THE BUREAU of Internal Revenue (BIR)
recently issued Revenue Regulations No. (RR) 17-2013, dated Sept. 27,
2013, to clarify the retention period and prescribe the guidelines on
the preservation of books of accounts and other accounting records of
taxpayers.
Under the said regulations, all taxpayers
are required to preserve their books of accounts, including subsidiary
books and other accounting records for a period of 10 years reckoned
from the day after the deadline for filing a return or if filed after
the deadline, from the date of filing of the return, for the taxable
year when the last entry was made in the books of accounts. It also
provides that, if the taxpayer has any pending protest or claim for tax
credit/refund of taxes, and the books and records concerned are material
to the case, the taxpayer is required to preserve his/its books of
accounts and other accounting records until the case is finally
resolved.
In addition to the responsibility of the taxpayer to retain the books
for ten years, the independent CPA who audited the records and certified
the financial statements of the taxpayer also has the responsibility to
maintain and preserve copies of the audited and certified financial
statements for a period of 10 years from the due date of filing the
annual income tax return (ITR) or the actual date of filing thereof,
whichever comes later.
All books, registers and other records, and vouchers and other
supporting papers required by the BIR shall be kept at all times at the
taxpayer’s place of business, subject to inspection by any internal
revenue officer, and upon demand, the same must be immediately produced
and submitted for inspection. They may be examined and inspected for
purposes of regular audit or extraordinary audit, requests for exchange
of information by a foreign tax authority under Sections 6 and 71 of the
National Internal Revenue Code of 1997 (NIRC), and in the exercise of
the Commissioner’s power to obtain information under Section 5 of the
NIRC, among others. Examination and inspection of books of accounts and
other accounting records shall be done in the taxpayer’s office or place
of business or in the BIR office.
More importantly, failure to observe the new retention requirements will
subject the errant taxpayer to penalties provided in Sections 266, 275,
and other pertinent provisions of the Tax Code and Section 6 of
Republic Act No. (RA) 10021, otherwise known as the “Exchange of
Information on Tax Matters Act of 2009”.
Obviously, this particular issuance creates more burden than ease for
the taxpayer. Yes, keeping accurate and orderly books of accounts and
other accounting records has its benefits, but such obligation should
not be painstakingly overstressed. From the tax audit perspective,
organized documentary system makes audit investigations more tolerable
and defensible. It seems that the BIR failed to take into consideration
the expenses that the taxpayer would have to shoulder to retain these
records for ten years, as this would entail cost for maintenance and
storage.
Section 232 of the Tax Code mandates all corporations, companies,
partnerships or persons required by law to pay internal revenue taxes to
keep a journal and a ledger or their equivalents. The reason for
requiring books of accounts, while stated in the law itself, was also
clarified by the Courts in a plethora of cases, and that is in order
that all taxes due the Government may readily and accurately be
ascertained and determined any time of the year, not only by the
taxpayer but also by the different tax collection agencies of the
government (Reyes vs. Collector, 1956).
However, by issuing RR 17-2013, the BIR has once again exercised its
sweeping authority to interpret the provisions of the Tax Code. The new
regulation is quite contrary to Section 203 of the Tax Code, which
provides that “internal revenue taxes shall be assessed within three
years after the last day prescribed by law for the filing of the return,
and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period.” The
above provision implies that the records of the taxpayer must be
preserved for a period of three years from the date of the last entry
made thereon.
On the other hand, the Tax Code recognizes several exceptions to this
general rule. Under Section 222 of the Tax Code, the right of the BIR to
examine and/or inspect books of accounts and other accounting records
of taxpayers may extend beyond the three-year period of limitation of
assessment, and that is in the case of a false or fraudulent return with
intent to evade tax or of failure to file a return. Under the said
provision, the tax may be assessed, or a proceeding in court for the
collection of such tax may be filed without assessment, at any time
within 10 years after the discovery of the falsity, fraud or omission.
Also, the three-year period may be waived if both the BIR Commissioner
and the taxpayer agree in writing that the period to assess be extended.
While it is in the best interest of both the government and the
taxpayers that books of accounts and accounting records are retained for
a longer period, this should not be an excuse to expand the provisions
of the Tax Code by mandating the retention of accounting records for an
unreasonable time. This is a very dangerous regulation as it no longer
distinguishes whether the taxpayer has filed a fraudulent return or not.
From its plain reading, the regulation plainly assumes that all
taxpayers are filing fraudulent returns and are thereby bound to be
assessed by the BIR for a period of 10 years. More importantly, the
10-year period in fraud cases is counted from the date of discovery.
Hence, requiring the taxpayer to retain records for 10 years from filing
of return will still not cover or address cases involving fraud.
Typically, in the absence of a BIR tax audit or findings of fraud,
taxpayers should be able to dispose of accounting records after the
three-year assessment period has passed. However, with this regulation,
all taxpayers will have to deviate from keeping their documents and
books for three years, as each and every taxpayer must now comply with
the BIR requirement under the pain of penalties, to retain records for
10 years.
Time and time again, we say that one of the characteristics of a sound
tax system is that tax laws must be capable of being effectively
enforced with the least inconvenience to the taxpayer. It assumes that
the rules and procedures for the payment of taxes, audit policies, and
availing of remedies are easily understood by the taxpayer. Clearly,
this is not the case under RR 17-2013, which fearlessly announces 10
years of solitary retention of records for all taxpayers.
The author is a tax associate with the Tax Advisory & Compliance
Division of Punongbayan & Araullo. P&A is a member firm within
Grant Thornton International Ltd.
source: Businessworld
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