Context
In the Philippines, the Bureau of Internal Revenue (BIR) increasingly scrutinizes consistency between tax returns (VAT, withholding taxes, corporate income tax) and audited financial statements filed with the SEC.
Key audit focus areas
– VAT-reported revenues vs. sales in audited financials,
– Expenses subject to withholding tax vs. recorded operating expenses,
– Corporate Income Tax (CIT) declared vs. audited net income,
– Correct application of MCIT from the 4th year.
– Correct application of NOLCO for three years.
– Documentary Stamp Tax vs Director Loan Arrangement and Capitalization
– Sufficient and proper supporting evidence both for revenues and expenses claimed.
– Correct, complete and updated books of accounts.
⚖️ Risks involved
– Tax adjustments if discrepancies are unjustified,
– Penalties and interest for under-declaration,
– Suspicion of fraud in case of recurring inconsistencies,
– Extended statute of limitations if concealment is suspected.
✅ Best practices
– Systematically reconcile tax returns and financial statements,
– Document legitimate differences (accounting adjustments vs. local tax rules),
– Implement a tax reconciliation calendar,
– Train accounting staff on consistency requirements,
– Work closely with auditors to anticipate BIR checks.
– Maintain sufficient and proper supporting documentation for all transactions declared.
– Be updated with latest BIR issuances and regulations.
In summary
Consistency in documentation is key to reducing the risk of tax assessments. A thorough reconciliation of accounting and tax data secures the company’s tax position.
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