Compliance Requirements

Compliance Requirements

KEEPING OF BOOKS OF ACCOUNTS

All corporations, companies, partnerships, or persons required by law to pay internal revenue taxes shall keep a journal and a ledger or their equivalents.

1. those whose gross quarterly sales earnings receipts or output do not exceed P50,000.00, shall keep and use a simplified set of bookkeeping records duly authorized by the Secretary of Finance wherein all transaction and results of operations are shown.

2. Those whose gross quarterly sales, earnings, receipts, or output exceed 150,000 shall have their books of accounts audited and examined yearly by independent Certified Public Accountants and their income tax returns accompanied with a duly accomplished Account Information Form (AIF)

PRESERVATION OF BOOKS OF ACCOUNTS 

All books of accounts, including the subsidiary books and other accounting records of corporations, partnerships or persons shall be preserved by them within 3 years (except in case of a false or fraudulent return) from the last entry in each book and for which period the Commissioner is authorized to make an assessment.

The said books and records shall be subject to examination and inspection by internal revenue officers made only once in a taxable year, except in the following cases:

1. fraud, irregularity or mistakes as determined by the commissioner; 
2. the taxpayer requests reinvestigation;
3. verification or compliance with the withholding tax laws and regulations and
4. in the exercise of the commissioner’s power to obtain information from other persons, in which case, another or separate examination and inspection may be made.


REGISTRATION REQUIREMENTS
Every person subject to any internal revenue tax shall register once with the appropriate Revenue District Officer:
1. within 10 days from date of employment
2. on or before the commencement of business
3. before payment of any tax due
4. upon filing of a return, statement or declaration as required in the tax code.


CONTENTS OF REGISTRATION 
The taxpayer’s name, style, place of residence, business, and such other information as may be required by the commissioner of internal revenue in the form prescribed therefor.


REGISTRATION FEE, AMOUNT AND WHEN PAID
An annual registration fee in the amount of P500.00 for every separate or distinct establishment or place of business, including facility types where sales transaction occur shall be paid, upon registration and every year thereafter on or before the last day of January.

EXCEPTIONS: who are not required to pay:
a. cooperatives
b. individuals earning purely compensation income, whether locally or abroad, and
c. overseas workers

TO WHOM PAYMENT MADE
a. an authorized agent bank located within the revenue district office;
b. Revenue collection officer. Or
c. duly authorized treasurer of the City or municipality where each place of business or branch is located.

REGISTRANT SHOULD UPDATE REGISTRATION INFORMATION  
The registrant shall, whenever applicable, update his registration information with the Revenue District Office where he is registered, specifying therein any change in tax type and other taxpayer details.

CANCELLATION OF REGISTRATION
The registration of any person who ceases to be liable to a tax type shall be cancelled, upon filing with the Revenue District Office where he is registered, an application for registration information update in a form prescribed therefor.

WHERE T.I.N REQUIRED TO BE SUPPLIED
Any person required under the tax code to make, render or file a return, statement or other document, shall be supplied with or assigned a Taxpayer Identification Number (TIN), which he shall indicate in such return, statement or document filed with the BIR for his proper identification for tax purposes.

EXAMPLES OF DOCUMENTS WHICH REQUIRES INDICATION OF A TIN. (IMPT!!!)

a. sugar quedans, refined sugar release order or similar instruments; 
b. domestic bills of lading
c. documents to be registered with the Register of Deeds or Assessor’s Office;
d. registration certificate of transportation equipment by land, sea or air;
e. documents to be registered with the SEC;
f. building construction permits;
g. application for loan with banks, financial institutions or other financial intermediaries;
h. application for mayor’s permit
i. application for business license with the DTI
j. such other documents which may thereafter be required under rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commission of Internal Revenue.


ISSUANCE OF RECEIPTS, SALES INVOICE OR COMMERCIAL INVOICE

All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at 25.00 or more, issue duly registered receipts, sales invoice or commercial invoice, prepared at least in duplicate, showing the date of transaction, quantity under cost and description of merchandise or nature of service.

In lieu of sale invoices or receipts, the BIR permits the use of cash register and point-of sale (POS) machines. In this regard, the BIR, has set rules, and the permit shall be issued only to proprietors, owners or operators of any of the following lines of business and other similar establishments:

1. supermarkets; 
2. department stores
3. drugstores
4. bookstores
5. groceries
6. bakeries
7. restaurants, bars, beer gardens, refreshment parlors and other eating places
8. record bars and music stores
9. video shops selling and leasing out cinematographic films
10. garages and other parking spaces
11. gasoline stations
12. hotels, motels, lodging houses and the like
13. token exchange stations
14. recreational and amusement centers.

The Commissioner of Internal Revenue may, in meritorious cases, qualify other lines of business to use cash register and POS machines considering modern business practices.

WHERE NAME, BUSINESS STYLE, OR ADDRESS OF PURCHASER, CUSTOMER OR CLIENT IS REQUIRED TO BE SHOWN ON THE RECEIPT OR INVOICE

In case of sales receipts or transfers in the amount of P100.00 or more, regardless of amount where the sale or transfer is made by persons subject to the value added tax to other persons also subject to value added tax, or where the receipt is issued to cover payment made as rentals, commissions, compensations or fees.

PRINTING OF RECEIPTS, SALES INVOICE OR COMMERCIAL INVOICE  IMPT!!!!!
All persons who are engaged in business shall secure from the BIR an authority to print receipts, sales invoice or commercial invoice before a printer can print the same.

No authority to print receipts, sales invoice or commercial invoice 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 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. 

All persons who print receipts, sales invoice or commercial invoice shall maintain a logbook/ register of taxpayers who availed of their printing services. The logbook/ register shall contain the following information:

a. names and TIN of the persons or entities for whom the receipts, sale invoice or commercial invoice were printed, and 
b. number of booklets, number of sets per booklet, number of copies per set and the serial numbers of the receipts or invoices in each booklet.

Withholding Taxes

WITHHOLDING TAXES

Tax credits refers to amounts allowed as deductions from the tax due. Withholding taxes just like foreign income tax paid or accrued are tax credits. Thus, withholding taxes on income are being deducted from the income tax due and not from gross income.

WITHHOLDING OF TAX AT SOURCE

1. Final Withholding Tax- Under the final withholding tax system the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee on the said income. The liability for payment of the tax rest primarily on the payor as a withholding agent.

The liability for payment of the tax rest primarily on the payor as a withholding agent. Thus in case of his failure to withhold the tax or in case of underwithholding, the deficiency tax shall be collected from the payor/withholding agent. The payee is not required to file an income tax return for the particular income.

The finality of the withholding tax is limited only to the payee’s income tax liability on the particular income. It does not extend to the payee’s other tax liability on income, such as when the said income is further subject to a percentage tax. For example, if a bank receives income subject to final withholding tax, the same shall be subject to a percentage tax.

2. Creditable Withholding Tax. Under the creditable withholding tax system, taxes withheld on certain income payments are intended to equal or at least approximate the tax due of the payee on said income. The income recipient is still required to file an income tax return to report the income and or pay the difference between the tax withheld and the tax due on the income. Taxes withheld on income payments covered by the expanded withholding tax and compensation income are creditable in nature.

INCOME PAYMENTS SUBJECT TO FINAL WITHHOLDING TAX AND CORRESPONDING RATES.

1. Income Payment to a citizen or resident alien individual.

a. Interest from any peso bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements, royalties, prizes (except prizes amounting to P10,000.00 or less which shall be subject to the normal income tax for individuals), and other winnings (except PCSO winnings and lotto winnings) derived from sources within the Philippines – 20%

b. Royalties on books, as well as other literary works and musical compositions- 10-%

c. Interest income received by a resident individual taxpayer from a depository bank under the Foreign Currency Deposit System- 7.5%

d. Interest income from long term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments predetermined by the holder before the 5TH year at the following rates
Holding Period                                  Rate
4 years to less than 5 years                5%
3 years to less than 4 years                12%
Less than 3 years                              20%

e. On capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales based on the gross selling price or fair market value, whichever is higher- 6%.

x x x

PERSONS REQUIRED TO DEDUCT AND WITHHOLD CREDITABLE TAX ON INCOME PAYMENTS
a. In general, any juridical person, whether or not engaged in trade or business;
b. An individual, with respect to payments made in connection with his trade or business; however,, insofar as taxable sale, exchange or transfer of real property is concerned, individual buyers who are not engaged in trade or business are also constituted as withholding agents;
c. All government offices, including government-owned or controlled corporations, as well as provincial, city and municipal governments.

TIME OF WITHHOLDING

The obligation of the payor to deduct and withhold the tax arises at the time an income is paid or payable, whichever comes first. The term “payable” refers to the date the obligation became due, demandable or legally enforceable.

EXEMPTION FROM WITHHOLDING

The withholding of creditable withholding tax prescribed shall not apply to income payments made to the following:
a. National Government and its instrumentalities, including provincial, city or municipal governments; 
b. Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following:
      1. sales of real property by a corporation which is registered with and certified by the Housing and Land Use Regulatory Board (HLURB) or HUDCC as engaged in socialized housing project where the selling price of the house and lot or only the lot does not exceed P180,000 in Metro Manila or other highly urbanized areas and 150,000 in other areas or such adjusted amount of selling price for socialized housing….x x x.
     

      2. corporations registered with the Board of Investments x x x 

      3. corporations which are exempt from the income tax under the NIRC, such as GSIS, SSS, PCSO, PHIC, PCSO and PAGCOR.

REMEDIES OF THE TAXPAYER

REMEDIES OF THE TAXPAYER

1. Where the tax has not been paid

a. Dispute the assessment administratively- file with the BIR a request for reconsideration of the assessment. If the BIR decides against the taxpayer, he may appeal to the Court of Tax Appeals. 

b. Appeal to the CTA- within 30 days from receipt of the decision of the CIR on the disputed assessment, the taxpayer may appeal the decision to the CTA. Refunds for internal revenue taxes, fees or other charges, penalties imposed in relation thereto are also appealable to the CTA.  

The appeal taken to the CTA shall not suspend the payment, levy, distraint and/or sale of any property of the taxpayer for the satisfaction of his tax liability. However, if in the opinion of the CTA the collection of the tax may jeopardize the interest of the government or the taxpayer, the Court at any stage of the proceeding may suspend the collection of tax and require the taxpayer to deposit the amount claimed, or file a surety bond for not more than double the amount with the court.

c. Appeal to the Supreme Court.

2. Where the tax has been paid- Claim for a refund 

Grounds for claiming refund or tax credit  IMPT!!!!!!!!
a. the tax has been erroneously or illegally assessed or collected;
b. the penalty had been collected without authority
c. any sum which have been excessive or in any manner wrongfully collected
d. the tax was paid by mistake.

3. Action to contest forfeiture of chattel

4. Question the validity of the sale of property

5. Action against the revenue officers for damages cased in the performance of duties

6. Appeal the President of the Philippines, where the decision of the Commissioner of Internal Revenue is a revocation of privilege.

Tax Remedies

Notes in Tax Remedies
February 24, 2009

PRE-ASSESSMENT NOTICE impt!!!

A pre-assessment notice is served by the Government upon the taxpayer under any of the following circumstances:
1. if the taxpayer fails to file a return where return is required; 
2. if he files a return but fails to pay the tax;
3. if he files a return and pays the tax, but payment is insufficient because certain deductions claimed are disallowed by the BIR.

After the taxpayer’s receipt of the pre-assessment notice, any of the following situations can take place:
1. taxpayer accepts liability and pays the tax as appearing on the pre-assessment notice;
2. taxpayer disagrees with the pre-assessment notice and responds by explaining that he is not liable;
3. taxpayer pays the tax and later on files a written claim for refund;
4. taxpayers enters into a compromise agreement with the BIR;
5. taxpayer ignores the pre-assessment notice.

The tax code states that the period to respond shall be prescribed by implementing rules and regulations. If the taxpayer fails to respond within such period (30 days), a final assessment shall issue. 

ORDINARY PERIOD FOR ASSESSMENT

The right of the government to asses and later on to collect the tax is subject to prescription, upon the lapse of which it can no longer exercise this right. 

Section 203, of the tax code provides that internal revenue taxes shall be assessed within 3 years after the last day prescribed by law for the filing of the return. The same provision of law lays down the rules as to when the 3 year prescriptive period for assessment begins:

1. if the return is filed before the last day prescribed by law for the filing thereof, it shall be considered as filed on the last day; 
2. if the return is filed on the last day prescribed by law, then it is considered as filed on such day;
3. if the return is filed beyond the period prescribed by law, the 3 year period shall be counted from the day the return is filed.

So it is clear, that the reckoning point for the 3 year prescriptive period is flexible; if the return is filed on or before the deadline, the reckoning point is the deadline; if filed beyond the deadline, the reckoning point is the date the return is actually filed. The 3 year period for assessment begins to run from such a date.

FINAL ASSESSMENT...IMPT!

A final assessment issues:
1. if the taxpayer, having received a pre-assessment notice fails to respond within the period provided for by the rules and regulations;
2. under the 5 circumstances enumerated under section 228 of the tax code where pre-assessment notice is not necessary

Section 228. enumerates the exceptional circumstances where a pre-assessment notice is not necessary:  IMPT!!!

1. when the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return;
2. when a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or
3. when a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year;
4. when the excise tax due on excisable articles has not been paid, or 
5. when an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded, or transferred to non-exempt persons.

Under the foregoing circumstances, the taxpayer shall immediately receive a final assessment without the benefit of pre-assessment notice.


REMEDIES AVAILABLE TO THE GOVERNMENT IN THE COLLECTION OF THE INCOME TAX...VERY IMPT!!

1. ADMINISTRATIVE
a. Distraint of personal property;
b. Levy of personal property
c. Enforcement of forfeiture of property
d. Enforcement of tax lien
e. Requiring the filing of bonds
f. Requiring proof of filing income tax returns
g. Deportation of aliens
h. Inspection of books of accounts.  

2. JUDICIAL
a. ordinary civil action
b. criminal action


DISTRAINT- seizure by the government of personal property, tangible or intangible, to enforce the payment of taxes to be followed by its public sale if the taxes are not voluntarily paid.

Kinds of Distraint
a. Actual- there is taking of possession of the personal property out of the taxpayer into that of the government; 
b. Constructive- the owner is merely prohibited from disposing of his property.

LEVY- A summary administrative remedy, seizure of real property to enforce payment of taxes.

A written notice of levy, containing a description of the property upon which levy is made, the name of the taxpayer and the amounts of the tax and penalty due from them is served upon the taxpayer.

FORFEITURE- a divestiture of property without compensation, in consequence of a default or offense. In case of chattels and removal of fixtures of any sort, forfeiture is enforced by seizure and sale or destruction of the specific forfeited property. The forfeiture of real property is enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case may require.

TAX LIEN- a legal claim or charge on property either real or personal established by law as a security in default of the payment of taxes. The tax, together with interest, penalties and cost that may accrue in addition thereto is a lien upon all property and rights to property belonging to the taxpayer. The lien however, shall not be valid against any mortgagee, purchaser or judgment creditor until legal notice of such liens should be filed by the Commissioner of internal revenue in the Office of the Register of Deeds of the province or city where the property of the taxpayer is located. The lien attaches when the taxpayer neglects or refuses to pay the tax after demand, but relates back from the time when assessment was made by the Commissioner. 

REQUIRING THE FILING OF BONDS- Filing of performance bond to secure the payment of taxes or compliance with certain provisions of tax laws and regulations. This may be required by the BIR for the issuance of a tax clearance.

REQUIRING PROOF OF FILING INCOME TAX RETURNS. – Before a license to engage in trade or business or occupation or to practice a profession can be issued to a person, partnership, association or corporation, he must submit to the officer issuing such license or permit, proof that he has filed his income tax return during the preceding year and that income taxes due have been paid thereon.

DEPORTATION OF ALIENS- any alien who 
1. knowingly and fraudulently evades the payment of any internal revenue tax or 
2. willfully refuses to pay such tax and its accessory penalties after the decision on the tax liability rendered by the Commissioner of Internal Revenue, or the CTA or any competent judicial tribunal shall have become final and executor, is subject to deportation. The penalty of deportation is not a bar to any proceeding taken by the government to enforce collection of tax delinquency.

INSPECTION OF BOOKS OF ACCOUNTS

JUDICIAL ACTION
1. Civil Action- After the assessment made by the Commissioner of Internal Revenue has become final and executory for failure of the taxpayer to dispute the same and appeal the disputed assessment to the Court of Tax Appeals, the government may institute civil actions to collect internal revenue taxes in the Regional Trial Court and the Metropolitan Trial Court, City and municipal courts. 

2. Criminal Action- maybe pursued by the authorities for the collection of delinquent taxes. An assessment of a tax deficiency is not necessary to a criminal prosecution for tax evasion. The crime is complete when the violator has knowingly and willfully filed a fraudulent return or neglected to file a return with intent to evade the tax. If the taxpayer is acquitted, the government may still collect the tax in a civil action, because the payment of a tax is an obligation imposed by statute and does not arise from a criminal act.


Prescriptive period for collection.

Where an assessment was made, the period for collection by judicial action or by distraint or levy is within 3 years after the date of assessment. Where no assessment was made and a return was filed, and the same is not false or fraudulent, the period for collection by a proceeding in court is within 3 years after the return was due or filed whichever is later, except:

Where a return required to be filed was not filed, or even if filed the same is false or fraudulent, and made with the intent to evade the tax, the period is ten years after discovery of the omission to file the return or from the discovery of the falsity or fraud. The other exception relative to the prescriptive periods for assessment are also applicable. 

Where the government makes another assessment on the basis of a reinvestigation requested by the taxpayer, or a revised assessment because of an amended return or as a result of a reinvestigation asked for by the taxpayer, the period is counted from the last assessment or the last revised assessment. 

Where the action is brought to enforce a compromise agreement into between the commissioner and the taxpayer, the prescriptive period is ten years from the time the cause of action accrues as fixed in the civil code.

The running of the statute of limitation on the making of an assessment, the beginning of distraint or levy or any proceeding in court for collection is suspended: IMPT!!!!!

1. for the period during which the Commissioner of Internal Revenue is prohibited from making tax assessment or beginning the distraint or levy or any proceeding in court and for sixty days thereafter; 

2. when the taxpayer requests for a reinvestigation which is granted by the commissioner;

3. when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected, unless the taxpayer informs the Commissioner of any change in address;

4. when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or with a member of his household with sufficient discretion and no property could be located; and

5. When the taxpayer is out of the Philippines.