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Audit approach overview
Our audit approach will allow our client's accounting personnel to make the maximum contribution to the audit effort without compromising their ongoing responsibilities
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Annual and short period audit
At P&A Grant Thornton, we provide annual and short period financial statement audit services that go beyond the normal expectations of our clients. We believe strongly that our best work comes from combining outstanding technical expertise, knowledge and ability with exceptional client-focused service. A team-based approach defined by dedication to partner involvement in all engagements—that’s our service commitment locally and globally. An organization’s financial statements are a reference of choice for a variety of users who are required to make decisions. Whether it is a financial institution, a government agency, creditors, shareholders, or potential buyers, every one of your partners requires financial information that accurately reflects the soundness of your organization.
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Review engagement
A review involves limited investigation with a narrower scope than an audit, and is undertaken for the purpose of providing limited assurance that the management’s representations are in accordance with identified financial reporting standards. Our professionals recognize that in order to conduct a quality financial statement review, it is important to look beyond the accounting entries to the underlying activities and operations that give rise to them.
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Other Related Services
We make it a point to keep our clients abreast of the developments and updates relating to the growing complexities in the accounting world. We offer seminars and trainings on audit- and tax-related matters, such as updates on Accounting Standards, new pronouncements and Bureau of Internal Revenue (BIR) issuances, as well as other developments that affect our clients’ businesses. Participants are entitled to credited units for Continuing Professional Education (CPE), which are required by the Board of Accountancy. CPE is indicative of an individual’s genuine concern for his or her continued growth as a professional. Our team can help in achieving that.
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Tax advisory
Assistance during tax audit/contesting an assessment We assist clients in handling audits by the Bureau of Internal Revenue (BIR), Bureau of Customs (BOC) and local government units (LGUs) in a systematic and efficient manner. We help evaluate the validity of assessments, determine the appropriate documents and analyses to be submitted, prepare protests, and represent clients in meetings and discussions with government agencies. With our knowledge of tax laws and audit procedures, we help safeguard the substantive and procedural rights of taxpayers and prevent unwarranted assessments. Tax opinion and studies We conduct tax studies and provide advice to clients on the tax implications of specific transactions based on relevant laws, regulations, court decisions, rulings, and other relevant issuances. We likewise provide recommendations to address or mitigate tax issues arising from said transactions. Application for tax refund/credit We help clients recover taxes that have been erroneously or excessively paid or withheld through applications for refund or tax credit certificates (TCCs). Applications for refunds or TCCs are recommended for companies that have excess income taxes paid or unutilized creditable withholding taxes as reflected in the final income tax return (ITR), excess unutilized VAT input taxes arising from zero-rated transactions or change in VAT status, unutilized advanced VAT, excise taxes paid on petroleum products sold to tax-exempt entities and international carriers, other national or local taxes erroneously or excessively paid, or penalties imposed without authority.
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Tax compliance
Tax review We evaluate clients’ overall level of compliance with existing laws and regulations; caution them on procedures and practices that expose them to potential tax liabilities; quantify tax exposures, risks and penalties; and advise them on proper course of action and alternative tax-efficient policies and procedures. Tax due diligence review is particularly recommended for companies that are contemplating expansion, mergers and consolidation, acquisitions, change in ownership, or public listing. Expatriate tax services We ensure the proper and efficient compliance of expatriates with their Philippine income tax obligations. Our services include registration and application for Taxpayer Identification Number (TIN), preparation and filing of annual Philippine income tax return, and payment of tax due in the proper venue and within the allowed period. As a value-added service, we respond to Correspondence Audits/Inquiries by the BIR regarding information declared in the tax return. If desired by clients, we also conduct arrival or departure briefings and interviews to apprise the expatriate of his Philippine tax liabilities. Upon a company’s request, we can compute, on an annualized basis, the total withholding tax due from its expatriate during the taxable year and prepare tax equalization and reimbursement calculations in accordance with company policies.
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Corporate services
Assistance for incentives availment We help clients evaluate their qualification for incentives under the Board of Investments, the Philippine Economic Zone Authority, the Subic Bay Metropolitan Authority or other special laws. If clients are qualified, we assist them in applying with the concerned government agency for such incentives. Our assistance covers filing of the application and supporting documents, monitoring the progress of the application, meeting/discussion issues, if any, with regulatory authorities, and securing the approval for such incentives. At the clients’ request, we may also assist in ascertaining their compliance with regulatory requirements (to ensure the continued entitlement to incentives), or in justifying the entitlement to such incentives in the event of a challenge by the BIR or other regulatory agencies. Corporate organization and registration For clients that want to do business in the Philippines, we assist in determining the appropriate and tax-efficient operating business or investment vehicle and structure to address the objectives of the investor, as well as related incorporation issues. We help set up the business and register it with concerned government regulatory agencies, such as the Securities and Exchange Commission, the Bureau of Internal Revenue, the Local Government Unit, the Social Security System and the Bangko Sentral ng Pilipinas. We also assist in notifying and/or securing necessary approvals from government regulatory agencies when there are changes in business activities, business status, or tax-type registration.
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Tax education and advocacy
Tax advocacy We actively participate in consultation and public hearings conducted by the Bureau of Internal Revenue on proposed tax rules and regulations, serving as a bridge between our clients and the BIR. Our advocacy work focuses on clarifying the interpretation of laws and regulations, suggesting measures to increasingly ease tax compliance, and protecting taxpayer’s rights. Tax seminars and training We offer seminars and training on tax-related developments and special issues of interest to taxpayers. Upon request, we provide customized in-house tax training – designed jointly by P&A and the client – that directly addresses the specific issues of the client’s industry and the training needs of its personnel.
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Business risk services
Our business risk services cover a wide range of solutions that assist you in identifying, addressing and monitoring risks in your business. Such solutions include external quality assessments of your Internal Audit activities' conformance with standards as well as evaluating its readiness for such an external assessment. We can also take over your IA function altogether or work alongside you to create more value for your organization. On a higher level, our Enterprise Risk Management methodology can help your organization identify vital strategies and action plans that address key business risks, thereby enabling you to achieve your overall objective of value creation for stakeholders.
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Business consulting services
Our business consulting services are aimed at addressing concerns in your operations, processes and systems. Using our extensive knowledge of various industries, we can take a close look at your business processes as we create solutions that can help you mitigate risks to meet your objectives, promote efficiencies, and beef up controls. This can include analyzing your information technology (IT) applications and infrastructure in order to improve IT governance and strategy, strengthen security, and/or assess business risks and controls related to the use of IT.
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Transaction services
Transaction advisory includes all of our services specifically directed at assisting in investment, mergers and acquisitions, and financing transactions between and among businesses, lenders and governments. Such services include, among others, due diligence reviews, project feasibility studies, financial modelling, model audits and valuation. We are one of the few companies accredited by the Philippine Stock Exchange for the conduct of valuation and issuance of fairness opinions. Our consortium with another Grant Thornton office and a Philippine law office is also one of the fourteen (14) members of the panel of transaction advisers of the Public-Private Partnership Center of the Philippines.
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Forensic advisory
Our forensic advisory services include assessing your vulnerability to fraud and identifying fraud risk factors, and recommending practical solutions to eliminate the gaps. We also provide investigative services to detect and quantify fraud and corruption and to trace assets and data that may have been lost in a fraud event.
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Cyber advisory
Our focus is to help you identify and manage the cyber risks you might be facing within your organization. Our team can provide detailed, actionable insight that incorporates industry best practices and standards to strengthen your cybersecurity position and help you make informed decisions.
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ProActive Hotline
Providing support in preventing and detecting fraud by creating a safe and secure whistleblowing system to promote integrity and honesty in the organisation.
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Accounting services
Accounting services Many multinational companies are setting up their accounting offices in the Philippines. These businesses realize that accounting functions can be standardized across companies around the world and handled by an office halfway across the globe for a fraction of the amount needed to maintain an in-house accounting division. At P&A Grant Thornton, we handle accounting services for several companies from a wide range of industries. Our approach is highly flexible. You may opt to outsource all your accounting functions, or pass on to us choice activities, such as
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Staff augmentation services
Staff Augmentation Services It is a familiar enough scenario: A company suddenly has an urgent need for personnel on a short term, project basis to do accounting or accounting-related work. Considering the short-term nature of the work, it becomes very difficult to find interested candidates. Moreover, companies do not need just anybody, but people with sufficient technical accounting skills. P&A Grant Thornton has a pool of skilled accounting specialists who can fill the gap for companies in such situations. We offer Staff Augmentation services where our staff, under the direction and supervision of the company’s officers, perform accounting and accounting-related work. We have a long list of clients that have benefited from our assistance with the following activities: · Migration from one accounting system to another accounting system · Bank reconciliation for several bank accounts that have not been reconciled for years · Data cleansing, such as reconciliation of balances in subsidiary ledgers of receivables and payables with the general ledger balances · Physical counts of inventories and reconciling the results of the physical count with the accounting records · Count of property and equipment; tagging and reconciliation of the count with the accounting records; and properly setting up the property ledgers · Preparation of schedules and documentary supports and requirements during audits by internal and external parties, including government agencies · Preparation of statements of accounts for certain customers · Acting as accounting personnel while regular accounting staff are on leave This is just a sampling of the services we offer, and we can provide more short-term accounting services on short notice. We can adjust the schedules of our people to fit your work hours and we guarantee high-quality service: Our team is made up of technically competent and properly trained people who are prepared to handle your needs.
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Payroll Processing
More and more companies are beginning to realize the benefits of outsourcing their noncore activities, and the first to be outsourced is usually the payroll function. Payroll is easy to carve out from the rest of the business since it is usually independent of the other activities or functions within the Accounting Department. Payroll processing may look simple, but the process can get complicated, especially as a business expands its manpower. A payroll accountant has to make sure that correct taxes as well as loans of their employees are properly deducted, update the tax status of employees (single, married, no. of dependents, etc.) on a regular basis; monitor work activities during the payroll period (overtimes, sick leaves, vacation leaves, etc.); know which income accounts are taxable or not (de minimis, bonuses within the P82,000 limit, etc.); know the rules and regulations and the latest updates of relevant government agencies (BIR, SSS, Pag-IBIG, PhilHealth, etc.); and ensure that payroll processing and payouts are done on time to avoid employee complaints or dissatisfaction. In addition, the payroll accountant has to ensure that contributions to various government agencies are properly posted to the accounts of the employees. In some companies, payroll processing consumes a significant part of management time: The highest finance or HR officer in the company oftentimes handles management or executive payroll. If payroll is outsourced, the executive officer has better use of his or her time than reviewing or processing the payroll. Moreover, there is the issue of confidentiality – some employees may inadvertently gain access to confidential payroll information when data are lying around during the payroll processing period. Another issue that business owners must watch out for with regard to payroll is fraud. Since the processing of payroll is handled by just one or two trusted persons, oversight may be lax and review may not always be conducted thoroughly, thus fraud happens. P&A Grant Thornton can handle your payroll processing needs so that your management team can focus on your core competencies, enabling you to concentrate on what’s really important to your business . Our team of well-experienced and properly trained professionals can handle your payroll requirements whether you have 10 or 10,000 personnel. In addition to the computation of employees’ pay, P&A Grant Thornton can also provide the following functions under our payroll processing services: Maintain bank accounts exclusively for payroll and payroll-related disbursements Prepare schedules of statutory and internal contributions and obligations File and pay statutory contributions and obligations, manually or electronically Annualize employees’ income tax Provide secure online payslips through our ePayroll facility Handle administration of benefits that needs coordination with government agencies
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Transfer pricing guide on cost-sharing arrangements and reimbursements
Nikkolai F. Canceran
06 Apr 2021
Without a doubt, globalization of businesses has been thriving. Multinational and domestic firms alike are often engaged in multiple transactions with and on behalf of each other in a bid to achieve cost efficiency due to readily available resources and administrative convenience or practical exigencies. These types of transactions are usually made without any intention to make profits.
Some of these common practices include allocation of common costs such as those related to IT and procurement, cross-charge of personnel, and other types of cost-sharing arrangements. This recoupment of costs and expenses is commonly known as “reimbursement” or “pass-through costs.”
The usual question about these transactions revolves around whether these cost-sharing arrangements and reimbursements must have an arm’s length mark-up. To come up with an answer, it is essential to discuss some of the global transfer pricing guidelines in treating cost-sharing or cost-pooling arrangements and inter-company reimbursements.
COST-SHARING OR COST-POOLING ARRANGEMENTS
Members of a corporate group occasionally enter into a cost-sharing or cost-pooling arrangement among themselves to share group costs or costs of routine support services. This arrangement arises from a common need for such support services. It also results in mutual benefit, a concept that is fundamental to cost-pooling.
A party to a cost-pooling arrangement must reasonably expect to benefit or must be one that actually benefits from the services with respect to cost-sharing and contributes at arm’s length to the costs of services. The contribution must be in proportion to the nature and extent of expected benefits that a party receives. No payment other than the costs allocated to each participant should be made.
NO MARK-UP FOR PAYMENTS CHARGED UNDER A COST-SHARING OR COST-POOLING ARRANGEMENT
In one BIR administrative order, a cost-sharing arrangement is defined as an agreement under which the parties agree to share the costs in proportion to their respective share of anticipated benefits. The allocation must be made on a “no-mark-up, reimbursement” basis.
On the other hand, some global transfer pricing guidelines state that as an administrative practice, payments may be charged without mark-up to a related party for its proportionate share of the cost of services in a cost-pooling arrangement on the condition that each participant’s share of the costs must be borne in the form of cash or other monetary contributions, that the services are not provided to any unrelated party, that the provision of services to the related parties is not the service provider’s principal activity which will depend on the specific facts and circumstances of each case, and that there is sufficient documentation showing that the parties intended to enter into a cost-pooling arrangement before the provision of the services (for example, a cost-pooling arrangement should be supported by a written agreement which, among other things, must be duly signed by all related parties involved in the arrangement).
The guidelines also require taxpayers to maintain transfer pricing documentation to support the arm’s length basis of the allocation of costs under a cost-pooling arrangement. Such documentation should include:
(a) Description of the types of services provided;
(b) Reasons for selecting a specific method of allocating costs;
(c) Contributions by each related party;
(d) Benefits that are anticipated; and
(e) Details of the calculations used.
Regarding the selection of an appropriate apportionment basis or allocation key, certain guidelines provide that this would depend on the nature and usage of the service. Generally, the most appropriate allocation key is one that most accurately reflects the share of benefits received or is expected to be received by the service recipients. This is largely a question of judgment.
Moreover, it is mandatory for taxpayers to demonstrate that due consideration and analysis have been undertaken in arriving at the choice of allocation key. The allocation key adopted by the taxpayer would be acceptable as long as it is reasonable, founded on sound accounting principles, and consistently applied year to year throughout the group unless there are very good reasons for not doing so. Lastly, the allocation key chosen must lead to a result that is consistent with what a comparable independent party would have been prepared to accept.
REIMBURSEMENT OR PASS-THROUGH COST
Sometimes, a group service provider may arrange and pay for, on behalf of its related parties, services acquired from other service providers (whether independent or related). A reimbursement transaction typically entails a back-to-back arrangement between the taxpayer and its related party for the procurement of goods and services from a third party on a cost-to-cost basis. The related party first procures the goods or services from the third party on behalf of the taxpayer and is subsequently reimbursed at cost by the taxpayer. Most often, the level of value addition or extent of service by the related party is insignificant.
Some global transfer pricing rules mention that the group service provider may pass on the costs of the acquired services to its related parties without a mark-up, provided that:
(a) The acquired services are for the benefit of the related parties;
(b) The acquired services have been charged at arm’s length;
(c) The group service provider is merely the paying agent and does not enhance the value of the acquired services or does not require any significant functions to be performed. However, where a recharge does not pertain to reimbursement of third-party costs (incurred by a taxpayer on behalf of the related party for administrative convenience), but where the taxpayer has, in fact, performed value addition or was responsible and accountable for the service provided by the third party or where intra-group service has been performed, then a mark-up can be insisted on; and
(d) The costs of the acquired services are the legal or contractual liabilities of the related parties. This condition can be met even if the group service provider is legally or contractually liable to pay for the acquired services. This is if it has a written agreement with its related parties for the latter to assume the liabilities related to the acquired services.
The above treatment is premised on the view that independent parties in comparable situations would agree not to earn a mark-up on the costs incurred.
The group service provider should nonetheless charge an appropriate arm’s length mark-up for its function in arranging and paying for the acquired services on behalf of its related parties especially when the group service provider adds significant function or provides value-added services. The mark-up should be based on the aggregate costs of its resources in performing the said function and reflect the nature of its own services and extent of value-add generated for the related parties in the group benefiting from such services.
For example, Related Party A may use its own resources to arrange, select, and liaise for the provision of corporate secretariat services by an independent firm for its Related Party B. The fees charged by the independent firm may qualify as strict pass-through costs. Hence, Related Party A may recoup the fees from Related Party B at cost and without mark-up. However, Related Party A’s own costs of arranging, selecting, and liaising should be charged to Related Party B using an appropriate arm’s length mark-up.
Please be reminded that the application of the above transfer pricing guidelines on cost-sharing or cost-pooling arrangements and reimbursements would largely depend on the specific facts and circumstances of each case and thus, requires a careful examination of each case.
While there is room for the taxpayer to justify its charges at cost and without an arm’s length mark-up depending on facts and circumstances of each case, the key responsibility of the taxpayer is to be able to maintain sufficient transfer pricing documentation and supporting documents. Otherwise, the justifications are nothing but a “lip” justification that may not withstand the scrutiny of tax authorities.
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.
Nikkolai F. Canceran is a partner from the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.
As published in BusinessWorld, dated 06 April 2021
