Law Summary
Computation of Taxable Income According to Section 43, NIRC
- Taxable income is computed based on the taxpayer's annual accounting period (either fiscal year or calendar year).
- The computation must employ the method of accounting regularly used by the taxpayer in their bookkeeping.
- If no accounting method is regularly employed, or the method does not clearly reflect income, the Commissioner may require a method that clearly reflects income.
- For taxpayers without an annual accounting period, or individuals, taxable income is computed based on the calendar year.
Disclosures When Tax Code Provisions Differ from Accounting Standards
- Differences between the Tax Code or its implementing rules and GAAP or GAAS must be fully disclosed.
- Such disclosures are to be included in the financial statements and/or income tax returns.
- The section of the income tax return for reconciling items must always be properly filled out.
Compliance with Internal Revenue Laws and Regulations
- All income tax returns and other tax filings must conform strictly with internal revenue laws, rules, and regulations.
- The practice of filing returns using a different accounting method than that used in the books must cease immediately.
- Returns previously filed under this improper practice shall be dealt with per appropriate legal provisions.
Implementation and Enforcement Directive
- All internal revenue officials and employees are mandated to widely publicize this circular.
- This measure aims to ensure taxpayer compliance and proper enforcement of accounting method rules for tax purposes.
- The circular was adopted on September 17, 2002, signed by the Commissioner of Internal Revenue.