As featured on PhilStar: Ensuring compliance: Preservation and examination of books of accounts
Businesses are required to maintain and preserve books of accounts for a certain period in compliance with tax laws and regulations. This practice helps to ensure that businesses accurately report their financial activities and meet their obligations under tax and accounting standards. By keeping detailed and organized records, businesses can effectively respond to audits, resolve disputes, and demonstrate their commitment to transparency and legal compliance.
Under Section 235 of the Tax Code, as amended by the Ease of Paying Taxes Act (Republic Act No. 11976), taxpayers—corporations, companies, partnerships, or individuals—are required to maintain and preserve all books of accounts, including the subsidiary books and other accounting records, for a period of five (5) years reckoned from the day following the deadline in filing a return, or if filed after the deadline, from the date of filing of the return, for the taxable year when the last entry was made in the books of accounts.
The term “other accounting records” was defined in Revenue Regulations No. 5-2014 to include the corresponding invoices, receipts, vouchers and returns, and other source documents supporting the entries in the books of accounts.
If a taxpayer has any pending protest or claim for tax credit or refund of taxes, and such books or records are material to the case, the taxpayer is also required to preserve the same until the case is finally resolved.
Further, for taxpayers closing-up shop in the Philippines, they may be required to present historical accounting records as part of post-audit procedures prior to the release of a Tax Clearance Certificate. This post-audit check may be independent from the mandatory tax audit of the immediately prior three taxable years. Hence, even if more than 5 years have lapsed since a tax return was filed, the taxpayer may still be required to present proof of tax compliance.
Aside from proper documentation, it would be prudent for taxpayers to put in place document archiving and recovery plans as part of tax compliance procedures. For taxpayers adopting manual or loose-leaf accounting records, it is important to assess whether maintaining electronic copies beyond the mandatory five-year period is feasible. For taxpayers adopting a computerized accounting system, it is crucial to ensure the integrity of data by implementing sufficient safeguards in the data storage utilized (whether physical servers or the cloud) and crafting a back-up and disaster recovery plan.
Taxpayers should be diligent in maintaining thorough and organized documentation to ensure that all relevant records accurately reflect the transactions and activities in question. Proper documentation not only helps in staying compliant with regulations but also provides a clear and reliable record for future reference, such as during audits, disputes, or refund claims.
Carla Mea B. Ravelo
Tax Associate
R.G. Manabat & Co.
