The Bureau of Internal Revenue (BIR) has issued a new order prescribing the updated policies, guidelines and procedures for its audit program in line with the agency’s digital transformation program and automation of manual procedures.
Revenue Memorandum Order (RMO) No. 6-2023, issued February 9, 2023, said that in the pursuit of digitalization, the BIR is automating a number of manual procedures to “improve operational efficiency on audit activities.”
The order also aims to “enhance taxpayers’ voluntary compliance by encouraging the correct payment of internal revenue taxes.”
Among the more significant developments in these endeavors is the automated selection of taxpayers that will be issued electronic letter of authority (eLA).
These taxpayers are those “whose transactions were identified as risk areas based on prescribed law, rules and regulations, filed tax returns and other tax information available.”
“To effectively implement the significant changes that such automation process shall introduce into the BIR’s audit activities, it is therefore necessary to prescribe specific policies and guidelines governing the issuance of eLAs to cover the audit/investigation of taxpayer’s internal revenue tax liabilities,” said RMO 6-2023.
To cover such audit/investigation, eLAs or tax verification notices (TVNs), as applicable, shall be issued.
BIR further states that there are mandatory audit and priority audit cases for investigation/verification.
Mandatory cases require an audit before the issuance of tax clearance, processing of claims for tax credit/refund, and other cases as may identified as priority target for audit/investigation.
Under RMO 6-2023, mandatory cases to be issued eLAs are the following:
Claims for tax credit/refund of excise tax or income tax (except income tax claims of job order personnel), including final and creditable income tax withheld
Request for tax clearance of taxpayers whose gross sales/receipts for the immediately preceding year exceeds P3 million or whose gross assets upon retirement exceeds P8 million due to death of taxpayer; or taxpayers retiring from business; or taxpayers undergoing merger/ consolidation/split-up/spin-off and other types of corporate reorganizations
Cases returned to the investigating offices (IO) where the original group supervisor/revenue officer who conducted the audit are no longer available due to transfer of work assignment or separation from service
Cases referred by other IO due to taxpayer’s transfer of business registration, where taxpayer agreed to have the audit continued by the new IO
One-time transactions (ONETT) where cases have review findings that resulted in a deficiency tax; or real property transactions with findings in the Electronic Certificate Authorizing Registration System
Policy cases/industry issues under the MCIR directive of the Commissioner
Mandatory cases that will be issued TVNs are the following:
Persons requesting for tax clearance whose gross sales for the immediately preceding year is P1 million but not exceeding P3 million or whose total assets upon retirement is P3 million but not exceeding P8 million due to death of the taxpayer; or taxpayers retiring from business; or taxpayers undergoing merger/consolidation/split-up/spin-off and other types of corporate re-organization
Claims for value added tax (VAT) refund
Income tax refund of job-order personnel
Claims for refund/tax credit arising from erroneous payment of taxes, including double payment of taxes due to system error/glitch
On the other hand, priority audit cases for investigation/verification of taxpayers are cases which have been electronically selected by the Internal Revenue Integrated System (IRIS)-Audit Module based on prescribed selection criteria pursuant to identified risks that need immediate action.
Also under the priority audit category are audit cases that shall be handled by the VAT Audit Section and Office Audit Section of the Assessment Divisions, and Large Taxpayers VAT Audit Unit under the Large Taxpayers Service (LTS). The execution of the “Run Audit Program” in the IRIS-Audit module, including the submission of the list of taxpayers to be audited, shall be the responsibility of the Assistant Commissioner of the Assessment Service (ACIR-AS) and ACIR-LTS for non-large taxpayers and large taxpayers, respectively.
Priority audit cases can also be manually selected by the concerned regional director/ACIR-LTS but this has to be approved by the CIR.
The policies and procedures on the issuance of eLA/TVN; assignment of cases; conduct of audit and submission of reports of investigation; review of audit reports and issuance of termination letter; handling of protests against tax assessments; monitoring of cases; issuance of replacement eLA; and administrative sanctions are specified in RMO 6-2023.