Comments on the Legality of the Implementation of Revenue Regulations No. 6-90 and the Proposed Amendments Thereto

July 16, 1996 BIR RULING [DA-244-96] MEMORANDUM FOR : DCIR Beethoven L. Rualo FROM : ACIR Alicia P. Clemeno Legal Service SUBJECT : Comments on the Legality of the Implementation of Revenue Regulations No. 6-90 and the Proposed Amendments Thereto I. On the validity of RR 6-90 Section 16(h), which was originally added to the Tax Code by Executive Order No. 273 dated July 25, 1987 states that the Commissioner has the authority to prescribed additional procedural or documentary requirements in connection with the submission or preparation of financial statements accompanying the tax returns in relation to this. Title IX of the Tax Code specifically provides for the compliance requirements in the keeping of books of accounts and records, together with the administrative provisions related thereto and the authority of the Secretary of Finance to promulgate all needful rules and regulations for the effective enforcement of the provisions of the Tax Code. In this connection Revenue Regulations No. 6-90 was issued by the Secretary of Finance on June 29, 1990 prescribing the submission of engagement letters for financial audit by independent CPA's for internal revenue tax purposes to effectively implement the provision of Section 16(h) in relation to Sec. 232, both of the Tax Code as amended. The said submission to the Bureau of CPA engagement letters with taxpayer clients, in effect, are the additional documentary requirements which the Commissioner prescribes, in this instant case, regarding the submission or preparation of Financial statement accompanying tax returns. Thus, making the provisions of the questioned Regulations valid despite the fact that the Tax Code made no categorical statement of this requirement under Section 16(h). On the alleged violation of Section 24 of PD 692, otherwise known as "The Revised Accountancy Law". It is very clear that Section 24 of "The Revised Accountancy Law" refers to the ownership by a CPA of the Working papers, schedules and memoranda made by him and his staff in the course of an examination including those prepared and submitted by the client incident to or in the course of an examination , and the prohibition to SELL, TRANSFER, BEQUEATH or DISPOSE OF the said working papers in any manner without the consent of the client, his heir, or his personal representative. Section 4 of RR 6-90, on the other hand, merely refers to the requirement to prove the existence of the said working papers relative to a particular taxpayer-client to confirm the fact that the books of accounts and other accounting records were actually audited by the CPA . It does NOT in any way refer to the TRANSFER OF OWNERSHIP of the said working papers in any manner from the CPA to the BIR or to anybody, as contemplated under Section 24 of PD 692, otherwise known as the "Revised Accountancy Law." Neither does the said Section 4 of RR 6-90 violates the statement of Auditing Standards No. 14, which states among other that " (T)hese financial statements are the responsibility of the company's management." There's no denying the fact that the said financial statements are indeed the responsibility of the company's management and that is precisely the reason why the Commissioner or his duly authorized representative may require the submission of the said working papers to confirm that the same were actually audited by the CPA and to be able to establish the right amount of tax payable/refundable by a taxpayer. In view of all the foregoing, this Office is of the opinion that the Regulations embodied under RR 6-90 and its proposed amendment are valid and that the same can be legally implemented. A reformat, however, of the proposed amendment to RR 6-90 in the same old form as the ones drafted by the Law Division is suggested. cdt ALICIA P. CLEMENO Assistant Commissioner (Legal Service)