Context
When incorporating a company in the Philippines, the Business Scope (corporate purpose in the Articles of Incorporation) defines the permitted activities. It determines expense recognition, tax deductibility, and regulatory compliance (SEC and BIR).
⚠️ Risks
– Rejection of expenses by the BIR if not aligned with the Business Scope while recognizing the full amount of revenue and be subjected to income tax and VAT.
– Tax assessments for expenses deemed non-essential,
– Administrative sanctions for activities outside the corporate purpose,
– Loss of credibility with auditors and partners.
✅ Best practices
– Define a sufficiently broad Business Scope at incorporation,
– Regularly update the Articles to reflect business changes,
– Align contracts, invoices, and expenses with the declared purpose,
– Consult tax and legal teams before expanding activities,
– Document the economic rationale of expenses.
In summary
A clear and updated Business Scope secures expense deductibility, minimizes tax disputes, and ensures corporate compliance.
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