VAT audit program for Large Taxpayers

The BIR prescribed the following policies and guidelines on the audit/investigation of VAT returns of large taxpayers.

Coverage

For purposes of the audit and investigation of VAT returns of taxpayers under jurisdiction of the Large Taxpayers Service (LTS), such taxpayers shall be classified into two categories, as follows:

1. High-risk taxpayers - These include large taxpayers with characteristics or risk factors resulting in underreporting or non-remittance of VAT collections. This group includes the following taxpayers:

a. Taxpayers with significant increase in exempt or zero-rated sales

b. Taxpayers with VAT returns that reflect substantial input taxes and those with a history of declaring excess input tax carry overc. Taxpayers with history of declaring excess input tax carry over

2. Medium-risk taxpayers - These are large taxpayers with business issues, complex structures, or those applying for changes in tax status or business registration. This group includes:

a. taxpayers with complex corporate structures, including mergers/consolidations/split-up or down/spin-offs and other types of corporate reorganizations

b. taxpayers with application for cessation/retirement of business

c. taxpayers with multiple branches/outlets all over the Philippines but reported low sales

d. taxpayers with sale or transfer of business

e. taxpayers with multiple lines of business with different basis for computation of VAT liabilities

Audit policies and procedures

A VAT Audit Team composed of two VAT audit Team Heads and five audit groups shall be created to investigate the VAT returns of LTS and prepare the list of taxpayers that will be recommended for audit based on the VAT audit selection criteria for large taxpayers.

The VAT audit team shall recommend the issuance of one Letter of Authority (LA) by the BIR for each taxable quarter or semester. In case an electronic LA (eLA) has already been issued under the VAT audit program and the taxpayer becomes concerned division based on the selection criteria under the annual audit program, the request for eLA shall not include the VAT liability of the taxpayer.

On the other hand, if the taxpayer has already been issued an eLA for all internal revenue taxes for a particular period and significant findings on VAT were uncovered, the findings should be communicated to the VAT Audit Team for possible risk identification in the current period under audit.

In the audit of VAT returns, the basic audit procedures prescribed in Revenue Audit Memorandum Order (RAMO) 1-99 shall be observed. Assignment of cases shall be done by the VAT Audit Team Heads for their respective groups/members in accordance with existing regulations, with the initial workload of each revenue officer (RO) under the program at 20 cases subject to replenishment after every submission of report/s of investigation of closed case/s. The issuance of a Preliminary Assessment Notice (PAN) and Final Assessment Notice (FAN) for deficiency VAT liability as a result of the audit shall be in accordance with existing rules and regulations/issuances.

The group supervisors of VAT Audit Teams shall submit Monthly Report of All Cases Acted Upon and Pending Cases to their VAT Audit Team Heads, who will submit Consolidated Monthly Reports to the Associate Commissioner of Internal Revenue (ACIR), LTS. The ACIR-LTS, in turn, shall submit to the Management Committee a quarterly report on the results of audit with the appropriate recommended action/s.

(Revenue Memorandum Order No. 19-2012, August 31, 2012)

Tax Brief – September 2012

Punongbayan and Araullo