Halloween is approaching and soon those horror movies which caused us nightmare-filled nights will again be played on the airwaves. Would you believe when I say that similar to the ghosts looming in these horror movies, those thin glossy papered receipts that inevitably fade may also give us heart-pounding scares? How?
For employees, would you not be scared when the bag of receipts you kept for liquidation of business expenses faded and thus, you would have to shoulder the expenses. For corporations and single proprietors, would you not scream in terror if the Bureau of Internal Revenue (BIR) comes knocking on your door asking for the documentary evidence and you discover that the information on these glossy papered receipts also faded and cannot support the expenses and input taxes you claimed? Would you not have sleepless nights, when the courts decide to deny your claim for refund for lack of documentary evidence due to unreadable receipts?
These horrifying instances may be lessened by BIR’s issuance of Revenue Regulations (RR) No. 10-2015. This RR mandates all business establishments to use non-thermal papers for all cash register machines (CRM)/point of sales (POS) machines and other invoice/receipt generating machines or software.
Non-thermal papers unlike thermal papers are thicker and are not affected by changes in temperature (i.e., heat). Hence, these papers have higher probability of withstanding wear and tear due to passage of time. This benefits both the BIR and the taxpayer in case of tax audit due to prolonged preservation of documentary evidence.
The series of BIR issuances and citations in this RR on documentary evidence highlight that the BIR is inclined to improving the preservation of evidence. Case in point, it was not long ago when the extension of the books of accounts and other accounting records’ retention period from three years to ten years was issued. Additionally, the intent of prolonging documentary support is also evident in the RR by BIR’s citation of a 2004 RR, which expressly stated the importance of using quality papers for CRM/POS machines to preserve documentary evidence.
Based on these circumstances, this mandatory use of non-thermal papers may at least provide taxpayers assurance that in case of future tax examination or claim for refund, the substantiation requirements for transactions will still be available. Thus, this increases probability of success in supporting the expense or refund.
The BIR’s benefit from this is an increased access to more reliable data. In this regard, the audit on the correctness or reasonableness of documentary support for tax liabilities may now be more factual than presumptive.
Prior to assurance of unfading documentary evidence, the BIR initially requires that business establishments should make necessary reconfigurations in its existing invoice/receipt generating machines. However, before screaming for terror due to additional costs and efforts related to the transition, it is worthy to note that these potential woes of taxpayers have been foreseen by the BIR. In this regard, the BIR provided a three-year compliance period for business establishments with existing CRM/POS/and other machines that use thermal paper for printing are mandated to comply with non-thermal paper printing, as follows:
For business establishments planning to change from manual receipts to CRM/POS machines, expect that the BIR will only approve applications of machines that use non-thermal papers. Hence, the same should be seriously considered in choosing your accredited machines suppliers.
The BIR also took the opportunity to reiterate the importance of invoicing requirements in this RR. Similar to prior BIR issuances, this RR enumerated the mandatory information which should be prominently indicated in the face of the official receipts (ORs), invoices, and other commercial invoices (CIs). Consider this as a reminder from the BIR that details of sales/purchase transactions should be prominently indicated in the documentary support. Otherwise, this may expose taxpayers to risks of assessments and/or administrative penalties. The following items are worthy to highlight considering that these are generally of higher risk of being overlooked:
Issued value-added tax (VAT) ORs should prominently indicate the breakdown of: (1) VATable sales and its corresponding 12% VAT amount; (2) Zero-rated sale; and (3) Exempt sales, as applicable.
Information (e.g., details of senior citizen and/or PWD discounts, etc.) related to transactions with senior citizens and/or persons with disability shall also be prominently indicated in the ORs/invoices/CIs.
“THIS DOCUMENT IS NOT VALID FOR CLAIM OF INPUT TAX” shall be conspicuously printed at the bottom of non-VAT ORs / invoices and other CIs (e.g., delivery receipts, order slips, provisional receipts, etc.).
Details of the accredited supplier of CRM/POS printer should be stated on the bottom portion of the ORs/invoices or CIs.
Non-VAT ORs/invoices shall be issued for transactions not subject to VAT or those subject to percentage tax (PT).
For taxpayers who will issue non-VAT ORs/invoices/CIs, there is already a need to provide breakdown of your transactions. This RR expressly provides the following requirements:
Non-VAT ORs/invoices/CIs for transactions not subject to VAT or PT shall prominently indicate on its face the term, “EXEMPT”.
The breakdown of VAT-exempt sales and sales subject to PT should be indicated in the non-VAT ORs/invoices/CIs in case the same is considered as the documentary proof for both VAT-exempt sales and sales subject to PT.
Subsequent to the issuance of this RR, the BIR issued a Revenue Memorandum Circular (RMC) to reiterate that in case of sales amounting to P1,000.00 or more, the registered name, taxpayer identification number (TIN), and business style of the VAT-registered buyer should be indicated on the face of the OR/invoice and CI.
In the event that the CRM/POS machine will not be able to provide these details, the taxpayers shall ask for manually issued OR/invoices with approved authority to print (ATP). Taxpayers should be reminded that in this instance, the prescribed rules on ATP issued by the BIR should be strictly followed.
All CRM and POS machine users, regardless if using thermal or non-thermal papers and including those linked to computerized accounting system and are capable of sending receipts through electronic mail are mandated to comply with these invoicing requirements.
The reconfiguration of machines to comply with the invoicing requirements shall be made on or before 31 October 2015. Taxpayers whose system reconfigurations will be done abroad may request approval from the Regional Director or ACIR, Large Taxpayers Service for extension if needed. However, the extension shall not be more than 6 months from the effectivity date.
Any violation of these BIR issuances is subject to penalties as prescribed by the Tax Code, as amended, and other applicable BIR issuances. Based on prior BIR issuances and looking back at the recent BIR rulings and court decisions, the risks taxpayers are exposed to include potential disallowance of expenses, input tax credits, denial of tax refund claims, and administrative penalties.
Given the above circumstances, there are a lot of measures that taxpayers need to cautiously take in order to meet the new and re-emphasized invoicing requirements. However, the compliance with these requirements will save us the time and anxiety that will haunt us simply because we lacked vigilance in monitoring our documentary evidence.
Ellen Rose R. Hernandez is an Assistant Manager from the Tax Group of KPMG R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice, Tier 1 transfer pricing practice and Tier 1 leading tax transactional firm in the Philippines by the International Tax Review.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.
The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email ph-inquiry@kpmg.com or rgmanabat@kpmg.com.
For more information on KPMG in the Philippines, you may visit www.kpmg.com.ph.