REVENUE REGULATIONS NO. 14-2006 issued on September 1, 2006 provides the revised implementing rules for Executive Order (EO) No. 399, as amended by EO No. 422, directing the Bureau of Internal Revenue (BIR) to establish the “No Audit Program” (NAP) for the purpose of enhancing tax compliance and increasing tax collections with extension of the deadline for availment thereof. Taxpayers who qualify under the NAP shall be exempted from audit and/or investigation for the period for which they qualify. The NAP shall be in force for taxable years 2004, 2005, 2006, 2007 and 2008. Any taxpayer registered with the BIR and who has actually filed and paid income taxes and business taxes for Taxable Year 2003 may participate in the NAP. If a taxpayer fails to participate and qualify for Taxable Year 2004, he shall no longer be allowed to participate for any year thereafter unless his business was established after year 2004. If a taxpayer who participates in the NAP for a Taxable Year shall fail to qualify for the NAP for any subsequent Taxable Year, he shall be disqualified from further participating in the NAP. A taxpayer who commences business operations and registers with the BIR at anytime after the effectivity of these Regulations may apply for qualification under NAP on the subsequent Taxable Year from the Taxable Year when he commenced business operations and registration with the BIR. Provided, however, that if he fails to participate and qualify on the Taxable Year subsequent to the Taxable Year he commenced business operations, he shall be disqualified from further participating in the program. Taxpayers who qualify under the terms and conditions prescribed in these Regulations shall be exempted from audit and/or investigation of his tax liabilities, except Overseas Communication Tax and all forms of Withholding Taxes, for the particular Taxable Year for which he qualifies. To qualify for the NAP, the taxpayer must comply with the following: a. Income Tax due/tax payment for the Current Taxable Year must exceed the Income Tax payment for the Base Year by at least 30%; b. Ratio of Income Tax payment to gross sales/receipts for the Current Taxable Year must be at least equal to that of the Base Year; For taxpayers earning mixed income (business income and employment income), the computation of the 30% increase in the Income Tax payment and the ratio of Income Tax payment to gross sales must be based on the tax paid and income by the taxpayer from his business only by simulating tax payment on business income using the lowest tax rate as the starting rate in computing the tax thereon. Thus, the increase/decrease in the compensation income and its corresponding effect on the tax due for the Current Taxable Year shall be excluded for purposes of computing the compliance with the required increase in Income Tax payment and the ratio of tax payment to gross sales/receipts. Taxpayers who paid or are paying the Minimum Corporate Income Tax (MCIT) can still avail of the NAP provided that the required increase in the Income Tax payment and the ratio of tax payment to gross sales/receipts shall be based on the MCIT due in the Base Year and the MCIT due in the Current Year. Further, excess MCIT shall not be credited from the succeeding year’s tax due, even if the normal Income Tax becomes higher than the MCIT. Deferred charges-MCIT for the Current Year must be closed to retained earnings account. Taxpayers enjoying the benefit of the preferential tax rates (not subject to the Normal Income Tax Rate) can still avail of the program provided that the required increase in the Income Tax payment and the ratio of Income Tax payment to gross sales/receipts as stated in letters (a) and (b) hereof are complied and shall be based on the tax due computed applying the preferential tax rate for the Base Year and the Current Year. The same rule applies, even if the taxpayer’s Current Year is no longer entitled to the application of the preferential tax rate. c. Ratio of net Value-Added Tax (VAT) or business tax actually paid to gross sales/receipts for the Current Taxable Year must be at least equal to that of the Base Year. Provided, however, that in no case shall it be less than 5% for financial institutions and 4% for other percentage taxpayers, or 30% for seller of goods and 50% for seller of services of the VAT rate provided by law for any given period for those subject to VAT, or the industry benchmark as may be determined from time to time by the Commissioner of Internal Revenue (CIR). Provided however, that starting January 1, 2006, transactions with the government shall be excluded for the purpose of computing the minimum VAT ratio. VAT zero-rated transactions and VAT exempt transactions and transactions not subject to Percentage Tax shall not be considered for purposes of determining compliance with the required VAT or Percentage Tax ratio. Provided, however, that the gross sales/receipts from the aforesaid transactions are included for purposes of qualifying with the requirements of letters (a) and (b) mentioned above. Taxpayers having purely VAT zero-rated transactions or VAT exempt transactions and transactions not subject to Percentage Tax shall not be required to comply with letter (c) and shall be deemed qualified for said exemption. Provided, that the requirements of letters (a) and (b) are complied with. Provided, further, that photocopies of the required documents included in the NAP Participation Form (BIR Form No. 2114 April 2006 Version) shall be presented for validation of their business tax type/s. To qualify for the NAP, taxpayer subject to VAT in 2003 and to Gross Receipts Tax in 2004 shall comply with the criteria stated in letters (a) and (b) and the business tax actually paid in 2004 shall not be less than 5% of the gross receipts. For purposes of determining the tax payments for the Current Taxable Year, only taxes actually paid in cash as shown in the Annual Income Tax Return (ITR), Quarterly ITR, Quarterly VAT Return, Monthly VAT Declaration and Quarterly and Monthly Percentage Tax Return shall be considered. For this purpose, Creditable Withholding Taxes for the Taxable Year concerned, which are properly supported by Certificates of Creditable Tax Withheld at Source (BIR Form 2307) shall be considered as cash payments. On the other hand, Tax Credit Certificates/Tax Debit Memos (TCCs/TDMs) and tax credit carried over from prior years are considered non-cash items and shall be excluded in determining the tax payments for the Current Taxable Year. However, for purposes of determining tax payments for the Base Year on which the increase in tax payments and ratio required to qualify for the NAP shall be measured, the total amount of tax due for the Base Year shall be included regardless of the mode of payment, i.e., whether paid in cash, Creditable Withholding Tax, TCCs/TDMs, or tax credit carried over from prior taxable years. In the event the taxpayer was not in operation for the whole period of the Base Year, the tax payments for that period shall be annualized, and such annualized tax payments shall be used as the tax payment of the Base Year on which the growth and ratio required shall be computed. Provided, further, that the growth rate and ratio provided herein shall be adjusted to reflect the effect of the increase/decrease of the tax rate resulting from legislative measures. These growth rate and ratio shall be determined by the CIR for every NAP participation year, which shall be released through a Revenue Memorandum Circular (RMC) to be issued before the deadline for filing of NAP Participation Form on a yearly basis. In the event a taxpayer shall have been issued an assessment that has become final and executory relating to tax payments for a Base Year, the tax payment for the Base Year shall be adjusted with an additional amount corresponding to the assessment of the basic tax. In case the taxpayer amends his tax and information returns for any Base Year, the higher of the original amount and the amended amount shall be used as the tax payment for the Base Year. Taxpayers who are reporting net loss or have a Net Operating Loss Carry-over without MCIT due shall be disqualified from participating in the NAP. This includes taxpayers having net income but having no tax payable due to their deduction of personal and additional exemptions. The provision of these Regulations notwithstanding, the CIR shall have the right to audit a taxpayer who falls in any of the following circumstances: a. Those to whom Letter Notices (LNs) have been issued, which were not disputed and which remains outstanding on the date the taxpayer filed the application required under these Regulations; b. Those to whom LNs may be issued by the Commissioner himself in the future as a result of information obtained from third party or from information filed by the taxpayer himself where there appears a discrepancy in his tax payment; c. Tax cases covered by a Letter of Authority arising from confidential information filed; and d. Those who shall fail to file all the required information returns or do not provide all the information/data required in the information returns filed. A taxpayer must file a duly accomplished NAP Participation Form, together with the required attachments, not later than 30 days from the statutory deadline for the filing of Annual ITR for the year subject of the Participation, or in the case of taxpayers whose statutory deadline for the filing of Annual ITR occurred earlier than the date of the effectivity of these Regulations, their applications must be filed within 30 days from the effectivity hereof. However, for taxpayers whose taxable year ends on December 31, 2005 and fiscal years ending in January, February, March, or April 2006, the NAP Participation Form must be filed together with the required attachments, on or before October 1, 2006, subject to extension by the CIR, on meritorious grounds. All returns and payments made by a taxpayer who applied to participate in the NAP are deemed final and conclusive, and by applying to participate in the NAP, the taxpayer shall be deemed to have waived all of his rights to claim any refund pertaining thereto. Only taxpayers whose Annual ITR were not amended may apply to participate in the NAP. In the event the amount of taxes paid shall not be sufficient to qualify a taxpayer for the NAP, he may still qualify by making a voluntary payment in amount not less than the deficiency required for him to qualify. Provided, that said payment shall be non-refundable nor deductible against his income. Provided, further that said voluntary payment shall form part of the base of the tax year to which it pertains, for purposes of determining his qualification for NAP in the subsequent taxable year. Taxpayers who failed to avail and qualify for 2004 NAP availment can still avail of the Program under these Regulations by complying with the requirements herein provided. Provided, however, that neither a Final Assessment Notice (FAN) nor a Letter Notice for taxable year 2004 has been issued on the date of the availment, subject to the conditions stated under Sec. 7 of these Regulations. Additional payments, if any, must be made using BIR Form 06015-101 and NAP Participation Form must be filed not later than October 1, 2006. The application and the required attachments for the issuance of certificate of exemption from audit/investigation or notice of disqualification shall be reviewed by the NAP Review Committee composed of the following: A. Regional Level Head : Assistant Regional Director Members: a. Revenue District Officer (RDO) where taxpayer is registered, or his representative b. Chief, Assessment Division c. Chief, Legal Division B. Large Taxpayers Head : HREA (Regular/Excise) Members: a. Chief, LTAID I / LTAID II /, LTDO where taxpayer is b. registered, or his representative Chief, LTCED c. 3. Head, Audit Review Unit The NAP Review Committee shall recommend the issuance of a Certificate of Exemption from Audit/Investigation or Notice of Disqualification which shall be signed by the Regional Director (RD), for regional office cases, or the Assistant Commissioner, Large Taxpayers Service (ACIR-LTS), for large taxpayers’ cases. The Notice of Disqualification shall always mention the reason for the disqualification. Any unpaid amount found after review by the NAP Review Committee shall be paid within 30 days from receipt by the taxpayer of the written notification from the RDO or Chief of concerned Large Taxpayers Division/District Office; otherwise, the taxpayer’s availment shall be invalidated. Taxpayers who received a Notice of Disqualification may file an appeal to the NAP Committee- National Office Level within 30 days from receipt thereof. The composition, functions, duties and responsibilities of the NAP Committee-National Office Level shall be provided through a Revenue Special Order (RSO) to be issued by the CIR for that purpose. The increase in growth rate and in ratio stated in these Regulations shall apply to taxpayers whose application will be filed after July 31, 2006.