SUBJECT: Preservation of Books of Accounts and Other
Accounting Records
TO : All Internal Revenue Officers and Others Concerned
TO : All Internal Revenue Officers and Others Concerned
Pursuant to the provisions of Section 244, in relation to Sections
5, 6, 203, 235, and 222 of the National Internal Revenue Code of 1997 (NIRC),
as amended, these Regulations are hereby promulgated to clarify the retention
period and to prescribe the guidelines on the preservation of books of accounts
and other accounting records.
SECTION 1. BACKGROUND. — In general, all books, registers, records,
vouchers, and other supporting papers and documents prescribed by the Bureau of
Internal Revenue (BIR), and other records kept by taxpayers shall be preserved
intact, unaltered, and unmutilated. The same shall be kept at all times in the
place of business of the taxpayer, who shall produce them for examination or
deliver them or any of them for inspection outside of his/its place of business
upon demand of any internal revenue officer (Section 21 of Revenue
Regulations No. V-1).
Section
235 of the NIRC provides:
"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." (Underscoring supplied)
In
relation to Section 235 of the NIRC, Section 203 of the same Code
provides:---------------------------------------------------------------------------------------------------------------
"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)-vear
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."
(Underscoring supplied)
The above provisions imply that the records of the taxpayer must
be preserved for a period of three (3) years from the date of the last entry
made thereon. On the other hand, the following shall be noted:
First, 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 pertinently provides:
"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) If 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.
xxx" (Underscoring supplied)
Thus, a taxpayer's accounting records shall be needed beyond the
three (3)-year period of limitation of assessment if he/it is investigated by
the BIR for any falsity, fraud or omission in the returns. In such case, the
investigation would be conducted "within ten (10) years after the
discovery of the falsity, fraud or omission." Further, the taxpayer's
accounting records would also be needed beyond the three (3)-year period of
limitation if, before the expiration thereof, both the Commissioner or his duly
authorized representative and the taxpayer have agreed in writing (also known
as the Waiver of the Statute of Limitations) to its assessment and/or
collection after the said period.
Second, if there is a pending tax case,
protest or claim for tax credit/refund of taxes, and the books and records
concerned are material to the case, then such books
and records should be kept until the case is finally resolved.
Finally, the books of accounts and other pertinent records of
tax-exempt organizations or grantees of tax
incentives are subject to periodic examination by the BIR for purposes
of ascertaining whether they have been complying with the conditions under which they have been granted tax
exemption ox.tax incentives and their tax liability, if any.
The reason for requiring the books of accounts to be preserved is
to ensure that all taxes due to the government may be readily and accurately ascertained
and determined any time of the year. As
explained above, the right of the BIR to examine and/or inspect books of
accounts and other accounting records of taxpayers may extend beyond the three (3)-year period of limitation of assessment.
On the other hand, from the point of view of taxpayers on the
receiving end of regular or extraordinary audits and assessments, they must
ensure that their books of accounts and other accounting records are available
for submission in support of their defenses and aid in the resolution of the
cases.
In view of the foregoing, it is in the best interest of both the
government and the taxpayers that books of accounts and accounting records are
retained for a longer period of 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 preservecopies 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 filing thereof, whichever
comes later.
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.
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").
SECTION 5. REPEALING CLAUSE. — The provisions of all internal revenue
issuances as well as rulings inconsistent herewith are hereby amended or
revoked accordingly.
SECTION
6. EFFECTIVITY. — These Regulations shall
take effect fifteen (15) days after its publication in at least two (2)
newspapers of general circulation.
Preservation of Books of Accounts and Other Accounting Records RR 17-2013
