[ BIR REVENUE MEMORANDUM ORDER NO, 54-2000, December 04, 2000 ]
GUIDELINES AND PROCEDURES ON THE CONDUCT OF SURVEILLANCE
I. Objectives
1. To provide policies and procedures for the conduct of surveillance on the business operations of any person, natural or juridical, in order to establish a prima facie basis for the assessment of internal revenue tax liabilities pursuant to Section 6 (c) of the National Internal Revenue Code (NIRC) of 1997;
2. To determine the correct amount of tax based on the best evidence admissible in court for nondeclaration or underdeclaration of income of taxpayers which result to substantial loss of revenue;
3. To adopt surveillance as one way of checking/validating the veracity of information furnished by informants; and
4. To prescribe reporting requirements on surveillance activities.
II. Coverage
This Order shall cover:
1. Persons perceived to be not declaring their correct income, sales or receipts;
2. Persons found to have failed to issue official receipts and invoices or have issued unregistered official receipts/invoices or found to be in possession of unregistered invoices/ official receipts including unregistered cash register machines and point of sale machines in violation of the requirements under Sees. 113 and 237 of the NIRC of 1997;
3. Persons who failed to file required returns/forms/statements at the time prescribed by law or who willfully or otherwise file false or fraudulent returns/forms/statements; and
4. Persons who failed to register with the BIR as required under Sec. 236 of the NIRC of 1997.
III. Policies
1. For purposes of this Order, surveillance shall be classified as:
2. All surveillance activities shall be covered by Mission Orders (MOs) (Annex "A"*). The MOs shall be printed as accountable forms to be requisitioned by the Revenue Officials authorized to sign said MOs. MOs issued should be chronologically recorded in the Mission Order Register. The MOs shall be issued in triplicate/quadruplicate to be distributed as follows:
3. The Accountable Forms Division shall be the custodian of blank MOs and shall maintain a register of all MOs issued to the following authorized revenue officials.
The head of the investigating office/division shall in turn request for MOs from the concerned Regional Director/Assistant Commissioner.
4. Surveillance is to be conducted only if the subject taxpayer falls within the coverage of this Order.
5. At least two (2) implementing officers comprised of Revenue Officers (ROs) - (Assessment/Excise), Intelligence Officers (IOs) and Special Investigators (Sis) shall conduct the surveillance.
6. Overt Surveillance shall be conducted for a minimum period of ten (10) days and maximum period of thirty (30) days unless otherwise extended in writing by the authorized signatory. A weekly progress report shall be rendered by the concerned implementing officers to the head of the investigating office/division.
7. Round-the -clock observation/monitoring shall be done on the target taxpayer's business if the nature of the business so requires, as in the case of motels and hotels.
8. The findings may be used as the basis for assessing taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct.
9. Implementing officers shall not be assigned new surveillance cases until after they have reported the surveillance cases previously assigned to them.
IV. Procedures
1. Prelude to Surveillance
Acquiring preliminary information on the person to be placed under surveillance is necessary for an effective implementation thereof. Before the actual surveillance, the head of the investigating office/division must:
The number of MOs must correspond with the number of stores and outlets to be observed/monitored in case of overt surveillance. A different set of implementing officers shall be assigned for the different stores and outlets of the same SUBJECT.
1.3 Brief the implementing officer on the acts to be performed in compliance with the MOs. The briefing shall be done within thirty minutes before the actual surveillance. The identity of the target SUBJECT should be revealed to the implementing officers only upon arrival at the site of operations.
2. Conduct of Surveillance
2.1 Implementing officers conducting the surveillance must possess the following qualities:
Generally, surveillance may be either covert or overt Coverage surveillance will eventually become overt surveillance once the implementing officer informs the SUBJECT of his presence and purpose.
2.2.1 Covert Surveillance
The most important factor in overt surveillance is the element of surprise. The SUBJECT must be caught unaware to prevent him from committing acts which may defeat the purpose of the surveillance. Those caught in the act of committing crimes punishable under the Tax Code must be immediately apprehended.
After the covert surveillance has been undertaken, the following procedures shall be performed by the implementing officers who should always be ready to present their BIR identification cards:
2.2.3 Conduct of Surveillance for taxpayers using Cash Register Machines (CRMs) and Point of Sale Machines (PSMs)
3.1 Extrapolate the data gathered from the surveillance by using the following formulas:
3.2 Compare the extrapolated data with the recently filed monthly/quarterly internal revenue tax returns to determine significant variations in sales/revenues.
3.3 Determine violations of internal revenue laws, rules and regulations of the SUBJECT such as the usage of unregistered CRM/PSM or invoices/official receipts and non-issuance of invoices/official receipts.
4. Action Surveillance Results
If after the conclusion of the surveillance, there is sufficient ground for the closure of the establishment as provided for under Sec. 115 of the NIRC of 1997, a recommendation shall be made to effect such closure.
If the result of the surveillance made likewise indicates that the taxpayer had not been, in fact, correctly reporting income for tax purposes, and that the veracity of his accounting records is not reliable, the Commissioner or Regional Director concerned shall issue a Letter of Authority (LA) for the investigation of the taxpayer. The Revenue Officer named in the LA shall proceed with the audit and cause the assessment of the taxpayer's internal revenue tax liabilities, based either on (1) surveillance, pursuant to Section 6 (C); (2) best evidence rule, as provided under Sec. 6 (B), NSRC of 1997; and/or (3) the result of the tax audit.
V. Reporting Requirement
The heads of the investigating offices/divisions shall prepare a Status Report on the Surveillance Activities (Annex "E"*) within ten (10) days after the close of each month and shall submit the same to the following:
In addition to the above report, the ACIRs of the Enforcement Service, and Large Taxpayers Service shall prepare a List of Mission Orders Issued (Annex "F"*) and submit the same to the Office of the Commissioner on or before the 5th day following the month of issuance. The Regional Director shall submit this report to the Enforcement Service on the same due date.
VI. Repealing Clause
All issuances inconsistent herewith are hereby modified or repealed accordingly.
V. Effectivity
This Order takes effect immediately.
Adopted: 04 Dec. 2000
(SGD.) DAKILA B. FONACIER
Commissioner of Internal Revenue
* 'Text Available at Office of the National Administrative Register, U.P. Law Complex, Diliman, Quezon City.
1. To provide policies and procedures for the conduct of surveillance on the business operations of any person, natural or juridical, in order to establish a prima facie basis for the assessment of internal revenue tax liabilities pursuant to Section 6 (c) of the National Internal Revenue Code (NIRC) of 1997;
2. To determine the correct amount of tax based on the best evidence admissible in court for nondeclaration or underdeclaration of income of taxpayers which result to substantial loss of revenue;
3. To adopt surveillance as one way of checking/validating the veracity of information furnished by informants; and
4. To prescribe reporting requirements on surveillance activities.
II. Coverage
This Order shall cover:
1. Persons perceived to be not declaring their correct income, sales or receipts;
2. Persons found to have failed to issue official receipts and invoices or have issued unregistered official receipts/invoices or found to be in possession of unregistered invoices/ official receipts including unregistered cash register machines and point of sale machines in violation of the requirements under Sees. 113 and 237 of the NIRC of 1997;
3. Persons who failed to file required returns/forms/statements at the time prescribed by law or who willfully or otherwise file false or fraudulent returns/forms/statements; and
4. Persons who failed to register with the BIR as required under Sec. 236 of the NIRC of 1997.
III. Policies
1. For purposes of this Order, surveillance shall be classified as:
1.1 |
Covert Surveillance - the surreptitious and undercover watch on the business operations of a person for a certain period before the conduct of the inventory of business documents evidencing receipt of income as well as movement of goods or rendition of services, or apprehension/seizure of the aforementioned business documents and properties found to be the subject of violations of the provision of the NIRC of 1997 and its implementing regulations. (See Section 6(c), Tax Code of 1997). |
1.2 |
Overt Surveillance - the type of surveillance which commences with the inventory taking of the business documents as mentioned in 1.1 above of the person under surveillance followed by the actual observation and close monitoring of the business activities of such person. |
1.3 |
Short Duration Surveillance (Tax Compliance Check) -the type of surveillance wherein the business operations of the target taxpayer is observed for purposes of detecting non-compliance with the Bureau's primary and secondary registration requirements. It is an on-and-off activity which does not involve prolonged on-premises observation. |
2. All surveillance activities shall be covered by Mission Orders (MOs) (Annex "A"*). The MOs shall be printed as accountable forms to be requisitioned by the Revenue Officials authorized to sign said MOs. MOs issued should be chronologically recorded in the Mission Order Register. The MOs shall be issued in triplicate/quadruplicate to be distributed as follows:
2.1 |
Original - Revenue Officers/directed to conduct the surveillance and to be attached to the report on surveillance after termination of the activity. |
2.2 |
Duplicate - Investigating office's/division's file copy |
2.3 |
Triplicate - Issuing office's file copy |
2.4 |
Quadruplicate - Taxpayer's copy (in case of overt surveillance) |
3. The Accountable Forms Division shall be the custodian of blank MOs and shall maintain a register of all MOs issued to the following authorized revenue officials.
Investigating Office/Division |
Authorized Revenue Official |
||
3.1 |
Revenue District Office (RDO) |
Regional Director |
|
3.2 |
Special Investigation Division (SID) |
-do- |
|
3.3 |
Tax Fraud Division (TFD) |
Assistant Commissioner, Enforcement Service |
|
3.4 |
LT Audit & Investigation Division II (Excise Taxpayer)/LT Audit & Investigation Division I (Regular LTs) LT Fields Operations Division/LT District Office |
Assistant Commissioner, Large Taxpayers Service |
|
4. Surveillance is to be conducted only if the subject taxpayer falls within the coverage of this Order.
5. At least two (2) implementing officers comprised of Revenue Officers (ROs) - (Assessment/Excise), Intelligence Officers (IOs) and Special Investigators (Sis) shall conduct the surveillance.
6. Overt Surveillance shall be conducted for a minimum period of ten (10) days and maximum period of thirty (30) days unless otherwise extended in writing by the authorized signatory. A weekly progress report shall be rendered by the concerned implementing officers to the head of the investigating office/division.
7. Round-the -clock observation/monitoring shall be done on the target taxpayer's business if the nature of the business so requires, as in the case of motels and hotels.
8. The findings may be used as the basis for assessing taxes for the other months or quarters of the same or different taxable years and such assessment shall be deemed prima facie correct.
9. Implementing officers shall not be assigned new surveillance cases until after they have reported the surveillance cases previously assigned to them.
IV. Procedures
1. Prelude to Surveillance
Acquiring preliminary information on the person to be placed under surveillance is necessary for an effective implementation thereof. Before the actual surveillance, the head of the investigating office/division must:
1.1 |
Acquaint himself with the business organization and economic activity of the subject of surveillance (SUBJECT), the location of the stores and outlets, the accounting records used and such other relevant information as may be available and/or necessary. This must be done with relative secrecy to prevent leakage of information to the SUBJECT. |
1.2 |
Prepare the necessary MO for approval and signature of the concerned Regional Director/Assistant Commissioner. |
The number of MOs must correspond with the number of stores and outlets to be observed/monitored in case of overt surveillance. A different set of implementing officers shall be assigned for the different stores and outlets of the same SUBJECT.
1.3 Brief the implementing officer on the acts to be performed in compliance with the MOs. The briefing shall be done within thirty minutes before the actual surveillance. The identity of the target SUBJECT should be revealed to the implementing officers only upon arrival at the site of operations.
2. Conduct of Surveillance
2.1 Implementing officers conducting the surveillance must possess the following qualities:
- Ordinary appearance - The implementing officer must not have any outstanding physical characteristic or wear any distinctive article (e.g. any article which can readily identify him to be an employee of the Bureau such as wearing of uniform) which may easily attract the SUBJECT 's or his representative's attention. This is essential for covert surveillance.
- Ability to act naturally under all circumstances;
- Alertness;
- Resourcefulness;
- Keen observation and good memory; and
- Patience and endurance.
Generally, surveillance may be either covert or overt Coverage surveillance will eventually become overt surveillance once the implementing officer informs the SUBJECT of his presence and purpose.
2.2.1 Covert Surveillance
- Observe the business operations of the SUBJECT. Develop leads from other sources by obtaining information from neighboring business establishments, locating additional outlets or warehouses of the SUBJECT.
- Take note of the suppliers and buyers and volume of deliveries made to and by the SUBJECT. This activity should be done discreetly. The records of the supplier and buyer may thereafter be accessed and compared with the data declared by the SUBJECT.
- Observe and watch out for any unregistered cash register machines (CRMs) being used, especially during peak hours.
- Determine violations of internal revenue laws, rules and regulations committed by the SUBJECT and the frequency of such violations.
- Apprehend the taxpayer by issuing on the spot an Apprehension Slip (AP) (Annex "8 ), in duplicate, once caught in the act of not issuing official receipts/invoices or issuing unregistered official receipts/invoices or otherwise, found to be in violation of the provisions of Sec. 113, 236, 237 and 238 of the NIRC of 1997.
- Report immediately to the Chief of the investigating office the result of the apprehension not later than the following day from the issuance of AP.
The most important factor in overt surveillance is the element of surprise. The SUBJECT must be caught unaware to prevent him from committing acts which may defeat the purpose of the surveillance. Those caught in the act of committing crimes punishable under the Tax Code must be immediately apprehended.
After the covert surveillance has been undertaken, the following procedures shall be performed by the implementing officers who should always be ready to present their BIR identification cards:
- Inform the SUBJECT of the purpose and duties of the implementing officer as stated in the MO.
- Conduct an inventory of all unused sales invoices, official receipts and such other documents used in the movement of goods.
- List all the above documents in the Surveillance Form (Annex "C"1*).
- Seize unauthorized official receipts or invoices and accomplish the AP in duplicate. Issue the original copy to the subject. Report immediately to the Chief of the investigating office the result of the apprehension not later than the following day from issuance of AP.
- After ail the unused official receipts/invoices are listed in the Surveillance Form, sign the first and last receipts/invoices in each booklet stating therein the date and time when the inventory was made.
- For official receipts or invoices from partly used booklets, sign the duplicate/file copy of the last receipts, list down the unused invoices/official receipts, sign the first and last pages of the unissued invoices/official receipts in each booklet and indicate the date and time when the inventory was made.
- Return all the official receipts to the SUBJECT or his authorized representative and in form him that official receipts/invoices must be issued chronologically. Request the SUBJECT or his authorized representative to sign the Surveillance Form. If acknowledgment of the Surveillance Form is refused, have the certificate signed by at least two (2) witnesses present and leave a copy of the Surveillance Form with the SUBJECT or his authorized representative.
- Observe/monitor the daily sales in the stores or the daily production and daily removal from or deliveries to the factories from the time they open to the time they close.
- Summarize all the sales/official receipts at the end of each day for the entire duration of the surveillance and enter the figures on the space provided in the Surveillance Form.
2.2.3 Conduct of Surveillance for taxpayers using Cash Register Machines (CRMs) and Point of Sale Machines (PSMs)
- Take an inventory of all CRMs and PSMs, whether used for issuance of invoices or for internal control purposes. The number of CRMs/PSMs found in the premises may later on be reconciled with the data available in the Bureau as to the number of CRMs/PSMs authorized to be used.
- Verify whether the store/establishment using the CRM/PSM has maintained a Cash Register Sales Book or electronic journal identified to each CRM/PMS used.
- Check the permit issued and the stickers attached to each CRM/PSM whether they tally with the brand and serial numbers of the CRMs/PSMs authorized to issue receipts. If the serial number in the sticker does not tally with that of the machine, request the subject to present the original copy of the permit to use CRM/PSM. Likewise, request the SUBJECT or his representative to show the reserve units. If found in the business premises, prepare a memorandum recommending for the issuance of subpoena for the taxpayer to produce the reserve units.
- Seize all unauthorized CRMs/PSMs and accomplish the AP in duplicate. Issue the original copy of the AP to the taxpayer. Report immediately to the Chief of the investigating office the result of the apprehension/seizure not later than the following day from issuance of AP.
- Read through the memory of the machine by using the "Z" keys. Secure at least 2 tapes for two (2) readings.
e. 1 Identify whether the CRM/PSM is resettable or non-resettable by means of the reading and match it with the application for permit.
e.2 Inquire from the CRM/PSM operator how many times they read the machine in a day.
e.3 Enter the readings and other pertinent information in the Cash Register/Point of Sale Machine Surveillance Form (Annex "D"*). Said form shall be accomplished for each CRM/ PSM.
- Sign the tape and indicate the date and time thereon before the CRM/PSM is put to use for the day, if possible.
- Secure the machine tape showing the "Z" reading every end of the day until the last day of the surveillance.
3.1 Extrapolate the data gathered from the surveillance by using the following formulas:
To get the average daily sales: |
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|
= | Average Daily |
|
Sales (ADS) |
|
To get the average quarterly sales: |
||
|
3.2 Compare the extrapolated data with the recently filed monthly/quarterly internal revenue tax returns to determine significant variations in sales/revenues.
3.3 Determine violations of internal revenue laws, rules and regulations of the SUBJECT such as the usage of unregistered CRM/PSM or invoices/official receipts and non-issuance of invoices/official receipts.
4. Action Surveillance Results
If after the conclusion of the surveillance, there is sufficient ground for the closure of the establishment as provided for under Sec. 115 of the NIRC of 1997, a recommendation shall be made to effect such closure.
If the result of the surveillance made likewise indicates that the taxpayer had not been, in fact, correctly reporting income for tax purposes, and that the veracity of his accounting records is not reliable, the Commissioner or Regional Director concerned shall issue a Letter of Authority (LA) for the investigation of the taxpayer. The Revenue Officer named in the LA shall proceed with the audit and cause the assessment of the taxpayer's internal revenue tax liabilities, based either on (1) surveillance, pursuant to Section 6 (C); (2) best evidence rule, as provided under Sec. 6 (B), NSRC of 1997; and/or (3) the result of the tax audit.
V. Reporting Requirement
The heads of the investigating offices/divisions shall prepare a Status Report on the Surveillance Activities (Annex "E"*) within ten (10) days after the close of each month and shall submit the same to the following:
| Investigating Office/Division |
Distribution of Report | |
1. |
RDOs |
a. Enforcement Service |
b. Regional Office |
||
2. |
SIDs |
a. Enforcement Service |
b. Regional Office |
||
3. |
TFDandPCD |
a. Office of the Commissioner |
b. Enforcement Service |
||
4. |
LT Audit& investigation Division |
a. Office of the Commissioner |
II (Excise Taxpayer)/LT Audit & Investigation Division I (Regular LTs)/LT Field Operations Division/LT District Office |
b. Large Taxpayer Service |
|
In addition to the above report, the ACIRs of the Enforcement Service, and Large Taxpayers Service shall prepare a List of Mission Orders Issued (Annex "F"*) and submit the same to the Office of the Commissioner on or before the 5th day following the month of issuance. The Regional Director shall submit this report to the Enforcement Service on the same due date.
VI. Repealing Clause
All issuances inconsistent herewith are hereby modified or repealed accordingly.
V. Effectivity
This Order takes effect immediately.
Adopted: 04 Dec. 2000
Commissioner of Internal Revenue
* 'Text Available at Office of the National Administrative Register, U.P. Law Complex, Diliman, Quezon City.