INCOME TAX COMPUTATION FOR CORPORATE TAXPAYERS Prepared by

INCOME TAX COMPUTATION FOR CORPORATE TAXPAYERS Prepared by: Lilybeth A. Ganer Revenue Officer

What is a corporation? Corporation – is an artificial being created by law, having the rights of succession and the powers, attributes and properties authorized by law or incident to its existence. For taxation purposes, corporation shall include – Ø Partnerships Ø Joint-stock companies Ø Joint accounts Ø Associations Ø Insurance companies 2

A corporation does not include – Ø General Professional Partnership Ø Joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating or consortium agreement under a service contract with the government 3

Classification of Corporation 1. ) Domestic corporation - is one created or organized in the Philippines or under its laws. (Sec. 22 (C), NIRC) 2. ) Foreign corporation - Those that were formed, organized orexisting under any law other than those of the Phils. irrespective of the nationality of its stockholders. 4

Foreign Corporation Foreign corporations are either – ØA. Resident foreign - Foreign corporation engaged in trade or business within the Phil. Generally, it establishes branch or an office for the purpose of doing business or trade. 5

Ø B. Non-resident foreign - Foreign corporation not engaged in trade or business within the Phil. 6

Corporations may be subjected to the following taxes: 1. 2. 3. 4. 5. Normal Corporate Income Tax (NCIT) Minimum Corporate Income Tax (MCIT) Gross Income Tax (GIT) Capital Gains Tax on sale of real property or on sale of shares of stock (CGT) Final Tax on Passive income (FT)

Evolution of Corporate Income Tax Rate Effectivity Basis 34% Jan 1, 1998 RA 8424 33% Jan 1, 1999 RA 8424 32% Jan 1, 2000 RA 8424 35% Nov 1, 2005 RA 9337 30% Jan 1, 2009 RA 9337 8

Taxability of Corporations (RA 9337) Income In General All income derived from sources within or outside the Phils. All income derived from sources within the Phils. Optional Corporate Tax Rate Minimum Corporate Income Tax (MCIT) Domestic 30% (Net Taxable Income) 15% (Gross Income) Resident Foreign Non-Res. Foreign -- -- 30% (Net Taxable Income) 30% (Gross Income) 15% (Gross Income) 2% 2% (Gross Income) ---9

The Normal Corporate Income Tax BIR Form 1702 (General Format for Income tax computation on business income) Sales/ Revenues/ Fees from within and without Less: Sales returns, allow. , and disc. (if any) Cost of Sales Gross Income from operation Add: Non-operating and other income not subjected to final tax or capital gains tax P xxx xxx P xxx Gross Income xxx Less: Allowable itemized business deductions xxx Net Taxable Income xxx Multiply by Normal Corporate Income Tax Rate 30% Normal Corporate Income Tax xxx ===

Sample Problem: Mara Clara Inc. is a domestic corporation engaged in the retail of various household merchandise. For TY 2010, the company had the following account balances:

Cost of Sales P Sales Returns allowance and disc. 50, 000. 00 Administrative Expense 230, 000. 00 Depreciation Expense Rental Expense Light and Water Expense Rental Income Sales 1, 050, 000. 00 400, 000. 00 20, 000. 00 100, 000. 00 50, 000. 00 100, 000. 00 Compute for the Normal Income Tax Due:

Solution: Sales/ Revenues Less: Sales Rets. , Allow. & Disc. Cost of Sales Gross Income from operation Add: Non-operating and other income not subjected to Final tax or capital gains tax Gross Income Less: Itemized business deductions Net Taxable Income X Normal Corp. Income Tax Rate Normal Corporate Income Tax P 1, 050, 000. 00 400, 000. 00 450, 000. 00 600, 000. 00 100, 000. 00 700, 000. 00 400, 000. 00 30% P 90, 000. 00 =======

How much is the Normal Corporate Income Tax if Mara Clara, Inc. is: 1. A Resident Foreign Corporation? 2. A Non-Resident Foreign Corporation? Answer: 1. __________ 2. __________

Minimum Corporate Income Tax (MCIT) (RR No. 9 -98 as amended by RR No. 12 -07) 15

� Sec. 27(E) and 28 (A)(2) of the NIRC: Imposed on: Domestic & Res. Foreign 2 % on Gross Inc. if: - in the 4 th year of operation - net loss/zero taxable inc. / MCIT is greater than NCIT

v For sale of goods : Gross sales 1, 000. 00 Less: Sales Ret. , Disc & Allow. 25, 000. 00 Cost of Goods Sold 500, 000. 00 Gross Income from operation 475, 000. 00 Add: Other Income not subject to Final Tax or Capital Gains Tax 100, 000. 00 Total Gross Income subject to MCIT 575, 000. 00 ==== 17

Gross income Ø include all items of gross income enumerated under Section 32(A) of the Tax Code, as amended, except income exempt from income tax and income subject to final withholding tax. “Gross sales” shall include only sales contributory to income taxable under Sec. 27(A) of the Code. “Cost of goods sold” shall include all business expenses directly incurred to produce the merchandise to bring them to their present location and use 18

For sale of services Gross Revenue P 5, 000. 00 Less: Cost of services 950, 000. 00 Gross Income 4, 050, 000. 00 Add: Other Income not subject to Final Tax or Cap. Gains Tax ___ --____ Total Gross Income 4, 050, 000. 00 ===== 19

“Gross Revenue” shall include income from sale of services, likewise, taxable under Sec. 27(A). “Cost of Services or Direct Cost of Services” shall include business expenses directly incurred or related to the gross revenue from rendition of services. 20

Illustration: Bungga-Bungga Corporation has been operating since January 1, 2006. Data pertinent to its operations covering 2008 to 2010 are as follows: 2008 Gross Sales 2009 2010 3, 080, 000 4, 100, 000 5, 200, 000 80, 000 100, 000 200, 000 Cost of Sales 1, 500, 000 2, 500, 000 Operating Expenses 1, 450, 000 1, 900, 000 2, 100, 000 Sales Ret. , Disc. & Allow. Determine the appropriate income tax of Bungga-Bungga Corporation.

1. Computation of Normal Corporate Income Tax(NCIT): Gross Sales Ret. , Disc. & Allow. 2008 2009 2010 100, 000 200, 000 3, 080, 000 4, 100, 000 5, 200, 000 80, 000 Net Sales 3, 000 4, 000 5, 000 Cost of Sales 1, 500, 000 2, 500, 000 Gross Income 1, 500, 000 2, 500, 000 Operating Expenses 1, 450, 000 1, 900, 000 2, 100, 000 Net Taxable Income 50, 000 100, 000 400, 000 X Normal Corp. Tax rate 35% 30% Normal Corp. Income Tax 17, 500 30, 000 120, 000

2. Computation of Minimum Corporate Income Tax (MCIT) Gross Income X MCIT rate MCIT Note: 2009 2, 000 2% 40, 000 2010 2, 500, 000 2% 50, 000 The MCIT for TY 2008 is not applicable because the company has not yet reached its fourth year

3. Determination of Income tax due and payable: 2008 2009 2010 NCIT 17, 500 30, 000 120, 000 MCIT Not Applicable 40, 000 50, 000 2008 NCIT or MCIT, w/ever is higher Less: Excess of MCIT over NCIT Income Tax Due and Payable 2009 2010 17, 500 40, 000 120, 000 17, 500 40, 000 110, 000

Carry forward of Excess MCIT Ø Excess of MCIT over normal income tax shall be carried forward on an annual basis and credited against the normal income tax for the 3 immediately succeeding taxable years Ø Excess MCIT can only be credited against the income tax due if the normal income tax is higher than the MCIT 25

Carry forward of Excess MCIT Ø Excess MCIT which has not or cannot be so credited against the normal income tax due for the 3 -year period shall lose its credibility ØExcess MCIT cannot be claimed as a credit against the MCIT itself or against any other losses 26

Carry forward of Excess MCIT (cont. ) Ø The final comparison between the normal income tax payable and the MCIT shall be made at the end of the taxable year Ø The payable or excess payment in the Annual Income Tax Return shall be computed taking into consideration income tax payment made at the time of filing of quarterly income tax returns whether this be MCIT or normal income tax 27

Rules on crediting of tax payments & taxes withheld Annual Computation Normal Income Tax (NIT) is higher than MCIT is higher than Normal Income Tax Excess MCIT from prior year can be deducted from the NIT due Excess MCIT from prior years cannot be deducted from the MCIT due Excess withholding tax from prior year can be deducted from the NIT due Excess withholding tax from prior year can be deducted from the MCIT due 28

Rules on crediting of tax payments & taxes withheld Annual Computation Normal Income Tax (NIT) is higher than MCIT is higher than Normal Income Tax Quarterly taxes withheld can be credited from the NIT due Quarterly taxes withheld can be credited from the MCIT due Quarterly income tax payments whether Normal Income Tax or MCIT can be deducted from the NIT due Quarterly income tax payments whether MCIT or Normal Income Tax can be deducted from the MCIT due Note: The final comparison between the NIT and MCIT shall be made at the end of the taxable year 29

Rules on crediting of tax payments & taxes withheld (cont. ) Quarterly computation Normal Income Tax (NIT) is higher than MCIT Excess MCIT from prior year can be deducted from the quarterly NIT due MCIT is higher than Normal Income Tax Excess MCIT from prior year cannot be deducted from the quarterly MCIT due Excess withholding tax from prior year can be deducted from the quarterly NIT due the quarterly MCIT due 30

Rules on crediting of tax payments & taxes withheld (cont. ) Quarterly computation Normal Income Tax (NIT) is higher than MCIT is higher than Normal Income Tax Quarterly taxes withheld can be credited from the quarterly NIT credited from the quarterly due MCIT due Payment from previous quarters of the taxable year can be deducted from the cumulative tax due (whether NIT or MCIT) Note: Quarterly comparison to determine whichever is higher between the NIT and MCIT shall be done on a cumulative basis 31

Illustration 1 - Normal income tax at year end is higher than MCIT Panday Corporation’s computed normal income tax and MCIT, and creditable income taxes withheld from 1 st to 4 th quarters including excess MCIT and excess withholding taxes from prior year/s are as follows: Excess Normal Taxes MCIT W/tax Qtr. Inc. Tax MCIT Withheld Prior Years 1 st 2 nd 3 rd 4 th 100, 000 120, 000 250, 000 200, 000 80, 000 250, 000 100, 000 20, 000 30, 000 40, 000 35, 000 30, 000 10, 000 32

Computation 1 st Quarterly corporate income tax due (higher amount between normal income and MCIT) – normal income tax Less : Taxes Withheld – Prior Year Taxes Withheld – 1 st qtr Excess MCIT prior year Net Income Tax Due , 1 st quarter – normal income tax P 100, 000 10, 000 20, 000 30, 000 60, 000 P 40, 000 ======= 33

Computation (cont. ) 2 nd Quarter Excess Qtr. 1 st 2 nd Total Normal Inc. Tax 100, 000 120, 000 220, 000 ====== MCIT 80, 000 250, 000 330, 000 ====== Taxes Withheld 20, 000 30, 000 50, 000 ===== MCIT Prior Years 30, 000 W/tax Prior Years 10, 000 34

Computation (cont. ) Quarterly corporate income tax due (higher amount between normal income tax and MCIT) – MCIT P 330, 000 Less : Taxes Withheld – Prior Year 10, 000 Taxes Withheld – 1 st qtr 20, 000 Taxes Withheld – 2 nd qtr 30, 000 Net income tax payment – 1 st qtr 40, 000 100, 000 Net Income Tax Due , 2 nd quarter – MCIT P 230, 000 ======= 35

Computation (cont. ) 3 rd Quarter Excess Qtr. Years Normal Inc. Tax 1 st 100, 000 2 nd 120, 000 3 rd 250, 000 Total 470, 000 ====== MCIT 80, 000 250, 000 100, 000 430, 000 ====== Taxes Withheld MCIT Prior Years 20, 000 30, 000 40, 000 90, 000 ====== W/tax Prior 10, 000 36

Computation (cont. ) Quarterly corporate income tax due (higher amount between normal income tax and MCIT) – Normal Income Tax Less : Taxes Withheld – Prior Year Taxes Withheld – 1 st qtr Taxes Withheld – 2 nd qtr Taxes Withheld – 3 rd qtr Net income tax payment – 1 st qtr MCIT paid in the 2 nd quarter Excess MCIT in prior year Net Income Tax Due , 3 rd quarter – Normal Income Tax P 470, 000 10, 000 20, 000 30, 000 40, 000 230, 000 400, 000 P 70, 000 ======= 37

Computation (cont. ) Annual Income Tax (NIT) Qtr. 1 st 2 nd 3 rd 4 th Total Normal Inc. Tax MCIT 100, 000 80, 000 120, 000 250, 000 100, 000 200, 000 100, 000 670, 000 530, 000 ====== Taxes W/held 20, 000 30, 000 40, 000 35, 000 125, 000 ====== Excess MCIT Prior Years Excess W/tax Prior Years P 30, 000 10, 000 38

Computation (cont. ) Annual corporate income tax due (higher amount between normal income tax and MCIT) – Normal Income Tax Less : Taxes Withheld – Prior Year Taxes Withheld – 1 st qtr Taxes Withheld – 2 nd qtr Taxes Withheld – 3 rd qtr Taxes Withheld – 4 th qtr Net income tax payment – 1 st qtr Net income tax payment – 3 rd qtr MCIT paid in the 2 nd quarter Excess MCIT in prior year Annual Net Income Tax Due – NCIT P 670, 000 10, 000 20, 000 30, 000 40, 000 35, 000 40, 000 70, 000 230, 000 505, 000 P 165, 000 ======= 39

Illustration 2 - MCIT at year end is higher than the normal income tax Normal Inc. Tax MCIT Taxes Withheld 1 st 100, 000 2 nd 120, 000 3 rd 250, 000 4 th 50, 000 Total 520, 000 ====== 80, 000 250, 000 100, 000 120, 000 550, 000 ====== 20, 000 30, 000 40, 000 35, 000 125, 000 ====== Qtr. Years Excess MCIT W/tax Prior Years Prior 30, 000 10, 000 40

Computation Annual Income Tax (MCIT) Annual corporate income tax due (higher amount between normal income tax and MCIT) – MCIT Less : Taxes Withheld – Prior Year 10, 000 Taxes Withheld – 1 st qtr 20, 000 Taxes Withheld – 2 nd qtr 30, 000 Taxes Withheld – 3 rd qtr 40, 000 Taxes Withheld – 4 th qtr 35, 000 Net income tax payment – 1 st qtr 40, 000 Net income tax payment – 3 rd qtr 70, 000 MCIT paid in the 2 nd quarter 230, 000 Annual Net Income Tax Due – MCIT P 550, 000 475, 000 P 75, 000 ======= 41

Illustration 3: - Carry forward of excess MCIT � Any excess of the MCIT over the normal income tax as computed under Sec. 27(A) shall be carried forward on an annual basis and credited against the normal income tax for the three (3) immediately succeeding years. � The excess MCIT cannot be claimed as a credit against the MCIT itself or against any other losses.

Illustration: YEAR NORMAL IT MCIT EXCESS 2004 25, 000. 00 2008 130, 000. 00 2009 200, 000. 00 2010 150, 000. 00 2011 100, 000. 00 250, 000. 00 150, 000. 00 2002 125, 000. 00 100, 000. 00 25, 000. 00 2013 8, 000. 00 5, 000. 00 3, 000. 00 2014 5, 000. 00 4, 000. 00 1, 000. 00 2015 100, 000. 00 98, 000. 00 2, 000. 00

2012 NCIT or MCIT Less: Excess of MCIT Income tax 125 T ==== 2013 2014 2015 8 T 8 T === 5 T 100 T 5 T -_ 100 T ====

Accounting Entries � For 2011 Provision for Income tax P 250, 000 Income Tax Payable P 250, 000 To record Income Tax liability - normal rate. Deferred Charges – MCIT P 150, 000 Income tax payable P 150, 000 To record excess MCIT

Accounting Entries Income Tax Payable P 250, 000 Cash in Bank P 250, 000 To record payment of income tax due for 2011. � For year 2012 Provision for Income Tax P 125, 000 Income Tax Payable P 125, 000 To record IT liability using the normal rate.

Accounting Entries Income Tax Payable P 125, 000 Deferred Charges-MCIT P 125, 000 To record application of excess MCIT against normal IT for year 2012. For 2013 Provision for Income Tax P 8, 000 Income Tax Payable P 8, 000 To record IT liability using the normal rate.

Accounting Entries For 2013 Income Tax Payable P 8, 000 Deferred Charges-MCIT P 8, 000 To record application of excess MCIT against normal IT for year 2013. For 2015 Retained Earnings P 12, 000 Deferred Charges-MCIT P 12, 000 To record the expired portion of the Deferred Charges-MCIT

Suspension of MCIT Ø Instances when MCIT may be suspended Substantial losses on account of – v Prolonged labor dispute v Force majeure v Legitimate business reverses Ø Who may suspend v Secretary of Finance upon recommendation of the CIR 49

Suspension of MCIT Ø Required documentation v Submission of proof by the corporation v Duly verified by the CIR’s duly authorized representative Definition of Terms Substantial losses from prolonged labor dispute – Losses arising from strike which lasted for more than 6 months and which ahs caused the temporary shutdown of business operations 50

Definition of Terms Force majeure – Cause due to an irresistible force as by “act of God” like lightning, earthquake, storm, flood. Also includes armed conflicts such as war or insurgency Legitimate business reverses – These shall include substantial losses sustained due to fire, robbery, theft or embezzlement or for other economic reason as determined by the Sec. of Finance 51

IMPROPERLY ACCUMULATED EARNINGS TAX (IAET) RA 8424 / RR 2 -2001

CONCEPT OF IAET Ø Taxpayer is a corporation Improper accumulation of taxable income beyond the reasonable needs of the business Ø Non-distribution of earnings/profits to stockholders Ø Ø The purpose of accumulation is to avoid the payment of the income tax Imposition of tax equivalent to 10% of the improperly accumulated taxable income Ø 53

EVIDENCE OF PURPOSE TO AVOID THE TAX 1. The corporation is a mere holding or investment company 2. Earnings or profits are permitted to accumulate beyond the reasonable needs of the business 54

Concept of IAET � IAET is in addition to other taxes imposed under Title II (Income Tax); � 10% tax is imposed for permitting the earnings and profits of the corporation to accumulate instead of distributing them to the shareholders; � As a form of deterrent to the avoidance of tax upon shareholders who are supposed to pay dividend tax;

Concept of IAET � Tax is imposed in the nature of penalty to a corporation for improper accumulation of earnings beyond the reasonable needs of the business. Touchstone of Liability � PURPOSE (NOT CONSEQUENCE) of accumulation of income ◦ Use of undistributed earnings for reasonable needs of business ◦ Determination of accumulation beyond reasonable needs of business

Reasonable vs. Unreasonable Accumulation � Reasonable Needs of Business: ◦ Immediate needs of business, including reasonably anticipated needs (Immediacy Test) � Unreasonable Accumulation ◦ Not necessary for the purpose of the business considering all circumstances of the case

Reasonable Needs of Business �Earnings up to 100% of paid-up capital of corp. , inclusive of accumulation taken from other years �Earnings Reserved ◦ for definite corporate expansion projects ◦ for building, plant or equipment acquisition ◦ for compliance with loan covenant or preexisting obligation established under a legitimate business agreement.

Unreasonable accumulation of Profits �Investment of substantial earnings and profits of the corporation in unrelated business or in stock or securities of unrelated business; �Investment in bonds and other long term securities; and �Accumulation of earnings in excess of 100% of paid-up capital.

Exempt Corporation from IAET � Banks and non-bank financial intermediaries � Insurance companies � Publicly held corporations � taxable partnerships � GPP � Non-taxable joint ventures � Firms registered under RA 7916, 7227, and other special ecozones

IMPOSITION OF IAET Tax rate Corporations liable ns Deadline 10% Closely-held domestic corporatio 15 th day after the end of he year following the close of the taxable year 61

Closely-held corporations: ◦ are corporations at least 50% in value of the outstanding capital stock or at least 50% of the total combined voting power of all classes of stocks entitled to vote is owned directly or indirectly by or for not more than 20 individuals

TAX BASE OF IAET Taxable income P xxx Add: Income subject to final tax Pxxx Income exempt from tax xxx Income excluded fr gross income xxx Amount of NOLCO deducted xxx Total P xxx Less: Div. actually or const. paid/issued xxx Income tax paid for the year xxx Reserved for the reasonable needs of the business xxx Improperly accumulated earnings P xxx === 63

Illustration GAAP Income ND expenses NOLCO NT income Base of ITE TNDE TNTI Base of ITP Add (Deduct) P 100 3 (1) (2) P 100 5 (4) P 101 Tax rates, amount and accounts 30% = P 30. 00 ITE 30% = 1. 5 0 DT 30% = (1. 20) DTL 30% = P 30. 30 TP

Computation of IAET Taxable income Add: NOLCO Nontaxable income TNTI Total Less: Income tax payable Basis of IAET Multiplied by IAET rate IAET P 101. 00 P 1. 00 2. 00 4. 00 7. 00 P 108. 00 30. 30 P 77. 70 10% P 7. 77

Payment of IAET � Dividend must be declared and paid not later than one year following the close of the taxable year � Otherwise, IAET should be paid within 15 days thereafter Effect of the 10% - Once the profit has been subjected to IAET, the same shall no longer be subjected to IAET in later years, even if not declared as dividend.

Income Tax Forms and Due Dates

Form No. 1702 Q Form Name Quarterly Income Tax Return (For Corporations, Partnerships and Other Non-individual Taxpayers) Deadline for Filing No. of Copies 60 days following the close of the first 3 taxable quarters 3 copies Attachments Required: 1. Certificate of income payments not subjected to withholding tax (BIR Form 2304), if applicable. 2. Certificate of Creditable withholding tax withheld at source (BIR Form 2307, if applicable). 3. Summary Alphalist of W/A (SAWT) per RR 2 -2006; 4. Duly approved Tax Debit Memo, if applicable. 68

Income Tax Forms Form No. 1702 Form Name Annual Income Tax Return (For Corporations, Partnerships and Other Nonindividual Taxpayers) Deadline for Filing On or before April 15 No. of Copies 3 copies On or before the 15 th day of the month following the close of the fiscal year 69

Attachments Required: 1. Account Information Form (AIF) BIR Form 1702 AIF and the Certificate of the Independent CPA (The CPA Cert. is req’d. if the Gross sales, earnings, receipts exceed P 150, 000. 00); 2. Certificate of income payments not subjected to withholding tax (BIR Form 2304), if applicable; 3. Certificate of Creditable withholding tax withheld at source (BIR Form 2307, if applicable);

4. 5. 6. 7. 8. 9. Summary Alphalist of W/A (SAWT) per RR 22006; Duly approved Tax Debit Memo, if applicable; Proof of prior year’s excess credits, if applicable; Proof of Foreign Tax credits, if applicable; For amended return, proof of tax payment and the return previously filed; For those availing of fiscal incentives, see RMC No. 21 -2007

Attachments Shall be filed in TRIPLICATE COPIES

AAB’s (w/ payment) RDO (w/o payment)

Deductions from the Income Tax Due Ø Taxes withheld from current year’s income Ø Tax credits foreign taxes paid Ø Tax credits (tax credit memo) Ø Taxes paid in the first 3 quarters Ø Excess tax payments in the preceding year 74

NOTE: Installment Payments ** Applicable to individual taxpayer only and NOT ON CORPORATIONS. 75

Stamping of ITRs and Attachments Revenue Memorandum Order No. 6 -2010

Policies and Guidelines: 1. All concerned Offices, including AABs, shall receive the income tax returns by stamping the official receiving seal or stamp of receipts of an internal revenue office where the said returns are filed on the space provided for in the three (3) copies of the returns.

2. The attachments to the income tax returns shall also be received in the same manner as above, but for the attached financial statements the same shall be stamped received only on the page of the Audit Certificate. Accordingly, the other pages of the FS and its attachments need not any more be stamped received. 3. Taxpayer shall only accomplish and file three (3) copies of tax returns with the AAB and/or the BIR. Any tax return in excess three (3) shall not be received by the AAB and/or the BIR.

Submission of STATEMENT OF MANAGEMENT RESPONSIBILITY (RMC 82 -2007)

The contents and representations – as they are reflected in the tax returns and information statements filed with the BIR – made in their behalf by their tax agents, remain their responsibility in their capacity as the principals stated in the aforesaid returns and information statements.

The taxpayer is under strict obligation to check , verify and validate: The authenticity of a tax return and/or information statement made in their behalf. The correctness and validity of the information contained in such documents. The liability to pay the tax payments remain the responsibility of the concerned taxpayers.

Any findings, errors, violations or infractions noted in the Tax Returns (together with their necessary attachments) as a result of the verification and authentication procedures made by the BIR shall render both the taxpayer and his/its tax agent civilly, and administratively and criminally liable, pursuant to existing laws and regulations.

Amended Audit Criteria for Taxable Years 2009 and 2010 Revenue Memorandum Order No. 4 -2011 (dated Feb. 3, 2011) Policies and Guidelines: 1. All taxpayers are considered as possible candidates for audit. 2. Priority shall be given to the following taxpayers who render professional services: * Lawyers; Doctors; Engineers; Accountants; & Other Professionals.

3. Last priority status for income tax audit shall be accorded to those taxpayers with an effective income tax rate for eighteen percent (18%). [Gross Income x 18%] An exception to the last priority status hall be those taxpayers where there are findings/suspicions of under-declaration of sales/revenues.

End of Presentation …. Exercise caution in your business affairs, for the world is full of trickery. But let not this blind you to what virtue there is; many persons strive for high ideals, and everywhere life is full of heroism ….