RMC No. 61-2016: Prescribes the policies and guidelines for accounting and recording transactions involving “netting” or “offsetting”

Key points

1. Offsetting prohibited. Offsetting due to/due from and payable/receivable transactions, and recording them in the parties’ books, is strictly prohibited for taxation purposes. Accrued receivables or payables from sale or lease of goods or properties or performance of services are recognized at gross for Income Tax and Value-Added Tax or Percentage Tax.
2. Withholding tax payments. Income payments subject to Creditable or Final Withholding Taxes under RR No. 2-98, as amended, are recorded at gross even if actually offset or settled net.
3. Non-deductible offsets. An amount offset against income payments by the payor, without Creditable or Final Withholding Tax, is not allowed as the payor’s deductible expense under RR No. 12-2013. That regulation disallows deductions for expenses on which withholding tax was not remitted.

Who is affected

• Taxpayers who offset receivables and payables
• Payors of income subject to withholding tax