Maintece, Retention, and Submission of Electronic Records

Definitions and key concepts

Section 2.1.1 defines Database Management System as a software system that controls, relates, retrieves, and provides accessibility to data stored in a database.
Section 2.1.2 defines Electronic data interchange (EDI) technology as computer-to-computer exchange of business transactions in a standardized structured electronic format.
Section 2.1.4 defines Electronic record as a collection of related information in an electronically readable format, excluding hard-copy records created or recorded on paper or stored in or by an imaging system such as microfilm, micro-fiche, or storage-only imaging systems.
Section 2.1.5 defines Electronically readable format as information supported by a system capable of producing an accessible and useable copy, including:
- Accessible copy, meaning the taxpayer provides an acceptable copy of electronic records in an electronically readable and useable format to BIR tax auditors (examiners/investigators) for processing and analysis on BIR equipment; and
- Useable copy, meaning electronic records can be processed and analyzed with BIR audit software, in a non-proprietary, commonly used data interchange format compatible with BIR software, and restored from encrypted or proprietary backup formats to an accessible and useable state.
Section 2.1.7 defines Taxpayer for this regulation as corporations, companies, partnerships, or persons required to keep books of accounts necessary to a determination of tax liability.
Sections 2.1.8 to 2.1.11 define Electronic record keeping, Media, CD-R (WORM), and DVD-R for purposes of storage and retention of records.

General electronic recordkeeping duties

Section 3.1 requires a taxpayer to maintain all records necessary for the determination of correct tax liability under Section 232 of the NIRC.
Section 3.1 requires that all required records be made available upon request of the Commissioner of Internal Revenue or authorized representatives.
Section 3.2 requires that if records are retained in both electronic and hard-copy formats, the taxpayer must provide the BIR in electronic format upon request.
Section 3.3 allows a taxpayer to demonstrate compliance using traditional hard-copy documents or reproductions, whether or not the taxpayer also retains electronic records; however, the taxpayer remains obligated to comply with Section 3.2 when electronic format is requested.

Large taxpayer computerized accounting requirements

Section 4.1 requires all Large Taxpayers under Revenue Regulations No. 1-98 to maintain Computerized Accounting Systems (CAS) or components thereof.
Section 4.1 requires that all books of accounts and accounting records be in electronic formats for Large Taxpayers covered.
Section 4.2 requires Large Taxpayers using manual books of accounts to register their CAS not later than December 31, 2009.
Section 4.3 provides that deficiencies in commercial and/or customized software do not relieve Large Taxpayers of responsibility to keep adequate electronic records.

Electronic records detail, integrity, and systems

Section 5.1.1 requires electronic records used to establish tax compliance to contain sufficient transaction-level detail so underlying details can be identified and made available upon BIR request.
Section 5.1.1 allows discarding duplicated records and redundant information if responsibilities under the regulation are met.
Section 5.1.2 requires that at examination time, retained records be capable of retrieval and conversion to a standard record format under Revenue Regulations No. 16-2006.
Section 5.1.3 states that taxpayers are not required to construct electronic records other than those created in the ordinary course of business, and are not required to construct an electronic equivalent of a traditional paper document if it is not created in the ordinary course.
Section 5.2.1 requires EDI processes to maintain a level of record detail equivalent to an acceptable paper record, including (as examples) vendor name, invoice date, product description, quantity purchased, price, tax amount, indication of tax status, and shipping detail; codes may be used if the taxpayer provides a method that allows the BIR to convert coded information into an auditable data.
Section 5.2.2 allows retaining only non-EDI or summarized records if the audit trail, authenticity, and integrity of retained records can be established; functional examples require retaining additional records (e.g., vendor master file and product code description lists) so the auditable data elements exist in the retained system.
Section 5.3.1 requires electronic data processing systems to incorporate methods and records that satisfy the same requirements as an adequately designed manual accounting system.
Section 5.3.2 requires sufficient detail to re-create a sequence of events related to a business transaction and requires an audit trail from source documents (paper or electronic) to summarized financial accounts, with associated system trails (e.g., e-commerce/Point of Sale, receipts, payments, stock inventories).
Section 5.3.3 requires taxpayers keeping electronic records to retain source documents, including (as examples) sales invoices, purchase invoices, cash register receipts, formal written contracts, credit card receipts, delivery slips, deposit slips, work orders, dockets, cheques, bank statements, tax returns, and relevant emails and correspondence.
Section 5.4.1 requires, upon BIR request, a description of the business process that created the retained records, including the relationship between the records and tax documents and measures to ensure integrity.
Section 5.4.2 requires capability to demonstrate: (a) functions performed related to data flow; (b) internal controls for accurate and reliable processing; and (c) internal controls to prevent unauthorized addition, alteration, or deletion.
Section 5.4.3 requires documentation for electronic records retained to include record formats/layouts, field definitions (including meaning of all codes), file descriptions (dataset name), and detailed charts of accounts and account descriptions.
Section 5.4.4 mandates fields for specific journals/books:
- General Ledger: Date; Reference; Brief Description/Explanation; Account Title (or Account Code if Chart of Accounts Master File is available); Debits; Credits.
- General Journal: Date; Reference; Brief Description/Explanation; Account Title (or Account Code if Chart of Accounts Master file is available); Debits; Credits.
- Sales Journal: Date; Customers’ TIN; Customers Name (or Customer Code if Customer Master file is available); Address (not necessary if Customer Master file is available); Description; Reference/Document No./Sales Invoice; Amount; Discount; VAT Amount (Output tax); Net Sales.
- Purchase Journal: Date; Suppliers’ TIN; Vendor’s Name (or Vendor Code if Vendor Master file is available); Address (not necessary if Vendor Master file is available); Description; Reference/Document No./Sales Invoice; Amount; Discount; VAT Amount (Input tax); Net Purchases.
- Inventory Book: Date; Product Name (or Product Code if Product Description Master file is available); Description; Unit; Price per unit; Amount.
- Section 5.4.4 empowers the Commissioner of Internal Revenue (or authorized representative) to prescribe additional fields when needed.
Section 5.5.1 requires adequate control systems safeguarding accuracy, security, and integrity of electronic records, including access controls, input/output controls, processing controls, backup controls with recovery capability, and controls preventing accidental or intentional editing or deletion of completed transactions.
Section 5.5.1 requires that changes to recorded transactions be made by journal entry, adequately documented, and include: person making modifications; date of change; previous transaction details; current transaction details; and reason for change or deletion.
Section 5.6.1 requires that when operating and/or electronic business systems change, capability to access and retrieve data must be preserved and changes must not cause loss, destruction, or alteration of information relevant to determination of taxes payable/collected/withheld, with adequate documentation and a report to the BIR before implementation.
Section 5.6.2 requires, before implementing a new business system, that the taxpayer ensures: sufficient detail for internal revenue tax determination; preserved audit trail for BIR verification; internal controls for accurate and complete recording; transaction integrity and security; capture and saving in readable format for BIR; BIR access to all information needed to verify filed returns; adequate backup and restore procedures; and continued capacity to export required information into a commonly used non-proprietary format.

Maintenance, archiving, labeling, and record location

Section 6.1.1 requires the taxpayer’s computer hardware or software to accommodate extraction and conversion of retained electronic records under Revenue Regulations No. 16-2006.
Section 6.1.2 requires backing up records copied/backed up to another medium in accordance with media manufacturers’ suggested procedures, including attention to shelf life; it requires backing up rewritable media (e.g., computer hard disks) on CD-R/DVD-R, tape or other suitable medium to avoid loss/erasure, and storing media in an environment free from hazards such as magnetic fields, direct light, excessive moisture, and temperature extremes.
Section 6.1.3 places responsibility on the taxpayer to ensure current and/or prior period data files are archived or backed up properly and adequately to meet books and recordkeeping obligations.
Section 6.1.4 requires backup procedures that ensure: restoration into accessible/useable format for the BIR; actual intended data written to the medium; backups/logs are not overwritten; media are uniquely labeled; a log identifies what records/data were recorded; the log states how long the medium is retained before overwrite/discard; software name and version number are noted on labels and in the log; software/operating system are available to restore backed-up files; and periodic testing confirms restorability into electronically readable format.
Section 6.2.1 requires records to be kept at the taxpayer’s place of business in the Philippines or another place designated by the Commissioner of Internal Revenue, and made available to BIR Revenue Officers for audit during business hours upon request.
Section 6.2.1 states that records kept outside the Philippines and accessed electronically from the Philippines are not considered records in the Philippines; it allows BIR acceptance of a copy if made available in the Philippines in electronically readable and useable format for BIR officials and with adequate details to support filed tax returns.
Section 6.2.2 requires retained records to be clearly labeled and stored in a secure environment in the Philippines; it permits written authorization to maintain records elsewhere under terms and conditions specified in writing by the Commissioner of Internal Revenue, and requires the authorized arrangement to provide business-hours access for audit and compliance with the NIRC and these regulations.
Section 6.2.2 requires authorization to be obtained by writing to the Office of the Commissioner of Internal Revenue or authorized representative.
Section 6.2.3 requires backup copies kept at another site for security purposes to still be maintained within the Philippines because the BIR requires this practice.
Section 6.2.4 requires the taxpayer to produce the records for inspection regardless of record location.
Section 6.2.5 requires Internet businesses hosted on a server outside the Philippines to recognize responsibility to maintain records within the Philippines, and to comply with the same record retention responsibilities as other businesses.
Section 6.3.1 allows the taxpayer to engage a third-party for custodial and/or management services of records only if the taxpayer notifies the BIR prior to the arrangement, and utilization of a third-party does not relieve the taxpayer’s obligations.

Access and submission methods for BIR

Section 7.1 requires that access to electronic records for purposes under Section 3.2 be satisfied through various means that take into account the taxpayer’s facts and circumstances through consultation with the taxpayer.
Section 7.2 provides that access may be satisfied in one or more of these manners:
- Section 7.2.1: provide BIR with hardware, software, and personnel resources to access records.
- Section 7.2.2: provide third-party hardware/software/personnel to access records.
- Section 7.2.3: convert electronic records to standard record format under Revenue Regulations No. 16-2006, including file copies on magnetic medium agreed by the BIR, and submit original files in unconverted/native format together with converted copies.
- Section 7.2.4: agree on other means of providing access.

Alternative media, imaging systems, and credit-card effects

Section 8.1 allows conversion of hardcopy documents received or produced in the normal course of business to microfilm, microfiche, or other storage-only imaging systems, with discarding of original hardcopies permitted if the enumerated conditions are met.
Section 8.1 lists examples of documents that may be stored on alternative media, including general books of account, journals, voucher registers, general and subsidiary ledgers, supporting details (including sales invoices, purchase invoices, exemption certificates, and credit memoranda).
Section 8.2.1 requires maintenance of documentation establishing conversion procedures to micro-film/microfiche/storage-only imaging systems and requires it be made available on request with enough description to follow an original document through conversion and with internal inspection/quality assurance procedures.
Section 8.2.2 requires procedures for identification, processing, storage, preservation, and making stored documents available for the retention period required under Section 10.
Section 8.2.3 requires written confirmation by a person in authority that the program is part of usual and ordinary business activity, and that person must execute a sworn statement that original source documents were converted strictly according to standards ensuring integrity and completeness.
Section 8.2.4 requires, upon BIR request, provision of facilities and equipment for reading, locating, and reproducing documents maintained on the imaging systems.
Section 8.2.5 requires that reproduced or displayed documents exhibit high legibility and readability; legibility is defined as quality of a letter or numeral enabling positive and quick identification, and readability is defined as quality of a group of letters or numerals recognizable as words or complete numbers.
Section 8.2.6 requires stored data to be maintained and arranged to permit location of any particular record.
Section 8.2.7 requires a logbook including: date of imaging; signatures of persons authorizing and performing imaging; description of records imaged; and whether source documents are destroyed/disposed after imaging, with the date of destruction/disposal.
Section 8.2.8 provides that there is no substantial evidence that microfilm/microfiche/storage-only imaging systems lack authenticity or integrity; such converted documents may be wholly or partially disregarded by the BIR during audits/investigations, and the BIR will resort to other best-obtainable evidence to establish correct tax liabilities.
Section 8.3 requires prior permit from the BIR before using microfilm, microfiche, and other storage-only imaging systems.
Section 9.1 provides that, except as otherwise provided, taxpayers are not relieved of the responsibility to retain hard-copy records created or received in the ordinary course of business under existing law and regulations; hard-copy may be retained on alternative media as provided in Section 8.
Section 9.2 provides that if hard-copy records are not produced or received in the ordinary course (e.g., with EDI technology), such hard-copy records need not be created.
Section 9.3 requires that hard-copy records generated at the time of credit or debit card transactions be retained unless all details necessary to determine correct tax liability relating to the transaction are subsequently received and retained in accordance with the regulation; required details include those listed in Section 5.2.1.
Section 9.4 provides that computer printouts created for validation, control, or temporary purposes need not be retained.
Section 9.5 authorizes the BIR to request hard-copy printouts in lieu of retained electronic records during examination.

Retention period, registration, and penalties

Section 10.1 requires that all records required to be retained under these regulations be preserved pursuant to Section 235 of the NIRC, unless the BIR provides in writing that the records are no longer required.
Section 11.1 requires registration of all computerized books of accounts, electronic record keeping, electronic business systems and components thereof with the BIR in accordance with Revenue Memorandum Order No. 29-2002 and other pertinent issuances.
Section 12.1 provides that any violation may result in prosecution by the BIR, and upon conviction the taxpayer is liable to penalties under Section 255 of the NIRC, in addition to other penalties otherwise payable.

Repeal, separability, and effectivity

Section 13.1 revokes, repeals, or amends inconsistent revenue regulations and other issuances or portions thereof.
Section 13.1 provides separability: if any provision or section is held invalid, other provisions or sections remain effective.
Section 14.1 provides that the regulations take effect after fifteen (15) days following publication in any newspaper of general circulation.