[Ask the Tax Whiz] What is an annual tax review?

The deadline for the filing of the annual income tax return (ITR) is April 15, 2024. What do I know I am fully tax compliant? What is an annual tax review? 

You can undertake an annual tax review (ATR) in order to assess your tax compliance. 

The ATR is a proactive measure aimed at preparing for an annual tax audit. It involves reviewing the tax compliance of the taxpayer vis-a-vis the BIR requirements. It will determine any possible tax exposure and its corresponding penalties. On top of verifying the timely filing and submission of tax returns and their attachments, along with prompt payment of taxes due, it will also match the sales and expense declaration from various returns and  reports to assess any underdeclaration or overdeclaration, respectively.

Consequently, ATR facilitates the resolution of tax issues even before the start of a BIR audit thus, reducing potential risks of having a huge deficiency tax assessment.

Will reviewing all documents and checklists prevent us from being audited by the BIR?

No. All taxpayers are possible candidates for audit. But it will help companies prepare for an annual tax audit and investigation of the BIR. As provided under Revenue Memorandum Order Nos. 6-2023 and 8-2023, there are certain types of transactions that are subject to Mandatory and Priority Audit:

1. Mandatory cases

These are transactions to which an audit is required as a condition precedent for the issuance of tax clearance, processing of claims for tax credit/refund and other cases that may be identified by the Commissioner of Internal Revenue as priority targets for audit/investigation. The following shall be covered by this type of Audit:

To be covered by eLAs:

• Claims for tax refund  of Excise Tax; or Income Tax (except income tax claims of Job Personnel), including final and creditable income tax withheld
• Request for Tax clearance whose gross sales or receipts  for the immediately preceding taxable year exceeds P3 million or whose gross assets upon retirement exceeds P8 million
• Cases returned to the investigating offices where the original Group Supervisor (GS)/Revenue Officer (RO) 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 the taxpayer’s transfer of business registration  where the taxpayer agreed to have the audit continued by the new IO, provided the covered period is not yet prescribing
• One -Time Transactions (ONETT) whose cases resulted to a deficiency tax or Real Property Transactions with findings in the Electronic Certificate Authorizing Registration (eCAR) system
• Cases with validated discrepancy notices
• Policy cases/industry issues under the directive of the commissioner

To be covered by TVNs:

• Persons requesting for tax clearance whose gross sales for the immediately Request for Tax clearance whose gross sales or receipts  for the immediately preceding taxable year is P1 Million but not exceeding  P3 million or whose total assets upon retirement is P3 million but not exceeding P8 million
• 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

2. Priority Cases

• Cases which have been electronically selected by the IRIS -Audit module based on the prescribed criteria pursuant to identified  risk that need immediate action.
• Audit cases that shall be handled  by the VAT Audit Section (VATAS) and Office Audit Section  of the Assessment Division (AD), and  Large Taxpayers VAT Audit Unit (LTVAU)
• Cases manually selected by the regional director/ACIR LTS  but this has to be approved by the CIR

What are the things that we need to take note of in our year-end tax compliance?

Taxpayers should remain vigilant about the impending deadlines in 2024. Below are the year-end requirements they must fulfill to comply with the Bureau of Internal Revenue (BIR):

Aside from compliance with the BIR requirements, businesses also need to secure their barangay clearance as well as their business or mayor’s permit. Generally, the deadline for the renewal of business permits is on January 20.

Do you need assistance on your annual tax compliance? ACG conducts a comprehensive review of your tax requirements and assesses possible tax exposures. Through an annual tax review, we help you fix your tax issues even before the beginning of a BIR audit. For free consultation, visit acg.ph.

– Rappler.com