A reminder to head the call by: Joanna Grace Manuel

APRIL 15 marks the end of another taxable year for many companies. This is the time when annual income tax returns are filed to report the company’s performance during the year. For the tax authority, however, this marks the beginning of another audit quest.

A taxpayer will know if it is under audit when it receives an electronic letter of authority (eLA). This is a written notice that signals the start of the tax authority’s audit process. Attached to the eLA is a request for submission, within a specific time frame, of documents like books of accounts, tax returns, and alphalists.
 
Taxpayers should always keep in mind that immediate attention must be given to these requirements. Non-compliance with this simple request can lead to various undesirable consequences. Taxpayers may clamor that this “simple request” is not really simple as it involves collation of voluminous documents that is time consuming.

In case where the information or records requested are not provided within the prescribed period, the assigned tax examiner will cause the issuance of a subpoena duces tecum (SDT) directed to the taxpayer. SDT is the document that orders the taxpayer to appear before a court and produce the requested documents during the hearing or trial. Evidently, a request from tax authorities must be taken seriously and must be acted upon promptly.

SDTs are issued to the president, partner, general manager, branch manager, treasurer, registered officer-in-charge, employee/s or other persons responsible for the custody of the books of accounts and other accounting records that are required to be submitted. In determining to whom the SDT will be issued, the examiner checks the General Information Sheet (GIS) submitted to the Securities and Exchange Commission (SEC) on a yearly basis.

The SDT will also contain the specific time, date, and place wherein the requested documents should be submitted to the examiner at the BIR office. The time indicated is between 8 a.m. and 5 p.m., which is the regular business hours. The date of compliance is set on the 14th day from the date imprinted on the SDT.

The issuance date on the SDT may not always be the same as the date the taxpayer actually receives it as the examiner has three days from the date of signing to serve the SDT to the taxpayer. This shall be served by the examiner personally at the taxpayer’s registered or known address or wherever he may be found. However, there may be cases wherein personal delivery may not be practicable, then it can be served through substituted service or mail at his registered or known address.

Substituted service may be resorted to when the party is not present at the registered or known address. Substituted service means: a) the SDT will be left with his clerk or with a person having charge at the registered address; b) the SDT may be left with his clerk or with a person having charge at the known address (business activities of the party are conducted); c) the SDT may be left with a person of legal age residing therein; d) the SDT may also be served to a barangay official and two disinterested witnesses to the address to attest that no person has been found at the party’s registered or known address; e) the SDT may also be served to a barangay official and two disinterested witnesses to the registered or known address in the presence of the party to observe the party’s refusal to receive the SDT. The names, official position, and signatures of witnesses will be contained in the bottom portion of the SDT.

On the date reflected on the SDT, the required documents submitted to the concerned BIR examiner must be substantially complete. In case the taxpayer does not submit the documents or submitted incomplete documents, the action lawyer that has been assigned will call a conference on the fifth working day after that was set in the SDT. Within seven days after the conference, the action lawyer will prepare a letter-compl aint together with the complaint-affidavit, recommending the criminal prosecution of the individual taxpayer or the responsible officer of the corporation or partnership who disobeyed the SDT.

It is important to note that Revenue Memorandum Order 10-2013 has explicitly provided that once the complaint-affidavit against the taxpayer is filed, this cannot be withdrawn even if the taxpayer submits the documents after the date that was set in the SDT.

The withdrawal of the complaint was previously allowed upon compliance with the submission of documents and payment of the P10,000 administrative fee. However, the tax authorities are implementing stricter rules to enforce their authority. Compliance is a must. Let us always be reminded to heed the tax authority’s call.

RMC No. 16-2013: Tax implication and recording of deposits/advances for expenses received by taxpayers other than GPPs

Philippine Star - A notable businessman once said that in the business world everyone is paid in two coins:  cash and experience. Take the experience first; the cash will come later.  Idealistic it truly is, but oftentimes reality sets one on a different path. Requiring clients to give a deposit to cover necessary expenses for a service or engagement is common practice nowadays.

The Bureau of Internal Revenue (BIR) recently issued Revenue Memorandum Circular (RMC) No. 16-2013 to clarify the tax implication and recording of deposits/advances for expenses received by taxpayers other than General Professional Partnerships (GPPs).

RMC No. 89-2012 prescribes the accounting and recording of cash deposit/advances received by GPPs.  The tax authorities felt the need to issue the subject RMC because of reports that the expenses are being claimed twice as a deduction for income tax purposes, both by the GPP and its client.

Just like GPPs, there are some companies that require clients to make a cash advance/deposit to answer for certain expenses that will be incurred in the course of rendering the service. Thus, RMC No. 16-2013 was issued last February 8, 2013 targeting companies other than GPP that recognize cash deposits/advances from its customers/clients.

Similar to RMC 89-2012, the new RMC No. 16-2013 highlights the proper treatment of cash advances/deposits.  It likewise stresses the importance of issuing official receipts to document the said advances/deposits.

Under RMC No. 16-2013, the Company shall recognize the cash deposits/advances received as income in its financial books and issue the corresponding official receipt to the client/customer. As income, the cash deposits/advances are thus subject to value added tax (VAT) or percentage tax (PT), whichever is applicable. The official receipt issued shall cover the whole amount which the client/customer advanced and it should conform to the proper invoicing requirement for VAT registered person under Section 113 of the National Internal Revenue Code of the Philippines, as amended (NIRC).

When expenses are incurred or paid in behalf of the client/customer and the expenses are properly substantiated by receipts issued by the third party establishments in the name of the company, the latter shall record the expenses as its own for income tax purposes. The necessary withholding tax from the income payment should also be paid and remitted to the BIR in order for it to be considered as legitimate expense for deduction against gross income. We are reminded by the BIR that expenses are deductible only to the party in whose name the official receipt is issued and other parties are excluded in claiming the same expense.

The client/customer making the cash advance/deposit for the necessary expenses shall treat the same as an outright expense in their books of account. It may claim such cash advance/deposit paid to the company as a deductible expense provided that the withholding tax due thereon has been withheld and remitted to the BIR.
Companies that are able to utilize their tax credits need not worry. The income from the receipt of cash advance/deposit will be offset by the expenses incurred; hence, no additional income tax will be due to the company. The clients/customers should neither worry for the advances are deductible in full to them, and they can also claim as VAT credit, the VAT that will be levied on the cash advance/deposit.

RMC No. 16-2013 is effective immediately and parties affected (i.e. the company and the customer/client) should conform to it to minimize risk of assessment of tax or penalties.

Jose Bernard V. Basallaje is an associate from the tax group of Manabat Sanagustin & Co. (MS&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or MS&Co. For comments or inquiries, please email manila@kpmg.com or rgmanabat@kpmg.com.

Income tax return primers released

Businessworld - LENT is a time when many Christians fast as a way to focus on God. The Lenten season ended on Holy Saturday.

For taxpayers, however, the end of Lent marks the start of the preparation -- and later, the submission -- of income tax returns.

We recall that in November 2011 the Bureau of Internal Revenue (BIR) mandated taxpayers to use the enhanced annual income tax returns (ITR) for individuals and estates and trusts (BIR Form 1701), and non-individual tax payers (BIR Form 1702). Many taxpayers complained of difficulty in filling out the forms.

After more than a year, the BIR issued a primer to serve as guide on how to properly accomplish BIR Forms 1701 and 1702.

The following are the general instructions:

1. All applicable spaces must be filled in.

2. All information required must be written in capitals.

3. Mark with “X” all applicable circles.

It is worth noting that the taxpayer may be held liable for erroneous or incorrect information and will be penalized with tax deficiency payment or penalty on future assessments or even denial of tax claims. Hence, it is also a good point the BIR did not only list the procedures in filling the forms, but also provided a line-by-line explanation of each item, supporting details and certain rules. Taxpayers should be mindful of certain relevant items as follows:

METHOD OF DEDUCTION
The BIR has reiterated that the taxpayer choose one of two methods of deduction in the first quarter of the year and shall consistently use this method throughout the year:

1. itemized deduction

2. optional standard deduction (OSD) or the standard deduction of an amount not exceeding 40% of gross income for corporations and 40% of gross sales/receipts/revenues/fees for individuals.

In the event a taxpayer fails to avail of one of the two methods of deduction in their first quarter ITR or file the quarterly ITR for the first quarter, he or she shall be assigned with the itemized deduction method.

Moreover, the choice between OSD or itemized deduction is irrevocable for the taxable year and such irrevocability is not affected by any amendment by the taxpayer of his first quarter ITR.

Hence, for the filing to be made on or before April 15, the taxpayer shall have no choice but to consistently apply the choice made in the first quarter ITR. Thus, for final income tax return for 2013 that will be filed on 2014, it is important that at this early stage, one shall have decided between itemized deductions and OSD through careful analysis of forecasted cost and revenues and overall review of one’s projected business operations for 2013.

OVERPAYMENT
Generally, taxpayers opt to carry over the excess tax credits/payments in the quarters of the succeeding taxable years. Alternatively, the taxpayer may also opt for the excess be refunded or issued with the tax credit certificate (TCC).

Once the taxpayer signifies his intention to carry over and apply the excess income tax against income tax due for the succeeding taxable year, no application for cash refund or issuance of a TCC shall be allowed. In case the taxpayer fails to signify his/her choice, the excess payment shall be automatically carried over to the next taxable period.

In Court of Tax Appeals (CTA) Case No. 8083, the Court had the opportunity again to discuss the application of the irrevocability rule on the disposition of excess income taxes as cited in the ITR primer.

In the said case, petitioner ticked the box “to be issued a tax credit certificate” in its 2004 income tax return, which was filed on April 15, 2005. Subsequently, in 2007 it filed with the BIR a claim for issuance of TCC of excess creditable withholding tax for the year 2004. The Court, however, noted that the company carried over its excess credits in 2004 to the three quarters of 2005 as well as in the annual income tax return for the year, hence, the denial of the claim.

It is important that taxpayers decide on what to do with their excess income tax. In case he or she opts to be refunded or issued a tax credit certificate, he or she should also weigh the cost and benefit of applying the tax refund/credit certificate.

With the BIR further deferring to taxable year 2013 the requirement for individuals to disclose their other income in the enhanced BIR ITR (BIR Forms 1700 and 1701), individual taxpayers are advised to keep evidence or records of their tax-exempt income and income subject to final withholding tax such as interest income, fringe benefits, property acquired by gift or bequest, etc. in 2013 to ensure compliance with the disclosure requirements.

In addition to the guidelines in accomplishing the forms, the BIR has listed the necessary attachments:

1. statement of management’s responsibility (SMR) for annual income tax return;

2. regular allowable itemized deductions as mandatory attachment to BIR Form 1701/1702 (this may not be submitted if the taxpayer opted for OSD);

3. certificate of independent CPA and financial statements (FS)

4. schedules that must be part of the notes to the audited FS such as sales/receipts/fees, cost of sales/services, non-operating and other taxable income, etc.; and

5. proof of taxes withheld or tax credits such as Certificate of Income Tax Withheld on Compensation (BIR Form 2316) and Certificate of Creditable Tax Withheld at Source (BIR Form 2307).

Lastly, to encourage taxpayers to submit the required attachments, the BIR reiterated it will slap a fine of not more than P25,000 in a calendar year for non-submission or incomplete submission of the attachments.

Such meager fine must not be taken by taxpayers as reason to neglect the submission of required attachments because the information in attachments not submitted may be critical during BIR assessments.

With the issuance of the primer, the BIR has emphasized the importance of the information in the ITRs. Accordingly, taxpayers are expected to be proficient in the preparation of ITRs to minimize, if not avoid, tax penalties and future BIR assessments.

Ms. Fawagan is a tax senior with Punongbayan & Araullo’s (P&A) Tax Advisory and Compliance Division. P&A is a leading audit, tax and an advisory service firm and is the Philippine member of Grant Thornton International Ltd. For comments and inquiries please e-mail MarieFe.Fawagan@ph.gt.com or call 886-5511.

We recall that in November 2011 the Bureau of Internal Revenue (BIR) mandated taxpayers to use the enhanced annual income tax returns (ITR) for individuals and estates and trusts (BIR Form 1701), and non-individual tax payers (BIR Form 1702). Many taxpayers complained of difficulty in filling out the forms.

After more than a year, the BIR issued a primer to serve as guide on how to properly accomplish BIR Forms 1701 and 1702.

The following are the general instructions:

1. All applicable spaces must be filled in.

2. All information required must be written in capitals.

3. Mark with “X” all applicable circles.

It is worth noting that the taxpayer may be held liable for erroneous or incorrect information and will be penalized with tax deficiency payment or penalty on future assessments or even denial of tax claims. Hence, it is also a good point the BIR did not only list the procedures in filling the forms, but also provided a line-by-line explanation of each item, supporting details and certain rules. Taxpayers should be mindful of certain relevant items as follows:

METHOD OF DEDUCTION
The BIR has reiterated that the taxpayer choose one of two methods of deduction in the first quarter of the year and shall consistently use this method throughout the year:

1. itemized deduction

2. optional standard deduction (OSD) or the standard deduction of an amount not exceeding 40% of gross income for corporations and 40% of gross sales/receipts/revenues/fees for individuals.

In the event a taxpayer fails to avail of one of the two methods of deduction in their first quarter ITR or file the quarterly ITR for the first quarter, he or she shall be assigned with the itemized deduction method.

Moreover, the choice between OSD or itemized deduction is irrevocable for the taxable year and such irrevocability is not affected by any amendment by the taxpayer of his first quarter ITR.

Hence, for the filing to be made on or before April 15, the taxpayer shall have no choice but to consistently apply the choice made in the first quarter ITR. Thus, for final income tax return for 2013 that will be filed on 2014, it is important that at this early stage, one shall have decided between itemized deductions and OSD through careful analysis of forecasted cost and revenues and overall review of one’s projected business operations for 2013.

OVERPAYMENT
Generally, taxpayers opt to carry over the excess tax credits/payments in the quarters of the succeeding taxable years. Alternatively, the taxpayer may also opt for the excess be refunded or issued with the tax credit certificate (TCC).

Once the taxpayer signifies his intention to carry over and apply the excess income tax against income tax due for the succeeding taxable year, no application for cash refund or issuance of a TCC shall be allowed. In case the taxpayer fails to signify his/her choice, the excess payment shall be automatically carried over to the next taxable period.

In Court of Tax Appeals (CTA) Case No. 8083, the Court had the opportunity again to discuss the application of the irrevocability rule on the disposition of excess income taxes as cited in the ITR primer.

In the said case, petitioner ticked the box “to be issued a tax credit certificate” in its 2004 income tax return, which was filed on April 15, 2005. Subsequently, in 2007 it filed with the BIR a claim for issuance of TCC of excess creditable withholding tax for the year 2004. The Court, however, noted that the company carried over its excess credits in 2004 to the three quarters of 2005 as well as in the annual income tax return for the year, hence, the denial of the claim.

It is important that taxpayers decide on what to do with their excess income tax. In case he or she opts to be refunded or issued a tax credit certificate, he or she should also weigh the cost and benefit of applying the tax refund/credit certificate.

With the BIR further deferring to taxable year 2013 the requirement for individuals to disclose their other income in the enhanced BIR ITR (BIR Forms 1700 and 1701), individual taxpayers are advised to keep evidence or records of their tax-exempt income and income subject to final withholding tax such as interest income, fringe benefits, property acquired by gift or bequest, etc. in 2013 to ensure compliance with the disclosure requirements.

In addition to the guidelines in accomplishing the forms, the BIR has listed the necessary attachments:

1. statement of management’s responsibility (SMR) for annual income tax return;

2. regular allowable itemized deductions as mandatory attachment to BIR Form 1701/1702 (this may not be submitted if the taxpayer opted for OSD);

3. certificate of independent CPA and financial statements (FS)

4. schedules that must be part of the notes to the audited FS such as sales/receipts/fees, cost of sales/services, non-operating and other taxable income, etc.; and

5. proof of taxes withheld or tax credits such as Certificate of Income Tax Withheld on Compensation (BIR Form 2316) and Certificate of Creditable Tax Withheld at Source (BIR Form 2307).

Lastly, to encourage taxpayers to submit the required attachments, the BIR reiterated it will slap a fine of not more than P25,000 in a calendar year for non-submission or incomplete submission of the attachments.

Such meager fine must not be taken by taxpayers as reason to neglect the submission of required attachments because the information in attachments not submitted may be critical during BIR assessments.

With the issuance of the primer, the BIR has emphasized the importance of the information in the ITRs. Accordingly, taxpayers are expected to be proficient in the preparation of ITRs to minimize, if not avoid, tax penalties and future BIR assessments.

Ms. Fawagan is a tax senior with Punongbayan & Araullo’s (P&A) Tax Advisory and Compliance Division. P&A is a leading audit, tax and an advisory service firm and is the Philippine member of Grant Thornton International Ltd. For comments and inquiries please e-mail MarieFe.Fawagan@ph.gt.com or call 886-5511. - See more at: http://www.bworldonline.com/content.php?section=Economy&title=Income-tax-return-primers-released&id=67994#sthash.c6FY4KCp.dpuf

We recall that in November 2011 the Bureau of Internal Revenue (BIR) mandated taxpayers to use the enhanced annual income tax returns (ITR) for individuals and estates and trusts (BIR Form 1701), and non-individual tax payers (BIR Form 1702). Many taxpayers complained of difficulty in filling out the forms.

After more than a year, the BIR issued a primer to serve as guide on how to properly accomplish BIR Forms 1701 and 1702.

The following are the general instructions:

1. All applicable spaces must be filled in.

2. All information required must be written in capitals.

3. Mark with “X” all applicable circles.

It is worth noting that the taxpayer may be held liable for erroneous or incorrect information and will be penalized with tax deficiency payment or penalty on future assessments or even denial of tax claims. Hence, it is also a good point the BIR did not only list the procedures in filling the forms, but also provided a line-by-line explanation of each item, supporting details and certain rules. Taxpayers should be mindful of certain relevant items as follows:

METHOD OF DEDUCTION
The BIR has reiterated that the taxpayer choose one of two methods of deduction in the first quarter of the year and shall consistently use this method throughout the year:

1. itemized deduction

2. optional standard deduction (OSD) or the standard deduction of an amount not exceeding 40% of gross income for corporations and 40% of gross sales/receipts/revenues/fees for individuals.

In the event a taxpayer fails to avail of one of the two methods of deduction in their first quarter ITR or file the quarterly ITR for the first quarter, he or she shall be assigned with the itemized deduction method.

Moreover, the choice between OSD or itemized deduction is irrevocable for the taxable year and such irrevocability is not affected by any amendment by the taxpayer of his first quarter ITR.

Hence, for the filing to be made on or before April 15, the taxpayer shall have no choice but to consistently apply the choice made in the first quarter ITR. Thus, for final income tax return for 2013 that will be filed on 2014, it is important that at this early stage, one shall have decided between itemized deductions and OSD through careful analysis of forecasted cost and revenues and overall review of one’s projected business operations for 2013.

OVERPAYMENT
Generally, taxpayers opt to carry over the excess tax credits/payments in the quarters of the succeeding taxable years. Alternatively, the taxpayer may also opt for the excess be refunded or issued with the tax credit certificate (TCC).

Once the taxpayer signifies his intention to carry over and apply the excess income tax against income tax due for the succeeding taxable year, no application for cash refund or issuance of a TCC shall be allowed. In case the taxpayer fails to signify his/her choice, the excess payment shall be automatically carried over to the next taxable period.

In Court of Tax Appeals (CTA) Case No. 8083, the Court had the opportunity again to discuss the application of the irrevocability rule on the disposition of excess income taxes as cited in the ITR primer.

In the said case, petitioner ticked the box “to be issued a tax credit certificate” in its 2004 income tax return, which was filed on April 15, 2005. Subsequently, in 2007 it filed with the BIR a claim for issuance of TCC of excess creditable withholding tax for the year 2004. The Court, however, noted that the company carried over its excess credits in 2004 to the three quarters of 2005 as well as in the annual income tax return for the year, hence, the denial of the claim.

It is important that taxpayers decide on what to do with their excess income tax. In case he or she opts to be refunded or issued a tax credit certificate, he or she should also weigh the cost and benefit of applying the tax refund/credit certificate.

With the BIR further deferring to taxable year 2013 the requirement for individuals to disclose their other income in the enhanced BIR ITR (BIR Forms 1700 and 1701), individual taxpayers are advised to keep evidence or records of their tax-exempt income and income subject to final withholding tax such as interest income, fringe benefits, property acquired by gift or bequest, etc. in 2013 to ensure compliance with the disclosure requirements.

In addition to the guidelines in accomplishing the forms, the BIR has listed the necessary attachments:

1. statement of management’s responsibility (SMR) for annual income tax return;

2. regular allowable itemized deductions as mandatory attachment to BIR Form 1701/1702 (this may not be submitted if the taxpayer opted for OSD);

3. certificate of independent CPA and financial statements (FS)

4. schedules that must be part of the notes to the audited FS such as sales/receipts/fees, cost of sales/services, non-operating and other taxable income, etc.; and

5. proof of taxes withheld or tax credits such as Certificate of Income Tax Withheld on Compensation (BIR Form 2316) and Certificate of Creditable Tax Withheld at Source (BIR Form 2307).

Lastly, to encourage taxpayers to submit the required attachments, the BIR reiterated it will slap a fine of not more than P25,000 in a calendar year for non-submission or incomplete submission of the attachments.

Such meager fine must not be taken by taxpayers as reason to neglect the submission of required attachments because the information in attachments not submitted may be critical during BIR assessments.

With the issuance of the primer, the BIR has emphasized the importance of the information in the ITRs. Accordingly, taxpayers are expected to be proficient in the preparation of ITRs to minimize, if not avoid, tax penalties and future BIR assessments.

Ms. Fawagan is a tax senior with Punongbayan & Araullo’s (P&A) Tax Advisory and Compliance Division. P&A is a leading audit, tax and an advisory service firm and is the Philippine member of Grant Thornton International Ltd. For comments and inquiries please e-mail MarieFe.Fawagan@ph.gt.com or call 886-5511. - See more at: http://www.bworldonline.com/content.php?section=Economy&title=Income-tax-return-primers-released&id=67994#sthash.c6FY4KCp.dpuf

We recall that in November 2011 the Bureau of Internal Revenue (BIR) mandated taxpayers to use the enhanced annual income tax returns (ITR) for individuals and estates and trusts (BIR Form 1701), and non-individual tax payers (BIR Form 1702). Many taxpayers complained of difficulty in filling out the forms.

After more than a year, the BIR issued a primer to serve as guide on how to properly accomplish BIR Forms 1701 and 1702.

The following are the general instructions:

1. All applicable spaces must be filled in.

2. All information required must be written in capitals.

3. Mark with “X” all applicable circles.

It is worth noting that the taxpayer may be held liable for erroneous or incorrect information and will be penalized with tax deficiency payment or penalty on future assessments or even denial of tax claims. Hence, it is also a good point the BIR did not only list the procedures in filling the forms, but also provided a line-by-line explanation of each item, supporting details and certain rules. Taxpayers should be mindful of certain relevant items as follows:

METHOD OF DEDUCTION
The BIR has reiterated that the taxpayer choose one of two methods of deduction in the first quarter of the year and shall consistently use this method throughout the year:

1. itemized deduction

2. optional standard deduction (OSD) or the standard deduction of an amount not exceeding 40% of gross income for corporations and 40% of gross sales/receipts/revenues/fees for individuals.

In the event a taxpayer fails to avail of one of the two methods of deduction in their first quarter ITR or file the quarterly ITR for the first quarter, he or she shall be assigned with the itemized deduction method.

Moreover, the choice between OSD or itemized deduction is irrevocable for the taxable year and such irrevocability is not affected by any amendment by the taxpayer of his first quarter ITR.

Hence, for the filing to be made on or before April 15, the taxpayer shall have no choice but to consistently apply the choice made in the first quarter ITR. Thus, for final income tax return for 2013 that will be filed on 2014, it is important that at this early stage, one shall have decided between itemized deductions and OSD through careful analysis of forecasted cost and revenues and overall review of one’s projected business operations for 2013.

OVERPAYMENT
Generally, taxpayers opt to carry over the excess tax credits/payments in the quarters of the succeeding taxable years. Alternatively, the taxpayer may also opt for the excess be refunded or issued with the tax credit certificate (TCC).

Once the taxpayer signifies his intention to carry over and apply the excess income tax against income tax due for the succeeding taxable year, no application for cash refund or issuance of a TCC shall be allowed. In case the taxpayer fails to signify his/her choice, the excess payment shall be automatically carried over to the next taxable period.

In Court of Tax Appeals (CTA) Case No. 8083, the Court had the opportunity again to discuss the application of the irrevocability rule on the disposition of excess income taxes as cited in the ITR primer.

In the said case, petitioner ticked the box “to be issued a tax credit certificate” in its 2004 income tax return, which was filed on April 15, 2005. Subsequently, in 2007 it filed with the BIR a claim for issuance of TCC of excess creditable withholding tax for the year 2004. The Court, however, noted that the company carried over its excess credits in 2004 to the three quarters of 2005 as well as in the annual income tax return for the year, hence, the denial of the claim.

It is important that taxpayers decide on what to do with their excess income tax. In case he or she opts to be refunded or issued a tax credit certificate, he or she should also weigh the cost and benefit of applying the tax refund/credit certificate.

With the BIR further deferring to taxable year 2013 the requirement for individuals to disclose their other income in the enhanced BIR ITR (BIR Forms 1700 and 1701), individual taxpayers are advised to keep evidence or records of their tax-exempt income and income subject to final withholding tax such as interest income, fringe benefits, property acquired by gift or bequest, etc. in 2013 to ensure compliance with the disclosure requirements.

In addition to the guidelines in accomplishing the forms, the BIR has listed the necessary attachments:

1. statement of management’s responsibility (SMR) for annual income tax return;

2. regular allowable itemized deductions as mandatory attachment to BIR Form 1701/1702 (this may not be submitted if the taxpayer opted for OSD);

3. certificate of independent CPA and financial statements (FS)

4. schedules that must be part of the notes to the audited FS such as sales/receipts/fees, cost of sales/services, non-operating and other taxable income, etc.; and

5. proof of taxes withheld or tax credits such as Certificate of Income Tax Withheld on Compensation (BIR Form 2316) and Certificate of Creditable Tax Withheld at Source (BIR Form 2307).

Lastly, to encourage taxpayers to submit the required attachments, the BIR reiterated it will slap a fine of not more than P25,000 in a calendar year for non-submission or incomplete submission of the attachments.

Such meager fine must not be taken by taxpayers as reason to neglect the submission of required attachments because the information in attachments not submitted may be critical during BIR assessments.

With the issuance of the primer, the BIR has emphasized the importance of the information in the ITRs. Accordingly, taxpayers are expected to be proficient in the preparation of ITRs to minimize, if not avoid, tax penalties and future BIR assessments.

Ms. Fawagan is a tax senior with Punongbayan & Araullo’s (P&A) Tax Advisory and Compliance Division. P&A is a leading audit, tax and an advisory service firm and is the Philippine member of Grant Thornton International Ltd. For comments and inquiries please e-mail MarieFe.Fawagan@ph.gt.com or call 886-5511. - See more at: http://www.bworldonline.com/content.php?section=Economy&title=Income-tax-return-primers-released&id=67994#sthash.c6FY4KCp.dpuf