Supplemental information: Is the mandatory disclosure now?

The income tax filing deadline for calendar year (CY) 2013 (15 April 2014) is just around the corner, and once again the individual taxpayers are confounded with the issue of whether to report income and other receipts that are tax-exempt and those that have already been subjected to final tax in the annual income tax return (ITR).

The requirement to disclose the aforementioned (supplemental information) was mandated under Revenue Regulations (RR) No. 2-2011 dated March 1, 2011. The RR introduced the annual information return (BIR Form No. 1705), and mandated individual taxpayers to report, using BIR Form No. 1705, their (1) passive income, (2) gains from sale/exchange of real properties, (3) properties received through gifts, bequests, and devises, (4) income from other sources other than those reported in the income tax return and (5) payment to heirs in the case of estates and trust (engaged in trade and business). These are income that are either tax-exempt or have already been subjected to final tax; hence, are not relevant in the computation of the income tax due in the ITR.

RR No. 2-2011 created a ruckus among individual taxpayers since it was issued just weeks before the April 15 deadline. This prompted the BIR to issue RR No. 6-2011 dated March 10, 2011 suspending the effectivity of RR No. 2-2011.

Later that year, however, the BIR issued Revenue Memorandum Circular (RMC) No. 40-2011 dated Sept. 5, 2011 mandating the use of a more detailed annual ITR (revised forms) starting CY 2011. The revised annual ITR for individuals earning purely compensation income (BIR Form No. 1700) and annual ITR for individuals earning business and compensation income (BIR Form No. 1701), included a supplemental information portion which is a replica of the information required under BIR Form No. 1705. Again, the RMC elicited a lot of complaints as individual taxpayers were again put under the predicament of reporting practically all transactions including those which have already been subjected to final tax and those which are tax-exempt, in the annual ITR.

Heeding the pleas of individual taxpayers, the BIR issued RMC No. 57-2011 dated Nov. 25, 2011 making the disclosure of supplemental information optional for CY 2011. The RMC, however, states that for income tax filing covering and starting with CY 2012, the disclosures required under the supplemental information portion will be mandatory.

On Feb. 28, 2013, the BIR, like a déjà vu of CY 2011, issued RMC No. 21-2013. Once again, the disclosure of supplemental information for CY 2012 was made optional. However, the RMC states that for income tax filing covering and starting with CY 2013, the disclosures required under the supplemental information portion will be mandatory.

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Recently and barely months away before the April 15 deadline, the BIR issued RR No. 2-2014 dated Jan. 24, 2014 prescribing new BIR forms that will be used for ITR filing starting CY 2013. We note that the new ITRs for individual taxpayers (BIR Form No. 1700 and BIR Form No. 1701) still carry the supplemental information portion found in the earlier version. We note however that the RR is silent on the mandatory disclosure of the supplemental information.

Considering that the new BIR forms prescribed under RR No. 2-2014 have suspended the BIR forms referred to in RMC No. 21-2013, the taxpayers are wondering if the mandate under RMC No. 21-2013 that starting CY 2013, the disclosures under the supplemental information portion will be mandatory, still holds.

Prince Lord S. Andres is a supervisor from the tax group of R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. –Prince Lord S. Andres (The Philippine Star)

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or RGM&Co. For comments or inquiries, please email ph-kpmgmla@kpmg.com or rgmanabat@kpmg.com.

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