Beyond routine: Strengthening year-end tax compliance

As the year draws to a close, many business owners and finance teams find themselves balancing wrapping up operations with the essential task of preparing for tax season. December sets the tone for the upcoming year’s regulatory requirements. A well-managed year-end close does more than satisfy administrative expectations — it prevents unnecessary penalties, simplifies audits, and strengthens the accuracy and transparency of financial reporting.

For taxpayers, year-end compliance extends beyond the filing of annual income tax returns. It includes reviewing books of account, preparing payroll reconciliations, completing information returns, and ensuring that both national and local tax obligations are addressed on time. These activities form the backbone of a smooth transition into the new year, allowing businesses to focus on growth rather than correcting past compliance lapses.

A central aspect of year-end preparation is ensuring that books of account are updated, accurate, and maintained in accordance with Bureau of Internal Revenue (BIR) requirements.

Taxpayers who use manual books must ensure that entries for the year are complete and that the books remain properly registered; partially used books may continue to be utilized in the succeeding year, but any new sets require registration before use. For those using loose-leaf books, the previous requirement to submit bound hard copies has been replaced by an online validation process through the BIR’s Online Registration and Update System (ORUS), where taxpayers generate a QR code to authenticate the use of loose-leaf formats. However, they still need to keep their records available for inspection when requested. Similarly, computerized books must be submitted to the BIR in digital form and accompanied by a QR code generated through ORUS as proof of authorization. Maintaining complete, accurate, and properly validated records ensures audit readiness and supports the integrity of the company’s financial statements.

Closely connected to bookkeeping obligations is the preparation of annual information returns and alphalists, which summarize taxes withheld during the year. These reports — covering compensation, expanded withholding taxes, and final withholding taxes — require careful reconciliation with accounting and payroll records for consistency. Inaccurate alphalists or mismatches between tax returns and internal books can trigger BIR inquiries, making early attention to these filings a valuable part of year-end compliance work.

Payroll itself becomes a focal point in December. Employers must ensure the proper release of the 13th month pay and determine whether any portion exceeds the allowable tax-exempt threshold. Beyond this, employers must do compensation annualization, a process that consolidates an employee’s earnings and tax withheld for the year to compute the final tax due. Any necessary adjustments are usually applied in the December payroll. Employers must also prepare BIR Forms 2316, documenting each employee’s compensation and taxes withheld, with distribution and submission deadlines falling early in the following year. Proper payroll reconciliation not only satisfies legal obligations but also ensures transparency and accuracy in employee tax reporting.

For businesses holding goods, materials, or real estate inventory, the preparation of the Annual Inventory List should not be overlooked. This list, reflecting inventory levels as of Dec. 31, must reconcile with accounting records and financial statements. Physical counts and verification activities conducted near the year-end ensure the reliability of this submission. Timely preparation of inventory information helps establish accuracy in cost of sales, gross income computations, and other tax-related disclosures.

In addition to national tax requirements, local government compliance plays a vital role in year-end readiness. Businesses must renew their mayor’s or business permits, file local business tax returns, and settle regulatory fees early in the new year. Figures declared to local government units must align with amounts reported to the BIR to avoid inconsistencies and scrutiny from the authorities. Neglecting local deadlines can result in penalties or administrative challenges that disrupt business operations.

Another dimension of year-end planning involves staying updated on regulatory changes and digital filing systems. Philippine tax administration continues to transition toward electronic platforms for registration, filing, and submission of attachments. Rules regarding allowable submission methods and system availability evolve over time, and taxpayers must stay informed to avoid following outdated procedures. Reviewing updates before year’s end ensures that your compliance checklist reflects current requirements and not former practices.

Ultimately, year-end tax compliance benefits greatly from structured planning and a clear internal timeline. For businesses, creating a tax calendar that outlines key deadlines for bookkeeping, payroll adjustments, inventory procedures, information returns, and permit renewals allows them to pace their work and helps teams anticipate challenges arising from system downtimes, approval cycles, or documentation issues.

Year-end tax compliance is not simply a series of obligations — it is an opportunity to assess the completeness and accuracy of your records, strengthen financial discipline, and enter the new year with clarity and confidence. Businesses that pay careful attention to their books, payroll, information returns, inventory, and local filings, lay the groundwork for a smoother tax season ahead.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

Christian D. Grimaldo is a senior manager at the Tax Services department of Isla Lipana & Co. the Philippine member firm of the PwC network.

+63 (2) 8845-2728

christian.d.grimaldo@pwc.com