XYZ Corp. is listed as a top 20,000 Philippine corporation by the Bureau of Internal Revenue. It secured a loan from ABC Bank with a 6% per annum interest. All interest payments made by XYZ Corp. to ABC Bank is subject to a 2% creditable withholding tax. At the same time, XYZ Corp. has a trust deposit with ABC Bank in the amount of ₱100,000,000.00, which earns 2% interest per annum, but is subject to a 20% final withholding tax on the interest income received by XYZ Corp.
(a) Who are the withholding agents in the case of: 1. the 20% final withholding tax; and 2. the 2% creditable withholding tax? Explain. (2.5%)
(a) When is the deadline for filing a judicial claim for refund for any excess or erroneous taxes paid in the case of: 1. the 20% final withholding tax; and 2. the 2% creditable withholding tax? (2.5%)
Suggested answer only. Not an official answer and not legal advice.
**Answer:** ABC Bank is the withholding agent for the 20% final tax, while XYZ Corp. is the agent for the 2% creditable tax. The 20% FWT refund deadline is 2 years from remittance, while 2% CWT refund is 2 years from filing the payee's
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Quick check
Who is designated as the withholding agent for final withholding tax on bank deposit interest?
Under Section 57 of the Tax Code, the payor bank controlling interest disbursements acts as the withholding agent for final withholding tax.
When does the two-year prescriptive period for filing a refund claim for final withholding tax begin?
For final withholding tax, the two-year prescriptive period for refund under Section 229 begins on the date of actual payment or remittance.
When does the two-year prescriptive period for filing a refund of excess creditable withholding tax commence?
The two-year prescriptive period for refunding excess creditable withholding tax runs from the date of filing the payee's annual income tax return.
Why does a top 20,000 corporation withhold 2% creditable tax when paying loan interest to a bank?
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What is the statutory requirement for filing a judicial claim for tax refund under Section 229 of the Tax Code?
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Learn more about these topics
1. Withholding Tax Duty
Under Section 57 of the National Internal Revenue Code, a withholding agent is any person or entity having control, receipt, custody, disposal, or payment of taxable income. The obligation to deduct and withhold tax rests upon the payor who controls the disbursement of funds. In interest payments on bank deposits, the financial institution paying the interest acts as the withholding agent for final withholding tax. Conversely, for loan interest paid to banks by designated top corporations, the debtor corporation controlling the payment acts as the withholding agent obligated to withhold and remit creditable withholding tax.
2. Final Tax Refunds
Under Sections 204(C) and 229 of the Tax Code, administrative and judicial claims for refund or tax credit of erroneously or excessively paid taxes must be filed within two years from the date of payment. For final withholding tax, tax liability is fully satisfied upon withholding and remittance at the source. Consequently, the statutory two-year prescriptive period for filing a judicial claim for refund of excess or erroneously withheld final tax commences on the actual date when the final withholding tax was paid or remitted to the Bureau of Internal Revenue.
3. Creditable Tax Refunds
For creditable withholding tax, the two-year prescriptive period for claiming a tax refund or credit does not begin on the date of withholding or remittance. Because creditable withholding taxes are advance payments applied against the payee's annual income tax liability, the tax liability is finalized only upon filing the annual income tax return. Therefore, the statutory two-year period for filing a judicial claim for refund of excess or erroneous creditable withholding tax begins on the date when the payee files its annual income tax return for the taxable year.