When the BIR rings the notification bell
It is undeniably an era focused on social media. People from all walks of life are watching the content disseminated by influencers, who have become a formidable source of advice, trendy products and services, news and entertainment, to some extent replacing the hold that traditional celebrities have over their own. fans. Videos that go viral are a sure-fire way to monetize audiences.
With more subscribers hitting this notification bell icon on social media, the Bureau of Internal Revenue (BIR) recently released Revenue Memorandum Circular (RMC) n ° 97-2021 to remind influencers of their tax obligations.
RMC defined influencers like all taxpayers, individuals or companies, receiving income in cash or in kind, in exchange for services rendered as bloggers, video bloggers or “vloggers”; or any other activity carried out on social media sites and platforms, such as YouTube, Facebook, Instagram, TikTok, etc. Income sources for influencers may include YouTube partner programs, display advertising, sponsored posts, and other marketing and promotional activities.
The RMC is a reminder of a company’s tax obligations, with a stern warning for non-conformers, who face the prospect of a “full-fledged investigation.” The RMC did not mention the tax years to be checked, but can work within the limitation period (either three years from the declaration, or 10 years in the case of fraud). In addition, the BIR intends to take advantage of cross-border data sharing, in accordance with the information exchange clause of various tax treaties, to correctly determine the influencer’s tax liability and help fight against tax evasion.
Under the Tax Code, resident citizens and domestic corporations are taxable on their worldwide income. However, non-resident citizens, foreign nationals and foreign companies are only taxable on their Filipino source income.
Payments received by an influencer for services rendered, regardless of the method or form of payment, are considered business income. These include the free products they receive in exchange for being promoted on the influencer’s accounts or channels, to be declared at fair market value.
However, the RMC did not specify what constitutes Philippine-based content that would form part of a foreigner’s taxable Philippine income. Thus, the burden of proving that the income comes from foreign sources (and therefore tax-exempt) falls on the influencer.
For tax purposes, influencers other than corporations and partnerships are classified as self-employed, as sole proprietorships earning business income. Here is a summary of their tax compliance obligations:
1. Register and obtain a Tax Identification Number (TIN) from the Tax District Office (RDO) having jurisdiction over the place of business or place of residence, or update its existing registration with the appropriate RDO. Not having a TIN / BIR registration does not exempt anyone from paying taxes. A minor who earns an income is also covered by this requirement.
2. Maintain and record books of account to record all transactions and results of transactions.
3. File the relevant tax returns and pay the tax according to its registration. The Annual Income Tax Return (RTI) must be supported by audited financial statements if the gross receipts exceed 3 million pesos and do not benefit from the optional standard deduction (OSD).
4. Withhold and remit taxes (if applicable) from payments to suppliers and employees.
5. For Filipinos, make every effort to avail the benefits of the Foreign Source Income Convention by obtaining a tax residency certificate from the BIR to present to the State of origin. If the benefits of the treaty are not invoked and the taxpayer is subject to ordinary tax in the source state, he is not allowed to claim foreign tax credits greater than the amount of tax qu ‘he would have paid in the State of source if he had invoked the convention. provisions.
TAXATION OF INDIVIDUAL INFLUENCERS
Influencers are subject to tax like any other person carrying out any other activity. If the gross receipts exceed the value added tax (VAT) threshold of 3 million pesos, graduated tax rates from 0% to 35% will apply and it will be subject to VAT. If the earnings are P3 million or less, the taxpayer has the choice between:
• 8% rate based on gross receipts and other non-operating income which will replace any other income or percentage taxes.
• Progressive tax rates from 0% to 35% and percentage tax of 1% (in effect from July 1, 2020 to June 30, 2023, and 3% thereafter).
If the influencer chooses progressive tax rates, they can deduct all ordinary and necessary expenses incurred during the tax year in calculating their taxable income, subject to justification and compliance with withholding rules. at source applicable.
Based on RMC, these expenses may include: filming costs (cameras, smartphones, microphone and other filming equipment); computer hardware, software subscription and license fees; internet and communication costs; home office expenses (proportional rent and utility expenses); Office supplies; business expenses (travel or transportation, payment of video editing, costume design, advertising and marketing costs); depreciation expense; and bank charges and shipping charges.
Alternatively, instead of claiming itemized deductions, the influencer can also choose the optional standard deduction (OSD), or a standard deduction not exceeding 40% of the gross sales / revenue of individual taxpayers. Under this deduction regime, no justification is required. The influencer must however signify the election of OSD in the first quarter ITR.
CONSEQUENCES OF NON-COMPLIANCE
Failure to voluntarily and honestly file returns and pay taxes may result in the payment of a deficit tax plus surcharge (25% or 50% for fraud cases), interest (12% per annum) and penalties. A mind-boggling update not to be missed under the TRAIN Act was the increased penalties ranging from P500,000 to P10,000,000. Criminal liability also applies where a deliberate intention to evade is found. ‘tax.
While I enjoy the way influencers engage followers with their original ideas, I’m just as happy to know that when I hit the subscribe button and click on the bell icon, the he increase in the number of viewers translates into the payment of taxes to enable the government to increase the necessary revenues.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only and should not be used as a substitute to specific advice.
Raymund M. Gutib is a senior executive in the tax services department of Isla Lipana & Co., the Philippine company that is a member of the PwC network.