KRISTOFFER MONICO S. NG
Attorney-at-Law

Tag: tax

  • Can the BIR Audit Everything in 2026?

    Can the BIR Audit Everything in 2026?

    A tax audit can be unsettling for any business. Once a revenue officer starts asking for books, invoices, contracts, bank records, and other documents, it can feel as though the entire business is suddenly open to examination.

    But the BIR’s authority to examine a taxpayer is not unlimited.

    The BIR’s current audit framework, under Revenue Memorandum Order No. 22-2026, requires audits and verifications of internal revenue tax liabilities to be conducted pursuant to the appropriate authority: an electronic Letter of Authority (eLA), Tax Verification Notice (TVN), or Mission Order (MO). The framework also generally limits a taxpayer to one eLA for a taxable year, with the audit covering the applicable internal revenue taxes for that year. 

    This is more than an administrative formality. The document issued by the BIR tells the taxpayer what kind of examination is being conducted and, more importantly, what the revenue officer is authorized to examine. An eLA authorizes an audit within the scope stated in the authority. A TVN is more specific: it is limited to the transaction or claim identified in the notice. If the verification uncovers issues that require a broader examination, the revenue officer must secure a separate eLA before proceeding with a full audit. That means a taxpayer receiving a TVN concerning a particular transaction does not necessarily have to treat it as an invitation for the BIR to examine every aspect of its tax affairs.

    The same principle applies to the scope of an eLA. The current framework provides that audit activities are limited to the tax types and taxable periods expressly covered by the relevant audit authority. There are, however, exceptions. Certain cases may require separate audit or verification authorities because of their nature, including one-time transactions, tax-clearance applications, and cases involving fraud or irregularities. Where a verification reveals a need for a broader examination, the appropriate audit authority must still be obtained. 

    The BIR has also moved toward a risk-based audit system. The selection of taxpayers for audit is generally system-assisted and based on prescribed criteria and risk indicators. These include, among others, significant discrepancies in declared sales or income, intelligence information, certain tax refund claims, and taxpayers enjoying tax incentives. 

    But how does the BIR actually decide which businesses should be examined?

    Under the current framework, the selection process is not supposed to depend simply on an individual revenue officer deciding which taxpayer to investigate. Priority audit cases are generally selected through the BIR’s system using data and prescribed risk indicators. The information considered may include filed tax returns, third-party information, data analytics, and other verifiable information available in the BIR’s systems. As far as practicable, the taxpayer’s identity is also concealed during the selection and assignment stage before the case is assigned to the revenue personnel who will conduct the audit. 

    The risk indicators can be quite specific. They may include a significant decrease in reported sales or VAT payments, substantial input VAT claims, substantial sales accompanied by reported net losses, significant increases in assets while the taxpayer reports losses, related-party or intercompany transactions, and taxpayers that have been operating for a number of years without having been examined. Other information, including discrepancies identified through third-party data, may likewise bring a taxpayer within the BIR’s audit-selection criteria. 

    There are also Mandatory Cases, where an audit or verification is required because of the nature of the transaction or circumstance. These can include certain tax clearance applications, refund or tax credit claims, certain one-time transactions, and other cases identified under the BIR’s rules. These cases are different from Priority Cases, which are selected through the system based on prescribed risk-based criteria. 

    In other words, a business can come under examination for different reasons. Some audits are triggered by a transaction or application that requires verification. Others result from information or patterns in the taxpayer’s filings and other data that place the taxpayer within a category identified for audit.

    For businesses, this changes the way an audit should be approached.

    The first reaction should not necessarily be to start producing every document the company has. The first step should be to examine the authority itself.

    What document did the BIR issue? What taxpayer and taxable period does it cover? What taxes are included? What transaction or claim is being verified? And is the particular request within the authority granted by that document?

    The next step is to understand why the taxpayer may have been selected for audit in the first place. The BIR’s risk-based system uses prescribed criteria and risk indicators, so a business should consider whether its reported sales, income, VAT position, losses, assets, related-party transactions, or other information may have triggered the audit-selection process.

    These questions do not mean that a taxpayer can simply refuse to cooperate with a lawful audit. Taxpayers remain required to comply with valid examination and verification procedures. But cooperation with the BIR does not mean surrendering the limits imposed by the BIR’s own audit authority. This becomes particularly relevant when the scope of an examination appears to expand during the audit.

    Suppose a taxpayer receives a TVN concerning a VAT refund claim. During the verification, the revenue officer discovers what appears to be an unrelated income-tax issue. The discovery may justify further action by the BIR, but it does not necessarily transform the original TVN into a general authority to audit the taxpayer’s income-tax liabilities. Under the current framework, a broader examination requires the appropriate audit authority. 

    There is also an important distinction between finding a potential tax issue and having authority to conduct a full examination of that issue. The BIR may encounter information suggesting that additional taxes could be due. That information can lead to further investigation or the issuance of another audit authority. But the existence of a possible deficiency does not, by itself, eliminate the procedural requirements governing how the BIR may examine it.

    The reforms introduced in 2026 reflect an effort to make those boundaries clearer. The BIR itself described the new framework as intended to promote transparency, prevent misuse or abuse of audit authority, uphold due process, and strengthen accountability in the conduct of tax audits.  For taxpayers, that means an audit should be treated as both a substantive and a procedural exercise. The substantive question is whether the taxpayer actually paid the correct amount of tax. The procedural question is whether the BIR is examining the taxpayer in the manner authorized by law and the applicable audit rules.

    Both matter.

    A taxpayer may have a legitimate tax position but lose it through poor documentation or failure to comply with procedural requirements. Conversely, the BIR may identify a potentially valid tax issue but still have to follow the rules governing its authority to examine and assess the taxpayer. A tax audit is therefore not simply a matter of answering whatever questions an examiner asks. The taxpayer should understand the authority under which those questions are being asked and the scope within which the examination is being conducted.

    Final Word

    The BIR has broad powers to examine taxpayers and determine the correct amount of tax due. But broad authority is not unlimited authority.

    For businesses facing an audit, one of the first questions should therefore be simple: What exactly has the BIR authorized itself to examine, and what may have caused the business to be selected for audit?

    Knowing the answer can help a taxpayer comply with a legitimate audit while also ensuring that the examination remains within the bounds of the authority issued.

    Kristoffer Monico S. Ng is a Philippine lawyer whose practice focuses on labor and employment, corporate and commercial law, tax, energy law, and civil and criminal litigation. He advises businesses and individuals on legal risk, regulatory compliance, taxation, dispute resolution, and complex commercial matters, representing clients before courts, quasi-judicial agencies, and administrative bodies, while also providing strategic legal advice outside the courtroom. He also regularly writes on developments in Philippine jurisprudence and regulation, providing practical insights on legal issues affecting businesses and individuals.

    If you require legal advice concerning tax audits, BIR assessments, tax compliance, tax disputes, or other tax-related legal matters, you may reach him through e-mail at nico@nlaw.ph to discuss your particular circumstances.

    Suggested Article:

    In a previous article, we discuss when the 120-day period for the BIR to act on a VAT refund claim begins, and what the Supreme Court’s ruling in Commissioner of Internal Revenue v. Team Sual Corporation means for taxpayers. Read our discussion on the taxpayer’s responsibility to submit complete supporting documents, the BIR’s obligation to identify deficiencies, and the importance of properly monitoring the periods for seeking judicial relief:

    When Does the 120-Day Period for a VAT Refund Claim Begin? What Taxpayers Should Know
  • When Does the 120-Day Period for a VAT Refund Claim Begin? What Taxpayers Should Know

    When Does the 120-Day Period for a VAT Refund Claim Begin? What Taxpayers Should Know

    A recent Supreme Court decision involving Team Sual Corporation highlights an important procedural issue in claims for refund of unutilized input VAT: the reckoning of the period within which the Bureau of Internal Revenue (BIR) must act on the taxpayer’s administrative claim. The case also clarifies the respective responsibilities of the taxpayer and the BIR in determining when the supporting documents for a VAT refund claim are considered complete.

    In Commissioner of Internal Revenue v. Team Sual Corporation (formerly Mirant Sual Corporation) (G.R. Nos. 203547 and 203561, 3 December 2025) the Supreme Court considered whether the BIR could effectively prevent the 120-day period for acting on a VAT refund claim from commencing by asserting that the taxpayer had not submitted complete supporting documents. The Court rejected the Commissioner of Internal Revenue’s (CIR) position and emphasized that, for purposes of determining when the 120-day period begins to run, it is the taxpayer who ultimately determines when its supporting documents have been submitted.

    The ruling is significant for businesses claiming VAT refunds. While taxpayers remain responsible for proving their entitlement to a refund and submitting the documents necessary to support their claims, the BIR cannot indefinitely leave a claim in limbo by simply asserting that additional documents are required without properly notifying the taxpayer of the alleged deficiency.

    The 120-Day Rule for VAT Refund Claims

    When Team Sual filed its administrative claim on 20 December 2004, Section 112(D) of the 1997 Tax Code, as then in force, gave the Commissioner of Internal Revenue 120 days from the submission of complete documents supporting the claim within which to grant or deny the refund. If the CIR denied the claim, the taxpayer could appeal to the Court of Tax Appeals (CTA) within 30 days from receipt of the denial. If the CIR failed to act within the 120-day period, the taxpayer could likewise appeal the inaction to the CTA within 30 days after the expiration of the period.

    The Supreme Court has previously characterized compliance with the 120-day period, together with the subsequent 30-day period for judicial appeal, as mandatory and jurisdictional (it must stressed that the treatment of the periods depends on the date of filing and the applicable statutory and administrative regime as will be discussed infra).

    The difficulty, however, lies in identifying when the 120-day period actually begins to run.

    If the BIR could unilaterally determine that the documents submitted by the taxpayer were incomplete, it could effectively postpone the commencement of the 120-day period indefinitely. The BIR could wait until more than 120 days had passed before informing the taxpayer that additional documents were supposedly necessary, and then take the position that the 120-day period had not yet commenced because the original submission was incomplete. Such an arrangement could leave taxpayers uncertain as to when the BIR’s period to act had begun and, consequently, when their right to seek judicial relief had arisen. More importantly, it would allow the BIR to delay the processing of a refund claim simply by withholding a determination that the taxpayer’s submission was complete.

    The Supreme Court rejected that approach.

    The Taxpayer Determines When Its Documents Are Complete

    In Team Sual, the CIR argued that the taxpayer’s administrative claim should be considered pro forma because it allegedly failed to submit the complete supporting documents required under Revenue Memorandum Order No. 53-98 within the prescribed period.

    In rejecting the position of the CIR, the Court explained that it is the taxpayer who determines when the complete documents have been submitted for purposes of commencing the running of the 120-day period. This does not mean, however, that a taxpayer can simply declare its claim complete and thereby prevent the BIR from requesting additional documents. The BIR may still require additional documents when necessary to properly evaluate a claim. What is important is that the taxpayer must be informed of what the BIR considers lacking.

    In that case, if the BIR believes that additional documents are necessary, it must communicate that requirement to the taxpayer. Without such notice, the taxpayer cannot reasonably be faulted for failing to submit documents that the BIR never specifically requested. This approach prevents the BIR from controlling the commencement of the statutory period merely by withholding its determination as to whether the documents submitted are “complete.”

    But the Taxpayer Still Bears the Burden of Proving Its Claim

    The ruling, however, should not be understood as relieving taxpayers of their responsibility to properly substantiate VAT refund claims. A claim for tax refund is not presumed to be valid. The taxpayer remains responsible for establishing its entitlement to the refund and for submitting the evidence necessary to prove its claim. In this regard, the Supreme Court has repeatedly emphasized that tax refunds are construed strictly against the taxpayer; and that the taxpayer bears the burden of proving compliance with the statutory and administrative requirements for obtaining a refund.

    The ruling therefore strikes a balance.

    The taxpayer cannot simply file an empty or unsupported application and expect the BIR to act on it. At the same time, the BIR cannot indefinitely prevent the statutory period from running by simply asserting, without properly notifying the taxpayer, that additional documents are required. The taxpayer must substantiate its claim. The BIR must likewise act within the framework prescribed by law.

    The Rules Have Changed Over Time

    It must also be stressed that the applicable rules depend on when the administrative claim was filed, as the rules governing VAT refund claims have changed over time.

    For administrative claims filed before 11 June 2014, the 120-day period is generally reckoned from the filing of the administrative claim when the taxpayer submits complete documents or manifests that it will no longer submit additional supporting documents. If the BIR finds that the documents submitted are insufficient, it must notify the taxpayer of the deficiency and request the additional documents. The taxpayer then has thirty (30) days from the BIR’s request to submit the requested documents, unless the BIR grants a further extension. The 120-day period is reckoned from the submission of the requested documents or, if the taxpayer fails to submit them within the period given, from the lapse of that period.

    For claims filed from 11 June 2014 to December 2017, the 120-day period is reckoned from the filing of the administrative claim with complete supporting documents. Under the Revenue Memorandum Circular No. 54-2014, taxpayers were required to submit their complete supporting documents together with the administrative claim and were no longer permitted to submit additional documents after filing.

    For claims filed from 1 January 2018, the TRAIN Law reduced the BIR’s processing period from 120 days to 90 days. The period is reckoned from the submission of the official receipts or invoices and other documents supporting the VAT refund claim. Revenue Memorandum Circular No. 47-2019 subsequently provided that incomplete applications would not be accepted for processing and that, once a claim had been duly received, the BIR would not subsequently request additional documents from the taxpayer.

    The rules have since been further modified by subsequent legislation and BIR issuances, including the Ease of Paying Taxes Act and the CREATE MORE Act. The applicable reckoning therefore depends not only on the nature of the VAT refund claim, but also on the date on which the administrative claim was filed and the rules then in force. Taxpayers should accordingly avoid applying the procedure from an earlier VAT refund case without first determining which statutory and administrative framework govers their particular claim.

    Filing Too Early Can Be Just as Problematic as Filing Too Late

    The case also illustrates why taxpayers must be particularly careful with the timing of VAT refund claims.

    In Team Sual, one of the taxpayer’s judicial claims was found to have been filed prematurely because it was brought before the lapse of the period within which the CIR was required to act. Another claim was dismissed because it was filed beyond the applicable period.

    The Supreme Court consequently emphasized the importance of observing the statutory sequence:

    Administrative claim → submission of supporting documents → period for CIR action → denial or inaction → judicial appeal within the prescribed period.

    The precise periods and procedural requirements applicable to a particular claim must, as mentioned, be determined based on the law governing the claim and the date when the relevant transactions and applications were made.

    For taxpayers, the lesson is straightforward: a meritorious VAT refund claim may nevertheless fail if the procedural requirements governing its filing and judicial appeal are not properly observed.

    What Taxpayers Should Do

    For businesses regularly claiming VAT refunds, Team Sual offers several practical lessons.

    First, taxpayers should maintain a complete documentary record of their administrative claims. This should include not only the documents supporting the substantive entitlement to the refund, but also proof of when the claim and its supporting documents were submitted to the BIR.

    Second, taxpayers should carefully document communications from the BIR concerning deficiencies or requests for additional documents. If the BIR requires additional documentation, the taxpayer should determine precisely what is being requested and ensure that the response is properly documented.

    Third, taxpayers should independently monitor the applicable statutory periods. The absence of action from the BIR does not mean that the taxpayer can simply wait indefinitely. Once the applicable period expires, the taxpayer must determine whether judicial relief should be pursued and ensure that the appeal is filed within the prescribed period.

    Finally, taxpayers should distinguish between the substantive validity of the refund claim and the procedural requirements for obtaining it. A taxpayer may have a legitimate entitlement to a refund, but that entitlement must still be established through competent documentary evidence and pursued within the periods prescribed by law.

    Final Word

    Commissioner of Internal Revenue v. Team Sual Corporation is a significant reminder that VAT refund claims are governed not only by substantive requirements, but also by carefully defined procedural periods.

    The taxpayer carries the burden of proving its entitlement to a refund. The BIR, however, cannot indefinitely delay the commencement of the statutory period by simply asserting that the taxpayer’s documents are incomplete, particularly where the taxpayer has submitted its supporting documents and the BIR has not properly notified it of any deficiency.

    To this end, the Court’s ruling places particular importance on certainty. Taxpayers should know when their claim has been submitted, what additional documents the BIR requires, when the period for the BIR to act begins to run, and when judicial relief may properly be sought. For businesses with substantial VAT refund claims, these are not merely procedural details. The proper documentation and monitoring of the applicable periods can determine whether a valid refund claim is ultimately heard—or lost on jurisdictional grounds.

    Kristoffer Monico S. Ng is a Philippine lawyer whose practice focuses on labor and employment, corporate and commercial law, tax, energy law, and civil and criminal litigation. He advises businesses and individuals on legal risk, regulatory compliance, taxation, dispute resolution, and complex commercial matters, representing clients before courts, quasi-judicial agencies, and administrative bodies, while also providing strategic legal advice outside the courtroom. He also regularly writes on developments in Philippine jurisprudence and regulation, providing practical insights on legal issues affecting businesses and individuals.

    If you require legal advice concerning the issues discussed in this article, or any other legal matter within these practice areas, you may reach him through e-mail at nico@nlaw.ph to discuss your particular circumstances.