Strategic Tax Management Reviewer
*Introduction to Strategic Tax Management
-tax is a high profile issue in these days
of heightened shareholder and regulatory
scrutiny
-getting it wrong can have a several
impact on your reputation as much as in your
profits
-managers should engage in tax
planning that reduces corporate tax liability in
order to enhance shareholders’ value
Shareholders’ Value
-is the value delivered to the equity
owners of a corporation due to management’s
ability to increase sales, earnings and free cash
flow, which leads to an increase in dividends
and capital gains for the shareholders
-historically, the main focus of tax
function is on output. This means the focus was
on the corporate income tax return and other
local filing requirements
-the total organization has to be
concentrated in quality in all aspects of the
execution
-modern quality improvement requires
the continuing and progressive application of
new processes, technology and management
Tax Strategy
-strategy can be defined as the
determination of the basis of the long-term
goals and objectives of an enterprise and the
adoption of courses of action and allocation of
resources necessary for carrying out those goals
-often the tax position of the company
is not taken into account when a strategy is
designed. However, the total tax bill of a
company (including income taxes, wage tax,
indirect taxes and withholding tax) accounts for
more than 30% of net earnings. Therefore, tax
does not only have an impact on the financial
performance of a company, it also has an
impact on other strategic areas such as
corporate responsibility and corporate
governance
-because of the potentially large impact
of taxes on a company’s business – not only in
the financial statements but also on the
company’s reputation – a tax strategy is critical
in defining and communicating the role of the
tax function within and outside the
organization. A tax strategy should be in line
with and embedded in the overall corporate
strategy and should not, of course, be defined
in isolation from the enterprise-wide business
control framework
-a tax strategy is the set of ambitions
and goals related to tax over the next three to
five years, having defined the scope of tax
activities: it I aimed at creating value including
management of tax-related risks by utilization
of available recourses and creating synergies
within the organization thus enabling the tax
function to meet needs and expectations of the
organization’s stakeholders
-corporate strategy, tax strategy, tax-
risk management, global tax position, tax
accounting, tax compliance, true-ups
1. Managing tax risk
2. Managing the cost of the tax function
3. Tax department organization
4. Managing the tax team
5. Stakeholder engagement and communication
6. Appropriate attention
Tax-Risk Management
 -is not about minimizing tax risk but
about determining what level of risk is
acceptable to the company, what response is
actually taking place
-the company’s tax process design
should describe what processes and procedures
are in place and what are the internal controls
for monitoring these identified tax risks
-risks can lead to surprises, restatement
of accounts, material weaknesses in process,
significant additional tax charges, interest,
penalties and harmed reputation
Risk Management
Main Tax-Risk Areas
1. Transaction risk – risk arising from
transactions and tax planning activity (where
there can be considerable opportunity). The
more unusual and less routine a particular
transaction is, then generally, the greater the
tax risks associated with the transaction are
likely to be. In addition, improper
implementation is a typical source of additional
downside risks
2. Operational risk – risk arising from the
operations of the business units and the extent
to which their activities may give rise to
unexpected fluctuations in the tax charge
3. Financial accounting risk and tax process risk
– risk of materially incorrect accounts and lack
of management controls over tax processes
4. Compliance risk – risk of additional liabilities
or penalties arising through non-compliance or
failures in the tax return process
-tax-risk management is not only about
documentation, but about making sure that
your organization actively monitors tax risks and
responds properly to those risks, if and when
they occur. It is about people, processes and
technology
Global Tax Position
-global tax planning will always be an
important tool for managing the effective tax
rate for the organization. However, as a result
of the changing attitude of tax authorities and
the introduction of new disclosure
requirements, the opinion on global tax
planning has changed. Therefore, it is important
to keep in mind that creating value for the
organization is no longer limited to the
improvement of the company’s effective tax
rate, but should be based on the organization’s
tax strategy and tax-risk policy. There should be
a balance between global tax planning and
managing tax risks. The right tax-risk policy will
help ensure that tax planning is effective and
appropriate
-providing the organization the ability
to proactively evaluate legislative changes and
the potential impact on business
-ensuring that tax strategies, policies
and processes and standardized and integrated
within the wider organization
Tax Accounting, Reporting and Compliance
-often the responsibility for tax
reporting and the knowledge of Accounting
Principles and International Financial Reporting
Standards (IFRS) is not in the tax department.
However, in today’s environment and in order
to be able to take full responsibility, the tax line
and tax department will need to increase its
knowledge about tax accounting and tax
reporting. The tax department should become
familiar with the basics of accounting for
income taxes and the disclosures required
under the respective accounting rules. Another
improvement towards an effective
management of tax reporting and tax
compliance is the use of IT tools, which play an
important role in making the tax function more
effective
Tax and Corporate Responsibility
-over the last few years the discussion
about corporate responsibility has gained
substantially in importance both at the national
and the international level
-it has three main pillar of sustainability,
economic, environmental and social. These
three pillars are informally referred to as
people, planet and profits
-tax is the price we pay for living in a
civilized society and in a fair society we expect
to pay a fair share (Supreme Court Judge Oliver
Wendell Holmes). This then raises the
(contested) issue, what is the fair share
Sustainability
-is defined as development that meets
the needs of the present without compromising
the ability of future generations to meet their
own needs
-it focuses on how a company manages
its economic, environmental and social impacts,
risks and opportunities
-disclosure on these non-financial
matters are done through sustainability
reporting, also known as EESG (economic,
environmental, social and governance)
reporting, non-financial reporting, or triple
bottom line accounting, which is a central
element of modern corporate reporting that
includes strategy, governance and performance
*Tax Planning
Relationship of tax payment with net income
-the relationship between tax payment
and net income inversely proportional another
-meaning when tax payment goes up by
certain amount, income goes down by exact
amount
Tax Planning
-can be understood as the activity
undertaken by the assesse to reduce the tax
liability by making optimum use of all
permissible allowances, deductions,
exemptions, exclusions and so forth, available
under the statute
-taxes can eat into your annual
earnings. To counter this, tax planning is a
legitimate way of reducing your tax liabilities in
any given financial year. It helps you utilize the
tax exemptions, deductions and benefits
offered by the authorities in the best possible
way to minimize your liability
-it is the analysis of one’s financial
position from the tax efficiency point-of-view
Objectives of Tax Planning
-it ensures savings on taxes while
simultaneously conforming to the legal
obligations and requirements of the tax code.
The primary concept of the tax planning is to
save money and mitigate one’s tax burden.
However, this is not its sole objective
-working capital management
-time value of money
Advantages of Tax Planning
1. To minimize litigation
-to litigate is to resolve tax disputes
with tax authorities. There is often friction
between tax collectors and taxpayers as the
former attempts to extract the maximum
amount possible while the latter desires to keep
their minimum tax liability to a minimum.
Minimizing litigation saves the taxpayer from
legal liabilities
2. To reduce tax liabilities
-every taxpayer wishes to reduce their
tax burden and save money for their future
3. To ensure economic stability
 -taxpayers’ money is devoted to the 5. Get professional help
betterment of the country. Effective tax
Collection
planning and management provide a healthy
inflow of money that results in the sound 1. Know your rights and remedies
progress of the economy. This benefits both the
citizens and the economy 2. Know the rules and process of collection

4. To leverage productivity 3. Know your options

-one of the core tax planning objectives Favorable Settlement

is channelizing funds from taxable sources to 1. Amnesty
different income-generating plans. This ensures
optimal utilization of funds for productive 2. Abatement
causes 3. Compromise settlement
Objectives of Effective Tax Management: Phases of Tax Enforcement:
1. To maximize ax benefits 1. Compliance
2. To optimize tax deductions -tax laws and regulations
3. To minimize taxable income -keeping of books
4. To avail all tax incentives -filing of returns
5. To avail tax remedies under the code -payment of self-assessed taxes
6. To comply all the requirements of the Bureau 2. Assessments
of Internal Revenue
-examination of books
Tax Management:
-surveillance or non-contact audit
Compliance (preventive)
-third party information
1. Know the tax rules
-relief
2. Know how the rules apply
-return review
3. Maintain a high level of tax compliance
3. Collections
4. Secure your tax
-payment of deficiency taxes
5. Get professional help
-warrant of distraint/levy
Assessments:
-garnishment of bank accounts
1. know your rights and remedies
-public auction
2.Know the rules and process the assessment
Tax Evasion
3. Know the best practices of handling
assessment -refers to any act or trick that tends to
illegally reduce or avoid the payment of tax
4. Study and define your strategy
1. Understatement of income
2. Non-declaration of income
3. Overstatement of expenses
4. Overstatement of tax credit
5. Misrepresenting the nature or amount of
transaction to take advantage of lower taxes
Tax Avoidance
-also known as tax minimization
-refers to any act or trick that reduces
or totally escapes taxes by any legally
permissible means
1. Selection and execution of transaction that
would expose taxpayer o lower taxes
2. Minimizing tax options, tax carry-overs or tax
credits
3. Careful tax planning
Tax Evasion VS Tax Avoidance
-tax planning can help lower your tax
payments
-tax avoidance is not the same as tax
evasion. Evasion will send you to jail while
avoidance is applying the law to cut down your
tax obligations
-tax avoidance is not forbidden. It is
settled principle that a taxpayer may reduce
your tax liability by any means which the law
permits
-what the law forbids is tax evasion,
which refers to the use of illegal methods to
lower one’s taxes
-evasion should be applied to the
escape from taxation accomplished by breaking
the law deliberately. The term avoidance refers
to cover escaped of tax accomplished by legal
procedures which may be contrary to the intent
of the law’s but nevertheless do not violate the
law
Burden of Proof in Establishing Fraud
-a tax fraud or evasion case is basically a
criminal case. In the establishment of fraud, the
burden of proof is on the BIR
-more suspicions and doubts as to the
intention of the taxpayer re not sufficient proof
of fraud. Fraud is never presumed, it must be
proved
Tax Fraud Cases
1. From examination of return
-keeping no records or inadequate
records despite substantial transactions
reflected in the returns
-standard of living of the taxpayer cars
and jewelries; or staying in luxurious mansion,
and ownership of properties whose values far
exceed his probable sources of income as
declared per return
-records verified were not properly
declared for tax purposes
-false vouchers ad receipts
2. From information furnished by;
-an informant who has knowledge of
the transactions of the taxpayer which were not
properly declared for tax purposes
-referrals from other government
officer or from other investigating units of the
BIR
3. Thru initiative of the investigating officers
-from newspaper reports
-thru research of available government
records such as from offices of the Register of
Deeds, DPWH and other government offices
 -in relation to an investigation of
another taxpayer, where suspects that certain
transactions were not declared for tax purposes
Effects of Fraud
1.Civil fraud results in the imposition of the 50%
surcharge
2. Criminal fraud involves the imposition of
penal sanctions by the Regional Trial Court or
the CTA, depending on the amount of basic tax,
upon conviction
3. The power of the Commissioner to assess the
tax is extended to ten (10) years from date of
discovery of the falsity or fraud
4. Cases involving fraud cannot be the subject of
compromise
5. Suspension and temporary closure of the
business operations of a taxpayer
Solution of Tax Problem
1. Have a tax consultant
2. Know your rights and remedies in tax of
deficiency collection
3. Know your rights and remedies in tax audit
investigation and tax surveillance
4. Compliance of all BIR laws ad regulation
Sec.34 (k) (Tax Code)
-states that an expense will be allowed
as a deduction for income tax purposes only if it
is shown that the tax required to be deducted
and withheld therefrom has been paid to the
BIR
R.R. No. 12-2013
-no deduction will also be allowed
notwithstanding payments of withholding tax at
the time of the audit investigation or
reinvestigation/reconsideration in cases where
no withholding of taxes was made in
accordance with Sec.57 and 58 of the Code
R.R. No.6-2018
-revoked the R.R. No. 12-2013
-any income payment which is
otherwise deductible under the Tax Code, shall
be allowed as a deduction from the payor’s
gross income only if it shown that the income
tax required to be withheld has been paid to
the BIR in accordance with Sections
Income Payor
-recognizes the expenses
-withholding agent
-issues the 2307
-prepare and remit taxes using 0619e
and 1601EQ
Income Payee
-recognizes the income
-utilizes the 2307 as proof of tax credit
Top Withholding Agents
-under R.R.7-2019, top withholding
agents are those taxpayers whose gross
sales/receipts or gross purchases or claimed
deductible itemized expenses, as the case may
be, amount to 12 million pesos during the
preceding taxable year
-if the taxpayer qualifies as a top
withholding agent, the income payments it will
make shall be subject to 1% in case of supplier
of goods and 2% in case of supplier of services.
Take note that failure to subject income
payments to these suppliers shall be disallowed
as a deductible expense
R.R. No. 11-2018
 -the term local resident suppliers of
goods/suppliers of services pertains to a
supplier from whom any of the top withholding
agents, regularly makes its purchases of
goods/services
-as a general rule, this term does not
include a casual purchase of goods/services that
is purchase made from a non-regular supplier
and oftentimes involving a single purchase
(casual purchase)
-however, a single purchase which
involves 10,000 pesos or more shall be subject
to withholding tax (casual purchase with 10K
purchase)
-the term regular suppliers, for
purposes of these regulations, refer to suppliers
who are engaged in business or exercise of
profession/calling with whom the taxpayer-
buyer has transacted at least 6 transactions,
regardless of amount per transaction, either in
the previous year or current year
People Skills:
-“when dealing with people, remember
you are not dealing with creatures of logic, but
with creatures of emotion” (Dale Carnegie)
Techniques in Handling People:
1. Don’t criticize, condemn or complain
2. Give honest and sincere appreciation
3. Arouse in the other person an eager want
6 Ways to Make People like you:
1. Become genuinely interested in other people
2. Smile
3. Remember that a person’s name is to that
person the sweetest and most important sound
in any language
4. Be a good listener. Encourage others to talk
about themselves
5. Talk in terms of the other person’s interests
6. Make the other person feel important and do
it sincerely
Be a Leader: How to change people without
giving offense or arousing resentment:
1. Begin with praise and honest appreciation
2. Call attention to people’s mistakes indirectly
3. Talk about your own mistakes before
criticizing other person
4. Ask questions instead of giving direct orders
5. Let the other person save face
6. Praise the slightest improvement and praise
every in your praise
7. Give the other person a fine reputation to live
up to
8. Use encouragement. Make the fault seem
easy to correct
9. Make the other person happy about doing
the thing you suggest
Tax Enforcement Power of the BIR
Powers of the Commissioner of Internal
Revenue:
-authorized powers of the
commissioner related to assessment and
enforcement of taxes:
1. To examine the book, paper, record or other
date which may be relevant or material to such
inquiry
2. To obtain on a regular basis from any person
other than the person whose internal revenue
tax liability is subject to audit or investigation,
or from any office or officer of the national and
local governments, government agencies and
instrumentalities (third party information)
3. To summon the person liable for tax or
required to file a return, or any officer or
employee of such person, or any person having
possession, custody or care of the books of
accounts and other accounting records
-summon is the authoritative or
urgently call on (someone) to be present,
especially as a defendant or witness in a law
court
-non-compliance may result to a
criminal case
4. To authorize the examination of any taxpayer
and the assessment of the correct amount of
tax
-the crime of perjury is committed by
any person who shall knowingly make
untruthful statements or make an affidavit,
upon any material matter and required by law
5. Order inventory-taking of gods of any
taxpayer as a basis for determining his/her
internal revenue tax liabilities, or may place the
business operations of any person, natural or
juridical, under observation or surveillance if
there is reason to believe that such person is
not declaring his correct income, sales or
receipts for internal revenue tax purposes
Tax Enforcement Power of the BIR:
1. Inventory stock taking
2. Surveillance (RMO 3-09)
3. Tax mapping
4. Validation of sales generated from Point of
Sale (POS/Cash Register Machines (CRM) and
other Sales Receipting System Software
5. Benchmarking
Inventory Stock Taking
-prior to inventory stock-taking, the BIR
requires businesses to trade or sell goods to
submit the annual inventory listing before
January 30 (RR 57-2015)
-this annual inventory listing must
include:
1. List based on the prescribed format (soft
copy in DVD R and hard copy)
2. Sworn statement
RMC 57-2015 (sec.1. Scope and Coverage)
-the circular aims to consistently apply
the data requirements across different sectors
with the peculiarity of the industry where the
taxpayers belong directing the volume of
reporting. Hence, the additional reports or
schedules to be submitted and filed with the
annual inventory list shall cover companies
maintaining inventory of stock-in-trade, raw
materials, goods in process, supplies and other
goods such as manufacturing, wholesaling,
distributing/retailing sectors including real
estate dealers/developers, service companies,
e.g., construction companies, building
contractors, etc. It bears stressing that the
data/information contained in the said
schedules/lists should be reconciled with the
amount declared in the financial statements
and annual income tax returns
-the soft copies of the inventory list
including other applicable schedules shall be
stored/saved in Digital Versatile Disk-
Recordable (DVD-R) properly labeled and
submitted, together with a notarized
certification, as shown in Annex D, duly signed
by the authorized representative of the
taxpayer certifying that the data/information
contained in the DVD-R are true and correct
Deadline: January 30 of the following year
-zero inventory (still need to file)
-penalty of 1,000 only
 -inventory in financial statements and
ITR should be equal to the company’s inventory
list submitted to the BIR
-be careful, amounts should be
reconciled
-basis for audit
-purpose is to determine correct tax
-verification of inventories of taxpayers
in relation to purchases and cost of sales
-the BIR conducts actual physical
inventory count of the inventories of the
taxpayer
-the concerned RO shall require the
taxpayer to pay resulting deficiency taxes upon
conclusion of the inventory-taking activity
-there is always deficiency tax whether
the difference is positive (over) or negative
(under)
RMO 03-2003
-if a taxpayer selected for stocktaking
has multiple branches, warehouses, bodegas, or
facilities, simultaneous conduct of inventory-
taking/stocktaking on the said premises shall be
made
-inventory verification shall be
authorized through a Mission Order (BIR Form
0422) and a letter to the taxpayer duly signed
by the Assistant Commissioner, Large taxpayers
Service/concerned Regional Director
-if a revenue officer failed to render a
report of inventory verification/stocktaking due
to the refusal of the taxpayer to provide the
necessary information relative to the correct
determination of inventory valuation, the
corresponding recommendation for the
issuance of Subpoena Duces Tecum shall be
made under existing rules and regulations shall
be made
Surveillance (RMO 03-09)
-“In looking for people to hire, look for
3 qualities: integrity, intelligence and energy.
And if they don’t have the first, the other 2 will
kill you” (Warren Buffet)
Oplan Kandado
-suspension and temporary closure of
the taxpayer’s business
-the RMO even provides that the
operations be widely publicized in certain
instances trough press releases or conferences,
and if possible – via televised coverage – a total
nightmare for any taxpayer. The intention is for
the program to create a lasting impact on the
public, particularly erring taxpayers
-physical closing of the doors
-sealing with appropriate security
devices (padlocks, etc.)
-posting of BIR’S seal
3 Types of Surveillance
1. Covert Surveillance – undercover
2. Overt Surveillance – actual observation and
close monitoring
3. Short Duration Surveillance – tax compliance
check
Grounds for Suspension or Temporary Closure
of Business:
1. Failure to register for VAT as required
2. Failure to issue receipts or invoices by a VAT
registered taxpayer or registrable taxpayer
3. Failure to file a VAT return and pay the tax
due; and
4. Understatement of taxable sales or receipts
by 30% or more in the case of VAT registered
taxpayer or registrable taxpayers
Procedure in Conducting Surveillance:
1. Should be covered by Mission Order
2. The data gathered from the surveillance is
extrapolated
-to get the average daily sales, divide
the total sales during surveillance by total
number of days under surveillance
3. Extrapolated and compared with recent tax
returns
4. Normally the BIR computed if there is an
understatement of taxable sales or receipts by
30% or more
When does oplan kandado takes place
-after conclusion of the surveillance ad
there is sufficient ground for closure
Step 1: The BIR will issue to the taxpayer a 48-
hour notice requiring him to explain (why he
should not be dealt with administratively
(suspension), and/or criminally (violation of the
tax code))
Step 2: Upon the taxpayer’s submission of
explanation (on/before the deadline) the BIR
shall decide whether or not to terminate the
case or to pursue administrative/criminal action
against the taxpayers
Step 3: If the BIR deems it necessary to pursue
administrative/criminal ac ion against a non-
compliant taxpayer, it shall issue a 5-day VAT
Compliance Notice (VCN)
Step 4: In the event the taxpayer refuses,
neglect or fails to submit a response to VCN
within the prescribed period; or submitted a
response that was later found to be insufficient;
or refuses, neglects or fails to comply with the
terms of the VCN, the BIR shall issue a closure
order
Duration of Closure
-the closure of a business establishment
shall last for a period of not less than 5 days,
and shall be in force until the violation is
rectified
-can be longer than 5 days, no
maximum number of days of closure
When can the closure order be lifted?
-if the violation is rectified by the
taxpayer by:
1. Complying with the registration requirements
2. Complying with the invoicing requirements as
set forth in sec.113 and 237, in case of failure to
issue receipts/invoices
3. Filing of VAT returns which have not been
filed, and paying the amount of taxes due
thereon
4. Amending previously filed VAT returns to
reflect the correct taxable sales/receipts which
were previously understated
-all with penalties
-if there is no 100% compliance, but the
taxpayer partially complies by amending his
returns, wherein the amounts reflected in the
amended returns are based on the ratio and
percentages reflected in the original returns
filed, such compliance shall still be considered
as basis for the recommendation for the lifting
of the closure order
Details to be included in a sales invoice (RMO
12-2013)
1. Taxpayer’s registered name
2. Taxpayer’s business name
3. A statement that the taxpayer is VAT or non-
VAT registered followed by the taxpayer’s
identification number (TIN) and 4-digit branch
code
4. Business address where the sales invoice will
be used
5. Date of transaction
6. Serial number of the sales invoice printed
clearly
7. A space for the name, address and TIN of the
buyer
8. Description of the items/goods
9. Quantity of items/goods
10. Unit cost
11. Total cost
12. VAT amount (if the transaction is subject to
VAT)
13. If the VAT taxpayer is engaged in mixed
transactions, the amounts involved shall be
broken down to vatable sales, VAT amount,
zero-rated sales and VAT exempt sales
14. For non-VAT sales invoice, the phrase “this
document is not valid for claim of input tax” in
bold
Section 237 (A) Issuance
-all persons to an internal revenue ax
shall, at the point of each sale and transfer of
merchandise or for services rendered valued at
one hundred pesos (P100.00) or more, issue
duly registered receipts or sales or commercial
invoices, showing the date of transaction,
quantity, unit cost and description of
merchandise or nature of services: Provided,
however, that where the receipt is issued to
cover payment made as rentals, commissions,
compensations, fees, receipts or invoices shall
be issued which shall show the name, business
style, if any, and address of the purchaser,
customer or client: Provided, further, that
where the purchaser is a VAT-registered person,
in addition to the information herein required,
the invoice or receipt shall further show the
taxpayer identification number (TIN) of the
purchaser
RMC 97-2021
-social media influencers shall be liable
to income tax and percentage or VAT
-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 their income is generally
considered as business income
-social media influencers derive their
income from YouTube partner program,
sponsored social and blog posts, display
advertising, becoming a brand
representative/ambassador, affiliate marketing,
co-creating product lines, promoting own
products, photo and video sales, digital courses,
subscriptions, e-books and podcasts and
webinars
-if a social media influencer receives fee
products in exchange for promotion, he shall
declare the fair market value of such products
as his income
-SEP whose gross sales and gross
receipts and other non-operating income do not
exceed the VAT threshold may opt to be taxed
at 8% in excess of 250K in lieu of the graduated
income tax rate and percentage tax
-the taxpayer may avail of either
itemized deduction or optional standard
deduction. If the taxpayer chose OSD, he shall
signify his intention in his return
-tax compliance requirements include
registration with the BIR and updating of
registration information, keeping of books of
accounts, filing of tax returns and paying the
same and withholding of taxes and remittance
of the same to the BIR
 -when non-resident persons claiming
tax treaty benefits are required to present a
proof of residency, he must obtain a Tax
Residency Certificate (TRC) from the ITAD
division of the BIR and submit it to the taxing
authority of the country in which he is being
taxed
-if the influencer did not avail of the tax
treaty benefit, he shall not be allowed to claim
foreign tax credits in excess of the amount he
supposed to have paid had he invoked the
provisions of the tax treaty
-if the influencer was denied with the
tax treaty benefit despite of proof of
entitlement, he must file an application for
Mutual Agreement Procedure (MAP) with ITAD
-Google LLC informed the public that
any payment made from YouTube will be
treated as royalties and they are required to
collect tax information and withhold taxes
*Tax Mapping/TCVD (Tax Compliance
Verification Drive) (RMO 9-2006)
-we learned about honesty and integrity
is that the truth matters, that you don’t take
shortcuts or play by your own set of rules, and
success doesn’t count unless you earn it fair and
square (Michelle Obama)
-tax mapping is a surprise check or visit
by revenue officers
-in dealing with BIR officers, we have to
make a good first impression
-the purpose of BIR’s TCVD is to expand
its tax base, enhance tax compliance and
consequently, boost its tax collection effort
-TCVD also aims at establishing cordial
relationship with a taxpayer by giving assistance
through the tax information drive and
verification of taxpayer’s compliance
requirements during the actual visitation of
his/her establishment ad its branches
-the charges on non-compliance or
violation to BIR rules of business establishment
ranges from penalties amounting to P1,000 to
P50,000, depending on the nature and scope of
the violation. Some violation, however, can lead
to permanent closure of the business
establishment, criminal charges on the owners
or imprisonment
Compliance Checklist:
Registration Requirements:
1. Has taxpayer paid and displayed its
registration for the current year? Display of
‘Notice to the Public’ (‘Ask for Receipt’) and
Certificate of Registration
2. Is the Certificate of Registration (original)
displayed?
3. Is the ‘Notice to the Public’/’Ask for Receipt’
(original) displayed?
Invoicing Requirements and Use of Cash
Register Machines:
4. Is taxpayer duly provided with
invoices/receipts?
5. Types of receipts/invoices used by taxpayer
and last invoice issued? (Charge invoice,
delivery receipt, cash invoice, official receipt)
6. Is taxpayer using Cash Register Machine?
7. Are all Cash Register Machines with permits?
Bookkeeping Regulations:
8. Are Books of Accounts registered?
9. Is recording updated?
10. Is taxpayer using computerized books of
accounts?
Other Information:
11. Is taxpayer renting its space?
12. If yes, monthly rental?
Procedure during tax mapping or TCVD:
1. The RO will verify if the establishment is
registered or not. If not registered, the RO
requires the establishment to register within 24
hours
2. The RO will request the last-issued official
receipt or sales invoice to verify if the
establishment maintains duly authorized
receipts or sales invoice
3. The RO will verify if the use of CRM/POS/CAS
is duly authorized and determine if there are
violations
4. The RO will verify if the establishment is
maintaining duly authorized books of accounts
Business Registration
-posting of documents in a conspicuous
place
3 original documents which should be posted
conspicuously visible to the public:
1. Certificate of Registration with the BIR (BIR
Form no. 2303)
2. Ask for BIR Receipts
3. Annual Registration Fees (BIR Form No.0605)
for the current taxable year (deadline: Jan. 31)
Penalty: 1,000 each
Photocopy penalty: 1,000 each
-register your business with the BIR.
Failure to register will cost you at least P20,000
Failure or refusal to issue receipts/invoices will
cost you:
1st Offense: P10,000 (failure), P25,000 (refusal)
2nd Offense: P20,000 (failure), P50,000 (refusal)
-pay annual registration fee (BIR Form
0605) on or before January 31 of each year.
Failure to pay the annual registration fee on due
date will cost you at least P1,000
Establishments required to be registered under
RR 7-12:
1. Head Office (HO0
2. Branch
3. Administrative Office
4. Facilities
Compromise penalties for not registering:
Cities: P20,000
1st class municipalities: P10,000
2nd class municipalities: P5,000
3rd class municipalities: P2,000
-penalties provided are inclusive of all
other violations
Official Receipts or Sales Invoice
Principal Receipts/Invoices
-is a written account evidencing the sale
of goods and/or services issued to customers in
an ordinary course of business which
necessarily includes the following:
1. VAT sales invoice
2. No-VAT sales invoice
3. VAT official receipts
4. Non-VAT official receipts
Supplementary Receipts/Invoices (also known
as Commercial Invoices)
-a written account evidencing that a
transaction has been made between the seller
and the buyer of goods and/or services, forming
part of the books of accounts of a business
taxpayer for recording, monitoring and control
purposes such as document evidencing delivery,
agreement to sell or transfer goods and services
which includes but are not limited to delivery
receipts, order slips debit and/or credit memo,
purchase order, job order,
provisional/temporary receipt,
acknowledgement receipt, collection receipt,
cash receipt, bill of lading, billing statement,
statement of account and any other documents,
by whatever name it is known or called,
whether prepared manually (handwritten
information) or pre-printed/pre-numbered
loose-lead (information typed using excel
program or typewriter) or computerized as long
as it is used in the ordinary course of business
being issued to customers or otherwise
-they are not valid proof to support the
claim of input taxes by buyers of goods and/or
services
Sale of goods or properties: cash sales invoice,
charge sales invoice, and collection receipt
Sale of services or lease of properties: official
receipt
Rules on the Issuance of Receipts or Sales
Invoice
-all persons subject to an internal
revenue tax shall, at the point of sale and each
transfer of merchandise or for services
rendered valued at one hundred pesos
(P100.000 or more, issue duly registered
receipts or sales or commercial invoices,
showing the date of transaction, quantity, unit
cost and description of merchandise or nature
of service: Provided, however, that where the
receipt is issued to cover payment as rentals,
commissions, compensations, fees, receipts
shall be issued which shall show the name,
business style, if any, and address of the
purchaser, customer or client: Provided,
further, that where the purchaser is a VAT-
registered person, in addition to the
information herein required, the invoice or
receipt shall further show the Taxpayer
Identification Number (TIN) of the purchaser
(section 237)
-no authority to print receipts or sales
or commercial invoices shall be granted unless
the receipts or invoices to be printed are serially
numbered and shall show, among other things,
the name, business style, Taxpayer
Identification Number (TIN) and business
address of the person or entity to use the same,
and such other information that may be
required by rules and regulations to be
promulgated by the Secretary of Finance, upon
recommendation of the Commissioner
Invoicing and Accounting Requirements for
VAT-registered Persons:
Invoicing Requirements:
1. A VAT invoice for every sale, barter or
exchange of goods or properties
2. A VAT official receipt for every lease of goods
or properties, and for every sale, barter or
exchange of services
Compromise penalty for violations on official
receipts or sales invoice (RMO 7-2015)
Nature of violation: Failure or refusal to issue
receipts or sales or commercial invoices; issuing
receipts invoices not truly reflecting and/or
containing all information required therein or
using multiple or double receipts or invoices
Criminal Penalty Imposed: Fine of not less than
P1,000 but not more than P50,000 and
imprisonment of not less than 4 years
Amount of Compromise:
1. For failure to issue receipts or sales or
commercial invoices: 1st offense – P10,000, 2nd
offense – P20,000
2. For refusal to issue receipts or sales or
commercial invoices: 1st offense – P25,000, 2nd
offense – P50,000
If the information missing is the correct amount
of the transaction: 1st offense – P20,000, 2nd
Offense – P50,000
3. For issuance of receipts that do not truly
reflect and/or contain all the information
required to be shown therein: 1st offense –
P5,000,2nd offense – P10,000
If the duplicate copy of the invoice is blank but
the original copy thereof is detached from the
booklet and cannot be accounted for: 1st
offense – P20,000, 2nd offense – P50,000
-subsequent violations shall not be
subject to compromise
If the amount of the transaction stated in the
taxpayer’s copy is understated versus the
amount per copy of the invoice issue to the
purchaser: not qualified for compromise
4. For possession or use of multiple or double
receipts: not qualified for compromise
CRM and POS
1. For use of unregistered receipts or invoices:
1st offense – P20,000, 2nd offense – P50,000
Use of unregistered cash register machines in
lieu of invoices or receipts: 1st offense –
P25,000/unit, P50,000/unit
-subsequent violations shall not be
subject to compromise
-attach or paste original sticker/DECAL
in the machine authorizing the use of CRM/POS
or similar device. Failure to attach or paste will
cause you at least P1,000/unit
POS (Point-Of-Sale System)
-POS may be comprised of touchscreen
device, card scanner, chip reader, barcode
scanner, computer and server (the cloud)
Books of Accounts
-authorized and updated
-register books of accounts to the BIR
and maintain it in the business establishment
-failure to register and maintain books
of accounts will cost you from P200 to P50,000
depending on gross sales or receipts
-record transactions to the books of
accounts, also known as bookkeeping
-failure to bookkeep or record will cost
you from P200 to P50,000 depending on your
gross sales or receipts
Manners of Maintaining Books of Accounts:
1. Manual Books of Accounts
-manual
-all entries should be handwritten
2. Loose leaf Books of Accounts (with permit to
use)
-is a recording of transactions through
encoding of details in the computer and
generating copies by printing this out using the
approved loose-leaf format to be bound as the
bookkeeping record of the taxpayer
3. Computerized Books of Accounts (with
permit to use)
-Computerized Accounting System
(CAS) if the integration of different component
systems to produce computerized books of
accounts and computer-generated accounting
records and documents. For purposes of this
issuance, it shall also refer to applications for
the use of any or all of the CAS components
 -any system application adopted to
generate accounting records, reports and/or
documents
-computerized books usually uses ERP
such as SAP (System Applications and Products)
and XERO ETC.
Computerized Books of Accounts
-these refer to books of accounts such
as General Ledger, General Journal, Sales Book,
Purchase Book, Disbursement Book, etc. which
are systems generated
Computer Generated Accounting Record
-these refers to official receipts, sales
and cash invoices, cash vouchers, journal
vouchers, billing statements, sales tickets and
other underlying accounting records
Computer Generated Receipts and Invoices
-these are part of accounting records
which are generated by the system with a
capacity to produce sequential range of
numbers
Computer Generated Subsidiary Accounting
Records
-these refer to Cash Receipt Book, Cash
Disbursement Book, Accounts Payable Book,
Accounts Receivable Book, Debit/Credit Memo
Book and other underlying subsidiary
accounting records being generated under a
computerized system
Where should books of accounts be kept
-books of accounts shall be kept at all
times in the place of business of the taxpayer.
Such books and register, together with records,
vouchers and other supporting papers and
documents prescribed by the BIR, kept by
taxpayers shall be preserved intact, unaltered
and unmutilated. Keeping of two or more sets
of records or books of accounts is prohibited
-corporations, companies, partnerships
or persons whose gross annual sales, earning,
receipts or output exceed three million pesos
(P3,000,000) shall have their books of accounts
audited and examined yearly by independent
Certified Public Accountants
-all taxpayers are required to preserve
their books of accounts, including subsidiary
books and other accounting records, for a
period of ten years reckoned from the day
following the deadline in filing a return, for the
taxable year when the last entry was made in
the Books of Accounts: Provided that, within
the first five years reckoned from the day
following the deadline in filing a return, or it
filed after the deadline, from the date of filing
the return, for the taxable year when the last
entry was made in the books of accounts, the
taxpayer shall retain hardcopies of the books of
accounts, including subsidiary books and other
accounting records. Thereafter, the taxpayer
may retain only an electronic copy of hardcopy
(paper) of the books of accounts, subsidiary
books and other accounting records in an
electronic storage
-all transactions shall be recorded
within 7 days from the date transactions were
effected (manual books)
Violations:
1. Violations committed by any financial officer
or an independent CPA, or any person under his
direction as follows:
Criminal Penalty: Fine of not less than P50,000
but not more than P100,000 and imprisonment
of not less than 2 years but not more than 6
years (if the offender is a CPA, his certificate
shall automatically be revoked or cancelled
upon conviction)
Willful falsification of any report or statement
on any examination or audit; rendering reports
(including exhibits, statements, etc.) not verified
by him personally or under his supervision or by
a member of his firm or staff in accordance with
sound auditing practices (Compromise: this
violation cannot be compromised because it
involves fraud, sec.204, NIRC)
Certification of financial statement of a business
enterprise containing an essential misstatement
of facts or omissions as to transactions, taxable
income, deduction and exemption of a client
(Compromise: this violation cannot be
compromised because it involves fraud,
sec.204, NIRC)
2. Violation committed by persons who are not
CPAs:
Criminal Penalty: Fine of not less than P50,000
but not more than P100,000 and imprisonment
of not less than 2 years but not more than 6
years. In case of foreigners, conviction under
this Code shall result in his immediate
deportation after serving sentence without
further proceedings for deportation
Examination and audit of books of accounts of
taxpayers (Compromise: P25,000)
Offering to sign and certifying financial
statements without audit (Compromise:
P25,000)
Knowingly making false entry or enters any false
or fictitious name in the books of accounts
mentioned in the preceding paragraphs (this
violation cannot be compromised because it
involves fraud, sec,204, NIRC)
Keeping of two or more sets of records or books
of accounts (this violation cannot be
compromised because it involves fraud,
sec.204, NIRC)
Failure to keep books of accounts or records in
a native language, English or Spanish or make a
true and complete transaction (Compromise:
50k and below = 1k, 50K – 100K = 3K, 100K –
500K = 5K, 500K – 5M = 10K, 5M – 10M = 15K,
10M – 20M = 20K, 20M – 50M = 30K, 50M and
above = 50K
Where books kept in a naïve language, English
or Spanish are found to be at material variance
with books kept in another language (this
violation cannot be compromised because it
involves fraud, sec.204, NIRC)
-books should be authorize (Manual:
stamped, loose leaf: permit to use,
computerized accounting system: permit to
use)
-taxes are lifeblood of the nation.
Simply put, without the needed funds it gets
from taxes, government will be paralyzed to
perform its basic functions. And to ensure that
taxes constantly run through those government
veins, so to speak, the Bureau of Internal
Revenue (BIR) has to make sure that the supply
of taxes do not run dry
-one of the activities that the BIR
undertakes to achieve this purpose is to check
and validate that taxpayers engaged in the sale
of goods/services declare the proper sales
income from their business activities
-the monitoring and validation of
accuracy of sales (also called post-evaluation)
by the BIR, may be conducted simultaneously
with other BIR enforcement activities, such as
the Tax Compliance Verification Drive (TCVD),
Surveillance, Inventory Stocktaking, and Tax
Audit/Investigation
-an inventory in all POS/CRM/SPM and
other receipting machines/software shall be
taken, matched and reconciled with the list
from the BIR database. Particularly, the BIR will
provide a listing of matched and unmatched
machines per the BIR’s database as against the
machines that are physically in the taxpayer’s
place of business. In case of a discrepancy, the
BIR shall issue a Letter Notice (LN), requiring the
taxpayer to explain and reconcile in writing,
within 5 days from receipt of the LN, why such
discrepancy exists
Computation of Average Daily Sales: total sales
divided by number of machines then results
divided by number of days
Computation of sales of the missing machines:
number of missing machines times average
daily sales per machine times number of days
-reconciliation of the taxpayer’s
extracted data (Z-reading/e-Journal) from
POS/CRM/SPM/Other Sales Receipting
Systems/Software, including
Receipting/Invoicing of CAS against the list of
sales data provided by the Business Intelligence
Division (BID). Sales derived from Z-reading per
machine shall be summarized by the team and
compared with e-Sales and e-Journal
-e-Sales is a real time reporting online
of actual sales transaction recorded by
CRM/POS/SPM, or other sales machines and/or
software
-if the amount extracted from the e-
journal is higher than the reported e-sales, it
shall render the taxpayer liable for under-
declaration of sales
-if the e-journal amount is less than the
reported e-Sales, the violation is equivalent to
non-issuance of sales invoice or receipt, or
issuance of an unregistered receipt, which shall
be dealt with in accordance with sec.264 or the
NIRC of 1997, as amended
-in summary, the BIR will assure the
completeness of the CRM, POS and other
machines registered with the BIR and determine
whether there are other machines that are
actually used by the taxpayer without the
appropriate accreditation and permits to use
with the BIR. If there are
unregistered/unaccounted/missing/lost sales
machines or manual receipts/invoices, the BIR
will compute for the deficiency taxes as
explained in item 6 above plus compromise
penalty under RMO 7-15
-also, as done in post evaluation of
CRM, POS and other machines, the BIR will get
the Z-reading for CRM or the back-end report in
case of POS for the summary of the sales for a
specified period and compare the result with
the amount on the e-sales, ITR and VAT return
submitted to the BIR. Any understatement of
sales of more than 30% may result in an Oplan
Kandado, or otherwise, might trigger for the
issuance of Letter of Authority
Z-Report
-is the End of Day report that calculates
and displays the payments received through
that register for that day
-“integrity is choosing your thoughts
and actions based on values rather than
personal gain”
Validation of sales generated from Point of
Sale (POS/Cash Register Machines (CRM) and
other Sales Receipting System Software
-“integrity might take a long time to pay
off economically but it pays off instantly
through inner peace”
Procedure of validation of sales/post
evaluation:
1. Determine if machines are properly
accredited/registered with the BIR
2. Inventory of machines, matched and
reconciled with the BIR database
3. Unregistered machine: apprehend and
sealed, should be registered, pay deficiency tax
4. TPs to submit z-reading/e-journals not later
than the second day of post-evaluation
5. Issuance of Subpoena Duces Tecum (SDT) for
failure to comply
6. Failure to comply with SDT: warrant the use
of “best evidence obtainable” (average daily
sales per day)
Issuance of Supboena Duces Tecum (SDT)
-meaning subpoena for production of
evidence
-is a court order requiring the person
subpoenaed to produce books, documents or
other records under his or her control at a
specified time/place in a court hearing or a
deposition
-issued when taxpayer refused to
submit z-readings
Z-readings – paper from POS indicating total
sales of a machine
e-Sales
-is the process of reporting the gross
monthly sales of taxpayers engaged in business
using CRM, POS System and Other Sales
Machines (OSM) or any other similar device
through different channels
-the e-Sales System is the process of
reporting gross monthly sales of taxpayers
electronically. This system automates the
monitoring and reporting of the gross monthly
sales per registered CRM/POS or any other
similar business machines generating receipts
or invoices. Through e-Sales, taxpayer monthly
sales shall be monitored by BIR
-all taxpayers using CRM/POS and/or
other similar business machines with TIN ending
in even number shall report their sales on or
before the 8th day after the month of sale via
the e-Sales while those with TIN ending in odd
number shall report their sales 10 days after the
month of sale
-Z-readings compared to e-Sales
-Z-reading is compared to e-sales. If Z-
reading is higher than reported e-sales/ITR/VAT
Returns, it constitutes under declaration of
sales. But if Z-reading is lower than reported e-
sales/ITR/VAT Returns, it constitutes non-
issuance of receipts
-any under declaration/understatement
of sales of more than 30% may result in oplan
kandado or might trigger the issuance of Letter
of Authority
Penalties
-any taxpayer required to transmit sales
data to the Bureau’s electronic sales reporting
system but fails to do so, shall pay, for each day
of violation, a penalty amounting to one tenth
of one percent (1/10 of 1%) of the annul net
income as reflected in the taxpayer’s audited
financial statement for the second year
preceding the current taxable year for each day
of violation or Ten Thousand Pesos (P10,000),
whichever is higher
Benchmarking (RMO 5-2012)
-benchmarking of taxpayers refers to
the process of setting standards to determine
the performance of level of taxpayers in a given
industry or sector
Benchmarking Process
-benchmarking starts with the gathering
of the taxpayers’ VAT returns, income tax return
and financial statements. The tax returns are
sorted according to the specific industries or
based on the Philippine Standard Industry Code
(PSIC). PSIC is commonly used to identify and
classify the specific business categories in
business. From the chosen industry, a number
of taxpayers are chosen to represent the
industry population and their gross profit rate
are computed
 -computation of the gross profit is
derived as: Income Tax Ratio = Income Tax Due
divided by Total Sales or Revenue, VAT Ratio =
VAT Payment/VATable Gross Sales
-once the benchmark figures are
established, a taxpayer will be tested based on
its actual gross profit rate. The taxpayers who
are more than 30% below the industry average
ratio are classified as high risk taxpayers. Hence,
they are prioritized to receive the
Benchmarking Notices from BIR
Classifications in Benchmarking:
1. High Risk Taxpayers – over 30% below
benchmark
2. Middle Risk Taxpayers – 16% to 30% below
benchmark
3. Low Risk Taxpayers – 15% or less below
benchmark
-taxpayers classified as high risk shall be
the top priority target for enforcement actions,
such as surveillance, CRM/POS Post Evaluation,
Oplan Kandado, inventory stocktaking and audit
-the benchmarking committee shall be
responsible for reporting and recommending
the appropriate actions that may be taken
and/or sanctions that may be imposed against
taxpayers or any other person found to be
supplying/submitting false or fabricated data
purportedly to meet the benchmark
requirements
-the industry benchmark may be
revised every two (2) years from approval
hereof or when a law is passed changing the
rate of Value-Added Tax and Income Tax,
whichever comes first, or as may be directed by
the Commissioner
What should the taxpayer do upon receiving a
benchmarking notice?
-the tax is no automatically a tax audit.
It is a request to explain fully in writing the
reason for the taxpayer’s failure to measure up
with set industry benchmark. Hence, the
taxpayer must never ignore the Notice as failure
to properly explain the difference may lead to a
tax audit investigation or other enforcement
activities
-in replying the notice, the taxpayer
may either refute the findings or amend his tax
returns and pay the correct taxes
Can the BIR use the benchmark rate in
computing the tax liability of the taxpayer?
-no
-the use of benchmark in computing
TP’s tax liability has no legal basis
-mainly to establish standards to be
used to measure the compliance of taxpayers in
a particular industry
-may be used in recommending
enforcement actions (LOA, OK, PE, IST)
Manual vs Computerized Method of Recording
Manual Method of Recording
-is an accounting system in which
records are kept by hand rather than by
computer. Instead, transactions are recorded in
journals, and the data is manually compiled into
a set of financial statements
-small companies choose manual
accounting systems because they are less
expensive up front than complicated accounting
system software and are reasonably simple to
use
-recording is possible through book of
original entry. Transaction are written in
journals, from which the information is
manually rolled up into a set of financial
statements. The accountant manually enters
the account numbers and debits and credits for
each individual transaction. Manual recording
primarily entails the usage of following physical
tools to record and maintain the minutest
details of a business’s financial information
-refers to the accounting method in
which physical registers for journal and ledger,
vouchers and account books are used to keep a
record of the financial transaction
-in manual accounting, recording of the
transactions can be done through the book of
original entry (journal day book)
-in manual accounting, all the
calculations (addition, subtraction, etc.) with
respect to the transactions are performed
manually
-in manual accounting, a person
remains involved all the time, with the
accounts, to enter and update transactions,
which is tedious and time-consuming too
-in manual accounting method, if there
occurs an error while entering and posting the
transaction in the books of accounts, then
adjustment entries can be passed, for getting
accurate results. Moreover, adjustment entries
are also made to comply with the matching
principle (the expenses of the accounting period
should match the respective revenues)
-one of the merits of computerized
accounting which manual accounting lacks is
that in manual accounting there is no way to
back up all the entries and financial statements
-in manual accounting, the trial balance
is prepared only when it is required
-in a manual accounting system, the
financial statement is prepared at the end of
the period (financial year)
Computerized Method of Recording
-is an accounting method that records
financial transactions electronically using
accounting software. Most businesses use
computerized recordkeeping system making it
easier to capture information, generate reports
and meet tax and legal reporting requirements
-large corporations are the most
common users of computerized recording
methods
-businesses use accounting software
programs to simplify electronic record keeping,
and produce meaningful reports. Accounting
software provides tools to manage your
customers, vendors, clients, inventory and
finances. There is a Report Center which
provides a method of tracking aspects of the
business, including sales, income, expenses and
overall company growth
-computerized accounting implies the
method of accounting, which uses an
accounting software or package, to record the
monetary transactions, which happen to an
organization
-in computerized accounting, the
transactions are recorded in the form of data, in
the customized database
-in computerized accounting, there is
no need to perform calculations, as the
calculations are performed by the computer
automatically
-in computerized accounting, once the
transaction is entered, it is automatically
updated in all the accounts to which it relates
and thus, the process is comparatively faster
-in computerized accounting, to comply
with the matching principles journal and
vouchers are prepared, but adjustment entries
are not passed for rectification of error unless
the error is an error of principle
 -in computerized accounting, the
accounting records can be saved and backed up
-in computerized accounting, instant
trial balance is provided on a daily basis
-the financial statement is provided at
the click of a button, in the computerized
accounting system
Examples of accounting software provides:
1. QuickBooks
2. SAP (Systems Application Procedure)
3. Oracle Netsuite
4. FreshBooks
5. Zoho Books
6. ZarMoney
7. Wave Financial
8. Sage Business Cloud Accounting
9. Xero
10. Melio
Advantages of Manual Method of Recording:
1. Correcting entries may be easier with manual
systems
2. Data loss is less of a risk, particularly if
records are stored in a fire-proof environment
3. Cheaper: it is much economical than installing
computerized systems and software
4. Less complicated
5. Not dependent on electricity
6. Detection of potential errors: Manual
accounting system entails double-entry
accounting that is entering of credits and debits
in two different accounts
Disadvantages of Manual Method of
Recording:
1. Time-consuming: unlike computerized
accounting, manual accounting is a slow and
time consuming process
2. Lack of security: security is one of the biggest
challenges with manual accounting
3. May require specialized knowledge to
maintain: extensive training for accountants will
incur costs
4. Potential of human error
5. Lack of visibility and control
6. Labor intensive: manual accounting is an
uphill task and requires a lot of patience, time
and appropriate accounting knowledge
Advantages of Computerized Method of
Recording:
1. Efficient way to keep financial records and
requires less storage space
2. Easy to generate orders, invoices, debtor
reports, financial statements, employee pay
records, inventory reports
3. Automatically tallies amounts and provides
reporting functions
4. Allows you to back up records and keep them
in a safe place in case of fire or theft
5. Data standardization and accuracy
6. Improved analytical capabilities
7. Cost savings by increasing employee
productivity, decreasing manpower, etc.
8. Elimination of monotonous or exhaustive
manual labor
Disadvantages of Computerized Method of
Recording:
1. Potential Fraud
2. Heavy cost of installation
3. System Failure
4. Technical issues
5. Cost of training
6. Unanticipated errors not known
7. Health dangers
8. Fear of unemployment
Software Pricing
-for implementation, small and
medium-sized enterprises should anticipate to
pay between 3,813,562.50 to 38,135,625. Large
firms might expect to spend anywhere between
50 million to 500 million
Aquilon Software
-76,242.75/user to 152,485.50/user,
depending on the modules selected (on-
premise license)
-3,812.14/user to 7,624.28/user/month,
depending on the modules selected (cloud
licensing option)
BizAutomation Cloud ERP
-4,063.74/user/month and requires 5
minimum users
-the e-commerce module costs an
additional 7,621.73/month
-companies with users that don’t
require full access can pay 1,268.17/partial
user/month
Dolibarr
-495.07/user and has 5GB of storage
and the basic features of Dolibarr ERP and CRM
(basic package)
-1,649.89/month plus
659.75/user/month and has all of the features
of the basic package, plus 25GB of storage and
priority email support (premium package)
ECOUNT ERP’s
-2,795.57/month or 30,497.10/year
ERPNext
-2,541.43/user/month and includes all
modules, 25GB storage, 15,000 emails per
month, tracking data for unlimited companies
and unlimited custom fields, forms and scripts
(cloud deployment)
LillyWorks
-starts from 5,082.85/user/month and
scales up from that point (monthly subscription)
Microsoft Dynamics 365
-3,303.85/user/month (sales
professional module)
-4,828,71/user/month (sales enterprise
module)
SAP
-163,311.97 for professional users and
84,680.28 for limited users (perpetual license)
-4,777.88/professional user/month or
2,744.74/limited user/month (subscription
licenses
In Ethically Reducing Taxes
-in manual accounting, a calculation
mistake may occur and possible misplacements
of important documents for compliance may
happen affecting the results and taxable income
-computerized accounting programs
create clean, up-to-date, and accurate records,
resulting in outcomes that are error-free, thus a
correct taxable income. In addition, all of the
necessary documents for compliance are just a
click away
Reports/Forms for Submission by Registered
Taxpayers
1. SAWT (Summary Alphalist of Withholding
Tax)
-attachments to BIR Forms: 1701,
1701A, 1701Q, 2550M, 2550Q and 2551Q
-required to submit SAWT electronically
in a 3.5 floppy diskette are persons claiming for
refund or applying their creditable tax withheld
at source against the tax due with more than 10
withholding agents-payor of income payment
per return period
-for taxpayers required to file thru EFPS,
regardless of the number of withholding
agents/payor income, are strictly required to
attach the electronic copy of SAWT to the
electronic return
2. SLSP (Summary List of Sales and Purchases)
-attachment to 2550Q, on or before the
th
15 day of the month following the close of
each taxable quarter
-VAT taxpayers with quarterly total
sales or receipts exceeding 2,500,000 are
obliged to submit a quarterly summary list of
sales, while those with quarterly total purchases
exceeding 1,000,000 are demanded a quarterly
summary list of purchases. It can be submitted
through a 3.5-inch floppy diskette or by simply
sending the zipped file through
esubmission@bir.gov.ph
3. 0619E (Monthly Remittance Form for
Creditable Withholding Taxes Withheld
[Expanded])
-manual filers: this form shall be filed
and the tax remitted on or before the 10th day
following the month the withholding was made.
This shall be filed for the first two (2) months of
each calendar quarter
-eFPS Filers:
Group A – 15 days following the month the
withholding was made
Group B – 14 days following the month the
withholding was made
Group C – 13 days following the month the
withholding was made
Group D – 12 days following the month the
withholding was made
Group E – 11 days following the month the
withholding was made
4. 1601EQ (Quarterly Remittance Return of
Creditable Income Taxes Withheld [Expanded])
-this quarterly withholding tax
remittance return shall be filed and the tax
paid/remitted not later than the last day of the
month following the close of the quarter during
which withholding was made. Deadlines: April
30, July, 31, October 31, January 31
5. QAP (Quarterly Alphalist of Payees)
-the QAP must be attached to the
Quarterly Remittance Return of creditable
income taxes withheld (expanded) [BIR Form
No.1601-EQ] and quarterly remittance return of
final income taxes withheld [BIR Form No.1601-
FQ] under Revenue Regulations No.11-2018, as
amended 1604E
-the module can be downloaded from
the BIR website at www.bir.gov.ph on
downloadables under the section “Alphalist
Data Entry and Validation Module Version 6.0
(new). The attachment must be submitted
either through the e-submission facility
(esubmission@bir.gov.ph) or through the email
account of the revenue district officer
6. Annual Alphalist of Payees regardless of
number of payees to be filed through
eSubmission
-must be filed on or before March 1 of
the year following the calendar year in which
the income payments subject to expanded
withholding taxes or exempt from withholding
tax were paid or accrued
7. 1601C (Monthly Remittance Return of
Income Taxes Withheld on Compensation
-deadlines:
For manual filers
-for the months of January to
November – on or before the 10th day of the
following month in which withholding was
made
-for the month of December – on or
before January 15 of the following year
For eFPS Filers
-for the months of January to December
Group A – 15 days following the end of the
month
Group B – 14 days following the end of the
month
Group C – 13, days following the end of the
month
Group D – 12 days following the end of the
month
Group E – 11 days following the end of the
month
Computerized Accounting System (CAS)
-refers to the integration of different
component systems to produce computerized
books of accounts and computer-generated
accounting records and documents (RMO 29-
2002)
-BIR Form 1900 (Application for
Authority to Adopt Computerized Accounting
System or components thereof
Components of CAS:
1. General Journal and other subsidiary records
(for general ledger, though it is a component of
CAS, taxpayers must apply for Permit to Adopt a
complete CAS)
2. Sales Book, Purchases Book, Accounts
Receivable Book, Accounts Payable Book,
Inventory Book, Payroll Ledgers, Subsidiary
Ledgers and other accounting records
3. Any application system which generates
subsidiary ledger and is part of official
accounting documents such as official receipts
(OR), sales and cash invoices, cash vouchers,
journal vouchers, billing statements, sales
tickets, etc.
4. Any application system which generates
reports required by the BIR (a separate report
for void and suspended transactions to explain
the deduction from sale compilation of their
integrated/consolidated sales report produced
every end of the day
5. Pont of Sales (POS) Machine/Cash Register
Machine (CRM) connected to a network or
linked to CAS (RMO 29-2002)
Who are required to apply for a Permit to Adopt
CAS or Components thereof:
-taxpayers who will use/adopt a
complete CAS, any of some of the component
of CAS and e-invoicing system
-taxpayers with valid permits to adopt
CAS or component/s thereof but made systems
enhancement/modification that result to
change in system release and/or upgrade in
version number (RMO 29-2002)
-taxpayers whose CAS are provided by
their consultants (accounting firms) shall apply
for a separate permit for the use thereof (RMO
29-2002)
-affiliated companies, sister companies,
franchisees and closely held corporations shall
secure separate permits for the use of CAS at
LTAD I or II, LTDO or RDO. This requirement is
without regard whether they are sharing a
server and using exactly the same system
previously approved for use by its mother
company or other sister companies (RMO 29-
2002)
Documentary Requirements:
Initial Application to Adopt CAS and/or
Components Thereof
-accomplished BIR form 1900
(Application for Authority to Adopt
Computerized Accounting System (CAS) and/or
components Thereof/Loose-leaf Books of
Accounts, 2002 enhanced version)
Company Profile:
1. Photocopy of BIR Certificate of Registration
2. Photocopy of Previously Issued Permit, if
applicable
3. Photocopy of Current Registration Fee
Payment
4. Location map of the place of the business
5. Inventory of previously approved unused
invoices and receipts, if applicable
6. List of branches that will use CAS, if any
Technical Requirements:
1. Application Name and Software Used
(Development and Database)
2. Functions and Features of the Application
3. System Flow/s
4. Process Flow
5. Back-up Procedure, Disaster and Recovery
Plan
6. Sworn Statement and Proof of System
Ownership
7. List of Reports and Correspondences that can
be generated from the system with their
description, purpose and sample layout
8. Facsimile of System Generated Loose-Leaf
Books of Accounts and List
thereof/Receipts/Invoices
Additional Requirements in case of affiliated
companies/sister companies, franchises and
branches:
1. Photocopy of previously issued permit for
mother/sister company or another branch using
the same system, if applicable
2. Certificate from the Computerized System
Evaluation Team (CSET), which previously
evaluated the approve system
Procedures:
For Initial Application:
-all applicants for Permit to Use CAS,
whether by the Head Office or branches, shall
be filed at the RDO/LTAD I or II/LTDO having
jurisdiction over the Head Office (HO) of the
taxpayer, except in the following cases:
1. The branch adopts CAS ahead of the HO
-the application shall be filed by the
branch with the RDO having jurisdiction over
the branch with a certification that the HO does
not use CAS. In the event that the HO later
adopts the same CAS and the branch with the
previously issued permit shall be linked to it, the
permit to be issued to the HO shall include a
new permit for the said branch, which shall
supersede the previously issued permit
2. The branch adopts a different CAS from that
of its HO
-it shall apply for permit to adopt CAS at
the BIR office having jurisdiction over the
branch
 -the permit for CAS shall be issued after
the demonstration of the applied system has
been evaluated and recommended for approval
by the CSET
For Application for System
Enhancement/Modification on the Previously
Approved CAS or Components Thereof
-taxpayer submits a letter to the RDO or
the concerned office of the LTS that previously
issued the permit to adopt CAS about the
enhancement and/or modification on the
system together with a photocopy of the
previously issued Permit to Adopt CAS or
Components thereof
Deadlines:
-application for authority to use CAS
must be filed before the system is used
-as a general rule, no temporary permit
to adopt CAS shall be issued except upon
approval of the Deputy Commissioner of
Operations Group
-temporary permit shall be issued only
based on valid and meritorious case (systems
enhancement that need to be done abroad)
e-invoicing (Electronic Invoicing System)
-or e-invoice system refers to the
system developed and maintained by the e-
Buyer or e-Seller or both in issuing invoice
electronically through the internet
-e-invoice shall include sales invoice,
official receipt, billing invoice, debit/credit
notes or such other similar accounting
documents issued electronically through the
internet
-in case of system downtime, taxpayer
shall be required to use pre-printed receipts
and invoices with ATP which shall not exceed
1,000 sets or issue its remaining
receipts/invoices out of the inventory of
previously approved unused manually printed
receipts or invoices. Also, in cases wherein the
taxpayer’s system cannot generate official
receipts and invoices and the like, ATP shall be
applied following RMO No.28-2002 (RMO 29-
2002)
-taxpayers with approved CAS capable
of generating reports such as but not limited to
daily sales, accumulated sales, etc. need not be
required to maintain manual cash register
machine sales book provided that all
information required in the manual CRM sales
book are reflected in the computerized reports
-however, these computerized reports
shall be made available during post system
evaluation of CAS, or duly authorized tax audit
of taxpayer’s records (RMO 29-2002)
How to Reduce Donor’s Tax?
Splitting of Gift
-is a tax minimization scheme (tax
avoidance) which is done by spreading the gifts
over numerous calendar years instead of adding
it to the donations made during the same
calendar year to avoid a higher tax due to a
higher tax base if such gifts were made in the
same calendar year
-prior to the effectivity of the train law,
donor’s tax is computed using a graduated tax
rate wherein the tax rate increases as the tax
base increases
-under the train law, the first 250,000
donation during the calendar year is exempt.
Therefore, splitting the gift into several taxable
years may result to a lower tax due
-donations made by husband and wife
shall be taxed separately for the reason that
they are considered separate taxpayers for
donor’s tax purposes
Donor’s Tax (RMC No.94-2021)
-general renunciation of an heir on
his/her share from the inheritance is not subject
to donor’s tax
-when in the settlement of the estate,
the heirs agree among themselves for a specific
property they will receive, there will be an heir
who will receive lower or higher than his/her
rightful share, in this case, there is partial
renunciation of inheritance and donor’s tax
shall be imposed on the value forgone as a
result of such waiver/renunciation
New Amounts of Fines and Penalties (RR
No.13-2021)
-a fine of not less than 500,000 but not
more than 10 million and imprisonment of not
less than 6 years but not more than 10 years
shall, upon conviction thereof, be imposed on
any person who willfully attempts to evade or
defeat any tax imposed under NIRC or the
payment thereof
-the fine and penalty stated shall be in
addition to other penalties provided for by law
Acts Imposable with said fines and penalties:
1. Printing of receipts or sales or commercial
invoices without authority from the BIR
2. Printing of double or multiple sets of invoices
or receipts
3. Printing of unnumbered receipts or sales or
commercial invoices, not bearing the name,
business style, TIN, and business address of the
person or entity
4. Printing of other fraudulent receipts or sales
or commercial invoices
-a penalty of 1/10 of 1% of the annual
net income as reflected in the taxpayer’s
audited FS for the second year preceding the
current taxable year, or 10,000 whichever is
higher, shall be imposed, for each day of
violation, on any taxpayer required but fails to
transmit sales data to the Bureau’s electronic
sales reporting sales
-an additional penalty of permanent
closure shall be imposed should the aggregate
number of days of violation exceed 180 days
within a taxable year
-a fine of not less than 500,000 but not
more than 10 million pesos and imprisonment
of not less than 2 years but not more than 4
years shall be imposed on any person who shall
purchase, sell or offer to sell, install, transfer,
update, upgrade, keep or maintain any software
or device designed for, or is capable of:
1. Suppressing the creation of electronic records
of sale transactions that a taxpayer is required
to keep under existing tax laws and/or
regulations
2. Modifying, hiding or deleting electronic
records of sales transactions and providing a
ready means of access to them
Offenses or Violations and penalties:
1. Engaging in the sale, trade, delivery,
distribution or transportation of unmarked fuel
in commercial quantity held for domestic use or
merchandise
Penalties: 2.5M (1st offense), 5M (2nd offense),
10M (3rd offense), 3rd offense is with penalty of
revocation of license to engage in any trade or
business
2. Causing the removal of the official fuel
marking agent from marked fuel, and the
adulteration or dilution of fuel intended for sale
to the domestic market, or the knowing
possession, storage, transfer or offer for sale of
fuel obtained as a result of such removal,
adulteration or dilution
Penalties: 2.5M (1st offense), 5M (2nd offense), misdeclaration, use of front companies or mail
10M (3rd offense), 3rd offense is with penalty of fraud
revocation of license to engage in any trade or
Penalties: fine of 1M-5M and imprisonment of
business
4-8 years
3. Willfully inserting, placing, adding or
-any person who is authorized, licensed
attaching, directly or indirectly, through any
or accredited to conduct fuel tests, who issued
overt or covert act, whatever quantity of any
false or fraudulent fuel test results knowingly,
unmarked fuel, counterfeit additive or chemical
willfully or through gross negligence, shall suffer
in the person, house, effects, inventory or in the
the additional penalty of imprisonment ranging
immediate vicinity of an innocent individual for
from 1 year and 1 day to 2 years and 6 months
the purpose of implicating, incriminating or
imputing the commission of any violation of -the additional penalties of revocation
offenses related to fuel marketing of the license to practice his profession in case
of a practitioner, and the closure of the fuel
Penalties: fine of 5M to 10M and imprisonment
testing facility, may also be imposed
of 4-8 years
Social Media Influencers (RMC 97-2021)
4. Making, importing, selling, using or
possessing fuel markers without express Social Media Influencers
authority
-other than corporations and
Penalties: fine of 1M-5M and imprisonment of partnerships, are classified for tax purposes as
4-8 years self-employed individuals or persons engaged in
trade or business as sole proprietors, and
5. Making, importing, selling, using or
therefore, their income is generally considered
possessing counterfeit fuel markers
as business income
Penalties: fine of 1M-5M and imprisonment of
-shall be liable to income tax and VAT or
4-8 years
percentage tax
6. Causing another person or entity to commit
Social Media Influencer derive their income
any of the 2 preceding acts
from the following sources:
Penalties: fine of 1M-5M and imprisonment of
1. YouTube Partner Program
4-8 years
2. Sponsored Social and Blog Posts
7. Causing the sale, distribution, supply or
transport of legitimately imported, in-transit, 3. Display Advertising
manufactured or procured controlled
precursors and essential chemicals, in diluted, 4. Becoming a brand
mixtures or in concentrated form, to any person representative/ambassador
or entity penalized in the preceding acts 5. Affiliate marketing
including but not limited to packaging,
repackaging, labeling, relabeling or concealment 6. Co-creating Product Lines
of transaction through fraud, destruction of 7. Promoting own products
documents, fraudulent use of permits,
8. Photo and Video Sales
9. Digital Courses, Subscriptions, e-books
10. Podcasts and Webinars
-consideration received are irrespective
of manner of payment. If a social media
influencer receives free products in exchange
for the promotion thereof, he/she must declare
the fair market value of such products as
income
-income treated as royalties in another
country including payments under YouTube
Partner Program shall be included in the
computation of gross income
-SEPs whose gross sales or receipts and
other non-operating income not exceeding VAT
threshold may avail of 8% tax on gross income
in excess of 250,000
-expenses that may be deducted
include, but not limited to:
1. Filming expenses (cameras, smartphones,
microphones and other filming equipment)
2. Computer equipment
3. Subscription and software licensing fees
4. Internet and communication expenses
5. Home office expenses (proportionate rent
and utilities expenses)
6. Office supplies
7. Business expenses (travel or transportation
expenses related to YouTube business, payment
to an independent contractor or company for
video editing, costume designer, advertising
and marketing costs, cost of contests and
giveaway prizes, etc.)
8. Depreciation expense
9. Bank charges and shipping fees
-in lieu of itemized deductions, the
taxpayer may elect OSD not exceeding 40% of
gross sales/receipts
-tax compliance requirements include
registration with the BIR and updating of
registration information, keeping of books of
accounts, filing of tax returns and payment of
taxes, and withholding and remittance of the
same to the BIR
-BIR has the power to obtain
information from foreign tax authorities
pursuant to Exchange of Information (EOI)
provision of the relevant tax treaties
-social media influencer receiving
income from a nonresident person shall inform
the latter that he/she is a resident of the
Philippines to avail of tax treaty
-if the non-resident requires the
presentation of proof of residency, the
influencer must obtain a Tax Residency
Certificate (TRC) from the International Tax
Affair Division (ITAD) of the BIR and submit it to
the former
-if the influencer did not avail of the tax
treaty benefit, he/she shall not be allowed to
claim foreign tax credits in excess of the
appropriate amount of tax he is supposed to
pay if he availed of the treaty benefit
-if he/she was denied of the
entitlement despite being able to prove
entitlement thereto must file a Mutual
Agreement Procedure (MAP) with ITAD
-Google LLC informed the public that
any payment from YouTube Partner Program
shall be treated as royalty starting June 1,2021
and Google is required to collect tax
information, withhold taxes and report to the
US tax authority
Assessment Power of the BIR
 -taxpayers, if armed with proper
knowledge of how to react to the BIR’s
assessment procedures, can better prepare for
and withstand a future BIR audit
-the amount assessed is an amount that
a person is officially required to pay especially
as a tax
-the BIR has the power to make tax
assessments to generate revenue for the
government. But this cannot be exercised
without limitations
-tax assessments must be made within
the parameters set by law and jurisprudence in
order to protect the taxpayers from possible
abuses in the exercise of such power
2 Types of Audit Notices:
1. Letter Notice (LN)
2. Electronic Letter of Authority (LOA/LA/eLA)
Letter Notices
No-contact audit approach
-enables the BIR to use computerized
matching to compare data from records or
various returns filed by a taxpayer against those
gathered from its suppliers or customers, and
even those reported to other agencies,
particularly the Bureau of Customs. Taxpayers
with noted discrepancies are then informed of
the findings through the issuance of a Letter
Notice (LN) by the BIR
-includes the process of computerized
matching of sales and purchases data contained
in the Schedule of Sales and Domestic
Purchases, and Schedule of Importation
submitted by VAT taxpayers under the RELIEF
system
-this may also include the matching of
data from other information or returns filed by
the taxpayers with the BIR
RMO No. 42-2003
-prescribes additional guidelines on the
assessment of internal revenue taxes covered
by a Letter Notice issued under the RELIEF
system and other data matching processes
-no-contact audit approach is being
adopted by the BIR
-in determining the discrepancies in
sales, sales per summary list of purchases
submitted by the customers is compared with
the sales per tax return filed
-in determining the discrepancies in
domestic purchases, purchases per summary
list of sales submitted by suppliers is compared
with domestic purchases per tax return filed
-in determining discrepancies in
importations, VAT amount per BOC data is
compared with input tax on importation per
VAT returns filed
-taxpayers issued with a letter office are
invited to the Bureau within 5 days to reconcile
the discrepancies through presenting
documentary evidences
-if the taxpayers agree with the
discrepancies, they shall pay the deficiency tax
with abatement of the interest and penalties if
paid within 30 days from the issuance of the LN
3 Types of LN:
1. RELIEF – Reconciliation of Listing for
Enforcement System
2. Bureau of Customs Data
3. Tax Reconciliation System
RELIEF
-Reconciliation of Listing for
Enforcement System
-supports third party information
program of the Bureau through the cross
referencing of third party information from the
taxpayers’ Summary list of Sales and Purchases
prescribed to be submitted on a quarterly basis
Bureau of Customs Data Program
-this process allows the system to
handle the data of importations submitted by
the importer also to the BIR
-importation per BOC data is compared
with the importation per VA returns filed to
determine the discrepancies in the importations
-the taxpayer is invited to the office of
RDO/LTDO/LTAID within 15 days after the
receipt
-if the taxpayer agrees with the
discrepancies, he shall pay the total VAT due on
the total adjusted tax base plus corresponding
interests and penalties
-computation of the deficiency tax is
based on the formula provided in BIR Form
2112-A and payment shall be made using BIR
Form 0611A within 15 days
-if payment has been made within 15
days, he may request for abatement of the
penalties
-if it has been paid before the receipt of
the LN, a proof of such payment shall be
submitted
-a copy of Validated BIR Form 0611A
shall also be submitted upon payment
Tax Reconciliation System
-this refers to the computerized
matching of data available under the Bureau’s
Integrated Tax System (IT) such as the income
tax returns of income recipients with data
gathered from the:
1. Alphalist of Payees attached to the Annual
Information Return on Income Taxes Withheld
on Compensation and Final Withholding Tax
(BIR Form 1604-C and BIR Form 1604-F)
-Annual Information Return of
Creditable Taxes Withheld (BIR Form 1604E)
3. Quarterly Alphalist of Payees or QAP (a file
which contains all the names of the payees that
is included in the company’s 1601-EQ and 1601-
FQ
-under RR No. 11-2018, the withholding
tax returns filed by the withholding agents using
BIR Form 1601-EQ and BIR Form 1604E shall be
accompanied by the Quarterly Alphalist of
Payees (QAP)
4. Annual Alphabetical List of Employees (BIR
Form 1604C)
How to Reconcile Discrepancies in the LN?
-compare BIR data and data submitted
by the taxpayer
-look for timing differences
RMC No. 75-2018
-highlights the mandatory statutory
requirement and function of a Letter of
Authority (LOA)
-no assessments can be issued or no
assessment function or proceedings can be
done without prior approval and authorization
of the Commissioner of Internal Revenue or his
duly authorized representative though a LOA
-any tax assessment issued without an
LOA is a violation of the taxpayer’s right to due
process and is therefore inescapably void
-due process demands that after an LN
has served its purpose, the Revenue Officer
should have properly secured an LOA before
proceeding with the further examination and
assessment of taxpayer
Tax Assessment Process of the BIR taxpayer for the purpose of collecting the
correct amount of tax
Assessment
-without the LOA, the examination or
-refers to the determination of amounts
assessment can be nullified
due from a person obligated to make payments
*Letter of Authority (LOA)
-in the context of national internal
revenue collection, it refers to the Criteria for the issuance of LOA:
determination of the taxes due from a taxpayer
Mandatory Cases:
under the NIRC of 1997
1. Taxpayers with claims for income tax refund
-informs the taxpayer that he or she has
or issuance of tax credit certificate
tax liabilities
2. Taxpayers with claims for Value-Added Tax
-not all documents coming from the BIR
(VAT)
containing a computation of the tax liability can
be deemed assessments 3. Claims for tax refund/credit on
erroneous/double payment of taxes, regardless
-an assessment contains not only a
of amount
computation of tax liabilities, but also a demand
for payment within a prescribed period 4. Request for tax clearance of taxpayers due to
retirement/cessation of business with gross
-an assessment is a notice to the effect
sales/receipts exceeding 1M or gross assets
that the amount therein stated is due as a tax
exceeding 3M
and a demand for the payment thereof
5. Request for tax clearance of taxpayers
Process;
undergoing merger/consolidation/split-up/spin-
1. Filing of tax return and payment of tax off and other types of corporate reorganization

2. Selection of tax return for audit Priority Taxpayers:

3. Investigation (conduct of examination) 1. Taxpayers mandatorily covered to file their

4. Issuance of assessment
Electronic Letter of Authority (LOA/LA/eLA)
-a Letter of Authority authorizes or
empowers a designated Revenue Officer to
examine, verify and scrutinize a taxpayer’s
books and records in relation to his internal
revenue tax liabilities for a particular period
-it is the authority given to the
appropriate revenue officer assigned to perform
assessment functions. It empowers or enables
said revenue officer to examine the books of
account and other accounting records of a
returns using e-FPS or e-BIR Form under existing
revenue issuances but failed to use the same
-e-BIR Forms – Accredited Tax
Agents/Practitioners and all it client-taxpayers
who authorized them to file in their behalf
2. Taxpayers maintaining an ending inventory of
100% or more of their gross sales
3. Taxpayers whose compliance is below the
established benchmark rates
4. Those who failed to comply with submission
of information returns
5. Those availing tax exemption/incentive
6. Those placed under surveillance, oplan
kandado and other enforcement program
7. Those with 2 consecutive years of net loss or
no taxable income
8. Those with tax due of less than 2% of the
gross sales or gross receipts
9. Those with increase in assets of more than
50% than previous year but with net loss
10. Those claiming losses from natural
calamities and inventories obsolescence
11. Taxpayer deriving primarily its income from
parent company or subsidiaries
12. Those claiming write-off of input tax as
allowable deductions in annual ITR
Priority Industries:
1. Professionals (e.g., lawyers, doctors,
engineers, architects, CPAs, actors/actresses,
media personalities, professional athletes,
insurance agents, real estate service
practitioners, event planners, etc.) with low
income and/or business tax compliance
2. Real estate industry
3. Telecommunications industry (TELCOS0
4. Contractors of National Government
Agencies (NGAs), Local Government Units
(LGU), and Government Controlled
Corporations
5. Sellers of goods and services via e-commerce
6. Hospitals, clinics, medical centers
7. Amusement, entertainment and event
centers
8. Advertising agents
9. Business Processing Outsourcing companies
10. Insurance companies
11. Restaurants and fast food chain
-BIR is not required to secure prior
authorization of any government agency or
instrumentality before the issuance of LOA
-the Commissioner or his duly
authorized representative may authorize the
examination of any taxpayer and the
assessment of the correct amount of tax,
notwithstanding any law requiring the prior
authorization of any government agency of
instrumentality (sec.6 (a), NIRC)
-the requirement of securing
authorization from the Cooperative
Development Authority (CDA) before the
examination of the books of accounts and other
accounting records of the cooperatives is no
longer applicable
New Guidelines in the issuance of LOA for
audit/investigation of cooperatives for taxable
years 2018 and onwards:
-cooperatives which transact business
with both members and nonmembers whose
accumulated reserves and undivided net savings
are more than 10M shall be prioritized for
audit/investigation by Revenue District Offices
having jurisdiction over the said cooperatives
-other cooperatives with income not
related to the main/principal business/es under
their Articles of Cooperation shall likewise be
among those covered for priority audit,
whether such cooperatives deal purely with
members or both members and nonmembers
Policy in issuing LOA:
-as a general policy, the simultaneous
investigation of all liabilities of the taxpayer
shall be followed: one e-LA shall be issued for
each taxable year or period to include all
internal revenue tax liabilities of the taxpayer,
except when a specific tax type had been
previously examined (e.g., audit of VAT under
VAT audit program and VAT arising from claim
of tax refund/credit)
-the BIR cannot issue a Memorandum
of Assignment (MOA) only instead of LOA
directing another RO to continue with the
examination of the taxpayer’s records
When should the report of investigation be
submitted by the Revenue Officers:
1. 180 days for Regional case from the date of
the e-LA
2. 240 days for LT cases, from the date of the e-
LA
-failure of the BIR examiner to submit
the audit report within the prescribed period
will not nullify the eLA, it is only valid and
enforceable within the 3-year prescriptive
period from the filing of the tax return
Rule on serving of letter of authority (RMO 1-
2000):
-a LOA must be served or presented to
the taxpayer within 30 days from its date of
issue, otherwise, it becomes null and void
unless revalidated
-the taxpayer has all the right to refuse
its service if presented beyond the 30-day
period
-revalidation is done by issuing a new
LOA or by just simply stamping stamping the
words “revalidated on ___” on the face of the
copy of the LA issued
Documents or Schedules to be submitted:
1. Quarterly Income Tax Returns and Official
Receipts (Form 1702Q, 1701Q)
2. Monthly/Quarterly VAT Returns/Percentage
Tax Returns with official receipts (Form
2550M/2550Q/2551Q)
3. Certificate of Registration with the BIR
4. Articles of incorporation and its by-laws
5. List of inventories filed with the BIR for the
year
6. Audited Financial Statements for taxable year
Tax Management on Losses, Depreciation and
R&D Expenditures
Losses (and Obsolescence)
Accounting Perspective
-losses could be a loss in the value of
asset, a loss on a pending suit, a casualty loss
due to a fortuitous event or a loss that
represents the excess of expenses over profits
-obsolescence is another term that
results to diminution of value of an asset, which
finally results to a loss
Loss
-is an excess of expenses over revenues,
either for a single business transaction or in
reference to the sum of all transactions for an
accounting period
-can also refer to the loss in value of an
asset (obsolescence)
-when loss outweighs profits, this refers
to Net Operating Loss in taxation
-are decreases in equity (net assets)
from peripheral or incidental transactions of an
entity and from all other transactions and other
events and circumstances affecting the entity
except those that result from expenses or
distributions to owners (FASB Concept No.6)
Obsolescence
 -is a notable reduction in the utility of
an inventory item or fixed asset
-determination of obsolescence
typically results in a write-down of the
inventory item or asset to reflect its reduced
value
-obsolescence can arise when there are
less expensive alternatives in the marketplace,
or when customer preferences change
Casualty Loss
-is a sudden and unexpected decline in
the value of property, caused by such factors as
flooding, a fire, tornado, hurricane or an auto
accident
-it is not associated with the normal
wear and tear that an asset will experience over
time through normal usage
-in the perspective of accounting, all
losses are deductible for as long as they result
in decrease of equity
Taxation Perspective
-losses actually sustained during the
taxable year and not compensated by insurance
or other indemnity shall be allowed as
deductions
-losses may be offset against all income
and capital gains in the same tax year in these
conditions:
1. Ordinary losses arising from losses incurred in
trade, business or profession including NOLCO
2. Casualty losses
-ordinary loss is deductible in full as it is
considered incurred in the ordinary course or
conduct of trade, business or profession
-net operating loss from previous year
or three years prior may also be deductible for
the purpose of taxation as a recoupment for
losses (NOLCO)
-capital losses are deductible only to the
extent of capital gains because it is deemed by
law unnecessary expenses
Requisites for the deduction of losses:
1. It must be incurred in trade, profession, or
business of the taxpayer (the loss must be a
business loss, not a personal loss)
2. It must pertain to property connected with
the trade, business or profession, if the loss
arises from fires, storms, shipwrecks or other
casualties, or from robbery, theft or
embezzlement (the loss must be ordinary)
3. The loss must not be compensated by
insurance or indemnity contract (actually
sustained, not temporary)
4. A declaration of loss must have been filed by
the taxpayer within 45 days from the date of
discovery of the casualty or robbery, theft or
embezzlement giving rise to the loss
5. The loss must not have been claimed as a
deduction for estate tax purposes in the estate
tax return (double deduction)
RMO 31-2009 (Requisites for deductibility)
1. A taxpayer engaged in trade or business may
be entitled to claim, as business deductions,
casualty losses incurred for properties actually
used in the business enterprise that were
damaged and reported as losses in the
appropriate declaration filed with the BIR
2. Said properties must have been properly
reported as part of the taxpayer’s assets in the
taxpayer’s accounting records and financial
statements in the year immediately preceding
the occurrence of the loss, with the costs of
acquisition clearly established and recorded.
Otherwise, the claim for deduction shall not be
allowed
3. The recovery of casualty losses through
insurance claims shall be governed by the
guidelines set forth in Revenue Regulations 12-
77. The amount of loss that shall be
compensated by insurance coverage shall not
be claimed as a deductible loss. If the insurance
proceeds exceed the net book value of the
damaged assets, such excess shall be subject to
the regular income tax, but not to the value-
added tax, since the indemnification is not an
actual sale of goods by the insured company to
the insurance company. The entry should debit
to casualty loss and accumulated depreciation;
and credit to property account
4. The deduction of assets and capital losses
must be properly recorded in accounting
reports, with the adjustment to the applicable
accounts
5. In the event of a total loss/destruction of
properties used in the business enterprise, the
net book value (costs less accumulated
depreciation) immediately preceding the
natural disaster should be used as the basis in
claiming casualty losses, and shall be reduced
by the amount of insurance proceeds received
6. The restoration of the damaged property, or
the acquisition of new property to replace it,
must be properly recorded and recognized as
either repairs expense or as capitalized asset
-securities becoming worthless are
capital losses
-for domestic banks and trust
companies whose receipts of deposits is a
substantial part of their business, securities
becoming worthless are bad debt expense and
not capital loss but the term securities cover
only bonds, debentures, notes, certificates or
other evidence of indebtedness with interest
coupons or in registered form
Other Notes in Other Losses:
1. Loss of useful value
-requires proof of some unforeseen
cause by reason of which the property has been
permanently discarded as in the following
cases:
1. Where an increase in the cos or the change in
the manufacture of any product makes it
necessary to abandon such manufacture, to
which special machinery is exclusively devoted
2. Where new legislation directly makes the
continued profitable use of the property
impossible
2. Loss from Wash Sales
-in the case of any loss claimed to have
been sustained from any sale or other
disposition of shares of stocks or securities
where it appears that within a period beginning
30 days before the date of such sale or
disposition and ending 30 days after such date,
the taxpayer has acquired (by purchase or by
exchange upon which the entire amount of gain
or loss was recognized by law) or has entered
into a contract or option so to acquire,
substantially identical stock or securities, then
no deduction for the loss shall be allowed
-losses from wash sales of stock or
securities are allowed as deductions if the claim
is made by a dealer in stock or securities and
with respect to a transaction made in the
ordinary course of business
3. Wagering Loss
-wagering transaction is a transaction
where the outcome is dependent upon chance
-losses from wagering transactions shall
be allowed only to the extent of the gains from
such transactions
4. Abandonment Loss
 -in the event a contract area where
petroleum operations are undertaken is
partially or wholly abandoned, all accumulated
exploration and development expenditures
pertaining thereto shall be allowed as
deduction. However, accumulated expenditures
incurred in that area prior to Jan.1,1979 shall be
allowed as deduction only from any income
derived from the same contract area. In all
cases, notices of abandonment hall be filed with
the Commissioner
-in case a producing well is
subsequently abandoned, the unamortized
costs thereof, as well as the underdepreciated
costs of equipment directly used therein shall
be allowed as a deduction in the year such well,
equipment, or facility is abandoned by the
contractor. However, if such abandoned well is
reentered and production is resumed, or if such
equipment or facility is restored into service,
the said costs shall be included as part of gross
income in the year of the resumption or
restoration and shall be amortized or
depreciated, as the case may be
5. Loss from farming
Rules in case of losses sustained by a
corporation engaged in farming:
1. Loss of livestock
-shall be allowed as a deduction to the
extent of the acquisition cost only if no
inventories are taken into account in
determining the income from the business of
farming
-if inventories are taken into account in
determining the income from the trade or
business of farming, no deduction shall be
allowed for losses sustained during the taxable
year upon livestock or other products, whether
purchase for resale or produced on the farm, to
the extent such losses are reflected in the
inventory on hand at the close of the taxable
year
2. Other farm losses
-where ground is prepared and planted
or stocked as in case of sugar, coconut and
other agricultural plantations, orchards,
fishponds and other farm and its value is
completely destroyed by the overflow or
seepage of water from natural causes, the cost
of the preparation and planting or stocking, up
to the time of the disaster shall be a deductible
loss in the year in which it is incurred
Depreciation
Accounting Perspective
-depreciable properties pertain to those
that decrease in value through normal wear and
tear by usage or through obsolescence by the
passage of time
-depreciation is the systematic
allocation of the depreciable amount of an asset
over its useful life
Taxation Perspective
-depreciation refers to the gradual
exhaustion in the value of tangible business
properties brought by ordinary wear and tear
through usage or obsolescence by the passage
of time
-it is a provision for the periodic return
of the invested capital on the property
throughout its useful life
-the depreciable cost or the acquisition
cost, net of expected salvage value, is allocated
as deduction over the useful life of the property
-the useful life of the property is the
length of time it is expected to be serviceable or
its legal life, whichever is shorter
-the law requires maximum usage life
on certain items of properties such as vessels or
aircrafts after which they must be de-
commissioned from use
Useful Life and Depreciation Rate
-the taxpayer and the CIR may enter
into a written agreement on the estimated
useful life and rate of depreciation of any
property. Such agreement shall be binding on
both the taxpayer and the government in the
absence of facts and circumstances not taken
into consideration during the adoption of the
agreement (sec.34, NIRC)
-any change in the agreed rate and
useful life shall be applied prospectively starting
on the taxable period when notice by certified
mail or registered mail is rendered by the
initiating party to the other party
Depreciation Methods
1. Straight line method
-the depreciable cost is simply spread
equally over the useful life
-the annual depreciation expense is
computed as (Acquisition cost – salvage
value)/useful life in years
-alternatively, the straight line
depreciation rate may be computed as a
fraction of one over the useful life in years. The
depreciation rate is multiplied to the
depreciable cost of the property to arrive at the
depreciation expense
2. Sum-of-the-years method
-the depreciation charge is computed as
a fraction of the remaining useful life over the
total of the annual remaining useful life of the
asset
-the adjusted tax basis or the book
value at the end of the useful life will equal the
salvage value
3. Declining balance method (150% or 200%)
-for every period, depreciation expense
is computed by multiplying the depreciation
rate to the declining book value of the property
-the salvage value is initially ignored in
computing the depreciation expense, but is
considered in the terminal year of the property
-under the 150% declining rate and the
double declining rate, the depreciation rate is
determined by multiplying the straight line rate
by 150% and 200% respectively
-the provision for depreciation expense
in the last year shall not result in a tax basis less
than the residual value. Hence, the depreciation
expense is merely an adjustment of the
remaining book value to the salvage value
4. Other methods which may be prescribed by
the Secretary of Finance upon recommendation
of the Commissioner of Internal Revenue
Depreciation Methods with regards to Tax
Reduction:
-by charting the decrease in the value of
an asset or assets, depreciation reduces the
amount of taxes a company or business pays via
tax deductions
-a company’s depreciation expense
reduces the amount of earnings on which taxes
are based, thus reducing the amount of taxes
owed
-the larger the depreciation expense,
the lower the taxable income, and the lower a
company’s tax bill
-the smaller the depreciation expense,
the higher the taxable income and the higher
the tax payments owed
-each method recognizes depreciation
expense differently, which changes the amount
in which the depreciation expense reduces a
company’s taxable earnings, and therefore its
taxes
Other Notes on Depreciation;
-if the property is disposed of before it
gets fully depreciated, its book value is
deducted against the selling price. The
difference is either a gain or loss. If the property
is destroyed, its book value is recognized as an
ordinary loss
Asset Acquisition-Related Cost
-all costs directly related to the
acquisition of an item of property, plant and
equipment such as in-transit insurance, title
guarantee insurance, freight, finder’s fee or
commission, import duties and other taxes
(excluding VAT for a VAT taxpayer) are
capitalized as part of the cost of the property
subject to depreciation
-expenses incurred which are directly
related to the acquisition of goods such as
transportation, broker’s commissions and
insurance in-transit including those incurred in
bringing the goods for sale such as consignment
freight-out are capitalized to the cost of the
goods and are expensed through the cost of
goods sold when sold
-cost of financing asset acquisition (i.e.,
interest expense), may, at the option of the
taxpayer, be expensed outright or capitalized
and depreciated
Special Rules on Depreciation:
1.Revaluation on properties
2. Rules on depreciation of passenger vehicles
*Tax Assessment Process of the BIR
-if you cannot provide the required
documents and prove their assessment wrong,
it would give the BIR examiner leverage to
threaten you, which could force you to pay
bribe money. The illegal money is usually higher
than the amount which will officially be
remitted to the government
-our tax code clearly prohibits or
disallows bribe money as a deductible expense
-nobody can stop the BIR from auditing
a taxpayer, but taxpayer can decide to stop
bribing BIR examiners, start fixing their books
and pay the right taxes
Basic Assessment Process:
1. Filing of tax return and payment of tax
2. Selection of tax return for audit
3. Investigation (conduct of examination)
4. Issuance of assessment
-the LOA should be served by the
Revenue Officer assigned to the case and no
one else
-the LOA must be served or presented
to the taxpayer within 30 days from its date of
issue
-without the LOA, the examination or
assessment can be nullified
Within what time period must an assessment be
made
-an assessment must be made within 3
years from the last day prescribed by law for
the filing of the tax return for the tax that is
being subjected to assessment or from the day
the return was filed if filed late
-however, in cases involving tax fraud,
the Bureau has 10 years from the date of
discovery of such fraud within which to make
the assessment
-any assessments issued after the
applicable period are deemed to have
prescribed, and can no longer be collected from
the taxpayer, unless the taxpayer has previously
executed a Waiver of Statute of Limitations
Rules on Examination and Inspection of Books
of Accounts;
 -examination and inspection of books of
accounts and other accounting records shall be
done in the:
1. Taxpayer’s office or place of business
2. In the office of the BIR
-all books, registers and other records,
and vouchers and other supporting papers
required by the BIR shall be kept at all times at
the place of business of the taxpayer, subject to
inspection by any internal revenue officer, and
upon demand, the same must immediately be
produced and submitted for inspection
Policies and Guidelines in the Issuances of
Notices for Submission of Documents and
Accounting Records:
-if the taxpayer, upon receipt of the
LOA and checklist of presentation of the
requirements for the audit, the Revenue Officer
concerned shall send a First Notice, signed by
himself and/or his group supervisor, to the
taxpayer, after 10 calendar days from receipt of
the LOA and checklist of requirements,
demanding the taxpayer to furnish to the
Revenue Officer the requirements previously
requested
-it is recommended that the taxpayer
should always coordinate with the Revenue
Officer and Group Supervisor for the documents
and accounting records to be submitted or
examined
Subpoena Duces Tecum (SDT)
A summon upon the taxpayers or other
persons compelling them to produce, under
penalty of neglect, certain documents sought
therein. This is usually issued to the taxpayer
after his failure to comply with 2 consecutive
requests to produce his books for examinations
Due Process Requirement
-audit examination – issuance of Notice
of Discrepancy – Issuance of PAN – Issuance of
FAN – Final Decision on Disputed Assessment
(FDDA) – (Elevate to CIR (reconsideration) –
final decision of CIR – appeal to CTA) or (Appeal
to CTA)
If the taxpayer agreed with the findings of the
BIR and paid the corresponding deficiency taxes
stated therein or somehow reached a certain
amount of deficiency taxes amenable to the BIR
and taxpayer:
-the BIR will issue payment form (BIR
0605) duly signed by the Revenue District
Officer or the Chief of the Special Investigation
Division of the Revenue Regional Office, or the
Chief of Division in the National Office, as the
case may be
-the taxpayer shall pay the tax and
furnish the BIR with the copy of the payment.
The Revenue Officer and Group Supervisor will
prepare a report recommending that the case
be considered closed and terminated and
signed by the Revenue District Officer or the
Chief of the Special Investigation Division of the
Revenue Regional Office, or the Chief of Division
in the National Office, as the case may be. The
case will be forwarded to the Assessment
Division of the Revenue Regional Office or to
the Commissioner or his duly authorized
representative, as the case may be, for
appropriate review
When the BIR found that the taxpayer is still
liable for deficiency taxes?
-if after being afforded the opportunity
to present his side through Discussion of
Discrepancy, it is still found that the taxpayer is
still liable for deficiency tax or taxes and the
taxpayer does not address the discrepancy
through payment of the deficiency taxes or the
taxpayer does not agree with the findings, the
investigating office, shall endorse the case to
the reviewing office and approving official in the
national office or the Revenue Regional Office,
for issuance of a deficiency tax assessment in
the form of a Preliminary Assessment Notice
(PAN) within 10 days from the conclusion of the
discussion
*Final Assessment Notice (FAN)
Due Process Requirement:
-audit examination – issuance of Notice
of Discrepancy – issuance of PAN – issuance of
FAN – Final Decision on Disputed Assessment
(FDDA) – [elevate to CIR (reconciliation) – final
decision of CIR – appeal to CTA] [appeal to CTA]
Notice of Discrepancy
-also called Notice for Informal
Conference
-discussion of discrepancy (30 days
from the receipt of the NID)
-if agreed, pay using BIR form 0605
-if disagrees, the taxpayer must submit
all necessary documents that supports his
explanation within 30 days after the receipt of
the Notice of Discrepancy
-present and explain his side on the
discrepancies found
-opportunity to present his side in the
case and explain the arguments
Preliminary Assessment Notice (PAN)
-issued within 10 days from the
conclusion of the discussion (NIC/NOD)
-show in detail the facts and the law,
rules and regulations, jurisprudence on which
the proposed assessment is based
Final Assessment Notice and Formal Letter of
Demand (FLD/FAN)
-calling for the payment of the
taxpayer’s deficiency taxes that have not been
resolved at the Preliminary Assessment Notice
(PAN) stage
-should be issued 15 days after the
receipt of PAN
-FAN/FLD is void if issued before the
expiration of 15 days
-FAN issued beyond 15 days is still valid
What if the BIR issued FLD/FAN without waiting
for the lapse of 15-day period to pretest the
PAN, is the assessment valid?
-FLD is void, non-observance of the 15-
day period to protest the PAN violates a
taxpayer’s right to due process
-after the issuance of the PAN, the CIR
or his duly authorized representative is duty
bound to wait for the expiration of 15 days from
the date of receipt thereof
-if the taxpayer fails to respond to the
PAN within the said period, it is only then that
the CIR or his duly authorized representative
consider the taxpayer in default, and
correspondingly cause the issuance of a formal
letter of demand and assessment notice, which
shall be subsequently served to the said
taxpayer
What if the BIR issued FLD/FAN beyond 15 days
from filing/submission of the taxpayer’s
response to PAN, is the assessment valid?
-yes. Under RMC 11-14, FLD/FAN issued
beyond 15 days from filing/submission of the
taxpayer’s response to the PAN shall be valid,
provided that, it is issued within the period of
limitation to assess internal revenue taxes
-the non-observance of the 15 days
period, however, shall constitute an
administrative infraction and the revenue
officers who caused the delay shall be subject to
administrative sanctions as provided for by law
and pertinent revenue issuances
What happens of the BIR issued FLD/FAN
without issuing PAN?
-in the case of Commissioner of Internal
Revenue vs Metro Star Superama, Inc. the
Supreme Court held that failure to send the
PAN voids the assessment in violation of Section
228 of the NIRC of 1997
-it is clear that the sending of a PAN to
taxpayer to inform him of the assessment made
is but part of the due process requirement in
the issuance of a deficiency tax assessment
-thus, for its failure to send the PAN
stating the facts and the law on which the
assessment was made as required by Section
228 of RA. No.8424, the assessment made by
the CIR is void
Exceptions to issuance of PAN:
1. Finding is a result of mathematical error
2. Discrepancy between tax withheld and
remitted by the withholding agent
3. Taxpayer claiming a refund/tax credit of
excess CWT who carried over/applied the same
amount claimed against their estimated tax
liabilities
4. Unpaid excise taxes
5. Tax exempt importations transferred to non-
tax-exempt persons
Formal Letter of Demand (FLD)/Formal
Assessment Notice
-the letter of demand issued by the BIR
calling for payment of the taxpayer’s deficiency
tax or taxes which shall state the fats, the law,
rules and regulations, or jurisprudence on which
the assessment is based
Final Decision on Disputed Assessment (FDDA)
-formal letter of demand –
[reinvestigation (30 days) – submit documents
(60 days)] [reconsideration (30 days)]
What happens if the taxpayer fails to file a valid
protest against FAN within 30 days from the
receipt?
-no request for reconsideration or
reinvestigation shall be granted on tax
assessments that have already become final,
executory and demandable. In other words, the
assessment becomes delinquent and already
collectible by the BIR
-it is suggested that the taxpayer should
be vigilant and receiving notices from the BIR
especially when receiving FLD. Many taxpayers
became a victim of inadvertently ignoring the
filing of the protest within 30-day period and
subsequently regretting their lapses when the
BIR starts collecting all the amounts due as
stated in the FLD
2 Kinds of Protest:
1. Request for reconsideration – refers to a plea
of re-evaluation of an assessment on the basis
of existing records without need of additional
evidence. It may involve both a question of fact
or of law or both
2. Request for reinvestigation – refers to a plea
of re-evaluation of an assessment on the basis
of newly discovered or additional evidence that
a taxpayer intends to present in the
reinvestigation. It may also involve a question of
fact or of law or both
-the main difference between these 2
types of protests lies in the records or evidence
to be examined by internal revenue officers,
whether these are existing records or newly
discovered or additional evidence
-a reevaluation of existing records
which results from a request for reconsideration
does not toll the running of the prescription
period for the collection of an assessed tax.
Section 271 (now sec.223 of NIRC, as amended)
distinctly limits the suspension of the running of
the statute of limitations to instances when
reinvestigation is requested by a taxpayer and is
granted by the CIR
-formal letter of demand –
[reconsideration (5 years)] [reinvestigation –
Final Decision on Disputed Assessment] (5
years)
What is the clear-cut rational why a request for
reinvestigation, and not a request for
reconsideration, interrupts the running of the
statute of limitations on the collection of the
assessed tax?
-undoubtedly, a reinvestigation, which
entails the reception and evaluation of
additional evidence, will take more time than a
reconsideration of a tax assessment, which will
be limited to the evidence already at hand; this
justifies why the former can suspend the
running of the statute of limitations on
collection of assessed tax (5 years), while the
latter cannot
Statute of Limitations
-refers to the period during which the
BIR can assess and collect taxes
-the BIR has 3 years to conduct an
assessment reckoned from the last day
prescribed by law for the filing of the return or
from the day the return was filed whichever is
later. In case of a false or fraudulent return with
intent to evade tax or of failure to file a return,
the prescriptive period is extended to 10 years
counted from the time the falsity, fraud or
omission is discovered
-for the collection of taxes, section 222
of the Tax Code generally provides for a 5-year
prescriptive period
When does the period of suspension begin and
ends
-in other words, it is suspended from
the filing of request for reinvestigation and ends
of the issuance of Final Decision on Disputed
Assessment or the Final Decision of the
Commissioner, as the case maybe
What should be indicated in the Protest?
1. The nature of protest whether
reconsideration or reinvestigation, specifying
newly discovered or additional evidence he
intends to present if it is a request for
reinvestigation
2. Date of the assessment notice
3. The applicable law, rules and regulations, or
jurisprudence on which his protest is based,
otherwise, his protest shall be considered void
and without force and effect
What happens if you failed to state the facts,
law and jurisprudence on some of the issued on
FLD
-if there are several issued involved in
the disputed assessment and the taxpayer fails
to state the facts, the applicable law, rules and
regulations, or jurisprudence in support of his
protest against some of the several issued on
which the assessment is based, the same shall
be considered undisputed issue or issues, in
which case, the assessment attributable thereto
shall become final, executory and demandable;
and the taxpayer shall be required to pay the
deficiency tax or taxes attributable thereto and
a collection letter shall be issued to the
taxpayer calling for payment of the said
deficiency tax, inclusive of the applicable
surcharge and/or interest
Submission of all relevant supporting
documents within 60 days (request for
reinvestigation)
 -the 60-day period for the submission of
all relevant supporting documents shall not
apply to requests for reconsideration
-furthermore, the term “the assessment
shall become final” shall mean the taxpayer is
barred from disputing the correctness of the
issued assessment by introduction of newly
discovered or additional evidence
What are the relevant supporting documents?
Who determines the relevant documents, BIR
or taxpayer?
-the relevant supporting documents
should be understood as those documents
necessary to support the legal basis in disputing
a tax assessment as determined by the
taxpayer. The BIR can only inform the taxpayer
to submit additional documents. The BIR cannot
demand what type of supporting documents
should be submitted. Otherwise, a taxpayer will
be at the mercy of the BIR, which may require
the production of documents that a taxpayer
cannot submit
Final Decision on Disputed Assessment (FDA)
-the final decision of the Commissioner
or his duly authorized representative which
shall state the facts, and the applicable law,
rules and regulations or jurisprudence on which
such decision is based. Otherwise, the decision
shall be void for depriving the taxpayer of their
right to due process. Without the facts and the
law or regulations on which such a decision is
based, the taxpayer cannot intelligently dispute
the assessment
Options of the taxpayer upon filing of protest
with the Regional Director or CIR’s authorized
representative:
1. Appeal to the Court of Appeals (CTA) within
30 days from the receipt of FDDA
2. Elevate his protest through request for
reconsideration to the Commissioner within 30
days from the receipt of FDDA. No request for
reinvestigation shall be allowed in
administrative appeal
3. Appeal to the CTA within 30 days after the
expiration of the 180-day period counted from
the date of filing of the protest in case of a
request reconsideration; or from date of
submission by the taxpayer of the required
documents within 60 days from the date of
filing of the protest in case of a request for
reinvestigation
It must be emphasized, however, that in case of
inaction on protested assessment within the
180-day period, the option of the taxpayer to
either:
1. File a petition for review with the CTA within
30 days after the expiration of the 180-day
period
2. Await the final decision of the Commissioner
or his duly authorized representative on the
disputed assessment and appeal such final
decision to the CTA within 30 days after the
receipt of a copy of such decision, are mutually
exclusive and the resort to one bars the
application of the other
Can the BIR change the assessment stated in
the FLD and introduce new assessment in
FDDA?
-no. In CTA case of CIR vs Flour Daniel
Philippines, Inc., the court ruled that this is a
clear violation of due process. The court noted
that, changing the assessment only in the
issuance of the FDDA would certainly deprive
petitioner of the reasonable opportunity to be
heard and submit evidence in support of its
defense which is a clear violation of the due
process requirements
-the records show that the basis of the
original assessment in the Formal Letter of
Demand was changed. Considering that the
FDDA constitutes BIR’s final decision n the
matter, the taxpayer was therefore, not given
the chance to refute within the administrative
level the findings of BIR to its case, which is a
clear violation of Section 228 of the 1997 NIRD,
as amended
Proper Service of Assessment Notice (PAN, FLD,
FDDA) (RMO 40-19)
Procedures and Guidelines in the service of
assessment notices such as PAN, FLD and
FDDA?
1. The assessment notice shall be served to the
taxpayer through personal service by delivering
personally a copy of the assessment notice at
his registered or known address or wherever he
may be found. A known address shall mean a
place other than the registered address where
business activities of the party are conducted or
his place of residence
2. In case personal service is not possible, the
assessment notice shall be served either by
substituted service or by mail. However,
substituted service can only be resorted to
when the party is not present at the registered
or known address
Substituted service shall be done as follows:
1. the assessment notice may be left at the
party’s registered address, with his clerk or with
a person having charge thereof
2. If the known address is a place where
business activities of the party are conducted,
the notice may be left with his clerk or with a
person having charge thereof
3. If the known address is the place of
residence, substituted service can be made by
leaving the copy with a person of legal are
residing therein
4. If no person is found in the party’s registered
or known address, the Revenue Officers (ROs)
concerned shall bring a barangay official and 2
disinterested witnesses to the address so that
they may personally observe and attest to such
absence. The assessment notice shall be given
to said barangay official. Such facts shall be
contained in the bottom portion of the
assessment notice, as well as the names, official
positions and signatures of the witnesses
5. Should the party be found at his registered or
known address or any other place but refuses to
receive the assessment notice, the ROs
concerned shall bring a barangay official and 2
disinterested witnesses in the presence of the
party so that they may personally observe and
attest to such official act of refusal. The
assessment notice shall be given to said
barangay official. Such facts shall be contained
in the names, official positions and signatures of
the witnesses. “Disinterested witnesses” refers
to persons of legal age other than employees of
the Bureau of Internal Revenue
Service by mail shall be done by sending a copy
of the assessment notice:
1. Registered mail with an instruction to the
postmaster to return the mail to the sender
after 10 days, if undelivered
2. Reputable professional courier service
3. Ordinary mail, if no registry or reputable
courier is available in the locality of the
taxpayer
Effect if the BIR send the assessment notice to
the taxpayer’s old address
-in CIR vs Bank of the Philippine Islands,
the Supreme Court invalidated the assessment
issued by the BIR against a taxpayer for sending
the assessment notice to its old address,
despite previous knowledge of its principal
place of business
Effect if the BIR send the assessment notice to
unauthorized person
 -the assessment is void if the BIR failed
to serve the assessment notice to taxpayer’s
authorized representative

Effect if FLD was issued through electronic mail

-the assessment is void

-in CTA case of Freelife Philippines

Distribution, Inc. – Philippine Branch vs CIR, the
court noted that the FAM shall be sent to the
taxpayer only by registered maul or by personal
delivery as required by Section 3.1.4 of RR
No.12-99. In this case, as admitted by both
parties, the FLD – FAN was sent to taxpayer
through electronic mail which is not of the
recognized modes of service of FAN under
section 3.1.4 of RR No. 12-99. Thus, the court
ruled that the service of the FLD-FAN through
electronic mail to petitioner was not valid