Too Hot to Handle: Burning Issues on Tax Assessments R.G. Manabat & Co. 11 July 2015 Golden Mile Business Park Carmona, Cavite

I. Tax Audit and Investigations A. Power of the Commissioner to Examine Returns and Determine Tax Due

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 1. Section 6 (A) of the Tax Code After a return has been filed, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax. However, failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. 2 Too Hot to Handle: Burning Issues on Tax Assessments

I. Tax Audit and Investigations B. Limitations

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 1. Statute of Limitations/Prescription (Sections 203 and 222 of the Tax Code) Three (3) years after the last day prescribed by law for the filing of the return. In cases where a return is filed beyond the period prescribed by law, the 3-year period shall be counted from the day the return was filed. Ten (10) years in case of a false or fraudulent return with intent to evade tax or failure to file a return, counted from the discovery of the falsity, fraud, or omission. Any internal revenue tax which is assessed within the period of limitation may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax. 4 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 2. Waiver of the Statute of Limitations/Defense of Prescription (Section 222 of the Tax Code) Internal revenue taxes may be assessed or collected after the ordinary prescriptive period, if before its expiration, both the Commissioner and the taxpayer have agreed in writing to its assessment and/or collection after said period. The period agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. This written agreement between the Commissioner and the taxpayer is called the Waiver of the Statute of Limitations. 5 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 2. Waiver of the Statute of Limitations/Defense of Prescription (Section 222 of the Tax Code) (cont.) Revenue officials authorized to sign and accept the waiver (Revenue Delegation Authority Order No ) 6 Too Hot to Handle: Burning Issues on Tax Assessments A. For National Office cases 1.Assistant Commissioner (ACIR), Enforcement Service For tax fraud and policy cases 2.ACIR, Large Taxpayers ServiceFor large taxpayers cases other than those cases falling under the Large Taxpayers District Office (LTDO) 3.ACIR, Legal ServiceFor cases pending verification and awaiting resolution of certain legal issues prior to prescription and for issuance/compliance of Subpoena Duces Tecum 4.ACIR, Assessment Service (AS)For cases which are pending in or subject to review or approval by ACIR, AS 5.ACIR, Collection ServiceFor cases pending action in the Collection Service

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 2. Waiver of the Statute of Limitations/Defense of Prescription (Section 222 of the Tax Code) (cont.) The assistant heads of the concerned offices are also authorized to sign the same under meritorious circumstances in the absence of the abovementioned officials. 7 Too Hot to Handle: Burning Issues on Tax Assessments B. For cases in the Large Taxpayers District Office (LTDO) Chief of the LTDOFor cases pending investigation/action in his possession C. For Regional cases 1.Revenue District OfficerFor cases pending investigation/ verification/reinvestigation in the Revenue District Offices 2.Regional DirectorFor cases pending in the Divisions in the Regional Office, including cases pending approval by the Regional Director

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 3. Instances that can toll the running of the statute of limitations (Section 223 of the Tax Code) 1.When the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter; 2.When the taxpayer requests for a reinvestigation which is granted by the Commissioner; 3.When the taxpayer cannot be located in the address given by him in the return unless the taxpayer informs the Commissioner of any change in address; 4.When the warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; or 5.When the taxpayer is out of the Philippines. 8 Too Hot to Handle: Burning Issues on Tax Assessments

I. Tax Audit and Investigations C. Letter Notice

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 1. Revenue Memorandum Order (RMO) No This RMO provides the revised guidelines and procedures in handling Letter Notices (LN) generated through the following Third-Party Information (TPI) Data Matching programs: −Reconciliation of Listing for Enforcement System – Summary List of Sales and Purchases (RELIEF); −Bureau of Customs Data Program (BOC); and −Tax Reconciliation System (TRS). This RMO covers income, value-added and/or percentage tax liabilities of individual and corporate taxpayers who are issued LNs based on the above TPI data matching programs. 10 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 1. Revenue Memorandum Order (RMO) No (cont.) Taxpayers with discrepancy on their income, sales and/or purchases (domestic or imported) shall be notified of such findings through the issuance of an LN. If there is an on-going audit/investigation pursuant to an electronic Letter of Authority (eLA) prior to LN assignment, the Revenue Officer (RO) handling the eLA shall also be assigned the LN. The said LN shall not be considered closed but shall be consolidated with the eLA. If an eLA is terminated before an LN is issued, the investigating office shall ascertain whether the discrepancies reflected in the LN are in the report of investigation. If discrepancies are not included, the RO shall pursue action on the LN. If the discrepancies are considered, 11 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 1. Revenue Memorandum Order (RMO) No (cont.) 12 Too Hot to Handle: Burning Issues on Tax Assessments the RO shall recommend the cancellation of the LN. The taxpayer shall be entitled to abatement of surcharge, interest and compromise penalty provided he pays the basic deficiency taxes within thirty (30) days from receipt of the LN. Payment beyond the 3-day period shall be assessed with the corresponding surcharge, interest and compromise penalty. In both cases, an “Agreement Form” shall be executed by the taxpayer indicating the amount and date when the deficiency taxes shall be paid.

I. Tax Audit and Investigations D. Due Process Requirement

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 1. Issuance of a Preliminary Assessment Notice (PAN) Revenue Regulations (RR) No amends certain sections of RR No on the due process requirement in the issuance of a deficiency tax assessment. Section 3 of RR No is amended by deleting Section which provides for the preparation of a Notice of Informal Conference (InfoCon). Thus, the first step in the issuance of a deficiency tax assessment is the issuance of a PAN, which dispenses the requirement of issuance of a Notice of InfoCon. 14 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 1. Issuance of a Preliminary Assessment Notice (PAN) (cont.) If after review and evaluation by the Commissioner or his duly authorized representative, it is determined that there exists sufficient basis to assess the taxpayer for deficiency taxes, the said Office shall issue to the taxpayer a Preliminary Assessment Notice (PAN) for the proposed assessment. It shall show in detail the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based. Prior to the issuance of the PAN, the taxpayer may be allowed to make voluntary payments of probable deficiency taxes and penalties (Revenue Memorandum Circular No ). 15 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 2. Definition of the term “duly authorized representative” (Revenue Memorandum Circular No ) The term “duly authorized representative” refers to: (1) Revenue Regional Directors, (2) Assistant Commissioner – Large Taxpayers Service, and (3) Assistant Commissioner – Enforcement and Advocacy Service. Accordingly, under RMC No , taxpayers shall file their responses to the PAN and protests to the Formal Letter of Demand/Final Assessment Notice (FLD/FAN) with the duly authorized representative of the Commissioner who signed the PAN and FLD/FAN. Protests in the nature of requests for reconsideration elevated to the Commissioner arising from inactions or adverse decisions of the “duly authorized representatives” shall be filed with the Office of the Commissioner. 16 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 3. Cases where PAN is not required and an FLD/FAN shall be issued outright (Section 228 of the Tax Code) 1.When the finding for any deficiency tax is the result of mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer; 2.When a discrepancy is determined between the tax withheld and the amount actually remitted by the withholding agent; 3.When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; 17 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 3. Cases where PAN is not required and an FLD/FAN shall be issued outright (Section 228 of the Tax Code) (cont.) 4.When the excise tax due on excisable articles has not been paid; 5.When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons. 18 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 4. Responding to the Preliminary Assessment Notice (PAN) Once the PAN is received, the taxpayer shall be required to respond to the said PAN. If the taxpayer fails to respond within fifteen (15) days from receipt of the PAN, he shall be considered in default, in which case, a Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued calling for payment of deficiency tax liabilities and penalties. 19 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 5. Issuance of a Formal Letter of Demand/Final Assessment Notice (FLD/FAN) The FLD/FAN calling for payment of deficiency tax liabilities shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based; otherwise, the assessment shall be void. An FLD/FAN issued reiterating the immediate payment of deficiency taxes and penalties made in the PAN is a denial of the response to the PAN. A final demand letter for payment of delinquent taxes may be considered a decision on a disputed assessment. This includes a disputed PAN. So long as the parties are given the opportunity to explain their side, the requirements of due process are satisfactorily complied with (Revenue Memorandum Circular No ). 20 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 6. Protesting a Formal Letter of Demand/Final Assessment Notice (FLD/FAN) The taxpayer or his authorized representative or tax agent may protest administratively against the FLD/FAN within thirty (30) days from receipt of the FLD/FAN. The taxpayer may file a written request for reconsideration or reinvestigation. −Request for reconsideration – refers to a plea of re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both. −Request for reinvestigation – refers to a plea of re-evaluation of an assessment on the basis of newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve both a question of fact or of law or both. 21 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 6. Protesting a Formal Letter of Demand/Final Assessment Notice (FLD/FAN) (cont.) For requests for reinvestigation, the taxpayer shall submit all relevant supporting documents in support of his protest within sixty (60) days from filing of protest; otherwise, the assessment shall become final. −“Relevant supporting documents” – documents necessary to support the legal and factual bases in disputing a tax assessment as determined by the taxpayer. 22 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 6. Protesting a Formal Letter of Demand/Final Assessment Notice (FLD/FAN) (cont.) −“The assessment shall become final” – means that the failure of the taxpayer who requested for a reinvestigation to submit all relevant supporting documents within the 60- day period shall render the FLD/FAN “final” by operation of law. He shall be barred from disputing the correctness of the FLD/FAN by the introduction of newly discovered or additional evidence because he is deemed to have lost his chance to present these evidence. The BIR shall then deny the request for reinvestigation through the issuance of a Final Decision on a Disputed Assessment (FDDA) (Revenue Memorandum Circular No ). 23 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 6. Protesting a Formal Letter of Demand/Final Assessment Notice (FLD/FAN) (cont.) If the taxpayer fails to file a valid protest within thirty (30) days from receipt of the FLD/FAN, the assessment shall become final, executory and demandable. No request for reconsideration or reinvestigation shall be granted on tax assessments that have already become final, executory and demandable. 24 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 7. Void protest to Formal Letter of Demand/Final Assessment Notice (FLD/FAN) The taxpayer shall state in his protest: 1.The nature of protest (whether reconsideration or reinvestigation) specifying newly discovered or additional evidence he intends to present if it is a request for reinvestigation; 2.Date of the assessment notice; and 3.The applicable law, rules and regulations, or jurisprudence on which the protest is based; otherwise, his protest shall be considered void and without force and effect. 25 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 8. Issuance of a collection letter A collection letter shall be issued to the taxpayer calling for payment of deficiency taxes and penalties: 1.If there are several issues but the taxpayer only protests against the validity of some of the issues, the assessment attributable to the undisputed issue/s shall become final, executory and demandable. 2.If there are several issues and the taxpayer fails to state the facts, the applicable law, rules and regulations, or jurisprudence in support of his protest against some of the issues, the same shall be considered undisputed issue/s, in which case, the assessment attributable to the undisputed issue/s shall become final, executory and demandable. 26 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 9. Remedies of the taxpayer in case of denial / inaction on the protest by the Commissioner’s duly authorized representative 27 Too Hot to Handle: Burning Issues on Tax Assessments Denial of the protestInaction on the protest 1.Appeal to the Court of Tax Appeals (CTA) within thirty (30) days from receipt of the decision; or 2.Elevate the protest through request for reconsideration to the Commissioner within thirty (30) days from receipt of the decision. No request for reinvestigation shall be allowed in administrative appeal and only issues raised in the decision of the Commissioner’s duly authorized representative shall be entertained by the Commissioner. 1.Appeal to the CTA within thirty (30) days after the expiration of the 180- day period counted from the filing of the protest in case of a request for reconsideration; or from submission by the taxpayer of the required documents within sixty (60) days from the filing of the protest in case of a request for reinvestigation; or 2.Await the final decision of the Commissioner’s duly authorized representative.

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved Remedies of the taxpayer in case of denial / inaction on the protest or administrative appeal by the Commissioner The remedies in case of inaction on the protest or administrative appeal are mutually exclusive and resort to one bars the application of the other. 28 Too Hot to Handle: Burning Issues on Tax Assessments Denial of the protest or administrative appeal Inaction on the protest or administrative appeal Appeal to the CTA within thirty (30) days from receipt of the decision. A motion for reconsideration of the Commissioner’s denial of the protest or administrative appeal shall not toll the 30-day period to appeal to the CTA. 1.Appeal to the CTA within thirty (30) days after the expiration of the 180- day period counted from the filing of the protest; or 2.Await the final decision of the Commissioner and appeal such final decision to the CTA within thirty (30) days from receipt of the decision.

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved Issuance of a Final Decision on a Disputed Assessment (FDDA) The decision of the Commissioner or his duly authorized representative shall state: 1.The facts, the applicable law, rules and regulations, or jurisprudence on which such decision is based, otherwise, the decision shall be void; and 2.That the same is his final decision. 29 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved Requirements for making an appeal Payment of filing fee −The schedule of filing fees is provided for in Resolution No. A.M. No SC. Independent Certified Public Accountant certification −A taxpayer desiring to present voluminous documents in evidence before the Court of Tax Appeals may secure the services of an independent Certified Public Accountant at its own expense. 30 Too Hot to Handle: Burning Issues on Tax Assessments

I. Tax Audit and Investigations E. Computing for Tax and/or Applicable Surcharge

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 1. Late filing and late payment of the tax Illustration: Income tax return for the calendar year 1998 was due for filing on April 15, 1999 but the taxpayer voluntarily filed his tax return, without notice from the BIR, only on June 30, The tax due per return amounts to P100, In this case, the taxpayer shall be liable for delinquency penalties consisting of: (a) 25% surcharge plus (b) 20% interest per annum, computed from due date of the tax until date of payment, computed as follows: 32 Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 1. Late filing and late payment of the tax (cont.) Only one 25% surcharge shall be imposed for late filing of the return and late payment of the tax. 33 Too Hot to Handle: Burning Issues on Tax Assessments Calendar Year 1998 Income tax due per returnP100, Add: 25% surcharge for late filing and late payment (P100, x 25%)P25, % interest per annum from April 15, 1999 to June 30, 1999 (P100, x )P4,155.24P29, Total amount due (excluding suggested compromise for late filing and late payment of the tax)P129,155.24

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 2. Penalty or penalties for deficiency tax As a rule, no surcharge is imposed on deficiency tax and on the basic tax. However, if the amount due, inclusive of penalties, is not paid on or before the due date stated on the demand letter, the corresponding surcharge shall be imposed. Illustration No. 1: Taxpayer filed on time his income tax return for calendar year 1997 and paid P100, on April 15, Upon pre- audit of his return, it was disclosed that he erroneously computed the tax due. The correct amount of tax due is P120, The taxpayer is assessed for deficiency income tax in a letter of demand and assessment notice issued on June 30, Too Hot to Handle: Burning Issues on Tax Assessments

© 2015 R.G. Manabat Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.. 2. Penalty or penalties for deficiency tax (cont.) 35 Too Hot to Handle: Burning Issues on Tax Assessments Calendar Year 1997 Tax due per pre-auditP120, Less: Amount assessed and paid per tax return filedP100, Deficiency income taxP20, Add: 20% interest per annum from April 15, 1998 to June 30, 1999 (P20, x )P4, Amount still due (excluding suggested compromise penalties) P24,831.05

© 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. KPMG Contacts FOR INTERNAL USE ONLY 36 Allan Q. Uy Manager Tax KPMG in the Philippines R.G. Manabat & Co. The KPMG Center, 9/F 6787 Ayala Avenue Makati City 1226, Philippines Telephone ext Zsa-Christy F. Maniquis Supervisor Tax KPMG in the Philippines R.G. Manabat & Co. The KPMG Center, 9/F 6787 Ayala Avenue Makati City 1226, Philippines Telephone ext

Thank you! © 2015 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.