RMO No. 21-2020: Prescribes the policies, guidelines and procedures for the inspection or supervision of the destruction/disposal and determination of deductible expense pertaining to inventory of goods/assets which have been declared as waste or obsolete

Summary

RMO No. 21-2020 prescribes the policies and procedures for inspecting or supervising the destruction or disposal of inventory and assets declared waste or obsolete, and for determining the deductible expense.

Key points

1. Application. The “Application for Destruction/Disposal of Goods/Assets” is filed in duplicate with the Large Taxpayer (LT) Office or RDO where the principal place of business is registered. It is filed with complete documents at least seven (7) days before the scheduled destruction or disposal, and only complete applications are processed.
2. Witnessing and schedule. The BIR informs the applicant within five (5) days from receipt of the approved manner of witnessing and the schedule. If a third party is approved, the BIR sends it a letter through the taxpayer. The taxpayer shoulders all witnessing expenses, and weekend or holiday destruction needs prior BIR approval.
3. Valuation. Inventory is valued at actual cost. If actual cost cannot be accurately determined, the taxpayer’s own inventory valuation is used, subject to adjustment on audit. Fixed assets use carrying book value.
4. Deductibility of losses. Losses are deductible for income tax after witnessing under the Order and issuance of the “Certificate of Deductibility of Goods/Assets Destructed/Disposed”. The BIR issues it within five (5) days from submission of complete documents such as photos, videos and the inventory count sheet.
5. Denial and audit. The deduction is denied if the supplier replaces the items or an insurance company reimburses the value in whole or in part. A discrepancy found where the deduction was already claimed leads to mandatory audit, and later scrap or salvage value is declared as other income.
6. Approval and excise goods. Reports and certificates are approved by the Assistant Commissioner-Large Taxpayers Service or the Regional Director, who may delegate in writing to Division Chiefs. Destruction of goods subject to Excise Tax is witnessed by an authorized official from the Excise Tax Divisions of the LTS.

Who is affected

• Taxpayers destroying or disposing of waste or obsolete inventory and assets

Deadlines and effectivity

• Application at least seven (7) days before the scheduled destruction or disposal
• BIR reply within five (5) days from receipt of application
• Certificate issued within five (5) days from submission of complete documents

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.