ING BANK N.V. vs. COMMISSIONER OF INTERNAL REVENUE

FACTS: ING Bank, "the Philippine branch of Internationale Nederlanden Bank N.V., a foreign banking corporation incorporated in the Netherlands, is duly authorized by the Bangko Sentral ng Pilipinas to operate as a branch with full banking authority in the Philippines." 

Petitioner ING Bank asserts that it is "qualified to avail of the tax amnesty under Section 5 [of Republic Act No. 9480] and not disqualified under Section 8 [of the same law]." 

Furthermore, Petitioner ING Bank claims that it is not liable for withholding taxes on bonuses accruing to its officers and employees during taxable years 1996 and 1997. It maintains its position that the liability of the employer to withhold the tax does not arise until such bonus is actually distributed. Petitioner ING Bank further argues that the Court of Tax Appeals' discussion on Section 29(j) of the 1993 National Internal Revenue Code and Section 3 of Revenue Regulations No. 8-90 is not applicable because the issue in this case. 

In petitioner's case, bonuses were determined during the year (1996 and 1997) but were distributed in the succeeding year. No withholding of income tax was effected but the bonuses were claimed as an expense for the year. Since the bonuses were not subjected to withholding tax during the year they were claimed as an expense, the same should be disallowed. 

ISSUES: 1. Whether petitioner ING Bank may validly avail itself of the tax amnesty granted by Republic Act No. 9480;  

2. Whether petitioner ING Bank is liable for deficiency withholding tax on accrued bonuses for the taxable years 1996 and 1997. 

HELD: 1. Yes. Qualified taxpayers with pending tax cases may still avail themselves of the tax amnesty program. Thus, the provision in BIR Revenue Memorandum Circular No. 19-2008 excepting "issues and cases which were ruled by any court (even without finality) in favor of the BIR prior to amnesty availment of the taxpayer" from the benefits of the law is illegal, invalid, and null and void. The duty to withhold the tax on compensation arises upon its accrual. 

2. Yes. We hold that the obligation of the payor/employer to deduct and withhold the related withholding tax arises at the time the income was paid or accrued or recorded as an expense in the payor's/employer's books, whichever comes first. 

Petitioner ING Bank accrued or recorded the bonuses as deductible expense in its books. Therefore, its obligation to withhold the related withholding tax due from the deductions for accrued bonuses arose at the time of accrual and not at the time of actual payment.