Tax 2 - VAT

Part 2: BUSINESS TAXES
References:
1. National Internal Revenue Code of 1997. Mandaluyong City: National Book Store, July 2009
Edition.
2. Mamalateo, Victorino C., Value Added Tax. Quezon City: Kalayaan Press, 2007.
3. Revenue Regulations No. 16-2005, as amended by RR Nos. 2-2007; 4-2007; 10-2011; 162011; 13-2012
VALUE-ADDED TAX
I. NATURE AND CHARACTERISTICS OF VAT Sec. 4.105-2 RR 16-2005
Q: What are the characteristics of the VAT?
1. It is a percentage tax imposed at every stage of the distribution process on the sale, barter, or exchange or lease of
goods or properties and on the performance of service in the course of trade or business or on the importation of
goods, whether for business or non-business.
2. It is a business tax levied on certain transactions involving a wide range of goods, properties and services, such
tax being payable by the seller, lessor or transferor.
3. It is an excise tax or a tax on the privilege of engaging in the business of selling goods or services or in the
importation of goods
4. It is an indirect tax, the amount of which may be shifted to or passed on the buyer, transferee or lessee of the
goods, properties or services.
5. It is an ad valorem tax as its amount or rate is based on gross selling price or gross value in money or gross
receipts derived from the transaction
A. Tax on Value added
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or
lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of
goods, properties or services at the time of the effectivity of Republic Act No. 7716.
B. Sales Tax
C. Tax On Consumption (Sec. 4.105-2, RR 16-05, as amended)
D. Indirect Tax
1. Impact of Tax- The impact of taxation is the point on which a tax is originally imposed. The impact of taxation
is on the seller.
2. Incidence of Tax- The incidence of tax is that point on which the tax burden finally rests or settles down and in
most cases, the incidence is on the final consumer.
Because VAT is an indirect tax, the impact or the tax liability for the payment of the tax falls on one person but the
incidence or burden thereof can be shifted or passed to another.
Contex Corp. vs. Commissioner of Internal Revenue (433 SCRA 376)
E. Tax Credit Method
Q: Differentiate output tax from input tax
As differentiated by the Supreme Court in CIR V. BENGUET CORPORATION [JULY 14, 2006]:
Input VAT or input tax represents the actual payments, costs and expenses incurred by a VAT-registered taxpayer in
connection with his purchase of goods and services. Thus, "input tax" means the value-added tax paid by a VATregistered person/entity in the course of his/its trade or business on the importation of goods or local purchases of
goods or services from a VAT-registered person.
On the other hand, when that person or entity sells his/its products or services, the VAT-registered taxpayer generally
becomes liable for 10% (now 12%) of the selling price as output VAT or output tax. Hence, "output tax" is the valueadded tax on the sale of taxable goods or services by any person registered or required to register under the Tax
Code.
Otherwise stated, output tax is the VAT due on the sale or lease or taxable goods, properties or services by an VATregistered person. On the other hand, input tax is the VAT due on or paid by a VAT-registered person on importation
of good or local purchases of goods or services, including lease or use of properties, in the course of his trade or
business.
Tax 2- Atty. Llamado
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Q: What is the tax credit method?

Under the tax credit method, an entity can credit against or subtract from the VAT charged on its sales or outputs the
VAT paid on its purchases, inputs and imports.
The legal basis can be found in Section 110(A) of the Tax Code which provides that any input tax evidenced by a
VAT invoice or official receipt on purchase or importation of goods or for purchase of services shall be creditable
against output tax.
Under the VAT method of taxation, which is invoice-based, an entity can subtract from the VAT charged on its sales
or outputs the VAT it paid on its purchases, inputs and imports. (CIR V. SEAGATE TECHNOLOGY [FEBRUARY
11, 2005]).
As discussed above, the taxpayer determines his tax liability by computing the tax on the gross selling price or gross
receipt (output tax) and subtracting or crediting the earlier VAT on the purchase or importation of goods or on the
purchase of service (input tax) against the tax due on his own sale.
VAT payable= Output Tax Input Tax
Okay example. Lets say seller ka ng wooden furniture. Anong kailangan mo para makagawa
ka ng produkto mo? Eh di kahoy. Wooden furniture nga diba. So bumili ka ng kahoy. Yung
nagbenta sa iyo binigyan ka ng invoice. Pagtingin mo sa invoice mo naka-indicate yung 12%
VAT na binayaran mo sa pagbili mo ng kahoy. Yan ang input tax mo! So using the kahoy, you
made lets say tables and chairs. Eh since ibebenta mo ito, subject ka sa VAT. Tawag mo
dyan output tax. Under the Tax Credit Method, puwede mo ibawas ang 12% na binayaran
mo sa pagbili ng kahoy doon sa babayaran mo na 12%VAT sa pagbenta mo ng final product
mo, yung tables and chairs. Because of that nabawasan mo ang VAT liability mo.
F. Destination Principle
Q: What is the destination principle (cross-border doctrine)?
As a general rule, the value-added tax (VAT) system uses the destination principle. It means that the destination of
the goods determines the taxation or exemption from VAT. Goods and services are taxed only in the country where
they are consumed.
Note: (1) This is the reason why export sales of goods are subject 0% while importations of goods are subject to
12%. Exported goods will be consumed in wherever country it is exported so it is zero-rated. On the other hand, we
consume imported goods here in the Philippines that is why it is subject to 12% VAT.
(2) In the case of services, consumption takes place where the service is performed. Note, however, na may
exception to the destination principle when it comes to sale of services. Although the
services are performed in the Philippines, there are certain sales of services that are zerorated. We will discuss this later when we get to Section 108(B) or zero-rated sales of
services.
CIR v. Toshiba Information Equipment (Phils.) (466 SCRA 211)
in CIR V. TOSHIBA INFORMATION EQUIPMENT [AUGUST 9, 2005] and CIR v. CEBU TOYO
CORPORATION [FEBRUARY 16, 2005] the Supreme Court held that the PEZA-registered enterprise is entitled to
a VAT refund/credit because it opted to avail itself of the income tax holiday. Having availed of the income tax
holiday and its export sales being a zero-rated transaction, the PEZA-registered enterprise was entitled to refund or
credit for its unutilized input taxes. In both cases, the transactions were made prior to the effectivity of RMC 74-99.
Now, after the effectivity of RMC 74-99, the tax treatment of sales of goods and services of PEZA-registered
enterprises is now based on the principles of separate custom territory and cross border doctrine.
II. PERSONS LIABLE TO VAT (Sec. 105, NIRC; Sec. 4.105-1, RR 16-05, as amended)
A. Person (Sec. 4.105.1, RR 16-05, as amended by RR 04-07)
Q: In general, who are liable to pay the VAT?
1. Any person who, in the course of trade or business, sells, barters, exchanges or leases goods or properties, or
renders services
Except: A person, whether or not VAT-registered, whose annual gross sales or receipts does not exceed P1,919,500.
2. Any person who imports goods, whether in the course of trade or business or not.
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Note: RR 16-2011 [October 27, 2011] increased the threshold amounts for sale of
residential lot, sale of house and lot, lease of residential unit and sale or lease of goods or
properties or performance of services covered by Section 109(P), (Q) and (V) of the Tax
Code. These are the changes:
Section
Amount in
Adjusted
Pesos (2005)
amounts
Section 109(P)
1,500,000
1,919,500
Section 109(P)
2,500,000
3,199,200
Section 109(Q)
10,000
12,800
Section 109(V)
1,500,000
1,919,500
B. Taxable Person (Sec. 4.105.1, RR 16-05, as amended)
1. refers to any person liable to VAT whether registered or registrable according to Sec. 236 of the NIRC.
2. where the amount of gross receipts exceed the threshold fixed by law [Sec. 109 (V), NIRC]
C. In the course of trade or business (Sec. 4.105-3, RR 16-05, as amended)
Q: What is meant by in the course of trade or business
In the course of trade or business means the regular conduct or pursuit of a commercial or an economic activity
including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a
non-stock, non-profit private organization or a government entity.
- Notwithstanding the rule on regularity Services performed by non-resident foreign persons in
the Philippines are subject to VAT.
Note: Services rendered by non-resident foreign persons shall be considered as being
rendered in the course of trade or business, even if the performance of services is not
regular (Section 4.105-3, RR No. 16-2005)
Commissioner of Internal Revenue vs. COMASERCO (329 SCRA 237)
Q: Is the profit element required for VAT to be imposed?
No. The term in the course of trade or business requires the regular conduct or pursuit of a commercial or an
economic activity, regardless of whether or not the entity is profit-oriented. (see CIR V. CA AND COMASERCO
[MARCH 30, 2000])
Q: COMASERCO is a non-stock, non-profit organization, affiliated with Philamlife and organized to perform
collection, consultative or technical services. The BIR assessed COMASERCO for deficiency VAT. COMASERCO
argues that the services rendered to Philamlife were on a no-profit, reimbursement-of-cost-only basis and, as
such, the services are not VAT-taxable. Is COMASERCO correct?
No. In CIR V. CA AND COMASERCO [MARCH 30, 2000] , the Supreme Court opined that VAT is a tax on
transactions imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and
on the performance of services, even in the absence of profit attributable thereto. The definition of the term in the
course of trade or business applies to all transactions. Even a non-stock, non-profit corporation or government
entity is liable to pay VAT for the sale of goods and services. In this case, even if the services rendered for a fee were
on a reimbursement-on-cost arrangement and without realizing profit, the payments are still subject to VAT.
CIR v. Magsaysay Lines (497 SCRA 63)
Q: Pursuant to the governments privatization program, NDC decided its shares in the National Marine Corp. and 5
vessels. Magsaysay Lines bought the shares and vessels. The CIR contends that the sale of the 5 vessels is incidental
to its NDCs VAT registered activity of leasing out personal property and thus VAT-taxable. Is the CIR correct?
No. In CIR V. MAGSAYSAY LINES [JULY 28, 2006], the Supreme Court found that any sale, barter or exchange
of goods or services not in the course of trade or business is not subject to VAT. In this case, the sale of the vessels
was an isolated transaction, not done in the ordinary course of NDCs business and is thus not subject to VAT.
Note: In THOMAS C. ONGTENCO VS. CIR, CTA CASE NO. 8190, DECEMBER 12, 2012, the CTA
held that the taxpayers act of lending money to a corporation, where he is a director and
stockholder cannot be considered as an act of lending in the course of his trade or business.
His act of lending was not done in the ordinary course of his business or trade but merely an
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isolated transaction in order to help the company in its provincial expansion considering
that, at that time, it was just starting and was having difficulties in getting and applying for
loans from banks. The act of lending was a one-time assistance in his capacity as
stockholder.

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III. VAT ON SALE OF GOODS OR PROPERTIES (Sec. 106, NIRC)

SEC. 106. Value-Added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. - There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, value-added tax equivalent to ten percent (10%) of the gross selling
price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid
by the seller or transferor.
(1) The term 'goods' or 'properties' shall mean all tangible and intangible objects which are capable
of pecuniary estimation and shall include:
(a) Real properties held primarily for sale to customers or held for lease in the ordinary course
of trade or business;
(b) The right or the privilege to use patent, copyright, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property or right;
(c) The right or the privilege to use in the Philippines of any industrial, commercial or scientific
equipment;
(d) The right or the privilege to use motion picture films, tapes and discs; and
(e) Radio, television, satellite transmission and cable television time.
The term 'gross selling price' means the total amount of money or its equivalent which the purchaser
pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods
or properties, excluding the value-added tax. The excise tax, if any, on such goods or properties
shall form part of the gross selling price.
(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
(a) Export Sales. - The term 'export sales' means:
(1) The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence or
determine the transfer of ownership of the goods so exported and paid for in acceptable
foreign currency or its equivalent in goods or services, and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a
resident local export-oriented enterprise to be used in manufacturing, processing, packing
or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
(3) Sale of raw materials or packaging materials to export-oriented enterprise whose
export sales exceed seventy percent (70%) of total annual production;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
(5) Those considered export sales under Executive Order NO. 226, otherwise known as
the Omnibus Investment Code of 1987, and other special laws.
(b) Foreign Currency Denominated Sale. - The phrase 'foreign currency denominated sale'
means sale to a nonresident of goods, except those mentioned in Sections 149 and 150,
assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid
for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP).
(c) Sales to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales to zero rate.
(B) Transactions Deemed Sale. - The following transactions shall be deemed sale:
(1) Transfer, use or consumption not in the course of business of goods or properties originally
intended for sale or for use in the course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the VAT-registered persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such
goods were consigned; and
(4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as
of such retirement or cessation.
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(C) Changes in or Cessation of Status of a VAT-registered Person. - The tax imposed in Subsection (A) of
this Section shall also apply to goods disposed of or existing as of a certain date if under circumstances to
be prescribed in rules and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner, the status of a person as a VAT-registered person changes or is
terminated.
Q: What are considered as goods or properties for VAT purposes?
All tangible and intangible objects which are capable of pecuniary estimation, including:
1. Real properties held primarily for sale to customers or held for lease in the ordinary course of business
2. The right or privilege to use patent, copyright, design or model, plan, secret formula or process, good will,
trademark, trade brand, or other like property or right
3. The right or privilege to use in the Philippines of any industrial, commercial or scientific equipment
4. The right or the privilege to use motion picture files, films tapes and discs
5. Radio, television, satellite transmission and cable television line (see SECTION 106(A)(1), TAX CODE)
A. Rate and Tax Base
1. Rates 12% or 0%
2. Tax Base Gross selling price
Q: What is the tax base of VAT on sale of goods or properties?
The 12% VAT is based on the gross selling price (GSP) or gross value in money of the taxable goods or properties
sold, bartered or exchanged.
(a) Meaning of Gross Selling Price (Sec. 4.106-4, RR 16-05, as amended)
For goods and properties other than real properties
The total amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller in
consideration of the sale, barter or exchange of the
goods or properties excluding the VAT. Any excise
tax, if any, on such goods or properties shall form part
of the GSP
Note: If the consideration of a sale is not
wholly in money as in a part-exchange or
barter transaction, the base is the price
that would have been charged in an open
market sale for purely monetary
consideration.
In case of real property
The gross selling price shall mean the consideration
stated in the sales document or the fair market value,2
whichever is higher.
China Banking Corp. vs. Court of Appeals (403 SCRA 634)
(b) Allowable deductions from Gross Selling Price (Sec. 106(D), NIRC; Sec. 4.106-9, RR 16-05, as
amended)
Sec. 106(D), NIRC(D) Determination of the Tax. (1) The tax shall be computed by multiplying the total amount indicated in the invoice by oneeleventh (1/11).
(2) Sales Returns, Allowances and Sales Discounts. - The value of goods or properties sold and
subsequently returned or for which allowances were granted by a VAT-registered person may be
deducted from the gross sales or receipts for the quarter in which a refund is made or a credit
memorandum or refund is issued. Sales discount granted and indicated in the invoice at the time of
sale and the grant of which does not depend upon the happening of a future event may be excluded
from the gross sales within the same quarter it was given.
(3) Authority of the Commissioner to Determine the Appropriate Tax Base. - The Commissioner shall,
by rules and regulations prescribed by the Secretary of Finance, determine the appropriate tax base
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in cases where a transaction is deemed a sale, barter or exchange of goods or properties under
Subsection (B) hereof, or where the gross selling price is unreasonably lower than the actual market
value.
B. Requisites for Taxability of sale of goods and/or properties: In general
1. Sale, barter or exchange of goods or properties
(c) Meaning of term goods or properties (Sec. 4.106-2, RR 16-05, as amended)
2. In the course of trade or business (Sec. 4.106-3, RR 16-05, as amended)
3. Goods and properties are located within the Philippines and consumed therein
4. Sale of goods or properties not exempt from VAT under Sec. 109 of NIRC
C. Sale of Real Properties (Sec. 4.106-3 , RR 16- 05, as amended)
Q: What are the requisites of a VAT-taxable sale?
For goods or properties other than real property
1. There is an actual or deemed sale, barter, exchange of
goods or properties for a valuable consideration
2. The sale is undertaken in the course of trade or business
or exercise of profession in the Philippines
3. The goods or properties are located within the
Philippines and are for use or consumption therein
4. The sale is not exempt from VAT under Section 109 of
the Tax Code, special law or international agreement
binding upon the government of the Philippines.
Note: (1) The absence of any of the above
requisites exempts the transaction from VAT.
However, percentage taxes may apply.
Actually, the annual gross sales or receipts
must exceed P1,199,500. Otherwise, it is
subject to the 3% percentage tax on small
business enterprises.
(2) We can combine (3) and (4) by stating that
the transaction should not be a VAT zero-rated
or a VAT-exempt transaction.
For real property

1. The seller executes a deed of sale, including dacion en
pago, barter or exchange, assignment, transfer or
conveyance, or merely contract to sell involving real
property
2. The real property is located in the Philippines
3. The seller or transferor is engaged in real estate
business either as a real estate dealer, developer or lessor
4. The real property is held primarily for sale or for lease
in the ordinary course of his trade or business
5. The sale is not exempt from VAT under Section 109,
special law or international agreement binding upon the
government of the Philippines.
6. The threshold amount set by the law should be met
Note: (1) The absence of any of the above
requisites exempts the transaction from VAT.
However, percentage taxes may apply.
(2) As to (4) Remember that real properties
held primarily for sale to customers are
ordinary assets. Hence, the income from the
sale thereof shall form part of ordinary income
subject to graduated income tax rates. If its a
capital asset, the income would be subject to
capital gains tax
(3) As to (6), the threshold amounts are: (1)
The sale of a residential lot with a GSP must
exceed P1,919,500 and (2) the sale of a
residential house and lot or other residential
dwelling with GSP must exceed P3,199,200.
Otherwise, they are not exempt from VAT
Installment sale of a residential house and lot
or other residential dwellings exceeding P1
million3 shall be subject to VAT.
Q: How is VAT imposed on real property transactions?

1. If cash or deferred payment, then the VAT on the whole amount is already imposed
2. If installment, then the VAT is imposed on each payment
3. There is no VAT imposed on Section 40(C)(2) exchanges.
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Note: (1) In an installment plan, the initial payments do not exceed 25% of the GSP. If the
initial payments exceed 25%, the sale is on a deferred payment basis.
(2) In case of installment, the buyer can claim the input tax in the same period as the seller
recognized the output tax. In deferred-payment basis, the output tax shall be recognized by
the seller and the input tax shall accrue to the buyer at the time of the execution of the
instrument of sale.
Q: Assuming a VAT-taxable transaction, is the advance payment in a real estate transaction subject to VAT?
Of the amounts typically covering an advance payment, only the pre-paid rent is subject to VAT. Other forms of
advance payment such as option money, security deposit, etc. are not subject to VAT.
Q: A bought two adjacent condominium units which he intended to combine so as to fit his family. Each unit has a
GSP of 2 million. The two units were separately documented. After 2 years, A decided to sell the two units. A
contends that the units are exempt from VAT as the GSP did not exceeding 2.5 million. Is A correct?
No. By virtue of the amendment introduced by RR 13-2012 [OCTOBER 12, 2012], the sale of real properties
subject to VAT shall include the sale, transfer, or disposal within a 12-month period of two or more adjacent
residential lots, house and lots, or other residential dwellings in favor of a buyer. Such adjacent real properties
although covered by separate titles and/or separate tax declarations, when sold to one and the same buyer, whether
covered by one or separate deeds of conveyance, shall be presumed as a sale of one residential lot, house and lot or
residential dwelling.
Q: Is the sale of the parking lot included in the sale of a condominium unit?
No. The sale of parking lots is a separate and distinct transaction and is not covered by the rules on the threshold
amount not being a residential lot, house and lot, or a residential dwelling and thus should be subject to VAT
regardless of the amount of selling price.
D. Zero-rated Sales of goods or properties (Sec. 106 (A), NIRC)
SEC. 106. Value-Added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. - There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, value-added tax equivalent to ten percent (10%) of the gross selling
price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid
by the seller or transferor.
(1) The term 'goods' or 'properties' shall mean all tangible and intangible objects which are capable
of pecuniary estimation and shall include:
(a) Real properties held primarily for sale to customers or held for lease in the ordinary course
of trade or business;
(b) The right or the privilege to use patent, copyright, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property or right;
(c) The right or the privilege to use in the Philippines of any industrial, commercial or scientific
equipment;
(d) The right or the privilege to use motion picture films, tapes and discs; and
(e) Radio, television, satellite transmission and cable television time.
The term 'gross selling price' means the total amount of money or its equivalent which the purchaser
pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods
or properties, excluding the value-added tax. The excise tax, if any, on such goods or properties
shall form part of the gross selling price.
(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
(a) Export Sales. - The term 'export sales' means:
(1) The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence or
determine the transfer of ownership of the goods so exported and paid for in acceptable
foreign currency or its equivalent in goods or services, and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a
resident local export-oriented enterprise to be used in manufacturing, processing, packing
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or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the Bangko
(3) Sale of raw materials or packaging materials to export-oriented enterprise whose
export sales exceed seventy percent (70%) of total annual production;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
(5) Those considered export sales under Executive Order NO. 226, otherwise known as
the Omnibus Investment Code of 1987, and other special laws.
(b) Foreign Currency Denominated Sale. - The phrase 'foreign currency denominated sale'
means sale to a nonresident of goods, except those mentioned in Sections 149 and 150,
assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid
for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP).
(c) Sales to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales to zero rate
1. Zero-rated Sales, defined (Sec. 4.106-5 1st par., RR 16-05, as amended)
Q: What are zero-rated transactions?
A VAT zero-rated transaction are sales by VAT-registered persons which are subject to 0% rate, meaning the tax
burden is not passed on to the purchaser. A zero-rated sale by a VAT-registered person, which is a taxable transaction
for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods, properties or
services related to such zero-rated sale shall be available as tax credit or refund.
2. Sales subject to 0% VAT
(a) Export Sales (Sec. 4.106-5 (a), RR 16-05, as amended)
(b) Foreign Currency Denominated Sales (Sec. 4.106-5 (b), RR 16-05, as amended)
(c) Sales to tax-exempt entities (Sec. 4.106-5 (c), RR 16-05, as amended)
3. Differentiated from Effectively Zero-rated Sales of goods and properties (Sec. 4.106-6, RR 16-05,
as amended)
Transactions which are taxed at zero-rate do not result in any output tax. Input VAT attributable to zero-rated sales
could be refunded or credited against other internal revenue taxes at the option of the taxpayer
Note: As an example, assume that VAT-registered person purchases materials from his
supplier at P100, P9.6 of which was passed on to him by his supplier as the latters 12%
output VAT. In a zero-rated transaction, the taxpayer can recover the P9.6 from the BIR
either through a refund or a tax credit. When the taxpayer sells his finished product for lets
say P120, he is not required to pay the output VAT of P2.4 (12% of the P20 value he has
added to the P100 material).
In a transaction subject to VAT, however, he may recover both the input VAT of P9.6 which he
paid to the supplier and his output VAT of P2.4 by passing both these costs to the buyer. The
buyer then pays P12, the total 12% VAT.
As differentiated by the Supreme Court in CIR v.
CEBU TOYO CORPORATION [FEB. 16, 2005]:
Zero-rated
It is a taxable transaction but does not result in an
output tax
VAT-Exempt
Not subject to the output tax
The input VAT on the purchases of a VAT-registered

person with zero-rated sales may be allowed as tax
credits or refunded
The seller in an exempt transaction is not entitled to any

input tax on his purchases despite the issuance of a VAT
invoice or receipt;
Persons engaged in transactions which are zero-rated,

being subject to VAT, are required to register
Registration is optional for VAT-exempt persons.
Q: What are the two types of zero-rated transactions?

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1. Automatically zero-rated which refers to export sale of goods, properties, and supply of services by a VATregistered person
2. Effectively zero-rated which refers to the local sale of goods and properties by a VAT-registered person of a
person or entity who was granted direct and indirect tax exemption under special lws or international agreements
(RMC No. 50-2007)
E. Transactions deemed Sale (Sec. 106(B), NIRC; Sec. 4.106-7, RR 16-05, as amended)
1. Transfer, use or consumption not in the course of business of goods/properties originally
intended for sale or use in the course of business
2. Distribution or transfer to shareholders, investors or creditors
3. Consignment of goods if actual sale not made within 60 days from date of consignment
4. Retirement from or cessation of business with respect to inventories on hand
Q: What is meant by transactions deemed sale?
There is no actual sale. However, the law deems that there is a taxable sale.
(B) Transactions Deemed Sale. - The following transactions shall be deemed sale:
(1) Transfer, use or consumption not in the course of business of goods or properties originally
intended for sale or for use in the course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the VAT-registered persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such
goods were consigned; and
(4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as
of such retirement or cessation.
Note: (1) Before considering whether the transaction is deemed sale, it must first be
determined whether the sale was in the ordinary course of trade or business. Even if the
transaction was deemed sale, if it was note done in the ordinary course of trade or
business, still the transaction is not subject to VAT (CIR v. MAGSAYSAY LINES [JULY 28,
2006]).
(2) As to (1), the transaction is deemed sale when the taxpayer-seller withdraws goods from
his inventory of goods held primarily for sale for his own personal or non-business use. The
withdrawal or transfer of goods results in the use or consumption of such goods by a person
(the seller himself) who is effectively the final consumer, such withdrawal or transfer is
deemed a sale subject to output tax.
(3) As to (2), the requisites to constitute the distribution or transfer to a shareholder or
creditor a transaction deemed sale are: (a) the VAT-registered person distributing or paying
is a domestic corporation; (b) what is being declared or paid is either real property owned by
the company or shares of stocks owned in another company; and (c) the domestic
corporation is either a real estate dealer (in case of real property) or dealer in securities (in
case of shares of stock)
(4) As to (3), as a general rule, a consignment of goods by the consignment-owner to the
consignee is not a taxable transaction. However, it is subject to VAT when the consigned
goods are: (a) not sold by the consignee; and (b) not returned by him to the consignorowner within 60 days from date of consignment.
(5) As to (4), the VAT-registered taxpayer who ceases or retires from business, including an
unregistered joint venture undertaking construction activity, must pay output tax on the
gross value of his inventory of materials, goods and supplies existing at the time of
cessation or retirement of business.
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Q: San Roque Power entered into a purchase power agreement with NAPOCOR to develop the hydroelectric
potential of the Lower Agno River. During the testing period, electricity was transferred by San Roque to
NAPOCOR. Can the transfer be considered a sale of electricity?
Yes. In SAN ROQUE POWER CORP. V. CIR [NOVEMBER 25, 2009], the Supreme Court held that although the
transfer was not a commercial sale, the NIRC does not limit the definition of sale to commercial transactions in
the normal course of business. Conspicuously, Section 106(B) of the NIRC, which deals with the imposition of VAT,
does not limit the term sale to commercial sales, rather it extends the term to transactions that are deemed sale. In the
said case, it was undisputed that San Roque transferred to NPC all the electricity that was produced during the trial
period. The fact that it was not transferred through a commercial sale or in the normal course of business does not
deflect from the fact that such transaction is deemed as a sale.
F. Change or Cessation of Status as VAT-registered person (Sec. 106(C), NIRC; Sec. 4.106-8, RR
16-05, as amended)
Sec. 106(C)(C) Changes in or Cessation of Status of a VAT-registered Person. - The tax imposed in Subsection (A) of
this Section shall also apply to goods disposed of or existing as of a certain date if under circumstances to
be prescribed in rules and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner, the status of a person as a VAT-registered person changes or is
terminated.
1. Subject to VAT goods or properties originally intended for sale or use in business and capital
goods existing as of occurrence of the ff:
(a) Change of business activity from VAT taxable status to VAT-exempt status.
(b) Approval of request for cancellation of a registration due to reversion to exempt status
(c) Approval of request for cancellation of registration due to desire to revert to exempt status
after lapse of 3 consecutive years.
(d) Approval of request for cancellation of registration for failure to meet threshold amount (1.5
Million) for VAT.
2. Not subject to VAT
(a) Change of control of a corporation
(b) Change in the trade or corporate name
(c) Merger or consolidation of corporations
Q: When is a change in or cessation of status of a
VAT registered person subject to VAT?
1. Change of business activity from VAT-taxable
status to VAT-exempt status
When a VAT-registered person engaged in a VATtaxable activity decides to discontinue such activity
and engage in a non-VAT-taxable activity.
2. Approval of a request for cancellation of a

registration due to reversion to exempt status
When a person commenced a business with the

expectation that is gross sales or receipts will
exceed P1,919,500 but failed to exceed this amount
during the first 12 months of operation.
3. Approval of request for cancellation of a

registration due to desire to revert to exempt status
after lapse of 3 consecutive years
When a person who is VAT-exempt and not

required to register for VAT opted to register as a
VAT taxpayer and after the lapse of 3 years desire
to revert to exempt status
Q: When is a change in or cessation of status of a

VAT registered person NOT subject to VAT?
1. Change or control of a corporation by acquisition
of the controlling interest of such corporation by
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The goods or properties used in the business or

those comprising the stock-in-trade will not be
11
another stockholder or group of stockholders
considered sold, bartered or exchanged because the

corporation still owns them.
Subject to VAT:
a. Exchange of property by corporation acquiring
control for the shares of stocks of the target
corporation
b. Exchange of properties by a person who wants to
join the corporation of his properties held for sale
or for lease for shares of stock whether resulting to
corporate control or not
2. Change in trade or corporate name

3. Merger or
consolidation
The unused input tax of the dissolved corporation as of the date of merger or
consolidation shall be absorbed by the surviving corporation.
IV. VAT ON IMPORTATION (Sec. 107, NIRC; Sec. 4.107-1, RR 16-05, as amended)
SEC. 107. Value-Added Tax on Importation of Goods. (A) In General. - There shall be levied, assessed and collected on every importation of goods a valueadded tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in
determining tariff and customs duties plus customs duties, excise taxes, if any, and other charges, such
tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That
where the customs duties are determined on the basis of the quantity or volume of the goods, the valueadded tax shall be based on the landed cost plus excise taxes, If any.
(B) Transfer of Goods by Tax-exempt Persons. - In the case of tax-free importation of goods into the
Philippines by persons, entities or agencies exempt from tax where such goods are subsequently sold,
transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers,
transferees or recipients shall be considered the importers thereof, who shall be liable for any internal
revenue tax on such importation. The tax due on such importation shall constitute a lien on the goods
superior to all charges or liens on the goods, irrespective of the possessor thereof.
Q: Does VAT apply to every importation?
Yes. The VAT shall be imposed on every importation of goods, whether or not in the course of trade or business.
This is unlike VAT on sale of goods or properties which must be in the course of trade or business. Otherwise, the
person/transaction shall not be liable to pay VAT. (see CIR V. SEAGATE TECHNOLOGY [FEBRUARY 11, 2005]).
Q: What is the tax base of VAT on importation of goods?
The tax base is the total value used by the BOC in determining tariff and customs duties plus customs duties, excise
taxes, if any, and other charges.
Where the customs duties are determined on the basis of the quantity or volume of the goods, the VAT shall be based
on the landed cost plus excise taxes, if any.
V. VAT ON SALE OF SERVICES AND USE OR LEASE OF PROPERTIES (Sec. 108, NIRC; Sec. 4.1081, RR 16-05, as amended)
Q: What is a sale or exchange of services?
A sale of exchange of services means the performance of all kinds of services in the Philippines for others for a fee,
remuneration or consideration.
Q: Are toll fees collected by tollway operators subject to VAT?
Yes. The Supreme Court in DIAZ V. SECRETARY OF FINANCE [JULY 10, 2011] answered this issue in the
affirmative. The court held that VAT is imposed on all kinds of services and tollway operations who are engaged
in construction, maintaining, and operating expressways are no different from lessors of property, transportation
contractors, etc. Further, they also come under those described as all other franchise grantees which is not
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confined only to legislative franchise grantees since the law does not distinguish. They are also not a franchise
grantee under Section 119 of the Tax Code which would have made them subject to percentage tax instead. Neither
are the services part of the enumeration under Section 109 on VAT-exempt transactions.
Note: RMC 63-2010 [JULY 19, 2010] was issued to implement Section 108 and impose VAT on
the gross receipts of tollway operators from all types of vehicles starting August 16, 2010.
A. Tax Rate 12% or 0%
B. Tax Base Gross Receipts
1. Gross Receipts, Defined (Sec. 108, NIRC; Sec. 4.108-4, RR 16-05, as amended)
(Sec. 108, NIRC)
The term 'gross receipts' means the total amount of money or its equivalent representing the contract
price, compensation, service fee, rental or royalty, including the amount charged for materials supplied
with the services and deposits and advanced payments actually or constructively received during the
taxable quarter for the services performed or to be performed for another person, excluding value-added
tax.
Q: Are the gross receipts derived by operators or proprietors of cinema/theater houses from admission tickets
subject to VAT?
No. The Supreme Court in CIR v. SM PRIME HOLDINGS [FEBRUARY 26, 2010] held that although the
enumeration of services subject to VAT under Section 108 of the 1997 Tax Code is not exhaustive. Among those
included in the enumeration is the lease of motion picture films, films, tapes and discs. This, however, is not the
same as the showing or exhibition of motion pictures or films. Hence, since the showing or exhibition of motion
pictures or films Is not in the enumeration, such is not a VAT-taxable transaction.
2. Constructive Receipt
C. Requisites for Taxability of Sale of Services
1. Sale or Exchange of services
(a) Meaning of Sale or exchange of services (Sec. 4.108-2, RR 16-05, as amended)
Commissioner of Internal Revenue vs. COMASERCO (329 SCRA 237)
Q: Are association dues, membership fees, and other assessment and charges collected by a condominium
corporation/ homeowners association subject to VAT?
Yes because they constitute as income payment or compensation for the beneficial services the condominium
corporation/ homeowners association provides for its tenants and members (RMC 65-2012).
Note: (1) The fact that a condominium corporation/homeowners association is a non-stock,
non-profit organization is immaterial. As held in CIR V. CA & COMASERCO [MARCH 30, 2000],
even a non-stock, non-profit organization or government entity is liable to pay VAT on sale of
goods and services.
(2) Pursuant to Section 18 of RA 9904 (Magna Carta for Homeowners and Homeowners
Association), the association dues and income derived from rentals of the homeowners
associations may be exempted from tax subject to the following conditions: (a) The
homeowners association must be a duly constituted Association as defined under Section
3(b) of RA 9904; (b) The LGU having jurisdiction over the homeowners association must
issue a certification identifying the basic services being rendered by the association and its
lack of resources to render such services; and (c) the association must present proof that
the income and dues are used for the cleanliness, security and other basic services need by
members, including maintenance of the facilities in their respective subdivisions and
villages. (RMC 9-2013 [January 29, 2013]
2. Persons selling services liable to VAT (Sec. 4.108-2, RR 16-05, as amended; Sec. 4.108-3, RR 1605, as amended)
Q: When is the lease of properties subject to VAT?
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The use or lease of properties shall be subject to VAT irrespective of the place where the contract of lease or
licensing agreement was executed if the property is leased or used in the Philippines.
3. Service performed in the Philippines
4. Service performed in the course of trade or business
5. Seller of service actually or constructively receives the fee or remuneration
6. Service is not exempt from VAT
D. Zero-Rated Sale of Services (Sec. 108(B), NIRC)(B) Transactions Subject to Zero Percent (0%) Rate - The following services performed in the Philippines
by VAT- registered persons shall be subject to zero percent (0%) rate.
(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko
(2) Services other than those mentioned in the preceding paragraph, the consideration for which is
paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to
zero percent (0%) rate;
(4) Services rendered to vessels engaged exclusively in international shipping; and
(5) Services performed by subcontractors and/or contractors in processing, converting, of
manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total
annual production
1. Zero-rated Sales, defined (Sec. 4.108-5 1st par., RR 16-05, as amended)
Q: Enumerate the zero-rated sales of services.
SECTION 108(B) provides for the following:
1. Processing, Manufacturing, or Repacking Goods for Other Persons Doing Business outside the Philippines, which
goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP
2. Services Other than those mentioned in the preceding paragraph rendered to a person engaged in business
conducted outside the Philippines or a nonresident person not engaged in business who is outside the Philippines
when the services were performed, the consideration for which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the BSP.
3. Services rendered to person or entities whose exemption under Special Laws or International Agreements
effectively subjects the supply of such services to a 0% rate. (effectively zero-rated transaction)
4. Sale of Services to Persons Engaged in International Shipping or Air Transport Operations
5. Sale of Services for Export-Oriented Enterprise whose export sales exceed 70% of total annual production
6. Transport of Passengers and Cargo by Air or Seal Vessels from the Philippines to a Foreign Country
7. Sale of Power Generated through Renewable Sources of Energy
Q: Acesite is the operator of Holiday Inn Hotel. It leases part of its premises to PAGCOR and caters food and
beverages to its patrons. Acesite contends that the sale of food and beverages to PAGCOR is zero-rated and thus
entitling them to claim a tax refund/credit. Is Acesite correct?
Yes. In CIR v. ACESITE PHILIPPINES [FEBRUARY 16, 2007], the Supreme Court stated that services rendered to
persons or entities whose exemption under special laws or international agreements to which the Philippines is a
signatory effectively subjects the supply of such services to zero (0%) rate shall be subject to 0%. Since the law
clearly provides for PAGCORs exemption, the sale of services of Acesite to PAGCOR is effectively zero-rated.
Hence, Acesite may refund the VAT it paid on its sale of food and beverages to PAGCOR.
2. Services subject to 0% VAT (Sec. 4.108-5 (b)(1) (7), RR 16-05, as amended)
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3. Differentiated from Effectively Zero-rated Sales of goods and properties (Sec. 4.108-6, RR 16-05,
as amended)
Q: What are the requisites for the zero-rating of the sale of service under Section 108(B)(2)?
1. The service is performed in the Philippines
2. The service falls under any of the categories provided in Section 108(B)
3. It is paid for in acceptable foreign currency that is accounted for in accordance with the regulations of the Bangko
Sentral ng Pilipinas
4. The recipient of such services is doing business outside the Philippines.
Q: American Express Philippines (AMEX-P) is a Philippine Branch of AMEX International. AMEX-P is a servicing
unit of AMEX Hong Kong (AMEX-HK) and facilitates the collections of AMEX-HK receivables from card members
in the Philippines. AMEX-P claimed a refund for its input taxes arising from zero-rated sales of services to AMEXHK. CIR argues that AMEX-Ps services must be consumed abroad in order to be zero-rated. Is the CIR correct?
No. In AMERICAN EXPRESS INTERNATIONAL V. CIR [JUNE 29, 2005], the Supreme Court opined that while
as a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax such
that goods and services are taxed only in the country where they are consumed, exceptions to the destination
principle are found in Section 108(B) of the 1997 Tax Code. In this case, Amex Phils. facilitated in the Philippines
the collection and payment of receivables belonging to its Hong Kong-based foreign client, Amex HK, and getting
paid for it in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP.
As such, they are deemed exceptions because although the services are performed in the Philippines, the sales of
such services are considered zero-rated.
Q: Placer Dome Inc (PDI) owns 39.9% of Marcopper. It undertook to clean-up and rehabilitate the Makalupnit and
Boac Rivers in Marinduque which was affected by its mining operations. PDI engaged the services of Placer Dome
Technical Services Limited (PD Canada), a non-resident foreign corporation in Canada which, in turn, engaged the
services of Placer Dom Technical Services Philippines (PD Philippines). PD Philippines filed for a claim for tax
credit/refund and contends that its sale of services to Placer Dome Canada was zero-rated. The CIR invokes the
destination principle, contending that Placer Dome Philippines services, while rendered to a non-resident foreign
corporation, are not destined to be consumed abroad. Is the CIR correct?
No. In CIR V. PLACER DOME [JUNE 8, 2007], the Supreme Court reiterated its ruling in AMERICAN EXPRESS
INTERNATIONAL V. CIR [JUNE 29, 2005] to the effect that the services enumerated in Section 108B constitute as
exceptions to the destination principle and are zero-rated. Since Placer Dome Philippines services meet the
requirements of Section 108(B)(2), it is zero-rated.
Q: A foreign consortium composed of Burmeister Denmark and Mitsui Engineering entered into a contract with
NAPOCOR for the operation and maintenance of two barges.. The Consortium appointed Burmeister Denmark as
coordination manager. Burmeister Denmark established Burmeister Mindanao which subcontracted the operation
and maintenance of the two barges. NAPOCOR paid the foreign consortium while the consortium, in turn, paid
Burmeister Philippines foreign currency inwardly remitted into the Philippines. The BIR refused to grant a refund
since the services were not destined for consumption abroad. Are the services of Burmeister Philippines entitled to
zero-rated status?
Yes. In CIR V. BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC. [JANUARY
22, 2007], they are entitled to zero-rated status and to the refund but only for the period covered prior to the filing of
the CIRs answer in the CTA. This is so because prior, Burmeister was able to secure a ruling from the BIR allowing
zero-rating of its sales. However, such ruling is valid only until the time that the CIR filed its answer in the CTA
which amounted to a revocation of the said ruling. The revocation cannot be made retroactive.
It must be noted, however, that without this special circumstance, Burmeister would not have been entitled to a zerorated status. This is because the Consortium which was the recipient of the services rendered by Burmeister was
deemed doing business within the Philippines. While the Consortiums principal members are non-resident foreign
corporations, the Consortium itself is doing business in the Philippines. Hence, the transactions of BWSC Mindanao
are not subject to VAT at zero percent.
Q: AB ROHQ is an ROHQ of X Corp, a foreign corporation organized under the laws of New York, USA. AB ROHQ
is a VAT-registered taxpayer engaged in providing services including logistics, research and development, product
development, data processing and communication, and business development. It provides services solely and
15
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exclusively for its head office. AB ROHQ filed a claim for refund or issuance of TCC for input VAT paid on
purchases arising from its alleged zero-rated sale of services to X Corp. Are the services rendered by AB ROHQ to
its head office deemed VAT zero-rated?
No. The services performed by AB ROHQ to X Corp do not qualify for zero-rating because X Corp cannot be
considered doing business outside the Philippines. The phrase other persons doing business outside the Philippines
under Section 108(B)(2) shall be deemed to pertain exclusively to affiliates, subsidiaries, or branches of ROHQs.
X Corp, as the mother company of AB ROHQ, cannot be considered an affiliate, subsidiary or branch for the simple
reason that X Corp and AB ROHWQ must be considered as one and the same entity for purposes of taxation.
Further, X Corp is considered doing business in the Philippines through AB ROHQ.
Q: ABC is a business process outsourcing company and is engaged in the business of providing call center services
from the Philippines to domestic and offshore businesses. Can ABC claim for a refund or issuance of a TCC for its
excess input tax paid on domestic purchases of goods and services which were allegedly attributable to ABCs zerorated sales of services?
Yes provided it meets the following requisites:
1. the services must be other than processing, manufacturing or repacking of goods;
2. payment for such services must be in acceptable foreign currency accounted for in accordance with the BSP rules
and regulations; and
3. the recipient of such services is doing business outside the Philippines.
Note: In SITEL PHILIPPINES CORPORATION V. CIR [CTA CASE NO. 7623, MARCH 3, 2010],
ACCENTURE VS. COMMISSIONER OF INTERNAL REVENUE [C.T.A. CASE NO. 7046, SEP. 22,
2009], PARLANCE SYSTEMS VS. COMMISSIONER OF INTERNAL REVENUE [C.T.A. CASE NO.
7459, JUL. 9, 2009], business process outsourcing companies were refused a refund of their
excess input VAT because their sale of services were not zero-rated because they failed to
prove that their clients were non-resident foreign corporations doing business outside the
Philippines.
VI. VAT EXEMPT TRANSACTIONS (Sec. 109, NIRC)
Q: What are VAT-exempt transactions?
VAT-exempt transactions refer to the sale of goods or properties and/or services and the use or lease of properties
that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax) on purchases.
The person making the exempt sale of goods, properties, or services shall not bill any output tax to his customers
because the said transaction is not subject to VAT.
Q: Enumerate the exempt transactions5
SECTION 109(A) TO (V) provides for the following:
a) Sale or importation of agricultural and marine food products in their original state.6
b) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds7
c) Importation of personal and household effects belonging to the residents of the Philippines returning from abroad
d) Importation of professional instruments and implements, wearing apparel, domestic animals and personal
household effects belonging to persons coming to settle for the first time in the Philippines
e) Services subject to percentage tax
f) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugarcane
into raw sugar
g) Medical, dental, hospital and veterinary services except those rendered by professionals8
h) Educational services rendered by private educational institutions duly accredited by DEPED, CHED, and TESDA
and those by governmental educational institutions
i) Services rendered pursuant to an employee-employer relationship
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j) Services rendered by regional or area headquarters established in the Philippines

k) Transactions which are exempt under international agreements to which the Philippines is a signatory or under
special laws
l) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority
m) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the
Cooperative Development Authority whose lending is limited to members
n) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with the Cooperative
Development Authority
o) Export sales by persons who are not VAT-registered
p) Sales of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or
business or sales within the low-cost cap of below 1,919,50010 for a residential lot and P3,199,20011 for a house
and lot and other residential dwelling
q) Lease of a residential unit with a monthly rental not exceeding P12,80012
r) Sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin which
appears at regular intervals with fixed prices for subscription and sale and is not devoted principally to publication
of paid advertisements
s) Sale, importation, or lease of passenger or cargo vessels and aircraft 13
t) Importation of fuels, goods and supplies by persons engaged in international shipping or air transport operations
u) Services of banks, non-bank financial intermediaries performing quasi-banking functions and other non-bank
financial intermediaries
v) Sale or lease of goods or properties or performance of services other than the transactions mentioned in the
preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of P1,919,500.
A. Vat Exempt Transactions, in general (Sec. 4.109-1 (A), RR 16-05, as amended)
B. Exempt Transactions, Enumerated (Sec. 4.109-1 (B), RR 16-05, as amended)
Q: Are senior citizens exempt from the 12% VAT?
Yes. RA No. 9994 [February 15, 2010], otherwise known as the Expanded Senior Citizens Act of 2010 exempts
senior citizens from paying 12-percent VAT on goods and services.
Q: Are medical services rendered b doctors registered with the PRC and legal services rendered by lawyers
registered with the IBP subject to VAT?
No. RR 7-2004 [MAY 7, 2004] excludes services by doctors registered with the PRC and services by lawyers
registered with the IBP as well as GPPs for the sole and exclusive purport of practising law or medicine from the
coverage of VAT on services
Q: Are pawnshops liable to pay VAT?
No. As explained by the Supreme Court in TAMBUNTING PAWNSHOP V. CIR [JANUARY 21, 2010]: Prior to the
passage of the EVAT Law in 1994, pawnshops were treated as lending investors subject to lending investors tax.
Subsequently, pawnshops were treated jurisprudentially as VAT-able enterprises under the general classification of
sale or exchange of services. RA No. 9238 which passed in 2004 finally classified pawnshops as other non-bank
financial intermediaries.
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Q: Is a health maintenance organization liable to pay VAT?

Yes. In CIR V. PHILIPPINE HEALTH CARE PROVIDERS, INC. [APRIL 24, 2007], PHCPI claimed that its
services were exempt from VAT and sought a BIR ruling in this regard. The BIR ruled that PHCPI was exempt. The
CIR, however, later assessed PHCPI for deficiency VAT taxes. The CIR contended that PHCPI does not actually
render medical service but merely acts as a conduit between the members and PHCPIs accredited and recognized
hospitals and clinics. The Supreme Court opined that the services of an entity which does not actually provide
medical and/or hospital services but merely arranges for the same are subject to VAT. The Court, however, ruled
PHCPI cannot be faulted for its reliance on the BIR ruling as such was issued when the term health maintenance
organization had no significance for taxation purposes at the time. The failure of PHCPI to describe itself as a
health maintenance organization subject to VAT does not amount to bad faith.
Q: Is the sale of copra subject to VAT?
No. RA 9337 amended Section 109(A) to include copra as those that should be considered in their original state.
Previously in MISAMIS ORIENTAL V. DOF [NOVEMBER 10, 1994], the Supreme Court opined that copra is not
food and is not intended for human consumption. Thus, it is not exempt from VAT. The rule now is the sale of copra
is VAT-exempt.
Q: Is the sale of Andoks chicken subject to VAT?
No. The sale of Andoks chicken is exempt from VAT. However, should Andoks maintain a facility by which the
roasted chicken will be offered as a menu to customers who would dine-in, then it will be subject to VAT on sale of
service which is similarly imposed on restaurants and other eateries (VAT Ruling No. 009-07 dated June 21, 2007)
Note: Ano lessons sa ruling na ito sa mga gusto magnegosyo diyan para ma-exempt sa
VAT? Una, stall lang itatayo mo na pang-take out. If may dine-in, sale of service yun! That is
subject to VAT. Pangalawa, ito lang puwede mo gawin sa manok mo o baboy or isda:
freezing, drying, salting, broiling, roasting, smoking, or stripping. Kapag nagbenta ka ng
adobong manok, nilagang baboy or sinigang na isda, hindi na original state yan!
Q: Is the sale of e-books and e-journals appearing at regular intervals with fixed prices for subscription and sale
and not devoted principally to publication of paid advertisements subject to VAT?
No. The terms book, newspaper, magazine, review and bulletin shall refer to printed materials in hard
copies and do not include those in digital or electronic format or computerized versions (RMC No. 75-2012 dated
November 22, 2012)
Q: Is PAGCORs sale of services subject to VAT?
No. In PAGCOR V. CIR [MARCH 15, 2011], the Supreme Court held that RA 9337 only withdrew PAGCORs
exemption from corporate income taxes but does not contain any provision that subjects the same to VAT. PAGCOR
is exempt from the payment of VAT, because PAGCOR's charter, P.D. No. 1869, is a special law that grants it
exemption from taxes. Moreover, the exemption of PAGCOR from VAT is supported by Section 6 of R.A. No. 9337,
which retained Section 108 (B) (3) of R.A. No. 8424, thus: Services rendered to persons or entities whose exemption
under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply
of such services to zero percent (0%) rate
Q: S and ABS-CBN entered into an agreement where S will provide his services exclusively to ABS-CBN as a talent
for the latters TV and radio shows. Is he liable to pay VAT?
No provided that there exists no employer-employee relationship between S and ABS-CBN. In SONZA V. ABSCBN [JUNE 10, 2004], the Supreme Court held that an independent contractor is liable to pay VAT. Section 109
only exempts from VAT services rendered pursuant to an employer-employee relationship.
VII. COMPUTATION OF VAT
A. Input Tax & Output Tax, defined (Sec. 110, NIRC; Sec. 4.110-1, RR 16-05, as amended)
B. Sources of Input Tax creditable against output tax (Sec. 110, NIRC; Sec. 4.110-1 (a) (g), RR
16-05, as amended)
1. Purchase or importation of goods
(a) For sale; or
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(b) For conversion into or intended to form part of a finished product for sale, including packaging
materials; or
(c) For use as supplies in the course of business; or
(d) For use as raw materials supplied in the sale of services; or
(e) For use in trade or business for which deduction for depreciation or amortization is allowed
under the NIRC.
i. Claim for input tax on depreciable goods (Sec. 4.110-3, RR 16-05, as amended)
2. Purchase of real properties for which VAT has actually been paid
3. Purchase of services in which VAT has actually been paid
4. Transactions "deemed sale" under Sec. 106 (B) of the NIRC
5. Transitional input tax under Sec. 111(a) of the NIRC (Sec. 111 (A), NIRC; Sec. 111-1(a), RR 16-05,
as amended)
6. Presumptive input tax under Sec. 111(b) of the NIRC (Sec. 111 (B), NIRC; Sec. 111-1 (b), RR 1605, as amended)
7. Transitional input tax credits allowed under the transitory and other provisions of the
Regulations.
Q: What is the rule on presumptive input tax credits?
Persons or firms engaged in the processing of sardines, mackerel and milk, and in the manufacturing or refined
sugar, cooking oil and packed noodle-based instant meals, shall be allowed a presumptive input tax, creditable
against the output tax, equivalent to 4% of the gross value in money of their purchases of primary agricultural
products which are used as inputs to their production.
Q: What is the rule on transitional input credits?
A person who becomes liable to VAT or any person who elects to be VAT-registered shall, subject to the filing of an
inventory, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to 2% of the
value of such inventory or the actual VAT paid on such goods, materials and supplies, whichever is higher, which
shall be creditable against the output tax.
C. Persons who can avail of the input tax credit (Sec. 4.110-2, RR 16-05, as amended)
Q: Who may avail of input tax credit?
1. The importer upon payment of VAT prior to the release of goods from customs custody
2. The purchaser of the domestic goods or properties upon consummation of the sale
3. The purchaser of services of the lessee or licensee upon payment of compensation, rental, royalty or fee
4. Purchaser of real property under cash/deferred payment basis upon consummation of the sale or if upon
instalment basis upon every instalment payment
D. Determination of Output/Input Tax; Vat Payable; Excess Input Tax Credits
1. Determination of Output Tax
Q: How is output tax determined?
The output tax is computed by:
1. Multiplying the GSP (for sellers of goods or properties) or the gross receipts (for sellers of services) by 12% or
2. Where the amount of VAT is erroneously billed in the invoice or receipt, by dividing the total invoice amount by a
fraction using the rate of VAT as numerator and 100% plus the rate of VAT as the denominator
2. Determination of Input Tax Creditable (Sec. 4.110-5, RR 16-05, as amended)
Q: How is the creditable input tax determined?
The amount of input taxes creditable during a month or quarter shall be determined by:
1. Adding all the creditable input taxes arising from the transactions during the month or quarter plus any amount of
input tax carried over from the preceding month or quarter
2. Reduced by the amount of claim for VAT refund or TCC and other adjustments such as purchase returns or
allowances, input tax attributable or allocated to exempt sales, and input tax attributable to sales to government
subject to final withholding VAT
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3. Allocation of Input Tax on Mixed Transactions (Sec. 4.110-4, RR 16-05, as amended)

Q: Explain the rule on the apportionment of input VAT on mixed transactions.
SECTION 4.110-4 OF RR16-2005 [SEPTEMBER 1, 2005] provides that a VAT-registered taxpayer who is also
engaged in transactions not subject to VAT shall be allowed to recognize input tax credit on transactions subject to
VAT as follows:
1. All the input taxes that can be directly attributed to transactions subject to VAT may be recognized for input tax
credit
Exception: Input taxes that can be directly attributable to VAT taxable sales to the Government or any of its political
subdivisions, instrumentalities or agencies shall not be credited against output taxes arising from sales to nonGovernment entities.
2. The input tax attributable to VAT-exempt sales shall not be allowed as credit against output tax, but should be
treated as part of cost of asset or operating expense
3. If any input tax cannot be directly attributed to either a VAT-taxable or VAT-exempt transaction, the input tax shall
be pro-rated to the VAT taxable and VAT-exempt transactions and only the ratable portion pertaining to transactions
subject to VAT may be recognized for input tax credit.
Note: To illustrate by way of computation, see PIERRE MARTIN DE LEON REYES TAX
II
4. Determination of the Output Tax and VAT Payable and Computation of VAT Payable or Excess
Tax Credits (Secs. 4.110-6 and 4.110-7, RR 16-05, as amended)
Q: Give the three possible scenarios that may arise in computing the VAT payable.
If at the end of any taxable month or quarter:
Output tax = input tax
No VAT payable
Output tax > input tax
The excess shall be paid by the VAT-registered
person
Output tax < input tax
The excess shall be carried over to the succeeding
quarter or quarters
Note: If input vat results from zero-rated or effectively zero-rated transactions, any excess
over the output taxes shall be refunded to the taxpayer or credited against other internal
revenue taxes, at the taxpayers option.
E. Substantiation of input tax credits (Sec. 4.110-8, RR 16-05, as amended)
Q: What are the substantiation requirements of input tax credits?
Input taxes must be substantiated and supported by
the following documents, and must be reported in
the information returns required to be submitted to
the Bureau:
1. For the importation of goods
Import entry or other equivalent document showing
actual payment of VAT on the imported goods
2. For the domestic purchase of goods and
properties
Invoice showing the information required under

Section 113 and 237 of the Tax Code
3. For the purchase of real property
Public instrument i.e., deed of absolute sale, deed

of conditional sale, contract/agreement to sell, etc.,
together with VAT invoice issued by the seller.
4. For the purchase of services
Official receipt showing the information required

under Section 113 and 237 of the Tax Code.

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5. Transitional input tax
Inventory of goods as shown in a detailed list to be

submitted to the BIR
6. Input tax on Deemed sale
Invoice required
7. Input tax from payments made to non-residents
Copy of the Monthly Remittance Return of Value

Added Tax Withheld (BIR Form 1600) filed by the
resident payor in behalf of the non-resident
evidencing remittance of VAT due which was
withheld by the payor
8. Advance VAT on sugar
Payment Order showing payment of the advance

VAT.
F. Refund or Tax Credit of Excess Input Tax (Sec. 112, NIRC, Sec. 4.112-1, RR 16-05, as amended)
1. Who may claim for refund/apply for issuance of Tax Credit Certificate (TCC)
Q: Who may claim for refund/apply for issuance of tax credit certificate?
A VAT-registered person whose sales of goods, properties or services are zero-rated or effectively zero-rated may
apply for the issuance of a TCC or refund of input tax attributable to such sales (Section 4.112-1, RR No. 16-2005).
Note: The refund or application for issuance of TCC must be filed with the appropriate BIR
Office-Large Taxpayers Service (LTS) or RDO having jurisdiction over the principal place of
business of the taxpayer. Direct exporters may file their claim for TCC with the One Stop
Shop Center of the DOF. (see Section 4.112-1, RR No. 16-2005). The filing of the claim with
one office shall preclude the filing of the same claim with another office.
The proper party to seek refund of an indirect tax is the statutory taxpayer, not the person on whom it is shifted to.
(EXXON MOBIL PHILIPPINES V. CIR [JANUARY 26, 2011]; SILKAIR V. CIR [FEBRUARY 25, 2010]
SILKAIR (Singapore) PTE. LTD., petitioner, vs. Commissioner Of Internal Revenue G.R. No.
166482. January 25, 2012.
DOCTRINE: The proper party to question or seek a refund of an indirect tax is the statutory taxpayer, the person on
whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another.
FACTS: Petitioner filed an administrative claim for refund on the excise taxes paid on the purchase of jet fuel from
its supplier oil company for the period of July 1, 1998 to December 31, 1998, which it alleged to have been
erroneously paid based on Section 135(a) and (b) of the Tax Code of 1997. Due to inaction by respondent
Commissioner, petitioner filed a Petition for Review with the Court of Tax Appeals. The CTA denied the petition
and ruled that while petitioners country indeed exempts from excise taxes petroleum products sold to international
carriers, petitioner nevertheless failed to comply with the second requirement under Section 135 (a) of the 1997 Tax
Code as it failed to prove that the jet fuel delivered by Petron came from the latters bonded storage tank. Upon the
denial of the motion of reconsideration, petitioner elevated the case to the CA. The CA affirmed the denial and ruled
that petitioner is not the proper party to seek for the refund of the excise taxes paid.
HELD: The Supreme Court held that excise taxes, which apply to articles manufactured or produced in the
Philippines for domestic sale or consumption or for any other disposition and to things imported into the Philippines,
is basically an indirect tax. While the tax is directly levied upon the manufacturer/importer upon removal of the
taxable goods from its place of production or from the customs custody, the tax, in reality, is actually passed on to
the end consumer as part of the transfer value or selling price of the goods, sold, bartered or exchanged. The proper
party to question, or seek a refund of an indirect tax is the statutory taxpayer, the person on whom the tax is imposed
by law and who paid the same even if he shifts the burden thereof to another. Petitioner, as the purchaser and endconsumer, ultimately bears the tax burden, but this does not transform its status into a statutory taxpayer.
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Q: What are the requirements for a claim for VAT refund/credit?

1. The taxpayer is engaged in sales which are zero-rated or effectively zero-rated
2. The taxpayer is VAT-registered
3. The claim must be filed within two years after the close of the taxable quarter when such sales were made
4. The input taxes are due or paid;
5. The input taxes are not transitional input taxes
6. The input taxes have not been applied against output taxes during and in the succeeding quarters
7. The input taxes claimed are attributable to zero-rated or effectively zero-rated sales
8. In certain types of zero-rated sales, the acceptable foreign currency exchange proceeds thereof had been duly
accounted for in accordance with BSP rules and regulations [Sections 106(A)(2)(a)(1) and (2); Section 106(B);
Sections 108(B)(1) and (2)]
9. Where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes
cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on
the basis of sales volume. (See INTEL TECHNOLOGY PHILIPPINES V. CIR [APRIL 27, 2007])
Note: In JP MORGAN CHASE BANK, N.A. PHILIPPINE CUSTOMER CARE CENTER VS.
COMMISSIONER OF INTERNAL REVENUE [CTA CASE NOS. 7650, 7681 AND 7782, MARCH 13,
2012], the CTA held that Input taxes incurred prior to registration as VAT taxpayer with the
BIR cannot be the subject of a refund.
Philippine Airlines, INC., petitioner, vs. Commissioner Of Internal Revenue G.R. No. 198759. July 1,
2013.
Commissioner Of Internal Revenue, petitioner, vs. AICHI Forging Company of Asia, Inc. G.R. No.
184823. October 6, 2010.
Commissioner Of Internal Revenue, petitioner, vs. San Roque Power Corporation G.R. No. 187485.
October 8, 2013.
Commissioner Of Internal Revenue, petitioner, vs. Mindanao II Geothermal Partnership G.R. No.
191498. January 15, 2014.
Visayas Geothermal Power Company, petitioner, vs. Commissioner Of Internal Revenue G.R. No.
197525. June 4, 2014.
Taganito Mining Corporation, Petitioner, vs. Commissioner Of Internal Revenue G.R. No. 198076.
November 19, 2014.
2. Period to file claim for refund/apply for issuance of TCC
Commissioner Of Internal Revenue, petitioner, vs. Atlas Consolidated Mining and Development
Corporation, G.R. Nos. 141104 & 148763. June 8, 2007
Q: What is the prescriptive period to file the claim for refund or application for issuance of TCC?
The written application for the issuance of a TCC or refund must be filed with the BIR within 2 years after the close
of the taxable quarter when the relevant sales were made.
Q: In claims for VAT refund/credit, what is the reckoning point for the two-year prescriptive period?
The reckoning period is from the close of the taxable when the relevant sales were made.
Note: For this matter, It is important to discuss the leading case of CIR V. MIRANT
PAGBILAO CORP. [SEPTEMBER 12, 2008].
In CIR V. MIRANT PAGBILAO CORP. [SEPTEMBER 12, 2008], Mirant generated power which it sells to
NAPOCOR in which connection it secured the services of Mitsubishi Corporation of Japan. In the belief that its sale
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22
of power generation services to the NPC was VAT zero-rated because of NAPOCORs tax exempt status, Mirant
filed an application for effective zero-rating. The BIR issued a ruling stating that the supply of electricity by Mirant
to NAPOCOR shall be subject to 0% VAT. On April 14, 1998, Mirant paid Mitsubishi the VAT component billed by
the latter for services rendered. Mirant files its quarterly VAT return for the 2nd quarter of 1998, where it reflected
the input VAT paid to Mitsubishi. Subsequently, on December 20, 1999, Mirant filed an administrative claim for
refund of unutilized input VAT arising from purchase of capital goods from Mitsubishi and its domestic purchase of
goods and services attributable to its zero-rated sales of power-generation services to NAPOCOR. The claim was
denied for being filed beyond the prescriptive period of two years.
The Supreme Court held that Mirants claim has prescribed. Unutilized input VAT payments must be claimed within
two years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input
VAT even if the payment for the VAT was made some quarters after that.16 The fact that there was a pending request
for zero-rating cannot be a basis for the late filing of return and payment of taxes. Further, Mirant cannot avail itself
of the provisions of either Section 204(C) or 229 of the NIRC which, for the purpose of refund, prescribes the
payment of the tax as the starting point for the two-year prescriptive limit for the filing of a claim. These provisions
apply only to instances of erroneous payment or illegal collection of internal revenue taxes.
Note: In the case of claims for refund of unutilized VAT on account of cessation of business,
the 2-year period shall commence from the date of cancellation of registration of the
taxpayer and not from the close of the taxable quarter when the sales were made
(Associated Swedish Steels v. CIR [CTA Case No. 7850, August 23, 2012).
The cancellation of VAT registration commences from the first day of the month following
the application, under Section 236 of the Tax Code. (Ibid)
Q: What is the period within which tax refund/credit of input taxes shall be made?
The CIR shall grant a tax credit certificate/refund for creditable input taxes within 120 days from the date of
submission of complete documents in support of the application. (see Section 112(C), Tax Code)
Note: The 120-day period is counted from the submission of the complete documents with
the BIR. (PILIPINAS TOTAL GAS, INC. VS. COMMISSIONER OF INTERNAL REVENUE [CTA,
JANUARY 05, 2012])
Non-submission of complete documents at the administrative level is not fatal to a judicial claim (PHILEX MINING
CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE [CTA CASE NO. 8228, MAY 31, 2012])
What is fatal to the taxpayer's cause is its failure to submit sufficient evidence such as invoices and receipts in
support of its claim before the CTA and not its failure of to submit complete documents before the BIR and not
before the CTA. COMMISSIONER OF INTERNAL REVENUE VS. PHILIPPINE AIRLINES, INC., CTA EB CASE
NO. 775, JULY 24, 2012
Q: What is the remedy in case of denial of the CTA of the claim for refund or if the CIR failed to act on the claim
within the 120-day period?
In case of full or partial denial of the claim for tax credit certificate/refund:
a) The taxpayer may appeal to the CTA within 30 days from the receipt of said denial, otherwise the decision shall
be come final
b) If no action on the claim for tax credit certificate/refund has been taken by the CIR after the 120 day period in
which he must decide, the taxpayer may appeal to the CTA within 30 days from the lapse of the 120 day period.
Note: Judicial claim for refund should be filed within thirty (30) days from the receipt of the
decision of the Commissioner of Internal Revenue (CIR) or upon the expiration of the one
hundred twenty (120) days in case of inaction of the CIR. KEPCO PHILIPPINES CORPORATION
VS. COMMISSIONER OF INTERNAL REVENUE, [CTA EB NO. 736 695, JANUARY 10, 2012];
DIAGEO PHILIPPINES, INC. VS. COMMISSIONER OF INTERNAL REVENUE, [CTA CASE NOS.
7846 AND 7865, JANUARY 16, 2012]; PHILEX MINING CORPORATION VS. COMMISSIONER OF
INTERNAL REVENUE, C.T.A. EB NO. 728, AUGUST 31, 2012; PILIPINAS TOTAL GAS, INC. VS.
CIR, C.T.A. EB NO. 776, OCTOBER 11, 2012; NORTHWIND DEVELOPMENT CORPORATION VS.
CIR, CTA CASE NO. 7918, OCTOBER 03, 2012
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In case of inaction by the BIR, judicial claim for refund filed beyond thirty (30) days from the
expiration of the one hundred twenty (120) days is filed out of time and deprives the Court
the authority to entertain the same. COMMISSIONER OF INTERNAL REVENUE, VS. TEAM SUAL
CORPORATION [C.T.A. EB NO. 686, MAY 22, 2012]; CE CASECNAN WATER AND ENERGY
COMPANY, INC. VS. CIR, CTA EB NO. 726 [CTA CASE NO. 7739, June 26, 2012]; PHILEX
MINING CORPORATION VS. CIR [CTA EB NO. 778 CTA CASE NO. 7720, JUNE 26, 2012]
As the provision is phrased, the word "may" relates to the taxpayer's option to appeal or not
to appeal, upon the denial of its claim for refund or after the expiration of the 120-day
period. However, if the tax payer opts to appeal, such claim must be filed within the 30-day
period given from receipt of the denial or the expiration of the 120-day period. Thus, it is the
option to appeal which is permissive, however, the period to appeal must be mandatorily
complied with. (MINDANAO II GEOTHERMAL PARTNERSHIP VS. COMMISSIONER OF INTERNAL
REVENUE, CTA EB CASE NO. 750, JULY 5, 2012)
Q: Can the taxpayer appeal to the CTA without waiting for the lapse of the 120 day period?
No. Where the taxpayer did not wait for the decision of the CIR or the lapse of the 120-day period, the filing of the
said judicial claim with the CTA is premature. The non-observance of the 120-day period is fatal to the filing of a
judicial claim.
Note: In this regard, let us discuss the leading case of CIR V. AICHI FORGING COMPANY OF
ASIA [ OCTOBER 6, 2010].
In CIR V. AICHI FORGING COMPANY OF ASIA [OCTOBER 6, 2010], Aichi Forging is a VAT-registered
corporation engaged in manufacturing and processing of steel. Aichi filed a tax credit/refund for its unutilized input
tax from purchases and importation attributed to its zero-rated sales. The CIR and CTA ruled that the administrative
and judicial claims were filed beyond the period allowed by law. Moreover, the CIR puts in issue the fact that the
administrative claim and the judicial claim were filed on the same day. The CIR opines that simultaneous filing of
the claims contravenes the NIRC which requires the prior filing of an administrative claim.
The Supreme Court first reiterated that the unutilized input VAT must be claimed within two years after the close of
the taxable quarter when the sales were made as laid down in CIR V. MIRANT PAGBILAO CORP. [SEPTEMBER
12, 2008]. Going to the administrative and judicial claims, the Court ruled that the administrative claim was timely
filed while the judicial claim was premature. In this case, applying the Administrative Code which states that a year
is composed of 12 calendar months instead of the Civil Code (a year is equivalent to 365 days), it is clear that Aichi
timely filed its administrative claim within the two-year prescriptive period. On the other hand, the claim of Aichi
must be denied for non-observance of the 120-day period Where the taxpayer did not wait for the decision of the
CIR or the lapse of the 120-day period, it having simultaneously filed the administrative and the judicial claims, the
filing of the said judicial claim with the CTA is premature. The non-observance of the 120-day period is fatal to the
filing of a judicial claim. The claim of Aichi that such non-observance is not fatal as long as both the administrative
and judicial claim is filed within the 2-year prescriptive period is without legal basis. The 2 year prescriptive period
refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA. Applying the twoyear period to judicial claims would render nugatory Section 112(D) of the NIRC, which already provides for a
specific period within which a taxpayer should appeal the decision or inaction of the CIR. The 120-day period is
crucial in filing an appeal with the CTA.
Note: In other words, the 2-year prescriptive period applies only to the filing of the
administrative claim meaning the filing of the claim for refund or application for TCC with
the CIR. If you want to file a suit with the CTA, you wait for the 120-day period to lapse.
Dahil dun, you cannot simultaneously file a claim with the CIR and file a suit with the CTA.
This early on I will tell you that the rule is different pagdating sa refund or credit of an
erroneously or illegally collected tax under Section 229. Doon, both the administrative and
judicial claim must be filed within the 2 year prescriptive period. Further, you need not wait
for the BIR to act. You can simultaneously file your claim for refund or credit and the suit
with the CTA. We will discuss that later in Tax Remedies
Q: Outline the process for the refund or credit of excess or unutilized input taxes under Section 112(c).
1. Filing and Payment
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2. Administrative
claim within 2 years counted from the close of the taxable quarter when the relevant sales were made
3. Submission of additional and relevant support documents within 60 days from filing of claim
4. Appeal to CTA Division within 30 days from receipt of notice of denial or from lapse of 120 days of inaction
counted from submission of documents. The appeal should not be made within the 2-year prescriptive period.
Otherwise, the judicial claim is premature. The Motion for Reconsideration or New Trial to CTA Division within 15
days from receipt of decision.
5. Appeal to CTA En Banc within 15 days from receipt of resolution. Motion for Reconsideration to the CTA En
Banc within 15 days from receipt of decision
6. Appeal to the SC within 15 days from receipt of resolution under Rule 45
Manner of giving refund
Q: What is the manner of giving refund?
Refunds shall be made upon warrants drawn by the Commissioner or by his duly authorized representative without
the necessity of being countersigned by the Chairman, Commission on Audit, the provisions of the Administrative
Code of 1987 notwithstanding: That refunds shall be subject to post audit by the Commission on Audit. (See Section
112(D), Tax Code)
Note: If you ask for a tax credit, you get what you call a Tax Credit Certificate (TCC).
However, note Executive Order 68 [March 27, 2012]. No more issuance of VAT TCCs and the
EO provides for the monetization of outstanding VAT TCCs. EO 68 allows qualified VATregistered taxpayers to receive the cash equivalent of their outstanding TCCs either: (1)
Collecting in advance from a trustee bank a discounted cash value of their TCCs or (2)
Collect full cash value of their TCC upon a certain maturity date to be determined by the BIR
and BOC. DOF Joint Circular 2-2012 provides that the monetization will start in 2012 for
TCCs issued prior to 2004 while those issued in 2011 and 2012 will be monetized in 2016.
Intel Technology Phil., Inc. vs. Commissioner Of Internal Revenue (522 SCRA 657).
J.R.A. Philippines, Inc. vs. Commissioner Of Internal Revenue. C.T.A. Case No. 128. January 15,
2007
VIII. Transactions subject to Special Rules
A. Transactions of Foreign Governments
B. Transactions with PEZA/SBMA/CEZA-registered entities
Q: Summarize the current tax treatment of PEZA-registered enterprises as provided in RMC 74-99 and as further
clarified in RMC 50-2007.
1. Any sale of goods, property or services by a VAT-registered supplier from the customs-territory to any Ecozoneregistered enterprise regardless of incentive availed is zero-rated on the part of the VAT-registered seller because
ecozones are foreign soil by fiction and thus the sale is considered an export sale.
2. Sales to an ecozone enterprise made by a non-VAT or unregistered supplier would only be exempt from VAT and
the supplier shall not be able to claim credit/refund for its input VAT because, under Section 109(O) of the Tax Code,
export sales by persons who are not VAT-registered are exempt transactions.
3. If the ecozone-enteprise is an exporter, its input VAT are subject to refund not because of the incentives it availed
but because of the nature of its transactions (export sales).
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4. Any sale of goods or property by an ecozone-registered enterprise to a buyer in the customs territory shall be
subject to 12% VAT because it shall be considered an importation. The tax is imposed on the buyer/importer.
5. The sale of service or lease of properties by PEZA-registered enterprises to a customer or lessee from the customs
territory shall be exempt from VAT if the service is performed within the ecozone. The lease of properties will be
exempt if the property is located within the ecozone. However, if the properties are located outside of the ecozone,
payments to such enterprise shall be considered as royalties and subject to final withholding VAT of 12%
IX. Compliance Requirements
A. Registration (Sec. 236 (G) (H), NIRC; Sec. 9.236-1 9.236-6, RR 16-05, as amended)
(G) Persons Commencing Business. - Any person, who expects to realize gross sales or receipts subject
to value-added tax in excess of the amount prescribed under Section 109(z) of this Code for the next 12month period from the commencement of the business, shall register with the Revenue District Office
which has jurisdiction over the head office or branch and shall pay the annual registration fee prescribed
in Subsection (B) hereof.
(H) Persons Becoming Liable to the Value-added Tax. - Any person, whose gross sales or receipts in any
12-month period exceeds the amount prescribed under Subsection 109(z) of this Code for exemption
from the value-added tax shall register in accordance with Subsection (A) hereof, and shall pay the
annual registration fee prescribed within ten (10) days after the end of the last month of that period, and
shall be liable to the value-added tax commencing from the first day of the month following his
registration.
1. Mandatory (Sec. 236 (G), NIRC)
2. Optional (Sec. 236 (H), NIRC)
B. Invoicing and Accounting Requirements (Sec. 113, NIRC; Sec. 4.113-1
SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. (A) Invoicing Requirements. - A VAT-registered person shall, for every sale, issue an invoice or receipt. In
addition to the information required under Section 237, the following information shall be indicated in the
invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification
number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication
that such amount includes the value-added tax.
(B) Accounting Requirements. - Notwithstanding the provisions of Section 233, all persons subject to the
value-added tax under Sections 106 and 108 shall, in addition to the regular accounting records required,
maintain a subsidiary sales journal and subsidiary purchase journal on which the daily sales and
purchases are recorded. The subsidiary journals shall contain such information as may be required by the
Secretary of Finance.
1. Invoicing Requirements, In General (Sec. 4.113-1, RR 16-05, as amended)
Q: What are required to be issued by a VAT-registered person?
1. VAT invoice for every sale, barter or exchange of goods or properties
2. VAT official receipt for every lease of goods or properties and for every sale, barter or exchange of services.
Note: Only VAT-registered persons are required to print their Tax Identification Number (TIN)
followed by the word VAT in their invoice or official receipt, which shall be considered the
VAT invoice or VAT official receipt. All purchases not covered by invoices/receipts other than
the VAT invoice or VAT official receipt shall not give rise to any input tax (see Section 4.1131(A), RR 16-2005]
Q: Is there a difference between an invoice and official receipt for purposes of substantiation?
In KEPCO PHILIPPINES V. CIR [NOVEMBER 24, 2010], in ruling on Kepcos contention that an invoice and an
official receipt are interchangeable, the Supreme Court stated that only a VAT invoice might be presented to
substantiate a sale of goods or properties, while only a VAT receipt could substantiate a sale of services. The VAT
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invoice is the sellers best proof of the sale of the goods or services to the buyer while the VAT receipt is the buyers
best evidence of the payment of goods or services received from the seller. Even though VAT invoices and receipts
are normally issued by the supplier/seller alone, the said invoices and receipts, taken collectively, are necessary to
substantiate the actual amount or quantity of goods sold and their selling price (proof of transaction), and the best
means to prove the input VAT payments (proof of payment). Hence, VAT invoice and VAT receipt should not be
confused as referring to one and the same thing. Certainly, neither does the law intend the two to be used
alternatively
Note: The unamended Section 113 did not distinguish between an invoice and a receipt when used as evidence of a
zero-rated transaction. Thus, in the case of transactions which took place during the period of the unamended law,
the Court could accept either or both of the documents as evidence of zero-rated transactions (SOUTHERN
PHILIPPINES V. CIR [OCTOBER 19, 2011]; AT&T COMMUNICATIONS SERVICES PHILIPPINES V. CIR
[AUGUST 3, 2010]
Q: What information should be contained in the VAT invoice or VAT official receipt?
1. A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN);
2. The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount
includes the value-added tax provided, that:
a) The amount of the tax shall be shown as a separate item in the invoice or receipt;
b) If the sale is exempt from value-added tax, the term "VAT-exempt sale" shall be written or printed prominently on
the invoice or receipt;
c) If the sale is subject to zero percent (0%) value-added tax, the term "zero-rated sale" shall be written or printed
prominently on the invoice or receipt;
d) If the sale involves goods, properties or services some of which are subject to and some of which are VAT zerorated or VAT-exempt, the invoice or receipt shall clearly indicate the breakdown of the sale price between its taxable,
exempt and zero-rated components, and the calculation of the value-added tax on each portion of the sale shall be
shown on the invoice or receipt: Provided, That the seller may issue separate invoices or receipts for the taxable,
exempt, and zero-rated components of the sale.
3. The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and
4. In the case of sales in the amount of one thousand pesos (P1,000) or more where the sale or transfer is made to a
VAT-registered person, the name, business style, if any, address and taxpayer identification number (TIN) of the
purchaser, customer or client.
2. Invoicing and Recording Deemed Sale Transactions (Sec. 4.113-2, RR 16-05, as amended)
Q: What are the invoicing and recording
requirements for deemed sale transactions?
Deemed sale transaction

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Invoicing and recording requirements
27
1. Transfer, use or consumption not in the course of

business of goods or properties originally intended
for sale or use in the course of business
A memorandum entry in the subsidiary sales

journal to record withdrawal of goods for personal
use
2. Distribution or transfer to shareholders/investors

or creditors
Invoice, at the time of the transaction, which should

include all the info prescribed in Sec. 113(B)
3. Consignment of goods if actual sale is not made

within 60 days
Invoice, at the time of the transaction, which should

include all the info prescribed in Sec. 113(B)
4. Retirement from or cessation of business with

respect to all goods on hand
An inventory shall be prepared and submitted to the

RDO who has jurisdiction over the taxpayers
principal place of business not later than 30 days
after retirement or cessation from the business. An
invoice shall be prepared for the entire inventory,
which shall be the basis of the entry into the
subsidiary sales journal. The invoice need not
enumerate the specific items appearing in the
inventory regarding the description of the goods.
However, the sales invoice number should be
indicated in the inventory filed and a copy thereof
shall form part of this invoice.
i. If the business is to be continued by the new
owners or successors, the entire amount of output
tax on the amount deemed sold shall be allowed as
input taxes.
ii. If the business is to be liquidated and the goods
in the inventory are sold or disposed of it VATregistered buyers, an invoice or instrument of sale
or transfer shall be prepared, citing the invoice
number wherein the tax was imposed on the
deemed sale. At the same time, the tax paid
corresponding to the goods sold should be
separately indicated in the instrument of sale
3. Consequences of Issuing Erroneous VAT Invoice or VAT Official Receipt (Sec. 4.113-4, RR 16-05,
as amended)
Q: What are the consequences of issuing erroneous VAT invoices or VAT official receipts?
1. If a person who is not VAT-registered issues an invoice or receipt showing his TIN, followed by the word VAT,
the erroneous issuance shall result to the following:
a) The Non-VAT person shall be liable to the:
i. percentage taxes applicable
ii. VAT due on the transactions without the benefit of any input tax credit
iii. 50% surcharge as penalty
b) The VAT shall, if the other requisite information required is shown on the invoice or receipt, be recognized as an
input tax credit to the purchaser.
2. If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt transaction, but fails to
display prominently on the invoice or receipt the term VAT-exempt Sale, the issuer shall be liable to account for
the VAT imposed. The purchaser shall be entitled to claim an input tax credit on said purchase. (see Section 4.113-4,
RR 16-2005)
Note: Failure or refusal to comply with the requirement that the amount of tax shall be
shown as a separate item in the invoice or receipt shall, upon conviction, for each act or
omission, be punished by a fine of not less than P1,000 but not more than P50,000 and
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suffer imprisonment of not less than 2 years but not more than 4 years (RR 18-2011
[November 21, 2011])
Q: What is the effect of the failure to comply with the invoicing requirements on the claim for refund or credit of
input VAT on zero-rated sales?
The claim for refund of unutilized or excess input taxes on the alleged zero-rated sales will be denied. The invoicing
requirements are mandatory and the failure to comply is fatal in claims for a refund or credit of input VAT on zerorated sales. (SILICON PHILIPPINES V. CIR [JANUARY 21, 2011].
Q: Kepco filed a claim for refund of unutilized input VAT based on its zero-rated sale of power to NAPOCOR. A
substantial portion of the claim was denied for having been supported by VAT invoices which only had the TIN-VAT
stamped and not printed. Is Kepco entitled to the claim for refund?
No. In KEPCO PHILIPPINES V. CIR [NOVEMBER 24, 2010], the Supreme Court ruled that the requirement that
the TIN be imprinted and not merely stamped is a reasonable requirement imposed by the BIR.. The failure to
adhere to this rule will not only expose the taxpayer to penalties but should also serve to disallow the claim.
Q: Is the printing of the Authority to Print (ATP) required in the invoices or receipts?
No. The ATP need not be reflected in the invoices or receipts because there is no law or regulation requiring it.
Failure to print the ATP on the invoices or receipts should not result in the outright denial of a claim or the
invalidation of the invoices or receipts for purposes of claiming a refund.
But, while there is no such law, the Tax Code requires persons engaged in business to secure ATP from the BIR prior
to printing invoices or receipts. Since the ATP is not indicated in the receipts or invoices, the only way to verify
whether the invoices or receipts are duly registered is by requiring the claimant to present its ATP from the BIR.
Without which, the invoices or receipts would not have probative value for the purpose of refund. (SILICON
PHILIPPINES V. CIR [JANUARY 21, 2011]).
Note: A taxpayer exempt from VAT but opting to be registered as VAT taxpayer may be held
liable for VAT deficiency for failure to print the words VAT-exempt sale on the official
receipts issued to its PEZA-registered lessee First Sumiden Realty, Inc. vs. CIR, CTA Case No.
8151, September 27, 2012
Refund claim under Section 229 of the Tax Code does not require proof of compliance with
the invoicing requirements. ERICSSON TELECOMMUNICATIONS, INC. VS. COMMISSIONER OF
INTERNAL REVENUE, CTA CASE NO. 8027, AUGUST 2, 2012
C. Filing of Return and Payment of VAT (Sec. 114(A) (B) , RR 16-05, as amended)
Q: Who are required to file a VAT return?
1. Every person or entity who in the course of his trade or business, sells or leases goods, properties and services
subject to VAT if the aggregate amount of actual gross sales or receipts exceed P1,919,500 for any 12-month period
2. A person required to register as a VAT taxpayer but failed to register
3. Any person who imports goods
4. Professional practitioners whose gross professional fees exceed P1,919,500 for any 12-month period.
Q: What are the rules regarding the time for filing the return and payment of the tax?
Every person liable to pay VAT shall file a:
a. The monthly VAT Declarations of taxpayers whether large or not shall be filed and the taxes paid not later than the
20th day following the end of each month
b. A quarterly VAT return of the amount of his gross sales or receipts within 25 days after the close of each taxable
quarter prescribed for each taxpayer.
Note: (1) A VAT-registered person shall pay VAT on a monthly basis. Amounts reflected in the
monthly VAT return for the first 2 months of the quarter shall be included in the quarterly
VAT return which reflects the cumulative figures for the taxable quarter. Payments in the
monthly returns shall be credited in the quarterly return to arrive at the net VAT payable or
excess input tax as of the end of the quarter
(2) Taxable quarter shall mean the quarter that is synchronized to the income tax quarter of
the taxpayer.
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D. Withholding of Creditable VAT (Sec. 114(C), NIRC; Sec. 4.114-2, RR 16-05, as amended)
Q: What is the rule on withholding of VAT by government agencies?
The government or any of its political subdivisions, instrumentalities or agencies, including GOCCs, shall, before
making payment on account of each purchase of goods or services subject to VAT, deduct and withhold a final VAT
equivalent to 5% of the gross payment thereof provided that the payment for lease or use of properties or property
rights to non-resident owners shall be subject to 10% withholding tax at the time of payment. (Section 4.114-2, RR
16-2005)
Note: The 5% final VAT shall represent the net VAT payable of the seller or, otherwise stated,
the presumed input VAT cost of the entity dealing with the government agency. The
remaining 7% effectively accounts for the standard input VAT, in lieu of the actual input VAT
directly attributable or ratably apportioned to such sales. (Ibid) Okay, I sense confusion.
Let me explain. Remember na in order for the taxpayer to determine yung tax liability niya,
yan ang formula! Remember also na if input tax > output tax, pwde mo i-carry over ito to
the succeeding quarters or kapag yung input vat results from a zero-rated or effectively
zero-rated transaction, puwede humingi ng refund or credit. Ang implication in case of 5%
final VAT ay hindi magaaply yang formula na output tax minus input tax. So automatic
kapag withholding by the government, do not use that formula!
Tanong: Is the taxpayer still entitled to the excess input VAT if meron? It depends. Ito ang
rules. If the actual input VAT is above 7% of gross payments, then the difference between
the actual input VAT and the 7% or the excess may form part of sellers expense or cost. On
the other hand, if the actual input VAT is below 7% of gross payments, the different must be
closed or deducted to expense or cost. Hence, the taxpayer will realize additional income.
Q: In what instances shall the 12% final VAT be withheld?
1. Lease or use of properties or property rights owned by non-residents;
2. Services rendered to local insurance companies, with respect to reinsurance premiums payable to non-residents;
and;
3. Other services rendered in the Philippines by non-residents
Q: LVM Construction Corp. was engaged by the DPWH for the construction of roads and bridges. LVM
subcontracted one of the projects to a Joint Venture. After completion, the JV demanded full payment to which LVM
responded that they discovered that no deductions for VAT were made on previous payments and as such they were
going to deduct 8.5% (now 5%) from the payments still due. The JV disputed this and argued that all the receipts
issued to LVM would have made JV subject to VAT and, hence, LVM could claim such as input tax. Can LVM
rightfully deduct the amount representing the withholding VAT due on its transaction with DPWH?
No. In LVM CONSTRUCTION CORPORATION V. SANCHEZ [DECEMBER 5, 2011], the Supreme Court held
that as an entity which dealt directly with the government insofar as the main contract was concerned, LVM was
itself required by law to pay the 8.5% (now 5%) VAT which was withheld by DPWH. Given that the JV complied
with their own obligation when they paid their VAT from their gross receipts and the fact that the contract between
LVM and the JV did not stipulate any obligation on LVM assuming the VAT, LVM has no basis to withhold
payments. Although the burden to pay an indirect tax like the VAT can be passed on, the liability to pay the same
remains with the seller. IN this case, both LVM and the JV are liable for their respective VAT obligations as
respective sellers.
E. Administrative and Penal Sanctions (Sec. 115, NIRC; Sec. 4.115-1, RR 16-05, as amended)
SEC. 115. Power of the Commissioner to Suspend the Business Operations of a Taxpayer. - The Commissioner or
his authorized representative is hereby empowered to suspend the business operations and temporarily close the
business establishment of any person for any of the following violations:
(a) In the case of a VAT-registered Person. (1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as required under Section 114; or
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(3) Understatement of taxable sales or receipts by thirty percent (30%) or more of his correct taxable
sales or receipts for the taxable quarter.
(b) Failure of any Person to Register as Required under Section 236. -The temporary closure of the
establishment shall be for the duration of not less than five (5) days and shall be lifted only upon compliance
with whatever requirements prescribed by the Commissioner in the closure order.

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Part 3: TAX REMEDIES UNDER THE NIRC

References:
1. National Internal Revenue Code of 1997. Mandaluyong City: National Book Store, July 2009
Edition.
2. Mamalateo, Victorino, C., Tax Rights and Remedies. Quezon City: Kalayaan Press, 2005.
I. TAXPAYERS REMEDIES
A. ADMINISTRATIVE PROTEST TAXPAYERS REMEDY BEFORE PAYMENT
1. ASSESSMENT OF INTERNAL REVENUE TAXES
Sec. 228, NIRC
Revenue Regulations No. 12-99 (RR 12-99)
(a) Assessment Process (RR 12-99), General (Amended by RR 18-2013)
i. Tax Audit: examination of books of accounts and other accounting records
- Issuance of Letter of Authority/Letter Notice/Tax Verification Notice (TVN)
ii. Notice for Informal Conference
iii. Issuance of Preliminary Assessment Notice (PAN)
iv. Exceptions to Issuance of PAN
v. Reply to PAN 15 days from receipt. In meritorious cases and upon written request, extension
not exceeding 10 days may be given the TP to respond. (Sec. 3 (a), RR No. 12-85)
vi. Issuance of Formal Letter of Demand and Assessment Notice/Final Assessment Notice
vii. Disputed Assessment reply of Taxpayer
viii. Administrative Decision on a Disputed Assessment
(b) Requisites of a Valid Assessment
Case(s): Commissioner of Internal Revenue vs. Pascor Realty & Devt. Corp., et al. (309 SCRA 402)
Commissioner Of Internal Revenue vs. Hantex Trading Co., Inc. (454 SCRA 301)
CIR vs. BPI (521 SCRA 373)
- TP informed in writing of the law and facts on which assessment is made.
Commissioner of Internal Revenue vs. BPI, as liquidator of Paramount Acceptance Corp. (411
SCRA 456)
- Notice of assessment sent to taxpayers old office is not a valid assessment
Republic of the Phils. vs. Leonor de la Rama, et al. (18 SCRA 290)
Commissioner of Internal Revenue, petitioner, vs. Metro Star Superama, Inc., respondent G.R. No.
185371. December 8, 2010.
- When tax assessment is deemed made.
Commissioner of Internal Revenue vs. Court of Appeals, et al. (242 SCRA 289)
- All presumptions are in favor of tax assessments
(c) Jeopardy Assessment (Best Evidence Obtainable Rule)
Sec. 6(B), NIRC
(d) Tax Delinquency and Tax Deficiency
(e) Period of Assessment
i. Prescription
(1) General rule 3 years
(Sec. 203, NIRC)
Revenue Memorandum Circular (RMC) No. 48-90 (Re: Counting of the Three-year Prescriptive
Period)
(2) Exceptions
a. 10 years in case of false or fraudulent return (Sec. 222(a))
Case(s): Commissioner of Internal Revenue vs. The Estate of Benigno P. Toda, Jr., et al. (438
SCRA 290)
b. Waiver agreed upon by BIR and TP (Sec. 222(b), NIRC)
32
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(i) Revenue Memorandum Order No. 20-90 (Re: Proper Execution of the Waiver of the Statute of
Limitations under the National Internal Revenue Code)
(ii) Revenue Memorandum Circular No. 06-05 (Re: Salient Features of Supreme Court Decision on
Waiver of the Statute of Limitations under the Tax Code)
(iii) Revenue Delegation Authority Order No. 05-01 (Re: Delegation of Authority to Sign and Accept
the Waiver of the Defense of Prescription Under the Statute of Limitations)
Case(s): Philippine Journalists, Inc. vs. Commissioner of Internal Revenue (447 SCRA 214)
- Waiver of statute of limitations does not mean that taxpayer relinquishes his/its right to invoke
prescription.
- Waiver of statute of limitations is a bilateral agreement between taxpayer and BIR.
- Requirement to furnish taxpayer with copy of the waiver is to give notice of acceptance by the
BIR and perfection of the agreement.
Commissioner of Internal Revenue vs. Court of Appeals, et al. (303 SCRA 614)
- To be binding, waivers require the concurrence of the Commissioner of Internal Revenue
ii. Suspension of Running of the Statue of Limitations (Sec. 223, NIRC)
Case(s): Republic of the Phil. vs. Luis G. Ablaza (108 Phil 1105)
- Rationale for prescribing a limitation of actions for income tax collection
(f) Period of Collection
i. General Rule: BIR must collect the tax judicially or administratively within five (5) years from
assessment
Case(s): Philippine National Bank vs. The Hon. Court of appeals, Court Of Tax Appeals, Tirso B.
Savellano and Commissioner Of Internal Revenue (457 SCRA 32)
ii. Exception:
In case of false or fraudulent return without prior assessment, BIR must collect tax judicially
within 10 years from discovery of the falsity, fraud or omission (Sec. 222(c), NIRC)
2. PROTESTING AN ASSESSMENT
(a) Protest of Assessment by Taxpayer (Sec. 228, NIRC; RR 12-85; RR 12-99)
i. Protested assessment refers to the FAN and FLD not the PAN
ii. When to file a protest within 30 days from receipt of the Final Assessment Notice (FAN) or
Formal Letter of Demand (FLD)
iii. Forms of Protest
(1) Request for reconsideration
(2) Request for reinvestigation
Case(s): Commissioner of Internal Revenue vs. Phil. Global Communication, Inc. (506 SCRA 427)
- Distinction between a Request for Reconsideration and a Request for Reinvestigation.
(b) Submission of Documents within 60 days from filing of Protest
Case(s): Commissioner of Internal Revenue vs. First Express Pawnshop Company, Inc. (589 SCRA
253)
- Determination of relevant supporting documents rests on the taxpayer.
(c) Effect of Failure to Protest render the assessment final, executory and demandable
3. Rendition of Decision by Commissioner
(a) Denial of protest
i. CIRs actions equivalent to denial of protest
(1) Filing of criminal action against taxpayer
(2) Issuing a warrant of distraint and levy
Case(s): Commissioner of Internal Revenue vs. Isabela Cultural Corp. (361 SCRA 71)

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- Final Notice Before Seizure is deemed as commissioner's final decision.

(b) Inaction by Commissioner - No decision from the CIR within 180 days following the
submission by TP of the documents in support of his/its protest.
4. Remedies of Taxpayer to Action by Commissioner
(a) In case of denial of protest within 30 days from receipt of decision, taxpayer may appeal
before the Court of Tax Appeals
i. What constitutes a decision appealable to CTA?
Case(s): Allied Banking Corp. vs. Commissioner Of Internal Revenue. C.T.A. EB Case No. 157.
January 2, 2007.
Commissioner of Internal Revenue vs. Ayala Securities Corp., et al. (70 SCRA 204)
- A final demand letter for payment of delinquent taxes may be considered a decision on a
disputed or protested assessment.
CIR vs. Union Shipping (185 SCRA 547)
Oceanic Wireless Network v. CIR (477 SCRA 205)
ii. Effect of Failure to Appeal assessment becomes final, demandable and executory
Republic of the Philippines vs. The Court of Appeals, and Nielson & Company, Inc. (149 SCRA 351)
(b) In case of inaction by Commissioner within 180 days from submission of documents
i. within 30 days after the end of the 180-day period, taxpayer may appeal case to the CTA; OR
ii. taxpayer may await decision of the CIR, thereafter appeal within 30 days from receipt of denial.
Case(s):
Rizal Commercial Banking Corporation vs. Commissioner of Internal Revenue (522 SCRA 144)
Lascona Land Co., Inc. vs. Commissioner Of Internal Revenue, et. al. C.T.A. Case No. 5777.
January 4, 2000. (REVERSED BY CA - Commissioner Of Internal Revenue vs. Lascona Land Co.,
Inc. CA-G.R. SP No. 58061. October 25, 2005.)
Lascona Land Co., Inc., petitioner, vs. Commissioner of Internal Revenue, respondent. G.R. No.
171251. March 5, 2012.
(c) Effect of Failure to Appeal assessment becomes final, demandable and executory
Oceanic Wireless Network, Inc., petitioner, vs. Commissioner of Internal Revenue, The Court of
Tax Appeals, and The Court of Appeals, respondents. G.R. No. 148380. December 9, 2005.
B. ADMINISTRATIVE CLAIM FOR REFUND OR RECOVERY OF ERRONEOUSLY OR ILLEGALLY
COLLECTED TAXES REMEDY AFTER PAYMENT
1. Legal Basis of Tax Refunds (Art. 2142 and 2154, Civil Code)
2. Statutory basis for Tax Refund under the Tax Code (Secs. 204(C) and 229, NIRC)
(a) Scope of Claims for Refund
(b) Necessity of Proof for Claim of Refund
(c) Burden of proof on the taxpayer/claimant.
(d) Nature of Erroneously paid tax/illegally assessed collected tax
(e) Tax Refund vs. Tax Credit
(f) Essential Requisites for Claim of Refund
i. Actual collection and receipt by government of tax sought to be recovered (requiring factual
proof)
ii. Legal basis for grant of refund
3. Who may Claim/Apply for Tax Refund/Tax Credit
(a) Taxpayer/Withholding Agents of non-resident foreign corporations
4. Requirements for Refund as laid down by cases
(a) Necessity of written claim for refund
Case(s): Commissioner of Internal Revenue vs. Rosemarie Acosta (529 SCRA 177)
- Rationale for requiring a written claim for refund
(b) Claim containing a categorical demand for reimbursement
(c) Filing of administrative claim for refund and the suit/proceeding before the CTA within 2 years
from date of payment regardless of any supervening cause
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Case(s): CIR vs. Primetown Property Group, Inc. (531 SCRA 436)
- The two-year prescriptive period is computed based on Sec. 31 of the Administrative Code of
1987, not Art.13 of the Civil Code.
Commissioner of Internal Revenue vs. Philippine American Life Insurance Co., et al. (244 SCRA
446)
- Requirements for the recovery of any national internal revenue tax assessed or collected.
ACCRA Investments Corp. vs. Court of Appeals (204 SCRA 957)
- When two-year prescriptive period commences to run.
- Rationale in computing the two-year prescriptive period.
Commissioner of Internal Revenue vs. Victorias Milling Co., Inc., et al., G.R. No. L-24108, January
3, 1968
- When period of prescription starts.
College of Oral & Dental Surgery vs. Court of Tax Appeals, et al. (102 Phil 912)
- Failure to institute action within 2 years after payment of tax bars taxpayer from recovery of the
same.
BPI Leasing Corp. vs. Court of Appeals, et al. (416 SCRA 4)
- Tax refunds are strictly construed against the person claiming the exemption.
i. Meaning of supervening causes
5. Other considerations affecting tax refunds
(a) VAT refund/application for tax credit for excess input taxes 2 year period reckoned from the
close of taxable quarter when sales transactions made, not 2 years from date of payment. (Sec.
112(A), NIRC)
(b) No requirement to pay under protest prior to claim for refund/application for tax credit.
(c) Commissioner may grant tax refund even without written claim where on the face of the return
filed upon which payment was made, it is clear that there was erroneous payment.
(d) Partial payment of tax cannot be made the basis of claim for tax refund
Collector of Internal Revenue v. Prieto (2 SCRA 1007)
(e) In case refund of taxes paid in installment, 2 year period counted from payment of last
installment.
Case(s):
CIR vs. TMX Sales & CTA (205 SCRA 184)
CIR v. CA, et. al. (301 SCRA 435)
C. JUDICIAL REMEDIES
1. Appeal to the Court of Tax Appeals (CTA)
(a) In protest cases (Sec. 228, NIRC)
i. 30 days from receipt of denial of protest
ii. In case of inaction by CIR, within 30 days following the lapse of the 180-day period for
submission of documents
(b) In claim for tax refund (Sec. 229, NIRC)
i. If no decision from the CIR is forthcoming, before the lapse of the 2 year period from the date of
payment of the tax
2. Mode of Appeal (Sec. 11, Republic Act (R.A.) No. 1125, as amended by R.A. No. 9282 (R.A. No.
1125, as amended)
3. Who may Appeal (Sec. 11, R.A. No. 1125, as amended)
4. Jurisdiction of the CTA (Sec. 7, R.A. No. 1125, as amended)
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5. Procedure in CTA (Rules 7 9; 11 16, A.M. No. 05-11-07-CTA Revised Rules Of The Court Of
Tax Appeals)
6. Appeal from the CTA (division) to CTA en banc and from CTA en banc to SC
(Secs. 18 and 19 of R.A. No. 1125, as amended)
I. GOVERNMENTS REMEDIES
A. ADMINISTRATIVE REMEDIES (Sec. 205, NIRC)
1. Tax Lien (Sec. 219, NIRC) (RMC 2-94)
Case(s):
Hongkong & Shanghai Banking Corporation vs. Commissioner (93 Phil 145)
Republic of the Phil. vs. Ramon G. Enriquez (166 SCRA 608)
- Tax lien is more superior than a private litigants claim predicated on a judgment.
(a) Actual Distraint (Sec. 207(A), NIRC)
(b) Constructive Distraint (Sec. 206, NIRC)
(c) Procedure for Distraint and Garnishment (Sec. 208 - 212, NIRC)
(d) Sale of Forfeited/Seized chattels and removable fixtures (Sec. 227 - 228, NIRC)
2. Levy and Sale of Real Property (Sec. 207(B), 213, 214 NIRC)
3. Forfeiture of real property to the Government for want of bidder(Sec. 215, NIRC)
(a) Resale of forfeited property transferred in name of government. (RR 22-02)
4. Further Distraint and Levy (Sec. 217, NIRC)
5. Suspension of Business Operations
6. Non-availability of Injunction to Restrain Collection of Tax (Sec. 218, NIRC)
Case(s):
Southern Cross Cement Corp. vs. Phil. Cement Manufacturers Corp., et al. (434 SCRA 65)
- Imposition of safeguard measures should not be enjoined despite availability of judicial review.
Commissioner of Internal Revenue vs. Cebu Portland Cement Co., et al. (156 SCRA 535)
- Rationale for prohibiting injunctions from restraining tax collection
Francis A. Churchill, et al. vs. James J. Rafferty (032 Phil 580)
- By taking away injunction, the State leaves the taxpayer to the same ordinary remedial actions
prevailing between citizen and citizen.
- Illegality or unconstitutionality of a tax does not authorize courts to restrain its collection by
injunction.
- Tax collectors are authorized to seize and sell property of delinquent taxpayers without court
assistance.
- No government could exist if every litigious man were permitted to delay the collection of its
taxes.
B. JUDICIAL REMEDIES
Sec. 220 221, NIRC
Sec. 281, NIRC
Quirico P. Ungab vs. Vicente N. Cusi, Jr. (97 SCRA 877)
Commissioner of Internal Revenue, petitioner, vs. Pascor Realty and Development Corporation,
Rogelio A. Dio and Virginia S. Dio, respondents. G.R. No. 128315. June 29, 1999.
- Assessment of a deficiency is not necessary to a criminal prosecution for tax evasion.
I. STATUTORY OFFENSES AND PENALTIES
A. Civil Penalties
1. Surcharge
(a) General - 25% (Sec. 248 (A), NIRC)
(b) In case of willfull neglect to file return, filing of false/fraudulent return 50% (Sec. 248(B),
NIRC)
2. Interest (Sec. 249, NIRC)
(a) In general (20%) (Sec. 249(A), NIRC)
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(b) Deficiency Interest (Sec. 249(B), NIRC)

(c) Delinquency Interest (Sec. 249 (C), NIRC)
(d) Interest on Extended Payment (Sec. 249 (D), NIRC)
3. Other Fines and Penalties
(a) Failure to file certain returns (Sec. 250, NIRC)
(b) Failure of Withholding agent to collect and remit tax (Sec. 251, NIRC)
(c) Failure of Withholding Agent to refund excess withholding tax (Sec. 252, NIRC)
B. Crimes, Other Offenses and Forfeitures
1. General Provisions (Sec. 253)
2. Specific Offenses and Crimes (254 281, NIRC)
C. Informers Reward (Sec. 282, NIRC)
I. COMPROMISE AND ABATEMENT OF TAXES
A. Compromise (Sec. 204(A), NIRC; RR 08-04; RR 03-07; RR 9-2013)
B. Abatement (Sec. 204 (B), RR 13-01)
Case(s):
Francisco I. Chavez vs. PCGG, et al. (299 SCRA 744)
Requisites for the exercise of commissioner's power to abate or cancel tax liability

Shirley Marie Cada
37

Tax 2 - VAT

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Tax 2 - VAT

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Part 2: BUSINESS TAXES

Q: What is the tax credit method?

Tax 2- Atty. Llamado

III. VAT ON SALE OF GOODS OR PROPERTIES (Sec. 106, NIRC)

For real property

Q: How is VAT imposed on real property transactions?

The input VAT on the purchases of a VAT-registered

The seller in an exempt transaction is not entitled to any

Persons engaged in transactions which are zero-rated,

Registration is optional for VAT-exempt persons.

Q: What are the two types of zero-rated transactions?

2. Approval of a request for cancellation of a

When a person commenced a business with the

3. Approval of request for cancellation of a

When a person who is VAT-exempt and not

Q: When is a change in or cessation of status of a

The goods or properties used in the business or

another stockholder or group of stockholders

considered sold, bartered or exchanged because the

2. Change in trade or corporate name

j) Services rendered by regional or area headquarters established in the Philippines

Q: Is a health maintenance organization liable to pay VAT?

3. Allocation of Input Tax on Mixed Transactions (Sec. 4.110-4, RR 16-05, as amended)

Invoice showing the information required under

3. For the purchase of real property

Public instrument i.e., deed of absolute sale, deed

4. For the purchase of services

Official receipt showing the information required

Tax 2- Atty. Llamado

5. Transitional input tax

Inventory of goods as shown in a detailed list to be

6. Input tax on Deemed sale

7. Input tax from payments made to non-residents

Copy of the Monthly Remittance Return of Value

8. Advance VAT on sugar

Payment Order showing payment of the advance

Q: What are the requirements for a claim for VAT refund/credit?

Tax 2- Atty. Llamado

Invoicing and recording requirements

1. Transfer, use or consumption not in the course of

A memorandum entry in the subsidiary sales

2. Distribution or transfer to shareholders/investors

Invoice, at the time of the transaction, which should

3. Consignment of goods if actual sale is not made

Invoice, at the time of the transaction, which should

4. Retirement from or cessation of business with

An inventory shall be prepared and submitted to the

Tax 2- Atty. Llamado

Part 3: TAX REMEDIES UNDER THE NIRC

Tax 2- Atty. Llamado

- Final Notice Before Seizure is deemed as commissioner's final decision.

(b) Deficiency Interest (Sec. 249(B), NIRC)

Tax 2- Atty. Llamado

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