TAXMAN | BIR intensifies tax enforcement on online merchants, social media influencers

With the continuing advances in information technology, the internet has become a popular medium not only for business advertisements but also for the conduct of online business transactions. This includes online retailing through virtual shopping malls, online marketplaces, webstores, and similar websites (or “online stores”).

Due to the growing use of digital platforms by businesses in the selling and marketing of their products/services even before the start of the COVID-19 pandemic, the Bureau of Internal Revenue (BIR) has issued Revenue Memorandum Circular (RMC) No. 55-2013 on August 22, 2013 to clarify the taxability of digital transactions. Said Circular reiterated the taxpayer’s obligations in relation to online business transactions that include: a) online shopping or online retailing; b) online intermediary service; c) online advertisement/classified ads; and d) online auction.

Per said RMC, persons who conduct business through online transactions and its permutations have the obligations to: i) register their business at the Revenue District Office having jurisdiction over their principal place of business/head office (or residence in case of individuals); ii) secure Authority to Print invoices/receipts and register Books of Accounts for use in business; iii) issue BIR-registered invoice or receipt, either manually or electronically, for every sale or lease of goods and properties or services; iv) withhold the required tax and remit the same to the BIR; v) file applicable tax returns; and vi) pay the correct taxes, among others.

RMC No. 55-2013 was followed by the issuance of RMC No. 60-2020 on June 10, 2020, which notified persons conducting business through any electronic media platform regarding their tax obligations and the registration of their business with the BIR. The Basic Registration Guidelines was provided in the Circular, which cover not only partner sellers/merchants, but also other stakeholders involved, such as the payment gateways, delivery channels, internet service providers, and other facilitators.

To encourage business entities to register with the BIR, the Bureau waived the penalties for late registration, including the self-declaration of past transactions, subject to payment of pertinent taxes due thereon without the corresponding penalties within a period specified in RMC No. 60-2020. A Tax Guide for Online Sellers was also prepared and posted in the BIR Website (www.bir.gov.ph) in order for them to be informed on what they need to comply with regarding taxation of businesses.

As the pace of technological advancement shows no signs of halting nor slowing down, the rise of Social Media Influencers or Influencer Marketing with huge amount of income/earnings from various social media platforms became the focus of the BIR’s tax enforcement campaign with the issuance of RMC No. 97-2021 on August 16, 2021.

The said RMC clarified the tax obligations of all social media influencers and laid down the possible consequences of their failure to pay taxes. Social media influencers, other than corporations and partnerships, are classified, for tax purposes, as self-employed individuals or persons engaged in trade or business as sole proprietors, and therefore, their income is generally considered as business income.

Social media influencers derive their income from the following sources: a) YouTube Partner Program; b) sponsored social and blog posts; c) display advertising; d) becoming a brand representative/ambassador; e) affiliate marketing; f) co-creating product lines; g) promoting own products; h) photo and video sales; i) digital courses, subscriptions, e-books; and j) podcasts and webinars.

The Tax Compliance Requirements for social media influencers, namely: a) registration with the BIR and updating of registration information; b) keeping of books of accounts; c) filing of tax returns and payment of taxes; and d) withholding of tax and remittance of the same to the BIR (if applicable), are specified in Section 6 of the Circular.

RMC No. 97-2021 also emphasized that the BIR has the power to obtain information from foreign tax authorities pursuant to the Exchange of Information (EOI) provision of the relevant tax treaties, and that it has the means to verify the income of social media influencers as it is clothed with a special power to obtain information from its treaty partners for purposes of determining their tax liability. The social media influencers are, therefore, advised under the Circular to voluntarily and truthfully declare their income and pay their corresponding taxes without waiting for a formal investigation to be conducted by the BIR to avoid being liable for tax evasion and for the civil penalty of fifty percent (50%) of the tax or of the deficiency tax.

With the issuance of the three Revenue Memorandum Circulars (RMC Nos. 55-2013, 60-2020 and 97-2021), the BIR Large Taxpayers Service (LTS) and the Regional Offices were ordered to create and deploy Special Task Forces (STFs) in November 2021 under Revenue Memorandum Order No. 29-2021. The STFs shall focus on the monitoring and verification of the tax compliance of online merchants, social media influencers and other businesses operating in digital platforms (collectively called as “subject taxpayers”).

The Special Task Force of the LTS and each Regional Office gathered information on the “subject taxpayers” and created a database of all online sellers of goods and/or services and SMIs registered or residing within their jurisdictions, including properties being leased out by online lessors within their jurisdictions. The tax compliance of “subject taxpayers” who are already registered with the BIR are evaluated and subjected to Tax Compliance Verification Drive, if found to be non-compliant with the BIR requirements after verification of the taxpayer’s registration information in the BIR’s database.

The unregistered “subject taxpayers” shall be notified by the Special Task Force (STF) to register and pay voluntarily any unpaid taxes due on past transactions. If the notified taxpayers do not register and pay their tax obligations within the time prescribed in the notice, the STF shall endorse the case to the concerned Regional Investigation Division or National Investigation Division for the conduct of preliminary investigation, which may warrant the issuance of Letter of Authority for the filing of a Run After Tax Evaders (RATE) case and/or for other tax enforcement actions.

Aside from the foregoing, the BIR also collaborated with the Department of Trade and Industry (DTI) to get the names of taxpayers engaged in online business activities that registered their Business Name with the department, for verification/matching with the BIR taxpayers’ registration database. Taxpayers/business entities not found in the BIR registration database were likewise included in the conduct of Tax Compliance Verification Drive by the LTS/Regional Offices.

In addition to the conduct of tax enforcement activities against non-compliant taxpayers/business entities, the BIR also conducted dialogues with representatives of various eCommerce companies, such as Lalamove Philippines Inc., Delivery Hero Philippines Inc. (FoodPanda), Lazada Philippines, Inc., MyTaxi.PH, Inc. (Grab), and Shopee Philippines Inc. in September 2022.

During the dialogues, the eCommerce companies presented their business model to BIR officials as well as identified their issues and concerns with respect to compliance with the Bureau’s requirements. Possible areas of cooperation between the BIR and the said companies, such as exchange of information, were also explored during the dialogues.

“Regardless of the manner of doing business or of earning income, taxpayers have the obligation to register, file their tax returns, and pay whatever taxes are due to the government. The conduct of business through a digital platform does not exempt anyone from his/her/its tax obligations under the law,” said Commissioner Romeo D. Lumagui, Jr.

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