I have been practicing tax for a while now, and I was a bit surprised to discover how technical tax practice can get. In my first year as an associate, I was trained to review in detail our client’s application for registration of Computerized Accounting System (CAS), Computerized Books of Accounts (CBA) and/or Components thereof. It was challenging to secure a Permit to Use (PTU) for CAS/CBA since it is difficult to pass the scrutiny of the Bureau of Internal Revenue’s (BIR) Technical Working Group (TWG).
One example is that multinational companies that are using CAS globally spend significant cost for the reconfiguration of their CAS in order to comply with the rules of the Philippines. Since these rules are not required by other tax authorities in other countries, the reconfiguration is done solely for the Philippines.
There are still challenges today, but I can honestly say that the BIR’s efforts to streamline the requirements and process to secure PTU for CAS/CBA have been significant since then.
The BIR had several issuances to address these concerns. In 2020, citing the Ease of Doing Business and Efficient Government Service Delivery Act of 2018 (RA 11032), the BIR issued Revenue Memorandum Circular No. 010-20 Suspending the Requirement for Permit to Use (PTU) Computerized Accounting System (CAS), Computerized Books of Accounts (CBA), and/or Component(s) thereof.
In RMC 010-20, all taxpayers with pending applications filed with the National Accreditation Board (NAB) and assigned to TWG for evaluation were allowed to use their CAS/CBA without securing PTU, but they were required to submit a sworn statement, a sample print copy of the system generated receipts and invoices, and a sample print copy of the system generated books of accounts in order to secure an Acknowledgement Certificate (AC) within three days from submission thereof. Here, the BIR removed the requirement for system demonstration, but the system shall be subject to post-evaluation by the BIR during tax audits. The BIR also mentioned in this RMC that in case of any enhancement, modification, or upgrade in the system, the taxpayer must notify the bureau.
Following RMC 010-20, the BIR issued RMC 005-21, which simplified the policies on the application for registration of CAS and CBA. For this RMC, policies related to Electronic Storage System (ESS), Middleware, and other similar systems were provided. In this RMC, the BIR introduced the different action points for taxpayers should there be major system enhancements, upgrades, or minor enhancements. BIR then issued RMO 009-2021, which provided detailed guidelines for CAS/CBA applications. Here, the BIR clarified that an enhancement is considered a major one because it involves a change in the functionalities of the system, particularly enhancements that will have a direct effect on the financial aspect of the system, which includes modified computations and other financial-related issues that were considered.
Relevantly, this type of enhancement was specifically mentioned by the BIR in Revenue Regulations (RR) 7-2024 and RR 11-2024. Pursuant to the provisions of the EOPT law, Section 3 of RR 7-2024 provides that all VAT-registered persons and those required to register for VAT shall comply with the following:
- A VAT-registered person shall issue a duly registered VAT invoice, for every sale, barter, exchange, or lease of goods or properties, and for every sale, barter, or exchange of services, regardless of the amount of the transaction.
- A VAT invoice shall be issued as evidence of the sale of goods and/or properties and the sale of services and/or leasing of properties issued to customers in the ordinary course of trade or business, whether cash sales or on account (credit), which shall be the basis of the output tax liability of the seller and the input tax claim of the buyer.
The above invoicing and accounting requirements, which will have a direct effect on financials, VAT recording, among others, must be implemented by the taxpayers who are using CAS,CBA, or CBA with Accounting Records (CBA with AR). As these changes are enhancements with a direct effect on the financial aspect, they are considered major enhancements that require taxpayers to update their system registration following the existing guidelines for registering CAS or CBA with AR. It must be noted as well that the existing AC or PTU shall be surrendered to the BIR and a new AC shall be issued by the BIR.
However, it is worthy to note that there are VAT exempt companies or industries, such as financial institutions and educational institutions, that are already recognizing revenue on accrual basis for tax purposes. In such an instance, the change of primary evidence from official receipt to invoice does not affect the recording of revenue. It can be argued that these industries will no longer need system enhancement because the current recognition in their tax return is already accrual prior to the new law and regulations. Hence, the question is, do they need to secure a new AC as required by RR 7-2024 and RR 11-2024? May be if the taxpayer can prove that there is no direct impact on the financial aspect of the system, these taxpayers no longer required to secure AC, so long as the current system used is capable to issue invoice.
On the other hand, taxpayers are given on or before December 31, 2024, to reconfigure their system and implement these enhancements and comply with EOPT law.
While the period given seems reasonable and subject to extension, the dilemma for taxpayers lies in the actual implementation of the changes, not to mention the disruption to their normal operations. However, transition periods are always challenging. And we all look forward to the time that we realize that these challenges we encounter right now have bought so much ease to taxpayers conducting business in the Philippines.
Let's Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
As published in BusinessWorld, dated 09 July 2024
