Economic Recovery Assistance Payment (ERAP) Program Granting Immunity from Audit and Investigation of Income Tax, VAT and Percentage Tax Returns for the Taxable Year 1998 Pursuant to Revenue Regulations No. 2-99

February 9, 1999 REVENUE MEMORANDUM ORDER NO. 10-99 SUBJECT : Economic Recovery Assistance Payment (ERAP) Program Granting Immunity from Audit and Investigation of Income Tax, VAT and Percentage Tax Returns for the Taxable Year 1998 Pursuant to Revenue Regulations No. 2-99 TO : All Internal Revenue Officers and Others Concerned SECTION 1 . Objectives . 1.1 This Order is issued to: 1.1.1 Prescribe uniform guidelines and procedures in the implementation of Revenue Regulations No. 2-99 on the availment of immunity from audit and investigation of income tax, VAT and percentage tax returns filed by certain taxpayers for taxable year 1998; 1.1.2 Prescribe reporting procedures and guidelines in the processing of applications for immunity from audit under the said regulations; 1.1.3 Define the roles and responsibilities of all offices involved in its implementation. SECTION 2 . Scope . 2.1 The immunity from audit and investigation shall apply only to Taxable Year 1998 on the following taxes: 2.1.1 Income Tax; 2.1.2 Value Added Tax; and 2.1.3 Percentage Tax 2.2 The following are NOT covered by the immunity from audit: 2.2.1 Withholding Tax Returns whether in the nature of income, VAT, or percentage tax returns; 2.2.2 All internal revenue taxes other than income tax, VAT and percentage taxes, i.e., estate and donor's taxes, excise taxes and documentary stamp taxes; 2.2.3 Verification to obtain information relevant to the tax liability of another person pursuant to Section 5(b) of the Tax Code, as amended; 2.2.4 Verification to obtain information pursuant to request of a Competent Authority under the Exchange of Information Article of tax treaties entered into by the Philippines with other countries; 2.2.5 Where the taxpayer requests for a refund or credit of any taxes paid; 2.3 The term "Taxable Year 1998" shall include any Fiscal Year ending July 31, 1998 up to Fiscal Year ending June 30, 1999. SECTION 3 . Condition for the Privilege of Immunity from Audit and Investigation . 3.1 In order to avail of the immunity from audit and investigation for 1998 tax returns, the taxpayer shall pay or shall have paid at least TWENTY PERCENT (20%) more than the tax paid in 1997 for income tax, VAT and/or percentage taxes, including basic deficiency taxes paid (in cases already audited). Example 1 Income Tax for the calendar year 1997: Income tax due per return P1,000 Less: Creditable Withholding Tax 300 Tax paid (and receipted) P700 ====== The 20% shall be based on the income tax due per return of P1,000.00. Thus, for 1998, income tax payment must be at least P1,200 (P1,000 x 120%) " normal income tax " to qualify for immunity from audit and investigation. Assuming that the corporation is liable for Minimum Corporate Income Tax (MCIT) in the amount of P2,000 in filing its calendar year 1998 final adjustment income tax return, the total amount due shall be P2,200 computed as follows: Additional tax (P1,000 x 20%) P200 Add: MCIT 2,000 Total amount due P2,200 ====== Example 2 VAT payments : If, for the 1 st quarter return of 1997, VAT payments net of input taxes is P10,000, computed in the VAT Returns as follows: Output Tax Due P50,000 Less: Input Tax 40,000 VAT paid per return P10,000 ====== Then, the 1 st quarter return of 1998, net of input taxes, must be at least P12,000 (P10,000 x 120%) to qualify. 3.2 Provided however, that, where the tax payment for 1998 for either the income, VAT or percentage tax does not exceed that of 1997 by 20% or more, the taxpayer shall be accorded immunity from audit and investigation only with respect to that tax return which complies with the 20% requirement. In such a case, the return which fails to comply with the said requirement shall still be subject to audit and investigation. For example, a taxpayer made the following payments: Type of Tax 1997 1998 % of increase Normal Income Tax 100,000 125,000 25% VAT 100,000 105,000 5% Percentage 100,000 115,000 15% In the above illustration, his VAT and Percentage Tax Returns shall not qualify for immunity from audit and investigation because the increase in his tax payment did not meet the 20% requirement herein prescribed. Hence, only his 1998 income tax return qualifies for immunity from audit and investigation. 3.3 In computing the 20% increase, deficiency payments for 1997 incomes, VAT and/or percentage taxes shall be included in the computation of the 20% for purposes of the availment of this privilege. Provided, however, that with respect to deficiency tax payments, only the basic tax shall be included in the computation. Interest, surcharges and other penalties shall not be included. Illustration: Taxable Year 1997 Income Tax Paid P100,000 Deficiency Tax Payment (basic tax only) 27,500 Total Payment in 1997 P127,500 ======== Taxable Year 1998 To qualify for immunity from audit and investigation, the 1998 tax payment must be at least P153,000 computed as follows: Total Payment for 1997 P127,500 Increase in payment (P127,500 x 20%) 25,500 Total Payment to qualify P153,000 ======== Illustration (Value-Added Tax/Percentage Tax): Taxable Year 1997 Tax Paid per 1997 First Quarter Return P100,000 Deficiency Tax Payment (basic tax only) 50,000 Total Payment in 1997 First Quarter Return P150,000 ======== Taxable Year 1998 To qualify for immunity from audit and investigation, the tax payment in the 1998 First Quarter Return must be at least P180,000 computed as follows: Total Payment in the First Quarter of 1997 P150,000 Increase in payment (P150,000 x 20%) 30,000 Total Payment to qualify P180,000 ======== Every quarter for taxable year 1998 must comply with the minimum payment requirement as illustrated above to qualify the taxpayer for the immunity for all taxable quarters of taxable year 1998. dctai 3.4 In case no tax was paid per the taxpayer's return for the year 1997, his 1998 tax return may qualify for immunity from audit and investigation, provided, such taxpayer complies with the following conditions: 3.4.1 For income tax purposes, the taxpayer shall pay an amount equivalent to one-half of one percent ( of 1%) based on his gross sales or receipts during the taxable year 1998 (in case of individuals) or 2% (in case of corporations); 3.4.2 For VAT and/or percentage tax purposes, since the quarterly VAT and/or percentage tax returns have already been filed as of January 25, 1999, covering the prior year 1998, the taxpayer may qualify for immunity from audit and investigation of the said returns, provided such taxpayer pays an additional amount of 20% based on the VAT and/or percentage tax paid per the said quarterly returns filed. Illustration: Taxable Year 1998 Amount Paid per Return First Quarter P10,000 Second Quarter -0- Third Quarter -0- Fourth Quarter 20,000 Total Tax Paid for the Year P30,000 ======== To qualify for immunity from audit and investigation of the VAT/percentage tax returns filed for 1998, the taxpayer must pay an additional amount equivalent to 20% of the taxes paid per said quarterly returns. Since no tax has been paid per second and third quarterly returns, these returns shall not qualify for availment of the immunity from audit and investigation. 3.5 All income, VAT and percentage tax returns filed for taxable year 1997 where no tax per return was paid, can not be amended to reflect a payable amount per return for purposes of availing of the privilege granted under RR No. 2-99 by complying with the conditions laid down in Section 3, paragraphs 3.1 to 3.3 of this Order. In fine, to qualify for immunity from audit and investigation, the conditions provided for under Section 3, paragraph 3.4 must be strictly followed. LibLex SECTION 4 . Payment of Additional Taxes to Comply with 20% Requirement . 4.1 Taxpayers whose 1998 tax returns already filed as of the effectivity date of these regulations but who want to avail of the immunity from audit and investigation herein granted, may still avail of the privilege by paying additional tax(es) to cover for the 20% requirement not later than June 30, 1999 (e.g., VAT return for the 4 th quarter 1998 already filed last January 25, 1999; Final adjustment income tax return for the fiscal year ended September 30, 1998 which was already filed as of January 15, 1999; etc.). 4.2 Taxpayers whose 1998 tax returns to be filed on or after the effectivity date of these regulations shall pay the additional tax(es) herein required at the same time such return is filed. 4.3 If the additional tax herein required to be paid amounts from Five Million Pesos (P5,000,000) to Ten Million Pesos (P10,000,000), the same may be paid in two (2) equal installments. The first installment shall be paid at the time the return is filed, and the second installment within one (1) month thereafter. If such additional tax is more than Ten Million Pesos, the same may be paid in three (3) equal monthly installments. Provided, however, that prior approval of the Commissioner or of the Regional Director concerned shall be secured for the installment payment of the additional tax(es) in excess of three installments. Provided, finally, that the Regional Director may only approve installment payments not exceeding four (4) equal installments. SECTION 5 . Mechanics for Availment . 5.1 If a taxpayer had complied with the 20% requirement, he shall signify his intention to avail of the immunity from audit and investigation by filing the IMMUNITY FROM AUDIT AVAILMENT FORM (IAAF under Annex A - BIR Form No . 2103 ), in duplicate, with the following attachments: For Income Tax a. Income Tax Returns filed for the years 1997 and 1998; b. In case of deficiency tax paid for 1997, copy of the Authority to Accept Payment (ATAP)/payment form evidencing payment thereof. llcd For VAT and/or Percentage Tax Return a. VAT and/or percentage tax returns filed for the year being availed of and that of the immediately preceding year; b. In case of deficiency tax payments, copy of the ATAP/payment form duly paid or any other proof of payment. 5.2 For those paying additional taxes to comply with the 20% requirement, BIR Payment Form (BIR Form No. 0605) evidencing payment thereof shall also be attached to IAAF. 5.3 The IAAF shall be filed with the Revenue District Office having jurisdiction over the taxpayer's principal place of business. 5.4 Upon verification of the correctness of the taxpayer's availment of immunity from audit and investigation, he shall be issued with CERTIFICATE OF IMMUNITY FROM AUDIT (CIA under Annex B hereof) for the taxes covered by the immunity. SECTION 6 . Processing by the BIR . 6.1 Upon receipt of the IAAF required under Section 5.1 hereof, the Revenue District Officer (RDO) shall pre-audit the papers to verify if the conditions and requirements of this RMO are complied with. If IAAF is found to be correct and complete, the RDO will assign an IAAF File Number which shall serve as the Document Locator Number. The numbering shall follow the format: first 3 digits with the RDO number, the next digits representing the taxes covered ( I for income, V for VAT and P for percentage tax) and the last for the numerical number to be assigned: For example: RDO 49 Taxes Applied for: Income and VAT IAAF File No. shall be: 049-IV-0001 For taxpayers making additional payments to comply with the 20% requirement, an ATAP/Payment Form (BIR Form No. 0605) shall likewise be issued by the RDO. Upon payment thereof, a copy shall be attached to the IAAF. If defects and omissions are noted in the application, these shall be communicated immediately to the taxpayer concerned. If the IAAF and attachments is found to be in order, the RDO shall release the duplicate copy of the IAAF to the taxpayer. 6.2 The original copy of the IAAF together with all attachments shall then be forwarded to the Assessment Division in their respective regions every 15 th and 30 th day of the month. The Assessment Division, in coordination with the RDO or the Revenue Data Center, shall locate all copies of the income, VAT and/or percentage tax returns of taxpayers availing of the immunity and shall transmit the same together with the IAAF to the Regional Director every 5 th and 20 th day of each month. If the Assessment Division finds the IAAF to be in order, it shall prepare four (4) copies of the Certificate of Immunity from Audit (CIA) found in Annex B, to be attached to the IAAF, and forwarded to the Regional Director for his/her approval and signature. 6.3 The Regional Director shall then make a Summary Report of availments and the corresponding additional collection using Report Form on Annex C, and submit the same to the office of the Deputy Commissioner for Operations every 10 th and 25 th day of each month. The Certificate of Immunity from Audit (CIA), as prepared in quadruplicate, shall then be issued as follows: Original - Taxpayer Duplicate - Commissioner of Internal Revenue Triplicate - Secretary of Finance Quadruplicate - Filed with the docket of the case A Control Number shall be assigned to each CIA following this series: the first two digits for the Revenue Region number, the next 3 digit for the district number, the next for the taxes covered (I for income, V for VAT and P for percentage tax) and the last for the numerical number assigned. For Example: RR 8, Makati RDO 049 Taxes Covered: Income and VAT Control No. is: 08-049-IV-001 The IAAF and the returns shall likewise be bundled and together with a copy of the Report Form, shall be forwarded to the administrative divisions in their respective regions for safekeeping. 6.4 The Deputy Commissioner for Operations shall summarize all reports from the Regional Offices and submit an update report of the project to the Commissioner (copy furnished to Management and Planning Service) as often as required by the Commissioner until this project is completed. 6.5 Availments where the additional payment is on an installment basis shall be forwarded by the RDO to the Collection Division in their respective regions for monitoring and collection of installments due. It is only upon full payment of the additional tax that Collection Division shall submit the IAAF together with all attachments to the Assessment Division. The RDO shall likewise be informed. Failure to pay in full the installments due shall invalidate the application for availment. The Certificate of Immunity from Audit referred to in Section 6.2 hereof shall only be issued after all the installments shall have been fully paid. 6.6 No Letter of Authority (LA) shall be issued by any investigating unit in the National Office or in the Regional Offices to any taxpayer who has availed of this privilege. Likewise, no LA shall be issued for any taxpayer who elects to pay in installment the additional payments prescribed under Revenue Regulations No. 2-99. SECTION 7 . Effectivity . This Order shall take effect immediately and shall be given the widest publicity possible. (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue ANNEX A Immunity from Audit Availment Form ANNEX B Certificate of Immunity from Audit INSTRUCTIONS 1. WHAT TAX RETURNS ARE COVERED BY THE IMMUNITY FROM AUDIT AND INVESTIGATION UNDER RR 2-99 . RR 2-99 covers only (a) annual income tax returns for calendar year 1998 and all fiscal years ending July 31, 1998 up to fiscal year ending June 30, 1999; (b) Value-added tax (VAT) returns for the 1 st to 4 th quarters of 1998; and (c) Percentage tax returns for the 1 st to 4 th quarters of 1998. 2. HOW TO AVAIL OF SUCH IMMUNITY . (a) For VAT and Percentage tax returns for the year 1998, which have already been filed as of effectivity of RR 2-99, the taxpayer may apply for immunity from the audit and investigation of the said tax returns provided the taxpayer shall have paid, on a quarterly basis, an amount equivalent to at least 120% of the VAT/Percentage tax paid for the same quarter of the prior year 1997. (Example: If the VAT due, i.e., net of input taxes, per 1 st quarter 1997 VAT return amounted to P10,000.00, the taxpayer's VAT due, i.e., net of input taxes, for the 1 st quarter 1998 VAT return must be at least equal to 120% of P10,000.00, or equal to at least P12,000.00. If the actual VAT due and paid per such 1 st quarter 1998 VAT return was less than P12,000.00, e.g., only P11,000.00, the taxpayer must pay an additional amount of at least P1,000.00 in order to qualify such 1 st quarter 1998 VAT return for immunity from audit and investigation). In paying this additional amount/s, the taxpayer shall use BIR PAYMENT FORM (BIR FORM No. 0605). (b) For income tax returns on fiscal year accounting period which have already been filed as of effectivity of RR 2-99 (example: corporate income tax return for fiscal year ended July 31, 1998 already filed as of November 15, 1998), follow the same procedure as provided in preceding paragraph (a) hereof. (c) For income tax returns the deadline for filing of which is not yet due as of effectivity of RR 2-99 (example: income tax return for calendar year 1998, deadline for filing of which shall be on April 15, 1999), payment of the additional amount prescribed under RR 2-99 shall be upon filing of such income tax return. In this case, the additional amount to be paid shall be shown in the return as a separate item, i.e., separate from the income tax due (example: if the tax paid per 1997 income tax return was P200,000 while the income tax due per 1998 income tax return is P210,000.00, the additional amount, representing 20% of P200,000.00 shall be P40,000.00. Hence, the minimum amount that he must pay to qualify for the immunity from audit and investigation of his 1998 return must be at least equal to 120% of his income tax payment for the year 1997. In this case, the taxpayer shall reflect separately in his 1998 income tax return his payments, as follows: Income tax due per 1998 income tax return (P210,000.00) plus additional amount (P30,000.00), or a total of P240,000.00). 3. WHERE TO FILE THE TAX RETURN/S . The tax return shall be filed through the Authorized Agent Bank (AAB) located within the jurisdiction of the taxpayer's Home Revenue District Office (RDO). In cases where there are no AABs, through the duly authorized Revenue Collection Officer of his Home RDO. 4. WHERE TO PAY THE ADDITIONAL AMOUNT REQUIRED UNDER RR 2-99 . The same shall be paid through the Authorized Agent Bank (AAB) located within the jurisdiction of the taxpayer's Home Revenue District Office (RDO). In cases where there are no AABs, through the duly authorized Revenue Collection Officer of his Home RDO. 5. HOW AND WHERE TO FILE THE IMMUNITY FROM AUDIT AVAILMENT FORM (BIR FORM NO . 2103) . The taxpayer-applicant shall file, in duplicate, his duly accomplished BIR FORM NO. 2103 through his Home RDO, together with the following documents: (a) For income tax purposes, a photocopy of the taxpayer's 1997 income tax return duly stamped received by the AAB or the duly authorized Revenue Collection Officer, and Official Receipt evidencing payment; and a photocopy of the taxpayer's 1998 income tax return duly stamped received by the AAB or the duly authorized Revenue Collection Officer, and Official Receipt evidencing payment. (b) For VAT and/or Percentage Tax purposes, a photocopy of the quarterly VAT and/or Percentage tax returns filed covering the years 1997 and 1998, and Official Receipt/s evidencing payment. 6. WHEN TO PAY THE ADDITIONAL AMOUNT REQUIRED UNDER RR 2-99 . (a) In the case of a corporation using the fiscal year accounting period whose income tax return has already been filed as of the effectivity of RR No. 2-99, availment of the immunity from audit and investigation of such return, and payment of the additional amount prescribed, shall be on or before June 30, 1999. In the case of a corporation using the fiscal year accounting period whose income tax return is not yet due for filing as of June 30, 1999 (example: income tax return of a corporation for fiscal year ended June 30, 1999, deadline for filing of which shall be on October 15, 1999), deadline for payment of the additional amount prescribed under RR 2-99 shall be at the same time the said return is required to be filed. (b) In the case of income tax return for the calendar year 1998, deadline for payment shall be at the same time the return is filed, i.e., on or before April 15, 1999. (c) In the case of VAT and/or Percentage Tax returns for the year 1998, on or before June 30, 1999. 7. WILL TAXPAYERS WHO QUALIFIED AND AVAILED OF THE BENEFITS UNDER RR 2-99 BE ISSUED WITH A CERTIFICATE OF IMMUNITY FROM AUDIT . Any taxpayer who availed of the immunity from audit and investigation of his 1998 income tax, VAT and/or Percentage Tax return/s shall, after determination of his full compliance with the requirements of RR 2-99, be issued by the Commissioner of Internal Revenue or his duly authorized representative with a CERTIFICATE OF IMMUNITY FROM AUDIT. LexLib ANNEX C REPORT OF AVAILMENTS AND COLLECTIONS