Guidelines in the Implementation of the Rules Promulgated Relative to the Administrative Sanctions of Suspension and Temporary Closure of Business

March 8, 1988 REVENUE MEMORANDUM ORDER NO. 13-88 SUBJECT : Guidelines in the Implementation of the Rules Promulgated Relative to the Administrative Sanctions of Suspension and Temporary Closure of Business TO : All Regional Directors, Revenue District Officers and All Others Concerned In the issuance dated January 5, 1988, copy attached as Annex "A", this Office promulgated a set of general rules governing the enforcement of the sanctions provided for by Sec. 111 of the Tax Code as amended by E.O. 273, otherwise known as the Value-Added Tax Law. With a view to a uniform and efficient implementation of said rules and in order to satisfy the requirements of due process, the following guidelines are hereby promulgated: I. RECOMMENDATION TO SUSPEND AND TEMPORARILY CLOSE BUSINESS A. The recommendation of the Revenue District Officer to his Regional Director to suspend or temporarily close business shall invariably be accompanied by documentary proof in support of the particular violation as follows: 1. Failure to issue Value-Added Tax invoice/receipts a. A certification by the record custodian concerned to the effect that the Value-Added Tax Registration number of the taxpayer has been verified as correct; b. The Mission Order issued to the apprehending officer, if any; c. Apprehension Receipt (BIR Form No. 19.14) detailing the items seized; d. The items seized such as the pad of invoices; e. Apprehension report of the apprehending officer and other evidence, if available. cd 2. Failure to file Value-Added Tax returns a. A certification from the records custodian that the Value-Added Tax No. of the taxpayer has been verified as correct; b. A certification from the Revenue District Officer concerned and/or the accredited banks, collection agent or duly authorized Treasurer of the City or Municipality where the principal office of the offender is located that no return was filed; c. The memorandum report of the Revenue Enforcement Officer narrating the fact of non-filing, the grounds relied upon for such a conclusion, with attachments, if any; d. The memorandum report shall be supported by at least a preliminary finding as to the amount of sales and the tax evaded during the quarters under investigation, these to be reflected in the prescribed reportorial forms and working papers; 3. Understatement of taxable sales by 30% or more a. The return filed; b. The taxpayer's records or part thereof as will show or from which it can be shown by other competent evidence that an understatement of sales/receipt has been committed. Invariably, the investigating enforcement officer should take custody over these records under proper receipt as evidence; c. The documents or certified copies thereof obtained through access to records of third persons or entities as provided under Sec. 7 of the Tax Code, which tend to show the actual sales/receipts of the taxpayer; d. The memorandum report of the investigating revenue enforcement officer; e. The prescribed reportorial forms, including working papers reflecting the details of the investigator's finding of understatement. 4. Failure of a Value-Added Tax-subject person to register a. Any one or a combination of the documents which show the line of business of the taxpayer, such as Certificate of Registration with the DOT, Treasurer's Offices, BIR or BOI; b. Any one or a combination of documents showing that the annual gross sales/receipts from Value-Added Tax-covered transactions of the taxpayer during the previous year exceed P200,000 or have exceeded said amount during the current year, such as the financial statements, income and business tax returns, reports of investigation by revenue enforcement officers, and the taxpayer's own records. In the case of an importer, the letters of credit opened, import documents, or certifications from the Bureau of Customs, among others; aisa dc c. Certification from the Revenue District Officer who has jurisdiction over the taxpayer to the effect that the latter did not register as a Value-Added Tax person. B. Confrontational Requirements 1. Consistent with the requirements of due process, the Regional Director upon receipt of the report of the violation, shall require the taxpayer to explain under oath within 24 hours why he should not be dealt with administratively by suspension of business or temporary closure of his establishment and/or criminally, for violation of pertinent provisions of the Tax Code; 2. Upon submission of the explanation or if none is submitted on or before the deadline, the Regional Director shall indorse the docket of the case to the Commissioner of Internal Revenue, Attention: Legal Office, with his recommendations, favorable or unfavorable; 3. If the evidence so warrant, the Legal Office shall prepare the corresponding 5-day notice/order for signature of the Commissioner. C. Execution and Enforcement 1. Where a taxpayer refuses, neglects or fails to heed or comply with the terms of the 5-day notice, the Legal Office shall prepare for the signature of the Commissioner of Internal Revenue the corresponding order to suspend or close which shall be transmitted to the Revenue District Officer concerned, copy furnished the Regional Director for execution. However, if in the meantime the taxpayer corrects the violation, the Regional Director shall communicate such information to the Commissioner of Internal Revenue and desist from implementing the closure order. 2. In the case of an order to close, the execution thereof shall consist in the physical closing of the doors or other means of ingress unto the establishment and the sealing thereof with the Bureau of Internal Revenue (BIR) official seal. 3. Where deemed necessary, the execution of the order to suspend or close shall be carried out with the assistance of elements of the PC/INP in the locality in accordance with the Memorandum of Agreement between the Bureau of Internal Revenue and the PC/INP. II. DURATION OF CLOSURE A. The order of closure shall not be less than 5 days and shall continue until the violation is rectified and the Commissioner issues a written order for the rescission or lifting thereof. III. EFFECT OF RESCISSION/LIFTING OF CLOSURE ORDER A. The lifting or rescission of the closure order shall not release the taxpayer from the compliance requirements and from the penalties prescribed by the Tax Code for the violation which shall be dealt with by criminal prosecution or by compromise in accordance with Revenue Memorandum Order No. 26-86, at the discretion of the Commissioner, except that the compromise settlement for late registration of Value-Added Tax-covered business, shall be in accordance with the amended rates prescribed under the memorandum dated January 12, 1988, copy attached as Annex "B". casia IV. REPORTORIAL REQUIREMENTS A. Regional Directors shall, within ten (10) days of each succeeding month, submit to the Commissioner a monthly status report of all suspension/closure orders issued and/or executed within their jurisdiction. This Revenue Memorandum Order shall take effect immediately. BIENVENIDO A. TAN, JR. Commissioner ANNEX A January 5, 1988 To : All Revenue Officials and Others Concerned The following Rules are hereby promulgated in connection with the various sanctions provided by law are the enforcement of the VAT (E.O. 273). cdt 1. Sec. 99 (4) To support a finding that a gross selling price is unreasonably lower than the actual market value any of the following criteria will be used and evidence submitted to the RDO concerned: a) prices of similar products charged by taxpayers in the same line of business b) cost of merchandise/product sold where such cost is lower than the selling price 2. Sec. 107 (c) Optional registration under VAT will be denied where gross annual sales of the applicant is less than P120,000. Between P120,000 and P200,000 the RDO concerned will make the necessary recommendation based on the value of such registration on the overall implementation of the VAT in the area. 3. Sec. III To suspend and temporarily close a business establishment the RDO concerned shall make the necessary recommendation to his RDO who in turn will endorse the same favorably or unfavorably to the Commissioner. acd The only grounds for suspension and/or closing shall be: a) failure to issue receipt or invoices b) failure to file a value added tax return required by Sec. 110 c) understatement of taxable sales or receipts by 30% or more of his correct taxable sales or receipts d) failure to register under Sec. 107 The Commissioner will, upon receipt of a favorable endorsement from the RD, notify the business establishment concerned giving them 5 days to rectify the violation. If the violation is not corrected within the time specified his establishment will be closed. This will be carried out by a physical closing of the doors of the establishment sealed with a BIR seal. The permit of closure shall not be less than 5 days and shall continue until the violation is rectified. In cases where help is needed the RDO concerned shall apply for police and/or military assistance. Where the violation is for non-issuance of invoices the agreement by the business establishment to issue invoices shall not release him for the penalties provided by the NIRC. Late registration of business who shall have registered shall also on Oct. 29, 1987 carry a penalty of P1,000 in January, 1988, P2,000.00 in February, 1988, P3,000 in March, 1988 and P5,000 thereafter. For late registration covering other classes of taxpayers the penalty schedules followed under the first registration will be followed. If the business establishment corrects the violation the RD will communicate such information to the Commissioner of Internal Revenue and the closure will not be implemented. acd Closure orders can only be rescinded by written orders of the Commissioner of Internal Revenue. (SGD.) BIENVENIDO A. TAN, JR. Commissioner ANNEX B May 29, 1986 MEMORANDUM TO: 1. The Revenue Service Chiefs (a) Sector Operations Office (b) National Assessment Office (c) Collection Office and (d) Specific Tax Office 2. The Regional Directors, Rev. Regions Nos. IV-A (Manila and IV-B (Quezon City) Subject : Preparation and Adoption of a "Revised Schedule of Compromise Penalties" for violations of the Tax C o de . In line with Revenue Memorandum Order No. 8-86, outlining this Bureau's objectives and strategies for effective tax administration, it is necessary that the above-captioned Revised Schedule be formulated and applied to internal revenue violations within the shortest time possible. Compromise penalties are in lieu of criminal prosecution, and although not legally imposable, (Collector v. UST, 104 Phil. 1962), they are actually amounts suggested to be paid by the taxpayer pursuant to the Commissioner's power to compromise internal revenue violations. (Sec. 246, NIRC). Hence, a uniform and simplified schedule of said compromise penalties is of importance. In the presentation of proposals as to suggested amounts, be guided by the attached format and the following considerations: (1) Nature and gravity of the violation. (See attached format) (2) The criminal penalty (fine and/or imprisonment) prescribed therefor. (See attached format) (3) Reasonableness of amount suggested in the light of the present value of the currency. (4) Other similar factors that will give a realistic equivalent of the criminal penalty imposed such as graduation of taxes unpaid or withholding taxes unremitted, etc. Please submit your completed suggestions to the Revenue Service Chief (Planning & Policy Service) within ten (10) days for receipt hereof. Immediate compliance is requested. aisa dc (SGD.) BIENVENIDO A. TAN, JR. Commissioner ANNEX C January 12, 1988 MEMORANDUM: TO : ALL REVENUE OFFICIALS AND OTHERS CONCERNED As an amendment to our instructions dated January 5, 1988 re VAT and in addition thereto acting upon recommendation of certain Regional Directors and Revenue District Officers, the penalties for late registrations are: for the month of January is hereby reduced from P1,000 to 100, February from P2,000 to P1,000, March from P3,000 to P2,000, and P4,000 thereafter. (SGD.) BIENVENIDO A. TAN, JR. Commissioner ANNEX D January 12, 1987 MEMORANDUM: TO : ALL REVENUE OFFICIALS AND OTHERS CONCERNED As an amendment to our instructions dated January 5, 1988 re VAT and in addition thereto acting upon recommendation of certain Regional Directors and Revenue District Officers, the penalties for late registrations are: for the month of January is hereby reduced from P1,000 to P100, February from P2,000 to P1,000, March from P3,000 to P2,000, and P4,000 thereafter. BIENVENIDO A. TAN, JR. Commissioner