Tax Audit: Towards error-free tax calculation
Because the amount of taxes to be paid is entirely dependent on the taxable income of a business or professional, it makes sense to make sure that the tax base itself is calculated correctly. This, along with identifying errors and recommending the means for their correction, is the objective of the Tax Audit.
During a Tax Audit, our team of taxation specialists conducts an independent review of a business’ or professionals’ accounting and tax calculation processes within the required timeframe. The audit services they provide also include:
- Calculating the taxes and duties to be paid
- Checking the payment status of budget and extra-budgetary funds
- Ensuring compliance with tax regulations
In the Philippines, Tax Audits are required for larger businesses or corporations about to engage in a merger, spin-off, or similar form of organizational restructuring, as well as taxpayers claiming tax credits or refunds.
It’s advisable for both individuals and businesses to seek professional assistance in the event of a Tax Audit, as it may result in the payment of back taxes and/or hefty penalties.
What happens during a Tax Audit
In the Philippines, the Tax Audit process generally starts with a letter from the BIR informing a taxpayer of its selection for an audit. The audit then has to be carried out within 120 days. Unless any mistakes or fraud were found during the audit, an individual or business can’t be audited twice within a year.
It’s the responsibility of the individual or business to provide the auditor with the required documents that prove that no errors were made during tax filing and payment. Note that taxpayers who are unable to provide these documents will have to submit other documents explaining the lack thereof. The required documents may include:
- Books of accounts
- Tax returns or reports
- Transfer pricing documentation
Taken by surprise upon a request for a Tax Audit, the conscientious taxpayer may be inclined to get in touch with the BIR or a country’s taxation authority directly. Taxation experts, however, generally advise getting in touch with a reputable tax services provider immediately upon receipt of the letter.
Such a provider is better equipped for processing the audit request and carrying out the required formalities, which includes interacting with tax authorities. Note, however, that the best way to handle a Tax Audit, should the need arise, is to file and pay the correct taxes consistently and to keep all financial records in order.