New Rules on Tax Disclosures
The amount of VAT output tax declared during the year and the account title and amounts upon which these were based. If there are zero-rated or exempt sales, a statement to that effect and the legal basis therefore
The amount of VAT input taxes claimed broken down into:
- beginning of the year
- current year’s domestic purchases such as: goods for resale, manufacture or further processing; goods other than for resale or manufacture; capital goods subject to amortization; services lodged under cost of goods sold; and services lodged under other accounts
- claims for tax credit/refund and other adjustments; and
- balance at the end of the year
The landed cost of imports and the amounts of customs duties and tariff paid or accrued thereon
The amount of excise taxes classified per Documentary stamp tax (DST) on loan stock and other transactions subject
All other taxes, local and national, including licenses and permit fees lodged under account both under the Cost of Sales accounts The amounts of withholding taxes categorized compensation, creditable and final
Periods covered and amount of deficiency whether protested or not
Tax cases in court or other bodies outside whatever stage, and amounts involved
The new rule took effect in December of 2010. These disclosures shall be in lieu of the schedule of taxes and licenses that was previously submitted as an attachment to the income tax return (ITR).
The BIR and the Department of Finance have confirmed that the regulations will be implemented and no deferment is being considered. As such, taxpayers and auditors are hoping that a Revenue Memorandum Circular could be issued to address their concerns on how the requirement shall be implemented. So far, none has been issued. Most clarifications can only Be culled from newspaper releases and from various fora where the Commissioner or other BIR officials have spoken.
The most immediate concern is probably which FS will be covered – the FS that will be issued on or after December 28, 2010 or the FS covering fiscal year ending after this date. In several instances, the Commissioner has clarified that FS for taxable year ended December 31, 2010 will be covered. It will also apply to FS of prior fiscal periods that have not yet been finalized or submitted —this is going to be messy since it is likely that the audit has already been completed.
And what does the BIR intend to do with these additional disclosures? We are all aware that most of this information is already declared the taxpayer in other returns that it has filed with the bureau. In addition to the tax returns, there are required attachments for alphabetical lists and summary lists of various information. Even assessments and tax cases are being closely tracked by the BIR . Would the BIR want all these information summarized and available in one document for easy reference? Then, why would it have to be part of the FS?
The auditor certifies that the FS fairly presents, in all material respects, the financial position of the company in accordance with Philippine Financial Reporting Standards. Hence, audit is conducted to obtain reasonable assurance that the FS is free from material misstatement pursuant to Philippine Standards on Auditing. By making the disclosures part of the FS, it is evident that the BIR wants these tax disclosures certified too by the auditor and this has been confirmed.
As it seems, there is no other option at the moment but to comply. Expect, therefore, your external auditor to discuss this with you and how the audit for the tax disclosures will be conducted. They will be requesting for the tax information and documents and will be asking questions and confirmations. Since the FS is really a management responsibility, you, as the taxpayer, may also have to make certain decisions in this regard. Your auditor will present to you these matters for decision and you may even have to seek the opinion of your tax consultants. A tax compliance review may also be an option, especially for large companies with many tax issues.
More than 10 years ago, there was a BIR rule that exempted from tax examination taxpayers who had passed a tax review and certification by an independent accountant or auditor. This time, will taxpayers be rewarded too for having subjected themselves to tax audit? Will the BIR be easily convinced if the auditor has already certified the tax information? We can hope.
The author is a tax principal with the Tax Advisory and Compliance Division of Punongbayan & Araullo, a member firm within Grant Thornton International. For comments or inquiries, please e-mail Lina.Figueroa@ph.gt.com or call 886-5511.