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Tax administration goes high tech

Tax administration goes high tech by: Wendell D. Ganhinhin

The Bureau of Internal Revenue (BIR) appears to be catching up with the high-tech environment of taxpayers when it issued Revenue Regulations (RR) No. 09-09 last December 29, 2009.  The said regulations are intended to define the requirements, obligations, and responsibilities imposed on taxpayers for electronic record keeping and maintenance of electronic records and books of accounts. 

In addition, RR 09-09 made it mandatory for large taxpayers classified under RR 1-98 to maintain a Computerized Accounting System (CAS) starting January 1, 2010.  Therefore, all large taxpayers who are currently maintaining their books of accounts and accounting records in manual form for tax purposes are now required to maintain a CAS and register it with BIR not later than December 31, 2009. 

Considering, however, that RR 09-2009 published only on December 31, 2009, the deadline for large taxpayers to shift from manual to CAS has already lapsed even  before RR 09-09 took effect on January 15, 2010, i.e., 15 days after its publication.  

Likewise, the selection and acquisition of a CAS software cannot be done overnignt since the company has to make sure it fits their requirements.  Thus, it would thus be quite unreasonable to expect large taxpayers to immediately shift to computerized accounting system in just a matter of days. 

An electronic record is a collection of related information in an electronically readable format.  The term “electronically readable format” refers to information supported by a system capable of producing an accessible, and useable copy that would allow the BIR to process and analyze the electronic records on a BIR system or using with its audit software.

So, how will the BIR conduct their examination or investigation of the electronic records?  What are the requirements for the access and submission of electronic records to the BIR?

Under RR 9-2009, electronic records used to establish tax compliance shall contain sufficient transaction-level detail information so that the details underlying the electronic records can be identified and made available to the BIR upon request.  Moreover, at the time of an examination, the retained records must be capable of being retrieved and converted to a standard record format in accordance with RR 16-2006. 

Furthermore, if a taxpayer retains records required to be kept under RR 9-2009 in both electronic and hard-copy formats, he/it shall make the records available to the BIR in electronic format upon request of the BIR Commissioner or its authorized representative.

The manner in which the BIR is provided access to these electronic records may be satisfied through a variety of means that shall take into account the taxpayer’s facts and circumstances through consultation with the taxpayer.  However, the BIR may still request for hard-copy printouts if necessary in lieu of retained electronic records at the time of examination.

Can the electronic records be kept in a place other than the taxpayer’s place of business? The records must be kept at the taxpayer’s place of business in the Philippines or another place designated by the BIR Commissioner and must, upon request, be made available to BIR revenue officers for audit purposes during business hours. 

For companies belonging to multinational groups which have centralized finance and accounting systems which are maintained abroad, RR 09-09 provides that such records kept outside the Philippines and accessed electronically from the Philippines are not considered to be records in the Philippines. 

However, where such records are maintained electronically in a location outside the Philippines, the BIR may accept a copy of the records, provided these are made available in the Philippines in an electronically readable and useable format for BIR officials and they contain adequate details to support the tax returns filed with the BIR. Authorization to maintain records elsewhere may be granted, subject to such terms and conditions as the BIR Commissioner may specify in writing. 

With the new trend of outsourcing non-core functions, some companies engage the services of a third party to provide custodial and management services of its records.  That practice is allowed under the regulations and the taxpayer is just required to notify the BIR prior to such arrangement
Although taxpayers are allowed to engage a third party to keep the records, it would still entail additional cost. Likewise, there is a corresponding cost even if the company can provide a specific area where records can be kept. 

Acknowledging this issue, the BIR may allow taxpayers to convert hard-copy documents received or produced in the normal course of business to microfilm, microfiche or other storage-only imaging systems.  Prior permit from the BIR is required before use of microfilm, microfiche, and other storage-only imaging systems.  After conversion, these hard-copy documents may be discarded provided certain conditions are met. 
Documents which may be stored on these media include general books of accounts, journals, voucher registers, general and subsidiary ledgers, and supporting records of details such as sales invoices, purchase invoices, exemption certificates, and credit memoranda. 

As business transactions become more and more complex, there is really a need to make the generation of information more secure, accurate, and fast.  Hence, for purposes of maintaining accounting books and records, the use of the computerized accounting system or electronic record keeping should now become the rule rather than the exception. 

This new regulation on electronic records is one of the innovations introduced by newly-appointed BIR Commissioner Joel Tan-Torres.  Aside from efficiently reducing the time used by BIR personnel to complete the tax investigation process, it also results in more effective review by the BIR examiners of the taxpayers’ accounting records, which will ultimately lead to lesser work on the part of the taxpayers as well as their authorized tax agents in handling the BIR audit. 

However, to ensure its proper and smooth implementation,  we expect  the BIR to issue the implementing rules and regulations or clarificatory circular on  the issues involving the implementation  of RR 09-09.  Taxpayers are thus encouraged to send their queries and comments so they will be considered by the BIR in the issuance of the implementing rules and regulations or clarificatory circular.

This article is not intended to be a substitute for professional advice.  For comments and inquiries, you may e-mail the author at Wendell.Ganhinhin@ph.gt.com.  For other tax concerns, please check out our other tax services.