Ensure Tax Compliance for Multinational Enterprises

Ensuring Tax Compliance of Large / Multinational Enterprises 50th SGATAR Annual Meeting ACIR Manuel V. Mapoy Presenter RDO Antonino L. Ilagan Observer Date of Presentation: 27 October 2021

Agenda BIR / Large Taxpayers Service Organizational Structure Functions of the Large Taxpayers Service Administration of Large Taxpayers/Multinational Enterprises Mechanisms to Ensure Tax Compliance of Large / Multinational Enterprises (MNEs) Impact of MNEs

Organizational Structure Philippine Tax Administration Bureau of Internal Revenue Large Taxpayers Service Organizational Structure Functions Current Personnel Strength Criteria for Large Taxpayers Registered Large / MNEs

National Government Tax Revenues National Government Tax Revenues Source: BIR 2020 Annual Report

BIR Organizational Structure BIR Organizational Structure Office of the Commissioner Large Taxpayers Service Resource Management Group Operations Group Information Systems Group Legal Group

LTS Tax Revenues LTS Tax Revenues Source: BIR 2020 Annual Report

LTS Organizational Structure LTS Organizational Structure Regular LT Audit Division I Regular LT Audit Division II HREA Regular LTs Regular LT Audit Division III LT Division - Cebu LT Division - Davao Excise LT Audit Division I VAT Audit Unit Excise LT Audit Division II ACIR-LTS HREA Excise LTs Excise LT Field Operations Division Excise LT Regulatory Division LT Assistance Division LT Document Processing & Quality Assurance Division HREA Programs & Compliance LT Collection Enforcement Division LT Performance Monitoring & Program Division

Current Personnel Strength Current Personnel Strength 647 ASSESSMENT GROUP NON- 101 ASSESSMENT GROUP 748 TOTAL

Criteria for Large Taxpayers Criteria for Large Taxpayers Automatic classification: All branches, subsidiaries, affiliates and entities of conglomerates/group of companies of a Large Taxpayers; The surviving company, in case of merger/consolidation involving a large taxpayer; Any corporation that absorbs the operation/business in case of spin- off/s of any large taxpayer; Corporations with an authorized capitalization of at least P300 million ($6 million) registered with the Securities and Exchange Commission (SEC); Multi-national enterprises (MNEs) with an authorized capitalization or assigned capital of at least P300 million ($6 million); Publicly-listed corporations; Universal, Commercial and foreign banks; Taxpayers with an authorized capitalization of at least P100 million ($2 million)belonging to the following industries: Banks Insurance, Telecommunication, Utilities, Petroleum, Tobacco and Alcohol. Corporate taxpayers engaged in the production of metallic minerals.

Criteria for Large Taxpayers Criteria for Large Taxpayers Any taxpayer with: Net VAT paid or payable of at least P200,000.00 ($4,000) per quarter for the preceding year; Annual excise tax paid or payable of at least P1 million ($20,000) for the preceding year; Annual income tax paid or payable of at least P1 million ($20,000) for the preceding year; Annual withholding tax payment/remittance from all types of withholding taxes of at least P1 million ($20,000); Percentage taxes paid or payable of at least P200,000.00 ($4,000) per quarter for the preceding year; Aggregate annual documentary stamp taxes of at least P1 million ($20,000); or

Criteria for Large Taxpayers Criteria for Large Taxpayers Any taxpayer with (con t.): Total annual gross sales/receipts of at least P1 billion ($20 million) for the preceding year; Total Net Worth at the close of each calendar or fiscal year of at least P300 million ($6 million); Total annual gross purchases of at least P800 million ($16 million) for the preceding year; Top corporate taxpayers are listed and published by the Securities and Exchange Commission (SEC).

Registered Large / MNEs Registered Large / MNEs % OF MNEs on Total MNEs DOMESTIC 447 2,535 14.99%

Sales from Large / MNEs Sales from Large / MNEs (In Billion Pesos) (In Billion Pesos) % OF MNEs on Total MNEs DOMESTIC 3,028.57 6,651.58 32.05% ($60.57 billion) ($129.29 billion)

Large / MNEs vs. Other BIR Large / MNEs vs. Other BIR Corporate Taxpayers Corporate Taxpayers Other BIR Corporate Taxpayers Large/ MNEs

Audit Mechanisms Selection of Cases for Tax Audits eLAMS BIR Annual Audit Program IRIS (2020) Eight (8) Modules Taxpayer Registration System (TRS) Collection, Remittance and Reconciliation (CRR) Taxpayer Accounting System (TAS) Tax Credit and Refund System (TCR) Taxpayer Compliance System (TCS) Returns Filing and Processing (RFP) Case Management System (CMS) Audit Selection System (AUD)

Audit Selection Audit Selection System System Process Flow Process Flow

Risk Selection Criteria Risk Selection Criteria High Risk Taxpayers: Significant increase in exempt/zero-rated sales/revenues; Enjoying exemptions/incentives; Claiming substantial input tax; Declaring excess input tax carry-over; Substantial sales but claiming net loss; Reporting gross/net loss or no taxable income or no tax due for two consecutive years; Reporting income tax due of less than 2% of gross sales/revenues; Drastic decrease in reported sales/tax payments; History of filing claim for refund; Non-compliant in the submission of mandatory requirements SLSP, MAP, SAWT, others; Non-compliant with Electronic Sales Reporting; Transacting with the government.

Number of Cases Audited Number of Cases Audited 1,413 No. of eLAs Issued 2,982 No. of Large/MNEs % of Large/MNEs Audited 47.38%

Audit Mechanisms Co-Operative Compliance Programs POS/CRM Reading/Stocktaking (2000) Monitoring & Surveillance (2000) Oplan Closure (2000) Taxpayer Account Management Program (TAMP) (2002)

Voluntary Compliance (In Billion Pesos) Voluntary Compliance (In Billion Pesos) MNEs Domestic Total Year Voluntary Compliance % of Voluntary Compliance % of Voluntary Compliance % of Sales Sales Sales Compliance Compliance Compliance 458.56 ($9.17 billion) 3,028.57 ($60.57 billion) 788.32 ($15.77 billion) 6,651.58 ($133.03 billion) 1,246.88 ($24.94 billion) 9,680.15 ($193.60 billion) 15.14% 11.85% 12.88% 2020 478.49 ($9.57 billion) 4,915.17 ($98.30 billion) 9,441.27 ($188.83 billion) 1,394.59 ($27.89 billion) 14,356.45 ($287.13 billion) 9.73% 916.10 9.70% 9.71% 2019

Voluntary Compliance (In Billion Pesos) Voluntary Compliance (In Billion Pesos) 916.1 1000 900 788.32 800 700 600 478.49 458.56 500 400 300 200 100 0 2020 2019 MNEs Domestic

Voluntary Compliance (In Percentage) Voluntary Compliance (In Percentage) 100% 90% 80% 63.22% 65.69% 70% 60% 50% 40% 30% 36.78% 34.31% 20% 10% 0% 2020 2019 MNEs Domestic

Audit Mechanisms Online System Tax Audits Computer Assisted Audit Tools & Techniques System (CAATs)(2018) Automated RELIEF System (2003) Transfer Pricing Audit e-Invoicing (2021)

Collections from Audit (In Billion Pesos) Collections from Audit (In Billion Pesos) MNEs Domestic Total 2019 2020 2019 2020 2019 2020 4.45 ($89 million) 3.30 ($66 million) 29.45 ($58.9 million) 14.34 ($28.68 million) 33.91 ($67.82 million) 17.64 ($35.28 million)

Collections from Audit (In Billion Pesos) Collections from Audit (In Billion Pesos) 30 29.45 25 20 14.34 15 10 4.45 3.3 5 0 2020 2019 MNEs Domestic

Collection from Audit (In Percentage) Collection from Audit (In Percentage) MNEs Domestic 81.29% 86.85% 18.71% 13.12% 2020 2019

Impact of MNEs MNEs Tax Collections Share in BIR Collections Tax Effort Percentage

Impact of MNEs on Total BIR Collections Impact of MNEs on Total BIR Collections 35% 24% 41% MNEs Large Domestic Others

MNEs Tax Effort Percentage MNEs Tax Effort Percentage MNEs Collections (in billion pesos) GDP (in billion pesos) Tax Effort (%) Year 461.87 17,938.58 ($358.77 billion) 2020 2.57 ($9.24 billion) 482.95 19,517.86 ($390.36 billion) 2019 2.47 ($9.66 billion)

Thank You