Investigation of Internal Revenue Tax Liabilities of Enterprises Registered with the Philippine Export Zone Authority

October 6, 2000 REVENUE MEMORANDUM ORDER NO. 46-00 SUBJECT : Investigation of Internal Revenue Tax Liabilities of Enterprises Registered with the Philippine Export Zone Authority TO : All Regional Directors, Revenue District Officers and Others Concerned I. OBJECTIVES 1. To enhance a high degree of voluntary compliance among identified taxpayers thru the conduct of quality audit and the application of specialized procedures and techniques in the audit of enterprises registered with the Philippine Export Zone Authority (PEZA); 2. To ensure proper application of laws thru the adoption of fair and uniform rules and procedures in the tax treatment of transactions by identified taxpayers registered with the PEZA; 3. To develop and prescribe audit policies, guidelines and standards necessary to improve the quality of audit of tax returns by PEZA-registered enterprises. II. AUDIT COVERAGE 1. In General 1.1 Coverage . This Program shall cover the investigation of all internal revenue tax liabilities of taxpayers registered with the PEZA for taxable year 1999. For fiscal period taxpayers, taxable year 1999 shall include all corporations with fiscal years ending on or before June 30, 2000. 1.2 Exception . Taxpayers under the jurisdiction of the Large Taxpayers Service, Excise Taxpayers Service, and Enforcement Service shall not be included in this Program. Likewise, taxpayers under the regular audit jurisdiction of the concerned Revenue District Offices shall not be included in this Program where Letters of Authority/Audit Notice for the investigation of the PEZA-registered taxpayers were already issued by the Regional Director. III. AUDIT POLICIES AND PROCEDURES 1. Creation of Regional Coordinating Committee and Regional Investigating Team . The Regional Coordinating Committee shall be created by the Regional Director to be composed of the Regional Director as Chairman, the Assistant Regional Director as Vice Chairman, and the Chiefs of Assessment Division, Legal Division, and Special Investigation Division as ex-oficio members. This Committee shall assist the Regional Director in the implementation of the provisions of this Order. The Regional Coordinating Committee shall select qualified Revenue Officers (Assessment Group) and Intelligence Officers from the Revenue District Offices, Special Investigation Division and Assessment Division of the Region and such other officers that may be assigned by the Regional Director to investigate the identified PEZA cases and shall recommend such number of team as may be necessary depending upon the number of taxpayers to be audited. Each team shall be composed of a Team Head and at least three (3) members whose names shall be submitted to the Assistant Commissioner, Assessment Service for approval. 2. Cases to be Audited and Issuance of Letters of Authority . 2.1. Identification of Taxpayers to be Audited . The Revenue District Officers having jurisdiction over all declared public and special economic zones shall prepare a list of all PEZA-registered entities operating inside the zone under their respective jurisdiction This list together with the official duplicate copies of all the tax returns filed shall be submitted to the concerned Regional Director within ten (10) days from the approval of this Order. A copy of the said list shall be furnished by the RDO to the Assistant Commissioner, Assessment Service (ACIR, AS). The Regional Coordinating Committee shall select from the transmitted tax returns of PEZA-registered taxpayers the taxpayers to be audited under this Program. Thereafter, the Committee shall prepare a list of cases recommended for audit (Annex "A") stating in alphabetical order the name of taxpayer selected for audit, TIN and registered address, the nature of business, the amount of gross sales/receipts declared by the taxpayer for the taxable period, and the amount of taxes paid for the period. The list of identified PEZA-registered firms recommended to be audited shall be submitted by the Regional Director to the ACIR, AS not later than October 31, 2000 for pre-approval prior to the issuance of the corresponding Letter of Authority/Audit Notice. 2.2. Verification of Non-Multiplicity of Letters of Authority . The Regional Director and the ACIR, AS shall ensure that the taxpayers selected to be audited by the Regional Investigation Team under this Program are not among those to be audited by the other investigating divisions/units of the Regional Offices and the National Office. For this purpose, the Assessment Service shall match the list of taxpayers submitted by the Regional Investigation Committee with the lists of taxpayers to be investigated by the other investigating units/divisions in the National and Regional Offices prior to approval to preclude multiple issuance of LAs to the same taxpayer for the same taxable year. 2.3 Issuance of Letters of Authority . One Letter of Authority/Audit Notice to be signed by the Regional Director shall be issued for each taxpayer subject to audit. EDcICT 3. Audit Workload of the Regional Investigation Team 3.1 Maximum Workload . The maximum number of audit cases assigned to a Revenue Officer (Assessment Group)/Intelligence Officer who is a member of the Regional Investigation Team shall not exceed twenty (20) cases at any one time including all the pending cases in his mother unit/district, unless there are justifiable reasons as determined by the ACIR, AS. 3.2 Submission of Weekly Progress Reports . The members of the Regional Investigation Team shall be required to submit weekly progress reports bearing on the current status of their audit on all assigned cases to the Regional Investigation Committee every Wednesday of each week after the issuance of a Letter of Authority/Audit Notice until each case is terminated. The Chairman of the Committee shall transmit a copy of the said progress reports to the ACIR, AS immediately upon receipt hereof from the audit team. 3.3 Inventory List of Pending Cases . A list of all inventory of cases assigned to each Revenue Officer/Intelligence Officer and the audit status of the case shall be submitted by each Team Head to the Regional Investigation Committee on or before the 10th day of the following month. 4. Review and Approval of Reports of Investigation 4.1. Reports of investigation on closed and terminated cases shall be prepared and submitted to the Chief, Assessment Division for appropriate review prior to final review and approval by the Regional Director. 4.2 All approved reports of investigation shall be subject to post-audit review by the ACIR, AS. The said approved reports shall be transmitted by the Regional Director to the ACIR, AS within ten (10) days from approval thereof. 5. Monitoring of Nationwide Audits 5.1 Submission of Bi-Monthly Audit Results . The Regional Investigation Team shall submit a bi-monthly Report of Audit Results (Annex "B") within five (5) days after the 15th and end day of each month. This report shall include, among others, the name, TIN and address of the taxpayer, the amount of collection and/or assessment during the period covered; the tax type(s) assessed; and the name(s) of the investigating revenue/intelligence officer(s). This report shall be used in the monitoring of the results of audits conducted nationwide and the amount of collection/assessment generated. 5.2 Identification of Policy Issues . The Regional Investigation Team, in coordination with the Regional Coordination Committee, shall identify issues and concerns that may have impact in the tax treatment of taxpayers operating inside the economic zones. The lists of these issues and concerns (Annex "C") shall be submitted to the ACIR, AS immediately upon discovery thereof for necessary evaluation and appropriate action. These issues and concerns may be used in the issuance/amendment of revenue rules and regulations and/or proposing certain legislative changes in order to plug the identified loopholes in tax administration. 6. Preparation of Audit Manual 6.1 Drafting of Proposed Audit Manual . The Regional Investigation Team and the Regional Coordinating Committee shall be responsible in preparing the draft of the appropriate Revenue Audit Memorandum Order detailing the specific audit procedures to be undertaken by revenue officers in the conduct of audit/investigation of this special group of taxpayers. The recommended audit procedures shall be submitted by the Regional Director to the ACIR, AS for finalization on or before March 1, 2001. In the meantime, the existing audit procedures shall be adopted. DHSaCA 6.2 Finalization and Approval of the Audit Manual . Based on the recommendations by the different Regional Investigation Teams and Coordinating Committees, the ACIR, AS shall cause the finalization of the revenue issuance containing the Audit Manual for PEZA-Registered Taxpayers for approval by the Commissioner of Internal Revenue. The said manual will be used in the succeeding audit/investigation of this special group of taxpayers. IV. VIOLATIONS Any unauthorized deviation from the foregoing policies and instructions and/or violation of any provision of this Order will result in the imposition of disciplinary action to the concerned revenue officers and officials. For this purpose, any violation or unauthorized deviation hereof shall be referred by the concerned revenue official to the Inspection Service thru the ACIR, AS for appropriate investigation. In this regard, the ACIR, AS may recommend to the Commissioner the relief, reassignment, or transfer of any revenue official violating any of the provisions or instructions prescribed in this Order. The Regional Director may also recommend to the Commissioner reassignment of revenue officials or officers for non-compliance with this Order. V. REPEALING CLAUSE Unless inconsistent with the policies and guidelines herein prescribed, all the other rules and policies in the conduct of regular audits by the Revenue District Offices under Revenue Memorandum Order No. 24-2000 shall be strictly observed and followed. VI. EFFECTIVITY This Order shall take effect immediately upon approval and shall remain in force until March 31, 2001 unless duly extended by the Commissioner. (SGD.)DAKILA B. FONACIER Commissioner of Internal Revenue