The accounting period must follow a 12-month fiscal period but may or may not follow the calendar year. Most Philippine companies have a fiscal year that ends in December or March.
Corporations should file their returns and compute their income on the basis of an accounting period of 12 months.
Corporate taxpayers file self-assessed returns. Electronic filing and payment of taxes are available under the Electronic Filing and Payment System (eFPS) of the BIR.
The following corporate taxpayers who are not covered by eFPS are required to use Electronic BIR Forms (eBIRForms) in filing their tax returns:
- Accredited tax agents/practitioners and all their client-taxpayers who authorised them to file on their behalf.
- Accredited printers of principal and supplementary receipts/invoices.
- One-time transaction taxpayers.
- Those who shall file a ‘No Payment’ return, except senior citizens or persons with disabilities filing their own return, employees deriving purely compensation income and the income tax of which has been withheld correctly, employees qualified for substituted filing but opted to file for an income tax return and are filing for purposes of promotion (Philippine National Police and Armed Forces of the Philippines), loans, scholarships, foreign travel requirements, etc.
- Government-owned or controlled corporations.
- Local government units, except barangays.
- Cooperatives registered with the National Electrification Administration and Local Water Utilities Administrations.
Taxpayers who are required to file their returns using eFPS or eBIRForms but fail to do so shall be subject to a penalty of PHP 1,000 per return and civil penalties equivalent to 25% of the tax due.
A domestic or resident foreign corporation is required to file cumulative income tax returns on a quarterly basis. Within 60 days from the close of each of the first three quarters of its taxable year, the corporation must file a return summarising its gross income and deductions for the year to date. A final annual income tax return must be filed on or before the 15th day of the fourth month following the close of the taxable year.
Corporate taxpayers must file their income tax returns using one of three different forms, depending on their tax regime (i.e. subject only to the regular income tax, tax exempt, or with mixed income subject to multiple tax rates or special/preferential rates).
Payment of tax
The Philippines follows a pay-as-you-file system for income tax, so the quarterly and annual income tax payments would fall due on the same filing deadlines discussed above. The balance of the tax due after deducting the quarterly payments must be paid, while the excess may be claimed as a refund or tax credit. Excess estimated quarterly income taxes paid may be carried over and credited against estimated quarterly income tax liabilities for succeeding taxable years. Once the option to carry over has been made, such option is irrevocable, and no cash refund or tax credit certificate (TCC) is allowed, except upon liquidation of the company.
Since additional modes of payment of taxes are now available through credit, debit, and prepaid cards under recently issued Revenue Regulations, taxpayers may choose from the available online payment facilities provided by the Electronic Payment Service Provider (EPSP) to process tax payments. However, only accredited Authorised Agent Banks (AABs) may accept such payments, and accreditation of AABs is subject to compliance with certain conditions under existing Regulations.
Payment of taxes through the Card Payment Facility shall be deemed made on the date and time appearing in the system-generated payment confirmation receipt issued to the taxpayer-cardholder by the AAB-acquirer, provided that the payment was actually received by the BIR. The taxpayer is not relieved of, and has a continuing liability for, such taxes until the payment is actually received by the BIR.
Annual statutory audit
An annual statutory audit is required for all corporations with authorised capital stock or paid-up capital exceeding PHP 50,000, including branches of foreign corporations. It is also required for any corporation whose gross annual sales or earnings exceed PHP 3,000,000.
Statute of limitations
There is no statutory obligation on the Tax Commissioner to make an assessment for internal revenue taxes, and most taxes are collected based on the taxpayer’s self-calculation. If an assessment is to be issued, however, it must be done within three years from the deadline or the date of actual filing of the return, whichever is later. The taxpayer and the Commissioner can, however, agree in writing to extend this period.
In the case of a false or fraudulent return or of failure to file a return, the tax may be assessed or a proceeding in court for collection may be commenced without assessment at any time within ten years from the discovery of the falsity, fraud, or omission.
Any internal revenue tax that has been assessed within the period of limitation may be collected by distraint or levy or by a proceeding in court within five years following the assessment of the tax.
The prescription periods are suspended in certain circumstances, such as when the offender is absent from the Philippines, when the Commissioner grants a taxpayer’s request for a reinvestigation, or when the taxpayer and the BIR agree to extend the prescriptive period for assessment through a written waiver.
The BIR has a period of 180 days to decide on a refund claim for overpaid taxes. In case of denial of the claim for tax refund, or the failure on the part of the CIR to act on the application within the 180-day period, the taxpayer may appeal the decision with the Court of Tax Appeals (CTA) within 30 days.
Topics of focus for tax authorities
During audits, the BIR generally covers all applicable internal revenue taxes. In recent years, the BIR has been separately auditing VAT in certain cases in an effort to collect more. A bit more attention and scrutiny is placed on taxation of cross-border transactions, particularly in terms of value-added tax and withholding tax implications.