RMO No. 16-2007: Prescribes additional procedures in the audit of input taxes claimed in the VAT returns by Revenue Officers and amends Annex B of RMO No. 53-98 relative to the checklist of documents to be submitted by a taxpayer upon audit of his/its VAT liabilities as well as the mandatory reporting requirements to be prepared by the assigned Revenue Officer/s.

Key points

1. Big-ticket purchases. Revenue Officers must verify that big-ticket purchases are real and properly recorded in the books and tax returns. These are purchases from suppliers whose individual gross annual cumulative sales to the taxpayer-purchaser exceed 5% of the purchaser’s annual gross purchases in the audit period.
2. Matching with supplier data. Officers must use the ITS database and other BIR files to check that purchases with input tax claims were reported as sales by the suppliers. If the supplier under-declared, the information goes to the supplier’s RDO/LT office with a copy to the ACIR, Assessment Service. If the purchaser over-claimed, the excess input taxes are disallowed and deficiency VAT is assessed.
3. Suppliers below reporting thresholds. Officers check the ITS Registration System for supplier VAT registration. Unregistered or Non-VAT suppliers issuing VAT invoices are endorsed to the Special Investigation Division or National Investigation Division, and input taxes are disallowed only if no evidence other than the sales invoice supports the purchases.
4. Supplier VAT returns. Letters signed by the Regional Director, ACIR-LTS or ACIR Enforcement Service, or their authorized representatives, allow officers to get photocopies of suppliers’ VAT returns. Returns of suppliers with big-ticket purchases become part of the tax docket.
5. Confidentiality and audit reports. Records on the identified suppliers are strictly confidential and used only for internal revenue tax purposes, and unauthorized divulgence is a ground for administrative sanctions and charges. Field audit case reports must state the taxpayer’s physical assets, their location, and bank accounts at the conclusion of the audit.

Who is affected

• Revenue Officers auditing VAT returns
• Taxpayer-purchasers claiming input taxes
• Suppliers of audited taxpayers