“It is the responsibility of taxpayers to comply with the requests of the Bureau of Internal Revenue (BIR) for them to produce their books of accounts and/or other records and documents in the course of a tax investigation and/or access to records requests.” This is the opening line of Revenue Memorandum Order (RMO) No. 45-2010. The objective of this RMO is to expedite the examination of books of account and other accounting records and relevant documents, whether in the course of an audit investigation, or in the course of a request for information. The attainment of this objective is done by lessening the number of notices sent to the taxpayer, before the issuance of a Subpoena Duces Tecum (subpoena).
These notices essentially inform a taxpayer that the BIR has not yet received the documents (either in part or in whole) which it requires the taxpayer to present. Previously, the practice has always been to give taxpayers up to three notices before resorting to the issuance of a Subpoena. References to “3rd and Final Notices” can be found in Revenue Delegated Authority Order (RDAO) No. 08-01, and Revenue Memorandum Order (RMO) No. 71-99. Of course, tax practitioners are familiar with this procedure of allowing their clients “3 strikes” before the concerned Revenue Examiners refer the audit investigation to the concerned legal office (whether it be the Prosecution Division of the BIR National Office, or the Legal Division(s) of the various Revenue Regions) for the issuance of a Subpoena. Now, with RMO No. 45-2010, “two strikes” are all the BIR needs before taking its first steps to implementing legal remedies against non-compliant taxpayers.
Interestingly enough, there would appear to be no written basis for the requirement of three notices for the presentation of books of account in the course of an audit investigation. Revenue Audit Memorandum Order (RAMO) No. 3-82, dated July 26, 1982, allows for the issuance of just two notices before the concerned Revenue Examiner endorses the audit investigation to the appropriate legal division for the issuance of a Subpoena. It appears therefore, that the BIR is merely correcting a previously erroneous practice of giving taxpayers three chances to produce its books of account and other records for investigation.
It should be noted that this rule of “two strikes” now applies as well to “access to records” requests from the BIR. The “access to records” letters or requests, referred to as ARLs in Revenue Administrative Order (RAO) No. 5-95, are described briefly as tools for audit investigation under Revenue Audit Memorandum Orders (RAMOs) Nos. 2-95 and 1-00 (The BIR’s Handbooks on Audit Procedures and Techniques). This is effectively a request for information from a third party or a party who is not actually under audit investigation. The information requested from the third party deals with data arising from a transaction the third party may have had with the taxpayer undergoing an audit investigation. Now, under the subject RMO, even a third party not subject to an audit investigation may be a recipient of a subpoena, if the said third party does not comply with the ARL.
Now, what if the taxpayer was unable to comply with said two notices and/or ARLs? The concerned Revenue Examiner will request the appropriate legal division to issue the Subpoena against the errant taxpayer. Following that, if the taxpayer still does not comply with the subpoena (to produce the books of account and/or other records), then the BIR will forthwith file a criminal case against the errant taxpayer for violation of Section 5, in relation to Sections 14 and 266 of the National Internal Revenue Code of 1997 (NIRC), as amended, and/or initiate a legal proceeding to cite the taxpayer in contempt, under Section 3(f) of Rule 71 of the Revised Rules of Court.
What if, after all that both the BIR and the taxpayer have gone through, the taxpayer finally submits the required documents? The taxpayer, after payment of a penalty of P10,000 (for delayed compliance with the notices and/or ARLs) can request for the dismissal of the cases which were subsequently filed in court (resulting from the failure to submit the required documents). This remedy afforded the taxpayer requires that the BIR CONCUR with such request for the dismissal of the court cases. Given the imposition of the P10,000.00 penalty on the taxpayer, this “concurrence” of the dismissal should go so far as stating that the BIR is no longer interested in pursuing the case filed relative to the violation. Considering that the submission of the required documents cancels out the offense, the BIR has no basis to prosecute the taxpayer.
This final remedy of payment of the penalty need not be resorted to if the taxpayer had submitted the required documents in the first place. The BIR has the mandate to conduct an audit investigation of all taxpayers under Section 6 of the NIRC, as amended. Taxpayers who are diligent with regard the payment of the correct amount of taxes need not worry when the BIR conducts their audit investigation. Tahe mission of the BIR is only to collect the truthful amount of taxes, not one centavo more or less. Just ask the new BIR Commissioner of Internal Revenue.
(Andrew James D. Ruiz is a senior manager of Tax of Manabat Sanagustin & Co., CPAs, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in the Philippines. For comments or inquiries, please email manila@kpmg.com or adruiz@kpmg.com)