Tuesday, October 23, 2007 Tax notes: Additional procedures in audit of input taxes
IN Revenue Memorandum Order (RMO) 16-2007, the Bureau of Internal Revenue (BIR) has prescribed additional procedures in the audit of input taxes claimed by taxpayers in the value-added tax (VAT) returns.
The BIR has observed that there has been an abuse in the claim for input tax credits on purchases declared by the taxpayers.
In the said RMO, BIR examiners are instructed to ascertain the legitimacy of “big-ticket” purchases which refer to purchases from suppliers who supply more than five percent of the purchaser’s annual gross purchases.
The BIR examiners are also required to ascertain that the purchases from which input taxes have been claimed by the taxpayer were likewise appropriately reported as sales in the VAT returns of the suppliers, as shown in the BIR’s Integrated Tax System and other databases.
These databases store information obtained from the quarterly Summary List of Sales and Purchases submitted by VAT-registered taxpayers.
If upon matching, it is determined that the declaration of purchases by the taxpayer is valid and that it was the supplier who under-declared his/its sales, such information about the supplier will be endorsed to the Revenue District Office or Large Taxpayers Office where the supplier is registered for further investigation.
On the other hand, if it is the taxpayer who has over-declared his/its purchases, the excessive input tax claimed will be disallowed and the corresponding deficiency VAT will be assessed if the taxpayer-purchaser cannot present additional documents, other than the invoices or receipts, to substantiate the authenticity of the purchases made. (Source: Punongbayan & Araullo)
