the excess, our company submitted an application for a cash refund or issuance of a tax credit certificate (TCC)? What would be the procedures of the BIR for verification?

The assigned Revenue Officer and Group Supervisor shall process and evaluate the claim based on the submitted documents and investigation procedures in RMO 25-2024.

• The assigned Revenue Officer (RO) shall comply with the amended Annexes D.1 and D.2 of RMO No. 8-2025 regarding documentary requirements.
  
• RO must obtain/print copies of tax returns available in the BIR records/database.
  
• Tax returns must be filed before the submission of the credit/refund application or the service of the eLA, whichever occurs first.
  
• As amended by RMO 8-2025, the RO shall request the necessary documents from the relevant BIR Office within 30 days of receiving the income tax credit/refund application.
  
• The relevant BIR Office must provide the requested documents/data to the processing office within 15 days of receiving the request from the RO.
  
• After receiving the necessary documents, the RO shall prepare a memorandum report recommending approval or denial of the claim.
  
• The memorandum report shall be reviewed and preliminarily approved by:
  
  • Group Supervisor (GS)
    
  • Head of the processing office
    
• The head of the processing office must sign the memorandum report, indicating the recommendation for approval or denial of the tax credit/refund claim.
  
• The signed memorandum report, along with the complete docket, is sent to the appropriate reviewing office for further evaluation.

The RO-Reviewer is responsible for preparing the TCC, Disbursement Voucher, Budget Utilization Request and Status, and/or the approval/denial letter, as applicable, to be forwarded to the Approving Office (Regional Director/ACIR-LTS) for further evaluation and decision. After the approving official signs the documents, they are returned to the originating processing office, which will then send the notice letter to the taxpayer-claimant. – Rappler.com

The information provided in the article above is for general knowledge and information. #GotQuestionsAboutTaxes? We’re always happy to hear from you! If you want to know how these regulations affect your business,  CONSULT ACG or email us at consult@acg.ph.