ASSESSMENT CASE STUDY:

BACKGROUND

1. Taxpayer is a distribution company of various chemicals used for manufacturing. Taxpayers imports
the chemicals from its offshore related party, Company X. Taxpayer receives IT services from
Company X. Taxpayer also provides administrative services to another offshore sister, Company Y.

2. Taxpayer plans to distribute any excess retained earnings on or before 01 October 2021.

3. Taxpayer filed and submitted its Annual Income Tax Return on 15 April 2021 together with the
audited financial statements for taxable year ended 31 December 2021.

4. Letter of Authority (LOA) covering taxable year 01 January 2020 to 31 December 2020 was dated
and issued on 20 April 2021 and was received by the authorized officer of the taxpayer on 25 May
2021. The LOA authorized Bureau of Internal Revenue (BIR) Revenue Officer (RO) Crispin and Group
Supervisor (GS) Basilio to conduct the tax audit.

5. On 04 June 2021, taxpayer had a meeting with RO Trese and GS Katorse who stated that they were
the new officers handling the tax audit and provided the list of documents to be submitted.

6. On 18 June 2021, taxpayer submitted the documentary requirements requested by the BIR.

7. The BIR Revenue District Office did not issue a Notice of Informal Conference (NIC) or a Notice of
Discrepancy (NOD)

8. The BIR Revenue Region issued a Preliminary Assessment Notice (PAN) on 29 July 2021 and was
personally received by the authorized officer of the taxpayer. However, the taxpayer did not submit
a reply to the PAN within the time period provided by the rules.

9. On 13 August 2021, BIR Revenue Region issued a Formal Letter of Demand (FLD) and was personally
received by the office guard of the taxpayer.

10. The taxpayer now approaches you to assist in responding to the FLD.

Applicable Laws and Regulations:

1. National Internal Revenue Code as amended by TRAIN law and CREATE Law
2. Revenue Regulations Nos. 02-1999, 18-2013, 22-2020 and the applicable revenue memorandum
circulars on assessments
3. Other applicable rules pertaining to income tax, value-added tax, withholding tax on
compensation, expanded withholding tax, and improperly accumulated earnings tax.