PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS sponsored by OUTLINE Committee on Legislation and Taxation SEMINAR on “Tax Updates and Court Decisions” Holiday Inn & Suites Makati March 4, 2016 I. Time, Place and Manner of Filing of Annual ITR and Audited FS II. Payment of Income Tax III. Attachments to Annual ITR Tax Filing Reminders ATTY. LUIS JOSE P. FERRER, CPA Partner, Business Tax Services IV. Financial Statements V. Computation of Income Tax VI. Others Page 2 Year-end Tips and Reminders T i m e Of F i l i n g The Annual Income Tax Return (“ITR”) shall be filed on or before April 15, or on or before the 15th day of the 4th month following the close of the fiscal year, as the case may be. No extension on ITR filing is allowed. I. Time, Place and Manner of Filing of Annual ITR and Audited FS Page 3 Year-end Tips and Reminders Late filing of ITR will be subject to a 25% surcharge, 20% interest per annum and compromise penalty. Page 4 Year-end Tips and Reminders 1 Signatory of the ITR Where to File the ITR and Pay the Tax GENERAL RULES: For Individuals: The taxpayer himself No Payment: File the ITR with the Revenue District Office (RDO) / BIR office where registered as taxpayer. For Corporations: President Vice-President or Other principal officer The ITR shall be sworn by such officer and by the treasurer or assistant treasurer [Section 52(A), Tax Code]. Accredited tax agent Page 5 Year-end Tips and Reminders Electronic Filing and Payment System (eFPS) eFPS is a system which allows taxpayers to directly encode, submit their tax returns and pay their taxes due online over the internet through the BIR website. Page 7 Year-end Tips and Reminders With Payment: File the ITR with the BIR authorized agent bank (“AAB”) having jurisdiction over the location of the principal office of the corporation. If there are no AABs, file the ITR with the Collection Agent or duly authorized Treasurer of the city or municipality having jurisdiction over the principal office of the Corporation. Page 6 Year-end Tips and Reminders Electronic Filing & Payment System (eFPS) Taxpayers required to file ITR and pay the tax through eFPS: • Large taxpayers • All government bidders • Corporations with paid-up capital stock of P10 million • Corporations with complete computerized system • Top 20,000 private corporations • Top 5,000 individual taxpayers • Enterprises enjoying fiscal incentives granted by government agencies under special laws (RA 7916, EO 226, RA 9400 other zone authorities) Page 8 Year-end Tips and Reminders 2 Electronic Filing and Payment System (eFPS) Time of Payment in case of eFPS Filing E-payments shall be made within the day the return eFPS is also mandatory for taxpayers included in the is electronically filed following the “pay-as-you-file” principle. [RR No. 09-02] Taxpayer Account Management Program, including prospective importers required to secure the Importer Clearance Certificates and Customs Broker Clearance Certificates (Revenue Regulations No. 102014 dated December 10, 2014). Page 9 due is in accordance with the “pay-as-you-file” principle as long as the payment of the tax is made on or before the due date of the applicable tax. [RR No. 09-02] Year-end Tips and Reminders Electronic BIR Forms for Non-Large Taxpayers Revenue Memorandum Circular No. 61-2012 dated October 12, 2012 ► Authorize the use of Electronic Bureau of Internal Revenue Forms (eBIR Forms) Packages on a pilot basis in Metro Manila starting October 16, 2012. Revenue Memorandum Order No. 24-2013 dated September 11, 2013 ► Prescribing the Guidelines, Policies, and Procedures on the Use of eBIRForms in Relation to RMC No. 61-2012 Page 11 The filing of the return ahead of the payment of the tax Year-end Tips and Reminders Page 10 Year-end Tips and Reminders Electronic BIR Forms Mandatory Use of Electronic BIR Forms (eBIRForms) Revenue Regulations (RR) No. 6-2014 (September 5, 2014), as amended by RR No. 5-2015 (March 17, 2015) Mandatory Coverage: Non-eFPS filers enumerated below are required to use eBIRForms on all 36 enumerated returns (including the ITR) to be filed on September 1, 2014 or after: • • • • • • • Accredited tax agents/practitioners and all its client-taxpayers Accredited printers of principal and supplementary receipts/invoices One-Time Transaction taxpayers Those who shall file a “No-Payment” return Government-owned or controlled corporations Local government units (LGUs), except barangays Cooperative registered with National Electrification Administration and Local Water Utilities Administration Page 12 Year-end Tips and Reminders 3 Electronic BIR Forms Electronic BIR Forms RR No. 6-2014, as amended by RR No. 5-2015 RR No. 6-2014, as amended by RR No. 5-2015 ► Two (2) types of electronic services (e-Services) provided by the Bureau relative to the preparation, generation, and submission of tax returns: ► The eBIRForms are available to all filers with or without Internet access. Taxpayers with Internet can download the eBIRForms Package from the BIR website, while taxpayers without internet can download the eBIRForms Package from the BIR e-lounges. a. Offline eBIRForms Package: software that allows the taxpayer and Accredited Tax Agent (ATA) to accomplish or fill up tax forms offline; and a. Online eBIRForms System: is a filing infrastructure that accepts tax returns submitted online and automatically computes penalties for tax returns submitted beyond due date. Page 13 Year-end Tips and Reminders ► Those covered by these regulations are required to electronically submit and file their tax returns. ► Upon successful validation of the accomplished tax return, taxpayer shall receive a system-generated notification email acknowledging successful filing of the return. Taxpayer should print the Filing Reference (FRN) page and submit this to AABs for the payment of the tax. Page 14 Year-end Tips and Reminders Electronic BIR Forms Electronic BIR Forms RR No. 6-2014, as amended by RR No. 5-2015 RMC No. 58-2015: Availability of Electronic eBIRForms Package Version 5.1 ► Penalties for failure to comply with the regulations: ► Penalty of P1,000 per return pursuant to Section 250 of the Tax Code ► Civil penalty of 25% of the tax due, for filing a return in a manner not in compliance with existing regulations, thus, tantamount to wrong venue filing; and ► Inclusion in priority audit program of Revenue District Offices Page 15 Year-end Tips and Reminders ► The eBIRForms Package Version 5.1 is now available and downloadable from any of the following sites: 1. www.knowyourtaxes.ph; 2. www.dof.gov.ph; 3. Dropbox link: http://goo.gl/UCr8XS; 4. Direct link: http://ftp.pregi.net/bir/ebirforms_package_v5.1.zip; 5. www.bir.gov.ph Page 16 Year-end Tips and Reminders 4 Electronic BIR Forms eFPS Filing RMC No. 58-2015: Availability of Electronic eBIRForms Package Version 5.1 General Rule: ► The new eBIRForms package has the following modifications: A. BIR Form No. 1707-A (Annual Capital Gains Tax Return for Onerous Transfer of Shares of Stock Not Traded Through the Local Stock Exchange) is included in the package and thirty seven (37) returns are now available in eBIRForms; B. BIR Form Nos. 1601E, 1702-MX and 2000 were enhanced; and C. Annual Income Tax Returns (BIR Form Nos. 1700, 1701, 1702-EX, 1702-MX & 1702-RT) can now be submitted online thru the eBIR Forms System. Taxpayers who shall avail of eFPS shall submit their Audited FS, Certificates of Withholding Tax (CWT) (in DVD-R), Tax Debit Memo (TDM) utilized in the payment of taxes, if any, to the RDO or LTS (LTAD) or LTDO where they are registered within 15 days from date of filing of the ITR (RMO No. 05-02; RR No. 02-2015). ► All the thirty seven (37) tax returns can be filed by clicking the “SUBMIT” or “FINAL COPY” button and the taxpayer will receive the corresponding confirmation thru email notification. Page 17 Year-end Tips and Reminders eFPS Filing In lieu of the submission of hard copies of Certificate of Creditable tax Withheld at Source (BIR Form No. 2307) as attachment to the Summary Alphalist of Withholding Agents of Income Payments Subjected to Creditable Withholding Taxes (SAWT) (which is an ITR attachment), the taxpayer shall submit: scanned copies of the certificates, stored using “PDF” file format in a Digital Versatile Disk-Recordable (DVD-R), DVD-R is labeled properly DVD-R is submitted to the BIR office where the taxpayer is registered, and taxpayer submits a notarized Certification of a duly authorized representative certifying that the soft copies of the BIR form contained in the DVD-R are complete and exact copies of the originals. Page 19 Year-end Tips and Reminders Where to File the ITR and Pay the Tax RR No. 02-2015 dated December 17, 2014: Page 18 Year-end Tips and Reminders Large Taxpayer/ eFPS Taxpayer The Annual ITR shall be e-filed and the tax e-paid using the eFPS facilities thru www.bir.gov.ph. Non-Large Taxpayer/ eBIRForms taxpayer The Annual ITR shall be filed with the authorized agent bank (“AAB”) having jurisdiction over the location of the principal office of the corporation. If there are no AABs, the Annual ITR shall be filed with the Revenue Collection Officer of the city or municipality having jurisdiction over the principal office of the Corporation. The eBIR Forms taxpayer may also file the ITR electronically using the eBIR Forms system. Page 20 Year-end Tips and Reminders 5 Revised Forms Revised Forms Revenue Regulation No. 02-14 issued January 24, 2014 Revenue Memorandum Circular (RMC) No. 13-2015 dated March 31, 2015 ► Superseding Revenue Regulation (RR) No. 19-2011 and prescribes the new BIR Forms to be used for Income Tax filing covering and starting the taxable year ended December 31, 2013: 1. BIR Form No. 1700 Version June 2013 (Annual Income Tax Return for Individuals Earning Purely Compensation Income) 2. BIR Form No. 1701 Version June 2013 (Annual Income Tax Return for SelfEmployed Individuals, Estate and Trusts) 3. BIR Form No. 1702-RT Version June 2013 (Annual Income Tax Return for Corporation, Partnership and Other Non-individual Taxpayers subject only to the Regular Income Tax Rate) 4. BIR Form No. 1702-EX Version June 2013 (Annual Income Tax Return for Corporation, Partnership and Other Non-individual Taxpayers exempt under the Tax Code) 5. BIR Form No. 1702-MX Version June 2013 (Annual Income Tax Return for Corporation, Partnership and Other Non-individual Taxpayers subject to Multiple Income Tax Rate or Special/ Preferential Rate) Page 21 Year-end Tips and Reminders Manner of Filing ► Amends BIR Forms No. 1700, 1701 and 1702 ► Amendment consists mainly in making the disclosure of Supplemental Information under BIR Forms No. 1700 and 1701 optional on the part of the taxpayer on the part for income tax filing covering and starting with calendar year 2014, due for filing on or before April 15, 2015 ► Individual income tax filers using BIR Forms No. 1700 and 1701 are advised that for the income tax filing covering and starting with calendar year 2015, the disclosures required under Supplemental Information portion of the said forms will be mandatory Page 22 Year-end Tips and Reminders Manner of Filing Revenue Memorandum Order (RMO) No. 06-10, as amended by RMO Nos. 13-10 and 13-11 - not applicable to eFPS taxpayers The attachments to the ITRs shall also be received in the same manner as above, but the attached FS shall be stamped received only on the page of the Audit Certificate, the BALANCE SHEET and the INCOME STATEMENT. Number of Copies Taxpayer shall only accomplish and file three (3) copies of tax returns with the AAB and/or the BIR. Any excess shall not be received by the AAB and/or the BIR. Stamping of the Official receiving Seal The other pages of the FS and its attachments need not be stamped received. In the case of corporations and other juridical persons, there should be a stamp "RECEIVED" in at least two (2) extra copies of the AFS for filing with the SEC. All concerned Offices, including AABs, shall receive the ITRs by stamping the official receiving seal or stamp of receipt of an internal revenue office where the said returns are filed on the space provided for in the three (3) copies of the returns. Page 23 Year-end Tips and Reminders Page 24 Year-end Tips and Reminders 6 Certified True Copies of ITR and Audited Financial Statement (“AFS”) Revenue Memorandum Circular No. 33-2010 RMO No. 6-2010, as amended by RMO Mo. 13-2010, prescribes the policies and guidelines in the 1. stamping of ITRs and the accompanying AFS, and 2. limiting the number of copies of ITRs and AFS to be received by AABs and the BIR to three. The three copies of the ITRs shall be distributed as follows: ► Two (2) copies to the BIR (and attached to the ITRs) ► One (1) copy to the taxpayer Note: The stamping of only three (3) copies of the ITR shall also be applied to all other tax returns and payment forms, unless a lesser number of copies is prescribed, pursuant to RMO No. 54-2010. Page 25 Year-end Tips and Reminders Certified True Copies of ITR and AFS ► If the second option is selected, the taxpayer shall request for a certified true copy of the AFS from the BIR office where the taxpayer is registered. A certification fee of One Hundred Pesos (PhP100.00) per set of AFS and DST of Fifteen Pesos (PhP15.00) shall be paid for each set of AFS certified as true copy by the BIR. ► In case that the taxpayer shall desire to request for a certified true copy of the ITR, the certification fee of One Hundred Pesos (PhP100.00) and DST of Fifteen Pesos (PhP15.00) shall be paid for each ITR certified as true copy by the BIR. ► It is NOT MANDATORY that certified true copies of the ITR and AFS be secured. It is the option of the taxpayer to secure these or not. Page 27 Year-end Tips and Reminders Certified True Copies of ITR and AFS The taxpayer has the option of filing with the SEC either : a. one (1) original copy of the complete AFS with External Auditor’s Certification, Balance Sheet and Income Statement duly stamped by the BIR or AABs and two (2) sets of photocopies of said documents; or, b. one (1) certified true copy of the complete AFS, with the BIR certification appearing on each and every page of the AFS and two (2) sets of photocopies of said documents. Note: The underlined text is amended by RMC No. 36-2010, stating that the AFS shall be duly stamped by the BIR or AABS ONLY on the first page. Page 26 Year-end Tips and Reminders 2016 Schedule of Filing of AFS with SEC SEC Memorandum Circular No. 1 dated January 11, 2016 Audited FS of companies whose fiscal year ends on December 31, 2015 shall be filed depending on the last numerical digit of their SEC registration or license number in accordance with the schedule provided by the Circular. Date of Filing Last numerical digit of SEC registration April 18, 19, 20, 21, 22 1 and 2 April 25, 26, 27, 28, 29 3 and 4 May 2, 3, 4, 5, 6 5 and 6 May 10, 11, 12, 13 7 and 8 May 16, 17, 18, 19, 20 9 and 0 Page 28 Year-end Tips and Reminders 7 2016 Schedule of Filing of AFS with SEC SEC Memorandum Circular No. 1 dated January 11, 2016 Establishment of eLounge Facilities in Revenue District Offices or RDOs (RMO 18-2012) 1. 2. However, all corporations may file their AFS regardless of the last numerical digit of their registration or license number on or before the first day stated in the abovementioned schedule. Late filings of filing after respective due dates shall be accepted starting May 23, 2016 and shall be subject to the prescribed penalties which shall be computed from the date of the last day of filing schedule mentioned. Page 29 Year-end Tips and Reminders Establishment of eLounge Facilities in Revenue District Offices or RDOs (RMO 18-2012) 3. 4. 5. 6. 7. Mandatory requirements for the creation of an eLounge facility: • The eLounge shall be set up at or near the Taxpayer Service Area at the Taxpayer Service Section (TSS). The eLounge shall be manned by personnel under TSS. A queuing system shall be installed in the eLounge, to support the mandate of the RDO to provide fast and accurate frontline service to BIR clients. An electronic logbook (e-logbook) shall be maintained to monitor the number of taxpayers who avail of the eLounge facility. The eLounge shall be open from 8am to 5pm or beyond office hours depending on the needs of taxpayers. Page 31 Year-end Tips and Reminders The eLounge facility in the RDO shall be created to provide taxpayers with free electronic or online medium to access the BIR's web services. The eLounge facility shall be established in the following Bureau Offices: • The Tax Information and Education Division (TIED), at the National Office; • The Metro Manila RDOs; and • Selected RDOs outside Metro Manila, in accordance with a set of basic criteria regarding the number of taxpayers mandated to perform on-line transactions with the BIR, taking into consideration the ICT readiness/availability of the locality of the Bureau office where an eLounge facility will be established. Page 30 Year-end Tips and Reminders Individuals Earning Purely Compensation Income (BIR Form No. 1700) Who are required to file? The return shall be filed, in triplicate copies, by every resident citizen deriving compensation income from all sources, or resident alien and non-resident citizen with respect to compensation income from within the Philippines, except the following: 1. An individual whose gross compensation income does not exceed his total personal and additional exemptions; 2. An individual with respect to pure compensation income derived from sources within the Philippines, the income tax on which has been correctly withheld (tax due equals tax withheld); 3. An individual whose income has been subjected to FWT; and 4. A minimum wage earner or an individual who is exempt from income tax. Page 32 Year-end Tips and Reminders 8 Individuals Earning Purely Compensation Income (BIR Form No. 1700) Who are required to file? An individual deriving compensation concurrently from two or more employers at any time during the taxable year shall file an income tax return. In the case of married individuals who are still required to file returns or in those instances not covered by the substituted filing of returns, only one return for the taxable year shall be filed by either spouse to cover the income of the spouses, which return shall be signed by the husband and wife, unless it is physically impossible to do so, in which case signature of one of the spouses would suffice. Page 33 Year-end Tips and Reminders Payment of Tax Through AABs Revenue Regulations No. 16-02 General Rule: “Pay as you file” The payment of tax can be made either by cash, check or through the bank debit system. a) "Over–the–counter cash payment" refers to payment of tax liabilities to the AAB in the currencies (paper bills or coins) that are legal tender in the Philippines. The maximum amount allowed per tax payment shall not exceed P10,000.00. Page 35 Year-end Tips and Reminders II. Payment of Income Tax Page 34 Year-end Tips and Reminders Payment of Tax Through AABs b) "Bank debit system" refers to the system whereby a taxpayer, through a bank debit memo/advice, authorizes withdrawals from its existing bank accounts for payment of tax liabilities. The bank debit system mode is allowed only if the taxpayer has a bank account with the AAB branch where it intends to file and pay its tax return / form / declaration, provided said AAB branch is within the jurisdiction of the BIR RDO where the tax payment is due and payable. Page 36 Year-end Tips and Reminders 9 Payment of Tax Through AABs Sample Check 3. TIN c) "Checks" refers to a bill of exchange or Order Instrument drawn on a bank payable on demand. 1. Collecting Bank In the issuance and accomplishment of checks for the payment of internal revenue taxes, the Branch shall indicate in the space provided for "PAY TO THE ORDER OF" the following data: 1) presenting/collecting bank or the bank where the payment is to be coursed and 2) FAO (For the Account Of) Bureau of Internal Revenue as payee; 2. “For the Account Of” XYZ Bank And under the "ACCOUNT NAME" the: 3) taxpayer identification number (TIN). Page 37 Year-end Tips and Reminders Authority of Revenue Collection Officer (“RCO”) to Accept Payment RMO No. 4-2007, as amended by RMO 32-2008 and further amended in RMO No. 8-2009 dated March 9, 2009 “The issuance of Revenue Official Receipts shall be limited to tax payments, in cash not exceeding the amount of Twenty Thousand Pesos (Php20,000.00) per return. However, there shall be no limit on the amount if payment is made thru checks". Page 39 Year-end Tips and Reminders Page 38 Year-end Tips and Reminders Other Mode of Payment - Tax Credit Certificate (“TCC”) The taxpayer must file a prior application with the BIR for the use of its own TCC in the payment of income tax. The BIR will issue a Tax Debit Memo (“TDM”) to be applied against the taxpayer’s income tax due. A TCC is no longer transferrable. Page 40 Year-end Tips and Reminders 10 Other Mode of Payment - Tax Credit Certificate (“TCC”) Other Mode of Payment - Use of Tax Credit Certificate (TCC) TCCs can be applied against any internal revenue tax (except withholding tax) through TDMs should be processed every time the TCC is used for A TDM is a letter from the DOF addressed either to the BIR or the BOC, authorizing the Although the taxpayer can legally use the TCC in paying its the issuance of a TDM. debit of tax credit amount as indicated in the letter. The TDM contains: 1. 2. 3. 4. 5. The TDM number, TCC number, its date of issue, original TCC value; and outstanding TCC value Page 41 Year-end Tips and Reminders full tax liability, the BIR and the BOC, in practice, allow only 25% of the tax liability to be paid with TCC and the rest with cash Page 42 Year-end Tips and Reminders Penalties Penalties A. Surcharge of 25% for each of the following violations: 1. Late Filing: Failure to file the return and pay the amount of tax or installment due on or before the due dates; 2. Wrong Venue: Unless otherwise authorized by the Commissioner, filing the return with a person or office other than those with whom it is required to be filed; 3. Non-Payment of Full Amount of Income Tax Due: Failure to pay the full or part of the amount of tax shown on the return on or before the due date Page 43 payment of taxes Year-end Tips and Reminders B. Interest at 20% per annum on any unpaid amount of tax, from the date prescribed for the payment until it is fully paid. C. Compromise penalty RMO No. 07-2015: prescribes and implements the revised consolidated Schedule of Compromise Penalties for Violations of the National Internal Revenue Code Page 44 Year-end Tips and Reminders 11 Attachments to Annual ITR III. Attachments to Annual ITR Page 45 Year-end Tips and Reminders Attachments to Annual ITR 7. Duly approved Tax Debit Memo, if applicable 8. Proof of prior years’ excess credits, if applicable 9. Proof of foreign tax credits, if applicable 10. For amended returns, proof of tax payment and the return previously filed 11. Certificate of tax treaty relief, if applicable 1. Certificate of the independent CPA (if gross quarterly sales, earnings, receipts or output exceed P150,000) 2. Statement of Management Responsibility 3. Summary Alphalist of Withholding Agents of Income Payments subjected to Creditable Withholding Taxes (SAWT) 4. Audited Financial Statements and/or Account Information Form (AIF) 5. Certificate of Income payments not subjected to withholding tax (BIR Form 2304) 6. Certificates of Creditable Tax Withheld at Source (BIR Form 2307) – or in DVD-R for eFPS filers (RR No. 22015) Page 46 Year-end Tips and Reminders Attachments to Annual ITR RMC 21-2016 dated February 11, 2016 Circularizing the Professional Regulatory Board of Accountancy Resolution No. 03, Series of 2016 entitled “Requiring the Submission of Certificate by the Responsible Certified Public Accountants on the Compilation Services for the Preparation of Financial Statements and Notes Thereto” The Board of Accountancy (BoA) has signed the rules on Financial Statements (FS) preparation and the requirement for the Certificate of Compilation Services for the preparation of Financial Statements (FS) and notes thereto (“the Certificate”). Page 47 Year-end Tips and Reminders Page 48 Year-end Tips and Reminders 12 Attachments to Annual ITR Attachments to Annual ITR RMC 21-2016 dated February 11, 2016 RMC 21-2016 dated February 11, 2016 The rules provide, among others, the following: • • Requirement of the attachment to the annual FS of a Certificate on the compilation services rendered in the preparation of FS and notes to the FS. • The Certificate shall be prepared only for issuers which/who have gross sales or revenues exceeding ten million pesos (P10,000,000) for a particular accounting year. • The preparation of the FS and disclosure notes is a practice of accountancy in commerce and industry and shall be done only by Certified Public Accountants (“CPAs”). • The reiteration of the rule that CPAs in public practice are prohibited from preparing or assisting in the preparation of FS and disclosure note of their clients which engaged them to render attest services for the same documents. • The CPAs in public practice who violate this prohibition rule shall be subject to stern sanctions by the Board of Accountancy. Page 49 • • Year-end Tips and Reminders Attachments to Annual ITR RMC 21-2016 dated February 11, 2016 The applicability of the rules with respect to reporting periods is as follows: • for reporting period ending June 30, 2016 and subsequent periods -- MANDATORY • for reporting period ended December 31, 2015 and subsequent periods ending May 30, 2016 -- OPTIONAL • for reporting periods which end prior to December 31, 2015 -- NOT COVERED BY THE RESOLUTION Page 51 • The CPAs rendering the compilation services for the preparation of the FS and signing the Certificate shall first be accredited with the Professional Regulatory Board of Accountancy after submitting the necessary application and complying with the Continuing Professional Development (CPD) requirements. The Board of Accountancy approved the extension of the deadline of February 29, 2015 for the filing of the application for accreditation by CPAs in Commerce and Industry (C&I) in its meeting last February 11, 2016. The deadline for filing the accreditation application is extended to April 30, 2016. Completion of the Continuing Professional Development (CPD) requirements can be done not later than June 30, 2016 after signing an affidavit of undertaking to that effect. Accreditation applications can be done through authorized representatives. Year-end Tips and Reminders Page 50 Year-end Tips and Reminders Summary Alphalist of Withholding Agents of Income Payments subjected to Creditable Withholding Taxes (SAWT) RR No. 2-06 prescribed the mandatory filing of the SAWT with the BIR as an attachment upon filing the quarterly and annual ITRs. Consolidated alphalist of withholding agents from whom income was earned or received and subjected to withholding tax to be submitted by the payee-recipient of income as attachment to its duly filed return for a given period. Contains summary of information, showing among others: 1. total amounts of income/gross sales/gross receipts, and 2. claimed tax credits taken from all Certificates of Creditable Withholding Tax at Source issued by the payors of income payment. Page 52 Year-end Tips and Reminders 13 Summary Alphalist of Withholding Agents of Income Payments subjected to Creditable Withholding Taxes (SAWT) Summary Alphalist of Withholding Agents of Income Payments subjected to Creditable Withholding Taxes (SAWT) RR No. 2-2015 dated December 17, 2014: RR No. 2-2015 dated December 17, 2014: Procedure in submitting BIR Forms 2307 and 2316 as attachments to SAWT 1. Scan the original BIR Form 2307 (Certificate of Creditable tax Withheld at Source); • 2. Store/save the soft copy of the BIR Form (PDF file) in a DVD-R with filename: • Mandatory for taxpayer registered under the Large Tax Services (LTS). a. Registered BIR name of taxpayer Optional for non-LTS taxpayer. b. TIN with head/branch office code c. Taxable period Ex. Rizal Corporation_131042445_03192015 Page 53 Year-end Tips and Reminders Summary Alphalist of Withholding Agents of Income Payments subjected to Creditable Withholding Taxes (SAWT) RR No. 2-2015 dated December 17, 2014: 3. Label Page 54 Year-end Tips and Reminders Summary Alphalist of Withholding Agents of Income Payments subjected to Creditable Withholding Taxes (SAWT) RR No. 2-2015 dated December 17, 2014: 4. Submit DVD-R to BIR where the taxpayer is registered, with Notarized Certification Page 55 Year-end Tips and Reminders Page 56 Year-end Tips and Reminders 14 Summary Alphalist of Withholding Agents of Income Payments subjected to Creditable Withholding Taxes (SAWT) Retention of the Hard Copy of the Certificates of Tax Withheld (BIR Form No. 2306, BIR Form No. 2307, & BIR Form No. 2316) ► The hard copy of the Certificates of Tax Withheld at Source including withholding tax on compensation issued by the payors of income payments to the payees shall always be retained within the period prescribed in the law for the preservation of books of accounts and accounting records (10 years from date of last entry, per RR 7-2013) and presentation of said hard copy may be requested during audit to prove the tax credits arising from withholding taxes which are being claimed in the tax returns filed (RR No. 2-2006). Page 57 Year-end Tips and Reminders Statement of Management Responsibility Revenue Regulation No. 3-10 Contents and Format of Statement of Management Responsibility Since the annual ITR is primarily the responsibility of the taxpayer, this shall be accompanied by a statement of management’s responsibility. All taxpayers required to file annual ITR under the 1997 Tax Code, as amended, shall be required to submit a statement of management’s responsibility,: Page 59 Year-end Tips and Reminders Certification of Independent CPA Corporations, companies, partnerships, or persons, whose gross quarterly sales, earnings, receipts or output exceed P150,000 shall have their books of accounts audited and examined yearly by independent CPAs and their ITRs accompanied with a duly accomplished Account Information Form (AIF). The AIF shall contain, among others, information lifted from certified balance sheets, profit and loss statements, schedules listing income-producing properties and the corresponding income therefrom and other relevant statements [Sec. 232(A), Tax Code]. Page 58 Year-end Tips and Reminders Statement of Management Responsibility “STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR ANNUAL INCOME TAX RETURN” The Management of (name of taxpayer) is responsible for all information and representations contained in the Annual Income Tax Return for the year ended (date). Management is likewise responsible for all information and representations contained in the financial statements accompanying the (Annual Income Tax Return or Annual Information Return) covering the same reporting period. Furthermore, the Management is responsible for all information and representations contained in all the other tax returns filed for the reporting period, including, but not limited, to the value added tax and/or percentage tax returns, withholding tax returns, documentary stamp tax returns, and any and all other tax returns. In this regard, the Management affirms that the attached audited financial statements for the year ended (date) and the accompanying Annual Income Tax Return are in accordance with the books and records of (name of taxpayer), complete and correct in all material respects. Management likewise affirms that: (a) the Annual Income Tax Return has been prepared in accordance with the provisions of the National Internal Revenue Code, as amended, and pertinent tax regulations and other issuances of the Department of Finance and the Bureau of Internal Revenue; Page 60 Year-end Tips and Reminders 15 Statement of Management Responsibility (b) any disparity of figures in the submitted reports arising from the preparation of financial statements pursuant to financial accounting standards and the preparation of the income tax return pursuant to tax accounting rules has been reported as reconciling items and maintained in the company’s books and records in accordance with the requirements of Revenue Regulations No. 8-2007 and other relevant issuances; (c) the (name of taxpayer) has filed all applicable tax returns, reports and statements required to be filed under Philippine tax laws for the reporting period, and all taxes and other impositions shown thereon to be due and payable have been paid for the reporting period, except those contested in good faith. Signature: ____________________ (Name of the Individual Taxpayer/President/Managing Partner) Signature: ____________________ (Name of the Chief Executive Officer or its equivalent) Take note of the signatories Signature: ____________________ (Name of the Chief Financial Officer or its equivalent) Page 61 Year-end Tips and Reminders Statement of Management Responsibility ► Aside from the Individual Taxpayer, President and Managing Partner, the Chief Executive Officer and the Chief Financial Officer or any officer performing similar functions regardless of their designation are also required to affix their signatures in the Statement. ► In the case of a foreign corporation with branch office in the Philippines, the above Statement shall be signed by its who is in charge of its operations, local manager. Page 62 Year-end Tips and Reminders Attachments to the Annual ITR Revenue Memorandum Circular No. 21-2007 For taxpayers registered with the BOI, BOI-ARMM and PEZA: ►Photocopy of the Certificate of Entitlement (CE) for ITH issued by the BOI, BOI-ARMM stating therein that the concerned entity is a bona fide BOI/BOI-ARMM-registered enterprise entitled to ITH incentives; and ►Photocopy of the Certification issued by the PEZA stating therein that the entity is a bona fide PEZA-registered enterprise entitled to ITH and / or the 5% Gross Income Tax incentive. Page 63 Year-end Tips and Reminders IV. Audited Financial Statements Page 64 Year-end Tips and Reminders 16 Audited Financial Statements (“AFS”) Revenue Regulation No. 07-2007, amending RR No. 21-2002 The AFS shall be composed of the following: 1. 2. 3. Balance sheet; Income statement or Profit and Loss Statement; Statement of Changes in Equity, showing either: a. All changes in equity b. Changes in equity; other than those arising from transactions with equity holders acting in their capacity as equity holders; Statement of Cash Flows; Notes, comprising a summary of significant accounting policies and other explanatory notes; and Schedules attached to the afore-cited statements. 4. 5. 6. The submission of the above statements is mandatory even if there Audited Financial Statements Revenue Regulation No. 21-02 The FS shall present the accounts in a descriptive manner such that the nature of the specific transactions entered in the accounts are known to the reader. The account titles to be used must be specific and not control accounts which must be completely enumerated in the FS. The accounts must conform to the rules and requirements of regulatory agencies that have supervision over the taxpayer such as the Securities and Exchange Commission, Bangko Sentral ng Pilipinas, Insurance Commission, etc. is no income, retained earnings, and so on. Page 65 Year-end Tips and Reminders Audited Financial Statements (AFS) Revenue Regulation No. 21-02 The Income Statement shall show separately by segment (there should be proper labeling), with breakdown of the specific accounts, the following: i. Cost of Goods Sold (for seller of goods)/Cost of Services (for seller of services); Page 66 Year-end Tips and Reminders Time and Place of filing AFS The paper copy of the AFS shall be filed with the BIR within 15 days from the date of filing of BIR Form No. 1702. RMC 2-2003 clarified that attachments to a return is due 15 days after e-filing deadline and not from date of e-payment. The taxpayer is required to file four copies of the AFS. ii. Selling and Administrative Expenses; iii. Financial Expenses, if any; iv. Special Deductions (e.g., NOLCO, if any;) v. Deductions under Special Laws, if any. Note: Deductions III, IV and V should be fully explained in the Notes to the Financial Statements. Page 67 Year-end Tips and Reminders Page 68 Year-end Tips and Reminders 17 AFS Reportorial Requirements Revenue Regulation No. 21-02 All the FS filed with accompanying auditor’s certificate shall show the comparative figures of the current year and the previous year. Thus, FS with no required Auditor’s Certificate need not be presented in comparative format. Preservation of Books Revenue Regulations (RR) No. 17-13, as amended by RR No. 05-14 and 10-2015 All taxpayers are required to preserve their books of accounts, including subsidiary books and other accounting records, for a period of ten (10) years reckoned from the day following the deadline in filing a return, or if filed after the deadline, from the date of the filing of the return, for the taxable year when the last entry was made in the books of accounts. Within the first 5 years, the taxpayer shall retain hardcopies of the books; Thereafter, the taxpayer may retain only an electronic copy of the hardcopy (paper) of the books in an electronic storage system compliant with BIR rules. Page 69 Year-end Tips and Reminders Preservation of Books Revenue Regulations (RR) No. 17-13, as amended by RR No. 05-14 and 10-2015 Unless a longer period of retention is required under the 1997 Tax Code or other relevant laws, the independent CPA who audited the records and certified the financial statements of the taxpayer, equally as the taxpayer, has the responsibility to maintain and preserve electronic copies of the audited and certified financial statements including the audit working papers for a period of ten (10) years from the due date of filing the annual ITR or the actual date of filing thereof, whichever comes later. Page 70 Year-end Tips and Reminders Additional Compliance Requirements for Taxpayers Adopting Philippine Financial Reporting Standards (“PFRS”) Revenue Regulation No. 08-07 • Disparity between financial accounting and tax accounting results from the application of PFRS. Hence, there is a need to reconcile the disparity to avoid issues during BIR investigations. • Taxpayers are mandated to maintain books and records that would reflect the reconciling items between Financial Statements figures and/or data with those reflected / presented in the filed ITR. • In case of a BIR investigation, the records must provide in sufficient detail the computation of the differences and the reasons therefor aimed at bringing into agreement the PFRS and ITR figures. Page 71 Year-end Tips and Reminders Page 72 Year-end Tips and Reminders 18 Revenues / Receipts ► All income for the year shall be declared in the Annual ITR except those specifically excluded in the Tax Code. ► The amount of P30,000.00, specifically referring to the amount of 13th month pay and other benefits as one of the exclusions from gross compensation income received by an employee is increased to P82,000.00, effective January 1, 2015. (RR No. 32015 dated March 9, 2015) V. Computation of Income Tax Page 73 Year-end Tips and Reminders Page 74 Year-end Tips and Reminders Revenues / Receipts Allowable Expenses / Deductions ► Match Gross Receipts per VAT / percentage tax returns with Revenues per Quarterly ITR and FS and evaluate reason for any discrepancy. ► Allowable deductions from gross income are all ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are directly attributable to, the development, management, operation and/or conduct of the trade, business or exercise of a profession. ► The taxpayer must substantiate with sufficient evidence, such as official receipts or other adequate records: (i) the amount of the expense being deducted, and (ii) the direct connection or relation of the expense being deducted to the development, management, operation and/or conduct of the trade, business or profession of the taxpayer. ► A substantial underdeclaration of taxable sales, receipts or income shall constitute prima facie evidence of a false or fraudulent return. Failure to report sales, receipts or income in an amount exceeding 30% of that declared per return shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income. Page 75 Year-end Tips and Reminders Page 76 Year-end Tips and Reminders 19 Allowable Expenses / Deductions Expenses with Limitations: ► A substantial overstatement of deductions shall constitute prima facie evidence of a false or fraudulent return. A claim of deductions in an amount exceeding thirty percent (30%) of actual deductions shall render the taxpayer liable for overstatement of deductions. 1. Interest Expense ► RR No. 12-2013 dated July 22, 2013 No deduction from gross income will also be allowed notwithstanding payment of withholding tax at the time of the investigation or reinvestigation/reconsideration, in cases where no withholding of tax was made in accordance with Sections 57 and 58 of the Code. ► RMC 63-2013 dated September 63-2013 clarifies that RR 12-2013 shall apply to audit/investigations for taxable year 2013 and onwards. The taxpayer's otherwise allowable deduction for interest expense shall be reduced by 33% (effective January 1, 2009) of the interest income subjected to final tax. Example: ► Interest Expense of PhP150,000 from Loan; ► Interest Income of PhP100,000 from Deposit Computation Interest Expense from Loan PhP 150,000 Less: 33% of interest income from Deposit (33% x P100,000) Deductible interest expense 33,000 117,000 ► Please take note of the Transfer Pricing Guidelines pursuant to RR 2-2013 dated January 2, 2013. Page 77 Year-end Tips and Reminders Page 78 Year-end Tips and Reminders Expenses with Limitations: Expenses with Limitations: 2. Entertainment, Amusement, Recreation Expenses Ceiling (RR No. 10-02) 2. EAR Expenses Representation Expenses are expenses incurred by a taxpayer 0.50% of net sales (i.e., gross sales less sales returns/allowances and sales discounts) for taxpayers engaged in sale of goods or properties; and 1% of net revenue (i.e., gross revenue less discounts) for taxpayers engaged in sale of services, including exercise of profession and use or lease of properties. Any expense incurred for EAR that is contrary to law, morals, public policy or public order shall in no case be allowed as a deduction. (Section 4 (c) of RR No. 10-02) Page 79 Year-end Tips and Reminders in connection with the conduct of his trade, business or exercise of profession, in entertaining, providing amusement and recreation to, or meeting with, a guest or guests at a dining place, place of amusement, country club, theater, concert, play, sporting event, and similar events or places. The term “guests" shall mean persons or entities with which the taxpayer has direct business relations, such as but not limited to, clients/customers or prospective clients/customers. The term shall not include employees, officers, partners, directors, stockholders, or trustees of the taxpayer. (Sections 2 and 3 of RR No. 10-02) Page 80 Year-end Tips and Reminders 20 Expenses with Limitations: The following are NOT considered EAR expenses: 1. Expenses treated as compensation or fringe benefits for services rendered under an employer-employee relationship, pursuant to RR No. 2-98, RR No. 3-98 and amendments thereto; 2. Expenses for charitable or fund raising events; 3. Expenses for bonafide business meeting of stockholders, partners or directors; 4. Expenses for attending or sponsoring an employee to a business league or professional organization meeting; 5. Expenses for events organized for promotion, marketing and advertising including concerts, conferences, seminars, workshops, conventions, and other similar events; or 6. Other expenses of a similar nature. Page 81 Expenses with Limitations: If a taxpayer is deriving income from both sale of goods/properties and services, the allowable EAR expense shall be determined based on the apportionment formula below, but in no case to exceed the maximum percentage ceilings provided earlier. Apportionment Formula: Net sales / net revenue Total Net sales & net revenue Year-end Tips and Reminders Page 82 X Actual Expenses Year-end Tips and Reminders Expenses with Limitations Expenses with Limitations 3. Donations iii. Donation to Accredited NGOs, provided that: Donations entitled to Full Deductibility: i. Donation to the Government or any of its agencies, provided that the donation must be used in undertaking priority activities in education, health, youth and sports development, human settlements, science and culture and in economic development according to a National Priority Plan determined by the National Economic and Development Authority (“NEDA”). ii. Donations to Certain Foreign Institutions or International Organizations. Page 83 Year-end Tips and Reminders a. The accredited NGO must be organized and operated exclusively for the purposes mentioned, and no part of its net income must inure to the benefit of any private individual; b. The donee must utilize the donation for the active conduct of its purpose, not later than the 15th day of the third month after the close of its taxable year in which the contribution is received; c. The donee’s level of administrative expense shall not exceed 30% of its total expenses; and the donee’s assets, in case of its dissolution, would be distributed to the entities enumerated in the provision. Page 84 Year-end Tips and Reminders 21 Expenses with Limitations Expenses with Limitations RR No. 13-98 Donations to any candidate or political party or coalition of parties for campaign purposes shall not be subject to the payment of any gift tax. Submit evidences or proofs to the BIR by showing the Certificate/s of Donation and indicating therein the following: - - Actual receipt by the accredited non-stock, non-profit corporation/NGO of the donation or contribution and the date of receipt thereof; and The amount of the charitable donation or contribution, if in cash; if property, whether real or personal, the acquisition cost of the said property. ► Section 13 of the R.A. No. 7166 (Election Code) specifically states that any provision of law to the contrary notwithstanding any contribution in cash or kind to any candidate or political party or coalition of parties for campaign purposes, duly reported to the Commission shall not be subject to the payment of any gift tax (donor’s tax). RR No. 02-03 For donation worth over PhP 50,000, Notice to the RDO is required and Certificate of Donation must be attached. Page 85 Year-end Tips and Reminders Page 86 Year-end Tips and Reminders Expenses with Limitations Expenses with Limitations Donations to any candidate or political party or coalition of parties for campaign purposes shall not be subject to the payment of any gift tax. Donations entitled to Limited Deductibility: ► It is necessary, however, that, for every contribution received, an official receipt (OR) shall be issued by the candidate or political party. Otherwise, the contribution may be subject to tax. The Bureau of Internal Revenue (BIR) may construe the same as donation subject to donor’s tax or unaccounted source of income subject to regular income tax. If contributions are in kind, those shall be valued at their cash equivalent or fair market value Page 87 Year-end Tips and Reminders 1. Donations which do not meet the conditions for full deductibility 2. Donations to accredited domestic corporations or associations organized and operated exclusively for religious, charitable, scientific, youth and sports development, cultural or educational purposes or for the rehabilitation of veterans, or to social welfare institutions 3. Donations to non-accredited NGOs. Type of Taxpayer Limit Individual Donor 10% of Taxable Income Corporate Donor 5% of Taxable Income Page 88 Year-end Tips and Reminders 22 Expenses with Limitations 4. Depreciation of Vehicle and Related Expense (RR No. 12-2012) Only one vehicle for land transport is allowed for use of an official or employee, the value of which should not exceed PhP2,4000,000.00. No depreciation is allowed for yacht, helicopters, airplanes, and/or aircrafts, and land vehicles which exceed the threshold UNLESS the taxpayer’s main line of business is transport operations or lease of transport equipment and the vehicles purchased are used in operations. All maintenance expense on account of the non-depreciable Net Operating Loss Carry Over (NOLCO) The NOLCO shall be separately shown in the ITR. It must likewise be shown in the Reconciliation Section of the Tax Return. The unused NOLCO shall be presented in the Notes to FS showing in detail: 1. The taxable year in which the net operating loss was sustained or incurred 2. Any amount thereof claimed as NOLCO deduction within 3 consecutive years immediately following the year of such loss. Failure to comply with this disclosure requirement will disqualify the taxpayer from claiming the NOLCO. Vehicle for tax purposes are disallowed in its entirety. Page 89 Year-end Tips and Reminders Page 90 Year-end Tips and Reminders Minimum Corporate Income Tax (MCIT) Optional Standard Deduction (OSD) Any amount paid as excess MCIT shall be recorded in the books as an asset "deferred charges-MCIT". RR No. 16-08 It shall be carried forward and may be credited against the normal income tax due for a period not exceeding 3 taxable years immediately following the taxable year/s in which the same has been paid. Code which are required to be declared in the ITR of the taxpayer for the taxable year are part of the gross income against which the OSD may be deducted in arriving at the taxable income. Passive incomes which have been subjected to a final tax at source shall not form part of the gross income for purposes of computing the 40% OSD. For other taxpayers allowed by law to report their income and deductions under a different method of accounting (e.g. percentage of completion basis, etc.) other than cash and accrual method of accounting, the “gross income” shall be determined in accordance with said acceptable method of accounting. Any amount of excess MCIT which has not or cannot be so credited against the normal income taxes due for the 3-year period shall lose its creditability; and shall be removed from "deferred charges-MCIT" account by a debit to "retained earnings" and a credit to "deferred charges-MCIT" since this tax is not allowable as deduction from gross income, it being an income tax. Page 91 Year-end Tips and Reminders The items of gross income under Section 32 (A) of the 1997 Tax Page 92 Year-end Tips and Reminders 23 Optional Standard Deduction (OSD) Optional Standard Deduction (OSD) RR No. 2-10 RR No. 2-10 Manner of Electing OSD or Itemized Deduction: Making the Election: The election to claim either the OSD or the itemized Once the election is made, the same type of deduction must be deduction for the taxable year must be signified by checking the appropriate box on the ITR filed for the first quarter of the taxable year. Once the election to avail of the OSD or itemized deduction is signified in the return, it shall be irrevocable for the taxable year for which the return is made. Page 93 Year-end Tips and Reminders consistently applied for all the succeeding quarterly returns and in the final ITR for the taxable year. Any taxpayer who is required but fails to file the quarterly ITR for the first quarter shall be considered as having availed of the itemized deductions for the taxable year. Page 94 Year-end Tips and Reminders ITR Reconciling Items Pre-Audit of Annual Income Tax Returns Examples of Non-Taxable Income: Revenue Memorandum Order No. 25-2012 dated October 3, 2012 ►Interest income already subjected to final withholding tax ►Dividend income of a domestic corporation from another domestic corporation Examples of Non-Deductible Expense: ► Allowance for doubtful accounts ► Allowance for inventory obsolescence Page 95 Year-end Tips and Reminders Coverage: All ITRs filed by individual taxpayers engaged in business or in the practice of their profession and corporate taxpayers. Pre-audit is conducted without field investigation or Electronic Letter of Authority (“eLA”) or Tax Verification Notice (“TVN”). The Revenue Officer shall verify the following during audit: 1. Mathematical computation of income tax due and payments; 2. Correctness and applicability of personal and additional exemptions claimed by individuals against the registration records per Integrated Tax System (“ITS”) Page 96 Year-end Tips and Reminders 24 Pre-Audit of Annual Income Tax Returns Pre-Audit of Annual Income Tax Returns 3. Correctness and validity of the following deductions/ expenses subject to the ceiling/limitations prescribed under existing law and regulations: a) Interest expense b) Charitable and other contributions c) Representation expense d) Miscellaneous expense 4. Validity of claims for income tax holiday, tax exemption and other claimed tax incentives which resulted to non-payment or reduced payment of tax due. 5. Correctness of the application of the minimum corporate income tax (MCIT); Page 97 6. Claimed creditable withholding taxes against tax due and substantiation of claims through the certificates of withholding taxes attached to the tax returns or submitted electronically to the BIR; 7. Correct utilization of Tax Credit Certificates which should be duly supported by an approved Tax Debit Memo issued by the authorized Revenue Official; 8. Correctness of deductions claimed by taxpayers who opted for Optional Standard Deduction (“OSD”) 9. Accuracy and applicability of the computation of the Net Operating Loss Carry-Over (“NOLCO”); and 10. Completeness of the required attachments to annual ITRs as prescribed under existing revenue issuances. Year-end Tips and Reminders Page 98 Year-end Tips and Reminders Advances Commissioner Of Internal Revenue vs. Filinvest Development Corporation, G.R. No. 163653. July 19, 2011. “(I)nstructional letters as well as the journal and cash vouchers evidencing the advances xxx qualified as loan agreements upon which documentary stamp taxes may be imposed.” Revenue Memorandum Circular No. 048-11 dated October 6, 2011 V. Others Page 99 Year-end Tips and Reminders Circularizes the relevant portion of Supreme Court Decision in the case Commissioner of Internal Revenue vs. Filinvest Development Corporation, G.R. Nos. 163653 and 167689 dated July 19, 2011, concerning Documentary Stamp Tax on Inter-corporate Loans. SEC. 180. Stamp Tax on All Bonds, Loan Agreements, Promissory Notes, Bills of Exchange, Drafts, Instruments and Securities Issued by the Government or Any of its Instrumentalities, Deposit Substitute Debt Instruments, Certificates of Deposits Bearing Interest and Others Not Payable on Sight or Demand. xxx documentary stamp tax of Thirty centavos (P0.30) [now P1.00] on each Two hundred pesos (P200), or fractional part thereof, of the face value of any such agreement, bill of exchange, draft, certificate of deposit, or note xxx Page 100 Year-end Tips and Reminders 25 Deposit for Future Subscription Financial Reporting Bulletin No. 6 A company should not consider a deposit for future subscription as an equity instrument unless all of the following elements are present: 1. There is a lack or insufficiency of authorized unissued shares of stock to cover the deposit; 2. The company’s Board of Directors and stockholders have approved an increase in capital stock to cover the shares corresponding to the amount of the deposit; and 3. An application for the approval of the increase in capital stock has been presented for filing or filed with the Commission. If any or all of the foregoing elements are not present, the transaction should be recognized as a liability. Page 101 Year-end Tips and Reminders Improperly Accumulated Earnings Tax Revenue Memorandum Order 35-2011 By way of illustration, Improperly Accumulated Taxable Income (IATI) is computed as follows: Taxable Income for the year (e.g., 2010) Pxxxx Add: (a) Income subjected to Final Tax Pxxx (b) NOLCO xxx (c) Income exempt from tax xxx (d) Income excluded from gross income xxx xxxx –––––------––––– Pxxxx Less: Income Tax paid Pxxx Dividends declared/paid xxx xxxx –––––--––----––– Total Pxxxx Add: Retained Earnings from prior years Accumulated Earnings as of December 31, 2010 Less: Amount that may be Retained (100% of Paid-Up Capital as of December 31, 2010) xxxx ––––– IATI Pxxxx ===== The resulting "Improperly Accumulated Taxable Income" is thereby multiplied by 10% to arrive at the Improperly Accumulated Earnings Tax (IAET). Page 103 Year-end Tips and Reminders Related Party Disclosure Financial Reporting Bulletin No. 13 The following requirements under Philippine Accounting Standard 24 must be observed by corporations: 1. The required disclosures on transactions and outstanding balances shall be made separately for each of the following categories: (a) the parent; (b) entities with joint control or significant influence over the entity; (c) subsidiaries; (d) associates; (e) joint ventures in which the entity is a venture; (f) key management personnel of the entity or its parent; and (g) other related parties. 2. For each of said category, the following information shall be provided: a. the amount of the transactions; b. the amount of outstanding balances and their terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement, and details of any guarantees given or received; c. provisions for doubtful debts related to the amount of outstanding balances; d. the expense recognized during the period in respect of bad or doubtful debts due from related parties. 3. The presentation shall be made in columnar format according to the above categories and disclosure items. Page 102 Year-end Tips and Reminders Improperly Accumulated Earnings Tax Revenue Regulation No. 02-01 SECTION 6. Period for Payment of Dividend/Payment of IAET. —The dividends must be declared and paid or issued not later than one year following the close of the taxable year, otherwise, the IAET, if any, should be paid within fifteen (15) days thereafter. SECTION 7. Determination of Purpose to Avoid Income Tax. —xxx Xxx xxx xxx In order to determine whether profits are accumulated for the reasonable needs of the business as to avoid the imposition of the improperly accumulated earnings tax, the controlling intention of the taxpayer is that which is manifested at the time of accumulation, not subsequently declared intentions which are merely the product of afterthought. A speculative and indefinite purpose will not suffice. The mere recognition of a future problem or the discussion of possible and alternative solutions is not sufficient. Definiteness of plan/s coupled with action/s taken towards its consummation are essential. Page 104 Year-end Tips and Reminders 26 Appropriation of RE for Business Expansion RE Available for Dividend Declaration SEC Memorandum Circular No. 11, Series of 2008 Financial Reporting Bulletin No. 15 Pursuant to PAS 1, the following disclosures are relevant to provide an understanding on the impact of the retention of earnings on the financial statements and thus, must be provided therein: 1. Details of the expansion (e.g., description of the project, timeline) to render the project definite; 2. The date of the approval by the Board of Directors of the project. Page 105 Year-end Tips and Reminders Reconciliation of Retained Earnings Financial Reporting Bulletin No. 14 Under paragraph 4(C) of SRC Rule 68, as amended, issuers of securities to the public, and stock corporations with unrestricted retained earnings in excess of 100% of paid-in capital stock, are mandated to submit with their audited financial statements a Reconciliation of Retained Earnings Available for Dividend Declaration which should present the prescribed adjustments. Page 106 Year-end Tips and Reminders Reconciliation of Retained Earnings Financial Reporting Bulletin No. 14 Items Amount Unappropriated Retained Earnings, beginning Adjustments: P xxx Unappropriated Retained Earnings, as adjusted, beginning P xxx (see adjustments in previous year’s Reconciliation) xxx Net Income based on the face of AFS Less: Non-actual/unrealized income net of tax • Equity in net income of associate/joint venture • Unrealized foreign exchange gain - net (except those attributable to Cash and Cash Equivalents) Unrealized actuarial gain • Fair value adjustment (M2M gains) • Fair value adjustment of Investment Property resulting to gain Adjustment due to deviation from PFRS/GAAP-gain • Other unrealized gains or adjustments to the retained earnings as a result of certain transactions accounted for under the PFRS Add: Non-actual losses • Depreciation on revaluation increment (after tax) • Adjustment due to deviation from PFRS/GAAP – loss Loss on fair value adjustment of investment property (after tax) Net Income Actual/Realized P xxx Unappropriated Retained Earnings, as adjusted, ending Page 107 Year-end Tips and Reminders Page 108 Pxx x Year-end Tips and Reminders 27 Creditable Withholding Taxes (CWTs) ► CWTs should be substantiated by Certificates of Creditable Taxes Withheld at Source (BIR Form 2307) ► CWTs should pertain to the year subject of the ITR Option to Carry-over or Refund Excess Taxes ► Option to carry-over: The taxpayer shall exercise his option by marking with an “x” the appropriate box, which option shall be considered irrevocable for that taxable period. Page 109 Year-end Tips and Reminders The ITR filed by an accredited tax agent on behalf of a taxpayer shall bear the following information: A. For CPAs and others (individual practitioners and members of GPPs): ► TIN ► Certificate of Accreditation Number, Date of Issuance, and Date of Expiry B. For Members of the Philippine Bar (individual practitioners, members of GPPs): ► TIN ► Attorney’s Roll number or Accreditation Number, if any Page 110 Year-end Tips and Reminders Submission of Inventory List and Other Reportorial Requirements Submission of Inventory List and Other Reportorial Requirements RMC 57-2015 dated September 16, 2015 Amended by RMC 61-2015 on September 29, 2015 RMC 57-2015 dated September 16, 2015 Amended by RMC 61-2015 on September 29, 2015 ► Provide guidance on how financial accounting information, in addition to the annual inventory list required to be filed under Section 13 of RR No. V-I, should be reported to the Bureau. ► All taxpayers with tangible asset-rich balance sheets, often with at least half of their total assets in working capital assets, e.g., accounts receivable and inventory, shall submit, in addition to the annual inventory list, schedules/lists prescribed in the Circular, in hard and soft copies. ► The additional reports or schedules to be submitted and filed with the annual inventory list shall cover companies maintaining inventory of stock-in-trade, raw materials, goods in process, supplies and other goods such as manufacturing, wholesaling, distributing/retailing sectors including real estate dealers/developers, service companies, e.g., construction companies, building contractors, etc. Page 111 Year-end Tips and Reminders Page 112 Year-end Tips and Reminders 28 Submission of Inventory List and Other Reportorial Requirements RMC 57-2015 dated September 16, 2015 Amended by RMC 61-2015 on September 29, 2015 ► The schedules and inventory list shall be submitted every 30th day following the close of the taxable year (depending on the accounting period adopted by the taxpayer) as enunciated under Section 13 of Revenue Regulations No. V-I, otherwise known as the Bookkeeping Regulations, which provides for the filing of an annual inventory of stocks-in-trade, raw materials, goods in process, supplies and other goods not later than 30 days following the close of the taxable year, to wit: Page 113 Year-end Tips and Reminders BIR Audit Program BIR Audit Program RMO 19-2015 dated September 15, 2015 This Order prescribes the policies, guidelines and procedures to be observed in the audit/investigation of tax returns to enhance taxpayers’ voluntary compliance by encouraging the correct payment of internal revenue taxes through the exercise of the enforcement function of the Bureau. In general, all taxpayers are considered as possible candidates for audit. To cover the audit/investigation of taxpayers, electronic Letters of Authority (eLAs) shall be issued. Page 114 Year-end Tips and Reminders BIR Audit Program RMO 19-2015 dated September 15, 2015 RMO 19-2015 dated September 15, 2015 The said audit/investigation shall include, but not be limited to the mandatory cases and priority taxpayers/industries specified in this Order including other priority audit that may be identified by the Regional Director (RD)/Assistant Commissioner, Large Taxpayers Service (ACIR-LTS). Priority Taxpayers/Industries: Mandatory Cases: Page 115 Year-end Tips and Reminders Page 116 Year-end Tips and Reminders 29 BIR Audit Program RMO 19-2015 dated September 15, 2015 Priority Taxpayers/Industries: Questions? Page 117 Year-end Tips and Reminders Page 118 Year-end Tips and Reminders 30
© Copyright 2024 Paperzz