Tax liabilities in online selling
On 5 August 2013, then Commissioner on Internal Revenue Kim Jacinto-Henares issued Revenue Memorandum Circular (RMC) No. 55-2013 as a reminder to people involved in online business transactions of their tax obligations. This circular does not actually impose any new regulations, but only gives a reminder of the already existing ones. It clarifies that the requirements for non-online or physical transactions apply to online ones as well. The circular pertains to persons or entities conducting business thru online transactions. The circular further states that the parties may be engaged in different conducts of business, to wit: (1) Business to Consumer (or B2C), which involves online stores selling goods and services to final consumers, (2) Consumer to Consumer (or C2C), and (3) Business to Business (or B2B), which encompasses job recruitment, online advertising, credit, sales, market research, technical support, procurement and different types of training.
What is online shopping?
The circular enumerates four (4) most common types of online transactions. The first is online shopping or online retailing, which is a form of electronic commerce whereby consumers directly buy goods or services from a seller without an intermediary service. This is the type of online transaction that can be seen usually in Instagram and Facebook Marketplace. In this type of transaction, the buyer and the seller are directly communicating with each other as to the terms of the sale.
Next described is the online intermediary service wherein there is a third party that offers intermediation services between two trading parties. The intermediary acts as a conduit; thus the relationship between the intermediary and the merchant is that of a principal-agent relationship. Examples of this type of online transaction include those done in Lazada and Shopee. In those instances, the buyer and the seller do not directly deal with each other. Instead, the sale is done through the intermediary. However, the intermediary service provider shall be considered as the seller if (1) they control such collection of buyers’ payments, and thereafter receives commission from the merchant/retailer, or (2) the intermediary markets multiple products for its own account, in which case it will considered retailer or merchandiser as to the said products. Hence, for instance, following the caveat mentioned, BeautyMNL is not considered an intermediary service provider but instead the merchant itself.
The third type is online advertisement/classified ads, which is simply a form of promotion that uses the internet to attract customers.
Finally, the fourth type is online auction, which pertain to auctions conducted through the internet via an online service provider. Just like in a physical auction, the seller then sells the product or service to the person who bids the highest price. An example of this is eBay.
What Online Businesses Have to Comply With
As mentioned earlier, online businesses, like non-online or physical ones, also have to comply with the requirements provided under the National Internal Revenue Code (NIRC) such as registration, issuance of receipts or invoices, withholding certain taxes, filing tax returns, and keeping books of accounts. In particular, these requirements for online businesses are:
- Register the business at the Revenue District Office (RDO) having jurisdiction over the principal place of business/head office (or residence in case of individuals), and pay the registration fee to any Authorized Agent Bank (AAB) located within the RDO. A BIR Certificate of Registration shall then be issued, reflecting therein the tax types required for filing and payment, which shall be displayed conspicuously in the business establishment;
- Secure the required Authority to Print (ATP) invoices/receipts and register books of accounts for use in business, which may either be: a) Manual books of accounts, booklets of invoices/receipts, accounting records or loose-leaf of such or b) Computerized Accounting System (CAS) and/or its components including e-Invoicing System under RMO No. 21- 2000 as amended by RMO No. 29-02;
- Issue registered invoice or receipt, either manually or electronically, for every sale, barter, exchange, or lease of goods and properties or service. Said invoice or receipt shall conform to the information requirements prescribed under existing revenue issuances, It shall also be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller;
- Withhold required creditable/expanded withholding tax, final tax, tax on compensation of employees, and other withholding taxes, remit the same to the Bureau of Internal Revenue (BIR), and issue to the concerned payees the necessary Certificate of Tax Withheld.
- File applicable tax returns on or before the due dates, pay correct internal revenue taxes, and submit information returns and other tax compliance reports; and
- Keep books of accounts and other business/accounting records within the time prescribed by law, which shall be made available anytime for inspection and verification by duly authorized Revenue Officer/s for the purpose of ascertaining compliance with tax rules and regulations.
Basic Compliance with Obligations and Duties
Because the rules and requirements under the NIRC similarly apply to online transactions, the obligations and duties provided in the circular pertain to the obligation of issuing proper documents, such as receipts or invoices, withholding certain taxes, and eventually remitting taxes withheld. Each party has an obligation, depending on how the payment was made. For instance, if the payment was thru credit card companies, the merchant or the intermediary is obliged to pay the commission of credit card company net of 10% Expanded Withholding Tax (EWT). The merchant is likewise required to issue an acknowledgement receipt to the credit card company, if payment was thru credit card, or to the bank, if payment was thru bank deposit, for the full amount it received. In all cases, the merchant is required to issue a BIR-registered receipt or invoice to the buyer or customer.
The parties to online transactions have to comply with the tax obligations imposed upon them, otherwise their non-compliance shall be subject to the imposition of penalties provided under already existing laws under the NIRC.