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Subject: Re: TAX-FILES : Subpoena / Tax Audits Author: mmJun- Music Inside Buzz research/report [ Next Thread | Previous Thread | Next Message | Previous Message ] Date Posted: 01:52:55 06/26/05 Sun Author Host/IP: 222.126.7.90 In reply to: mmJun- Music Inside Buzz research/report 's message, "Re: TAX-FILES : Tax Teporting Responsibilities" on 01:49:37 06/26/05 Sun S u b j e c t - TAX-FILES : Subpoena duces tecum: an avoidable process in tax audits Wilfredo U. Villanueva and Noel G. Liok, SGV & Co. Inquirer News Service / Apr. 01, 2005 ON THE premise that taxes are the lifeblood that runs the vast machinery of the government, how does the Bureau of Internal Revenue (BIR) deal with uncooperative or errant taxpayers when conducting tax audits? With the drive to enhance the government's revenue performance, tougher measures are certainly the BIR's rejoinder. The BIR can, in fact, rely on a compulsory process more generally associated with proceedings in courts to facilitate the examination carried out by its revenue officers. It is empowered to issue and enforce subpoenas duces tecum in order to compel a taxpayer to present his tax records for tax audit purposes. The taxpayer will benefit in paying attention to this compulsory process since noncompliance carries criminal penalties. Moreover, the guidelines prescribed by the BIR in this process can be useful since the same guidelines also imply the limits of the process. By understanding the process and by knowing these limitations, the taxpayer can, at best, prevent or, at the acceptable minimum, manage this process that can often prove disruptive and stressful and can present unwarranted risks. What is a subpoena duces tecum? A subpoena duces tecum is an order that requires a person to bring with him books, documents or other things under his control. In the context of assessments, a subpoena duces tecum commands a taxpayer or its officer, under the threat of penalty, to appear before an office of the BIR at a specified time and to bring a described set of tax records, for example, contracts, general ledgers, sales journals and other accounting documents. The power to issue subpoena duces tecum is anchored in Section 5(C) National Internal Revenue Code of 1997 (1997 Tax Code). This provision gives the BIR commissioner, in ascertaining and collecting tax liability or in evaluating tax compliance, the authority to summon a person liable for tax or required to file a return, or any officer or employee of such person, or any person having custody of the books of accounts and other accounting records to appear before the commissioner or his authorized representative at a specified time and place and to produce such records. Preparation before issuance Noting that investigations of tax liabilities are sometimes unnecessarily delayed due to "uncooperative" taxpayers, the BIR issued certain procedures preparatory to the issuance of a subpoena and its enforcement by legal action. Specifically, Revenue Audit Memorandum Order 3-82 fleshes out the audit procedures for documenting the non-cooperation of a taxpayer in the presentation of his books and other records for inspection. The procedures require that: 1. The revenue examiner first request the taxpayer, in writing, to make available for inspection, the relevant books of accounts, accounting records and particular documents, indicating the time and date when the records should be made available. 2. If on the appointed time, the documents are not presented, the examiner should seek an explanation and again make a written request. 3. If, for the second time, the taxpayer fails to present the required records, the examiner must request an explanation in writing, signed by the taxpayer, why the records are still unavailable. 4. During all the stages above, the examiner should prepare a memorandum of interview, signed and dated, which should contain the date, time, place and persons present as well as a statement of what transpired. It bears stressing that the memorandum of interview may be used in the event of trial. Thereafter, the examiner, in consultation with his supervisors, should then submit a written report, pinpointing the records not made available, the taxpayer's officers who are liable, and the cause of the unreasonable and/or unnecessary delay in his investigation. Finally, the division chief or the revenue district officer will forward the case to the chief of the prosecution division or the legal branch for the issuance of the subpoena or the filing of the case in court if needed. Issuance of the subpoena Revenue Memorandum Order (RMO) No. 35-90, as amended by RMO No. 09-03, lays down additional guidelines and states that the recommendation for the issuance of the subpoena is further evaluated by the prosecution division or legal branch. More importantly, it confines the authority to issue the subpoena to the following revenue officials only: In appropriate cases, the commissioner and the deputy commissioners. 1. At the national office: The assistant commissioner of legal service 2. At the regional offices: Director, or in his absence, the assistant director, or the chief of legal division, only as an alternate and as may be authorized by the regional director. Once issued, the subpoena should be served by the revenue examiners assigned to investigate the case or any revenue officer deputized for this purpose. A subpoena is served by handing in person an original copy to the individual named. If he refuses to receive it, it is tendered to him as witnessed by another revenue officer. If personal service is not possible, a copy may be left either at the taxpayer's: 1. Residence with person of suitable age and discretion residing there; or 2. Office or regular place of business with some competent person in charge. Remedies to enforce compliance of the subpoena Where the taxpayer or the person named fails, refuses or even neglects to comply with the commands of the subpoena, he may be proceeded against by: 1. Filing a criminal case for violation of Sections 5(C), 14, 266 of the 1997 Tax Code. Upon conviction, he may be punished with a fine of not less than P5,000 but not more than P10,000 and imprisonment of not less than one year but not more than two years; and/or 2. Initiating proceedings for indirect contempt at the Regional Trial Court under Sections 3(f) and 12 of Rule 71 of the Rules of Court. General observations Because the guidelines require the examiner to exhaust two requests for the submission of documents, the taxpayer should have enough breathing room to comply without the compulsion and adversarial nature of a subpoena. Unlike the process of a subpoena -- normally a last resort to secure information -- in these instances, the taxpayer and the examiner can often agree on a workable leniency in the assessment's timetable and documentation process. Thus, it would be prudent for the taxpayer to capitalize on these instances to seek helpful clarifications, for example, on the extent or kind of documentation required or its relevance to the assessment. In short, prior to a subpoena, there is more flexibility. In addition, the RMO requires the BIR to document the process through a memorandum of interview. Hence, as a precaution, the taxpayer should have his own form of documentation in the event that there is dispute in the process and the BIR's memorandum is used in trial. The taxpayer's own documentation may serve as a reference to supplement or even countercheck the BIR's memorandum. As stated in the beginning, knowing the guidelines can also help the taxpayer determine whether the subpoena was issued by the authorized BIR officials or if certain procedures have been omitted in the issuance. Conclusion For both the government and the taxpayer, there is a shared goal: the completion of the tax audit without much delay and unnecessary use of scarce resources. Toward this common goal, the ideal is to maintain a balance between the pursuit of government's interest and the preservation of the taxpayer's rights. On the one hand, if revenue collection can be achieved faster, under an atmosphere of cooperation within the legal bounds, then fewer people and processes will be involved (e.g., the prosecution and adjudication in court are avoided). The government's resources that are freed up can then be channeled to other tasks that need as much if not critical attention. For the taxpayer, on the other hand, the short-term objective is to hurdle a tax audit with the least problems, while minimizing manpower and stress and avoiding potential risks of penalty associated with a subpoena. In the long run, all these efforts contribute to and remain consistent with the business objective of maximizing the bottom line. This was published on page B8 of the April 1, 2005 issue of the Philippine Daily Inquirer. This was posted in the Regine Velasquez fans yahoo groups. And other groups like S.O.P. and OPM. Posted by mmJun with the Music Inside Buzz web site. M. I. B. http://insidebuzz.tripod.com " So Regine fans and local music fans will be informed. " [ Next Thread | Previous Thread | Next Message | Previous Message ]

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[> [> [> [> Subject: TAX-FILES: No income tax return, no business Author: mmJun- Music Inside Buzz research/report [Edit] Date Posted: 01:58:51 06/26/05 Sun Author Host/IP: 222.126.7.90 TAX-FILES : No income tax return, no business Joel L. Tan-Torres, SGV & Co. Inquirer News Service / Mar. 18, 2005 THE RECENT issuance of two revenue regulations gives us a preview of what to expect in the near future. Revenue Regulations No. 3-2005 and 4-2005 were issued by the Department of Finance and Bureau of Internal Revenue (BIR) last February. These two regulations prescribe the submission of tax returns as a pre-condition for transacting with banks and government offices. Revenue Regulations No. 3-2005 mandates that all entities entering into government contracts must submit, along with the bid documents, the latest copy of the income tax return and business tax returns. Meanwhile, Revenue Regulations No. 4-2005 requires that all borrowers applying for a loan with banks must first submit a copy of its latest income tax return and financial statements. These new regulations clearly indicate that the BIR now is closely coordinating with other institutions to ensure that the parties that they are dealing with are paying their correct taxes, or at least, filing their tax returns. Right step The cooperation between the BIR and the government offices and banks is a step in the right direction. Various studies and reports have indicated that there are substantial tax leakages arising from those not reporting their correct taxes. Various reports indicate that tens of billions of tax leakages occur each year. This to a great extent is contributing to the growing fiscal problems of our country. In 2004, the budget deficit amounted to P186 billion. Therefore, efforts that are directed to plugging tax loopholes are necessary. This requirement of submission of tax returns as a condition for transactions with banks and government offices will help in reducing tax leakages. Transactions with government Revenue Regulations 3-2005 states "only tax compliant entities are allowed to enter into contracts with government." Implementing the mandate of Executive Order No. 398 which was signed by the President on Jan. 12, 2005, it is now required that "all persons, natural or juridical, local or foreign, desiring to enter into or participate in any contract with the government, its departments, bureaus, offices and agencies, including corporations, government financial institutions and local government units shall, as a pre-condition, submit, along with their proposal and/or bid, a copy of their latest income tax and business tax returns." Once this is fully implemented, hundreds of thousands, if not millions, of tax returns will be submitted by government contractors. The Regulations provides that all entities before entering into contracts with government offices must submit their latest (1) annual income tax return, (2) value-added tax or percentage tax returns covering the previous six months, and (3) tax clearance to be issued by the Collection Enforcement Division of the BIR. For new establishments that have no annual income tax return yet, the quarterly income tax returns may instead be submitted. It is also required that beginning May 1, 2005, only tax returns filed under the BIR's electronic filing and payment system (EFPS) will be accepted from government contractors. The government office must check the authenticity of the tax returns and clearance submitted. This can be checked by telephone at the BIR contact center or through the BIR portal. Furthermore, these offices must submit to the BIR a list of contracts and payments made to these contracting parties. The BIR can then use this to verify if these contracts are being reported for tax purposes. Loans with banks Revenue Regulations 4-2004 has practically the same requirements from bank borrowers. These regulations and Bangko Sentral ng Pilipinas (BSP, the central bank) Revised Circular No. 47 Series of 2005 mandate that a credit applicant and co-maker must submit a copy of their latest income tax return and financial statements. A borrower must also submit a waiver of confidentiality of client information and/or an authority of the bank to conduct random verification with the BIR in order to establish the authenticity of the tax return and financial statements. The banks must check the authenticity of the income tax returns and financial statements submitted. This can be checked at the BIR Contact Center or through the BIR portal. The banks must then consider the data/figures in the tax return and financial statement in the evaluation of the financial capacity and credit worthiness of the credit applicants. The BSP circular also provides that if the documents submitted prove to be spurious or incorrect, the bank may terminate the loan granted on the basis of these documents. The bank shall then have the right to demand immediate repayment of the obligation. Factors to consider Once these procedures are implemented, the BIR Contact Center and the Collection Enforcement Division (CED) will surely be receiving a lot of requests for tax clearances and authenticity check. These BIR offices should be in a position to respond on a timely and convenient manner. Failure to do so will unduly delay the implementation of business plans and transactions of affected parties. If these arise, complaints will be forthcoming. The requirement for government contractors to submit tax clearances is not contained in EO 398. This was included only in RR 3-2005. Securing a tax clearance is a long process and involves several steps: First, a government contractor files an application with the BIR. Hopefully, the BIR will find a convenient way of accommodating applicants from far away locations, such as Mindanao like allowing submission of applications by fax or mail. Next, the BIR will process applications received. It is important that the BIR allot resources to handle the volume to applications received. Then, government offices with contracts will have to authenticate the tax clearance submitted by contractors with the BIR. Some implementation issues that may crop up include: What if a government contractor is shown to have an unpaid tax liability? What if the unpaid accounts arose from cases protested by the taxpayer and which the BIR has not yet resolved. Will the contractor be barred from submitting a bid because of this unpaid account? EO 398 and RR 3-2005 both do not specify what the government office will do with the tax returns submitted by contract bidders. It is not clear whether the information in the tax returns will be considered by the government offices in the evaluation of the capacity of the contractor to qualify for the bid or contract. In government contracts that will be funded by foreign loans, it is expected that foreign contractors will submit bids. If a foreign contractor is not operating presently in the Philippines, it will not be able to submit a Philippine tax return that is a pre-condition to submitting a bid. How will this be handled? Government offices are required to submit a list of contracts awarded and payments to the BIR. There is no similar provision for banks to submit to the BIR a list of loan transactions. The trend The trend has started. More and more, the BIR is coordinating with other parties to monitor the transactions of taxpayers by requiring the submission of tax returns. News accounts even mention that the Department of Finance and the BIR will soon be asking the foreign embassies to require visa applicants to present the income tax return as a pre-requisite for the approval of the visas. Following this trend, is it a matter of time when we will have to first present our tax return before we can buy a car, open a bank account, purchase a house, invest in a club share, or fly abroad? M. I. B. http://insidebuzz.tripod.com " So Regine fans and local music fans will be better informed. " [ Post a Reply to This Message ]