BIR Tax Audits for Foreign Companies in the Philippines: The Resumption of Audits Under RMC 8-2026 and the Revised Procedures of RMO 1-2026

For much of the latter half of 2025, the Bureau of Internal Revenue was not auditing. A leadership transition within the BIR in late 2025 led to the suspension of audit issuance and field operations — a development that, predictably, caused many businesses — including some foreign-invested enterprises — to relax their tax compliance practices and defer housekeeping that might otherwise have attracted examiner attention. That pause ended on January 27, 2026, when the BIR issued Revenue Memorandum Circular No. 8-2026, formally lifting the suspension and authorizing the resumption of tax audit activities nationwide.

RMC No. 8-2026 requires all tax audit and related field operations conducted upon its effectivity to comply with Revenue Memorandum Order No. 1-2026, which prescribes revised policies, controls, and procedures for tax audit and assessment. The result is a renewed enforcement environment with new procedural requirements and, critically, a backlog of potential audit cases that accumulated during the suspension period — meaning the BIR enters 2026 with both motivation and institutional pressure to be active.

For foreign companies with Philippine operations, this is not a drill. Foreign-invested corporations are a priority category for BIR audit selection: their cross-border transactions, intercompany pricing arrangements, expatriate compensation structures, and entitlement to treaty benefits make them inherently more complex audit targets than purely domestic enterprises. Understanding the BIR audit framework — the procedures, your rights as a taxpayer, the most common findings, and the preparation steps that will protect you — is not optional for foreign investors in the Philippines in 2026. It is one of the most consequential compliance matters you will face.

I. The Audit Suspension and Its Implications: What RMC 8-2026 Actually Changed

To understand the significance of the current enforcement environment, foreign investors need context on what the suspension was and what its lifting means in practice.

The Suspension Under RMC No. 107-2025

Revenue Memorandum Circular No. 8-2026 lifts the suspension of tax audit and other field operations imposed under RMC No. 107-2025, as clarified by RMC No. 109-2025. The circular states that it was issued to resume audit and related field operations "following the completion of review of audit policies, procedures, and internal control mechanisms." The practical effect of the suspension was a pause on the issuance of new audit authorizations and on the continuation of ongoing examinations. Taxpayers who might otherwise have been selected for audit while the suspension was in place were effectively given a deferment.

The Resumption on January 27, 2026

RMC No. 8-2026, dated January 27, 2026 and effective immediately, lifted the suspension and authorized the resumption of tax audit and related field operations. Under the circular, the resumption covers, but is not limited to: the issuance of Electronic Letters of Authority (eLAs), Mission Orders, and Tax Verification Notices; the continuation and completion of audit cases previously suspended under RMC No. 107-2025; enforcement, verification, assessment, and collection activities requiring audit or field operations; and other audit or enforcement activities necessary to protect revenue or enforce compliance, subject to applicable issuances and controls.

Critically, RMC No. 8-2026 expressly provides for the "continuation and completion of audit cases previously suspended," and a tax period that would have been examined during the suspension is not insulated from future examination. In practical terms: if a foreign company's fiscal year 2024 return was flagged for audit before the suspension but the audit authorization was not issued, the BIR retains full authority to examine that period once operations resumed. The backlog of suspended audits, combined with fresh audit selections for more recent periods, means the BIR has both historical and current tax periods to pursue.

II. The Types of BIR Audits: Office, Field, and Special Examinations

Foreign investors should understand that the BIR conducts multiple types of examinations, each with distinct characteristics, procedures, and risk profiles.

Office Audit

An office audit is conducted entirely at the BIR's premises, without a field visit to the taxpayer's place of business. The BIR requests documents and information through a Letter of Notice (LON) or a Letter of Authority (LOA), and the taxpayer or its authorized representative delivers the required documents and responds to queries in writing. Office audits are generally used for less complex cases — missing or inconsistent documentary submissions, straightforward mathematical errors, or apparent failures to file required returns or attachments. For foreign companies, an office audit may be triggered by a withholding tax discrepancy, a late filing penalty, or an apparent failure to submit an Annual Information Return (AIR).

The risk with office audits is deceptively low. Many taxpayers treat them casually, responding with incomplete documentation or inadequate explanations. The examining officer's findings in an office audit — even one that began with a minor discrepancy — can escalate if the taxpayer's response raises additional questions or reveals inconsistencies that were not apparent from the initial review. Foreign companies should treat every BIR correspondence, including office audit requests, as a potential gateway to a full field examination if the response is unsatisfactory.

Field Audit and Examination

A field audit is the most common and most consequential form of BIR examination. It involves a physical visit by BIR examiners to the taxpayer's place of business, conducted under the authority of a Letter of Authority (LOA) that identifies the specific tax periods and tax types under examination. The field examination typically involves:

Review of books of accounts (journals, ledgers, subsidiary records) and the underlying source documents (invoices, receipts, contracts, bank statements)
Physical inspection of assets, inventory, and property records
Interview of the taxpayer's accounting and finance personnel
Reconciliation of reported income and deductions against external evidence (bank statements, supplier records, customer records)
Analysis of withholding tax compliance — particularly important for foreign companies with significant professional fees, royalties, or technical service payments to overseas related parties

For foreign companies, the field audit is the mechanism through which the BIR examines intercompany transactions, transfer pricing arrangements, and the allocation of income and deductions between the Philippine entity and its foreign affiliates. If the BIR determines that related-party transactions are not conducted at arm's length, adjustments to taxable income can be substantial — and the penalties on underdeclared taxes can be severe.

Special Audit or Investigation

A special audit or investigation is initiated when the BIR has specific reason to believe that a taxpayer has engaged in willful tax evasion or fraud. This is a more intensive process involving forensic examination of financial records, cross-referencing with third-party sources (banking transactions, import/export records, property registries), and — in serious cases — coordination with the DOJ for possible criminal prosecution. Foreign companies that are found to have engaged in systematic underdeclaration of income, fictitious expenses, or fraudulent withholding tax filings may be referred for special audit. The standard of proof in a special audit investigation is higher, but so are the consequences — willfully attempting to evade or defeat a tax is punishable under Section 254 of the Tax Code, as amended by the TRAIN Law, by imprisonment of six to ten years and a fine of PHP 500,000 to PHP 10 million.

III. The Audit Process: Step by Step

Understanding the procedural sequence of a BIR field audit helps foreign companies know what to expect at each stage and how to manage their exposure.

Stage 1: Audit Selection and Authorization

Under RMO 1-2026, new audits start from system-assisted selection against objective, system-defined risk criteria, and only taxpayers on an audit list approved by the Commissioner of Internal Revenue may be issued new audit authorities (see Section IV). Foreign-invested corporations can draw attention through indicators such as:

Large intercompany transactions suggesting transfer pricing risk
Significant expatriate compensation suggesting potential withholding tax misapplication
Entitlement to tax treaty benefits (withholding tax reductions on outbound payments) that require post-credit verification
Volume of deductible payments to overseas parties suggesting potential under-withholding
History of amended returns or refund claims
Discrepancies between GIS filings and BIR registrations

Once selected, the BIR issues a Letter of Authority (LOA) — now an electronic Letter of Authority (eLA) generated through the BIR's case management system. Under RMO 1-2026, the eLA must state the taxpayer's name and TIN, the taxable period, the tax types covered, and the assigned revenue officers and group supervisor, and must carry the label "Full Examination of Books of Accounts and Other Accounting Records." An LOA must be presented to the taxpayer before an audit can legally commence — a point that is sometimes overlooked by taxpayers who are unprepared for the examiner's arrival. If you receive an LOA that covers periods or tax types that were not previously reported to the BIR as part of your filing history, or if the LOA appears to be for periods beyond the statute of limitations, your Philippine tax counsel should review it immediately before allowing the examination to proceed.

Stage 2: Initial Conference and Document Request

Upon issuance of the LOA, the examining officer will typically schedule an initial conference with the taxpayer's authorized representative. At this conference, the officer outlines the scope of the examination, requests specific documents, and establishes a schedule for document production. Under RMO 1-2026, the request follows a standardized checklist of documents, and the scope of the audit and the documents required must be clearly identified and communicated to you. For foreign companies, the initial document request will almost always include:

Articles of Incorporation, bylaws, and all SEC registrations
Books of accounts for the periods under examination
Bank statements and reconciliation schedules for all bank accounts
All BIR filings (corporate income tax returns, withholding tax returns, VAT returns, percentage tax returns, Documentary Stamp Tax returns)
List of all intercompany transactions, including loans, management fees, royalties, technical service fees, and dividend payments
Contracts with overseas related parties
Transfer pricing documentation, if applicable
Expatriate employment contracts and AEP documentation
Any applicable tax treaty claim documents

Foreign companies should prepare a document room or establish a dedicated document management process for responding to audit requests. The ability to produce documents promptly and in an organized manner — rather than scrambling to locate records months after transactions occurred — has a meaningful impact on the impression the examining officer forms of the taxpayer's compliance culture.

Stage 3: Field Work and Findings

The examining officer conducts field work over a period that varies depending on the complexity of the taxpayer's operations and the volume of transactions under review. For a foreign-invested subsidiary with significant intercompany transactions, a field audit can take six months to eighteen months from the issuance of the LOA to the issuance of preliminary findings.

During field work, the examining officer will often raise preliminary findings informally — through queries, requests for explanations, or oral comments that something appears inconsistent. Foreign companies should treat every preliminary finding as a potential final finding, even if it is presented as informal or preliminary. The appropriate response to a preliminary finding is not denial or dismissal — it is documentation: contemporaneous evidence that supports the taxpayer's position and that can be formally submitted if the finding becomes a formal assessment.

Stage 4: Preliminary Assessment Notice (PAN)

Under the Tax Code and BIR's procedural rules, before issuing a final assessment, the BIR must issue a Preliminary Assessment Notice (PAN) to the taxpayer. The PAN specifies the deficiency tax found, the basis for the finding, and the applicable penalties. The taxpayer has 15 days from receipt of the PAN to respond, submit supporting documentation, and contest the proposed assessment; a taxpayer who does not respond within that period is considered in default, and a Formal Letter of Demand and Final Assessment Notice is issued (RR No. 12-99, as amended by RR No. 18-2013). Under RMO 1-2026, an assessment notice that follows the Notice of Discrepancy must rest only on issues left unresolved at the Discussion of Discrepancy and must state its factual and legal bases.

This stage is critical. The PAN response is the taxpayer's primary opportunity to present its case before a final assessment is issued. Foreign companies that fail to respond to a PAN — or that respond inadequately — will receive a final assessment that is much harder to challenge administratively. Every response to a PAN should be prepared with Philippine tax counsel, supported by contemporaneous documentation, and submitted within the prescribed period. Late PAN responses, even those with excellent substantive arguments, may be rejected as untimely.

Stage 5: Final Assessment Notice and Demand

If the BIR proceeds after the PAN stage, it issues a Formal Letter of Demand and Final Assessment Notice (FLD/FAN) calling for payment of the deficiency taxes, interest, and penalties specified in the assessment. Under Section 228 of the Tax Code and RR No. 12-99, as amended by RR No. 18-2013, the remedies run as follows:

Protest: Within 30 days of receipt of the FLD/FAN, the taxpayer may protest in writing, by either a request for reconsideration (re-evaluation on the existing records) or a request for reinvestigation (re-evaluation on newly discovered or additional evidence). The protest must state its nature, the date of the assessment notice, and the law, rules, or jurisprudence it relies on, or it is void. Items not disputed become final, and the taxpayer must pay the tax attributable to them.
Supporting documents: For a request for reinvestigation, all relevant supporting documents must be submitted within 60 days of filing the protest; otherwise the assessment becomes final.
After a decision by the Commissioner's authorized representative: If the protest is denied, the taxpayer may either appeal to the Court of Tax Appeals (CTA) within 30 days of receipt of the decision, or elevate the protest to the Commissioner by request for reconsideration within the same 30 days.
If the protest is not acted on: If there is no decision within 180 days (counted from filing of a request for reconsideration, or from submission of documents in a reinvestigation), the taxpayer may appeal to the CTA within 30 days after the 180-day period lapses, or wait for the decision and appeal within 30 days of receiving it.

The CTA, not the regular courts, has appellate jurisdiction over the Commissioner's decisions on disputed assessments. A motion for reconsideration of the Commissioner's denial does not stop the 30-day period to appeal to the CTA from running.

IV. The New Audit Framework Under RMO 1-2026

RMO 1-2026, with which RMC 8-2026 requires all post-resumption audits to comply, prescribes revised policies, controls, and procedures for tax audit and assessment. Key changes relevant to foreign companies include:

One Audit Authority per Taxable Year

RMO 1-2026, issued on January 27, 2026 and effective immediately, adopts a "Single-Instance Audit Framework": as a general rule, a taxpayer is subject to only one eLA for a given taxable year, covering all internal revenue tax types, including VAT. Multiple or overlapping eLAs for the same taxpayer and taxable year are prohibited. Separate authorities remain possible for transactional or event-based matters — one-time transactions, tax clearance applications, applications to cancel business registration, and fraud cases, where one eLA may cover several years. Pending eLAs for the same taxpayer and taxable year are consolidated into a single replacement eLA beginning March 4, 2026, or beginning May 4, 2026 for taxpayers who filed a timely request for non-consolidation. For a foreign company that has faced separate income tax and VAT audits for the same year, this means one audit authority for that year.

The order also requires each instrument to say what it is. A Mission Order must be labeled as limited to verification, surveillance, monitoring, and inspection, and a Tax Verification Notice as a verification authority of limited scope; neither may contain language implying full audit or assessment authority. If findings under a Mission Order or Tax Verification Notice point to a broader examination, the BIR must issue a separate eLA.

Audit Selection Approved by the Commissioner

New eLAs issue only after system-assisted taxpayer selection, centralized approval, and anonymized assignment. Lists of taxpayers proposed for audit are generated by BIR systems from approved risk criteria (Annex A of the order) and submitted to the Commissioner for approval; recommendations from district, regional, or national offices must be endorsed in writing and still pass through that process. Pending full automation, cases are assigned to revenue officers from an anonymized list, and no revenue officer or group supervisor is to learn the taxpayer's identity before the assignment is confirmed. For foreign companies, the practical check on receiving an eLA is to confirm that it carries the details and label described above before the examination begins.

A Standardized Document Checklist and a Defined Scope

Revenue officers must use a standardized checklist of documents (Annex B of the order) when requesting and evaluating records, pending industry-specific checklists. Additional documents may be requested only when they are directly relevant to specific issues in the audit, reasonably necessary, and within the authorized scope — and the request must be explained and documented. Revenue officers may not request documents outside the scope of the audit, examine beyond the taxable year or tax types covered, or use the audit to exert undue pressure on the taxpayer. This gives you a basis to ask why a document outside the checklist is needed.

Where Records Are Examined, and Certified Photocopies

Books and records are examined at the taxpayer's office or place of business or at the BIR office, as Section 235(e) of the Tax Code provides. Where records are voluminous, RMO 1-2026 lets the taxpayer choose between submitting them to the BIR office conducting the audit and having them examined at its principal place of business, after coordinating with the revenue officer and providing a suitable work area. Records submitted to the BIR may be photocopies certified by the taxpayer or its authorized representative as true and faithful reproductions of the originals. The BIR may require the originals for verification only where the photocopies are uncertified, and only within the scope of the audit.

The Notice of Discrepancy and the Right to Be Heard

The order directs strict observance of the assessment process under Revenue Regulations No. 12-99, as amended. The Notice of Discrepancy issued under RR No. 22-2020 must set out the discrepancies in detail and state clearly that it is not yet an assessment, and you must be given a reasonable opportunity to explain, submit supporting documents, and contest the findings at the Discussion of Discrepancy. Minutes of that discussion must be signed by you or your authorized representative and the revenue officer, with any refusal to sign noted, and all other dealings with the examiner must go through official BIR email addresses or office numbers. No assessment may issue unless the taxpayer has been given the opportunity to be heard. Reports of violations of the order, including unauthorized audit activity or abuse of authority, may be sent to contact_us-LOA@bir.gov.ph.

V. Common BIR Audit Findings Affecting Foreign Companies

Foreign-invested corporations face a distinctive set of audit exposures that the BIR examiners are specifically trained to identify. The following are the findings most frequently raised against foreign companies in our practice.

Transfer Pricing Adjustments

The most consequential audit finding for a foreign-invested corporation engaged in intercompany transactions is a transfer pricing adjustment. Under Revenue Regulations No. 2-2013 (the Transfer Pricing Guidelines), the Philippines requires that related-party transactions be conducted at arm's length — meaning the price, terms, and conditions of the transaction must be equivalent to what would be agreed upon between unrelated parties dealing at arm's length. The BIR has the authority to adjust taxable income upward (or downward, though this is rarer in practice) if it determines that intercompany pricing did not meet the arm's length standard.

For foreign companies with significant intercompany transactions — including management fees, royalties for the use of trademarks or technology, technical service fees paid to foreign affiliates, and intercompany loans — transfer pricing is the central audit risk. The BIR's transfer pricing examination requires the taxpayer to demonstrate arm's length pricing through one of the accepted methods (comparable uncontrolled price, cost plus, resale price, profit split, or transactional net margin method). If the taxpayer has no transfer pricing documentation, the BIR may apply a default method or estimate the adjustment based on available benchmarks.

Transfer pricing adjustments can be enormous. For a foreign subsidiary with PHP 500 million in annual related-party transactions, an adjustment of 10-20% on an arm's length basis could mean additional taxable income of PHP 50 to 100 million, with corporate income tax at 25% (or 20% for RBE-status entities) plus a 25% surcharge and interest at 12% a year. The financial exposure can rapidly exceed the original investment in the enterprise.

Withholding Tax Deficiencies

Foreign companies that pay professional fees, royalties, technical service fees, or management fees to overseas recipients are generally required to withhold the applicable withholding tax at the treaty rate (if treaty benefits are claimed) or the regular statutory rate, and to remit those withholdings to the BIR. The BIR routinely audits withholding tax compliance for foreign companies, and common findings include:

Failure to withhold on deemed dividend transactions (loans from a foreign parent that are treated as equity contributions for tax purposes, or excessive intercompany charges)
Incorrect treaty rate application due to failure to maintain beneficial ownership documentation
Failure to withhold on one-time payments (equipment purchases, contract terminations, settlement payments)
Late remittance of withholding taxes — which triggers penalties even where the withholding obligation itself is not in dispute

Expatriate Compensation and Per Diem Allowances

BIR examiners are specifically trained to examine expatriate compensation packages for withholding tax and fringe benefit tax (FBT) compliance. Common findings include:

Failure to withhold tax on the full value of compensation — particularly where a portion is paid overseas and not reported as Philippine-source income
Incorrect characterization of compensation as non-taxable allowances or reimbursements when the substance is taxable compensation
Failure to file the required BIR Form 2316 (Statement of Compensation Paid) for expatriate employees
Failure to pay fringe benefit tax on non-cash benefits provided to expatriate executives

The FBT issue is particularly common for foreign companies that provide housing allowances, school fees for expatriate dependents, home leave travel allowances, or company-provided vehicles. These are fringe benefits under the Tax Code and are subject to FBT at the employer level — a commonly overlooked obligation that generates significant penalties when discovered in an audit.

VAT Input Tax Credits on Importations

For foreign companies that import goods — whether for resale or for use in operations — the BIR scrutinizes the VAT treatment of importations and the subsequent use of input tax credits. Common findings include:

Claiming input VAT credits on importations that were not used in the registered project or activity (particularly relevant for PEZA-registered entities that are export-oriented and have limited domestic VAT liability)
Failure to maintain the required import documentation (BIR-certified import entries, customs release documents) to support input VAT claims
Incorrect allocation of input VAT between taxable and exempt activities

PEZA or BOI Incentive Compliance

Foreign companies operating under PEZA or BOI registration face a specific category of audit risk: compliance with the conditions of their incentive entitlements. IPAs like PEZA and BOI have their own compliance monitoring functions, and the BIR has authority to examine whether an RBE's tax positions are consistent with its registered status. Common findings include:

Failure to maintain the minimum export performance required for PEZA registration
Applying the wrong income tax rate (5% SCIT vs. 20% EDR vs. 25% regular) to the wrong categories of income
VAT zero-rating claims on local purchases that do not qualify as directly attributable to the registered project

VI. Penalties and Interest: The Full Financial Exposure

Understanding BIR penalties is essential for foreign companies to properly assess their audit exposure and to make informed decisions about contesting assessments versus accepting them.

Deficiency Tax Penalties

Under the Tax Code, deficiency taxes — taxes that should have been paid but were not — carry a surcharge and interest on top of the tax itself:

25% surcharge (Section 248(A)) — for failing to file a return and pay the tax on time, filing with the wrong office, failing to pay the full tax shown on a return on time, or failing to pay a deficiency within the period stated in the notice of assessment
50% surcharge (Section 248(B)) — for willful neglect to file a return, or a willfully false or fraudulent return
Interest (Section 249, as amended by the TRAIN Law, RA 10963) — at double the legal interest rate set by the Bangko Sentral ng Pilipinas, which the Supreme Court applied as 12% a year in ACeS Philippines. Interest is simple, not compounded, and deficiency interest and delinquency interest may not be imposed at the same time.

For a deficiency outstanding for three years, the interest adds up quickly. At 12% a year, a PHP 10 million income tax deficiency accrues about PHP 3.6 million in deficiency interest over three years; with the 25% surcharge of PHP 2.5 million, the total exposure is roughly PHP 16 million before any compromise penalties.

Civil Penalties Under the Tax Code

Beyond the deficiency tax penalties, the Tax Code imposes civil penalties for specific violations, including:

Failure to file an information return, statement, or list, or to keep a required record (Section 250) — PHP 1,000 for each failure, up to PHP 25,000 a year, unless the failure is due to reasonable cause
Failure to file a return or pay the tax on time — the 25% surcharge under Section 248(A), plus interest

Criminal Liability

Willful failure to file a return, pay a tax, keep records, supply accurate information, or withhold and remit taxes is punishable by a fine of not less than PHP 10,000 and imprisonment of not less than one year (Section 255). Willfully attempting to evade or defeat a tax is punishable by a fine of PHP 500,000 to PHP 10 million and imprisonment of six to ten years (Section 254, as amended by the TRAIN Law). Criminal prosecution requires proof beyond reasonable doubt and is generally pursued only in cases of clear fraud — not in cases of mere negligence or disagreement over legal interpretation. However, foreign companies whose transfer pricing arrangements involve deliberate underpricing of inbound transactions to reduce Philippine taxable income should understand that the 50% surcharge and the potential for criminal referral are real risks.

VII. Preparing for BIR Audits: A Practical Checklist for Foreign Companies

The following framework provides foreign companies with a structured approach to BIR audit readiness. This is not a substitute for advice from Philippine tax counsel specific to your situation, but it is a guide to the categories of preparation that matter most.

Pre-Audit Preparation (Do This Now, Before You Receive an LOA)

Reconcile all BIR filings against your books: Ensure that every corporate income tax return, VAT return, withholding tax return, and percentage tax return filed with the BIR is supported by corresponding entries in your books and financial statements. Identify and document any discrepancies before they become audit findings.
Prepare transfer pricing documentation: If your company has intercompany transactions with foreign affiliates exceeding a material threshold, prepare contemporaneous transfer pricing documentation that demonstrates arm's length pricing. The documentation should identify the related parties, describe the transactions, specify the pricing method used, and provide benchmarking analysis. This is not just good practice — it is your primary defense against a transfer pricing adjustment.
Audit your withholding tax compliance: Review every outbound payment to overseas recipients — dividends, interest, royalties, technical service fees, management fees, professional fees — and confirm that the correct withholding tax was applied, remitted, and reported on the applicable BIR return. Correct any deficiencies before they are discovered by an examiner.
Review expatriate compensation packages: Each expatriate employee should have a fully documented compensation package identifying every component of their pay — cash salary, allowances, benefits in kind, overseas payments — with a clear characterization of what is taxable compensation under Philippine law and what is a nontaxable reimbursement or allowance. Ensure BIR Form 2316 is filed correctly for each expatriate.
Verify VAT positions: Confirm that input VAT credits claimed on local purchases and importations are supported by valid VAT invoices and import documents, and that the inputs were used in the company's taxable activities (or in the case of partially-exempt activities, that the allocation is correct and documented).
File all required annual information returns: Ensure that AIR, the Annual List of Stockholders (for closely-held corporations), and all other required annual filings are current. Missing annual filings are a common trigger for BIR audit selection.

When You Receive an LOA

Immediately notify your Philippine tax counsel and designate an authorized representative
Conduct an internal review of the periods and tax types covered before producing any documents to the BIR examiner — your tax counsel should lead this review
Establish a document management process for responding to document requests in an organized, timely manner
Brief your finance and accounting team on the audit and the importance of directing all BIR communications through the authorized representative and tax counsel
Conduct a preliminary analysis of the company's positions and identify any areas of potential vulnerability

During the Field Examination

Maintain a contemporaneous log of all examiner interactions — dates, names, documents requested, responses provided
Treat every preliminary finding as a formal finding — respond with documentation, not denials
Do not volunteer additional documents beyond what is specifically requested — under RMO 1-2026, the examination is confined to the scope of the eLA, and the examiner may not go beyond the taxable year or tax types it covers
Engage your tax counsel to participate in key conferences with the examining officer, particularly where legal or interpretive questions are being raised

Responding to PAN and FAN

File PAN responses within the prescribed period without exception — even one day late can result in a default final assessment
Present a complete, documented response — the BIR examining officer is required to consider the taxpayer's PAN response before proceeding to the FAN
If the assessment is contested, file a formal protest within 30 days of the FAN — specifically identify each item being contested and the factual and legal grounds for the protest, and, for a request for reinvestigation, submit all supporting documents within 60 days of filing it
Engage experienced Philippine tax counsel for all protest and appeal proceedings — the procedural and substantive rules for tax litigation are highly specialized

VIII. The Bigger Picture: Audit Risk as Part of a Broader Compliance Posture

Foreign companies sometimes view BIR audit risk as an isolated compliance issue — something that either happens or does not happen, and that can be addressed reactively if and when an LOA arrives. This is a dangerous frame. In the current enforcement environment — with RMC 8-2026 in effect, previously suspended audit cases resuming, RMO 1-2026's revised procedures in force, and the BIR under pressure to demonstrate enforcement outcomes — audit risk for foreign-invested enterprises must be managed proactively as part of a continuous compliance posture.

The preparation steps described above — reconciling filings, documenting intercompany pricing, auditing withholding tax compliance, reviewing expatriate compensation — are not just audit defense measures. They are the components of a well-governed Philippine entity. Companies that maintain these practices as ongoing disciplines, rather than scrambling to prepare them in response to an LOA, find that audits are shorter, findings are smaller, and the overall compliance cost is a fraction of what it is for companies that neglected these disciplines until an examiner was standing at the door.

Conclusion

The lifting of the BIR audit suspension through RMC 8-2026 on January 27, 2026, marks the beginning of a new phase of tax enforcement activity in the Philippines. For foreign companies with Philippine operations, the message is clear: the compliance posture that may have seemed acceptable during the audit suspension is no longer adequate. With RMO 1-2026's revised procedures now in force and previously suspended audit cases set to continue, foreign companies should expect renewed audit activity.

Foreign investors should respond not with anxiety but with action. The steps that prepare a company for a BIR audit — accurate filings, documented intercompany transactions, compliant withholding tax practices, complete expatriate compensation records — are the same steps that make a company a well-governed, defensible enterprise. The BIR audit is not a test you can cram for. It is a reflection of how you have been running your affairs since the day you registered your Philippine entity.

TTFC Law advises foreign companies on BIR audits, tax disputes, transfer pricing documentation, and withholding tax compliance. Contact us to discuss your audit readiness or a pending BIR examination.

This article is for informational and educational purposes only and does not constitute legal or tax advice. For specific guidance on BIR audit procedures, transfer pricing compliance, or Philippine tax controversy matters, please consult a qualified Philippine tax attorney or CPA.