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SECTION 1. SCOPE. - Pursuant to the provisions of Section 244, in relation to Section  34(K)  of  the  National  Internal  Revenue  Code  of  1997,  as  amended, these regulations are hereby promulgated to revoke RR No. 12-2013, relative to the requirements for deductibility of certain expenses, thereby reinstating the provisions  of Section  2.58.5  of RR No. 14-2002,  as amended  by RR No. 17-2003.

SECTION  2.  REQUIREMENTS  FOR  DEDUCTIBILITY  OF  CERTAIN EXPENSES.  -  RR  No.  12-2013  is  hereby  revoked,  in  effect,  reinstating  the provisions  stated  under  RR No. 14-2002,  as amended  by RR No. 17-2003  to read as follows:

“Sec. 2.58.5.  Requirements  for Deductibility.  - Any income  payment which  is  otherwise   deductible   under  the  Code  shall  be  allowed  as  a deduction from the payor’s gross income only if it is shown that the income tax required to be withheld has been paid to the Bureau in accordance with Secs. 57 and 58 of the Code.

A  deduction  will  also  be  allowed  in  the  following  cases  where  no withholding of tax was made:

(A) The payee reported the income and pays the tax due thereon and the withholding  agent  pays  the  tax  including  the  interest  incident  to  the failure to withhold the tax, and surcharges, if applicable, at the time of the audit/investigation or reinvestigation/reconsideration.

(B) The recipient/payee  failed to report the income on the due date thereof, but the withholding agent/taxpayer pays the tax, including the interest incident to the failure to withhold the tax, and surcharges, if applicable, at the time of audit/investigation or reinvestigation/reconsideration.

(C) The withholding  agent  erroneously  underwithheld  the tax but pays the
difference between the correct amount and the amount of tax withheld including   the   interest,   incident   to   such   error,   and   surcharges,   if applicable, at the time of the audit/investigation or reinvestigation/ reconsideration.

Items of deduction representing return of capital such as those pertaining to purchases of raw materials forming part of finished product or purchases of goods for resale, shall be allowed as deductions upon withholding agent’s payment   of  the  basic   withholding   tax  and   penalties   incident   to  non- withholding or underwithholding.”

SECTION 3. REPEALING CLAUSE. - All existing rules and regulations or any revenue issuances or parts thereof which are inconsistent with the provisions of these Regulations are hereby revoked or amended accordingly.

SECTION  4. EFFECTIVITY.  - These  Regulations  shall take effect after fifteen (15) days following publication in any newspaper of general circulation.