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Finding missing taxpayers

Finding missing taxpayers by: Edward L. Roguel

If the Bureau of Internal Revenue (BIR) is not able to serve the Letter of Authority (LA) issued to a taxpayer because he or she cannot be located, will the taxpayer be free from the audit examination?  Before, the taxpayer may escape the examination, but not anymore.

The BIR has observed that a number of LAs, Letter Notices (LNs) and Tax Verification Notices (TVNs) are not served due to failure to locate some taxpayers despite exhausting all efforts.  To address this, the BIR issued a circular that provides penalty to taxpayers whose whereabouts cannot be located (“CBL taxpayer”), and taxpayers who deal with CBL taxpayers.

Last December 21, 2010, the BIR issued Revenue Memorandum Circular (RMC) No. 98-2010 which prescribes the policies and guidelines in handling of unserved LNs, LAs and TVNs.   Under RMC 98-2010, if an LN, LA or TVN cannot be served because the taxpayer cannot be located, the BIR Revenue Officers (ROs) authorized to conduct the audit investigation shall secure certifications from any two of the following offices/ organizations:

     ·  Barangay Office
     ·  Municipal/ City Government Business Permit/ Licensing Office
     ·  Department of Trade and Industry
     ·  Securities and Exchange Commission
     ·  Manila Electric Company (Meralco)
     ·  Philippine Long Distance Telephone Company (PLDT)

If any two of the foregoing offices/organizations certify that the concerned taxpayer does not appear in their official records/ archives, then such taxpayer shall be given the status of “Cannot Be Located” (CBL) in the records of the BIR. 

The names of taxpayers with CBL status will be posted in the BIR website and in at least two newspapers of general circulation.  

The concerned taxpayer shall be given 15 calendar days from publication of the list in the newspapers to communicate with the concerned BIR office to clarify his/her  CBL status and settle his/her outstanding tax obligations.  If such taxpayer fails to contact the BIR within the prescribed period, the concerned BIR office shall recommend the cancellation of the taxpayer’s registration and invoicing privileges (Authority to Print Invoices and Receipts). 

The BIR will also make an assessment based on the discrepancies in the LN or based on best evidence obtainable, as the case may be.

The list of taxpayers with CBL status whose registration and invoicing privileges have been recommended for cancellation will be published in the BIR website and in two newspapers of general circulation.  The purpose of this is for other taxpayers to cease business transactions with CBL taxpayers. 

In case of purchase made from such taxpayers, such will be disallowed as a deduction for income tax purposes while the corresponding input VAT shall likewise be disallowed for value-added tax (VAT) purposes.

The disallowance of expense and input VAT as penalty for transacting with CBL taxpayers is deemed unfair to taxpayers who purchase goods and services from CBL taxpayers.  Moreover, this is not consistent with the existing tax laws, rules and regulation. 

Under existing provisions of the Tax Code and income tax and VAT regulations, taxpayers who claim input tax and deductions for income tax purposes are required to present OR/invoice duly registered with BIR to substantiate their claims for deductions and input VAT.  Thus, as long as the taxpayer can present valid OR/invoice for its expense and input VAT that comply with the substantiation requirements, regardless of  the status of the taxpayer/supplier,  they should be entitled to claim deduction and input VAT for the expense.

Furthermore, there is an issue on whether purchases made starting on the date of publication of the said list in the website/ newspaper will be disallowed?  Or, will even those purchases made a few years ago to said taxpayers also be disallowed? 

The RMC does not mention whether the foregoing disallowance will be applied prospectively.  Hence, there is a high probability that even the purchases made in prior periods from the said taxpayers may be disallowed.   In this case, the burden is shifted to all taxpayers engaged in business to ensure that all their suppliers will not be included in the list of taxpayers whose registration and invoicing privileges have been recommended for cancellation. 

Accordingly, thorough evaluation and monitoring of suppliers should also be made by taxpayers every time they would make purchases, which may be burdensome to taxpayers.

With the issuance of RMC No. 98-2010, all taxpayers should ensure that their records with the BIR are updated.  In case of change in business address, the taxpayer should ensure that it notifies the proper BIR office by filing the necessary registration update.  Moreover, taxpayers are also advised to regularly check the BIR website to ensure that their names are not included in the list of taxpayers with CBL status.

On the other hand, all taxpayers engaged in business shall likewise regularly check the BIR website to guarantee that their suppliers are not among those in the list of taxpayers whose registration and invoicing privileges have been recommended for cancellation.  Otherwise, they may be exposed to possible disallowance of their expenses and input VAT.

In sum, while we support the BIR in its effort to increase its revenue collections,  it should not, however, unduly burden those taxpayers which comply with their tax obligations  by penalizing them for actions of non-compliant taxpayers through disallowance of their expenses or input VAT under RMC 98-2010.  As it would appear, BIR is passing again onto taxpayers its duty and responsibility in ensuring tax compliance of other taxpayers, which should not be the case.