Publishing Republic Act No. 6110, Amending Among Others Sections 334, 337 and 344 of the National Internal Revenue Code and Inserting in said Code, Sections 337-A and 338-A

February 13, 1970 REVENUE MEMORANDUM CIRCULAR NO. 12-70 SUBJECT : Publishing Republic Act No. 6110, Amending Among Others Sections 334, 337 and 344 of the National Internal Revenue Code and Inserting in said Code, Sections 337-A and 338-A TO : All Internal Revenue Officers and Others Concerned For the information and guidance of all concerned there is quoted hereunder pertinent sections of Republic Act 6110, amending certain sections of Titles IX and X of the National Internal Revenue Code and creating new sections therein, viz.: " Republic Act No . 6110 " An Act Amending Certain Provisions of the National Internal Revenue Code, as Amended " Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled : xxx xxx xxx "SEC. 58. Section three hundred and thirty-four of the same Act is hereby amended to read as follows: "SEC. 334. (A) Corporations , companies , partnerships , or persons required to keep books of accounts . All corporations, companies, partnerships, or persons required by law to pay internal revenue taxes shall keep a journal and a ledger, or their equivalents: Provided , however , That those whose gross quarterly sales, earnings, receipts, or output do not exceed five thousand pesos shall keep and use a simplified set of bookkeeping records duly authorized by the Secretary of Finance wherein all transactions and results of operations are shown and from which all taxes due the government may readily and accurately be ascertained and determined any time of the year: And provided , further , That in the case of corporations, companies, partnerships, or persons whose gross quarterly sales, earnings, receipts or output exceed twenty-five thousand pesos, shall have their books of accounts audited and examined yearly by independent Certified Public Accountants and their income tax returns accompanied with certified balance sheets, profit and loss statements, schedules listing income-producing properties and the corresponding incomes therefrom and other relevant statements. "(B) Independent Certified Public Accountant Defined . The term 'Independent Certified Public Accountant' as used in the preceding paragraph, means an accountant who possesses the independence as defined in Article IV Section seven of the rules and regulations of the Board of Accountancy promulgated by authority of Republic Act Numbered Five thousand one hundred sixty-six. "(C) Penal provision . Any certified public accountant employed exclusively to examine and audit books of taxpayers under subsection (a) of this section or any person under his direction who willfully falsifies any report or statement bearing on any examination or audit, or renders a report, including exhibits, statements, schedules or other forms of accountancy work which has not been verified by him personally or under his supervision or by a member of his firm or by a member of his staff in accordance with sound auditing practices, or certified financial statements of a business enterprise containing an essential misstatement of fact of omission in respect to the transactions, taxable income, deduction and exemption of his client, or who, not being an Independent Certified Public Accountant according to subsection (b) of this section, examines and audits books of taxpayers, or any person who offers to sign and certify financial statement without audit, or any person who offers any taxpayer to use or use wrong accounting/bookkeeping records, or in any way commits an act or omission in violation of the provision of this section shall be punished by a fine of not exceeding five thousand pesos and imprisonment of not less than two years. If the offender is a certified public accountant, upon conviction, his certificate as a certified public accountant shall automatically be revoked or cancelled. In the case of foreigners, conviction under this Act shall constitute a ground for deportation." "SEC. 59. Section three hundred and thirty-seven of the same Act is hereby amended to read as follows: "SEC. 337. Preservation of books of accounts , and other accounting records . All the books of accounts, including the subsidiary books, and other accounting records, of corporations, partnerships or persons shall be preserved by them for a period of at least five years from the last entry in each book and shall be subject to examination and inspection only once in a taxable year during that five-year period by internal revenue officers, except in cases of fraud, irregularity or mistake as determined by the revenue regional director, or unless the taxpayer requests otherwise, in which case, another examination and inspection may be made. Examination and inspection of books of accounts and other accounting records shall be done only in the taxpayer's office or place of business or in the office of the Bureau of Internal Revenue. All corporations, partnerships, or persons, that retire from business shall, within ten days from the date of retirement or within such period of time as may be allowed by the Commissioner of Internal Revenue in special cases, submit their books of accounts, including the subsidiary books, and other accounting records, to the Commissioner of Internal Revenue or any of his deputies for examination, after which they shall be returned." "SEC. 60. A new section is hereby inserted after Section three hundred and thirty-seven, to be known as Section three hundred and thirty-seven A, which shall read as follows: "SEC. 337-A. Supplying of taxpayer account number . Any person required under the authority of this Code to make, render, or file a return, statement, or other document shall be supplied with or assigned a taxpayer account number which he shall include in such return, statement or document filed with the Commissioner of Internal Revenue for his proper identification for tax purposes. "(1) Furnishing number to person filing return . Any person with respect to whom a return, statement, or other document is required under the authority of this Code to be made by another person shall furnish to such other person such taxpayer account number as may be prescribed for securing his proper identification. "(2) Furnishing number of person for whom returns filed . Any person required under the authority of this Code to make, render, or file a return, statement or other document with respect to another person shall request from such other person his taxpayer account number, and shall include in any such return, statement or document such taxpayer account number for the proper identification of such other person." "SEC. 61. A new section is hereby inserted between Sections three hundred and thirty-eight and three hundred and thirty-nine, to be known as Section three hundred and thirty-eight A, which shall read as follows: "SEC. 338-A. Non-retroactivity of rulings . Any revocation, modification, or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner of Internal Revenue shall not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayers except in the following cases: (a) where the taxpayers deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; or (c) where the taxpayer acted in bad faith." "SEC. 62. Section three hundred and forty-four of the same Act is hereby amended to read as follows: "SEC. 344. Passage ticket to be issued only to persons exhibiting certificates of tax clearance . No person, corporation, company, or association engaged in the business of carrying passengers shall issue or validate a passage ticket or carry any passengers from a place or port in the Philippines to a foreign place or port, unless the tax clearance certificate prescribed in the next preceding section is duly presented: xxx xxx xxx "SEC. 68. Effectivity Clause . This Act shall take effect on September 1, 1969: Provided , That where at the time of death or within six months thereafter no schedule of values as provided in Section 19 of this Act has been fixed in the areas where the properties of the decedent are located, the assessed values as shown in the tax rolls shall be considered as the fair market value, unless the contrary is shown: Provided , further , That the provisions of Sections 6, 11, 12, 13, 14, 15, and 16 of this Act shall apply to the entire taxable year in which this Act is approved: Provided , still further , That the provisions of Sections 76 and 77 of this Act shall be effective on July 1, 1970: Provided , finally , That the second paragraph of Section 358 as amended by this Act, shall be effective only for a period of four years from July 1, 1969 unless extended. "APPROVED: August 4, 1969 . . ." FEATURES OF THE AMENDMENT I. Section 334 Subsection (B) Independent Certified Public Accountant Defined . This is a new provision defining an "Independence Certified Public Accountant". Article IV, Section 7 of the Rules and Regulations of the Board of Accountancy defines an "Independent Certified Public Accountant" as follows: "He shall not express an opinion on financial statements of an enterprise with respect to which he is not independent. "Independence is essentially a state of mind. It is a manifestation of the professional integrity of the individual. Before expressing his opinion on financial statements, the certified public accountant has the responsibility of evaluating whether, under the circumstances, his opinion will be considered independent and unbiased by one who has knowledge of all the facts. For instance, a certified public accountant shall not be considered independent with respect to any enterprise if: "a. During the period of his professional engagement or at the time of expressing his opinion, he had acquired or was committed to acquire any direct financial interest or material indirect financial interest in the enterprise provided that if he already holds such direct financial interest he shall dispose of the same within a period of two years from date of such engagement or the date of approval of these rules and regulations, whichever is earlier; or "b. He was connected with the enterprise as a promoter, underwriter, voting trustee, director, officer or employee during the period of his professional engagement, at the time of expressing his opinion or during the period covered by the financial statements. The word 'director' is not intended to apply to one in such a capacity for a charitable, religious, civic or other similar type of non-profit organization when the duties performed are clear that the Certified Public Accountant can still express an independent opinion on the financial statements. A firm of Certified Public Accountants, one of the members or employees of which is actually keeping or supervising the keeping of the books of accounts of a certain client, cannot audit the said books of accounts of the latter. "The foregoing are examples of circumstances under which a CPA will not be considered independent, and are not intended to be inclusive." By virtue of this statutory definition, the definition prescribed by Revenue Regulations No. V-20 is now rendered obsolete. Subsection (C) Penal provision . This is also a new provision. (1) Principal penalty : A penalty consisting of a fine not exceeding P5,000.00 and imprisonment of not less than 2 years is imposed upon any certified public accountant or upon any other person under his direction for any of the following violations: (a) By a C . P . A . (1) Falsification in his capacity as an independent certified public accountant of any report or statement bearing on any examination or audit; (2) Rendition in his capacity as an independent certified public accountant of report, including exhibits, statements, schedules or other forms of accountancy work which has not been verified by him personally or under his supervision or by a member of his firm or of his staff in accordance with sound auditing practices; (3) Certification in his capacity as an independent certified public accountant of financial statements of a business enterprise containing an essential misstatement of fact or omission in respect to the transactions, taxable income, deduction or exemption of his client; (4) If he, without qualifying as an independent certified public accountant, examines and audits books of taxpayers. (b) By any person who is not a certified public accountant (1) Who offers to sign and certify financial statements without audit; (2) Who offers any taxpayer to use or use wrong accounting/bookkeeping records; (3) Who in any way commits an act or omission in violation of the provisions of this section. (2) Accessory penalty : (a) In the case of conviction of a certified public accountant, his certificate as such shall automatically be revoked or cancelled. (b) In the case of a foreigner, his conviction under this section shall constitute a ground for deportation. II. Section 337 The amendment to this section provides for the examination and inspection of the books and records of the taxpayers only once in a taxable year during the five-year period within which they are to be preserved, except in cases of fraud, irregularity or mistake as determined by the Regional Director or unless the taxpayer requests otherwise. The determination of fraud by the Regional Director must at all times be approved by the Commissioner before any reinvestigation on the basis of his determination shall be undertaken. The amendment also provides that the examination and inspection of the books and records shall be made only in the taxpayer's office or place of business or in the office of the Bureau of Internal Revenue. III. Section 337-A . Supplying of taxpayer account number . This is a new provision providing for the use of taxpayers' account numbers as a means to facilitate identification. This is a mere incorporation into the law of the subject matter of Revenue Regulations No. 10-65. In the implementation of this new provision, refer to aforesaid regulations. IV. Section 338-A . Non-retroactivity of rulings . This is again a new provision. It provides for the non-retroactive application of rules and regulations revoking, modifying or reversing prior ones if the revocation, modification or reversal is prejudicial to the taxpayers. This amendment, however, also provides that it shall not be applicable in the following cases: (1) Where the taxpayers deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (2) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based; and (3) Where the taxpayer acted in bad faith. V. Section 344 The only amendment to this section is the provision inhibiting carriers from validating the passage tickets of persons departing from the Philippines unless a tax clearance is presented. Before the amendment, the only inhibitions are against the issuance of passage tickets to or the carrying of passengers so departing without a tax clearance being presented. Effectivity Pursuant to Section 68 of Republic Act No. 6110, the amendments as herein discussed took effect on September 1, 1969. Enforcement All internal revenue officers and other concerned are enjoined to be guided accordingly and to give this circular as wide a publicity as possible. MISAEL P. VERA Commissioner of Internal Revenue APPROVED: CESAR VIRATA Acting Secretary of Finance