Some ease on the tax clearance

Since validation of tax compliance is a precondition to entering into and is a continuing obligation in government contracts, the Bureau of Internal Revenue (BIR) has issued regulations dating back to 2005 providing guidelines for the filing and processing of applications for tax clearance required from participating bidders.

Revenue Regulations (RR) 18-2018, the latest of the policies, was issued on Aug. 3. In its steadfast commitment to ease doing business in the Philippines, the BIR decentralized the filing of tax clearance applications from the Accounts Receivable Monitoring Division (ARMD) of the BIR National Office to the Revenue Regional Offices or Large Taxpayers Divisions (LTD) where the taxpayer-applicant is registered. RR 18-2018 also clarified that those with previously issued tax clearances must be regular eFPS users from the time of enrollment up to the time of application. In case the applicant is not a regular eFPS user (i.e., a newly registered eFPS user), the latest income tax return (ITR) and business tax returns not filed and paid through the eFPS must be submitted.

On Oct. 11, the BIR issued Revenue Memorandum Order (RMO) 46-2018 which detailed the procedures for the issuance of a tax clearance. Under the RMO, a tax clearance shall only be issued to applicants who have fully satisfied the following conditions: a). the applicant must not be tagged as “Cannot be Located”; b). the applicant must have no unpaid annual registration fee, no open valid “stop-filer” cases, no accounts receivable/ delinquent account and no pending criminal information filed in any court for tax or tax-related cases; and c) the applicant must be a regular eFPS user from the time of enrollment up to the time of filing the renewal of tax clearance.

However, a new applicant is not required to be a regular eFPS user. Instead, such applicant must submit the ITR for the preceding taxable year (calendar or fiscal) or the most recent quarterly ITR in case of new establishments. The new applicant must also submit the latest Value-Added Tax and/or Percentage Tax Returns covering the previous six months of operations or the corresponding monthly/quarterly returns filed to date for those establishments in operation for less than six months.

While the filing of the application remains manual, the venue for filing varies. Non-large taxpayers shall submit their applications with the Collection Division of the Revenue Regional Office having jurisdiction over them. However, large taxpayers shall file theirs with the LTD-Cebu/LTD-Davao or Large Taxpayers Enforcement Division for large taxpayers not under the jurisdiction of any of the LTDs. As regards Non-Resident Aliens Not Engaged in Trade or Business (NRANETB), Non-Resident Foreign Corporations (NRFCs) and other entities authorized by the Commissioner of Internal Revenue, their applications must still be lodged with the ARMD. Perhaps if the BIR intends to transition from manual to online filing in the future, this would result in more ease and efficiency.

Furthermore, RMO 46-2018 identified the authorized signatories for the application form. For individual applicants, the form must be signed by the applicant himself. In case of a partnership, any of the partners is authorized to do so. For non-individual taxpayer-applicants, any responsible and ranking officer may sign provided that the authority for such act is stated in a board resolution, duly evidenced by a Secretary’s Certificate. In case of NRFCs, the form may also be executed by any responsible and ranking officer whose authority must be expressly provided in a Special Power of Attorney duly authenticated by the Philippine Consul in the country where the NRFC’s office is located.

In the spirit of doing business with ease, the tax clearance shall be processed and released within two working days from receipt of the duly accomplished application form for tax clearance with complete documentary requirements.

Once issued, the tax clearance shall be valid for one year from the date of issuance, unless sooner revoked for any of the following grounds: (1) denial of the application for Compromise Settlement and Abatement of penalties; (2) the attachments to the application are found to be spurious; (3) non-compliance with the prescribed criteria; and (4) misrepresentations made by the tax payer applicant to the government procuring agency or to the tax clearance-issuing office. The name of the taxpayer-applicant who is found to have submitted spurious documents or made misrepresentations will be submitted to the Regional or National Investigation Division as the case may be, for the conduct of a preliminary investigation and for filing of criminal charges, if warranted.

Taken all together, RR 18-2018 and RMO 46-2018 conveyed the needed clarity to ease the processing of clearance applications. With the decentralization of tasks, taxpayers can now expect timely and efficient issuance of tax clearances that will ensure competitive bidding for public contracts. If implemented accordingly, these BIR issuances will support government operations and enhance public service for the benefit of taxpayers.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

ELIZABETH K. ADAOAG-BELARMINO is a Senior Consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network. Readers may reach the author at (02) 845-27 28 or elizabeth.k.adaoag@ph.pwc.com for questions or feedback.