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It may be recalled that the BIR issued on Sept. 16 Revenue Memorandum Circular (RMC) No. 57-2015 requiring all taxpayers with tangible asset-rich balance sheets maintaining inventory of stock-in-trade, raw materials, goods in process, supplies and other goods (herein referred by the BIR officials as “saleable inventories or inventories intended for sale”) to submit hard and soft copies of the enhanced format of inventory list on or before Sept. 30. The RMC specified the manufacturing, wholesaling, distributing/retailing sectors including real estate dealers and developers, service companies, construction companies, and building contractors, among others. The copies of the enhanced formats of inventory lists are shown in the annexes of the said RMC.
The enhanced inventory lists as well as other applicable schedules are to be submitted with the concerned Revenue District Office (RDO) where the non-large taxpayers are registered and with the Large Taxpayers Assistance Division (LTAD), Excise Large Taxpayers Regulatory Division (ELTRD), Large Taxpayers Division (LTD) Makati and Cebu, for taxpayers classified as large under the LTS.
The Bureau’s objective, as discussed in the forum, is to expand and improve the landscape of accounting information reporting that seeks to provide reliable data and to maximize the quality and adequacy of such data for better monitoring and analysis. Simply put, the Bureau will use this information as a tool in conducting their tax investigations. Taxpayers submitting the inventory lists are therefore well-advised to be diligent in ensuring the correctness and consistency of the information with other reports and returns maintained or submitted by the company.
Below are some of the clarifications made by the BIR in response to the taxpayers’ questions.
WHO SHOULD SUBMIT, DETAILS OF SUBMISSION?
• For as long as the taxpayer maintains saleable inventories/inventories intended for sale, submission of inventory list is required.
• The term “often with at least half of their total assets in working capital assets” is not a condition precedent to submission of the inventory list. Only saleable inventories or inventories intended for sale need to be included in the inventory list. Office supplies, manufacturing supplies, parts and materials not forming part of the saleable inventories or inventories intended for sale shall not be included.
• Saleable inventories or inventories intended for sale shall include all goods, whether taxpayer has title thereto or not, provided these goods are actually situated in the head office or branch or facilities of the taxpayer under the following circumstances for retail/manufacturing industry: (a) code CH -- goods on consignment held by the taxpayer; (b) code P -- parked goods or goods owned by related parties; (c) code O -- goods owned by the taxpayer; and (d) code CO -- goods out on consignment in the hands of an entity other than the taxpayer.
According to the BIR, in their past conduct of inventory stock taking, some of the inventories located in the taxpayer’s offices are not their own inventories. By using the codes, the Bureau can easily determine those inventories owned and not owned by the taxpayer.
• Inventories owned by others but located in the taxpayer’s head office, branch and/or office are not included in enhanced inventory list of the taxpayer if the said goods are not on consignment to the taxpayer or owned by related parties.
• For retail and manufacturing industry, the amount to be reported under “unit price” shall be the cost of the saleable inventories, not the selling price.
• For the construction industry, the amount to be reported under “contract price” is inclusive of VAT.
• If at the end of the fiscal year or calendar year the taxpayer has zero balance of saleable inventories or inventories intended for sale, the taxpayer is still required to submit the enhanced inventory list with no details.
Given these requirements, there will be instances when at least two parties will be reporting the same details of inventory. For example: (1) goods consigned by the taxpayer to another will be reported in the enhanced inventory list of both the taxpayer and the consignor; and (2) goods located in the taxpayer’s head office/branch/facility but owned by a related party will be reported in the enhanced inventory list of both the taxpayer and the related party.
As such, the details (cost, unit price, description, etc.) of inventory to be reported by these two parties should be the same. Any discrepancy may invite further investigation. Hence, it is advisable to compare and reconcile with the other reporting entity the details of inventory before submitting to BIR.
Will banks and pawnshops be required to submit the enhanced inventory list for their real and other properties acquired (ROPA) e.g., foreclosed cars, house and lot, jewelry considering that these ROPAs are also made available for sale by the banks and pawnshops?
DEADLINE FOR TAXPAYERS ON FISCAL YEAR BASIS
• The Sept. 30, 2015 deadline for the initial submission of the enhanced inventory list shall also cover inventory list for fiscal years (FY) ended July 31, 2014, Aug. 31, 2014, Sept. 30, 2014, Oct. 31, 2014, Nov. 30, 2014, Jan. 31, 2015, Feb. 28, 2015, March 31, 2015, April 30, 2015, May 31, 2015 and June 30, 2015.
You will note that the RMC expressly mentioned that, for the initial filing using the enhanced format, the inventory to be submitted covers only ending inventory as of Dec. 31, 2014. The RMC did not mention any other taxable periods. But, during the forum, the LTS officials clarified that the initial filing shall cover also the taxable periods mentioned above.
• Taxpayers on fiscal year reporting with taxable period ending July 31, Aug. 31, Sept. 30 and so on should submit their initial enhanced inventory list on or before the 30th day following the close of the taxable year.
MODE OF SUBMISSION
• The soft copies of the enhanced inventory list shall be stored in Digital Versatile Disk-Recordable (DVD-R) properly labeled (name, address and TIN of the taxpayer, period covered and the statement “Pursuant to RMC No. 57-2015”) should be submitted together with the hard copy of the enhanced inventory list and notarized certification, as shown in Annex “D” of the RMC, duly signed by the authorized representative of the taxpayer.
• Previously filed original inventory lists (submitted on or before the 30th day following the close of the taxable year) is not required to be re-submitted on or before Sept. 30.
EXTENSIONS AND AMENDMENTS
• Taxpayers can amend the enhanced inventory list and re-submit as long as no Letter of Authority/assessment notice is received.
• Taxpayers can file a written request for extension to submit the initial enhanced inventory list with the BIR offices mentioned earlier indicating the reasons why the taxpayer cannot meet the Sept. 30 deadline. This request for extension is subject to evaluation and approval of the concerned BIR offices.
Since there is no guarantee that a request for extension shall be approved, it is best for the qualified taxpayers to submit the enhanced inventory list on or before Sept. 30 to avoid the risk of penalties. Thereafter which, the submission can be amended should there be incorrect/incomplete information.
PENALTIES
According to the RMC, any violation shall be subject to two types of penalties: (1) P1,000 for each information return, schedule, report, sworn statement, certification and other document not made, filed or submitted or for each record not maintained, but not more than a total of P25,000 during a calendar year; and (2) graduated penalties ranging from P1,000 to P25,000 depending on the amount of gross sales or receipts for failure to make/file/submit any return or supply correct information at the time or times required by law or regulation.
Since the enhanced inventory list is just a report or schedule and not a return, I’mhoping the BIR will clarify that the graduated rates shall not apply.
For those who have further clarifications and want to catch up with recent issuances, the BIR will conduct a re-run of the tax forum on Sept. 29 (today) at the National Training Center in the BIR National Office. There will be one session each in the morning and afternoon. You may contact the LTS office for more details.
As a precaution, certain RDOs may not be aware of these clarifications because these were announced only during the said forum and may not have been properly communicated to all BIR offices. Hence, you should be prepared to explain your source of the clarifications. Besides, no formal issuance will be released before the Sept. 30 deadline regarding these clarifications, according to LTS officials.
With only two days remaining before the Sept. 30] deadline, I’m sure most of us are hoping that the Bureau will be grant an extension and will be more considerate, especially in the imposition of penalties.
Nikkolai F. Canceran is a manager with the Tax Advisory and Compliance division of Punongbayan & Araullo.