Creation of the Special Operations Service and Statement of Its Functions Including the Divisions Under It Down to Section Level

January 21, 1988 REVENUE ADMINISTRATIVE ORDER NO. 05-88 SUBJECT : Creation of the Special Operations Service and Statement of Its Functions Including the Divisions Under It Down to Section Level TO : All Internal Revenue Officers and Others Concerned I. Objective : This Order aims to state the composition of the Special Operations Service and to define its functions in accordance with the Bureau's reorganization as embodied in Executive Order 127. It further intends to formally re-name the "Sector Operations Office" to "Special Operations Service", and convert its eight (8) Divisions to sections, these to be under the Industry Audit Division and to transform the Sector Audit Review Division to a Unit under the Special Operations Service. Moreover, this Order incorporates the functions of the Policy Division of the Management and Policy Service specifically its International Tax Policy Section with the International Tax Affairs Division of the Special Operations Service. II. Organization : There shall be one (1) Unit, and four (4) Divisions under this Service, namely: A. Audit Review Unit B. Industry Audit Division C. Banks, Financing, Insurance & Transfer Tax Division D. International Tax Affairs Division E. Value-Added Tax Division III. Functions : The Special Operations Service shall have the following functions: 1. Perform staff, advisory and consultative functions relating to audit systems along the lines of industry approach to investigations of manufacturing, agricultural products and natural resources, real estate and transfer taxes, construction and other services, franchise and transportation services, government and tax-exempt corporations, investment incentives, banks, non-bank financial institutions, insurance, and in the implementation of value-added tax system; 2. Develop, formulate and recommend policies, work programs, procedures and guidelines relating to the assessment, investigation and collection of taxes from non-resident citizens, non-resident aliens and foreign corporations and those relating to the implementation of ratified tax treaties; 3. Recommend tax legislations and regulations in the light of its operations and experiences which shall serve as inputs to tax planning and research efforts; 4. Develop policies and work programs and set up standards, guidelines and procedures relative to the implementation of the value-added tax system and activities pertinent to the processing and control of indirect tax refund/credit; 5. Direct and supervise its divisions in the investigation of taxpayers with respect to industries identified to be covered by the Industry Audit Division, Banks, Financing, Insurance & Transfer Tax Division, International Tax Affairs Division, and the Value-Added Tax Division; 6. Develop a computerized audit data bank to be used as a vital reference by the office in the performance of its functions; 7. Establish an industry profile as well as standards to serve as bases for a more effective audit selection criteria; and 8. Perform such other related functions as may be assigned to it. cdt A. Audit Review Unit (directly under the Special Operations Service) 1) Develop, formulate and recommend policies, work programs, procedures and guidelines relating to the audit review of cases emanating from the Industry Audit Division, International Tax Affairs Division, Banks, Financing, Insurance & Transfer Tax Division and those referred by the Commissioner; 2) Review and evaluate reports of investigation originating from said divisions for adherence to applicable statutes, standards, guidelines and procedures; 3) Prepare the corresponding Transcript of Assessment (as prescribed by RMO 27-85) to be used as basis for the preparation of demand letter and/or assessment notice; 4) Undertake continuing analysis of existing assessment programs, procedures and guidelines adopted by the divisions under the Special Operations Service and recommend improvements thereon; B. Industry Audit Division 1) Develop, formulate and recommend policies, audit guidelines, techniques, procedures and work programs for determining the correct internal revenue tax liabilities due from: a) enterprises engaged in various industries such as manufacturing, agriculture and natural resources, real estate, construction, utilities and transportation services; and b) enterprises, whether private or government in various lines of industries availing of tax exemptions and other investment incentives. 2) Conduct investigation and field audit of tax returns of selected taxpayers from various lines of industries; 3) Administer and supervise all activities relating to the audit system of selected firms and businesses engaged in various lines of industries; 4) Gather, collate and analyze statistical data on taxpayers and develop an audit data bank to be used as a vital reference by the division in the performance of its functions; acd 5) Perform such other related functions as may be assigned to it. B-1 Section I Manufacturing a) Develop, formulate and recommend policies and work programs and set standards, guidelines and procedures and techniques relating to the audit of taxpayers engaged in the manufacture of: 1) food products 2) plastic, rubber and rubber products 3) chemical, petroleum and coal products 4) beverages, tobacco, wood and wood products 5) paper and paper products (printing and publishing) 6) basic metal industry products 7) textile garments and leather products 8) non-metallic mineral products (except petroleum and coal products) 9) miscellaneous manufacturing products like jewelry, silverware, pianos, musical organs, string instruments, percussion instruments, sporting and athletic goods, toys, umbrellas, badges, etc. b) Conduct investigation and field audit of selected tax returns of said taxpayers; and c) Perform such other related functions as may be assigned to it. B-2 Section II Agriculture and Natural Resources a) Develop, formulate and recommend policies, guidelines, procedures and techniques relating to the audit of taxpayers in agriculture and those engaged in the development of natural resources; acd b) Administer and supervise all activities relating to the audit of selected firms and businesses dealing in agriculture, such as sugar centrals, pineapple and banana plantations and feed mills; in fishing; in forestry, such as forest concessionaires and log producers, integrated operations of sawmills and veneer and plywood manufacturers; and in mining, such as exploration and drilling aspects of the oil/petroleum companies; and c) Perform such other related functions as may be assigned to it. B-3 Section III Real Estate a) Develop, formulate and recommend policies, work programs and set up standards, guidelines, procedures and techniques relating to the investigation of taxpayers engaged in the business of real estate and subdivisions; b) Administer and supervise all activities relating to the audit of selected firms and businesses dealing in real estate and subdivisions; c) Perform such other related functions as may be assigned to it. B-4 Section IV Construction and Other Services a) Develop, formulate and recommend policies, work programs and set up standards, guidelines and procedures relating to the investigation of taxpayers engaged in business such as public and private housing builders, road and bridge builders and builders of office, hotel and industrial structures and other contractors and sub-contractors such as plumbing, electricity, iron works and other types of construction which are selected for audit and investigation; b) Administer and supervise all activities relating to the assessment and investigation of selected firms and businesses dealing with technical services like engineering, architecture, advertising, hotel, motel, restaurant, catering and other related services; cd i c) Conduct conferences with taxpayers and/or representatives to thresh out divergent views on issues involved; and d) Perform such other related functions as may be assigned to it. B-5 Section V Franchise Utilities and Transportation Services a) Develop, formulate and recommend policies, work programs and set up standards, guidelines, procedures relating to the audit system of investigation of taxpayers who are legislative franchise grantees and those engaged in transport services; b) Administer and supervise all activities relating to the investigation of selected firms and businesses dealing with transport services such as railway transport, road passenger transport, water transport, air transport, services allied to transport like storage and warehousing and franchise grantees engaged in electricity, gas and steam, waterworks and supply, and communications; and c) Perform such other related functions as may be assigned to it. B-6 Section VI Government and Tax-Exempt Corporations a) Develop policies and work programs and set up standards, guidelines and procedures relating to the audit of government and tax-exempt corporations, such as: 1) membership clubs, Chamber of Commerce and business leagues 2) cooperatives, cottage industries and exempt banks 3) foundations, religious and charitable organizations b) Investigate, process and recommend action on: 1) applications for tax exemption under Section 27 of the NIRC 2) applications for approval of retirement benefit place under RA 4917, as implemented by Rev. Reg. 1-68 and 1-83 3) applications for registration of donee institution under BP 45 as implemented by BIR-NEDA Reg. 1-81 and 1-82 and RR 10-82; and aisa dc c) Perform such other related functions as may be assigned to it. B-7 Section VII - Investment Incentives a) Develop policies and work programs and set up standards, guidelines and procedures on audit of taxpayers who are granted investment incentives; b) Process and verify applications for grant of incentives, exemptions and tax credits of taxpayers applying for registration or are registered with the Board of Investments (BOI); c) Maintain a continuing and effective liaison work with the Board of Investments and other related government agencies; and d) Perform such other related functions as may be assigned to it . cd B-8 Data Analysis Section a) Gather, collate and analyze statistical data on taxpayers investigated by the Industry Audit Division; b) Establish and maintain an information system by industry showing the tax profile of taxpayers; c) Analyze assessments on reported tax cases and determine improvements needed in existing assessment policies, programs, audit procedures and standards; d) Evaluate the performance on assessment and collection through enforcement activities of the fieldmen of the different sections of the division; and e) Perform such other related functions as may be assigned to it. C. Banks, Financing, Insurance & Transfer Tax Division 1) Develop, formulate and recommend policies, work programs, procedures and guidelines relating to the investigation and assessment of banks and non-bank financial institutions as well as those arising from the transfer of properties by donation or upon death of a decedent; 2) Administer and supervise all activities relating to the investigation and assessment of banks and non-bank financial institutions as well as transfer tax cases; 3) Undertake field audit and examination of tax returns and books of accounts, including subsidiary books of accounts and other accounting records of above taxpayers on the basis of selective audit and examination cycles designed to cover their taxable activities over a period of years; 4) Gather data internally (within the Bureau) and externally (from other government offices, agencies and private sources) for purposes of developing banks' industry profile, statistics and audit data bank; and 5) Perform such other related functions as may be assigned to it. There shall be four (4) examination groups/sections under the Banks, Financing, Insurance and Transfer Tax Division. C-1 to C-3 Three of the investigating sections shall have the following functions : a) Conduct field audit of: 1) banking institutions such as deposit money banks, thrift banks and other related banking firms; 2) non-bank financing intermediaries such as Investment Company, Financial Company, Investment House, Securities Dealers/Brokers, Fund Managers, Mutual Building and Loan Association, Non-stock Savings and Loan Association; Pawnshop; Life and Non-Life Insurance Companies; b) Investigate books of accounts of said businesses including subsidiary books and other accounting records; c) Conduct spot-checking, surveillance, etc. whenever necessary, in order to arrive at the correct assessment of tax cases; d) Gather data internally (within the Bureau and externally (from other government offices, agencies and private sources) for purposes of developing the profile of the banks, financing and insurance industry and establish an audit data bank for selective audit criteria purposes; and e) Perform such other related functions as may be assigned to it. C-4 The fourth investigating section, the Transfer Tax Section shall have the following functions : a) Develop, formulate and recommend policies, work programs and set up standards, guidelines, procedures and techniques relating to the audit of tax liabilities arising from the transfer of properties by donation or upon death of a decedent which are selected for audit and investigation; b) Conduct spot-checking, surveillance, whenever necessary, in order to arrive at the correct assessment of transfer tax cases; c) Gather data and information relative the estate of deceased persons and the donations made by donors; d) Perform such other related functions as may be assigned to it. D. International Tax Affairs Division 1) Develop, formulate and recommend policies, work programs, procedures and guidelines relating to the assessment, investigation and collection of taxes from non-resident and foreign corporations, deriving income within the Philippines and from revenue extension services; 2) Audit tax liabilities of the following: a) Overseas contractors in accordance with guidelines and criteria prescribed by the Commissioner; b) Taxpayers claiming refunds/exemptions arising from the application of tax treaty provisions; c) Non-resident citizens whose income are derived from within and without the Philippines and non-resident aliens receiving income from sources within the Philippines; and d) International carriers and their agents. 3) Gather data internally (within the Bureau) and externally (from other government agencies, offices and private sources) for purposes of developing the industry profile of non-resident and foreign corporations deriving income within the Philippines and to establish an audit data bank to be used as a vital reference by the division and performance of its functions; casia 4) Implement rules and regulations for the effective enforcement of Philippine tax laws relative to the ratified tax treaties as they affect the aforementioned taxpayers; 5) Receive and process all tax returns coming from the various revenue posts abroad; 6) Issue certificates of clearance relative to tax cases of non-resident citizens and non-resident aliens pertaining to transfer of properties and shares of stocks located in the Philippines subject to estate/gift taxes; 7) Act on referrals regarding the implementation of the tax treaty provisions pursuant to the exchange of information program of existing tax treaties of the Bureau; 8) Monitor assessments and collections of Revenue Attaches/Representatives/Finance Officers in revenue extension services abroad; 9) Set up and recommend policies, standards and procedures pertaining to tax treaty relief implementation; and 10) Perform such other related functions as may be assigned to it. D-1 Foreign Returns Processing Section a) Receive and process all tax returns coming from the various revenue posts abroad; b) Process and perform office audit on refundable income tax returns of non-resident citizens reporting foreign-sourced compensation; and c) Perform such other related functions as may be assigned to it. D-2 Audit Section a) Conduct field audit/investigation of: 1) Overseas contractors in accordance with guidelines and criteria prescribed by the Commissioner; 2) International Carriers and foreign Corporations; 3) Taxpayers claiming refunds/exemptions arising from the application of tax treaty provisions; 4) Tax returns of non-resident citizens with income from within and without the Phil. and non-resident aliens receiving income from sources within the Philippines; cd i b) Recommend standards and techniques needed to ensure high quality investigations; and c) Perform such other related functions as may be assigned to it. D-3 Revenue Attache Section a) Supervise and coordinate the activities of Revenue Attaches and Representatives relative to their tax service, information gathering and intelligence activities abroad; b) Develop and recommend policies and work programs, set up standards, guidelines and procedures on the creation and maintenance of revenue extension services abroad including the creation of Special Task Forces to conduct tax collection drives in countries where no attaches/representatives are assigned; c) Monitor the assessments and collections of Revenue Attaches/Representatives/Finance Officers abroad in all revenue extension services; and d) Undertake preparation, processing, follow-up and transmittal of the request for Fiscal Agency Service (FAS) pertaining to salaries, allowances, and other benefits due Revenue Attaches/Representatives; e) Process and audit the billings of the Department of Foreign Affairs regarding reimbursement of expenses, cash advances of our Attache in Riyadh and transmit the same to Central Bank; f) Perform such other related functions as may be assigned to it. D-4 International Tax Policy Section a) Develop, review, assess and monitor Philippine International Tax policies; b) Conduct studies/researches on tax treaties, investment agreements and other related matters taking into consideration among others, prevention of double taxation and fiscal evasion; c) Prepare or draft documents for tax conventions, investment agreements with foreign countries and other international tax conferences; d) Review, study and recommend amendments to the country's existing treaties and investment agreements with foreign countries; e) Provide technical support to international tax on investment agreements and other related tax conventions; f) Explore and develop the opening of tax treaty negotiations with other countries and recommend re-negotiations on existing treaties when necessary; g) Undertake as secretariat, all activities necessary before the actual negotiation of tax treaties, e.g. preparation of agenda, letters and telex to parties or panel members concerned, drafting instruments of ratification; h) Liaise with agencies of committees, government or private, involved in international tax policy matters; and i) Perform such other related functions as may be assigned to it. D-5 Tax Treaty Implementation Section a) Develop policies and work programs and set up standards, guidelines and procedures relating to tax treaty implementation; b) Implement rules and regulations for effective enforcement of Philippine tax laws relative to ratified tax treaties as they affect international taxpayers. c) Monitor commitments of the Commissioner with foreign countries, not covered by tax treaties; d) Coordinate the exchange of information and mutual agreement procedures for all existing tax treaties; e) Evaluate for approval all tax treaty relief applications and prepare the necessary ruling or memorandum decision thereof; f) Process and review all treaty relief applications, e.g. tax exemptions; beneficial treaty rate and tax credit or tax refund of excess withholding tax on income; g) Process claims for tax refund of erroneously collected internal revenue taxes arising from the application of tax treaty provisions including claims for exemptions; and h) Perform such other related functions as may be assigned to it. E. Value-Added Tax Division 1) Develop policies and work programs and set up standards, guidelines and procedures relative to the implementation of the value-added tax system and activities pertinent to the processing and control of indirect tax refund/credit; cd 2) Prepare computer programs for the control and monitoring of data from approved applications for VAT registration and VAT returns; 3) Control, process, and issue all types of tax refunds/credits on indirect taxes involving value-added tax refunds/credits and those involving erroneous or illegal payments of indirect taxes whenever there are questions of fact; 4) Refer to the Revenue District Office, through the Revenue Regional Office, discrepancies in the application of indirect tax, including value-added tax refund/credit; 5) Monitor all activities relative to the implementation of the value-added tax system in the Revenue Regions and Revenue District Offices; 6) Undertake transactions with accredited banks whenever errors or discrepancies in reports of the Banks are disclosed: 7) Prepare letters to the Commissioner of Customs authorizing the release of imported goods; 8) Process report documents concerning exportation of minerals and mineral products; 9) Analyze problems on value-added tax system and recommend solutions thereto; 10) Coordinate with Revenue Computer Center (RCC) on the creation and update of masterfile of VAT and other business taxpayers; and 11) Perform such other related functions as may be assigned to it. E-1 Data Entry Section a) Prepare computer programs and procedures for the data entry of approved applications for VAT registration and VAT returns; b) Receive and undertake data entry processing of approved application for VAT registration and VAT returns; c) Furnish RCC with data generated from approved application for VAT registration and VAT returns; and d) Perform such other related functions as may be assigned to it. E-2 VAT Refund/Credit Section a) Receive and process claims for VAT refunds/credits including those from the VAT Units of Revenue District Offices/Assessment Branches and those involving erroneous or illegal payments whenever there are questions of fact; b) Control and monitor the use of tax credit certificates for VAT liabilities; c) Recommend the issuance of VAT tax credit memo or preparation of disbursement voucher for cash refund after verification of outstanding tax liability from Receivable Accounts Division and certification of quarterly tax payments from Revenue Accounting Division; d) Refer to the Revenue District Office through the Revenue Regional Office, discrepancies reported by Revenue Computer Center (RCC) or as disclosed in the application for VAT refund/credit; and e) Perform such other related functions as may be assigned to it. cdt E-3 Other Indirect Tax Refund/Credit Section a) Receive and process claims for other indirect tax refunds/credits including those involving erroneous or illegal payments whenever there are questions of fact; b) Control and monitor the use of tax credit certificates for other indirect tax liabilities; c) Recommend the issuance of tax credit memo (for indirect taxes) or preparation of disbursement voucher for cash refund after verification of outstanding tax liability from Receivable Accounts Division and certification of quarterly tax payments from Revenue Accounting Division; d) Refer to the Revenue District Office through the Revenue Regional Office, discrepancies disclosed in the application of other indirect tax refund/credit; and e) Prepare letters to the Commissioner of Customs authorizing the release of imported goods after the determination of the propriety of the Application for Authority to Release Imported Goods; f) Process report documents concerning exportation of minerals and mineral products; and g) Perform such other related functions as may be assigned to it. E-4 Monitoring and Analysis Section a) Monitor all activities relative to the implementation of the value-added tax system in Revenue Regions and Revenue District Offices; b) Transact matters with accredited Banks whenever discrepancies are disclosed in reports submitted by the Banks; c) Analyze and evaluate problems on the implementation of the Value-Added Tax System and recommend solutions thereto; casia d) Coordinate with RCC relative to the development of masterfile of VAT and other business taxpayers and other aspects of VAT implementation; e) Prepare call-up letters to Banks for delayed reports; and f) Coordinate the receipt, release and distribution of VAT data/reports to and from the revenue regions; g) Perform such other related functions as may be assigned to it. IV. Repealing Clause : This Order supersedes the provision of Revenue Administrative Order Nos. 2-80 dated October 2, 1980; 5-82 dated April 5, 1982; 4-84 dated February 24, 1984; and 3-86 dated April 29, 1986 insofar as it pertains to the above-mentioned functions and all revenue issuances or portions thereof inconsistent with the provisions of this Order. V. Effectivity : This Order shall take effect immediately. (SGD.) BIENVENIDO A. TAN Commissioner