September 19, 2016

REVENUE MEMORANDUM ORDER NO. 059-16

SUBJECT : Issue-Based Audit under the VAT Audit Program

TO : All Internal Revenue Officers and Others Concerned

I. Objectives
1. To increase audit coverage of VAT-registered taxpayers;
2. To introduce issue-based audit as part of the VAT Audit Program (VAP);
3. To facilitate completion and reporting of cases under the VAP; and
4. To prescribe policies for issue-based audits under VAP.
II. Coverage and Selection Criteria
This order shall cover the issue-based audit/investigation of VAT liabilities of
VAT taxpayers by the VAT Audit Section in the Assessment Division of Revenue
Regional O ces for taxable quarter(s) of 2015 and thereafter. Cases for issue-based
audit shall be selected following these criteria:
A. Mandatory Case:
1. Taxpayers with VAT returns re ecting erroneous input tax carry-over
(Selection Code: ITCO)
B. Priority Cases:
1. Taxpayers whose VAT compliance is below the established industry
benchmarks (Selection Code: BENI) CAIHTE

2. Taxpayers with zero-rated and/or exempt sales due to availment of

tax incentives or exemptions (Selection Code: ZEXI)
3. Taxpayers engaged in business where 80%, more or less, of their
transactions are on a cash basis and whose purchases of goods
and services do not generate substantial amount of input tax, such
as restaurants, remittance/payment centers, etc. (Selection Code:
CASI)
4. Taxpayers with VATable transactions which were subjected to
expanded withholding tax but with no VAT remittance (Based on BIR
Form Nos. 2550Q and 1604) (Selection Code: VTXI)
5. Taxpayers who failed to remit/declare VAT due from purchase of
services from non-resident aliens (Based on BIR Form Nos. 2550Q
and 1600) (Selection Code: NRAI)
6. Taxpayers who fail to declare gross sales/receipts subjected to
VAT withholding on purchases of goods/services with waiver of
privilege to claim input tax credit [creditable]; (Based on BIR Form
Nos. 2550Q and 1600) (Selection Code: VTWI)
7. Taxpayers whose gross sales/receipts per income tax returns are
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 greater than gross sales/receipts declared per VAT returns
(Selection Code: GSRI)
8. Taxpayers ling percentage tax returns whose gross sales/receipts
exceed the VAT threshold (Selection Code: PERI)
C. Exceptions:
The following VAT returns shall be excluded from the coverage of this Order:
1. Claims for issuance of Tax Credit Certificates/refunds; and
2. VAT returns selected for audit by the National Investigation Division
under the Enforcement and Advocacy Service and by the Regional
Investigation Division of the Revenue Regional Offices.
III. Policies and Procedures
1. Only Revenue O cers-Assessment (ROs-A) in the VAT Audit Section of the
Assessment Division shall be authorized to conduct audit/investigation of VAT returns,
whether in principal or assisting capacity.
2. The VAT Audit Section Chief shall identify VAT taxpayers for issue-based
audit in accordance with the selection criteria prescribed in this Order for approval of
the Regional Director (RD).
3. The Electronic Letter of Authority Monitoring System (eLAMS) or eTIS-
CMS, where applicable, shall be used in the request, approval and issuance of eLAs, as
well as in updating the status of the same.
4. The Assistant Commissioner-Assessment Service (ACIR-AS) may review
and evaluate the approved list, which may be retrieved from the eLAMS or eTIS-CMS, to
determine compliance with the guidelines set in selecting the VAT taxpayers for audit
and in the assignment of cases. If upon evaluation, it is found out that a violation has
been committed, the ACIR-AS thru the Deputy Commissioner-Operations Group (DCIR-
OG), may recommend to the Commissioner the cancellation of the eLA and the
institution of administrative proceedings against the erring official and/or employee. DETACa

5. One (1) eLA shall be issued for each taxable quarter or for two (2) quarters
by the RD upon recommendation of the VAT Audit Section Chief thru the Chief,
Assessment Division.
6. If an eLA has been issued under the VAP even for one (1) quarter or for
two (2) quarters only, and subsequently, the same taxpayer becomes a candidate for
regular audit in the Revenue District O ce (RDO) based on the selection criteria
prescribed in the BIR Audit Program or memorandum order issued for the purpose, the
eLA covering the same taxable year for regular audit of the RDO should not include the
VAT liability.
7. Each RO in the VAT Audit Section shall be required to conduct issue-based
audit on ten (10) out of the maximum workload of thirty (30) cases, not counting the
mandatory ITCO cases. Thus, each RO shall be assigned 10 issue-based cases based
on the selection criteria prescribed in this Order and 20 regular cases based on the
selection criteria identi ed in RMO No. 20-2012 at a given time, subject to
replenishment upon the submission of the report of investigation/closure of each case.
However, no RO shall be assigned the maximum workload of 10 issue-based and 20
regular cases if there are other ROs who have not been assigned the same number of
cases.
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 8. All pending cases covered by eLAs, including cases covered by
Memorandum of Assignment (cases for reinvestigation) as of the effectivity of this
Order shall be counted as part of the initial workload of the RO. Thus, no new case
pursuant to this Order shall be assigned to the concerned Revenue O cer until such
time that his workload shall fall below the maximum workload.
9. Before the service of the eLA, the RO assigned shall perform audit analysis
and prepare an Audit Plan (Annex "A") for each case to provide an audit trail for the
scope of the audit and to ensure that the audit activity planned, and books and records
to be examined will address the identified risks.
10. The RO shall serve, together with the electronic Letter of Authority (eLA),
the Notice for the Presentation/Submission of Documents/Records (Annex "B") with
checklist of requirements to the taxpayers. The concerned taxpayer shall be given ten
(10) days from receipt of the Notice to present/submit the required documents and
records.
If he/it does not comply with the Notice, a reminder letter (Annex "C") shall be
sent immediately after the lapse of the ten-day period before a Subpoena Duces Tecum
(SDT) can be recommended for issuance. No further extension for the
presentation/submission of documents and records shall be allowed.
11. To facilitate the reporting of VAT audit cases, ROs shall perform only the
audit procedures under Revenue Audit Memorandum Order (RAMO) No. 1-99, VAT
Audit Manual, and in other revenue issuances applicable to risks identi ed for case
selection and as a result of pre-audit analysis. Likewise, only documentary
requirements prescribed in RMO No. 53-98, as amended by RMO Nos. 16-2007, 22-
2007 and Revenue Memorandum Circular No. 29-2009 relating to big ticket items, that
are applicable and relevant to the case, shall be attached to the docket.
Nevertheless, the RO is not precluded from applying the relevant policies and
procedures of the aforementioned revenue issuances depending on the risks/areas of
assessment found.
12. Third Party Information (TPI) available in the National O ce shall be
utilized in the audit of VAT taxpayers. For expediency, the VAT Audit Section Chief need
not prepare the required Request Form. Upon receipt of the List of Selected Taxpayers
for VAT Audit with eLAs Issued from the Assessment Division, the AS shall furnish the
Audit Information Tax Exemption and Incentives Division (AITEID) with a copy of the
said list. Subsequently, the AITEID shall provide the concerned VAT Audit Section of the
Assessment Division with the preprocessed RELIEF data within ve (5) days from
receipt of the list. aDSIHc

The VAT Audit Section Chief shall submit reports prescribed under existing
revenue issuances on the results of the utilization of the preprocessed RELIEF data.
13. Revenue O cers shall nish their cases and submit reports of
investigation within sixty (60) and ninety (90) days from the date of issuance of eLAs
covering one (1) and two (2) quarters, respectively. If the RO cannot submit the report
of investigation within the prescribed audit period, he shall prepare a progress report
stating therein the reason for the delay to be noted by the VAT Audit Section Chief who
shall furnish a copy thereof to the Regional Director thru the Chief, Assessment Division
prior to the lapse of the 60 or 90-day period, as the case may be.
14. Based on the audit ndings or violations uncovered during the audit, the
VAT Audit Section Chief may recommend surveillance, closure or other enforcement
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 activity on the taxpayer.
If there are findings on VAT that may impact the income tax aspect, such findings
shall be communicated by the Chief, AD to the concerned investigating o ce. The head
of the investigating o ce is required to submit to the Chief AD a written memorandum
as to the action taken on these ndings. Thereafter, the Chief AD shall monitor the
same during the review of the case.
15. In case there are de ciency VAT liabilities as result of the audit, the
issuance of Preliminary Assessment Notice (PAN) and Final Assessment Notice (FAN)
will be in accordance with existing revenue issuances. All cases, even those with
de ciency taxes agreed to be paid by the taxpayer, should have, at the very least, duly
issued PANs.
16. Cases returned to the RO after review for compliance with certain
documentary audit requirements or for further conduct of audit to meet some
procedural requirements or for correction of the report and/or PAN shall be considered
as an addition to his existing workload upon receipt of the returned case or docket. In
case the ROs' inventory exceeded the maximum workload upon receipt of the returned
cases, the excess thereon shall not be considered as a violation of this Order. Returned
cases requiring compliance with certain review requirements shall be acted upon within
fteen (15) days from the receipt of the docket to ensure the conduct of quality audit
and that top priority action shall be given by the concerned RO on these returned cases.
17. Issue-based cases referred to the Legal Division for issuance of SDT,
issuance of legal opinion or for ling of criminal action shall be removed from the
inventory of the concerned RO for purposes of replenishment of cases. The SDT shall
be issued and served in accordance with RMO No. 10-2013, as amended by RMO No. 8-
2014.
However, once the case is returned to the RO for continuation of
audit/investigation after rendering the desired resolution/opinion on certain legal
issues or after compliance of the taxpayer with the SDT, this shall be considered as part
of his inventory or workload. If such returned cases result to an excess over the
maximum workload, this situation will not be considered a violation.
18. All reports of investigation shall be submitted by the VAT Audit Section
Chief to the Review and Evaluation Section of the Assessment Division for regular
review and appropriate recommendation by the Chief, Assessment Division prior to
approval by the Regional Director. The Regional Director shall act on these cases within
five (5) days from receipt thereof.
19. Dockets on selected paid cases may be subjected to revalida upon
instruction of the Commissioner.
20. The AS shall closely monitor the progress of eLA cases issued under the
VAP. For this purpose, the concerned o ce under the AS shall submit a monthly
summary report on the results of the VAP not later than the 10th day after the close of
each month.
IV. Reporting Requirements
a. The Chief, Assessment Division shall submit to the ACIR-AS the following
reports not later than the 10th day of each month: ETHIDa

Name of Report Annex

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 1. List of Selected Taxpayers for VAT Audit with D
eLAs Issued
2. Monthly Report on Assessment Notices Issued/ E
Protested/Cancelled
3. Monthly Report on Cases Collected F
4. Monthly Report on Disputed and Collectible G
Assessments Posted in Form 40
5. Monthly Report on eLAs Issued that were H
Cancelled/Transferred to Other Office/cannot be
Located Taxpayers/Cases with No Discrepancy
6. Monthly Report on Cases Referred to the Legal I
Division
b. The Chiefs of the Legal Division shall submit to the ACIR-AS, a monthly
status report of cases (Annex J) not later than the 10th day of the month following the
month of receipt of the docket from the VAT Audit Section thru the Chief, Assessment
Division.
c. The Chiefs of the Assessment and Legal Divisions shall furnish their
concerned Regional Director with a copy of the reports submitted to the ACIR-AS.
Upon the effectivity of this Order, the report format prescribed herein shall be
strictly observed by all Regional Assessment Divisions and Legal Divisions.
V. Violations
Any violation of this Order shall be referred by the concerned revenue o cial to
the ACIR-Internal Affairs Service (IAS), Attention: The Chief, Internal Investigation
Division (IID) for investigation or the IAS, through the IID, may initiate its own fact-
nding revalida on the violation/infraction of revenue o cials/o cers. In this regard,
the ACIR-IAS, through the DCIR-OG, may recommend to the Commissioner the relief, re-
assignment, transfer or imposition of administrative sanctions on any revenue
official/RO violating any provisions of this Order.
VI. Repealing Clause
All other issuances and/or portions thereof that are inconsistent with this Order
are hereby repealed, modified or amended accordingly.
VII. Effectivity
This order shall take effect immediately.

(SGD.) NESTOR S. VALEROSO

Deputy Commissioner, Operations Group
Officer-in-Charge

ANNEX A
General VAT Audit Plan
Taxpayer : ________________________________________________
Address : ________________________________________________
TIN : ________________________________________________
VAT period(s) : ____________________
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 Reason(s) for selection:
All applicable codes: ____________________________________________
Additional risks identified from stage I.1 below: ____________________________
___________________________________________________________________
___________________________________________________________________
Records and books required to address identified risks: ______________________
___________________________________________________________________
___________________________________________________________________
Letter of Authority No.: ________________________
Revenue Officer(s): ______________________________________________
______________________________________________________________
Group Supervisor: ______________________________________________
Estimated Time Frame: ______________ Actual Time Spent: ____________
Audit Plan submitted by: ___________________ Date: _________________
Audit Plan approved by: ___________________ Date: _________________
Audit Work Proposed Date

I. Preparation/Planning
1. Pre-audit analysis — to include:
a. review of VAT returns, SLS, SLP and
other attachments of the return as
appropriate;
b. determination of accounts/issues from
previous audit reports/working papers/
dockets;
c. determination of risk areas and issues
particular to the industry. _______________________
Identification and prioritization of high risks
2.
to
be addressed and checks/tests to be applied. _______________________
3. Preparation of Letter of Authority _______________________
4. Preparation of Checklist of Requirements _______________________
5. Preparation of questions for preliminary
taxpayer interview. _______________________

II. Audit Proper

1. Service of Letter of Authority and Checklist of
Requirements. _______________________
2. Preliminary discussion, interview with
taxpayer or authorized representative and
ocular inspection of business premises. _______________________
3. Gathering and evaluation of documents per
checklist of requirement. _______________________
4. Retrieval of certification/required documents
from offices within and outside the Bureau,
including third party data. _______________________
Conduct of field audit/examination of books
5.
of
accounts and financial statements relevant to
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 accounts and financial statements relevant to
the risks identified. _______________________
6. Determination of issues/findings and
computation of tax deficiencies. _______________________
7. Documentation of evidence to support valid
findings. _______________________

III. Reporting
1. Discussion with supervisor/Chief, VAT Audit
Section with exceptions/findings noted. _______________________
2. Initial presentation to the taxpayer of
exceptions/findings. _______________________
Evaluation of taxpayer's explanation and
3.
other
documents presented by the taxpayer. _______________________
Discussion of the result with Group
4.
Supervisor
and Chief, VAT Audit Section. _______________________
5. Re-computation of tax deficiency, if
applicable. _______________________
6. Preparation of notice for informal conference. _______________________
7. Final conference with taxpayer. _______________________
8. Preparation and submission of final report,
including preparation of Payment Form,
Preliminary Assessment Notice (PAN)/Final
Assessment Notice (FAN), whichever is
applicable. _______________________

IV. Adjustments Made

Details _________________________________________________________
Reason for changes/additions _________________________________________
Prepared by: _________________________ ______________
Date
Noted by: _________________________ ______________
Date

Date
Note: Should there be addition and deviation from the audit plan, the Revenue O cer should
discuss with his supervisor and prepare the revised audit plan as required in the
prevailing situation.

ANNEX B
Revenue Region No. ___ - _______
Assessment Division
VAT Audit Section
_________________
(Date)
Notice for the Presentation/Submission of Documents/Records
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 ________________________
________________________
________________________
Gentlemen:
This refers to Electronic Letter of Authority (eLA) No. _____________ dated ______________
authorizing Revenue O cer _______________ under Group Supervisor ___________________ to
conduct issue-based/comprehensive (underline whichever is applicable)
examination/investigation of your Value Added Tax liabilities for the period from ____________
to ______________. Please submit/present within ten (10) days from receipt hereof the
documents and records marked with a check on the boxes below.
[] 1. General ledger
[] 2. General and special journals
[] 3. Sales journal and subsidiary sales journals
[] 4. Purchase journal and subsidiary purchase journals
[] 5. Cash receipts and disbursement books
[] 6. Sales invoices and official receipts
Purchase invoices, purchase orders and delivery receipts for
[] 7.
domestic
purchases
[] 8. Purchase and expense vouchers (where input taxes are claimed)
Bank statements, bank advices, check vouchers and all cancelled
[] 9.
checks
Importation documents (e.g., Import entry declaration, bill of lading,
[] 10.
etc.),
if applicable
Supporting documents of dollar inward remittances for zero-rated
[] 11.
and
export sales, if applicable
[] 12. Approved application for zero-rating or BOI registration, if applicable
[] 13. VAT withholding tax certificates, if applicable
[] 14. Others
______________________________________
______________________________________
In case the issue-based audit will uncover other risk areas aside from the initially
identi ed risk or focus of the examination/investigation, the Revenue O cer shall request the
relevant documents/records and continue the audit under the above eLA.
Should there be additional ndings or areas of assessment after the submission of the
report of investigation from an issue-based audit, another eLA may be issued on VAT
liabilities for the same taxable period since VAT is not covered by the prohibition on
examination and inspection more than once in a taxable year under the National Internal
Revenue Code of 1997, as amended.
Please acknowledge receipt of this notice by accomplishing the form prepared
hereunder.
Very truly yours,
_____________________________
Chief, Assessment Division
(Signature Over Printed Name)
Acknowledgement Receipt

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 I acknowledge receipt of the original copy of the above letter and I promise to
present/submit the documents/records requested on or before _____________________.
_______________________ __________________________ ________________
Taxpayer/Representative Position/Designation Date Received
(Signature Over Printed Name)

ANNEX C
Revenue Region No. ___ - _______
Assessment Division
VAT Audit Section
_________________
(Date)
Reminder Before Issuance of Subpoena Duces Tecum
The President
________________________
________________________
________________________
SUBJECT: ____________________________
Sir/Madam:
Revenue O cer ______________ under Group Supervisor _____________, who is assigned
to conduct the investigation of your Value-Added Tax (VAT) liabilities pursuant to Electronic
Letter of Authority (eLA) No. _________ dated ___________ for the period __________ from
_________ to ________, has reported that you have not presented/submitted the following
documents marked with a check on the boxes below.
[] 1. General ledger
[] 2. General and special journals
[] 3. Sales journal and subsidiary sales journals
[] 4. Purchase journal and subsidiary purchase journals
[] 5. Cash receipts and disbursement books
[] 6. Sales invoices and official receipts
Purchase invoices, purchase orders and delivery receipts for
[] 7.
domestic
purchases
[] 8. Purchase and expense vouchers (where input taxes are claimed)
Bank statements, bank advices, check vouchers and all cancelled
[] 9.
checks
Importation documents (e.g., Import entry declaration, bill of lading,
[] 10.
etc.),
if applicable
Supporting documents of dollar inward remittances for zero-rated
[] 11.
and
export sales, if applicable
Approved application for zero-rating or BOI registration, if
[] 12.
applicable
[] 13. VAT withholding tax certificates, if applicable
[] 14. Others
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 _______________________________________
_______________________________________
In case of your failure to present/submit the aforementioned requirements within ve
(5) days from receipt hereof, we shall recommend the issuance of a Subpoena Duces Tecum
(SDT)
Please acknowledge receipt of this reminder letter by accomplishing the form prepared
hereunder.
Very truly yours,
__________________________
Chief, Assessment Division
(Signature Over Printed Name)
Acknowledgement Receipt
I acknowledge receipt of the original copy of the above letter and I promise to
present/submit the documents/records requested on or before _________________.
_______________________ __________________________ ________________
Taxpayer/Representative Position/Designation Date Received
(Signature Over Printed Name)

ANNEX D
List of Selected Taxpayers for VAT Audit with eLAs Issued
For the Month of __________

ANNEX E
Monthly Report on Assessment Notices Issued/Protested/Cancelled
For the Month of __________

ANNEX F
Monthly Report on Cases Collected
For the Month of _________

ANNEX G
Monthly Report on Disputed and Collectible Assessments Posted in Form 40
For the Month of __________

ANNEX H
Monthly Report on eLAs Issued that were Cancelled/Transferred to Other
Office/cannot be Located Taxpayers/Cases with No Discrepancy
For the Month of ____________

ANNEX I
Monthly Report of Cases Referred to the Legal Division
For the Month of _________
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 ANNEX J
Monthly Report on Cases Received from VAT Audit Section
For the Month of __________

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