A. FOR LATE FILING OF TA RETURNS WITH TAX DUE TO BE PAID

1. Surcharge

A penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases

• Failure to file any return and pay the tax due on the date prescribed
• Filing a return with an internal revenue officer other than those with whom the return is required to be filed;
• Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or
• Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of this Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment.

Surcharge is a one- time penalty applicable for each failure to pay the tax.

A surcharge equivalent to fifty percent (50%) of the amount due, in the following cases

• Willful neglect to file the return within the period prescribed by the Code or
  by rules and regulations
• In case a false or fraudulent return is willfully made

A substantial under declaration of taxable sales, receipt or income or a substantial overstatement of deductions shall constitute prima facie evidence of false or fraudulent return. Failure to report sales, receipts and income in an exceeding thirty percent (30%) of that declared per return, and claim of deductions in an amount exceeding (30%) of actual deductions, shall render the taxpayer liable for substantial under declaration of sales, receipts, or income or for overstatement of deductions as mention herein.

2. Interest

In General. – There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid. Interest is imposed on the following instances:

• Delinquency tax- failure to pay the amount of the tax due on any return required to be filed; or the amount of the tax due for which no return is required; or a deficiency tax or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed in Section (A) hereof until the amount is fully paid, which interest shall form part of the tax.
• Deficiency interest- based on any deficiency taxes during tax examination, which interest shall be assessed and collected from the date prescribe for its payment until the full payment thereof.
• Interest of extended payment on failure to pay the tax on installment or any part of the tax on instances where installment payment is allowed from the time required to be paid until fully paid .

3. COMPROMISE

• Failure to file and/or pay any internal revenue tax at the time or  times required by law or regulation. Fine of not less than P 10,000 and imprisonment of not less than one (1) year but not more than 10 years.

Amount of Compromise:

If the amount of tax unpaid exceeds P 000 but does not exceed P 5,000 compromise is P 1,000

If the amount of tax unpaid exceeds P 5, 000 but does not exceed P 10,000 compromise is P 3,000

If the amount of tax unpaid exceeds P 10,000 but does not exceed P 20,000 compromise is P 5,000

If the amount of tax unpaid exceeds P 20,000 but does not exceed P 50,000 compromise is P 10,000

If the amount of tax unpaid exceeds P 50,000 but does not exceed P 100,000 compromise is P 15,000

If the amount of tax unpaid exceeds P 100,000 but does not exceed P 500,000 compromise is P 20,000

If the amount of tax unpaid exceeds P 500,000 but does not exceed P 1,000,000 compromise is P 30,000

If the amount of tax unpaid exceeds P 1,000,000 but does not exceed P 5,000,000 compromise is P 40,000

If the amount of tax unpaid exceeds P 5,000,000 compromise is P 50,000

B. FOR LATE FILING OF TAX RETURNS WITH NO TAX DUE TO BE PAID, the compromise penalty will be imposed upon filing of the Tax Return based on the following:

• Failure to make/file/submit any return or supply correct information at the time or time required by law or regulation.Fine of not less than P10,000 and imprisonment of not less than one (1) year but not more than ten (10) years.

Amount of Compromise:

If gross sales, earnings or receipts; or gross estate or gift (based on the subject returns/information for filing/submission)

Exceeds  P 000 but does not exceed P 50,000 compromise is P 1,000

Exceeds  P 50,000 but does not exceed P 100,000 compromise is P 3,000

Exceeds  P 100,000 but does not exceed P 500,000 compromise is P 5,000

Exceeds  P 500,000 but does not exceed P 5,000,000 compromise is P 10,000

Exceeds  P 5,000,000 but does not exceed P 10,000,000 compromise is P 15,000

Exceeds  P 10,000,000 but does not exceed P 25,000,000 compromise is P 20,000

Exceeds  P 25,000,000  Compromise is P 25,000

• For Failure to File Certain Information Returns. – In the case of each failure to file an information return, statement or list, or keep any record, or supply any information required by this Code or by the Commissioner on the date prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall, upon notice and demand by the Commissioner, be paid by the person failing to file, keep or supply the same, One Thousand Pesos (P 1,000) for each failure: Provided, however, That the aggregate amount to be imposed for all such failures during a calendar year shall not exceed Twenty-Five Thousand Pesos (P 25,000).

C. FOR LATE FILING OF STATEMENTS/ REPORTS REQUIRED TO BE FILED WITH NO TAX DUE TO BE PAID,  the compromise penalty will be imposed upon filing of the Tax Return based on the following:

• Violation of Other Provisions of this Code or Rules and Regulations in General.– Any person who violates any provision of this Code or any rule or regulation promulgated by the Department of Finance, for which no specific penalty is provided by law, shall, upon conviction for each act or omission, be punished by a fine of not more than One Thousand Pesos (P 1,000) or suffer imprisonment of not more than six (6) months, or both.

These are the penalties impose by the BIR in case of non compliance. We should be aware that these are costly to incur. And with the right information we should comply to avoid these unnecessary expenses.

Compliance is costly. Non compliance is luxury.

If you belong to Micro Entities, Small and Medium Enterprises here are steps for easy tax compliance in the Philippines:

1. Make a schedule for monthly, quarterly and annual deadlines of tax payments always visible in your work desk if you haven’t memorized them. 
2. Visit BIR website often for tax updates. Even join Facebook support group for Tax Help in the Philippines.
3. Register your business before operation. Registering your business before operation will avoid penalties and forced closure of your business. Here are the government agencies you need registration DTI, Municipal hall for Mayors Permit, BIR, SSS, Philhealth, Pag- ibig fund and other government agencies necessary for registration. Not all businesses are the same and not all registration are the same. But BIR and Mayors permit are always mandatory because it is the basis for paying national and local taxes.
4. Register your Official Receipt and invoices. Make sure that your OR’s are printed by BIR accredited printers.
5. Attend Tax and Accounting Seminars. Since you’ll be handling tax compliance it is best to learn from an experience practitioner. Invest with the right information, to avoid paying more on unnecessary penalties in the future.
6. Inquire with your local CPA for more information and clarification. It would be best for your business to have an accountant and tax practitioner with your business team. You can disclose private information with reliable  accountants and gain expert advice regarding your tax or accounting concerns.

These easy steps will help you be updated on the information regarding taxes thus making it easier for a company to comply. It will take discipline in tax compliance, once your get use to it, it will be just an easy task.

But first do you know what kind of BIR registration are applicable? Nowadays, there are many small establishments in the country such us, sari- sari store, barber shop, food stalls, laundry shop, and other service businesses or seller of goods. There is a law that provides necessary assistance to small businesses at the barangay level. R.A. 9178, also known as the Barangay Micro Business Enterprises (BMBE) Act of 2002, was implemented in 2003. It is a law made to hasten the country’s economic development by encouraging the formation and growth of barangay micro business enterprises which effectively serve as seedbeds of Filipino entrepreneurial talents.

The benefits given to small businesses are:

• Allows micro-entrepreneurs to not have to pay minimum wage to their employees. The BMBE shall be exempt from the coverage of the Minimum Wage Law, but the employees shall nevertheless be entitled to the same benefits given to any regular employees like social security and PhilHealth benefits.
• Does not require the remitting of income tax for its first 2 years (renewable for a period of two 2 years for every renewal). All BMBEs shall be exempt from income tax for income from the operations of the enterprise.  LGUs are also encouraged either to reduce the amount of local taxes, fees and charges imposed or to exempt the BMBE from local  taxes, fees and charges.
• Technology Transfer, Production and Management Training, and Marketing Assistance. – A BMBE Development Fund shall be set up with an endowment of Three Hundred Million Pesos (P300,000,00) from the Philippine Amusement and Gaming Corporation (PAGCOR) and shall be administered by the SMED Council.
• Credit Delivery. – Upon the approval of this Act, the Land Bank of the Philippines (LBP), the Development Bank of the Philippines (DBP), the Small Business Guarantee and Finance Corporation (SBGFC), and the People’s Credit and Finance Corporation (PCFC) shall set up a special credit window that will service the financing needs of BMBEs registered under this Act

Here are the Basic Qualifications of the BMBE to qualify for income tax exemptions, exemption for minimum wage application, and other benefits:

1. Barangay based which means that majority of its employees are residents of the municipality of the principal office location and the principal activity consist in the applicatin of a skill peculiar to the locality, or business operations confined to the LGU of the principal office location.
2. Micro-enterprise in nature and scope which that its principal acitvity be primarily livelihood, or determined by DTI as priority are for development or government assistance, not a branch, sunsidiary  or division of large – scale enterprise and its policies and business modus operandi  are not determined by a large enterprise.
3. Its total assets (real or personal) not more than P3,000,000 (3 million pesos), excluding the land of business location.
4. Engaged in manufacturing, trading, or services other than practice of profession.
5. Issued a Certificate of Authority by the LGU’s City Treasurer of principal office location within 15 days from filing complete application requirements and valid for 2 years  and renewable for not more than 2 years in any instance. Details of the Certificate of Authority annotated in the BIR Certificate of Registration.

BMBE is exempt from income tax with respect to its income from operations and such,income payments  to it is not subject to withholding taxes. It is however subject to business tax (3% percentage tax and 12% VAT, which ever is applicable), and other internal revenue taxes.

The required Lessee Information Sheet (report), which shall be under oath, shall indicate the following information:

1. Building/space lay-out of the entire area being leased with proper  unit/space address or reference;
2. Certified true copy of contract of lease per tenant; and
3. Lessee Information Statement (indicating the registered name of tenant, TIN, ATP for official receipts  and invoices, and POS/CRM permit number, leased area, monthly rental payment, and period of lease)

The Lessee Information Sheet shall be submitted every 31st of January (for tenants as of December 31st of the previous year) and 31st of July (for tenants as of June 30th of the current year).

The Lessee Information Sheet shall be submitted in hard and soft copies (excel format stored in a CD-R) to the Revenue District Office (RDO) where the commercial establishment, building or space is located.

BIR will use the information submitted by lessors to validate the registration profile of the lessees.  The information will also be used for future audit and investigation activities to validate the revenues reported by the lessors.

Penalty provisions.   Lessors who fail to submit the reportorial requirements, or who willfully provide false information  shall be subject to penalties under Sections 255 and 267 of the Tax Code. The regulations also mention that lessors who knowingly transact with taxpayers who are not registered with BIR will also be penalized.

Action points for LESSORS:

1.     Lessors should therefore maintain and update the database of required information from their lessees.
2.    Report accurate information to avoid future issues in tax examinations.
3.    To ensure correctness of the information provided, you are advised to request for the source documents (copy of BIR  registration, etc.)
4.    Ensure the DST on the lease contract has been paid and proof is available.
5.    Advise lessees who are unregistered to process their registration before the semiannual due dates for submission of the Lessee Information Sheet.

Action points for LESSEES:

1.    Ensure that the information to be reported by the lessor on your company is accurate.  These may be used against any future tax examinations.
2.    Process your BIR registration if not yet registered.

For Taxpayers filing returns with payment or without payment using Offline eBIRForms shall follow the procedures as follows: 

1. Download and install the latest Offline eBIRForms Package v5.0 set up. You can download from these sites the Offline eBIRForms Package:

Websites: www.knowyourtaxes.ph; www.dof.gov.ph
Dropbox link: http://goo.gl/UCr8XS
Direct link: http://ftp.pregi.net/bir/ebirforms_package_v5.0.zip

2. Fill out your tax return, or if you already have a saved copy, use the View button to retrieve it. Navigate through the pages with the Prev and Next buttons.

3. Click Validate after filling out the form. If you wish to make changes, make sure you Validate first; after which, the Edit button will become available. Validate again after all changes have been made.

4. Click Submit and Proceed buttons to submit to eBIRForms Online. If successful, you will be redirected to enter your user name and password. Wait for “Submit Successful” message to appear. An email confirmation will be sent to you. If unsuccessful, click Final Copy button to use an alternative mode of electronic submission.  It is necessary to enroll to eBIRForms System. Upon enrollment the BIR will issue a username and password through eMail.

5. Print email notification and the tax return and proceed to the Authorized Agent Bank (AAB) for payment.

Alternative mode of submission under RMC 26-2015

1. After validating the return, click “FINAL COPY” and open the directory “C:\eBIRForms\IAF_RDO_Copy\” in the computer or on “C:\eBIRForms\save file\”

2. Look for the XML file of the encoded VAT or Percentage TAX with the following name: Filename=<9999 9999 9999-XXXXXX-99999999.xml> wherein:

• 9999 9999 9999 – First 12 Digits of the TIN including branch code
• XXXXXX – BIR Form Number
• 99999999 – Return Period/Taxable Year
• .xml – The file type extension

3. Attach the xml file to an email and send to the BIR using the following subject and address:

Form No.                         E-mail Subject                               E-mail Address

2551M               RDO_2551M_TIN_taxable period         2551M@bir.gov.ph

2551Q               RDO_2551Q_TIN_taxable period          2551Q@bir.gov.ph

2550Q               RDO_2550M_TIN_taxable period          2550M@bir.gov.ph

2550Q               RDO_2550Q_TIN_taxable period          2550Q@bir.gov.ph

NOTE:  Sample eMail Subject: 008_2551M_123456789_042015 

4. If the return is with payment, print email notification as evidence of efiled return from the BIR and the tax return, then proceed to the Authorized Agent Bank (AAB) for manual payment following existing procedures.

Tax payer should be aware that there is a Php 1,000 penalty for non compliance.

A business usually owns various capital assets, which are long-term assets that generate value for the business. These assets receive a different accounting treatment compared to other assets. Capital assets go through the depreciation process to account for deterioration and decrease in value over their useful life. Each year’s depreciation can be considered an expense, even though the business does not need to pay cash to cover it.

Depreciation
Depreciation removes some of the value of a capital asset each year until the end of its useful life. When a business buys a capital asset, it does not immediately list the purchase price as an expense. Instead, the business reports the expense as the asset depreciates. This way, the business does not claim the expense all at once, but spreads it out over time. This allows the business to distribute its tax burden over time.

Depreciation Calculation
You can calculate depreciation using various methods, but the most common method is the straight-line method. The straight-line method depreciates a certain amount each year. For example, if a piece of machinery costs $50,000 to purchase, lasts for 10 years and has no value at the end of its useful life, then it would depreciate by $5,000 per year. With other depreciation methods, you may depreciate a different amount each year.

Depreciation Lapse Schedule
A business may have several different capital assets depreciating at any time. For example, the business may depreciate its machinery, vehicles, buildings and furniture. A depreciation lapse schedule lists all the depreciation items the business has in a year and adds the total depreciation amount. The schedule may cover a period of several years. The depreciation lapse schedule may be based on the fiscal year or the calendar year.

Function
The depreciation lapse schedule allows a business to keep track of all its capital assets, their reported values and the amount of depreciation expense the business claims each year. This helps accountants enter the correct data to financial statements and determine how to depreciate newly acquired capital assets. The business may use the depreciation lapse schedule each month for regular statements and each year for the end-of-year compliance reporting.

The current complexity of doing business and maintaining a company with high competitive standards, has led company leaders and executives to assume several responsibilities. Many of these include non-core process activities, such as accounting, tax compliance, and payroll.

What is outsourcing?

Outsourcing refers to the way in which companies entrust the processes of their business functions to external vendors. Any business process can be outsourced. This includes functions like accounting ,transaction processing, accounts receivable processing, payroll and order and inventory management and others. Some of the processes that can be outsourced to providers like ACCXYS are accounting and book keeping service, business process outsourcing, financial statement preparation, tax compliance and payroll solutions.

Here are the main benefits of getting an Outsource Services

Cost And Efficiency Savings

The most obvious and visible benefit relates to the cost savings that outsourcing brings about.
You can get your job done at a lower cost and at better quality as well.  The quality of the services provided is high thereby ensuring that low-cost does not mean low-quality. The company can save some on the cost of office equipment such as laptops and printers.

Efficiency is increased because of the experience of the team who handles the outsourcing, they bring years of experience in the business practices and expertise, thus they can do the job more effectively.

The Management can focus on the business core activities

Outsourcing your business processes would free your energies and enable you to focus on building your brand,  and move on to providing higher value added services.

Access to skilled resources

You no longer need to invest in recruiting and training expensive resources for your business. Providers like ACCXYS take care of the resourcing needs with their pool of highly skilled resources.

Here are the  indicators where a Company should consider or seek an Outsource Services

• Having inefficient process, which results in repeated errors, like missing information delivery dates, among others
• High internal operating costs
• High costs to train and update personnel regarding tax, operating, and software usage issues
• Accounting and management functions that lack the experience, resources, or technology necessary to fulfil their task
• Accessibility to new platforms and technological applications without having to purchase them, by using the structure created by reputable outsourcing provider
• Leveraging economies of scale offered by the supplier by maintaining its software updated for tax changes and migration to new versions
• Spin-off or restructuring without sufficient business infrastructure
• Having processes with the market’s best practices and continuous updates
• Immediate access to new operating methodologies

As part of our service offer and in order to provide better solution alternatives to satisfy the needs of our clients, we gather general information that helps us understand your processes, information technologies, strategy and people.

A representative office is foreign-owned corporation, organized and existing under foreign laws. It cannot derive income within the Philippines and is fully financed by the foreign corporation. Its main purpose is to deal directly with the clients of the parent company to conduct information dissemination, setup communication centers, and market company products. It may be used to provide customer service and support to the company and its products.

A representative office may also act as a quality control center of the products for an export-oriented company, making it an ideal business structure in the Philippines for any company looking for a customer service or marketing center.

A Philippine representative office is a cost center and it is not allowed to earn income in the Philippines, thus, exempted from 30% income tax and 12% value added tax. It is however subject to withholding taxes on its income payments and compensation.

To support its operation in the Philippines, it is required an initial capitalization of US $30,000 to be inwardly remitted to the Philippines. And a resident agent is appointed on whom summons and other legal processes against the same may be serve in all actions or other legal proceedings against the Company.

Registration requirement to SEC:

• Reserve Name from SEC
• Authorized Board Resolution for the creation and establishment of the office in Philippines
• Latest audited financial statements of the parent company certified by an independent certified public accountant and authenticated by the Philippine consulate or embassy.
• Authenticated copies of the Articles of Incorporation and By-Laws of the parent company with an English translation, if in the foreign language.
• Authorized resident agent for the Philippine office (must have Filipino residency)
• Certified remittance of minimum paid-up capital to local bank of the US $30,000.
• Obtained licenses and clearances from necessary government offices
• Resident agent acceptance of appointment, unless the agent is the signatory in the appliction form.
• Affidavit executed by the President or Resident Agent stating that the applicant is solvent and sound in its financial condition.

SEC will assign a tax identification number (TIN) upon release of License to do Business in the Philippines and the TIN shall be registered to Bureau of Internal Revenue (BIR). For tax exemption refer to BIR Revenue Memorandum Order 20-2013  Prescribing the Policies and Guidelines in the Issuance of Tax Exemption Rulings to Qualified Non- Stock, Non- Profit Corporation and Association Under Section 30 of National Internal Revenue Code of 1997, As Amended.

Business Permit should be secured with the local government unit of business operation. Also, employer registration with Social Security System (SSS), Philippine Health Insurance Corporation (Philhealth), and Home Development Mutual Fund (HDMF) is a mandatory if the Company will employed salaried workers.

If the representative office can secure professionals who will handle the registration and securing the licenses and quickly established a representative office here in the Philippines.

The preparation of alphalist is a team effort of the HR Department and the Accounting Department. In most cases, when HR policies fail to contribute its efforts, the lead time to print the Certificates of Withholding will be compromised. If the accounting/payroll department also failed to accurately imposed withholding of taxes against employees’ compensation, several adjustments and analysis will take place to delay the completion of 1604CF.

In summary, the common issues are as follows which were also discussed in detail in the succeeding section:

1. Employees do not have TIN
2. Employees with previous employers cannot supply their certificate of withholding (2316) from previous employer
3. Ineffective/Inefficient way to summarize payroll details of employees in an annual basis
4. Annualization of taxes results to tax deficiencies and/or tax refunds
5. Employees with tax deficiencies do not want to pay the additional tax dues
6. Certificates of withholding is not distributed on time
7. Tax refunds are not given to employees on time, or not at all
8. Alphalist of employees do not match the total compensation declared in the Annual FS
9. Problems recur every period without a targeted solution

EMPLOYEES DO NOT HAVE TAX IDENTIFICATION NUMBER (TIN)

• Possible cause – HR policy in the hiring process is not compliant with the rules of BIR
• Risk/ Effect in the Preparation – Encoding in the Alphalist system is not possible if employee has no TIN, thereby delaying the preparation of employee Alphalist.
• Recommended Solution/Best Practices – Implement mandatory obligation of employers to register/update employee records with BIR within the employee’s first 10 days at the company.Employee without TIN
  • File and submit BIR Form 1902 (Application for Registration)

  Employee with existing TIN

  • File and submit BIR Form 2305 (Certificate of Update of Exemption and of Employer’s and Employee’s Information)
  • In case Home RDO of employee is different from the Home RDO of the company, File and submit BIR Form 1905 (Application for Registration Information Update)

EMPLOYEES WITH PREVIOUS EMPLOYERS CANNOT SUPPLY THEIR CERTIFICATE OF WITHHOLDING TAX (2316) FROM PREVIOUS EMPLOYER

• Possible cause – HR policy in the termination process does not service the rights of the outgoing employees.
• Risk/ Effect in the Preparation- Inability of the newly hired employees within the calendar year to provide the Certificates of Withholding (BIR form 2316) from their previous employers may lead to inaccurate computation of annualized tax. In the absence of the 2316 from previous employer, the tax computation would result to a tax refund which was incompletely/inaccurately computed.
• Recommended Solution/Best Practices- Implement mandatory obligation of the employers to provide the certificates of withholding (BIR Form 2316) to the outgoing employee. In the best practices, when the employee obtained its departmental clearances, the issuance of the withholding tax certificate is made together with the acknowledgement of receipt of the following:
  • Certificate of Employment
  • Acknowledgement Receipt of Final Pay/Separation Pay

HARDSHIPS IN SUMMARIZING PAYROLL DETAILS OF EMPLOYEES IN AN ANNUAL BASIS

• Possible cause- The company is not maintaining a payroll database or failed to use a manual ledger for every employee in its current 201 file.
• Risk/ Effect in the Preparation- It may take a lot of time and effort to summarize 24 sets of payroll sheets per employee in a year plus other incentives and commissions received/given, thereby, leading to delays in the encoding to the BIR 3.4 System.
• Recommended Solution/Best Practices- Employ a payroll solution that can satisfy the following criteria:
  • Ability to generate reports to MS Excel database for analysis
  • Ability to generate the complete database of each payroll with each year
  • Ability to summarize in details year-to-date employee’s Basic Pay, Cola, OT, Holiday, NSD, Premiums, Incentives, Commissions, Deminimis benefits, Mandatory contributions, Withholding taxes, and Net Pay
  • Ability to maintain a Human Resource Information that can be generated on-the-fly when needed

ANNUALIZATION OF TAXES RESULTS TO TAX DEFICIENCIES AND/ OR TAX REFUNDS

• Possible cause- The company does not implement the tax annualization procedures before the year ends rather it computes the taxes after the year was actually ended.
• Risk/ Effect in the Preparation- Tax refunds are mostly understood by managers as expense of the company when in fact it’s a liability. Additional tax dues most likely require alphalist preparers to be creative in reducing the tax dues of the respective employees. If preparers misstated the details of the alphalist, there is a great possibility that any misstatement would lead to income tax exposure.
• Recommended Solution/Best Practices- Annualization of taxes should be made on the months of November and December and any adjustments should be applied against these last two months of the year, NOT on January the following year.

EMPLOYEES WITH TAX DEFICIENCIES DO NOT WANT TO PAY ADDITIONAL TAX DUES

• Possible cause- Inaccurate projection or calculation of per payroll period withholding taxes.Failure to withhold taxes on other taxable compensations such as incentives and commissions, and those that exceeded the respective thresholds of De Minimis Benefits.
• Risk/ Effect in the Preparation- The employees with tax deficiencies will most likely feel disappointed/surprised on the imposition of additional tax due. Such employee might raise issues within the organization and in order to please such erring employee, alphalist preparers would find a way to reduce its tax due and may not be aware of future tax consequences.
• Recommended Solution/Best Practices- Withholding taxes on all taxable compensations and employee benefits must be imposed.Employees with tax deficiencies should still pay the rightful amount of tax liability to be fair with everyone in the organization.

CERTIFICATES OF WITHHOLDING IS NOT DISTRIBUTED ON TIME OR NOT ALL DISTRIBUTED

• Possible cause- All possible delays in the preparation of the Alphalist would lead to the none distribution of the Certificates of Withholding (BIR Form 2316)It may not be that important for the employer to distribute the certificates of withholding to the employees. Or the employer is not aware that he/she has certain responsibilities to its current employees and its outgoing employees.
• Risk/ Effect in the Preparation- Non-distribution of the Certificates of withholding on or before January 31 the following year will result to several employees requesting the same certificates.Non-distribution of the Certificates of Withholding to the outgoing employees will lead to a problem issue/ consolidation issue to the subsequent employers within the calendar year.
• Recommended Solution/Best Practices- It is mandatory that all employees be provided with certificates of withholding on or before January 31 the following year.Implement strict compliance on the requirements of BIR with regards to employee certificates of withholding.

TAX REFUNDS ARE NOT GIVEN TO EMPLOYEES ON TIME, OR NOT AT ALL

• Possible cause- Inability of the management to comprehend the nature of refund.Inability of the accounting or HR department to annualize/ adjust its tax before the year ends.Employers may not be aware of its responsibility to release tax refunds.
• Risk/ Effect in the Preparation- Possible litigation filed by an employee at the Department of Labor and Employment.
• Recommended Solution/Best Practices- Always release tax refunds on or before January 25 of the following year.Tax refunds should also be given to outgoing employees/if not, a certificate of withholding with a proper amount of tax withheld should appear in the BIR form 2316.

ALPHALIST OF EMPLOYEES DO NOT MATCH THE TOTAL COMPENSATION DECLARED IN THE ANNUAL FS

• Possible cause- There is an error in the alphalist or an error in the annual financial statements.There is an intentional misstatement on the amounts in the alphalist and/or on the amounts of compensation expense stated in the Annual FS. The Annual FS was not audited and the company just had it certified with an accredited CPA.Failure to include other forms of compensation in the Alphalist.
• Risk/ Effect in the Preparation- Mismatch of employee alphalist between the FS would lead to possible disallowance of salaries and wages claimed as a deduction in the income tax return..
• Recommended Solution/Best Practices- Do not misstate the Alphalist and the Salaries and wages in the FS. Have your FS audited by an independent auditor.

PROBLEMS RECUR EVERY PERIOD WITHOUT A TARGETED SOLUTION

• Possible cause- Failure of the preparers to escalate these common issues to upper management/owners.Failure of management to seek resolutions to prevent such problems at year end.Overall ineffectiveness of HR policies and payroll solutions.
• Risk/ Effect in the Preparation- Preparers of the alphalist will face so much pressure in completing all the requirements of the Alphalist preparation. Employee may feel disappointed with all of their rights being violated or neglected.
• Recommended Solution/Best Practices- The preparation of the employee alphalists is an inter-department effort and should not be bourne with the preparer alone. The harmony of goals towards effective preparation is a work of the Admin, HR, and Accounting Departments.Firstly, HR processes should handle the registration of employees with BIR. Secondly, accounting/payroll department should consider monthly withholding to be accurately computed based on the withholding tax tables and also impose taxes on other taxable compensations such as incentives. And Finally, annualization of taxes should be made on the months of November and December to adjust any possibility of tax deficiencies and refunds at year end.Corporate social responsibility with respect to its employees should be guarded and the right of the employees to receive Certificates of Withholding (annually or upon separation), Tax Refunds should be always given.

Keeping an accurate tab on any record changes and staff movement in and out of the organization, the demographics and statistics of the manpower structure draws an accurate picture and value of the organizations’ human resources. Basically, the 201 files should contain all documents that covers the hiring process, evaluations, written reprimands, promotions, and up to the separation of the employee from the company. The 201-file shall be retained by the company for future employment requirements. One of the important role of 201 file management is the ability of the company to keep track of the employee records; provide post-employment information and employment certifications; and the ability to support or document defenses in legal cases filed by an employee at the Depart of Labor and Employment.

Provided below is a tentative checklist of requirements on what to keep in the 201-File of any company operating in the Philippines. The list shall cover the 3 main categories of employment life cycle: the hiring process, the employment period, and the separation process. The list are as follows:

• Employee information sheet/Employee application form
• Employment contracts
• Comprehensive resume or curriculum vitae
• Official transcript of records
• Certificates from previous employers
• Result of pre-employment examinations/Results of the hiring process
• Birth certificate
• Marriage contract
• SSS Registrations/E1 Form
• SSS Loan Voucher
• HDMF Registrations/Online
• HDMF Loan Voucher
• PHIC Registrations/PMRF
• BIR Registration form (Those without TIN)/ BIR form 1902
• BIR update of taxpayer’s information (Those with previous employer)/BIR form 2305
• BIR form 2316 from previous employer (If employee was employed within the calendar year prior to date hired)
• BIR change of home RDO (if home RDO is different from that of the company)/BIR form 1905
• Birth certificates of qualified dependents
• Other credentials (ATM Payroll Accounts, acknowledgements)
• Employee attendance sheet attached by DTRs
• Ledger of leave credits (Vacation and Sick Leaves)
• Change of departments
• Employment evaluations
• Written reprimands/Incident reports
• Notice of promotions/Increase in salary rates
• Withholding tax certificates (BIR Form 2316)
• Resignation letter/Termination letter
• Clearance form
• Acknowledgement of receipt of quitclaim, withholding tax certificates, etc)
• Other related documents

Every company should have a good human resource information system and 201-file management no matter how small the company is.