7 Basic Features of Independent CPA on CTA Tax Cases Philippines

By: Garry S. Pagaspas, CPA

Court of Tax Appeals (CTA) in Philippines, under Republic Act No. 1125, as amended (e.g. by Republic Act No. 9282) is the tax court in the Philippines handling cases on disputed assessments from electronic letters of authority, tax refunds such as on excess input VAT from zero-rating in Philippines filed by the taxpayer as petitioner. Under the Revised Rules of the Court of Tax Appeals (A.M. No. 05-11-07-CTA dated 22 November 2005 or RRCTA), Rule 13 – Trial by Commissioner, appointment of Independent Certified Public Accountant is allowed, and hereunder quoted:

“Rule 13 – Trial by Commissioner

Section 1. Appointment of Independent Certified Public Accountant (ICPA). – A party desiring to present voluminous documents in evidence before the Court may secure the services of an independent Certified Public Accountant (CPA) at its own expense. The Court shall commission the latter as an officer of the Court solely for the purpose of performing such audit functions as the Court may direct.”

From the above, petitioner in tax cases – e.g. Petition for Review on BIR tax assessment, Petition for Review on Excess Input VAT refund in Philippines, is given an option for an appointment of an Independent CPA (ICPA) as Commissioner by the CTA for purposes of verifying the voluminous pieces of documentary evidence of the Petitioner and submission of its ICPA report with recommendations relative to the issues in the CTA case. Below are the seven (7) basic features of CTA ICPA in tax cases Philippines, based on personal notes of the author:

1. ICPA is qualification based

While all CPA’s could be qualified, CTA normally looks into some other qualifications such as on the independence of the CPA with respect to the petitioner, its qualifications as a CPA, as an accredited practitioner, and its capability to implement its mandate as CTA ICPA. A Judicial Affidavit will be executed by ICPA and copies of the following documents showing ICPA’s qualifications are normally attached:

• a. PRC License;
• b. PRC – BOA CPA Certificate;
• c. PRC BOA Accreditation – Public Practice;
• d. BIR tax agent accreditation;
• e. Other accreditations, if any, – SEC, CDA, IC, etc.;
• f. Curriculum Vitae/ Resume with personal and other details along with enumeration of dealings with CTA ICPA in the past, if any; and,
• g. Accounting Firm papers/ accreditations, if ICPA is a partner.

The lawyer/ counsel of the Petitioner will normally file a Motion for Commissioning the ICPA and attach the above along with the Judicial Affidavit of the ICPA, then a hearing on Commissioning Hearing conducted where ICPA takes the witness stand for direct/ cross examination by lawyers of petitioner/BIR along with CTA justices, if any, to determine his qualifications. BIR could object the appointment if it sees grounds like independence such as if CPA has been an ICPA with the same taxpayer for more than three (3) times, qualifications, and such other grounds.

2. ICPA is an officer of the Court with specific duties under RRCTA

Upon satisfaction of qualification, CTA will require the ICPA to take an Oath in open court during the hearing, then the Clerk of Court will require ICPA to sign on such Oath for records purposes, and CTA issues an Order for such Commissioner or appointment of ICPA. Notably, the ICPA’s appointment by the CTA is as an officer of the Court where it would report directly to the CTA and serve the ends of justice in the conduct of its functions with impartiality to all parties. Section 2 of RRCTA provides that the CTA ICPA Philippines shall perform the audit in accordance with the generally accepted accounting principles, rules, and regulations which shall include the following:

• a. Examination and verification of receipts, invoices, vouchers and other long accounts;
• b. Reproduction of, and comparison of such reproduction with, and certification that the same are faithful copies of original documents, and pre-marking of documentary exhibits consisting of voluminous documents;
• c. Preparation of schedules or summaries containing a chronological listing of the numbers, dates and amounts covered by receipts or invoices or other relevant documents and the amount(s) of taxes paid;
• d. Making findings as to compliance with substantiation requirements under pertinent tax laws, regulations and jurisprudence;
• e. Submission of a formal report with certification of authenticity and veracity of findings and conclusions in the performance of the audit;
• f. Testifying on such formal report; and,
• g. Performing such other functions as the Court may direct.

CTA ICPA in Philippines should be guided with the above duties for which it has taken oath, otherwise, the CTA may hold the CTA ICPA Philippines in contempt of court for violations and be imposed criminal and/or civil liability, at the discretion of the Court.

4. ICPA files an ICPA Report in Philippines based on verification with recommendation

Upon CTA commissioning or appointment of the CTA ICPA in Philippines, the Court would normally provide for thirty (30) days or at times forty-five (45) days within which the CTA ICPA would conduct the audit and file an ICPA report with CTA in normally eight (8) sets with exhibits of supporting documents and USB/DVD drive/s containing scanned copies of the report and exhibits. The CTA ICPA report in Philippines would contain a summary of the procedures performed, its findings, statement that the exhibits attached are faithful reproduction of the original copies, supporting schedules/illustrations/tables, and recommendations on the issues like tax liabilities for tax assessment case in Philippines, or for amount refundable for excess input VAT refund CTA case in Philippines. At times, the CTA ICPA in Philippines asks for extension of time beyond the 30/45 days, if justifiable, for consideration of the CTA.

The CTA ICPA Report is under oath and false content could subject the CTA ICPA to criminal and/or civil liabilities for perjury.

5. ICPA testifies as witness in the tax case

From the CTA ICPA Report, a Judicial Affidavit of the CTA ICPA in Philippines containing such matters indicated in the CTA ICPA Report will be filed and a hearing will be scheduled for the presentation of the CTA ICPA in Philippines in open court where the CTA ICPA takes the witness stand for examination (direct/cross/re-direct/re-cross) of the counsels of petitioner and BIR.  CTA justices may also ask clarificatory questions as they may deem it necessary.

Presentation of CTA ICPA in Philippines as witness could be completed in one hearing or may continue on next schedule should there be more questions. Upon completion of the CTA ICPA’s presentation as witness, the CTA ICPA commissioning will be deemed completed thereby being excused on subsequent hearings of the CTA case, unless CTA would issue order addressed to the CTA ICPA for some issues/ concerns like submission of missed exhibits, if any, thereafter.

6. CTA not bound by ICPA’s recommendations

While the CTA ICPA in Philippines is an officer of the court and reporting directly to CTA, the CTA ICPA Report is just recommendatory and not conclusive or binding upon the CTA. CTA may or may not adopt the findings and recommendations of the CTA ICPA in Philippines. The CTA decision would normally cite CTA ICPA report on matters it would adopt and would normally mention the name of the CTA ICPA in Philippines on the CTA decision. On the same token, it seems that the petitioner’s counsel could further present documentary evidence should there be those that was not included on the CTA ICPA report for a reason or another.

7. ICPA’s professional fees paid by Petitioner

Yes, while the CTA ICPA is an officer of the court and reporting to the CTA, its professional fees for such services are being paid by the petitioner so normally, the CTA ICPA in Philippines and petitioner would agree first before CTA appointment. Expenses relative to the conduct of audit by the CTA ICPA such as field work costs on the conduct of the audit and reproduction cost of exhibits. CTA may have a say on the reasonableness of the professional fees under the rules.

Summary

The above features provides a basic overview of Independent Certified Public Accountant with Court of Tax Appeals in Philippines relative to tax cases, the process, timeline, documentation and filings aimed for easy reference of CPA practitioners, taxpayers, and the public, in general. The above features are based on author’s personal notes and not from any official enumeration of the Court of Tax Appeals or any government agency.

Garry is a Certified Public Accountant (CPA) and a law degree holder in tax practice for almost two (2) decades now helping further taxpayers on securing BIR Rulings, appeal of BIR Ruling denials, company registrations in Philippines, tax compliance, tax savings, tax assessments, tax refunds, and other related professional tax services. He has likewise been helping out local and foreign investors/clients determine the most appropriate legal entity to register in the Philippines based on intended operations, the eventual registration of such legal business entity and other related professional services such as securing Ph Visa, payroll, and business consultancy. He was formerly with the academe and is presently a frequent speaker of Tax and Accounting Center, Inc. and other seminar entities.

Garry has repeatedly been appointed by CTA as Independent CPA on tax assessment and VAT refund cases in Philippines under the rules on Trial by Commissioner and some of those CTA tax cases have already been decided as published in CTA Philippines website.

Disclaimer: This is for purposes of academic discussions only as personally summarized by the author, not of Tax and Accounting Center, Inc. and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. 

By: Tax and Accounting Center Philippines

Under the present rules applicable to registered and licensed certified public accountants in the Philippines, not all of them can just conduct an audit and sign in the audited financial statements. Before one could conduct an audit of the financial statements in the Philippines , the independent CPA must be qualified and must duly accredited.

Here are some of the registrations and/or accreditations a certified public accountant in the Philippines normally required prior to the conduct of an audit on the financial statements for filing with the Securities and Exchange Commission (SEC), Bureau of Internal Revenue (BIR), and other government agencies:

1. Board of Accountancy (BOA) Accreditation of CPAs Philippines

Board of Accountancy (BOA) is the professional board of Certified Public Accountants in the Philippines under Professional Regulation Commission (PRC), a government agency administered to register and regulate professionals in the Philippines.  BOA accreditation is required for all CPAs in the Philippines conducting audit and signing on audited financial statements. BOA accreditation could either be for sole practitioner CPA or for the professional auditing firm in the Philippines. Bookkeepers and tax preparers are not required BOA accreditation.

2. Bureau of Internal Revenue (BIR) Accreditation of CPAs Philippines

BIR accreditation as tax agent is applicable to those who sign on the audited financial statements for sole proprietorship, partnerships, corporations and associations. It also applies to tax practitioners who sign on tax returns and communications, and represent themselves in behalf of taxpayer-clients. Without BIR accreditation, the BIR could deny acceptance of tax returns and communications, and could not entertain non-BIR accredited agents of taxpayers. A taxpayer could be penalized if its audited financial statements are signed by a non-BIR accredited CPA auditor.

3. Securities and Exchange Commission (SEC) Accreditation of CPAs Philippines

A BOA-accredited and BIR-accredited could already sign on the audited financial statements. However, some SEC regulated entities are required to be audited and signed by an SEC-accredited independent certified public accountant in the Philippines. SEC-accreditation comes in groups depending on the entity – Group A, B, C, and D. If said entities are audited by an auditor not accredited by SEC, then, penalties are likewise imposed.

4. Bangko Sentral ng Pilipinas (BSP) Accreditation of CPAs Philippines

BSP Accreditation is applicable to entities regulated by BSP or Central Bank of the Philippines such as banks and non-bank financial intermediaries. This is in addition to the BOA, and BIR, or even on top of  SEC accreditation in some instances.

5. Cooperative Development Authority (CDA) Accreditation of CPAs Philippines

CDA accreditation is on top of BOA and BIR and is required for cooperatives registered with the Cooperative Development Authority.  To qualify for CDA accreditation, a CDA accredited seminar is required to be attended and Philippine Institute of Certified Public Accountant (PICPA) offers the same at least once a month.

6. Insurance Commission (IC) Accreditation of CPAs Philippines

IC accredited auditor is likewise on top of BOA and BIR accreditations. This is mostly applicable to entities and corporations registered and under supervision of the Insurance Commission such as insurance brokers, insurance adjusters, life insurance companies, non-life insurance insurance companies, and other insurance companies in the Philippines.

Summary

A Certified Public Accountant (CPA) conducting an audit on the financial statements of companies and business entities are required to be accredited by BOA and BIR, in the minimum, except sole proprietorship required to submit audited financial statements which only requires BIR-accredited CPA. Specific entities would require other accreditation based on the supervising and administering government agency over the business or industry. Failure to comply with such required accreditation is at risk for being imposed penalties. Signing CPA’s could be subject to administrative penalties while the business entity could be subject to monetary penalties. Extra care and caution should be exerted by business entities in choosing accredited certified public accountants in the Philippines who would conduct the financial statement audit and sign on the audited financial statements.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. 

By: Tax and Accounting Center Philippines

An independent certified public accountant (CPA) in the Philippines may not be able to conduct an audit on any and all entities, corporations, and organizations. This would mean that an independent CPA auditor in the Philippines should be qualified and accredited in order for it to conduct an audit and sign on an audited financial statements.

Under Rule No. 68, as amended, financial statements required to be submitted with the Securities and Exchange Commission (SEC) shall be accompanied by an auditor’s report who is accredited by Board of Accountancy (BOA). Moreover, the following entities are required to be audited by an independent CPA with corresponding accreditation before the Securities and Exchange Commission (SEC) in addition to their accreditation with the Board of Accountancy (BOA):

Group A SEC Accredited CPA in Philippines

• Issuers of registered securities which have sold a class of shares under Section 12 of Securities Regulation Code, except those issuers of t imeshares, proprietary and non-proprietary membership certificates which are covered in Group B.
• Issuers with a class of securities listed for trading in a Philippine Stock Exchange
• Public companies or those with have total assets of at least Fifty Million Pesos (PhP50,000,000.00) or such other amount as the SEC shall prescribe, and having Two Hundred (200) or more holders each holding  at least One Hundred (100) shares of a class of its equity shares

Group B SEC Accredited CPA in Philippines

•  Issuers of registered timeshares, proprietary and non-proprietary membership certificates;
• Investment houses
• Brokers and Dealers of Securities
• Investment Companies
• Government Securities Eligible Dealers (GSED)
• Universal Banks registered as underwriters of Securities
• Investment Company Advisers
• Clearing Agency and Clearing Agency as Depository
• Stock and Securities Exchange/s
• Special Purpose Vehicles under Special Purpose Vehicles Act of 2002
• Special Purpose Corporations registered registered under Securitization Act of 2004

Group C SEC Accredited CPA in Philippines

•  Financing Companies
• Lending Companies
• Transfer Agents

Group D SEC Accredited CPA in Philippines

•  Companies not included above but are mandated by other regulatory agencies to have an independent auditor accredited by SEC.

Penalties for non-compliance

A corporation with financial statements required to be audited by an SEC-accredited independent certified public accountant in the Philippines who shall fail to comply shall be subject to fines or penalty by the SEC.  SEC may either deny acceptance of the audited financial statements signed by an independent CPA who is not accredited with the SEC, or simply impose fines or penalties.

To avoid being penalized, please see to it that the auditor is accredited by BOA and SEC. You may check SEC list from time to time through their website at – www.sec.gov.ph.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances.