Administrative Policies
- Every audit requires a Letter of Authority (LA).
- Claimants must settle outstanding delinquent accounts before issuance of refund/TCC.
- Separate TCC for delinquent accounts can be issued for payment only, with excess refunded.
- Protests on delinquent accounts processed if compliant with Revenue Regulations No. 12-85.
- Deficiency findings on taxes other than VAT from the LA are referred to appropriate audit offices.
- Processing period for refund claims starts on submission of the last required document.
- Issued Tax Credit Certificates may be used against any direct internal revenue tax liabilities.
Audit Objectives and Pre-Audit Steps
- Objective: Verify refundable/creditable VAT input tax on zero-rated transactions.
- Pre-audit requires understanding the taxpayer’s business structure, economic activity, accounting systems, and prior audit findings.
- Export sales by non-VAT taxpayers treated as VAT exempt.
- Prior approval is mandatory for zero-rating under special laws or international agreements.
- Claims must be filed within two years from the relevant transaction date.
Audit of Sales and Output Tax
- Reconcile sales per VAT returns with subsidiary ledgers and refund applications; discrepancies must be clarified.
- Sales classifications must align with NIRC sections; "deemed sales" include transfers or uses outside business courses.
- Zero-rated sales must correspond to exports, foreign currency sales, or qualifying transactions with supporting documents.
- Export proceeds must be inwardly remitted and certified by the Central Bank.
- Foreign currency sales and zero-rated services require verification of buyer status, payment, and remittance.
- Constructive inward remittance requires Central Bank approval and certified offsetting.
- Effectively zero-rated transactions require approved applications with valid dates.
- Accounts related to sales and income must be analyzed and reconciled with sales figures.
- Detailed pro-forma computations provided for gross sales and receipts.
Audit Checks on Invoicing and Accounting
- Verify all sales journal entries against invoices; check for compliance with VAT invoice requirements.
- Monitor authorization to print invoices and use cash registers; detect unauthorized or duplicated invoices.
- Validate that proper VAT invoices are used for taxable transactions; exempt or zero-rated sales invoices must be properly indicated.
- Ensure VAT is billed correctly; use prescribed factors to compute output tax when incorrectly invoiced.
- For taxpayers with partial VAT exemptions, adjust computations accordingly.
- Confirm whether other charges are included in the gross taxable sales.
- For sales of services, verify advance payments and material components per contract terms.
- Investigate under-declaration through abnormal account behaviors and cross-check customer/supplier records.
Audit of Purchases and Input Tax
- Reconcile purchases per VAT returns with subsidiary purchase journals.
- Confirm no input tax credit arises from non-VAT/exempt sellers or personal purchases.
- Validate proper documentation, including VAT invoices and import entry documents for importation.
- Ensure purchase returns reduce input tax credits appropriately.
- Adjust input tax credits for taxpayers with partial exemptions proportionate to sales.
- Allocate input tax between taxable and exempt activities when applicable.
- Check consistency of input tax carryover balances in returns and accounting records.
- Presumptive and deemed-paid input taxes are not refundable or creditable.
Cancellation of Original Purchase Invoices/Receipts
- Upon claim approval and before TCC issuance or refund disbursement, source documents of allowed/disallowed input taxes must be cancelled with a cancellation stamp.
Reporting Requirements
- Audit reports must be concise, complete and include:
- Letter of Authority, VAT returns, worksheets of schedules (zero-rated sales, purchases, adjustments, disallowances).
- Computations of allowable input tax, deficiency VAT, and other taxes.
- Revenue official’s memorandum report and authority to issue credit or refund.
- Supporting documents including application forms, approvals, certificates, bank statements, and taxpayer certificates.
- Strict compliance with prescribed checklist of procedures and documentations is required.
Checklist of Requirements for Filing VAT Credit/Refund Claims
- Three copies of VAT Credit/Refund Application (Form 2552).
- Approved zero-rate application for effectively zero-rated sales.
- Photocopies of VAT purchase invoices and official receipts arranged with corresponding summaries.
- VAT returns evidencing input tax credit not applied to output tax.
- Taxpayer certificates detailing sales categorization.
- Statements from regulating agencies where applicable.
- Authorization to maintain a special dollar account where necessary.
- Additional supporting documents like articles of incorporation, contracts, inventory, BOI registration, and audited financial statements.
- For constructive remittance: Central Bank approval, monthly offsetting schedules, certifications, and clearance.
Specific Documentary Requirements for Different Types of Sales
- Export Sales:
- Export sales summary with details (dates, buyers, invoice numbers, shipment details, foreign currency values, remittance details).
- Export documents and certificates from banks confirming inward remittance.
- Zero-Rated Sales or Services:
- Contract agreements and payment evidences.
- Receipts, billing summaries, and bank remittance certificates.
- Special reports for manning services regarding foreign receipts.
- Effectively Zero-Rated Sales:
- Invoice summaries, sales evidence, billing reconciliation, and proof of actual delivery.
- Additional mining company requirements.
- Purchase of Capital Goods:
- Original invoices and VAT payment confirmations.
- Importation documents and customs receipts for imported capital goods.
Strict adherence to these provisions ensures proper audit, verification, and processing of VAT credit and refund claims relating to zero-rated transactions and capital goods purchases.