BIR Compromise Penalty Application (Philippines)

A BIR Compromise Penalty Application in the Philippines sets out the agreed resolution of the disagreement, defining what each party gives up and what they receive in return.

BIR Revenue Memorandum Order (RMO) No. 7-2015 and its updates establish the schedule of compromise penalties for specific tax violations. Common violations settled through compromise include: failure to file income tax returns (BIR Forms 1700, 1701, 1702) — penalty of PHP 1,000 to PHP 25,000 per return depending on gross income; failure to issue official receipts and invoices; failure to keep books of accounts; failure to register with BIR; and failure to pay percentage tax, VAT, or withholding taxes on time. The compromise penalty schedule is prescribed in Annex A of RMO No. 7-2015 and is updated through subsequent BIR issuances.

Compromise applies only to criminal aspects of the tax violation — the civil liability (deficiency tax, surcharge, interest, and compromise penalty) must be paid in full. Under Section 248 of the NIRC, the civil penalty surcharge on unpaid or underpaid taxes is 25% of the basic tax for filing and payment failure, or 50% for fraudulent return. The 12% per annum delinquency interest on unpaid tax assessments under Section 249 of the NIRC (as amended by TRAIN) accrues from the date the tax becomes due until payment.

A BIR Compromise Penalty Application is distinct from a Request for Reconsideration or Request for Reinvestigation of a BIR assessment under Section 228 of the NIRC, which contests the validity of the assessment itself. A compromise application, in contrast, acknowledges the violation and proposes settlement through payment of the prescribed civil penalty to avoid criminal prosecution.

The legal framework governing the BIR Compromise Penalty Application (Philippines) in Philippines draws on several key statutes and regulatory bodies. Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Parties executing a BIR Compromise Penalty Application (Philippines) in Philippines should confirm the document reflects current law, including any amendments enacted since the original drafting date. The National Internal Revenue Code (RA 8424) sets the foundational requirements.

A BIR Compromise Penalty Application is needed whenever a taxpayer in the Philippines has committed a tax violation and wishes to settle the matter civilly with the BIR by paying the applicable compromise penalty rather than facing criminal charges before the Department of Justice (DOJ) or the Regional Trial Court.

A BIR Compromise Penalty Application is required when a business discovers upon audit that it failed to issue official receipts or sales invoices for certain transactions, in violation of Section 237 of the NIRC, and wants to settle the violation through the prescribed compromise penalty schedule under RMO No. 7-2015 before the BIR files a criminal complaint.

A BIR Compromise Penalty Application is needed when an individual taxpayer failed to file income tax returns for one or more years and the BIR has issued a Notice of Informal Conference or Preliminary Assessment Notice, and the taxpayer wishes to settle by filing the delinquent returns and paying the compromise penalty plus applicable surcharges and interest.

A BIR Compromise Penalty Application is required when a company that failed to register its books of accounts with the BIR or failed to have them audited by an external auditor as required under Revenue Regulations No. 9-2009 wants to regularize its compliance records through compromise before the BIR elevates the case to criminal prosecution.

A BIR Compromise Penalty Application is needed when a withholding agent failed to withhold and remit taxes on compensation, professional fees, or rental income, and the BIR has issued a Final Assessment Notice (FAN) that includes penalties for failure to withhold under Section 251 of the NIRC, and the taxpayer seeks to settle the penalty portion through compromise while paying the withheld tax in full.

A BIR Compromise Penalty Application is required when a corporation undergoing a BIR audit for a specific taxable year wants to preemptively settle identified minor procedural violations — such as bookkeeping lapses or minor registration deficiencies — to prevent escalation into a full criminal case referral to the DOJ.

A complete BIR Compromise Penalty Application must contain the following elements to be evaluated and approved by the BIR Revenue District Office or the BIR National Evaluation Board under Section 204 of the NIRC and RMO No. 7-2015.

Taxpayer Information: Full legal name, TIN (Tax Identification Number), BIR Certificate of Registration number (BIR Form 2303 number), registered address, and the BIR Revenue District Office where the taxpayer is registered. For corporations, the SEC Registration Number and the name of the authorized corporate officer must be stated.

Violation Description: A clear and complete description of the tax violation being settled — the specific NIRC provision violated, the taxable year or period covered, the nature of the violation (e.g., failure to file return, failure to issue receipt, failure to remit withholding tax), and the dates of the violation. The description must match the violation categories in the RMO No. 7-2015 compromise penalty schedule.

Tax Assessment Reference: The BIR assessment number or Notice of Informal Conference number, if the violation has been formally assessed. If the application is a voluntary disclosure before formal assessment, this should be stated explicitly, as voluntary disclosure before a BIR assessment may result in a lower penalty rate under the BIR Voluntary Assessment and Abatement Program (VAAP).

Compromise Amount: The taxpayer's proposed compromise amount based on the RMO No. 7-2015 schedule, the deficiency tax amount, the applicable 25% or 50% surcharge under Section 248 of the NIRC, and the 12% annual delinquency interest under Section 249. The application must show the computation of the total amount proposed for settlement.

Grounds for Compromise: The legal and factual grounds justifying the compromise — Section 204(A) grounds include doubtful validity of the assessment (if applicable), financial incapacity, or the prescribed compromise penalty schedule amounts for specific violations. For compromises based on financial incapacity, audited financial statements or sworn statement of assets and liabilities must be attached.

Payment Terms: Whether the compromise amount will be paid in full upon approval or in installments, and the proposed installment schedule if applicable. BIR policy generally requires full payment at the time of compromise for amounts below PHP 1,000,000 and may allow installments for larger amounts with adequate security.

Additional compliance elements for a BIR Compromise Penalty Application (Philippines) used in Philippines include: Under Philippine law, the Civil Code of the Philippines (Republic Act No. 386) governs contractual obligations. The Revised Corporation Code (Republic Act No. 11232) regulates corporate entities through the Securities and Exchange Commission (SEC). The Labor Code of the Philippines (Presidential Decree No. 442) and Department of Labor and Employment (DOLE) govern employment matters. The Data Privacy Act of 2012 (Republic Act No. 10173) and the National Privacy Commission (NPC) protect personal data. The Bureau of Internal Revenue (BIR) administers tax obligations under the National Internal Revenue Code. Forms-legal.com provides this template as a starting point for Philippines-compliant documentation.