Audit/Investigation of Withholding Tax by RDOs

September 22, 1993 REVENUE MEMORANDUM ORDER NO. 46-93 SUBJECT : Audit/Investigation of Withholding Tax by RDOs TO : All Revenue Officers and Others Concerned I. Introduction It has come to the attention of this Office that upon review of tax audit reports submitted by revenue officers, examination of withholding tax liabilities of withholding agents have been unduly subordinated to the audit of other internal revenue tax liabilities. Audits previously conducted indicate widespread noncompliance with the requirements of withholding tax laws and regulations, such as failure to make a withholding of tax, underwithholding of tax, and failure to remit taxes withheld. In order to maximize compliance, selective audit/investigation of withholding agents will be undertaken primarily for the purpose of (1) criminally prosecuting delinquent withholding agents; (2) assessing and collecting deficiency withholding taxes; and (3) collecting unremitted taxes withheld by them. II. Objectives The examination program for Revenue District Officers prescribed in this Revenue Memorandum Order shall be directed towards the determination of: 1. Failure to make a 1.1 withholding of tax on income and other money payments (nonwithholding of tax) 1.2 correct withholding (underwithholding of tax) 1.3 withholding of tax on taxable fringe benefits 1.4 timely remittance of withholding taxes 2. Failure to remit taxes withheld from income payments III. Procedure 1. Lifting of suspension to investigate. The Revenue District Officers are hereby authorized to conduct thorough audit of withholding agents which have not been previously examined for withholding tax purposes. 2. Selection criteria In the order of the following priorities, withholding agents who will be subjected to audit and investigation by the RDO's under this RMO shall be selected and identified as follows: 2.1 First Priority : All government withholding agents. 2.2 Second Priority : Corporate/partnership withholding agents 2.3 Third Priority : Self-employed withholding agents 3. Workload 3.1 The number of government withholding agents to be investigated shall not exceed five (5) at any one time for every revenue officer. 3.2 The number of withholding agents to be investigated shall not exceed five (5) at any one time for every revenue officer in the case of self-employed individuals. 3.3 In no case shall a group of revenue officers be assigned more than two (2) corporations at any one time, with such assignment determined as follows: 3.3.1 Not more than two (2) revenue officers shall be assigned in the case of corporation the gross sales of which exceeds P10 million but does not exceed P50 million. 3.3.2 Not more than five (5) revenue officers shall be assigned for every corporation, the gross sales of which exceeds P50 million but does not exceed P100 million. 3.3.3 Not more than ten (10) revenue officers for every corporation, the gross sales of which exceed P100 million. 4. In no case shall a compromise penalty be assessed and collected with the deficiency withholding tax or unremitted withholding tax . 5. Period to be covered by the examination 5.1 For examination of government withholding agents - 1993 and unverified prior years. 5.2 For withholding agents other than the government - 1992 and unverified years. 6. Issuance of Letters of Authority (L/As) - 6.1 Separate L/As to investigate withholding tax liabilities of withholding agents registered under the jurisdiction of the RDO shall be issued for each calendar year . 6.2 No L/As to investigate withholding agents under this RMO shall be issued after December 31, 1993. IV. Reporting Requirements 1. Audit Reports - Audit reports should be made strictly in accordance with the requirements of Revenue Audit Memorandum Orders Nos. 5-86 and 38-83. The following audit report forms, if relevant, should be properly accomplished by the revenue officer conducting the audit: 1.1 BIR Form No. 1717-W: Enforcement Officer's Audit Report on withholding Taxes 1.2 Annex "A" to BIR Form No. 1717-W: Audit/Verification of Withholding Tax Compliance (Withholding Tax on Wages) 1.3 Annex "B" to BIR Form No. 1717-W: Audit/Verification of Withholding Tax Compliance (Creditable Expanded Withholding Tax) 1.4 Annex "C" to BIR Form No. 1717-W: Audit/Verification of Withholding Tax Compliance (Final Withholding Tax) 1.5 Annex "D" to BIR Form No. 1717-W: Audit/Verification of Withholding Tax Compliance (Creditable Withholding of Business & Miscellaneous Taxes on Government Money Payments, RA 1051) 1.6 Annex "E" to BIR Form No. 1717-W: Audit/Verification of Withholding Tax Compliance (Creditable Value Added Tax, RA 7649) The above forms should be supported with working papers. The audit reports required under this RMO shall be submitted not later than two months from the date of the issuance of the L/A. 2. Management Reports The RDO shall submit a monthly report to the Chief, Withholding Tax Division in a form prescribed in Annexes "A", "B" and "C", not later than the 10th day of each month. V. Implementation The Revenue District Officer shall be responsible for the over-all administration and direction of the implementation of this Revenue Memorandum Order. The Assistant Revenue District Officers are hereby designated to supervise directly the operational activities necessary to carry out the requirements of this Revenue Memorandum Order. The RDO may mobilize all revenue officers assigned therein to undertake the investigation of withholding agents selected in accordance with procedures prescribed herein. cdt VI. Effectivity This Revenue Memorandum Order shall take effect immediately. LIWAYWAY VINZONS-CHATO Commissioner ANNEX A Monthly Summary of Letters of Authority Issued under RMO ____ ANNEX B Summary of Audit Reports Submitted under RMO No. ____