Learning Session 7 - Tax Records Management - Pagayatan

TAX RECORDS MANAGEMENT
Atty. Froilyn P. Doyaoen-Pagayatan

July 31, 2014
DISCUSSION OUTLINE
Relevant laws and regulations
Registration and preservation of books of
accounts
Manual and electronic books of accounts and
accounting records
Submission of books of accounts and recording
records during tax audit and applications for
refund
Loss and destruction of books of accounts and
accounting records
Reporting Casualty Losses and Inventory Losses
FDP Law
FDP Law
RELEVANT LAWS AND REGULATIONS
RELEVANT LAWS AND REGULATIONS
FDP Law
Various Provisions of the Tax Code of 1997

Revenue Regulations No. 007-12: Revenue Regulations on
Primary Registration
Revenue Regulations No. 17-2013:
Preservation of Books of Accounts and Other Accounting
Records
Functional Currency Other than the Philippine Peso in
Books of Accounts
Registration of Manual Books of Accounts
Revenue Regulations No. 009-09: Electronic Records
Revenue Regulations No. 16-06: Submission Electronic
Books of Accounts During Tax Audit
Revenue Memorandum Order No. 45-2010: Procedures in
Dealing with Taxpayers Who Refuse to Produce Requested
Documents or Records
FDP Law
REGISTRATION AND PRESERVATION OF

BOOKS OF ACCOUNTS
REVENUE REGULATIONS NO. 007-12:

REVENUE REGULATIONS ON PRIMARY
REGISTRATION
FDP Law
"Secondary Registration :
shall pertain to subsequent registration
activities after the issuance of BIR Certificate
of Registration (COR) relative to the printing
and issuance of official receipts/sales invoices;
keeping/registering of books of accounts and
other accounting records; applying for certain
accreditation requirements and securing other
applicable registration-related permits.

REGISTRATION
FDP Law
Documents to be submitted to complete BIR

registration:
Application for Authority to Penalize (ATP)
Receipts/Invoices
Registration of Manual Books of Accounts, or,
Application for Permit to use Computerized
Accounting System (CAS) or components
thereof, if applicable
Application for Permit to use Loose Leaf
Accounting Records, if applicable
Application for Permit to Use CRM/POS
Machines, and the like, if applicable

REGISTRATION
FDP Law
As a general rule, it shall be mandatory for the

BIR district office to process and issue
simultaneously the COR, ATP and register the
books of accounts of business taxpayers
immediately after registration and upon complete
submission of the requirements within the period
prescribed under the existing process provided by
the BIR Citizen's Charter. The BIR district office
must ensure that taxpayers will be issued their
registration certificates/permits (COR, ATP,
Books of Accounts) upon commencement of their
business.
CIRS SUBPOENA POWER
FDP Law
The CIR has the power to:

examine any book, paper, record, or other data;
obtain from any person any information such as,
but not limited to, costs and volume of production,
receipts or sales and gross incomes of taxpayers,
and the names, addresses, and financial statements
of corporations;
summon the person liable for tax or required to file
a return, or any officer or employee of such person,
or any person having possession, custody, or care of
the books of accounts and other accounting records
to appear before her or her duly authorized
representative at a time and place specified in the
summons and to produce such books, papers,
records, or other data, and to give testimony
(Section 5, Tax Code)
CIRS SUBPOENA POWER
FDP Law
Failure to obey summons:

Any person who, being duly summoned to
appear to testify, or to appear and produce
books of accounts, records, memoranda or other
papers, or to furnish information neglects to
appear or to produce such books of accounts,
records, memoranda or other papers, or to
furnish such information, shall, upon
conviction, be punished by a fine of not less
than P5,000 but not more P10,000 and suffer
imprisonment of not less than one (1) year but
not more than two (2) years.
10
PENAL LIABILITIES
FDP Law
Fine of not less than P50,000 but not more than

P100,000 and imprisonment of not less than two
(2) years but not more than six (6) years:
offers any taxpayer the use of accounting
bookkeeping records for internal revenue
purposes not in conformity with the
requirements prescribed in the Tax Code;
knowingly makes any false entry or enters any
false or fictitious name in the books of accounts
or records;
Keeps two (2) or more sets of such records or
books of accounts
11
PENAL LIABILITIES
FDP Law
Fine of not less than P50,000 but not more than

P100,000 and imprisonment of not less than two (2)
years but not more than six (6) years (cont.):
Fails to keep the books of accounts or records
mentioned in Section 232 in a native language,
English or Spanish, or to make a true and complete
translation as required in Section 234 of this Code,
or whose books of accounts or records kept in a
native language, English or Spanish, and found to
be at material variance with books or records kept
by him in another language;
knowingly uses fake or falsified revenue official
receipts, Letters of Authority, certificates
authorizing registration, Tax Credit Certificates,
Tax Debit Memoranda and other accountable forms;
12

REGISTRATION OF BOOKS OF ACCOUNTS
FDP Law
Registration of Books of Accounts:

Persons required to keep books of accounts,
internal revenue books, records of receipts,
and disbursements, additional registers and
other records, for recording their transactions
as prescribed in these regulations shall, before
using any of the aforesaid books, records,
registers, first present them to the Revenue
Collection Agent where his principal place of
business is located for approval and
registration.
13

REGISTRATION OF BOOKS OF ACCOUNTS
FDP Law
Renewal of Registration of Books of Accounts:

In the case of renewal of registration of books of
accounts, the applicant-registrant shall present to
the said revenue collection agent his duly
registered books of accounts used during the
immediately preceding taxable year as a condition
precedent for the registration of his books of
accounts for the current taxable year.
If it is shown that the said books of accounts used
during the said preceding taxable has not been
duly registered or no such books of accounts have
in fact been used, registration applied for the
current books of accounts shall be effected by the
said revenue collection agent subject to payment
by the applicant-registrant of the corresponding
penalty for the said violation.
14
REVENUE REGULATIONS NO. V-1:

BOOKKEEPING REGULATIONS
FDP Law
Keeping of books of accounts reason for

requirement:
The reason for the requirement to keep books
of accounts is stated in the law (Sec. 334, Tax
Code) itself, that is, in order that all taxes due
the government may readily and accurately be
ascertained and determined any time of the
year.
15
REVENUE REGULATIONS NO. V-1:

BOOKKEEPING REGULATIONS
FDP Law
Persons Required to Keep Books of Accounts:

Persons required by law to pay internal
revenue taxes whose gross quarterly sales,
earnings, receipt, or output, whether subject
to percentage tax or not, exceed five thousand
pesos (P5,000), are required to keep books of
accounts in accordance with the standard
accounting system. The said books of accounts
shall consist of journal and a ledger, or their
equivalents, and shall contain all information
necessary for the accurate determination of
the internal revenue taxes due on their
businesses.
16

PRESERVATION OF BOOKS OF ACCOUNTS AND
OTHER ACCOUNTING RECORDS
FDP Law
General Requirements:
All books, registers, records, vouchers, and
other supporting papers and documents
prescribed by the BIR and other records kept
by taxpayers shall be preserved intact,
unaltered and unmutilated.
The books shall be kept at all times in the
place of business of the taxpayer who shall
produce them for examination or deliver them
for inspection outside of his place of business
upon demand of any internal revenue officer.
17

FDP Law
Period of Limitation Upon Assessment and

Collection:
Section 203 of the Tax Code provides that
internal revenue taxes shall be assessed
within three (3) years after the last day
prescribed by law for filing a return.
This provision implies that the records of the
taxpayer must be preserved for a period of
three (3) years from date of last entry made
thereon.
18

FDP Law
Exceptions to the Three (3)-year Limitation of

Assessment:
Section 222 of the Tax Code provides that in
the case of a false or fraudulent return with
intent to evade tax or of failure to file a return,
the tax may be assessed, or a proceeding in
court for the collection of such tax may be filed
without assessment at any time within ten
(10) years from discovery of the falsity, fraud
or omission.
19

FDP Law
Instances when the accounting records shall be

needed beyond the 3-year period of limitation:
In the case of a false or fraudulent return with
intent to evade tax or of failure to file a return
and investigation shall be made within ten
(10) years from discovery of the falsity, fraud
or omission.
If there is a pending tax case, protest or claim
for tax credit/refund of taxes and the books
and records concerned are material to the
case.
20

FDP Law
Instances when the accounting records shall be

needed beyond the 3-year period of limitation
(cont.):
In the periodic examination of the books of
accounts and other pertinent records of taxexempt organizations or grantees of tax
incentives to determine if they have been
complying with the conditions under which
they have been granted tax exemption or tax
incentives.
21

FDP Law
Retention Periods:
All taxpayers are required to preserve their
books of accounts, including subsidiary books
and 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.
Last entry refers to a particular business
transaction or an item thereof that is entered
or posted last or latest in the books of accounts
when the same was closed.
22

FDP Law
Retention Periods (cont.):

The term accounting records includes the
corresponding invoices, receipts, vouchers and
returns and other source documents
supporting the entries in the books of
accounts. They should also be preserved for a
period of ten (10) years counted from the date
of last entry in the books to which they relate.
23

FDP Law
POP QUIZ:
Company A filed a claim for refund of its
excess creditable withholding tax for the year
2001. Due to the tremendous delay in the
BIR processes, the claim for refund is still
pending evaluation as of the present.
Is Company still required to preserve its books
of accounts for the year 2001?
24

FDP Law
POP QUIZ:
Is Company still required to preserve its books
of accounts for the year 2001?
ANSWER: Yes. If the taxpayer has any
pending protest or claim for tax credit/refund
of taxes, and the books and records concerned
are material to the case, the taxpayer is still
required to preserve his/its books of accounts
and other accounting records until the case is
finally resolved.
25

FDP Law
Responsibility of Independent CPA:

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 copies
of the audited financial statements for a
period of ten (10) years from the due date of
filing the annual income tax return or the
actual date of filing thereof, whichever comes
later.
26

FUNCTIONAL CURRENCY OTHER THAN THE
PHILIPPINE PESO IN BOOKS OF ACCOUNTS
FDP Law
Functional Currency: is the currency of the

primary economic environment in which the
reporting entity operates; that is the currency of
the environment in which an entity primarily
generates and expends cash.
Foreign Currency: is a currency which is other
than the functional currency of the qualified
entity
27

FDP Law
POP QUIZ: True or False. It will never be the

case that the Philippine Peso would be
considered Foreign Currency of a domestic
corporation.
ANSWER: False. The Philippine peso or other
currencies will be considered as foreign currency
if it is not the functional currency of the qualified
entity.
28

FDP Law
The taxpayer may use the currency that qualifies as

its functional currency based on the following
guidelines:
The currency that mainly influences sales prices for
goods and services (this will often be the currency in
which sales prices for its goods and services are
denominated and settled);
The currency of the country whose competitive
forces and regulations mainly determine the sales
price of its goods and services;
(The currency that mainly influences labor,
material and other costs of providing goods or
services (this will often be the currency in which
such costs are denominated and settled);
29

FDP Law
The taxpayer may use the currency that

qualifies as its functional currency based on the
following guidelines (cont.):
The currency in which funds from financing
activities are generated;
The currency in which receipts from operating
activities are usually retained.
30

FDP Law
The corporate tax-filer electing to use as

functional currency for financial reporting
purposes a currency other than the Philippine
peso must submit to the Revenue District Office
(RDO) or Large Taxpayers District Office
(LTDO) or Large Taxpayers Service (LTS),
whichever is the BIR office that has jurisdiction
over the taxpayer, a copy of the duly received
notification sent to the SEC (as provided in SEC
Memorandum Circular 1 series of 2006) for the
use of such functional currency within 30 days
from the filing of the notification to the SEC.
31

FDP Law
Change in Functional Currency: In the case of a

corporation whose functional currency changes
from one currency to another, the taxpayer must
submit to the BIR a copy of such SEC duly
received notification to change the functional
currency (as provided in SEC Memorandum
Circular 1 series of 2006) within 30 days from
the filing of such notification with the SEC.
A taxpayer shall not be allowed to change its
functional currency in the middle of the year, or
adopt one for a period less than one year.
32

FDP Law
POP QUIZ: What are the instances when a

taxpayer may change its functional currency in
the middle of the year, or adopt one for a period
less than one year ?
33

FDP Law
POP QUIZ: What are the instances when a

taxpayer may change its functional currency in
the middle of the year, or adopt one for a period
less than one year ?
ANSWER: In certain exceptional cases like in
the case of business combinations such as
mergers or consolidations, change in functional
currency to cover a period of less than one full
year may be permitted.
34

FDP Law
Currency to be Used for Income Tax Purposes The income tax returns (ITRs) of taxpayers
which have adopted functional currency
(other than Philippine peso) in their financial
statements and books of accounts shall still be
prepared in Philippine pesos. Thus, all entries
in the ITR shall be in Philippine pesos.
For purposes of translating the functional
currency income and expenses to Philippine
Pesos, the translation shall be done on a
monthly basis using the average exchange
rate during the month (under the Philippine
Dealing System or PDS)..
35

FDP Law
Currency to be Used for Tax Returns Other than

Income Tax:
All tax returns other than the ITR shall
likewise be filed in Philippine peso currency
using historical peso amount or actual
conversion/prevailing PDS rate on transaction
day, whichever is applicable.
36

FDP Law
Submission of Audited Financial Statements:

Only the audited financial statements in the
qualified functional currency shall be
submitted to the BIR. For purposes of the
annual income tax return, the taxpayer,
however, shall submit together with the duly
audited financial statements in qualified
functional currency, a supplementary schedule
showing the quarterly amounts of functional
currency income and expenses with translation
to Philippine pesos.
37

FDP Law
Books of Accounts to be Maintained:

Taxpayers who qualified hereunder should
maintain their books in functional currency (if
other than the Philippine peso). However, said
taxpayers shall also maintain subsidiary ledgers
for transactions subject to the other taxes (i.e.
aside from income tax), which will be recorded
both in functional currency and in Philippine peso
using the historical peso amounts or actual
conversion/prevailing rate on transaction day,
whichever is applicable. Said functional currency
books/records must be registered with the BIR in
accordance with existing rules on registration of
books and may be subject to BIR audit in
connection with the audit of tax liabilities.
38

FDP Law
Treatment of Gain or Loss on Sale of Investment

Under Functional Currency:
An investor which invests in functional
currency (other than Philippine peso)
securities can compute its gain or loss from
the sale of said investment using the
functional currency.
POP QUIZ: compute the capital gain if
Company A invests in a US dollar bond at
US$100,000 when the US$:P rate was US$1:40
and sells the same investment at US$102,000
when the US$:P rate was US$1:50.
39

FDP Law
POP QUIZ: compute the capital gain if Company A invests in

a US dollar bond at US$100,000 when the US$:P rate was
US$1:40 and sells the same investment at US$102,000 when
the US$:P rate was US$1:50.
ANSWER:
USD
Pesos
Selling price
102,000 5,100,000
Cost
100,000 4,000,000
Taxable Gain 2,000
In the above illustration, the taxable gain that should be
reported is only $2,000. Thus, in reporting for tax purposes of
the $2,000 gain in equivalent or converted Philippine peso
denomination, the equivalent peso denomination is the peso
equivalent of 2,000 U.S. dollars using the conversion rate on
the date of the consummation of the transaction.
40

FDP Law
Payment of Taxes in Functional Currency:

Taxpayers filing tax returns in the Philippine
peso may pay the tax in functional currency
computed using the functional currency buying
rate of the collecting bank vis--vis the
Philippine peso at the time of payment. The
collecting bank shall, however, report to the
BIR said collection in peso as
converted/translated.
Despite the permission to pay in functional
currency, all figures in the tax returns shall
always be in peso.
41
FDP Law
REGISTRATION OF MANUAL
BOOKS OF ACCOUNTS
42

REGISTRATION OF MANUAL BOOKS OF
ACCOUNTS
FDP Law
Rules in the Registration of Manual Books of

Accounts:
Manual books of accounts previously registered
but whose pages are not yet fully exhausted
can still be used in the succeeding years
without the need of re-registering or restamping the same, provided, that the portions
pertaining to a particular year should be
properly labeled or marked by taxpayer.
The registration of a new set of manual books
of accounts shall only be at the time when the
pages of the previously registered books have
all been already exhausted.
43

ACCOUNTS
FDP Law
Rules in the Registration of Manual Books of

Accounts (cont.):
Newly Registered taxpayers shall present the
Manual Books of Accounts before use to the
RDOs where the place of business is located or
concerned office under the Large Taxpayer
Service for approval and registration.
Subsidiary manual books of accounts to be
used by taxpayers, in addition to the manual
books of accounts, required by the National
Internal Revenue Code of 1997 and existing
rules, shall likewise be registered before use.
44

ACCOUNTS
FDP Law
POP QUIZ: Should a taxpayer register a new set

of manual books of accounts each and every
year?
45

ACCOUNTS
FDP Law
POP QUIZ: Should a taxpayer register a new set

of manual books of accounts each and every
year?
ANSWER: No. The registration of a new set of
manual books of accounts shall only be at the
time when the pages of the previously registered
books have all been already exhausted. This
means that it is not necessary for a taxpayer to
register a new set of manual books of accounts
each and every year.
46
FDP Law
MAINTENANCE, RETENTION, AND

SUBMISSION OF ELECTRONIC RECORDS
47

ELECTRONIC RECORDS
FDP Law
Electronic Recordkeeping Requirements:

A taxpayer shall maintain all records that are
necessary for the determination of the correct
tax liability.
If a taxpayer retains records required to be
kept under this regulation in both electronic
and hard-copy formats, the taxpayer shall
make the records available to the Bureau of
Internal Revenue in electronic format upon
request of the Commissioner or its authorized
representative.
48

ELECTRONIC RECORDS
FDP Law
Electronic Recordkeeping Requirements

(cont.):
Taxpayers keeping electronic records must
also retain source documents. A source
document includes items such as sales
invoices, purchase invoices, cash register
receipts, formal written contracts, credit card
receipts, delivery slips, deposit slips, work
orders, dockets, cheques, bank statements,
tax returns, and could also include emails,
and other general correspondence where
relevant for tax purposes.
49

ELECTRONIC RECORDS
POP
FDP Law
QUIZ:
True or False: Source documents could also
include emails.
50

ELECTRONIC RECORDS
POP
FDP Law
QUIZ:
ANSWER: True. Source documents could also
include emails and other general
correspondence where relevant for tax
purposes.
51

ELECTRONIC RECORDS
FDP Law
Electronic Recordkeeping Requirements for Large

Taxpayers:
It is mandatory for Large Taxpayers to maintain and/or
adopt a Computerized Advancement Systems (CAS).
All books of accounts and accounting records shall be in
electronic formats.
All Large Taxpayers who are currently maintaining their
books of accounts and accounting records in manual form
are required to register their Computerized Accounting
Systems not later than December 31, 2009.
A Large Taxpayer using commercial and/or customized
software to keep books and records electronically is not
relieved of the responsibility to keep adequate electronic
records because of deficiencies in the software.
52

ELECTRONIC RECORDS
Mandatory
FDP Law
Fields:
General Ledger: Date, Reference, Brief
Description/Explanation, Account Title (Or
Account Code if Chart of Accounts Master file 1
is available), Debits
General Journal: Date, Reference, Brief
Description/Explanation, Account Title (Or
Account Code if Chart of Accounts Master file 1
is available), Debits
53

ELECTRONIC RECORDS
Mandatory
FDP Law
Fields (cont.):
Sales Journal: Date, Customers' TIN,
Customers Name (Or Customer Code if
Customer Master file 2 is available), Address
(Not necessary if Customer Master file is
available), Description, Reference/Document
No./Sales Invoice, Amount, Discount, Net Sales
Purchase Journal: Date, Customers' TIN,
Vendors' Name (Or Vendors' Code if Vendor
Master file 3 is available), Address (Not
necessary if Vendors' Master file is available),
Description, Reference/Document No./Sales
Invoice, Amount, Discount, VAT Amount
(Input tax), Net Purchases
54

ELECTRONIC RECORDS
Mandatory
FDP Law
Fields (cont.):
Inventory Book: Date, Product Name (Or
Product Code if Product Description Master file
is available), Description, Unit, Price per unit,
Amount
55

ELECTRONIC RECORDS
Electronic
FDP Law
Records Maintenance and Location

Requirements:
Information recorded on rewritable media such
as computer hard disks must be backed up on
CD-R/DVD-R, tape or other suitable medium
Records must be kept at the taxpayer's place of
business in the Philippines or another place
designated by the Commissioner of Internal
Revenue and must, upon request, be made
available to Revenue Officers of the BIR for
audit purposes during business hours.
56

ELECTRONIC RECORDS
POP
FDP Law
QUIZ: Are records kept outside the

Philippines and accessed electronically from the
Philippines considered to be records in the
Philippines?
57

ELECTRONIC RECORDS
ANSWER:
FDP Law
No. Records kept outside the

Philippines and accessed electronically from the
Philippines are NOT considered to be records in
the Philippines.
However, where 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.
58

ELECTRONIC RECORDS
POP
FDP Law
QUIZ: Are taxpayers allowed to engage the

services of a third party to provide custodial
and/or management services of the records?
59

ELECTRONIC RECORDS
POP
FDP Law
QUIZ: Are taxpayers allowed to engage the

and/or management services of the records?
ANSWER: Yes. A taxpayer may engage the
and/or management services of the records and
shall notify the BIR prior to such arrangement.
Such utilization of a third-party shall not relieve
the taxpayer of its obligations under the
regulations.
60

ELECTRONIC RECORDS
Access
FDP Law
and Submission of Electronic Records:

Access of the BIR to the electronic records will
be provided in one or more of the following
manners:
The taxpayer may arrange to provide the BIR
with the hardware, software and personnel
resources to access the electronic records.
The taxpayer may arrange for a third-party
to provide the hardware, software and
personnel resources necessary to access the
electronic records.
61

ELECTRONIC RECORDS
Access
and Submission of Electronic Records

FDP Law
(cont.):
The taxpayer may convert the electronic
records to a standard record format specified by
Revenue Regulations No. 16-2006, including
copies of files, on a magnetic medium that is
agreed to by the BIR. The original files
(unconverted format or files in its native
format) should also be submitted along with the
copies of the converted files.
The taxpayer and the BIR may agree on other
means of providing access to the electronic
records.
62

ELECTRONIC RECORDS
FDP Law
Effect on Hard-Copy Recordkeeping

Requirements:
Taxpayers are not relieved of the responsibility
to retain hard-copy records that are created or
received in the ordinary course of business as
required by existing law and regulations. Hardcopy records may be retained on a
recordkeeping medium such as microfilm.
63
FDP Law
SUBMISSION OF BOOKS OF
ACCOUNTS AND RECORDING
RECORDS DURING TAX AUDIT AND
APPLICATIONS FOR REFUND
64

SUBMISSION ELECTRONIC BOOKS OF
ACCOUNTS DURING TAX AUDIT
The electronic books of account may be examined
by BIR officials in the course of a tax audit or
investigation of the taxpayer.
At the time of examination, the retained
computerized accounting books/records of the
taxpayer must be capable of being retrieved from
the computer system and converted to a standard
format that would allow efficient examination.
Electronic documents submitted for purposes of a
tax audit or investigation shall have the legal
effect, validity or enforceability as any other
document or legal writing
FDP Law
65
REVENUE MEMORANDUM ORDER NO. 45-2010: PROCEDURES IN

DEALING WITH TAXPAYERS WHO REFUSE TO PRODUCE
REQUESTED DOCUMENTS OR RECORDS
FDP Law
First Notice: if the taxpayer disregards the Letter

of Authority (LA), and the checklist of
presentation of the requirements for the audit or
access to records request, the RO concerned shall
send a first notice to the taxpayer after 10
calendar days from receipt of the LA and
checklist of requirements/access to records
request, demanding the taxpayer to furnish to
the RO the requirements previously requested.
66

FDP Law
Second and Final Notice: If the taxpayer ignores

the first notice and continues to disregard the
demand for the submission of documents, the RO
shall issue the second and final notice after 10
calendar days from receipt of the first notice.
67

FDP Law
Subpoena Duces Tecum: If the taxpayer still

refuses after 10 calendar days from receipt of the
second and final Notice to comply with the
requirements of the said notice, the RO shall
request the issuance of SDT from the BIRs Legal
Service (National Office), Legal Division (regional
office), or any authorized office, as the case may
be.
68

FDP Law
Criminal Case: if the taxpayer refuses to comply

with the SDT, the concerned BIR legal office
shall file a criminal case against the taxpayer for
violation of Section 5 in relation to Sections 14
and 266 of the National Internal Revenue Code;
and/or initiate a proceeding to cite the taxpayer
for contempt under the Revised Rules of Court.
69
FDP Law
LOSS OR DESTRUCTION OF BOOKS

OF ACCOUNTS AND OTHER
ACCOUNTING RECORDS
70
LOSS OR DESTRUCTION OF BOOKS OF

ACCOUNTS AND OTHER ACCOUNTING RECORDS
FDP Law
Under Section 6(B) of the 1997 Tax Code, the

CIR has the authority to assess the proper tax
based on best evidence obtainable.
Assessment based on best evidence obtainable
applies when the report or records requested
from the taxpayer are not forthcoming (i.e., the
records are lost, the taxpayer refuses to submit
the records, or the reports submitted are false,
incomplete or erroneous) (Revenue
Memorandum Circular No. 23-00).
71
FDP Law
REPORTING CASUALTY LOSSES AND

INVENTORY LOSSES
72
REVENUE MEMORANDUM NO. 31-09:

REPORTING CASUALTY LOSSES
FDP Law
Complete or partial destruction of property

arising from a sudden, unexpected or unusual
event, such as a typhoon, may be considered as a
casualty loss which is deductible from gross
income [Section 34(D), Tax Code] subject to the
conditions enumerated in RMO No. 31-09.
73
REVENUE MEMORANDUM NO. 31-09:

REPORTING CASUALTY LOSSES
A sworn declaration of the loss must be filed within
45 days after the event.
Proof of the elements of the losses such as:
Photographs taken before the typhoon and after the
typhoon showing extent of the damage
Documentary evidence of valuation of the damaged
property such as cancelled checks, vouchers,
receipts
Insurance policy
Police report in case of robber/theft during or after
typhoon
The documents submitted to prove the losses shall be
kept by the taxpayer as part of the tax records
FDP Law
74
REVENUE MEMORANDUM NO. 6-12
FDP Law
Prescribes the policies and guidelines for the

physical/ocular inspection and supervision over
the destruction/disposal or verification of
casualty loss in cases wherein the goods or assets
are located outside the territorial jurisdiction of
the BIR district office where the taxpayer is
registered.
75
REVENUE MEMORANDUM NO. 6-12
FDP Law
The application for inventory or asset

disposal/destruction shall be filed with and processed
by the concerned BIR district office where the
principal place of business of the taxpayer is
registered upon complete submission of the
prescribed supporting documents and information.
Furthermore, no destruction or disposal of any
inventory, machinery or equipment shall be made
without the presence and supervision of an
authorized BIR representative. The BIR
representative shall make a report on the result of
supervision of disposal, destruction or verification of
casualty loss which shall be the basis for the
evaluation and preparation of the certificate of
deductibility of inventory or asset
destroyed/disposed/lost.
76
DEDUCTION FOR INVENTORY LOSSES
FDP Law
With respect to Inventory losses or write-off, the

BIR would normally look for a BIR Certification
of the actual destruction of the obsolete
inventories and failure to present it may lead to
disallowance of the expense.
77

In the consolidated case of CIR vs. NIDEC Copal
Philippines Corp. and NIDEC Copal Philippines
Corp. vs. CIR (CTA Case no. 6577, CTA EB Nos.
250 & 255, dated 1 October 2007), the CTA ruled
that a certification from the BIR of the actual
destruction of the claimed obsolete inventories is
not necessary in order that the cost thereof may
be written-off and claimed as deduction.
The taxpayer, however, should present
competent documentary evidence to establish
that the amount claimed as losses actually
pertained to destroyed obsolete inventories.
FDP Law
78
FDP Law
Thus, while the Certification is not required, it

would be prudent on the part of the taxpayer to
comply with the notice and witness requirement
to prove that the amount claimed as expense
actually pertains to the destroyed inventories.
79
FDP Law
Questions?
Atty. Froilyn Doyaoen-Pagayatan
FDP Law
20th Floor, Zuellig Building
Makati Avenue corner Paseo de Roxas Avenue
Makati City
fdplaw1@yahoo.com
465-9271
80

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TAX RECORDS MANAGEMENT

Atty. Froilyn P. Doyaoen-Pagayatan

RELEVANT LAWS AND REGULATIONS

RELEVANT LAWS AND REGULATIONS

Various Provisions of the Tax Code of 1997

REGISTRATION AND PRESERVATION OF

REVENUE REGULATIONS NO. 007-12:

REVENUE REGULATIONS NO. 007-12:

Documents to be submitted to complete BIR

REVENUE REGULATIONS NO. 007-12:

As a general rule, it shall be mandatory for the

CIRS SUBPOENA POWER

The CIR has the power to:

CIRS SUBPOENA POWER

Failure to obey summons:

Fine of not less than P50,000 but not more than

Fine of not less than P50,000 but not more than

REVENUE REGULATIONS NO. 11-89:

Registration of Books of Accounts:

REVENUE REGULATIONS NO. 11-89:

Renewal of Registration of Books of Accounts:

REVENUE REGULATIONS NO. V-1:

Keeping of books of accounts reason for

REVENUE REGULATIONS NO. V-1:

Persons Required to Keep Books of Accounts:

REVENUE REGULATIONS NO. 17-2013:

REVENUE REGULATIONS NO. 17-2013:

Period of Limitation Upon Assessment and

REVENUE REGULATIONS NO. 17-2013:

Exceptions to the Three (3)-year Limitation of

REVENUE REGULATIONS NO. 17-2013:

Instances when the accounting records shall be

REVENUE REGULATIONS NO. 17-2013:

Instances when the accounting records shall be

REVENUE REGULATIONS NO. 17-2013:

REVENUE REGULATIONS NO. 17-2013:

Retention Periods (cont.):

REVENUE REGULATIONS NO. 17-2013:

REVENUE REGULATIONS NO. 17-2013:

REVENUE REGULATIONS NO. 17-2013:

Responsibility of Independent CPA:

REVENUE REGULATIONS NO. 06-06:

Functional Currency: is the currency of the

REVENUE REGULATIONS NO. 06-06:

POP QUIZ: True or False. It will never be the

REVENUE REGULATIONS NO. 06-06:

The taxpayer may use the currency that qualifies as

REVENUE REGULATIONS NO. 06-06:

The taxpayer may use the currency that

REVENUE REGULATIONS NO. 06-06:

The corporate tax-filer electing to use as

REVENUE REGULATIONS NO. 06-06:

Change in Functional Currency: In the case of a

REVENUE REGULATIONS NO. 06-06:

POP QUIZ: What are the instances when a

REVENUE REGULATIONS NO. 06-06:

POP QUIZ: What are the instances when a

REVENUE REGULATIONS NO. 06-06:

REVENUE REGULATIONS NO. 06-06:

Currency to be Used for Tax Returns Other than

REVENUE REGULATIONS NO. 06-06:

Submission of Audited Financial Statements:

REVENUE REGULATIONS NO. 06-06: