Investigation of Tax Liabilities of Persons and Entities Remitting Foreign Exchange Abroad Other than for the Payment of Imports, as well as Recipients Thereof

June 1, 1967 REVENUE MEMORANDUM ORDER NO. 46-67 SUBJECT : Investigation of Tax Liabilities of Persons and Entities Remitting Foreign Exchange Abroad Other than for the Payment of Imports, as well as Recipients Thereof TO : The Revenue Operations Heads (Special Operations and Assessment), Regional Directors and Others Concerned In accordance with the instructions received from His Excellency, the President of the Philippines, to investigate taxpayers remitting foreign exchange abroad other than for the payment of imports, appropriate arrangements were made with the Central Bank of the Philippines to furnish this Office with a list of remittances abroad of foreign exchange in the amount of P5,000 or more. A study of the list received from the Central Bank of the Philippines shows the following possibilities as the nature of the remittances: 1. For services rendered within the Philippines which is subject to withholding tax at source; 2. Payments of foreign loans which may include interest payments, with the latter being subject to withholding tax at source; 3. Remittances of taxpayers whose declared income or his networth will not justify said remittances. 4. Foreign investments of resident taxpayers which should be taken into account in determining the networth of the taxpayer; 5. Repatriation of profits of resident foreign corporations or branches to the parent company in the case of subsidiaries or to the mother company in the case of branches which should be looked into to determine whether they have been reported for Philippine income tax purposes; 6. The repatriation of profits to non-resident stockholders as dividends which is subject to withholding tax at source; 7. Living expenses of beneficiaries abroad which should be taken into account in the cash analysis of a taxpayer being investigated under the networth method of investigation; 8. Royalties and other forms of fixed and determinable items of income remitted by domestic corporations which is subject to withholding tax at source; cdt 9. Remittances of passengers' fares by foreign shipping and airline companies; 10. Remittances which require further verification as to their nature and purpose; 11. Other remittances which are lumped in one group without identification of purpose and the names of the component remitters; 12. Remittances made by fictitious persons. The preceding enumeration should be taken into account by all those concerned in conducting the investigation. A composite team, to be named as the Foreign Exchange Unit, under the Revenue Operations Head (Special Operations), shall be created to carry out the implementation of the Presidential directive to investigate the tax liabilities of persons and entities remitting foreign exchange abroad other than for the payment of imports, as well as recipients thereof. In order to avoid conflict of jurisdiction and charges of harassment by taxpayers, the following procedures should be followed in assigning cases for investigation: 1. The list coming from the Central Bank of the Philippines which are now being collated in the Special Investigation Division corresponding to the years 1965 to 1967 should be turned over to the new Unit to be created, which shall screen, process and collate the same. 2. The list for 1967 should be held in abeyance until the corresponding returns are filed. If information is received necessitating immediate investigation as in the case of termination of business of the taxpayer, investigation by the Foreign Exchange Unit may be authorized. 3. Those which are the subject matter of investigation for tax fraud by the National Tax Fraud Unit shall be taken out of the list and transmitted to the special agents assigned to the particular case. 4. The list of taxpayers under investigation by the Anti-Smuggling Division, International Operations Division and Special Investigation Division should be prepared by the said divisions and forwarded to the Foreign Exchange Unit, thru the Revenue Operations Head (Special Operations). The list so received shall be cross-checked with the collated list of remitters to determine whether the said taxpayers have remittances of invisibles abroad. After proper evaluation, the Revenue Operations Head (Special Operations) shall assign to members of this new Unit all cases falling within its jurisdiction; 5. The list which has now been purged with the names of those taxpayers being investigated by the Foreign Exchange Unit and the National Tax Fraud Unit shall be classified by region and forwarded to the Regional Offices concerned; 6. The Regional Director shall assign these items of remittances to the examiners conducting investigation of the return of the taxpayer listed as having transmitted foreign exchange abroad. The examiners should be instructed to look closely on these remittances on the basis of the guidelines mentioned in the early part of this Memorandum Order. The nature of the remittances such as the source and the kind shall be looked into to determine whether the said remittances represent taxable income which have not been reported by the taxpayer. If they are income of non-resident taxpayers, the liability of the person or entity who made the remittance for withholding tax purposes, should also be looked into; 7. In submitting the Field Audit Report of investigation of any of the persons or entities listed as having remitted foreign exchange abroad, a separate report covering the nature of his findings of the remittances should be submitted by the examiner concerned to the Department or to the Regional Office, as the case may be. This separate report shall be collated and summarized by the Regional Director or the Revenue Operations Head (Special Operations) and forwarded to the Commissioner of Internal Revenue. aisadc This Revenue Memorandum Order shall be effective immediately. MISAEL P. VERA Commissioner of Internal Revenue