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.

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Orlando Calundan is a CPA who has exposures in FS audit of entities in various industries such as real estate, food/restaurants, manufacturing, service organizations and BPOs, automotive, holding/investment companies and more. He also has exposure on internal audit engagements.

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