Value-Added Tax Audit Manual

September 5, 1998 REVENUE AUDIT MEMORANDUM ORDER NO. 1-99 SUBJECT : Value-Added Tax Audit Manual TO : All Internal Revenue Officers And Others Concerned I. OBJECTIVE This Order is issued to provide Revenue Officers with the basic procedures and techniques in the audit of Value-Added Tax (VAT) returns and prescribe the use of the Updated Value-Added Tax Manual (Annex "A"). II. QUALITY AUDIT The audit of a tax return is a tool utilized by management to determine the degree of taxpayers' compliance with existing laws, rules and regulations. While collection of taxes thru audit has been one of the major initiatives of this Bureau, the primordial purpose for conducting the same should be focused more on identifying the weaknesses in tax administration that need to be properly addressed with the end view of enhancing the level of taxpayer's voluntary compliance. This objective can only be accomplished by conducting a quality audit of taxpayers' books of accounts and other pertinent records in sufficient depth in order to ascertain correctness and validity of entries therein and the propriety of interpretation and application of tax laws, rules and regulations. cdlex III. REPORTING REQUIREMENTS Revenue Officers are required to make a report after the audit has been conducted. All reports should contain the minimum documentary requirements specified under item "D" of the VAT Audit Manual. IV. REPEALING CLAUSE This order supersedes all revenue issuances or portions thereof inconsistent herewith. cdll V. EFFECTIVITY All Revenue Officers and other employees concerned are hereby directed to use the aforesaid Manual in the audit of VAT returns immediately after the approval of this Order. (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue PREPARED BY THE ASSESSMENT SERVICE Nora E. Tamayo OIC-Assistant Commissioner ASSESSMENT PROGRAMS DIVISION Elvira R. Vera Division Chief Leticia C. Batausa Assistant Chief Evelyn C. de Guzman Section Chief, Audit Procedures and Techniques Section Stimson P. Cureg Revenue Officer Mirza S. Torio Revenue Officer Elmira C. Viray Computer Operator Manny B. Jimenez Computer Operator Gean M. Dienzo Office Staff ACKNOWLEDGMENT The updated Value-Added Tax Audit Manual was completed under the administration of Commissioner of Internal Revenue Beethoven L. Rualo and his Deputy Commissioners Romeo S. Panganiban, Estelita C. Aguirre, Sixto S. Esquivias IV and Lilia C. Guillermo. Acknowledgment is extended to the following who have given their unselfish support and invaluable contribution to the project: Assistant Commissioner Dominador L. Galura (retired), Assistant Commissioner Lilian B. Hefti, Atty. Leonor Villalon-Rogers, Atty. Margaret Mary C. Lauron, Atty. Ramon Wilfredo B. Pagarigan, Edgar C. Espiritu, Eleanor R. Rudi, Allan T. Moster, Francisca C. Tiongson, Rodolfo E. Generoso Jr., Edwin B. Cosca and Alfredo N. Valeros. Table of Contents Introduction a. Purpose b. Contents Audit of Value-Added Tax Liabilities a. Preliminary Approach to Investigation b. Audit of Sales and Output Tax c. Audit of Purchases and Input Tax d. Reporting Requirements Schedules V-1 Pro-forma Computation to Arrive at the Total Sale of Goods V-2 Pro-forma Computation to Account for the Quantity of Goods Actually Sold V-3 Pro-forma Computation to Arrive at the Taxable Sale V-4 Pro-forma Computation to Arrive at the Gross Taxable Receipts V-5 Pro-forma Computation of Input Tax Allocation V-6 Checklist of Requirements in Filing VAT Credit/Refund Claims V-7 Books of Accounts and Other Accounting Records to be Examined V-8 Checklist of Audit Procedures Undertaken in the Verification of VAT Returns I. Introduction The Bureau of Internal Revenue is one of the oldest institutions of the Republic mainly responsible for tax administration in the country. Its function is to generate income to defray the necessary expenditures of the government through the enforcement and collection of taxes needed to carry-out its development programs. The mission of the Bureau is to collect taxes efficiently and effectively for and at the least cost to the government through impartial and consistent enforcement of internal revenue tax laws, and convenient and honest service to taxpayers. LLpr In order to achieve the Bureau's mission, a quality tax audit must be performed to ascertain the correctness and reliability of income tax returns. The Bureau recognizes that it is not through the implementation of new taxes that they can generate more revenues but through better enforcement of tax collection. a. Purpose The updated VAT Audit Manual has been prepared for all revenue officers who conduct field examinations of tax returns to ensure the performance of a quality audit. The manual aims to equip the users with the necessary knowledge, useful auditing skills and confidence in the conduct of the audit. The Manual has been designed to ensure that the examination of internal revenue tax returns are competently and skillfully undertaken. b. Contents of the Manual The Manual contains specialized auditing procedures and techniques in the examination of the taxpayers' value-added tax liabilities. Several schedules are provided for proper documentation of audit reports. The revenue officer is, however, not precluded from performing such other auditing procedures and techniques as he deems necessary based on the circumstances prevailing in each particular case. prLL AUDIT OF VALUE-ADDED TAX LIABILITIES (Ref. RAMO 1-90 and 1-91, RMO40-94, RA 7716 and 8424) A. Preliminary Approach to Investigation Prior to actual field investigation, the Revenue Officer should perform the following analytical procedures. 1. Familiarize with the business of the taxpayer and determine the economic activity in which it is engaged in, whether sale of goods, properties or services. 2. Ascertain if the taxpayer maintains branches or other business establishments other than its main office. Determine the actual number and locations of branches and storage facilities being maintained by the taxpayer from the internal and external sources and validate the same from the registration records of the concerned RDOs. 3. Determine if the taxpayer is engaged in other lines of business aside from its principal undertaking. 4. Conduct ocular inspection of the taxpayer's premises such as production plant, sales outlets and/or storage facilities. Relate the equipment in use, the product lines being carried, and the estimated value of the business being handled with the amount of sales declared for tax purposes. 5. Study the accounting methods and peculiarities in the industry group where the taxpayer belongs. 6. If possible, conduct interviews with responsible accounting and sales personnel to determine the degree of internal control. 7. Examine the quarterly VAT returns and monthly VAT declarations filed. LLjur 7.1 Check if all the required information are properly reflected thereat. 7.2 Check whether the return was filed and the appropriate tax due was paid on time. 7.3 Verify if a Tax Debit Memo (TDM) has been issued authorizing the application of TCC against VAT, if applicable, by the appropriate office. 8. Scrutinize the validation of payment on the VAT declaration/returns. Verify payment thru Batch Control Sheet (BCS-A)/ledger cards with the collection section of the District for non-ITS and Collections and Bank Reconciliation (CBR) system for ITS RDOs to ascertain its remittance. Determine if the bank issued the corresponding Official Receipt, Bank Debit or Credit Memo depending on the nature of payment. Watch out for fake validations. In the event that an Official Receipt is required to be issued by the accredited agent bank prior to receipt and validation of VAT payments, compare the details of payment shown in the Official Receipt with the bank validation information reflected in the VAT declarations/returns. Verify any discrepancy noted. 9. Refer to the report of the audit of the value-added tax liabilities of the taxpayer for the immediately preceding period to be aware of the deficiencies noted that may also be relevant in the audit of the current period, if there is any. 10. Check reasonableness of sales and purchases together with output and input taxes declared. Verify mathematical computations. 11. Tally input tax carried over against the VAT return for the prior period. 12. Identify significant changes in sales and purchases and VAT payments from the immediately preceding period with the period under audit. 13. Obtain complete documentary requirements enumerated under Schedule V-6 of this Manual for claims for VAT credit/refund. 14. Request for the books of accounts and accounting records to be examined per Schedule V-7 hereof. B. Audit of Sales and Output Tax 1. Gross Taxable Sale of Goods, Properties and Services a. Reconcile the amount of each category of sales per monthly VAT declarations quarterly VAT returns and financial statements with the recorded amount of sales per general ledger, sales journal, including the control subsidiary sales ledger of the head office and subsidiary sales journal for each branch. b. Review the composition of the sales account in the journals and ledgers and ascertain that: b.1 Only those transactions which are specifically exempted under Sec. 109 of the National Internal Revenue Code (NIRC) of 1997 are treated as exempt sales. b.2 "Deemed" sales of goods are recorded as taxable transactions: b.2.1 Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business. Transfer of goods or properties not in the course of business can take place when a VAT-registered person withdraws goods from his business for his personal use. LLjur b.2.2 Distribution or transfer to shareholders or investors as share in the profits of the VAT- registered person. Property dividends which constitute stock- in-trade or properties primarily held for, sale or lease declared out of retained earnings on or after January 1, 1996 and distributed by the company to its shareholders shall be, subject to VAT based on the zonal value or fair market value at the time of distribution whichever is applicable. b.2.3 Transfer to creditors in payment of debt or obligation. b.2.4 Consignment of goods if actual sale is not made within 60 days following the date when such goods were consigned. Consigned goods returned by the consignee within the 60-day period is not deemed sold. b.2.5 Retirement from or cessation of business with respect to all goods on hand, whether capital goods, stock-in-trade, supplies or materials as of the date of such retirement or cessation, whether or not the business is continued by the new owner or successor. The following circumstances shall, among others, give rise to transactions "deemed-sale". change of ownership of the business dissolution of a partnership other than a general professional partnership and creation of a new partnership which takes over the business c. Verify entries appearing in the subsidiary and/or sales journal and compare the same with the information shown in the sales invoices. d. Test the accuracy of the sales summary against the source documents. e. Determine compliance with the invoicing requirements and procedures. e.1 Ascertain that invoices and official receipts bear all necessary information as required under Sec. 113 (A) and 237 of the NIRC, as amended by Republic Act (RA) 8424, and Sec. 4.108-1 of Revenue Regulations (RR) 7-95. e.2 Check whether the words "zero-rated" are printed on the invoice covering zero-rated sales. Otherwise, the transaction shall be considered, as taxable since the concerned customer may be able to generate input credit for the transaction. e.3 Verify authority to print receipts/invoices with the Revenue Regulatory Unit (RRU) of the concerned RDO. LLpr f. Ensure that all receipts and invoices issued to customers including those assigned to branches are all accounted for. Account for any break in the sequence of their serial numbers. In case of cancellation, the original copy thereof should be on file. g. For those using loose-leaf invoices/cash register machines, verify with the RRU or require presentation of authority to use the same. Verify the number of cash registers authorized to be used in the establishment. Be alert on the possibility that unregistered machines are being used for unrecorded transactions. h. Be alert if the taxpayer is practicing the following schemes: h.1 use of double or multiple set of invoices/receipts bearing identical serial numbers h.2 unregistered invoices/receipts h.3 non-issuance of official receipts or invoices i. Verify if the transactions covered by "Statement of Account", "Delivery Receipt", "Debit Notes" and other similar documents are properly recorded as sales. The mere issuance of these documents without the corresponding sales invoice is a violation of the bookkeeping regulations and an indication of unrecorded sales, except in the case of bona fide consignment sales. j. When verifying ,a delivery receipt, ascertain whether it covers a consummated sale or consignment sale. Consignment sale shall be considered as taxable sale after sixty (60) days following the date of consignment. k. Check whether information reflected in the sales invoices /official receipts tally with other complementary documents such as purchase orders, delivery receipts, etc. l. If the taxpayer is engaged in both taxable and exempt transactions, ascertain that only VAT invoices are issued for VAT taxable transactions and separate invoices are issued for exempt transactions. Any person whose sale of goods, properties or services which are otherwise not subject to VAT but who issues a VAT invoice or receipt therefor shall, in addition to his liability to other applicable percentage tax, if any, be liable to VAT without benefit of any input tax credit. m. Test check footings in the sales and subsidiary sales journals and posting to general ledger. n. Verify sales contracts, marketing agreements, consignment terms and other sales related documents. o. Scrutinize miscellaneous and other income accounts and ascertain if such accounts are subject to VAT. p. Examine the cash receipts book and official receipts issued to uncover any collection which may not have been included in the taxable sale. q. Be resourceful in discovering under declaration of sales. Abnormal levels of inventories, sales, purchases, accounts receivables, including manipulation of interbranch transactions, among others, may suggest instances of under declaration. q.1. Cross check transactions reflected in the books of accounts against the records of selected customers and obtain certification of sales/purchases from selected buyers/suppliers. q.2 Reconcile the sale or receipts reported per VAT returns with the amount of sales/receipts subjected to withholding tax reflected in the withholding tax certificate submitted by customers to BIR. r. If necessary, analyze all the accounts affecting total sales, particularly cash account, accounts and/or notes receivable, collections from receivables, sales discounts and sales returns, bad debts written off and other relevant accounts. In auditing sales of services, analyze other accounts such as advances, retention receivables, mobilization fees and other related accounts. (See pro-forma computations on Schedules V1-V4). s. Compare sales of other taxpayers belonging to the same industry within the vicinity/location. t. Identify instances where the gross selling price of goods or properties are being unreasonably lower than the actual market value and look into the possibility of making necessary adjustments in the sales value thereof. u. If the accounting records are unreliable, look into gate-passes, purchase order registers and other records used by the taxpayer in its day-to-day transactions. v. Ascertain the correctness of output tax computation. w. Verify whether other charges such as excise tax, packaging, insurance, freight and delivery expenses are treated as part of the gross taxable sales. The excise tax, if any, shall form part of taxable sales. x. Account for deductions from sales such as: x.1 Discounts granted and determined at the time of sale which do not depend upon the happening of a future event, expressly indicated on the face of the invoice and previously recorded in the books of accounts. These discounts may be excluded from gross sales within the same month/quarter it was given. x.2 Sales returns and allowances for which proper credit or refund was made during the month or quarter to the buyer for sales previously recorded as taxable sales. y. In case the taxpayer enjoys full or partial exemption pursuant to special laws, verify the extent of exemption and compliance with the conditions set for the enjoyment of such exemptions. Obtain documentary confirmation of such exemption. V-1 Apply the following pro-forma computation to arrive at the total sale of goods - Cash sales Pxxx Add: Collections of accounts receivable Pxx Collections of notes receivable xx (on sale of goods) Sales discounts granted xx Sales returns and allowances xx Bad debts written off xx Accounts receivable, ending xx Notes receivable, ending xx Total receivables during the period Pxx Less: Accounts receivable, beginning Pxx Notes receivable, beginning xx xx Sales on account for the period xx Total sales during the period Pxxx === V-2 In appropriate cases, account for the quantity and amount of goods actually sold as follows: Units of Finished goods/Merchandise inventory, beginning xxx Add: Total units of goods manufactured or purchases of merchandise inventory xxx Total units of goods available for sale xxx Less: Units of Finished goods/Merchandise inventory, end xxx Number of units issued xxx Less: Samples, destroyed or lost items xxx Number of units sold during the period xxx Multiply by average selling price per unit Pxxx Total sales per audit Pxxx === V-3 Determine the taxable sale by computing: Total sales during the period Pxxx Add: Deemed sales per audit xxx Total sales per audit xxx Less: Zero-rated sales Pxxx Exempt Sales xxx xxx Gross taxable sales Pxxx Less: Sales returns and allowances xxx Net taxable sales Pxxx === V-4 Apply the following pro-forma computation to arrive at the gross taxable receipts during the period: Income or billings during the period Pxxx Add: Accounts receivable, beginning Pxxx Retention receivable, beginning xxx xxx Total amount for collection xxx Less: Accounts receivable, ending Pxxx Retention receivable, ending xxx xxx Collections of income and receivables xxx Add: Deposits, advances and/or mobilization fee xxx Gross receipts during the period xxx Less: Gross receipts from exempt service Pxxx Gross receipts from zero-rated service xxx xxx Taxable gross receipts Pxxx === Note: All accounts from V-1 to V-4 should be net of VAT. 2. Zero-Rated and Foreign Currency Denominated Sales a. Determine whether sales declared as zero-rated actually emanate from export sales or foreign currency denominated sales and other transactions that may qualify as zero-rated or effectively zero-rated sales. b. For actual export sales, review commercial invoices/receipts, bills of lading or airway bill, export declaration permit, packing list, inward letters of credit, landing certificates and other related commercial documents. Ascertain if the proceeds were paid for in acceptable foreign currency or its equivalent in goods or services and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). Obtain schedule with the following information and check against supporting documents: cdt Date of Export Sales Invoice No. Name of Consignee AWB/BL NO. Shipment Date Amount of Sales in Foreign Currency and in Pesos Per Invoice Conversion Rate Amount of Remittance in Pesos Amount of Sales per Books Discrepancy Between Amount of Sales per Invoice in Pesos and Amount of Remittance in Pesos Discrepancy Between Amount of Remittance in Pesos and Amount of Sales per Books c. For effectively zero-rated transactions, secure copy of the application for zero-rating as approved by the Revenue District Office. Without an approved application, the transaction otherwise entitled to zero-rating shall be considered exempt. d. For "foreign currency denominated sales", review the transactions and ascertain if: d.1 the buyer is a non-resident; d.2 the goods other than those mentioned in Secs. 149 (automobiles) and 150 (non-essential goods) of the NIRC, as amended by RA 8424, are assembled or manufactured in the Philippines; d.3 the goods are to be delivered to a resident in the Philippines; and d.4 the goods are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. e. For zero-rated sale of services, verify contract to determine the person for whom the services were rendered, amount of consideration, description of the services, and examine documents evidencing actual payments. Determine if proceeds of sale in foreign currency were accounted for in accordance with the rules and regulations of the BSP. Prepare schedule with the following information: Name of Contractee Contract Price/Date Amount Billed in Foreign Currency and in Pesos/Date of Billing Amount Received in Foreign Currency Official Receipt No./Date Date of Receipt/Remittance Conversion Rate Amount Received in Pesos Name of Accredited Bank Bank Credit Memo No. Billing or Receipts per Books Discrepancy between Amount Billed and Amount Received in Foreign Currency Discrepancy between Billing or Receipts per Books and Amount Received in Pesos C. Audit of Purchases and Input Tax 1. Reconcile the amount of each category of purchases per VAT declarations and returns with the amount of purchases per subsidiary purchase journal. Check if all the information required are recorded in the purchase journal. 2. Analyze and compare the summary of purchases with entries appearing in the subsidiary purchase journals, purchase journal, purchase invoices and other source documents. 3. Review the composition of the purchase accounts in the journals and ledgers and ascertain that input tax credit is not recognized from the following: 3.1 Purchases from non-VAT and/or exempt persons; 3.2 Effectively zero-rated purchases; 3.3 Purchases from VAT persons, which are personal in nature or not made in the course of trade or business; 3.4 Purchases of tax-exempt goods, properties or services from VAT-registered persons although covered by VAT invoices or receipts; and 3.5 Purchases of automobiles, aircrafts and yachts (Sec. 4.104-1 of RR 7-95). 4. Determine compliance with substantiation on requirements of claims for input tax credit. 4.1 For domestic purchases of goods, properties and services in the course of trade or business, these must be supported by VAT invoices and/or official receipts, showing the information required in Sec. 113 (A) and 237 of the NIRC, as amended by RA 8424, and Sec. 4.108-1 of RR 7-95. The printer's authority to print must likewise be indicated on the face of the invoice or receipt. A cash register machine tape shall constitute valid proof of input tax credit only if the name and TIN of the purchaser is indicated in the receipt and authenticated by a duly authorized representative of the seller. 4.2 Input tax on purchases of real property should be supported by a copy of the public instrument (i.e., deed of absolute sale, deed of conditional sale, contract/agreement to sell) together with the VAT receipt issued by the seller. (Sec. 4.100-1 of RR 7-95) 4.2.1 VAT official receipts issued for amortization (installment) payments, subsequent to initial down payment, on purchase of real property on "Deferred Payment Basis" shall not generate input tax credit. LLpr 4.2.2 For sale of real property on installment plan, the computation of VAT shall be based on the actual consideration received, including interests and other charges. However, upon full payment, if the zonal/market value at the time of the initial down payment was made is higher than the total receipts/collections, then the additional VAT shall become due and payable accordingly. 4.3 Credit for input tax on importation shall be supported with import entries or other equivalent documents showing actual payment of VAT on the imported goods. VAT payment must be based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges prior to the release of the goods from customs custody, such as postage, commissions and similar charges. 5. Determine correctness of computation of claims for input tax credits by multiplying the total amount indicated in the purchase invoices, and/or official receipts by one-eleventh (1/11). 6. Verify actual existence of goods or properties that generate input tax credits whenever practicable and ascertain whether the same are actually used in the course of business. 7. Check the authenticity of substantial claims of input tax credits by confirming purchase transactions through, but not limited to: 7.1 Accessing suppliers' records; 7.2 Comparing purchases of other taxpayers belonging to the same industry; and 7.3 Test checking payments of representative sample of purchases against cash disbursement book/journal, check vouchers and cancelled checks. 8. Ascertain that purchase returns or allowances granted to the taxpayer and input tax attributable to exempt sales results in a corresponding reduction in the input tax credit balance. (See illustration on Schedule V-5). If a VAT-registered person is also engaged in exempt activities, determine the direct attribution of purchased goods, properties or services to taxable and exempt transactions. If purchases are directly attributable to exempt transactions, any claim for input tax credit therefor shall be disallowed. However, if the input taxes paid for purchases of goods, properties or services could not be directly attributed to either activity, the same shall be allocated between the taxable operation and the non-taxable operation using the computation shown in Schedule V-5. The amount allocated to the exempt transaction should result to corresponding reduction of input tax credit balance. 9. Applications for the issuance of tax credit certificates and refund affecting the input tax credit accounts must reduce the input tax credit available at the time of application. These shall include not only applications filed with the Bureau of Internal Revenue but also those filed with the Department of Finance, the Board of Investments and the Bureau of Customs. cdll 10. Reconcile the amounts of input tax claimed in the VAT return for the portion carried over from previous quarters and the balance carried to succeeding quarters with the amounts recorded in the books of accounts. 10.1 In case there are discrepancies between these records, trace the sources of the discrepancies against underlying documents to detect any possible deficiency tax assessment. 11. Ascertain that the recorded amount of the purchase of goods, properties or services are net of VAT. 12. Verify whether the taxpayer filed amended returns or declarations covering the period under audit to preclude any possibility that the audit findings will still include transactions which were already reflected by the taxpayer in the amended returns. 13. Verify the correctness of the claim for presumptive input tax, if any. 13.1 Ascertain the legal basis for entitlement to the claim for presumptive input tax. 13.2 Check whether the taxpayer has complied with all the administrative requirements relative to the claim pursuant to existing rules and regulations. 13.3 Check the reasonableness of the value of inventories used as a basis in computing the claim for presumptive input tax. Be alert on the possibility that the taxpayer may have deliberately inflated his inventory balance to take advantage of huge presumptive input tax credit or may have included items of inventories that are not entitled to any tax credit. V-5 Illustration on Allocation of Input Tax between Taxable and Non-Taxable Operation For instance: Sales: From VAT operation P300,000 From non-VAT or exempt activity 200,000 Purchases which cannot be directly attributed to taxable and exempt activity 60,000 Input tax 6,000 Input tax on taxable operation Sales from Taxable Operation x Total = Input Tax Total Sales (Taxable + Input Creditable to non-VAT or exempt activity) Tax VAT operation Allowable P300,000 x P6,000 = P3,600 input tax = 500,000 ===== credit Thus: Input tax P6,000 Less: Allowable input tax credit attributable to taxable operations 3,600 Unallowable input tax credit P2,400 attributable to exempt activity ===== D. Reporting Requirements The audit report should be brief and concise but complete in all details necessary to its understanding. It must have the following contents but not limited to: 1. Duplicate copy of the Letter of Authority/Audit Notice 2. Copies of monthly VAT declarations and VAT quarterly returns for the audited period with proper validation of payment by duly accredited agent bank and Official Receipts issued, whenever applicable, or copies of official receipts issued by duly authorized collection agent or deputized municipal treasurer 3. Worksheets showing the following schedules: Summary of transactions reflected in the monthly VAT declarations and quarterly VAT returns Analysis of sales and output tax Analysis of purchases and input tax Analysis of relevant accounts such as cash, receivables, payables, advances, etc. (if necessary) Adjustments to sales and output tax (with explanations) Adjustments to purchases and input tax (with explanations) Computation of deficiency value-added tax Reconciliation of input taxes generated or incurred during the period 4. Revenue Officer's memorandum report stating the nature of business, brief description of the taxpayer's accounting system, audit findings and other relevant information uncovered during the investigation and his recommendation thereon 5. Duly accomplished Revenue Officer's VAT Audit Report (BIR Form 1717V or 0507) 6. One copy of the BIR's Authority to Accept Payment form for non-ITS RDOs and BIR Form 0605-Payment Form for ITS-RDOs duly validated by the bank where the deficiency tax was paid together with copy of Official Receipt issued by the accredited bank prior to machine validation 7. Copies of VAT withholding certificates issued by customers 8. Approved application for-zero-rate, if applicable 9. Photocopies of certificate of registration with other government agencies evidencing exemption from value-added tax, if applicable 10. Copy of ITR and audited financial statements for the period under audit 11. A copy of "Access to Records" letter, if third party verification was conducted, and documents gathered as a result of this procedure 12. Copies of Tax Debit Memoranda (TDMS) and Tax Compliance Certificates if payments are not made in cash 13. Other general and specific requirements as stated in Schedule V-6 hereof 14. Checklist of duly accomplished Audit Procedures Undertaken (Schedule V-8) 15. Summary of sales/purchases, if applicable (RR 13-97) 16. Schedule of sales and output tax and purchases and input tax for branches, if applicable. LLcd 17. Inventory list of materials, supplies, work-in-process and finished goods for the period under audit (beginning and ending) 18. Proof of actual inward remittance of proceeds of export sales. 19. Notice of revocation of approved application for zero-rate, if applicable 20. Agreement Form, in proper cases BUREAU OF INTERNAL REVENUE Revenue District No._______ ___________________ Checklist of Requirements in Filing VAT CREDIT/REFUND CLAIMS I. General Requirements ____ 1. 3 copies of Application for VAT Credit/Refund (Form 1914 for ITS RDOs and Form 2552 for non-ITS RDOs) ____ 2. Photocopy of approved Application for Zero-Rate (for effectively zero-rated sales), when applicable ____ 3. For local purchases: (a) Summary list of purchases containing details specified below: Registered VAT Amount Total Name of Number Invoice Date of OR Date of Input Invoice Supplier of Supplier Number Invoice No. of OR Purchase Tax Amount (Prepare separate list and documents for input tax not within the period claimed but not previously claimed.) (b) Photocopies of VAT purchase invoices for purchase of goods or properties and official receipts for purchase of services or properties, in lieu of the second copy required to be attached to the VAT return under RR No. 6-89. The invoices/official receipts must be arranged according to the summary list. For importations: (a) Summary of importations made during the period with the following details: Date of AWB/ Date of Total Date of O.R. Invoice Supplier Item BLNO. Arrival Value Payment No. VAT (b) Photocopies of invoices, import declarations, import entry documents, official receipts or confirmation receipts evidencing payment of VAT. Segregate documents paid by cash from those paid by tax debit memo. ____ 4. VAT return(s) filed for the quarter(s) showing that the tax credited on purchases of zero-rated sales were not applied against output tax for a certain quarter(s) and VAT return for the succeeding quarter ____ 5. Certification of taxpayer showing the amount of zero-rated, taxable and exempt sales, where applicable ____ 6. Where the applicant's zero-rated transactions are regulated by certain government agencies, a statement therefrom showing the amount and description of sale of goods and services, name of persons or entities (except in case of exports) to whom the goods or services were sold and date of transaction ____ 7. Other documents (if applicable): (a) Articles of Incorporation (for first time filers) (b) Sales contract/agreement (c) Beginning and ending inventory of raw materials, work-in-process, finished goods, supplies and materials (d) Certificate of Registration with BOI, PEZA, EDA, etc. (e) Certificate of VAT Registration (for those claiming refund/TCC for the first time) (f) Certification from BOI, DOF (One-Stop Shop Tax Credit and Duty Drawback Center) and/or BOC that subject taxpayer has not filed similar claims for tax credit for the period under audit (g) If 100% exporter, sworn statement that ending inventory as of the close of the period being claimed has been used directly or indirectly in manufacturing the products subsequently exported as supported by export documents (RR. No. 9-89) (h) income tax return and audited financial statements, if applicable II. Specific Requirements ____ 1. For Export Sales (Semi-conductor companies, garments, food, etc.) ____ a. Summary of export sales stating the date of exportation, sales invoice number, name of buyer, airway bill/bill of lading number, lading date, amount of sales in foreign currency, peso value of sales, conversion rate, date of remittance, bank credit memo number and amount remitted in pesos ____ b. Photocopies of export documents: 1) Invoices/receipts evidencing sale of goods, as well as the name of the person to whom the goods were delivered with respect to foreign currency denominated sales 2) export declaration/permit ____ c. Bank credit memoranda and certificate from the BSP or any accredited agent bank showing that the proceeds of the sale in acceptable foreign currency had been inwardly remitted and accounted for in accordance with BSP rules and regulations. The statement should also show the amount in foreign currency of the export proceeds or consideration, date of export, date of inward remittance, conversion rate into Philippine currency and the total peso value thereof. LLpr ____ 2. For Zero-Rated Sale of Services (contractors, manning, etc.) ____ a. Authenticated copy(ies) of the contract(s) showing the person(s) for whom the services were rendered, amount of consideration, description of the services and documents evidencing actual payments ____ b. Photocopies of official receipts and billings together with a summary of the date of billing, name of principal, official receipt number, date of receipt, amount in foreign currency and the corresponding peso value thereof, date of remittance, name of bank, bank credit memo number and amount remitted in pesos ____ c. Bank credit memoranda and certificate from the BSP with information similar to 1-c (export sales) Additional Requirements for Mining Companies: ____ 1. Reconciliation of billings against actual collection ____ 2. Operating agreement with owner of mining claims(s), if applicable Additional Requirements for Manning Services: ____ 1) Monthly BSP report on income received by the agency ____ 2) Breakdown of gross foreign receipts specifying the nature of foreign currency received (e.g. Commission, allotment, manning fee, agency fee, advances, etc.) showing the total foreign currency value with its peso equivalent, bank credit memo number, name of bank and date of remittance ____ 3. Effectively zero-rated sale of goods and services ____ a. Summary of sales invoices/receipts showing the name of the person entity to whom the sale of goods delivered or services rendered were delivered, order of delivery, amount of consideration and description of goods or services delivered. (RR No. 6-89 and RMC No. 2-90) ____ b. Reconciliation of billings against payment ____ c. Evidence of actual receipt of good or services ____ 4. Purchase of Capital Goods ____ a. Original copies of invoices/receipts showing the date of purchase, purchase price, amount of value-added tax paid and description of the capital equipment locally purchased ____ b. On imported capital goods 1. Photocopy of import entry document and confirmation receipt of payment issued by the Bureau of Customs for value-added tax paid V-7 BOOKS OF ACCOUNTS AND OTHER ACCOUNTING RECORDS TO BE EXAMINED I. Books of Accounts 1. General Ledger a. Subsidiary ledgers for branches, if any 2. General journal/journal vouchers 3. Sales journal a. Subsidiary sales journal for control account b. Subsidiary sales journals for branches, if any 4. Purchase journal a. Subsidiary purchase journals for control account b. Subsidiary purchase journals for branches, if any 5. Cash receipts book 6. Cash disbursements book II. Accountable Forms/Source Documents 1. Sales invoices of head office and branches, if any 2. Purchase invoices 3. Purchase orders 4. Official receipts 5. Receiving reports 6. Delivery receipts 7. Deeds of Sale, sales contracts or any other similar documents 8. Import entry documents, if applicable 9. Debit/Credit Memo issued by suppliers or customers 10. Production reports for manufacturers III. Other Accounting Records (if necessary) 1. Gate pass 2. Purchase order register 3. Check vouchers 4. Cancelled checks 5. Transfer documents 6. Withdrawal documents (for goods for personal use) 7. Bank Statements 8. Auditor's adjusting entries V-8 CHECKLIST OF AUDIT PROCEDURES UNDERTAKEN IN THE VERIFICATION OF VAT RETURNS Name of Taxpayer: ______________________________ Taxable Period: Business Name or Style ___________________________ TIN _______________ Principal ______________________________________ Reg. No. ___________ Branch/es (attach additional list if necessary) ___________ 1. Taxpayer's General Profile 1.1 Type of Organization [ ] Single Proprietorship [ ] Partnership [ ] Corporation [ ] Other (specify) ________ 1.2 Business Activity/ies [ ] Sale of Goods [ ] Manufacturing [ ] Importing [ ] Local Trading Principal products/items sold ______________________________ [ ] Sale of Properties Type of properties sold (specify) [ ] Sale of Services Type of service(s) (specify)____________________________________ [ ] Activity Exempt from VAT (specify) _______________________ [ ] Type of Miscellaneous / Other Income (specify) _______________ 1.3 Books of Accounts and Other Related Accounting Records Manner of Maintenance [ ] Centralized [ ] Not centralized Types of Books Maintained [ ] General Ledger [ ] General Journal [ ] Sales Journal [ ] Cash receipts Book [ ] Purchase Journal [ ] Disbursements Journal [ ] VAT Subsidiary Sales Journal [ ] VAT Subsidiary Purchase Journal Method of Recording in the Books [ ] Manual [ ] Computerized [ ] Mixed 1.4 Manner of Invoicing/Issuance of Receipts [ ] Manual [ ] Computerized [ ] Cash register receipts [ ] Mixed 1.5 Maintenance of Branch(es) [ ] Yes [ ] No How many? ______________________ If yes, prepare an enumeration in a separate list specifying the following: Name of Branches/Store Address RDO No. ___________________ ________________ ____________ 1.6 Maintenance of Warehouse/Storage Facilities [ ] Yes [ ] No How many? ______________________ If yes, prepare an enumeration in a separate list specifying the following: Location of Warehouse/Storage Facilities RDO No. ___________________ ________________ ____________ 1.7 BIR Permit for [ ] Printer's authority to print invoices/receipts [ ] Cash register machines and for how many? __________________ [ ] Loose-leaf invoices/receipts 1.8 Period Last Audited: From _____________ up to ___________ Office which conducted the audit ____________________________ Deficiency tax paid, if any _________________________________ 1.9 Existence of affiliated/associated companies [ ] Yes [ ] No If yes, prepare an enumeration in a separate list specifying the following: Corporate Name Address RDO No. Percent of Ownership _____________ __________ ________ _________________ 1.10 TIN Registration Number Manner of Display in the Establishment [ ] Prominently displayed [ ] Not displayed Appearance in the Sales Invoices/Receipts [ ] Printed [ ] Rubber Stamped [ ] Handwritten [ ] Typewritten [ ] Computer-generated 1.11. Registration under Special Laws (BOI, PEZA, etc.) [ ] Yes [ ] No If yes, specify _____________________________________________ Extent of exemption ________________________________________ 1.12 Number of sales invoices/receipts issued during the taxable period ______ Invoice Number from ______ to ______ 2. Audit of Sales and Output Tax Done Not Done Remarks 2.1 Reconciliation of sales per books vs. VAT return(s) vs. Financial Statements [ ] [ ] __________ 2.2 Review of the composition of sales account [ ] [ ] __________ 2.3 Analysis of all accounts affecting total sales: 2.3.1 Reconstruction of sales using accounts receivable [ ] [ ] __________ 2.3.2 Reconstruction of sales using the inventory method [ ] [ ] __________ 2.3.3 Reconstruction of gross taxable receipts using accounts/ billings receivable [ ] [ ] __________ 2.4 Scrutiny and comparison of information in the sales invoices and subsidiary sales journal [ ] [ ] __________ 2.5 Determination of compliance with invoicing requirements [ ] [ ] __________ 2.6 Determination of the correct taxable base and output tax [ ] [ ] __________ 2.7 Determination of compliance with the conditions prescribed in the transitory provisions of the VAT law [ ] [ ] __________ 2.8 Conduct of third-party verification to determine accuracy of recorded transactions [ ] [ ] __________ 3. Audit of Purchases and Input Tax 3.1 Reconciliation of purchases per books versus VAT return(s) and Financial Statements [ ] [ ] __________ 3.2 Review of the composition of purchase accounts [ ] [ ] __________ 3.3 Scrutiny and comparison of information in the suppliers' invoices/receipts and subsidiary purchase journals [ ] [ ] __________ 3.4 Determination of propriety of claims for input tax credits [ ] [ ] __________ 3.5 Determination of correct purchases and corresponding input taxes [ ] [ ] __________ 3.6 Determination of the correct input tax credits carried over from previous quarters [ ] [ ] __________ 3.7 Determination of compliance with the conditions prescribed in the transitory provisions of the VAT law [ ] [ ] __________ 3.8 Conduct of third-party verification to determine accuracy of recorded transactions [ ] [ ] __________ I/We hereby certify to the correctness of the foregoing information. __________________________ __________________________ __________________________ Revenue Officer Attested By: _______________________________ Section Chief/Group Supervisor _______________________________ Division Chief/Revenue District Officer