HOW TO HANDLE LETTER OF

AUTHORITY TO EXAMINE
COOPERATIVES
Presented By:
RHODORA GARCIA-ICARANOM
Tax Advisor/Tax Consultant
RA 9520 - Article 61

(3) “All cooperatives, regardless of the amount of accumulated

reserves and undivided net savings shall be exempt from
payment of local taxes and taxes on transactions with banks and
insurance companies:
Provided, that all sales or services rendered for non-members
shall be subject to the applicable percentage taxes sales made by
producers, marketing or service cooperatives;
Provided further, That nothing in this article shall preclude the
examination of the books of accounts or other accounting records of
the cooperative by the duly authorized internal revenue officers for
internal revenue tax purposes only, after previous authorization by
the Authority.”
Tax Particulars Old tax rules TRAIN

Commissioner’s Sec. 6 (A) The Commissioner The Commissioner or his duly

authority on or his duly authorized authorized representative shall
Examination of representative may have the said authority
Returns and authorize the examination NOTWITHSTANDING ANY LAW
determination of tax of any taxpayer and the
requiring the prior
due assessment of the correct
authorization of any
amount of tax after a return
has been filed. government agency or
instrumentality.

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Tax Particulars National Internal Revenue R.A. No. 10963
Code of 1997

On the powers and authority granted to the Commissioner of Internal Revenue

Power to obtain information, Sec. 5 (B) Commissioner’s Additional provision:
and to summon, examine, and power to obtain information Submission of a tax incentive
take testimony of persons from any person other than the report by Cooperatives
person whose internal revenue Development Authority to the
tax liability is subject to audit Bureau of Internal Revenue
or investigation or from any (“BIR”) and the Department of
office or officer of the national Finance (“DOF”). The report
and local governments, shall include information on
government agencies and the income tax, VAT, and other
instrumentalities. tax incentive availed of. The tax
incentive report shall be
included in the database
created under the Tax
Incentives Management and
Transparency Act (“TIMTA”).
 Tax Management
Compliance
Assessments Collection
(preventive)

1. Know the tax rules 1. Know your rights and 1. Know your
remedies rights and
remedies
2. Know how the rules 2. Know the rules and 2. Know the rules
process of assessment and process of
3. Maintain a high collection
level of tax 3. Know best practices of 3. Know your
compliance handling assessment options

4. Secure your Tax 4. Study and define your Favorable

strategy settlement
1. Amnesty
5. Get professional help 5. Get professional help 2. Abatement
3. Compromise
Settlement

5
 Phases of Tax Enforcement
COMPLIANCE ASSESSMENTS COLLECTION

Tax laws and regulations Examination of books Payment of deficiency

taxes

Keeping of books Surveillance or no-contact Warrant of distraint/levy

audit

Filing of returns Third party information Garnishment of bank

accounts

Payment of self-assessed Relief Public auction

taxes

Return review

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 Types of Audit and Assessments
AUDIT AND INVESTIGATION THIRD PARTY INFO MATCHING POST AUDIT REVIEW

Audit of books of accountants Normally covered by LN Assessment arising from

(with LA) review
Audit based on face of return Matching of SLSP
(no LA and limited to
mathematical accuracy)

Table audit (no LA) Matching of SAWT/MAWT

Issue based audit Matching with govt. info – POST REVIEW AUDIT
BOC, LGU, BSP,, IC
Industry audit Access to records – Sec. 5 of Assessment arising from post
Tax Code review audit
Short Period audit
No-contact audit surveillance

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 SUMMARY OF ASSESSMENT CYCLE
• Filing of tax return Law prescribed due date
• Tax audit by BIR 120 days
• Informal Conference not more than 30 days
• Preliminary Assessment 15days
Notice (PAN)
• Reply to PAN 15 days from receipt
• Final Assessment Notice
(FAN) 3 years or 10 years
• Protest to FAN 30 days from receipt
• Supplemental Protest 60 days from filing
of protest
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 ASSESSMENT PROCESS
Filed within 30 days
from receipt of FAN
5.
1. 6.
Final
Filing of Administrative
Assessment
Return Protest
(FAN)

2. 7. 8.
30 days from
Letter of Final Decision receipt Judicial
Authority on disputed Appeal
assessment
Reply within 15
days from receipt
(FDDA) or
60-180-30
4. Inaction
3.
Preliminary
Informal 30 days from
Assessment receipt of decision
Conference
(PAN) 8.
Appeal to
Commissioner

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ANY RETURN, STATEMENT OR DECLARATION FILED IN
ANY BIR OFFICE AUTHORIZED TO RECEIVE THE SAME
SHALL NOT BE WITHDRAWN: PROVIDED, THAT
WITHIN THREE (3) YEARS FROM THE DATE OF SUCH
FILING, THE SAME MAY BE MODIFIED, CHANGED, OR
AMENDED: PROVIDED, FURTHER, THAT NO NOTICE
FOR AUDIT OR INVESTIGATION OF SUCH RETURNS,
STATEMENT OR DECLARATION HAS, IN THE
MEANTIME, BEEN ACTUALLY SERVED UPON THE
TAXPAYER.

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Types of Audit and Assessments:
Audit and Investigation Third Party Info Post Audit Review
Matching
• Audit of books of • Normally covered • Assessment arising
accounts (with LA) by LN from review
• Audit based on face • Tax reconciliation
of return (no LA and systems
limited to • Matching of
mathematical Summary Alpha list
accuracy) of withholding taxes Post Review Audit
• Table audit / alpha list of pages
• Industry audit • Matching with govt.
• Short period audit info – BOC, LGU,
• Assessment arising
• No-contact audit- BSP, IC
from post review
surveillance • Access to records –
audit
Sec. 5 of Tax Code

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Powers of the CIR relative to the Audit Process

In addition to the authority of the Commissioner to examine

and inspect the books of accounts of a taxpayer who is being
audited, the Commissioner may also:

- obtain data and information from private parties other

than the Taxpayer himself
- Conduct inventory and surveillance and prescribe
presumptive gross sales and receipts

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Signatory to the eLA
RMO 44-2010
Investigating Office Approving Official
Revenue District Office Regional Director

Large Taxpayer Large Taxpayer ACIR

Deputy Commissioner - Legal and Inspection

National Investigation Division
Group

Task Forces and Special Teams CIR or any authorized Bureau Official

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 LETTER OF AUTHORITY

ASSESSMENT PROCESS
1. First Notice for the Presentation of Books of Accounts
2. Second and Final Notice for the Presentation of Books of Accounts
3. Informal Conference
4. PAN
5. FAN

COLLECTION PROCESS
 LETTER OF AUTHORITY

RA 9520
RR 20-2001
TIMTA Requirements (TRAIN)
• MC 2019-06 Procedures in the submission of annual
tax incentive report pursuant to the Joint Administrative
Order No. 1, Series of 2019
Powers of the CIR relative to the Audit Process

In addition to the authority of the Commissioner to examine

and inspect the books of accounts of a taxpayer who is being
audited, the Commissioner may also:

- obtain data and information from private parties other

than the Taxpayer himself
- Conduct inventory and surveillance and prescribe
presumptive gross sales and receipts

16
Signatory to the eLA
RMO 44-2010
Investigating Office Approving Official
Revenue District Office Regional Director

Large Taxpayer Large Taxpayer ACIR

Deputy Commissioner - Legal and

National Investigation Division
Inspection Group

CIR or any authorized Bureau

Task Forces and Special Teams
Official

17
Revenue Regulations 7-2019
Income payment made by the top withholding agents, either private
corporations or individuals, to their local/resident supplier of goods
and local/resident supplier of services other than those covered by
other rates of withholding tax.

Income payments by any of the top withholding agents, including

non-resident aliens engaged in trade or business in the Philippines,
shall be subjected to the following withholding tax rates:
Supplier of goods - One percent ( 1%)
Supplier of services - Two percent ( 2%)
Revenue Regulations 7-2019

Top withholding agents shall refer to those taxpayers whose gross

sales/receipts or gross purchases or claimed deductible itemized
expenses, as the case may be, amounted to TWELVE MILLION
PESOS (P12,000,000) during the preceding taxable year.

The top withholding agents by concerned LTS/RRs/RDOs shall be

published in a newspaper of general circulation. It may also be
posted in the BIR website. This shall serve as the “notice” to the top
withholding agents. The obligation to withhold under this sub-
section shall commence on the 1st day of the month following the
month of publication
Revenue Regulations 7-2019

Taxpayers who are classified as top withholding agents prior to

the effectivity of these Regulations shall remain as such until failure
to satisfy the aforesaid criteria and duly published as delisted from
the existing list of top withholding agents. The initial and succeeding
publications shall include the top withholding agents and those that
are delisted.
REVENUE REGULATIONS
NO. 20-2001
Presented By:
RHODORA GARCIA-ICARANOM
Tax Advisor/Tax Consultant
 SECTION 1. SCOPE

Pursuant to Section 244, in relation to Section 4 of the Tax Code

of 1997, these regulations are hereby promulgated (1) to implement
the provisions of Articles 61 and 62 of R.A. No. 6938, as effectively
amended by R.A. Nos. 7716, 8241 and 8424 granting tax
exemptions to cooperatives and (2) to prescribe the guidelines for
the availment thereof, thereby amending RMC No. 48-91.
 SECTION 2. DEFINITIONS

• Cooperative – means cooperative duly registered with the Cooperative

Development Authority or whose registration has been confirmed by
the latter, including primary, secondary or tertiary cooperatives.
• Cooperative Development Authority – means the government agency
in charge of the registration and regulation of cooperatives as such,
hereinafter referred to as the CDA.
• Registration – means the operative act granting juridical personality to
a proposed cooperative as evidenced by a Certificate of Registration
from the CDA.
• Certificate of Tax Exemption – means the ruling granting
exemption to the cooperative issued by the Bureau of Internal
Revenue.
• Income Tax – means corporate/cooperative income tax under the
National Internal Revenue Code.

• Sales Tax – refers to either the value-added tax or percentage tax.

• Net Surplus/Net Savings – refers to the net amount arising from the
operations of the cooperative, belonging to its members, not
construed as profit, but as excess of payments made by the members
for the loans borrowed or the goods and services bought from the
cooperative which shall be made available to them in the form of
interest not to exceed the normal rate of return on investments and
patronage refund.
• Undivided Net Savings – refers to the amount arising from net surplus
or any portion thereof which the Board of Directors of the General
Assembly of the cooperatives decides not to divide or make available
to members in the form of interest on share capital, patronage refund,
reserve fund, education and training fund, optional fund or any other
statutory reserve; this also includes the amount arising from the net
surplus or any portion thereof which the cooperative is unable to
divide because the General Assembly of the cooperative has not been
convened for more than two (2) years;

• Accumulated Reserves – refers to the amount of accrued sum of

money annually retained and deducted from the net surplus which is
not intended for allocation or distribution to the members, usually
deposited in the bank for the protection of and stability of the
cooperative commonly referred to as the General Reserve Fund.
 SECTION 3. EXEMPTION FROM TAXES

3.1 Duly registered cooperatives dealing/transacting business with

members only shall be exempt from paying the following taxes for which
they are directly liable, viz:

• Income Tax on income from operations;

• Value-Added Tax (VAT) under Section 109 pars. (r), (s), (t) and (u) of the
Tax Code of 1997;
• 3% Percentage Tax under Section 116 of the Tax Code of 1997;
• Donor’s tax on donations to duly accredited charitable, research and
educational institutions, and reinvestment to socio-economic projects
within the area of operation of the cooperatives;
• Excise tax under Title VI of the Tax Code of 1997;
• Documentary Stamp Tax imposed under Title VII of the Tax Code of
1997, provided, however, that the other party to the taxable
document/transaction who is not exempt shall be the one directly
liable for the tax; and
• Annual Registration Fee of P500.00 under Section 236(B) of the Tax
Code of 1997.

3.2 Taxability/Exemption of duly registered cooperatives

dealing/transacting business with both members and non-members:
I. For cooperatives with accumulated reserves and undivided net
savings of not more than Ten Million Pesos (P10,000,000.00)-
• Exemption from all national internal revenue taxes for which they
are directly liable, as enumerated under Sec. 3.1 of these
Regulations.
II. For cooperatives with accumulated reserves and undivided net savings of more
than Ten Million Pesos (P10,000,000.00)-
• Exemption from income tax for a period of ten (10) years from the date of
registration with the CDA, provided, that at least twenty-five percent (25%) of
the net income of the cooperatives is returned to the members in the form of
interest and/or patronage fund.

For cooperatives whose exemptions were removed by Executive Order No.

93, the ten-year period shall be reckoned from March 10, 1997).

After the lapse of the above ten-year period, they shall be subject to income
tax at the full rate on the amount allocated for interests on capital, provided
that the same is not consequently imposed on interest individually received
by members;

The tax base for all cooperatives liable to income tax shall be the net surplus
arising from business transactions with non-members after deducting the
amounts for the statutory reserve funds as provided for in the Cooperative
Code and other laws.
• Exemption from VAT under Section 109 (r), (s) (t) and (u), 3%
percentage tax under Section 116, and the P500.00 annual
registration fee imposed under Section 236 (B), all of the Tax Code
of 1997;

• Subject to all other internal revenue taxes unless otherwise

provided by law; and

• Entitled to limited or full deductibility from the gross income of

amount donated to duly accredited charitable, research and
educational institutions and reinvestment to socio-economic
projects within the area of operation of the cooperative.
 Notwithstanding the foregoing, all income of the cooperative not
related to its main/principal business/es shall be subject to all
the appropriate taxes under the Tax Code of 1997. This is applicable to
all types of cooperatives, whether dealing purely with members or both
members and non-members.

In any event, all types of cooperatives are required to register with the
Bureau of Internal Revenue.
 SECTION 4. TAXABILITY OF COOPERATIVES TO OTHER
INTERNAL REVENUE TAXES

• 20% final income tax on interest from any currency bank deposit and yield or
any other monetary benefit from deposit substitutes and from trust funds and
similar arrangements and royalties derived from sources within the Philippines;

• 7.5% final income tax on interest income derived from a depository bank under
the expanded foreign currency deposit system;

• Capital Gains Tax on sales or exchanges of real property classified as capital

assets or shares of stock;

• Documentary Stamp Taxes on transactions of cooperatives dealing with non-

members when the accumulated reserves and undivided net savings of such
cooperatives exceed Ten Million Pesos (P10,000,000.00);
• VAT billed on purchases of goods and services, except the VAT on the
importation by agricultural cooperatives of direct farm inputs,
machineries and equipment, including spare parts thereof, to be used
directly and exclusively in the production and/or processing of their
produce, and importation by electric cooperatives of machineries and
equipment, including spare parts, which shall be directly used in the
generation and distribution of electricity, pursuant to Section 109 (r)
and (s) of the Tax Code of 1997 but which are not available locally as
certified by the Department of Trade and Industry. All tax-free
importations shall not be transferred to any person until five (5) years,
otherwise, the cooperative and the transferee or assignee shall be
solidarily liable to pay twice the amount of the tax and/or the duties
thereon;
• All other taxes for which the cooperatives are not otherwise
expressly exempted by any law.

Moreover, all cooperatives, regardless of

classification, are considered as withholding
agents and are required to file withholding tax
returns and remit withholding taxes on all income
payments that are subject to withholding.
 SECTION 5. TAXABILITY OF
MEMBERS/STOCKHOLDERS OF COOPERATIVES

The exemption of the cooperatives does not extend to their individual

members. Thus, members of cooperatives are liable to pay all the
necessary internal revenue taxes under the National Internal Revenue
Code, including the tax on earnings derived from their capital contribution.
Provided, however, that interests received by members of a cooperative
with accumulated reserves and undivided net savings greater than Ten
Million Pesos (P10,000,000.00), after the lapse of the ten-year exemption
under Sec. 3.2 (Il) above, shall no longer be taxable in the hands of such
members.
SECTION 6.
DOCUMENTS TO BE ATTACHED TO THE LETTER-
APPLICATION FOR THE ISSUANCE OF TAX EXEMPTION
CERTIFICATE

A Letter-Application signed by the President/General Manager of the

Cooperative, or his duly authorized representative, should be submitted to
the Legal Division of the Revenue Region having jurisdiction over the
principal place of business of the cooperative, attaching thereto the
following documents:
• Articles of Cooperation and By-Laws;

• Certified true copy of the Certificate of Registration issued by the CDA;

• Certified true copy of the Certificate of Confirmation of Registration from

the CDA (in the case of Cooperative already existing and previously
registered under P.D. 175, PD. 775, and E.O. 898, before the creation of
the CDA);

• Certificate under oath by the President/General Manager whether the

Cooperative is transacting business with members only or with both
members and non-members, whichever is applicable;

• Original copy of the Certificate of Good Standing from the CDA;

• Certification under oath by the Chairman/President/General Manager
of the Cooperative (if previously registered as above stated) as certified
by the CDA, as to the amount of accumulated reserves and undivided
net savings, and that at least 25% of the net income is returned to the
members in the form of interest and/or patronage refund;

• Certification under oath of the list of members and the share capital
contribution of each member; and

• Latest Financial Statements duly audited by an independent CPA.

 SECTION 7. VALIDITY OF TAX EXEMPTION CERTIFICATE

The Tax Exemption Certificate shall be valid during

such period that the Cooperative is in good standing as
ascertained by the CDA on an annual basis.
 SECTION 8. ANNUAL RETURN AND DOCUMENTS TO BE
FILED WITH THE BUREAU OF INTERNAL REVENUE

• A copy of the Certificate of Good Standing issued by the CDA to the

cooperative shall, together with the

• Annual Information Return (for non-taxable

cooperative) or
• Income Tax Return (for taxable cooperative) and
Financial Statements,

be submitted to the Bureau of Internal Revenue on or before the 15th day

of the fourth month following the close of the taxable year.
 SECTION 9. VERIFICATION OF ANNUAL INFORMATION
RETURN/INCOME TAX RETURN, FINANCIAL
STATEMENTS, ATTACHMENTS AND RECORDS

Pursuant to the last paragraph of Section 235 of the Tax Code of

1997, any provision of existing general or special law to the contrary
notwithstanding, the books of accounts and other pertinent records, as
well as the operations of all cooperatives, may be examined by the Bureau
of Internal Revenue annually for purposes of ascertaining compliance with
the conditions under which they have been granted tax exemptions or tax
incentives, and their tax liabilities, if any, upon previous consultation with
the CDA.
 SECTION 10. REPEALING CLAUSE

All revenue rulings, regulations and other issuances, including

Revenue Memorandum Circular No. 48-91, or parts thereof which are
inconsistent with these Regulations are hereby amended or repealed
accordingly.
THANK YOU!
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