BIR Audit Common Issues 1

How to Survive a BIR

Audit

#SGVforABetterPhilippines
Discussion outline

BIR Audit Program

• BIR Criteria in Tax Audit
• VAT RELIEF Computerized Matching of Records
• Regular vs. Mandatory Tax Audit
Conduct of Tax Audit

• Issuance of Letter of Authority
• Submission of Documents
• Use of Best Evidence Obtainable
• BIR Audit Procedure and Techniques
Discussion outline
Issuance of Tax Assessment & Protesting the Assessment

• Issuance of Tax Assessment & Protesting the Assessment
• New Tax Audit and Assessment Rules
• Due Process Requirements in Issuance of Preliminary Assessment
Notice (PAN) and Final Assessment Notice (FAN)
• Period to Reply/ Protest the NIC, PAN and FAN
• Reinvestigation vs. Reconsideration
• Protesting the Assessment
• Deficiency interest vs. Delinquency interest
• Rule on deductibility of income payments not subjected to withholding
tax
• Final Decision on Disputed Assessment
• Appeal to the Court of Tax Appeals
Common Audit Issues

Tax Updates
BIR Audit Program
Types of BIR Audit/ Investigation
1. Regular
2. Fraud
3. Special/ Selective
4. VAT Audit
5. Pre-Audit
6. Mandatory
CRITERIA IN TAX AUDIT
Selection of Taxpayers to be Audited/ Investigated
RMO No. 019-2015, RMO No. 64- BIR Audit Program

2016
RMO No.5-2012 Benchmarking
RMO No. 13-2012 RELIEF
RMO No. 24-2008 RATE Program
RMO No. 019-2015, RMO No. 64-
Mandatory
2016
RMO No. 19-2012; RMO No. 20-

2012; RMO No. 27-2013; RMO No. VAT Audit Program
16-2014
RMO No. 25-2012 Pre-Audit
Revenue Memorandum Order (RMO)
► ALL taxpayers are considered possible candidates for audit.
► Priority shall be given to the following taxpayers:

1. Taxpayers mandatorily covered to file their returns
using eFPS or eBIR Forms under existing revenue
issuances but failed to use the same
2. Taxpayers maintaining an ending inventory of 100% or
RMO No. 19- more of their gross sales
2015 3. Issue-oriented audits (e.g., transfer pricing, Base
Erosion Profit Shifting (BEPS), industry issues, etc.)
4. Taxpayers whose compliance is below the established
benchmark rate
5. Taxpayers who have failed to comply with the
submission of information returns required under
existing revenue issuances (e.g., Alphalist, Inventory
List, List of Tenants, SLS/P, eSales)

► Priority shall be given to the following taxpayers: (cont’d)
6. Taxpayers enjoying tax exemptions/incentives
7. Taxpayers which were placed under surveillance, Oplan
Kandado and other enforcement programs of the
Bureau
8. Taxpayers reporting gross/net loss or no taxable
income or no tax due for two (2) consecutive
years
RMO No. 19-
9. Government agencies with validated "due to BIR" per
2015
COA report
10. LGUs engaged in proprietary activities or LGUs who
fail to remit taxes withheld regularly
11. Taxpayers with income tax due of less than 2% of gross
sales/revenues
12. Taxpayers with increase in assets of more than fifty
percent (50%) from the previous year but with
reported net loss

► Priority shall be given to the following taxpayers: (cont’d)
13. Taxpayers with claims for losses/damages due to
natural calamities or those claiming inventory
obsolescence
14. Taxpayer deriving its revenue/income exclusively or
substantially from its parent
company/subsidiaries/affiliates
15. Taxpayers claiming write-off of input tax as allowable
RMO No. 19- deduction in its annual income tax returns
2015 16. Taxpayers with shared expenses and other interrelated
charges being imputed by a parent company to its
affiliates and likewise an affiliate to other affiliate in a
conglomerate
17. 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

(cont’d)
18. Real estate industry
19. Telecommunications industry (TELCOS)
20. Contractors of National Government Agencies
(NGAs), Local Government Units (LGUs) and
Government Controlled Corporations
RMO No. 19- 21. Sellers of goods and services via e-commerce
2015
22. Hospitals, Clinics, Medical/Dental Laboratories
23. Amusement/Entertainment/Event Centers
24. Advertising Agencies
25. Business Processing Outsourcing Companies
26. Insurance Companies
27. Restaurants/Fast Food Chains/Catering
Services/Bars/ Coffee Shops

(cont’d)
28. Taxpayers with zero-rated sales
29. Taxpayers with intelligence information, such as
RMO No. 19-
specific business knowledge, third party data
2015
and publicly available information (e.g., from
media press releases vs. actual revenue/tax
declaration per return, etc.)
VAT RELIEF
Computerized Matching of Records
► RELIEF means Reconciliation of Listings for Enforcement. This is

the third party information program of the BIR by cross
referencing of third party information from the taxpayers'
Summary Lists of Sales and Purchases prescribed to be
submitted on a quarterly basis.
► Effective January 1, 2012, all VAT taxpayers are required to

submit the quarterly summary list of sales (SLS) and summary
list of purchases (SLP). (Revenue Regulations No. 1-2012)
VAT Audit Program for Large Taxpayers Service (LTS)

Audit or investigation of VAT returns of LTS taxpayers
classified under the following selection criteria:
1. High Risk Taxpayers
► Factors or Risk Characteristics resulting in under-

reporting of VAT liabilities and non-remittance of
VAT collection.
RMO No. 19-
2012
► Compliance Risk Characteristics due to non-
compliance with administrative requirements.
2. Medium Risk Taxpayers
► Business Issue Risks or Complex Industries due to

industry issues and changes in the status or
registration of business.
High Risk Taxpayers
► Factors or Risk Characteristics resulting in under-

reporting of VAT liabilities and non-remittance of VAT
collection:
 Taxpayers with significant increase in exempt or

zero-rated sales;
RMO No. 19-
 Taxpayers whose VAT returns reflect substantial
2012
input taxes such as when the total input taxes
claimed exceed 75% of the total output tax;
 Taxpayers with history of declaring excess input

tax carry over;
 Taxpayers filing VAT exempt tax returns due to

availment of tax incentives or tax exemptions;
High Risk Taxpayers
 Taxpayers with history of filing claim for refund or

request for issuance of Tax Credit Certificate (TCC);
 Taxpayers with substantial sales but reporting net

loss;
 Taxpayers with drastic decrease in reported sales or

RMO No. 19-
VAT payments or with marked deviation from
2012
industry trends; and
 Taxpayers identified as High Risk based on the result

of the LTS Compliance Risk Matrix analysis.
 Taxpayers with acquisition of more than P1 Million in

capital assets and failed to amortize the input tax as
required;
High Risk Taxpayers
 Taxpayers who are non-compliant in the

submission of SLP and SLS, MAP, SAWT and
other mandatory requirements;
RMO No. 19-
 Taxpayers who are non-compliant with
2012
Electronic Sales Reporting under RMO 12-2012
 Taxpayers transacting with the government or

any of its political subdivisions,
instrumentalities or agencies, including GOCCs.
Medium Risk Taxpayers

► Business Issue Risks or Complex Industries due to
industry issues and changes in the status or
registration of business:
 Taxpayers with complex corporate structures,

including mergers, consolidations, spin-offs, and
other types of corporate reorg;
RMO No. 19-  Taxpayers with application for cessation or

2012 retirement of business;
 Taxpayers with multiple branches or outlets all

over the Philippines but reported low sales;
 Taxpayers with sale or transfer of business; and,
 Taxpayers with multiple lines of business with

different basis for computation of VAT liabilities.
Audit Policies and Procedures

► The ACIR, LTS issues one (1) e-Letter of Authority
(eLA) for each taxable quarter/semester upon
recommendation of the VAT Audit Team Heads.
However, another eLA may be issued for prior periods
where tax deficiency arose.
► An eLA for a regular audit should not include the VAT

liability of the taxpayer, if an eLA under the Vat Audit
RMO No. 19-
Program has already been issued.
2012
► When there is an eLA already issued by the VAT
Audit Team , and the taxpayer has been selected
for regular audit in the RDO, the tax type to be
requested for investigation by the RDO shall
include “all internal revenue taxes except VAT.”
(RMO No. 27-2013 dated September 26, 2013)
Pre-Audit of Annual Income Tax Returns (ITRs)

► The pre-audit of the annual ITRs of individuals
engaged in business or practice of profession as well
as corporate taxpayers shall be conducted without
field investigation and shall not be covered by an eLA
or Tax Verification Notice (TVN).
► Coverage of Pre-audit:
1. Mathematical computation of income tax due
RMO No. 25- and payment;
2012
2. Correctness and applicability of personal and
additional exemptions claimed by individuals;
3. Correctness and validity of certain deductions or
expenses subject to ceiling/limitations prescribed
by the regulations;
4. Validity of claims for income tax holiday, tax
exemption and other tax incentives;

► Coverage of Pre-audit:
5. Correctness of the application of the minimum
corporate income tax (MCIT);
6. Claimed CWT against tax due and substantiation of
claims through certificates of withholding taxes
attached to the tax returns;
RMO No. 25- 7. Proper utilization of tax credit certificates that should
2012 be duly supported by an approved tax debit memo;
8. Correctness of claimed deductions for taxpayers who
opted for optional standard deductions (OSD);
9. Accuracy and applicability of the computation of the
net operating loss carry-over (NOLCO); and,
10. Completeness of the required attachments to the
annual ITR.

► In case the pre-audit results in deficiency tax, the Revenue
Office (RO) shall prepare a memorandum report for approval
of the RDO.
► A letter shall be sent to the taxpayer stating the computed

assessment and requiring that the deficiency tax be settled
within 15 days. It shall also state that the pre-audit shall not
preclude the issuance of an eLA.
RMO No. 25-
2012 ► The RO recommends the issuance of a PAN or FAN if the
taxpayer fails to respond or does not pay the deficiency tax,
and transmits the case to the Assessment Division for review
and issuance of assessment notices, subject to the approval
of the Regional Director.
► Pre-audited annual ITRs may also be selected for regular

audit if they qualify under the selection criteria prescribed in
the annual Audit Program.
Mandatory Audit

► Taxpayers with claims for income tax refund or issuance
of tax credit certificate
► Taxpayers with claims for refund (VAT, excise tax,
erroneous or double payment of tax), regardless of
amount
► Request for tax clearance of taxpayers due to
retirement/cessation of business with gross sales/receipts
RMO No. 19- exceeding PhP1M or gross assets exceeding PhP3M
2012
► Request for tax clearance of taxpayers undergoing
merger/ consolidation/split-up/spin-off and other types of
corporate reorganizations
► Cases with unresolved Letter Notices (LNs)
► Estate tax returns with other tax liabilities
► Policy cases covered by written directive of the
Commissioner
Philippine
Transfer Pricing
Philippine Transfer Pricing
Revenue Regulations (RR)

► Implements Section 50 of the Philippine Tax Code,
which empowers the Commissioner to make allocation
of income and expenses between or among controlled
group of companies if he determines that a related
taxpayer has not reported its true taxable income
► Largely based on Organization for Economic
Cooperation and Development (OECD) Transfer Pricing
RR No. 2-
Guidelines
2013
► Effectivity Date: February 9, 2013
► With the issuance of the TP Regulations, taxpayers
engaged in related party transactions are required to
have a TP documentation in place.
► Covers cross border and domestic related party
transactions
Documentation Requirements
Documentation Details*
1. Organizational structure
2. Nature of the business/industry and market conditions
3. Controlled transactions
4. Assumptions, strategies, policies
5. Cost contribution arrangements
6. Comparability, functional and risk analysis
7. Selection of the TP method
8. Background documents
9. Index to documents
* List is not exclusive
Documentation Requirements
► Timing of Preparation: Contemporaneous, that is, the TP documentation

exists or is brought into existence at the time the associated enterprise
develops or implements any arrangement that might raise TP issues or
review these arrangement when preparing tax returns
► Retention Period: 10 years
► Submission: Not required to be submitted when the tax returns are filed.
However, it must be submitted as required or upon request by the BIR
► Penalties: 25% surcharge; 12% per annum interest penalty in case of

income adjustments
► Compromise penalty of a maximum of 50,000 for noncompliance with

the TP documentation
Recent Developments
Revenue Audit Memorandum Order (RAMO) 1-2019
► Revenue Audit Memorandum Order (RAMO) No. 1-2019 known

as the “Transfer Pricing Audit Guidelines” to provide for
standardized audit procedures and techniques in the conduct of
audit of taxpayers with related party and/or intra-firm
transactions.
Recent Developments
► The TP Audit Guidelines apply to the examination of the following

transactions:
► Controlled transactions between related/associated parties, where at

least one party is assessable or chargeable to tax in the Philippines.
These include:
• Sale, purchase, transfer and utilization of tangible and intangible

assets,
• Provision of intra-group services,
• Interest payments, and
• Capitalization, among others
► Transactions between permanent establishment (PE) and its head

office or other related branches. PE will be treated as a separate and
distinct enterprise from its head office or other related
branches/subsidiaries for tax purposes. #SGVforABetterPhilippines
Recent Developments
► The TP Audit Guidelines were issued primarily to test the application of

arm’s length principle (ALP) on related party transactions.
► Related party transactions to be tested/audited cover cross-border and

domestic, including intra-firm transactions. Intra-firm transactions apply
to taxpayers with different tax regimes (ITH, 5% GIT, regular corporate
tax).
► The test of application of the ALP is performed by applying the transfer

pricing method (TPM) which is the most appropriate to the facts and
conditions. The TP methods are consistent with the methods identified
in the Philippine TP Guidelines.
► The TP audit shall also cover business restructuring within a

multinational group, intra-group services, intangible asset transactions,
cost contribution arrangements as well as interest payment
transactions. #SGVforABetterPhilippines
Recent Developments
► In the conduct of TP audit, the BIR will be examining several documents such as
the taxpayer’s TP policy and TP documentation. The BIR will also require the
taxpayer to submit within five (5) working days from receipt of notice, various
information/proofs, in prescribed formats, on the following:
• Related Party Transactions;

• Segmented Financial Statements;
• Supply Chain Management Analysis;
• Function, Assets and Risks Analysis (FAR Analysis);
• Characteristics of Business; and
• Comparability Analysis.
► Where the revenue officer has found that a price in a controlled transaction is not
at arms’ length, he may make an adjustment to reflect the arm’s length price or
interest rate for that transaction by substituting or imputing the price, or
interest, as the case may be.
Supply Chain Management Analysis
Page 31 23 March 2020 #SGVforABetterPhilippines

Functions, Assets, Risks (FAR) Analysis







Conduct of Tax Audit
Issuance of Letter of Authority
Issuance and service of electronic Letter of Authority (eLA),

Tax Verification Notices (TVNs) and Letter Notices (LN)
► There must be a grant of authority before any revenue officer

can conduct an examination or issue an assessment. Thus the
BIR cannot extend its examination or assessment beyond the
period covered by the LOA (CIR vs. Sony Philippines, Inc, G.R.
No. 178687, November 17, 2010)
► An LOA should cover a taxable period not exceeding one taxable

year. The practice of issuing an LOA covering the audit of
“unverified prior years” is prohibited (De La Salle University, inc.
vs. CIR, CTA (En Banc) EB No. 671, June 8, 2011)
Issuance of Letter of Authority
Issuance and service of electronic Letter of Authority (eLA),

Tax Verification Notices (TVNs) and Letter Notices (LN)
► The issuance of eLA, TVN and/or LN is considered a “notice of

audit or investigation” that prohibits amendment to any return
covering the period referred to in the eLA, TVN and/or LN
MANUAL LETTER OF AUTHORITY ELECTRONIC LETTER OF AUTHORITY
TAX VERIFICATION NOTICE
Submission of documents/ schedules
► Request for submission of documents/ schedules

• Checklist of uniform set of documents for BIR audit
including electronic records requested at the time of
service of the LA.
► Failure to submit documents to the BIR within the period

prescribed in the written notice, or when the information or
records submitted are incomplete, can result to issuance of
subpoena duces tecum (SDT) and even criminal prosecution.
► Guidelines for issuance of subpoena duces tecum may be

found in RMO No. 10-2013 dated April 17, 2013, as amended
by RMO No. 08-2014 dated January 29, 2014.
CHECKLIST OF REQUIREMENTS
Use of Best Evidence Obtainable
Section 6 (B), Tax Code
► When the reports or records of taxpayer are not available (i.e., lost or
destroyed; unreasonably refuses to submit records)
► Reports and records submitted by the taxpayer are determined to be

false, incomplete or erroneous or cannot be understood
► The issuance of a subpoena duces tecum is not a condition before

resorting to best evidence obtainable. The issuance of a subpoena
duces tecum is merely one of the powers that the Commissioner may
exercise in assessing or ascertaining the proper tax based on the best
evidence obtainable. In the absence of a subpoena duces tecum, the
CIR may still exercise powers prescribed by the Tax Code to determine
the tax liability of the taxpayer. (Joel C. Mendez vs. People of the
Philippines, CTA EB Crim. Case No. 014, December 11, 2012)
BIR Audit Procedure and Techniques
Audit/ Investigation Procedures and Techniques
► Prescribed set of procedures and audit techniques which

Revenue Officer must follow in the audit:
► RAMO 1-08 – Computer assisted audit tools and techniques

► RAMO 1-00 – Updated manual on audit procedures and
techniques
► RAMO 1-99 - Value-Added Tax Manual as amended by RMO
16-07 and 22-07
► RMO 15-95 as amended by RMO 31-95 and 23-97 –
Prescribes tax fraud investigation policies and procedures
► RAMO 5-86 – Guidelines on the verification of withholding tax
► BIR 500 Form Series – Revenue Officers Audit Report Forms
Examination of Books of Accounts Once a Year
“SEC. 235. Preservation of Books and Accounts and Other Accounting

Records. – xxx The said books and records shall be subject to examination
and inspection by internal revenue officers: Provided, That for income tax
purposes, such examination and inspection shall be made only once in a
taxable year, except in the following cases:
(a) Fraud, irregularity or mistakes, as determined by the

Commissioner;
(b) The taxpayer requests reinvestigation;
(c) Verification of compliance with withholding tax laws and
regulations;
(d) Verification of capital gains tax liabilities; and
(e) In the exercise of the Commissioner's power under Section 5(B)
to obtain information from other persons in which case, another or
separate examination and inspection may be made. xxx”
Preservation of Books of Accounts

► Taxpayers are required to preserve books of accounts
(i.e., subsidiary books, accounting records such as
invoices, receipts, vouchers, returns and other source
documents evidencing entries in the books of
accounts) for 10 years reckoned from the day
following the deadline in filing a return, or if filed after
RR No. 5- the deadline, from the date of filing of the return, for
2014, the taxable year when the last entry was made in the
amending RR books of accounts.
No. 17-2013
► First 5 years – taxpayer must retain hard copies
► Succeeding 5 years – may retain electronic copy of the

hard copy (paper) in an electronic storage system that
is compliant with the regulations.
Issuance of Tax
Assessment and
Protesting the
Assessment
PRESCRIPTION OF ASSESSMENT
The BIR has 3 years, within which to issue a deficiency tax

3 assessment (FAN/FLD)
► Period of Limitation Upon Assessment and Collection [Section 203, National

Internal Revenue Code (NIRC) of 1997]
► Except as provided in Section 222, internal revenue taxes shall be assessed

within three (3) years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period
►
► In a case where a return is filed beyond the period prescribed by law, the three
(3)-year period shall be counted from the day the return was filed.
► A return filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day.
Page 51
Exceptions as to Period of Limitation of Assessment
► In the case of a false or fraudulent return with intent to evade tax

or of failure to file a return
• tax may be assessed, or a proceeding in court for the collection

of such tax may be filed without assessment, at any time within
ten (10) years after the discovery of the falsity, fraud or
omission
• in a fraud assessment which has become final and executory,

the fact of fraud shall be judicially taken cognizance of in the
civil or criminal action for the collection thereof
• False return - due to mistake, carelessness or ignorance
• Fraudulent return - with intent to evade taxes
 For purposes of the ten-year prescription, no distinction has

been made between false returns and fraudulent returns (Jose
B. Aznar vs. Court of Tax Appeals and the Collector of Internal
Revenue, G.R. No. L-20569 dated August 23, 1974)
 The distinction matters for purposes of the imposition of the

fraud penalty (50%). The fraud contemplated by law is actual
and not constructive. It must be intentional fraud, consisting of
deception willfully and deliberately done or resorted to in order
to induce another to give up some legal right
► If before the expiration of the time prescribed in Section 203

for the assessment of tax, both the Commissioner and the
taxpayer have agreed in writing to its assessment after such
time (Waiver of the Statute of Limitations under the 1997
NIRC)
• the tax may be assessed within the period agreed upon
• the period so agreed upon may be extended by

subsequent written agreement made before the
expiration of the period previously agreed upon
Tax Audit and Assessment Rules
Notice of Informal Conference (NIC) Stage
► Deleted the Notice of Informal Conference (NIC)

RR No. 18-
Stage, reinstated by RR No. 7-2018 dated January
2013,
22, 2018
amended by
RR No. 7-
2018 ► The Revenue Officer who audited the taxpayer’s
records shall, among others, state in his report
whether or not the taxpayer agrees with his findings
that the taxpayer is liable for deficiency taxes.

► If the taxpayer is not amenable, based on the said
Officer’s submitted report of investigation, the
taxpayer shall be informed in writing, by the Revenue
District Office/ Special Investigation Division/ Chief of
the Division concerned of the discrepancies in the
taxpayer’s payment of his internal revenue taxes, for
RR No. 18- the purpose of “Informal Conference” in order to
2013, afford the taxpayer with an opportunity to present his
amended by side of the case.
RR No. 7-
2018 ► The Informal Conference shall in no case extend
beyond 30 days from receipt of the NIC.
► The Revenue District Office/ Special Investigation

Division/ Chief of the Division concerned shall endorse
the case within 7 days from the conclusion of the NIC
to the Assessment Division/ ACIR.
► Modified the procedure in the issuance of the

Preliminary Assessment Notice (PAN)
RR No. 18-
► Specified the contents of a valid Protest to the Formal
2013,
Letter of Demand/ Final Assessment Notice (FLD/
amended by
FAN)
RR No. 7-
2018
► Specified the procedure in cases of requests for
reconsideration and requests for reinvestigations
► Provided for an alternative remedy to the taxpayer in

case the protest is denied by the CIR representative
(Under RR 12-99, as amended by RR 18-2013, RR No. 7-2018)
Assessment/
Issuance and receipt of Letter of Authority
Protest
Flowchart Investigation/examination of returns and
books of accounts
► Deleted by RR 18-2013;
Notice to taxpayer of result of the audit &
Reinstated by RR No. 7-
invitation to an Informal Conference 2018
Preliminary Assessment Notice (PAN) issued

by Regional Director/ACIR LTS
Taxpayer protests within 15 days;

Rev Officer confers with Taxpayer Taxpayer ignores the PAN
Taxpayer pays the Rev Officer cancels Rev Officer recommends the
assessment; audit is closed assessment issuance of a FAN
Page 58
(Under RR 12-99, as amended by RR 18-2013, RR No. 7-2018)
RO recommends to the CIR the issuance of a FAN
Assessment/
Protest Issuance and receipt of Notice of Assessment / FAN
Flowchart
Taxpayer files protest w/in 30 days from receipt Taxpayer ignores the notice;
of FAN; submits relevant documents w/in 60 Assessment becomes final /
days from filing of protest (Sec. 228 NIRC) unappealable
CIR denies protest (FDDA) / Inaction by CIR

Commissioner issues
CIR reverses RO’s decision. issues a warrant of distraint & (lapse of 180 days
Preliminary Collection Letter/
Decision becomes final levy or files civil case for from submission of
Final Notice before seizure
collection documents)
Motion for Reconsideration

The Commissioner issues a
filed with the Appellate No appeal to CTA
warrant of distraint and levy
Division (not pro forma)
MR granted. CIR grants Commissioner files a civil case

MR denied
taxpayer’s request for collection
Appeal to CTA (division)

within 30 days from receipt of Case becomes an ordinary
decision / lapse of 180 day collection case (follow remedy
period under the Rules of Court)
Page 59
► If after review and evaluation by the Commissioner or

his duly authorized representative, it is determined
RR No. 18- that there exists sufficient basis to assess the
2013, taxpayer for any deficiency tax or taxes, the said
amended by Office shall issue to the taxpayer the Preliminary
RR No. 7- Assessment Notice (PAN) for the proposed
2018 assessment.
► The PAN shall show in detail the facts and the law,
rules and regulations, or jurisprudence on which the
proposed assessment is based.
Due Process Requirements
Issuance of PAN and FAN
► Section 228 of the Tax Code clearly requires that the

taxpayer must first be informed that he is liable for
deficiency taxes through the sending of a PAN. He must be
informed of the facts and the law upon which the
assessment is made. The law imposes a substantive, not
merely a formal, requirement.
► RR 12-99 is clear that the PAN is but part of the “due

process requirement in the issuance of a deficiency tax
assessment,” the absence of which renders nugatory any
assessment made by the tax authorities. [CIR vs. Metro
Superama (G.R. No. 185371, December 8, 2010)]
► The absence of a Preliminary Assessment Notice (PAN) duly

received by a taxpayer nullifies any deficiency tax
assessment issued by the BIR. Failure to strictly comply with
notice requirements prescribed under Section 228 of the Tax
Code and RR No. 12-99 is tantamount to a denial of due
process. [Laurence Lee V. Luang vs. CIR, CTA (Second
Division) Case No. 7967, January 5, 2012]
► If the taxpayer denies ever having received an assessment

from the BIR, it is incumbent upon the latter to prove by
competent evidence that such notice was received by the
addressee. [CIR vs. United Parcel Service Co. (Phil. Branch),
(CTA (En Banc) EB No. 721, May 16, 2012)]
► A PAN shall not be required in any of the following cases, and a FLD/FAN
shall be issued outright:
► When the deficiency tax is a result of mathematical error in the

computation of the tax appearing on the face of the tax return; or
► When there is a discrepancy between the tax withheld and the amount
actually remitted by the withholding agent; or
► Where the excess CWT claimed for refund or tax credit was determined
to have been carried over and applied against estimated tax liabilities
for the succeeding taxable periods; or
► When the excise tax due on excisable articles has not been paid; or
► When an article locally purchased or imported by an exempt person, has

been sold, traded or transferred to non-exempt persons
Period to Reply to NIC
► The taxpayer is given an opportunity to present his side of the case

within a period 30 days from his receipt of the NIC.
► If it is found that the taxpayer is still liable for deficiency tax or

taxes after presenting his side, and the taxpayer is not amenable,
the Revenue District Officer/ Chief of the Special Investigation
Division/ Chief of Division in the National Office, as the case may
be, shall endorse the case within 7 days from the conclusion of the
Informal Conference to the Assessment Division/ Commissioner or
his duly authorized representative for the issuance of a deficiency
tax assessment.
Period to Protest the PAN
► If the taxpayer, within 15 days from receipt of the PAN, responds

that he disagrees with the assessment findings:
• An FLD/FAN shall be issued within 15 days from filing of the

response for payment of the deficiency taxes, inclusive of
applicable penalties.
► In case of failure to respond within 15 days from receipt of the PAN:
• Taxpayer shall be considered in default and a Formal Letter of

Demand and Final Assessment Notice (FLD/FAN) shall be
issued for assessment of the deficiency tax liability, inclusive of
applicable penalties.
Formal Assessment Notice / Formal Letter of Demand
Final Assessment Notice (FAN)
► Documents that will comprise the FAN

1. Formal Letter of Demand
2. Assessment Notice
► BIR has 3 years (or the exceptional 10 years) to issue the

deficiency tax assessment or FAN
► Authorized signatory:
For Regional cases – the Regional Director

For Large Taxpayers – the Assistant Commissioner, LTS
For other cases - CIR, DCIR
Final Assessment Notice (FAN)
► The FLD/FAN shall be issued by the Commissioner or his duly

authorized representative.
► The FLD/FAN calling for payment of the taxpayer’s deficiency

taxes shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based.
► Otherwise, the assessment shall be void.
Legal effects of Issuance of FAN
► Creates legal obligation on the part of taxpayer to pay

tax to government.
► If taxpayer files timely protest, assessment does not

become final and executory.
► Taxpayer does not have to pay the deficiency tax

assessment, but deficiency interest shall start to run
from date the tax was due up to date of payment.
Period to Protest the FAN / FLD
► Disputed Assessment – The taxpayer or its authorized

representative or tax agent may protest administratively
against the aforesaid FLD/FAN within 30 days from date of
receipt thereof
► If the taxpayer fails to file a valid protest against the FLD/FAN

within 30 days from receipt thereof, the assessment shall
become final, executory and demandable.
► No request for reconsideration or reinvestigation shall be

granted on tax assessments that have already become final,
executory and demandable.
Protesting the Assessment
► If there are several issues in the FLD/FAN and the taxpayer

disputes or protests only some of them, the assessment
relating to the undisputed issue shall become final,
executory and demandable.
► If the taxpayer disputes issues in the FLD/FAN but fails to

state the facts, the applicable law, rules and regulations, or
jurisprudence in support of his protest, the issues shall be
considered undisputed and the related assessment shall
become final, executory and demandable.
► The BIR shall issue a collection letter requiring the taxpayer

to pay the deficiency tax on the undisputed items.
Reconsideration vs. Reinvestigation
► The taxpayer shall state in his protest:
► 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;
► Date of the assessment notice; and,
► 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.
• 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.
• 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.
(Commissioner of Internal Revenue vs. Philippine Global

Communication, G.R. No. 167146, October 31, 2006; Royal Bank of
Scotland Phil. Inc. vs. Commissioner of Internal Revenue, CTA EB
Case No. 446, October 23, 2009)
► The taxpayer shall submit all relevant supporting documents in support of

the protest within 60 days from date of filing of the letter protest. Otherwise,
the assessment shall become FINAL.
• The term ‘relevant supporting documents’ refer to those documents

necessary to support the legal and factual bases in disputing a tax
assessment, as determined by the taxpayer.
► The 60-day period for taxpayers to submit all relevant supporting documents
to the BIR shall not apply to requests for reconsideration
• The term “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, and the FDDA
shall consequently be issued.
Filing Procedure
Where to File:
► Letters of protest, requests for reinvestigation/

reconsideration and similar correspondences shall
only be filed with the Office of the concerned
RMC No. 39- Regional Director (RD), Assistant Commissioner-
2013 Large Taxpayers Service (ACIR-LTS) and Assistant
Commissioner-Enforcement Service (ACIR-ES),
who signed the Preliminary Assessment Notices
(PANs), FANs and Formal Letters of Demand
proper recording of the protests, and evaluation if
the same is in accordance with Section 228 of the
NIRC, as implemented by Revenue Regulations No.
12-99.
Filing Procedure
Manner of Filing:
► Maybe filed by the taxpayers or their duly

authorized representatives, in person or through
registered mail with return card.
RMC No. 39-

2013
Effect if non-compliant with the filing procedure:
► Requests for reinvestigation/reconsideration and
similar correspondences shall be considered void
and without force and effect.
Filing Procedure
Effect if not found in CIR Database:
► Any letter of protest, request for

reinvestigation/reconsideration, or other similar
communication allegedly filed by any taxpayer but
are not included in the CIR database (created
based on the weekly report of concerned revenue
RMC No. 39- officials to the CIR) shall be deemed as not
2013 officially filed with the Bureau and shall not be
used as basis for the grant of any request for
reinvestigation/ reconsideration of any FAN or
Final Decision on Disputed Assessment (FDDA)
issued against the taxpayer.
Deficiency Interest vs. Delinquency Interest
► Deficiency is defined as the amount still due and

collectible from a taxpayer upon audit or investigation;
whereas delinquency is defined as the failure of the
taxpayer to pay the tax due on the date fixed by law or
indicated in the assessment notice or letter of demand.
xxx xxx xxx
Deficiency interest is imposed for the shortage of taxes

paid, while delinquency interest is imposed for the
delay in payment of taxes.” (Emphasis supplied)
(Takenaka Corporation Philippine Branch vs. Commissioner of

Internal Revenue CTA EB Case No. 745 September 4, 2012)
Deficiency interest Delinquency interest

Basic tax, interest and
Tax base Basic tax
surcharge
From the date
prescribed for its
payment up to the full From the due date
payment or deadline set appearing in the notice
Reckoning
by the CIR for payment and demand of the CIR
point/date
of the assessed tax, until the amount is fully
whichever comes paid
earlier.
Rate 12% per annum 12% per annum
Page 78
► In no case shall the deficiency and the delinquency interest

prescribed be imposed simultaneously. (Section 249 of the
Tax Code, as amended by R.A. No. 10963 or the TRAIN Act)
Surcharge, Compromise Penalties
► 25% surcharge –
• For failure to file any return and pay the tax due thereon as prescribed
by law
• For failure to pay within the time prescribed in the notice of
assessment
• For failure to pay (either full or partial) the amount of tax shown on any
return required to be filed or the full amount of tax due where there is
no return required to be filed
► Compromise penalties prescribed in RMO 7-2015 may also be
imposed
► Payment of prescribed compromise penalty in lieu of criminal
prosecution extinguishes the criminal liability
► Taxpayer must consent to the payment of the prescribed
compromise penalty; otherwise, the imposition of penalty is
unauthorized
Criminal Penalties
► Any willful attempt to evade the payment of tax will result in the
imposition of criminal penalties consisting of:
1. Fine of not less than P30,000 or not more than P100,000, or
twice the amount of taxes, interest and surcharge in the FAN,
whichever is higher, and
2. Imprisonment of not less than two years but not more than
four years
► Payment of the tax does not extinguish the criminal penalties
Income payments not subjected to withholding tax are
nondeductible expense
Failure to Withhold
► Any income payment which is otherwise deductible

shall be allowed as deduction only if it is shown that
the withholding tax due thereon has been paid to the
BIR.
► No deduction will be allowed notwithstanding payment

RR No. 12- of withholding tax at the time of the tax audit in cases
2013 where no withholding tax was made in accordance
with Secs. 57 and 58 of the Code
► For tax audits beginning taxable year 2013
RR No. 6-2018 revoked RR No. 12-2013
Page 83
Surcharge, Interest and Compromise Penalty on Amended
Returns
Amended Returns
► In an amendment of return where an additional tax is

due the additional tax shall be subject to
RRMC no. 21-
2018, which
circularizes ► Interest
Memorandum
16-2018 ► 25% penalty
Final Decision on Disputed Assessment
FDDA
► The decision of the Commissioner or his duly authorized

representative shall state the following:
1. Facts, the applicable law, rules and regulations or jurisprudence

on which such decision is based, otherwise the decision shall be
VOID; and
2. That the same is his final decision.
Final Decision on Disputed Assessment
Reclassification of assessment constitutes a new assessment
► The reclassification of an assessment from deficiency EWT in

the FLD to deficiency FWT in the FDDA constitutes a new
assessment, which results in a denial on the part of the
taxpayer to administratively protest said new assessment,
and which is in violation of Section 228 of the Tax Code.
(Fluor Daniel Phils., Inc. vs. CIR, CTA Case No. 7793, April
17, 2012)
Inaction by the CIR’s duly authorized representative
► If the protest is denied (in whole or in part) by the CIR’s duly

authorized representative, the taxpayer may either:
► Appeal or file a Petition for Review with the CTA within 30

days from date of receipt of the decision; or
► File a request for reconsideration with the CIR within 30 days

from date of receipt of the said decision.
► No request for reinvestigation shall be allowed in

administrative appeal with the CIR. Only issues raised in the
decision of the CIR’s duly authorized representative shall be
entertained by the CIR.
Denial of Protest by the CIR’s duly authorized representative
► If the protest is not acted upon by the CIR’s duly authorized

representative within 180 days filing of the protest in case of
a request reconsideration, or 180 days from submission by
the taxpayer of the required documents in case of a request
for reinvestigation, the taxpayer may either:
• File a Petition for Review with the CTA within 30 days after
the expiration of the 180-day period; or
• Await the final decision of the CIR’s duly authorized

representative on the disputed assessment, and appeal to
the CTA within 30 days from receipt of the decision.
Denial of Protest and/or Inaction by the CIR
► Denial of protest by the Commissioner
• Denial of protest by the Commissioner maybe appealed to

the CTA within 30 days from receipt of denial.
• Appeal to CTA necessitates payment of filing fee and

lawyer’s professional fee
• Motion for Reconsideration on the CIR’s denial of the

protest or administrative appeal shall not toll the 30-day
period to appeal to the CTA.
► Inaction of Commissioner
• May appeal to the CTA within 30 days from the lapse of

180 days.
Appeal to the Court of Tax Appeals
30-day period to file judicial appeal is mandatory
► The 30-day period to appeal is jurisdictional and failure to

comply would bar the appeal and deprive the CTA of its
jurisdiction. Such period is mandatory, and it is beyond the
power of the courts to extend the same (Chan Kian vs. CTA,
G.R. No. L-12184, May 29, 1959 [105 Phil. 906]).
► The date on which the court actually received the pleadings

delivered through a private letter-forwarding agency is
considered the date of filing in court, not the date of delivery
to the agency. (Philippine National Bank vs. CIR, SC (First
Division) G.R. 172458, December 14, 2011)
Taxpayer’s options in case of inaction are mutually exclusive
► 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 expiration of the 180-day
period, or (2) await the final decision of the CIR or his duly
authorized representative and appeal such final decision to the CTA
within 30 days after the receipt of a copy of such decision is
mutually exclusive.
► Resort to one option bars the application of the other.
(Spouses Evono vs. Department of Finance, Commissioner of Internal

Revenue and Republic of the Philippines, CTA Case EB No. 705
promulgated June 4, 2012)
Filing of MR or Motion for New Trial
► Filing of Motion for Reconsideration or Motion for New Trial with the
concerned CTA Division is a must.
► BEFORE the CTA En Banc could take cognizance of a petition for

review concerning a case falling under its jurisdiction, the litigant
must sufficiently show that it sought prior reconsideration or moved
for a new trial with the concerned CTA Division (Commissioner of
Customs vs. Marina Sales, Inc., G.R. No. 183868, November 22,
2010)
► Decision of the CTA Division is appealed to the CTA en banc

(RA 9282)
► Decision of the CTA en banc may be appealed to the SC within 15

days from receipt of the decision through Petition for Review on
Certiorari.
Collection of Taxes
Collection of Taxes
► Deficiency taxes assessed which have become final and executory

may be collected through compulsory process
► Warrant of distraint and levy
► Judicial proceedings
► Must be collected within five (5) years following the

assessment
Common Issues
Income Tax
Issue Defenses
Undeclared Sales due to difference • Reconciliation/Matching of the
between Sales/Revenue per Income sales/revenue reported in the ITR
Tax Return and per VAT returns against the sales/revenue reported
in the VAT returns
• The under declaration of sales may

be due to timing difference (Sales o
Service vs. Sale of Goods)
• Comparison between the SLS and

ITR return
Income Tax
Issue Defenses
Under declaration of sales/revenue • Reconciliation/matching of
per Income Tax Return and per sales/revenue reported in the ITR
Grossed-UP Creditable Withholding against the sales/revenue from
Taxes (CWTs) grossing-up the CWTs
• Gather all issued 2307 to confirm

the total amount of withheld taxes
vs. the grossed up amount alleged
by the BIR
Income Tax
Issue Defenses
Under declaration of Sales/Revenue • Reconciliation/matching of the
per Trial Balance (TB) and per Audited sales/revenue reported per TB
Financial Statements (AFS) against the sales/revenue reported
in the Audited Financial
Statements
• Compare the difference noted by

the examiner and the amount
reconciled by the Company
Income Tax
Issue Defenses
Undeclared Income from Undeclared • Reconciliation/Matching of the
Purchases sales/revenue reported in the ITR
against the purchases reported per
ITR.
• Reconciliation/Matching of the
Company’s Summary list of
purchases vs. amount discovered
by the BIR
• Legal defense: assessments must

not be based on merely
speculations and without any
basis.
Income Tax
Issue Defenses
Disallowed Expenses due to Non- • Reconcile/Match the amount of
Withholding purchases/expenses within the
taxable year and the amount of
Expanded Withholding Tax (EWT)
remitted by the Company
• There may be purchases not

subject to withholding
• Payment of corresponding
withholding tax effectively cancels
the findings on disallowance of
expenses due to non-withholding
Income Tax
Issue Defenses
Disallowed expense due to improper • Provide the BIR with the relevant
substantiation/no supporting invoice/official receipt in relation to
document the Company’s claimed expenses
for the taxable year.
• Present that all SI/OR issued to the

Company are all compliant with the
invoicing requirements
Income Tax
Issue Defenses
Disallowed Salaries and Wages Expenses • Reconcile/Match the amount withheld
for Non-Withholding of Taxes by the Company in relation to
Purchases made within the taxable year
and the amount of Expanded
Withholding Tax remitted by the
Company
• Check de minimis benefit payments,
mandatory contributions, and other
salary payments not subject to
withholding.
• Payment of corresponding withholding
tax effectively cancels the findings on
disallowance of expenses due to non-
withholding
Income Tax
Issue Defenses
Unsupported/Disallowed Creditable • Provide the BIR with all of the
Withholding Taxes Company’s issued 2307 –
Certificate of Creditable
Withholding Tax
Value-Added Tax
Issue Defenses
Disallowed Zero-rated Sales • Present proof of zero-rating
certificate, such as PEZA, BOI, or
Freeport certificates,
Value-Added Tax
Issue Defenses
Undeclared Sales/Receipts per TPI • Check trade names duly registered
by taxpayers, which might have
been used instead of the corporate
name.
• Obtain sworn statements/

certification from third-party
information sources as required
under Revenue Memorandum
Order (“RMO”) No. 46-04.
• Assessments should be based on

facts and not mere presumptions.
Value-Added Tax
Issue Defenses
Undeclared Purchases treated as • A taxpayer is free to declare or
Undeclared Sales/Receipts deduct a lesser amount of expense
or not claim any deduction at all.
What is prohibited is to claim a
deduction beyond the amount
authorized by law.
• Modern Imaging Solutions, Inc. vs.

Commissioner of Internal Revenue,
CTA (Second) Division Case 8987
on 21 March 2017, expense
payments does not lead to
undeclared income. Even if this
translates into income, the same
will be offset by recording the
expense as a deduction.
Value-Added Tax
Issue Defenses
Disallowed Input Tax Deferred on • Present reconciliation schedule or
Capital Goods Exceeding P1Million amortization schedule and original
from Previous Quarter source documents of purchases.
Value-Added Tax
Issue Defenses
Disallowed Claimed Input Tax • Present proper supporting
documents: VAT sales invoice for
purchase of goods and VAT official
receipt for purchase of services.
• Make sure there is strict compliance
by the suppliers on the invoicing
requirements.
Value-Added Tax
Issue Defenses
Disallowed Creditable VAT Withheld • Provide creditable withholding VAT
certificates to prove the fact of
withholding.
• Present reconciliation schedule/
matching of the CWT applied vis-a-
vis the sales or income earned.
Value-Added Tax
Issue Defenses
Taxable receipts not subjected to VAT • There may be certain income
payments not subject to VAT (zero-
rated/exempt sales)
• Present reconciliation schedule of
A/Rs and proof of actual taxable
receipts
Sample computation
A/R, beg., net of VAT 60,134,569.64
A/R, end., net of VAT 48,260,593.75
Net Collection 11,873,975.89
Add: Gross Revenues 17,459,238.00
Total Receipts 29,333,213.89
Less: Taxable Receipts per VAT Returns 27,717,742.60
Taxable Receipts Not Subjected to VAT 1,615,471.29
Value-Added Tax
Issue Defenses
Income Payments to NRFC not • Provide proof that services were
subjected to Final Withholding VAT rendered outside the Philippines,
such as but not limited to:
• Contracts
• Invoices
• Articles of Incorporation of the
NRFC
• SEC Certificate of Non-
registration
Expanded Withholding Tax
Issue Defenses
Discrepancy of income payments per • Certain income payments may not
FS/ITR vs Alphalist be subject to WT (e.g. Payments to
GPP)
• Present reconciliation schedule

and proof of withholding
Withholding Tax on Compensation
Issue Defenses
Discrepancy of salaries per FS/ITR vs • Certain income payments may not
Alphalist be subject to WTC (e.g.de minimis)
• Present reconciliation schedule
and proof of withholding
Final Withholding Tax
Issue Defenses
Income payments to non-resident • Services were rendered outside the
foreign entities for services rendered Philippines, thus, not subject to
to the taxpayer were not subjected to FWT
FWT
• ITAD ruling on the exemption to
FWT
Fringe Benefits Tax
Issue Defenses
Fringe benefits per BIR Computation • Fringe benefits are required by the
vs. fringe benefits subjected to FBT nature of, or necessary to trade,
per BIR Form 1603 business or profession of the
employer, or when the fringe
benefit is for the convenience or
advantage of the employer
Documentary Stamp Tax
Issue Defenses
The following were not subjected to
DST:
Intercompany advances • Trade related advances
Head office/ Branch advances • Considered as one entity,
technically not a loan
Improperly Accumulated Earnings Tax
Issue Defenses
BIR will alleged that the Company • Re-compute the amount noted by
improperly accumulated its earnings the BIR by making sure that the
which exceeded the allowable amount formula used by the BIR in
under the law that should be computing the amount of IAET is
maintained by the Corporation. correct.
• Counter-check if the BIR

considered the amount of
appropriated retained earnings
(i.e. planned expansion of the
business) in computing the
corresponding IAET
Tax Updates
2019
Bureau of Internal Revenue (BIR) Issuances
Revenue Regulations (RR)
Interest income derived from any other debt

instruments not within the coverage of ‘deposit
RR No. 1-2019
substitutes’ and RR No. 14-2012 is subject to 15%
EWT (previously 20%) unless otherwise provided
by law or regulations.
Amending RR No. 11-2018. Withholding agents

shall be considered as top withholding agents
(TWA) when gross sales/receipts or gross
RR No. 7-2019
purchases or claimed deductible itemized
expenses, as the case may be, amounted to
PhP12 million, and included in the list of existing /
additional TWAs published by the BIR.
Revenue Memorandum Circulars (RMC)
Business Style refers to the business name

registered with the concerned regulatory body
used by the taxpayer other than its registered
RMC No. 55-2019
name or company name. Taxpayers should ensure
that the business style, if any, is properly
presented in the VAT Invoices / Official Receipts
received from suppliers.
1 2
Corporate Name /
Taxpayer’s Name XYZ Corporation Juan dela Cruz
Business Name Bozo the Clown Juan dela Cruz
Bozo the Clown Juan dela Cruz
Business Style
Revenue Memorandum Circulars (RMC)
The differential salaries received by female

employees during their maternity leave are
RMC No. 105 -2019
exempt from compensation subject to withholding
tax on wages (WTW), pursuant to 105-day
Expanded Maternity Leave Law (R.A. No. 11210).
Bureau of Internal Revenue (BIR) Forms
Newly Revised BIR Forms
1702-MX (Annual Income Tax Return for

Corporations, Partnerships and other Non-
RMC No. 42 -2019
Individuals with Mixed Income subject to
Multiple Income Tax Rates or with Income
subject to Special/ Preferential Rate)
1604-C (Annual Information Return of Income

Taxes Withheld on Compensation)
1604-E (Annual Information Return of
RMC No. 73-2019 Creditable Income Taxes Withheld
(Expanded)/Income Payments Exempt from
Withholding Tax)
1604-F (Annual Information Return of Income
Payments Subjected to Final Withholding Tax)
Bureau of Internal Revenue (BIR) Forms
Newly Revised BIR Forms
2306 (Certificate of Final Tax Withheld At

RMC No. 74 -2019 Source)
2307 (Certificate of Creditable Tax Withheld At
Source)
RMC No. 100-2019 2316 (Certificate of Compensation

Payment/Tax Withheld)
RMC No. 106-2019 2000-OT (Documentary Stamp Tax (DST)

Declaration/Return (One Time Transactions))
Court of Tax Appeals (CTA) Decisions
Rulings
CTA disallowed Company’s income payments

Hotel Specialist
as expenses since the related deficiency
(Tagaytay), Inc. vs. CIR
withholding taxes were paid only after the
CTA Case No. 9349,
time of the audit/investigation or
January 18, 2019
reinvestigation/reconsideration (i.e. after
the petitioner received the FDDA).
Asia United Leasing & Based on the definition under Section 3 of

Finance Corporation RA No. 8556, it can be deducted that
vs. CIR financial leasing is mode of extending credit
CTA Case No. 8735, and falls within the same category of loans.
February 12, 2019 As such, finance lease contracts are subject
to DST.
Court of Tax Appeals (CTA) Decisions
Rulings
Income from an unregistered activity of a

AGM Packaging
PEZA-registered entity is subject to 30%
System Ltd. Corp. vs
corporate income tax, and the accumulation
CIR
of earnings in excess of 100% of paid-up
CTA Case 1734, March
capital is subject to Improperly Accumulated
29, 2019
Earnings Tax (IAET).
New Coast Hotel, Inc. CTA ruled that over-remitted EWT for the
vs. CIR taxable period cannot be used to offset or be
CTA Case No. 1758, treated as an advance payment to the
April 15, 2019 succeeding period’s EWT for which the
taxpayer may be held liable.
Philippine Economic Zone Authority (PEZA) Issuances
Memorandum Circular (MC)
Requires all economic zone locator enterprises

employing foreign nationals to submit the
following information to the PEZA’s Foreign
National Unit (FNU):
PEZA MC No. 2019-016
1. Taxpayer’s Identification Number (TIN) of all
foreign nationals employed by the
economic zone locator enterprises; and,
2. ITRs of all foreign nationals employed by
the economic zone locator enterprises for
CY 2018.
Questions?
Thank you!
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BIR Audit Common Issues 1

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How to Survive a BIR

BIR Audit Program

Conduct of Tax Audit

Issuance of Tax Assessment & Protesting the Assessment

Common Audit Issues

Selection of Taxpayers to be Audited/ Investigated

RMO No. 019-2015, RMO No. 64- BIR Audit Program

RMO No. 19-2012; RMO No. 20-

Revenue Memorandum Order (RMO)

► ALL taxpayers are considered possible candidates for audit.

► Priority shall be given to the following taxpayers:

Revenue Memorandum Order (RMO)

Revenue Memorandum Order (RMO)

Revenue Memorandum Order (RMO)

Revenue Memorandum Order (RMO)

Computerized Matching of Records

► RELIEF means Reconciliation of Listings for Enforcement. This is

► Effective January 1, 2012, all VAT taxpayers are required to

Revenue Memorandum Order (RMO)

1. High Risk Taxpayers

► Factors or Risk Characteristics resulting in under-

2. Medium Risk Taxpayers

► Business Issue Risks or Complex Industries due to

High Risk Taxpayers

► Factors or Risk Characteristics resulting in under-

 Taxpayers with significant increase in exempt or

 Taxpayers with history of declaring excess input

 Taxpayers filing VAT exempt tax returns due to

High Risk Taxpayers

 Taxpayers with history of filing claim for refund or

 Taxpayers with substantial sales but reporting net

 Taxpayers with drastic decrease in reported sales or

 Taxpayers identified as High Risk based on the result

 Taxpayers with acquisition of more than P1 Million in

High Risk Taxpayers

 Taxpayers who are non-compliant in the

 Taxpayers transacting with the government or

Medium Risk Taxpayers

 Taxpayers with complex corporate structures,

RMO No. 19-  Taxpayers with application for cessation or

 Taxpayers with multiple branches or outlets all

 Taxpayers with sale or transfer of business; and,

 Taxpayers with multiple lines of business with

Audit Policies and Procedures

► An eLA for a regular audit should not include the VAT

Revenue Memorandum Order (RMO)

Revenue Memorandum Order (RMO)

Revenue Memorandum Order (RMO)

► A letter shall be sent to the taxpayer stating the computed

► Pre-audited annual ITRs may also be selected for regular

Revenue Memorandum Order (RMO)

Revenue Regulations (RR)

* List is not exclusive

► Timing of Preparation: Contemporaneous, that is, the TP documentation

► Retention Period: 10 years

► Penalties: 25% surcharge; 12% per annum interest penalty in case of

► Compromise penalty of a maximum of 50,000 for noncompliance with

Revenue Audit Memorandum Order (RAMO) 1-2019

► Revenue Audit Memorandum Order (RAMO) No. 1-2019 known