Coverage of Surveillance Activities
- Applies to persons suspected of not declaring correct income, sales, or receipts.
- Targets persons failing to issue official receipts/invoices, or issuing unregistered ones, including unregistered cash register machines (CRMs) and point of sale machines (PSMs), violating Sections 113 and 237 of the NIRC.
- Includes persons failing to file required returns or filing fraudulent returns.
- Covers those who fail to register with the BIR as mandated under Section 236 of the NIRC.
Classification and Policies on Surveillance
- Surveillance Types:
- Covert Surveillance: Undercover observation before inventory or seizure of business documents.
- Overt Surveillance: Starts with inventory and continues with open monitoring.
- Short Duration Surveillance (Tax Compliance Check): Spot checks for compliance without prolonged observation.
- All surveillance must be authorized by printed, accountable Mission Orders (MOs) duly recorded.
- MOs issued in multiple copies for officers, offices, and taxpayers.
- Custody and issuance of MOs follow strict protocol assigned to authorized revenue officials.
- Surveillance conducted only if the subject is within coverage.
- At least two implementing officers are required.
- Overt surveillance lasts between 10 to 30 days, extendable in writing.
- Round-the-clock monitoring mandated if business nature requires.
- Surveillance findings can form basis for assessing taxes on multiple periods, considered prima facie correct.
- Officers must file reports before new assignments.
Preliminary Procedures Before Surveillance
- Investigating officer to gather confidential information on business structure, locations, and accounting methods.
- Secure approval and issuance of Mission Orders corresponding to locations to be surveilled.
- Assign distinct teams for different outlets.
- Brief implementing officers just before surveillance start, revealing target identity only on site.
Conduct of Surveillance
- Implementing officers must exhibit ordinary appearance, alertness, resourcefulness, observation skills, patience, and endurance.
- Covert Surveillance involves discrete observation, identifying suppliers and buyers, noting violations, and apprehending offenders with official Apprehension Slips.
- Overt Surveillance includes:
- Informing the subject of surveillance purpose.
- Conducting inventory and seizure of unauthorized documents.
- Signing and witnessing inventory forms.
- Monitoring daily sales and summarizing daily totals.
- Officers may institute additional lawful procedures respecting subject's rights.
Special Provisions for CRMs and PSMs
- Inventory all cash register and point of sale machines, authorized units, and permits.
- Verify compliance and maintain audit trails via daily "Z" readings and tapes.
- Seize unauthorized machines and issue Apprehension Slips.
- Document information using specialized surveillance forms.
Analysis of Surveillance Data
- Calculate average daily sales (ADS) by dividing total sales by surveillance days.
- Extrapolate average quarterly sales using ADS multiplied by 90 days.
- Compare extrapolated figures against declared returns to find discrepancies.
- Identify violations such as use of unregistered devices or non-issuance of receipts.
Post-Surveillance Actions
- Recommend closure of establishments under Section 115 if grounds exist.
- Issue Letter of Authority for formal investigation if income misreporting and unreliable accounting are suspected.
- Conduct audit and assessments based on surveillance data, best evidence rule, or audit findings.
Reporting and Documentation Requirements
- Heads of investigating offices must submit monthly status reports on surveillance activities within 10 days after month-end.
- Reports to be distributed to assigned offices including Enforcement Service, Regional Offices, Office of the Commissioner, and Large Taxpayers Service depending on division.
- ACIRs must prepare and submit Lists of Mission Orders issued within five days after month-end.
Repealing Clause and Effectivity
- All inconsistent issuances are modified or repealed.
- The Order takes immediate effect as of December 4, 2000.