In the Philippines, tax audits are an important part of the BIR’s efforts to ensure businesses accurately report income and comply with tax obligations. While not all companies are audited regularly, any taxpayer may be selected for audit at any time based on risk factors or discrepancies in their filings. We’ll explain a tax audit, how to prepare for it, and how to handle the process professionally to ensure your business is ready for one.
What is a Tax Audit?
A tax audit is a formal review of taxpayers’ financial records and tax returns to determine whether they have accurately reported their income and paid the correct tax amount. In the Philippines, these audits are conducted by the BIR under the authority of an LOA.
There are several types of BIR audits, including:
- Regular audits – triggered by red flags in your tax returns, such as underdeclarations, inconsistencies, or unusually low tax payments.
- Random audits – where taxpayers are selected randomly as part of the BIR’s risk-based audit program.
- Special audits – usually conducted due to third-party complaints or after receiving intelligence reports about tax evasion.
The audit process may involve reviewing your accounting books, invoices, official receipts, tax filings, and other financial documents. If discrepancies are found, the BIR may issue a Notice of Discrepancy or Assessment, and you may be asked to pay penalties or additional taxes.
How to Prepare for a Tax Audit
Preparation is key to surviving a tax audit. Even if you haven’t received an LOA, staying audit-ready helps prevent issues down the line.
Here’s how you can prepare:
- Keep accurate and complete records
Maintain well-organized accounting books, official receipts, sales invoices, tax returns, bank statements, and supporting documents. Ensure that your records are consistent across all sources. - Ensure tax compliance
File all required tax returns on time and pay the correct taxes. Common red flags include underdeclarations, non-filing, and repeated amendments to returns. - Know your numbers
Understand your financial statements and how your declared income relates to your actual business activity. Be ready to explain any large variances or deductions. - Reconcile discrepancies
Make sure your VAT filings match your sales records and that withholding taxes have been properly remitted. The BIR often checks for mismatches between what you report and what your suppliers or clients report.
How to Handle a Tax Audit
Once you receive a Letter of Authority, the BIR officially begins the audit. Here’s what you should do:
- Acknowledge the LOA promptly
You typically have a limited number of days to comply with the LOA. Submit the required documents within the timeframe stated to avoid penalties. - Cooperate with the assigned BIR examiner.
Stay professional and cooperative. Provide only the requested documents—no more, no less. Keep a copy of everything you submit. - Know your rights
You have the right to request clarification, contest findings, and appeal tax audit decisions. Read notices carefully and respond within deadlines. - Request extensions if needed
You can request an extension if you need more time to gather documents. It’s better than submitting incomplete or inaccurate data. - Review assessment findings
If the BIR issues a Notice of Discrepancy or Assessment, review it. You may file a protest or request reconsideration if you disagree with the findings. - Negotiate in good faith.
In many cases, assessments can be resolved through negotiation or compromise settlements, especially when you can justify your position with solid documentation.
Triple I Consulting’s Professional Guidance
At Triple i Consulting, we offer a comprehensive suite of tax services to help ensure you’re not overpaying taxes and are fully prepared for any BIR audit. We help you get audit-ready by thoroughly reviewing your tax records, identifying potential red flags, and guiding you through the BIR audit process.
Our services include:
- Tax audit preparation and review
- Tax consultancy, advisory, and planning
- Tax compliance support
- Settlement of tax returns
- Assistance in availing tax incentives
- Requisition of tax refunds and tax credits
- Application of tax treaty benefits
We offer comprehensive tax assistance, accountancy, and other compliance services to ensure your business meets all its regulatory requirements.
Final Thoughts
Any business may be selected for audit at any time. Businesses should always be properly prepared by keeping accurate records, knowing their numbers, and complying with tax laws. If you are selected for a BIR tax audit, comply with their requests, and know your rights. Triple I Consulting can help you prepare and handle a tax audit to ensure compliance and minimal disruptions to your business.
Do You Need Help Preparing for a BIR Tax Audit? Our Experts Are Here to Support You
Staying compliant with complex tax regulations can be challenging. Businesses must maintain complete and accurate financial records, properly file tax returns, and stay updated with ever-changing regulations. One mistake can lead to costly penalties or trigger a BIR tax audit you might not be prepared to handle.
That’s where Triple i Consulting comes in. We’re among the best accounting outsourcing companies in the Philippines, offering bookkeeping, payroll outsourcing, auditing, and tax advisory services. Let our experienced lawyers and accountants comprehensively support your business and help you stay prepared.
Contact us today to schedule a consultation with one of our experts:
- Fill out the form below
- Call us at: +63 (02) 8540-9623
- Send an email to: info@tripleiconsulting.com
