3-year Period of Limitation Upon Assessment and Collection
What is the magic in having three
(3) years pass? Well, it’s the
prescriptive period all taxpayers should love.
Under Section 203 of the National Internal Revenue Code, after this
period has elapsed, this serves as a bar against any tax assessment or
collection after the expiration of this period reckoned from the time of filing
of the return:
SECTION 203. Period
of Limitation Upon Assessment and Collection. - Except as provided in Section
222, internal revenue taxes shall be assessed within three (3) years after the
last day prescribed by law for the filing of the return, and no proceeding in
court without assessment for the collection of such taxes shall be begun after
the expiration of such period: Provided, That in a case where a return is filed
beyond the period prescribed by law, the three (3)-year period shall be counted
from the day the return was filed. For purposes of this Section, a return filed
before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day."
Read in conjunction with Section
235, the NIRC appears to provide that books of account need only be kept for
three (3) years:
“SECTION 235.
Preservation of Books of Accounts and Other Accounting Records. - All the books
of accounts, including the subsidiary books and other accounting records of
corporations, partnerships, or persons, shall be preserved by them for a period
beginning from the last entry in each book until the last day prescribed by
Section 203 within which the Commissioner is authorized to make an assessment. xxx
xxx
Any provision of
existing general or special law to the contrary notwithstanding, the books of
accounts and other pertinent records of tax-exempt organizations or grantees of
tax incentives shall be subject to examination by the Bureau of Internal
Revenue for purposes of ascertaining
compliance with the
conditions under which they have been granted tax exemptions or tax incentives and their tax liability, if any.”
Under the above provisions, once
three years have passed, this BIR must forever hold its peace.
New 10-year period for keeping Books of Accounts
However, a new Revenue Regulation
will make the taxpayer wait much, much longer before he can rest easy on his
past transactions. REVENUE REGULATIONS
No. 17 Series of 2013 is entitled “Presentation of Books of Accounts and Other
Accounting Records” and extends the period of retention of books to ten (10) years -
“SECTION 2.
RETENTION PERIODS. - All taxpayers are required to preserve their books of
accounts, including subsidiary books and other accounting records, for a period
of ten (10) years reckoned from the day following the deadline in filing a
return, or if filed after the deadline, from the date of the filing of the
return, for the taxable year when the last entry was made in the books of
accounts.
The term "other
accounting records" includes the corresponding invoices, receipts,
vouchers and returns, and other source documents supporting the entries in the
books of accounts. They should also be preserved for a period of ten (10) years
counted from the date of last entry in the books to which they relate.
The term “last entry’
refers to a particular business transaction or an item thereof that is entered
or posted last or latest in the books of accounts when the same was closed.
The foregoing
notwithstanding, if the taxpayer has any pending protest or claim for tax credit/refund
of taxes, and the books and records concerned are material to the case, the
taxpayer is required to preserve his/its books of accounts and other accounting records until the case is finally
resolved.
Finally, unless a
longer period of retention is required under the NIRC or other relevant laws,
the independent Certified Public Accountant (CPA) who audited the records and
certified the financial statements of the taxpayer, equally as the taxpayer,
has the responsibility to maintain and preserve copies of the audited and certified
financial statements for a period of ten (10) years from the due date of filing the annual income tax return or the
actual date of tiling thereof, whichever comes later.”
Ironically, the basis for
extending this period relates to fraud.
In a sense, a taxpayer is bound to keep the records that will
incriminate him in the future. As cited
in the regulation, Section 203 also refers to Section 222 of the NIRC which
provides for exceptions to the three (3)-year period of limitation of
assessment:
“SECTION 222.
Exceptions as to Period of Limitation of Assessment and Collection of Taxes.
(a) In the case of a
false or fraudulent return with intent to evade tax or of failure to file a
return, the tax may be assessed or a proceeding in court for the collection of
such tax may be filed without assessment, at any time within ten (10) years
after the discovery of the falsity, fraud or omission: Provided, That in a
fraud assessment which has become final and executory, the fact of fraud shall
be judicially taken cognizance of in the civil or criminal action for the
collection thereof.
(b) lf before the
expiration of the time prescribed in Section 203 for the assessment of the tax,
both the Commissioner and the taxpayer have agreed in writing to its assessment
after such time, the tax may be assessed within the period agreed upon. The
period so agreed upon may be extended by subsequent written agreement made
before the expiration of the period previously agreed upon.”
The BIR cites as one basis for the
extended period is the fact that a taxpayer’s accounting records shall be
needed beyond the three (3)-year period if there is an investigation by the BIR
for any falsity, fraud or omission in the returns which would be conducted
“within ten (10) years after the discovery of the falsity, fraud or omission.”
These records
are subject to examination upon demand by the BIR:
“SECTION 3.
EXAMINATION AND INSPECTION. - All books, registers and other records, and
vouchers and other supporting papers required by the BIR shall be kept at all
times at the place of business of the taxpayer, subject to inspection by any
internal revenue officer, and upon demand, the same must be immediately be produced
and submitted for inspection (Section 20 of Revenue Regulations No. V-1).
They may be examined
and inspected for purposes of regular audit or extraordinary audit, requests
for exchange of information by a foreign tax authority under Sections 6 and 71
of the NIRC, and in the exercise of the Commissioner's power to obtain information
under Section 5 of the NIRC, among others.
Examination and
inspection of books of accounts and other accounting records shall be done in
the taxpayer's office or place of business or in the office of the BIR.”
Any
failure to comply will make a party liable for penalties:
“SECTION 4.
PENALTIES. - Any violation of the provisions of these regulations shall be
subject to penalties provided in Sections 266, 275, and other pertinent
provisions of the NIRC; and Section 6 of Republic Act No. 10021 (the “Exchange
of information on Tax Matters Act of 2009").”
This means that taxpayers and
auditors have to set aside some space for ten years’ worth of records. And like the sword ordered by Dionysius to
hang over Damocles, the records will continue to hang over taxpayers until the
ten years lapse.
Cicero is said to have once remarked “Does
not Dionysius seem to have made it sufficiently clear that there can be nothing
happy for the person over whom some fear always looms?” The BIR does not seem to care about that
lesson.
No comments:
Post a Comment