Online sales: Tax obligations 101

“It is impossible to be sure of anything other than death and taxes,” an excerpt from Preston’s Shoemaker of the late Christopher Bullock. The term “death and taxes” is commonly used and we are surely aware and agree that these two events are the most certain events under any circumstance.

The continued spread of the 2019 coronavirus disease (Covid-19) in our country has had a huge impact on the daily life as well as the daily business operations of all of our fellow human beings. As the World Health Organization has declared Covid-19 a pandemic, many businesses and employees are being forced to work from home. Health protocols and social distancing have been put in place to somehow reduce the spread of these viruses. With the government’s implementation of the General Community Quarantine with increased restrictions throughout the National Capital Region Plus (including Bulacan, Rizal, Laguna and Cavite) and the rest of the country in a modified General Community Quarantine more relaxed , there had been a decline in the traditional way of shopping and an increase in the use of online platforms to sell products, as Filipinos eventually learned to embrace e-commerce to fill their empty shelves.

Online shopping, especially the basic daily needs of consumers, is booming. Many businesses are expected to plan to open their online stores in the months or even years to come. It is important to know the rules and regulations that can affect online business, especially its tax obligations. Whether you have a physical store or not, as long as you earn income in the country, you are subject to the corresponding taxes. The growing trend of online business has been noticed by the Bureau of Internal Revenue (BIR). In this article, we will provide you with the obligations of each online seller.

In 2013, the BIR issued Tax Circular (RMC) 55-2013 obligations of taxpayers with regard to online business transactions, as they have seen the number of such transactions increase. The BIR clarified that the tax treatment of purchases (local or imported) and sale (local or international) of goods (tangible or intangible) or services must be applied in the same way, without distinction depending on whether the marketing channel is the Internet / digital media or the usual and physical medium.

RMC 55-2013 identifies common types of online business transactions in the Philippines, primarily online shopping or online retailing and online intermediary services.

• Online shopping or online retailing – consumers directly purchase goods or services from an online seller through an e-commerce portal or virtual stores.

• Online intermediary service – the intermediary is a third party who liaises between two business parties. Usually a “principal principal” relationship in which the intermediary receives a commission or incentives to successfully generate sales for the principal seller.

Like a traditional business, these online businesses are mandated to register with the BIR to ensure compliance with their tax obligations as follows:

a. Obtain a registration certificate

b. Secure permission to print and save account books

vs. Issue receipts and / or invoices

D. Withholding tax payable / extended, final tax, withholding tax on remuneration and other withholding taxes

e. File the tax returns applicable on the due dates and pay the corresponding taxes

F. Maintain the books of account

In 2020, the BIR released RMC 60-2020 (as amended by RMC 92-2020), which provides guidance and all such online sellers in the Philippines are required to register their businesses online by September 30, 2020 ( from its previous deadline in July). 30, 2020). Those who did not register will be subject to the applicable penalties.

Here are the tax obligations related to the different types of online transactions:

1. Online sellers / online retailers

• If payment is made through a credit card company, the online seller must electronically issue the invoice / receipt registered in BIR for the full amount of the sale. In addition, the seller must pay the commission of the credit card company, less the extended withholding tax (EWT) of 10%.

• If the payment is made by COD, the seller must electronically or manually issue the invoice / receipt registered in BIR for the total amount of the sale.

• If payment is made through banks, the seller should issue an invoice / receipt to the buyer and a receipt to the bank for the amount received.

2. Providers of online intermediary services

• Online intermediary service providers, acting as agents, will have the number of seller-assigned receipt blocks required to issue the seller’s invoice / receipt to the buyer. Also issue an invoice / receipt for the full amount of the agreed commission and reflecting therein the amount retained by the seller.

• If the collection / payment is under the control of the intermediary, must electronically issue the invoice / receipt for the full amount of the sale to the buyer, issue the acknowledgment to the bank or company credit card issuer for the amount received, pay the 10% EWT net credit card company commission and remit the balance to the seller net of the markup / commission agreed to by the intermediary.

• If payment is made by reimbursement, the intermediary should secure the invoice / receipt from the seller prior to delivery of the goods to the buyer / performance of the service, either electronically or manually issuing the invoice / receipt registered BIR for the total amount of the sale to the buyer and finally, issue a receipt for the amount of commission received from the seller.

We are likely to see a huge shift towards online shopping for many physical stores due to the recent implementation of the temporary closure of most physical stores in the Philippines. As the trend of online business transactions continues to expand, the BIR will surely review and monitor the compliance of these businesses to ensure proper collection of taxes on profits made in the conduct of online business transactions. As one of the great philosophers, Aristotle said, “Ignorantia iuris nocet” (not knowing the law is harmful). For online sellers and retailers, whether small or large scale, knowing and understanding your tax obligations is important to avoid non-compliance and the imposition of huge amounts of penalties.

Ken John B. Asadon, CPA is the tax partner of PDAC & Co., CPAs (PrimeGlobal Philippines), an institutional member of the Association of CPAs in Public Practice (ACPAPP). The writer’s opinion in no way reflects the opinion of these institutions.