transfer pricing audit
TRANSCRIPT
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REVENUE AUDIT MEMORANDUM ORDER
NO. 1-98
Subject : Audit Guidelines and Procedures in the
Examination of Interrelated Groups of Companies
To : All Revenue fficers Concerned!
This RA" is issued as a basis #uideline for the
joint and coordinated examination of
interrelated #roups of companies under Revenue
"emorandum rder $o! %&'()!
&! *AC+GR,$-
&!& The remar.able decrease in collection from
interrelated #roup of companies hasseriousl/ affected the collection efforts0 of the
*ureau! Statistics sho1ed that 1hile 2interrelated
transaction 2 accounts for a bi# percenta#e of the
transfer of #oods and services in the
countr/ 0 the revenue collection from related'part/
#roups continue to #o on a do1ntrend!
&!3 The ma#nitude of revenue lost has become so
alarmin# that there is a need to
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immediatel/ address this problem! It is a fact that
because these companies are more
interested in their net income as a 1hole 4rather than
as individual corporations5 there is
desire to minimi6e tax pa/ments b/ ta.in#
advanta#e of the loopholes in our tax s/stem and
b/ ma.in# use of schemes that allo1 them to move
around the la1 in order to reduce their
tax obli#ations!
&!7 It is therefore necessar/ to conduct a joint and
coordinated examination of interrelated
#roup of companies in order to identif/ the tax
avoidance schemes and be able to prescribed
the necessar/ measures in order to avoid the erosion
of revenues
3! GE$ERA8 G,I-E8I$ES
3!& General Procedures! The provision laid do1n in
9olume & of the andboo. on Audit
Procedures and Techni;ues must be follo1ed 1ithrespect to:
a! *asic reportorial re;uirements< and
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b! #eneral audit procedures and techni;ues!
3!3 Special Audit Procedures! In addition0 focus
must be made on the follo1in# audit issues
4detailed audit procedures are laid do1n in section 7
of this RA"5! btain a cop/ of the orld1ide Dinancial
Statements dul/ certified b/ an
independent public accountant of the countr/ 1hich
issues the financial statements
and authenticated but the Philippine Embass/ or
Consulate situated 1ithin the
countr/ 1here the ome ffice of the "$E is
located!
@! 9erif/ correctness of orld1ide peratin#Income and the orld1ide Sales fi#ures
a#ainst the financial statements obtained in > above!
%! Re;uest for a summar/ of Sales to the Philippines
dul/ certified b/ an independent
public accountant and authenticated b/ thePhilippine Embass/ or Consulate situated
1ithin the countr/ 1here the ome ffice of the
"$E is located! The Sales to the
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Philippines shall include the offshore portion of the
local construction projects 1hich
includes the suppl/ of machiner/ and e;uipment!
! Re;uest for presentation of copies of pertinent
sales invoices0 bills of ladin#0 frei#ht
and insurance covera#es and other documents to
verif/ Sales to the Philippines0 on a
test or samplin# basis!
Dor construction activities:
)! Revie1 all Contracts and anal/6e the nature of the
Contracts0 the parties involved0 the
terms and conditions0 the total contract price0 the
pa/ment and other pertinent information!
(! -etermine method of accountin#0 1hether
completed contract or the percenta#e of
completion0 and chec. the correctness of ta.e up in
the boo.s of accounts!
&B! Se#re#ate the income from exempt transactionsfrom that of taxable transactions0 if
applicable!
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&&! -etermine the total contract price and
composition of the project! The total contract
price includes:
a! Suppl/ of "achiner/ and E;uipment
4 sometimes referred to as the
offshore portionF5 MM
b! Suppl/ of 8abor = Civil or.s
4sometimes referred to as the
onshore portionF5 MM
'''''''''''
Total Contract Price MM
OOOOOOO
&3! 9erif/ that onl/ the suppl/ of local = civil 1or.s
4onshore portion5 is included in
computation of profit = loss on local constructionproject
&7! -etermine if cost and expenses correspond onl/
to the service portion of the project
referred to an && above!
&>! *e a1are of char#in# of income and expenses b/
mere boo. entries usin# the branch =
home office account!
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Dor all other activities
&@! 9erif/ that all income from other activities are
included as part of the #ross income!
&%! Ensure that onl/ expenses related to the activities
above are included in the
determination of the net income!
IV. EFFECTIVITY
This rder shall ta.e effect immediatel/!
LIWAYWAY VINONS CHATO
Commissioner of Internal Revenue