LAW ON TAXATION

VALUE-ADDED TAX

CONCEPT

Value Added Tax (VAT) is a business tax imposed and collected on every (a) sale, barter, or exchange of goods or properties (real or
personal), (b) lease of goods or properties (real or personal) or (c) rendition of services, all in the course of trade or business, and (d)
importation of goods (whether or not in the course of trade or business). It is an indirect tax, thus, it can be shifted or passed on to the
buyer, transferee or lessee of goods, properties or services (Sec. 105, NIRC).

VAT is a tax on consumption levied on the sale, barter, exchange or lease of goods or properties and services in the Philippines and on
importation of goods into the Philippines. The seller is the one statutorily liable for the payment of the tax but the amount of the 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 RA No. 9337. However, in the case of importation,
the importer is the one liable for the VAT (RR 16-05).

The current VAT rate is 12% (effective January 1, 2006, VAT rate was increased from 10 to 12%).

NOTE: The Supreme Court upheld the validity of raising the VAT rate from 10% to 12% (ABAKADA Guro v. Ermita,
G.R. No. 168056, September 1, 2005).

Who is liable to pay the VAT?

GR: The seller is the one statutorily liable for the payment of the tax but the amount of the tax may be

1. Economic growth
2. Simplified tax administration
3. Promote honesty
4. Higher governmental revenues

VAT law is non-violative of the administrative feasibility principle

The VAT law is principally aimed to rationalize the system of taxes on goods and services. Thus, simplifying tax
administration and making the system more equitable to enable the country to attain economic recovery (Kapatiran ng Mga
Naglilingkod sa Pamahalaan v. Tan, G.R.No.81311, June 30, 1988).

CHARACTERICTICS OF VAT

1. Value added - It is a tax on value added of a taxpayer arising from the sales of goods, properties or services during the
quarter. “Value added” is the difference between the total sales of the taxpayer for the taxable quarter subject to VAT
and his total purchases for the same period subject also to value added tax (Mamalateo, 2014).
2. Tax credit or Invoice method - It is collected through the tax credit method or invoice method. The input taxes
shifted by the sellers to the buyer are credited against the buyer’s output taxes when he in turn sells the taxable goods,
properties or services (Sec. 105 and 110 [A], NIRC).
3. Sales tax – VAT is a tax on the taxable sale, barter or exchange of goods, properties or services. A barter or exchange
has the same tax consequence as a sale. A sale may be an actual or deemed sale, or an export sale or local sale
(Mamalateo, 2014). The buyer is informed that the price includes VAT and the computation is shown in the official
receipt/sales invoice.
4. Broad-based tax on consumption in the Philippines – It is broad-based because every sale of goods, properties or
services at the levels of manufacturers or producers and distributors is subject to VAT. However, the tax burden rests
on the final consumers (Mamalateo, 2014).

5. Excise tax based on consumption – It is a tax on the privilege of engaging in the business of selling goods or services, or the
importation of goods.
6. Indirect tax - Tax shifting is always presumed. It may be shifted or passed on to the buyers, transferee, or lessee of the goods,
properties or services as part of the purchase price.
7. Ad valorem tax - The amount is based on the gross selling price or gross value in money of the goods or service, including the
use or lease or properties.
8. Not a cascading tax. - Tax cascading means that an item is taxed more than once as it makes its way from production to final
retail sale. VAT is not a cascading tax because it is merely added as part of the purchase price and not as a tax because the
burden is merely shifted. Thus, there can be no tax on the tax itself.
9. National tax - Imposed by the national government.
10. Revenue or general tax
11. Regressive tax – By its very nature, VAT is regressive tax.

The principle of progressive taxation has no relation with the VAT system inasmuch as the VAT paid by the consumer or business
for every goods bought or services enjoyed is the same regardless of income. In other words, the VAT paid eats the same portion
of an income, whether big or small. The disparity lies in the income earned by a person or profit margin marked by a business,
 LAW ON TAXATION
such that the higher the income or profit margin, the smaller the portion of the income or profit that is eaten by VAT. A converso,
the lower the income or profit margin, the bigger the part that the VAT eats away. At the end of the day, it is really the lower
income group or businesses with low-profit margins that is always hardest hit (ABAKADA Guro v. Ermita, G.R. No. 168056,
September 1, 2005).

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Q: Does the Constitution prohibit regressive taxes?

A: No, what the Constitution simply provides is that Congress shall evolve a progressive system of taxation. The constitutional
provision has been interpreted to mean simply that "direct taxes are to be preferred and as much as possible, indirect taxes
should be minimized.” The mandate of Congress is not to prescribe but to evolve a progressive tax system. This is a mere directive
upon Congress, not a justiciable right or a legally enforceable one. We cannot avoid regressive taxes but only minimize them
(Tolentino et.al. v. Secretary of Finance, G.R. No. 115455, Oct. 30, 1995).
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Q: How is the regressive effect of VAT minimized?

A: The law minimizes the regressive effects of this imposition by providing for zero rating of certain transactions while granting
exemptions to other transactions. The transactions which are subject to VAT are those which involve goods and services which
are used or availed of mainly by higher income groups.
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ELEMENTS OF VAT-TAXABLE TRANSACTIONS

The following elements must be present in order for a transaction to be subjected to 12% VAT:
1. It must be done in the ordinary course of trade or business;
2. There must be a sale, barter, exchange, lease of properties, or rendering of service in the Philippines; and
3. It is not VAT-exempt or VAT zero-rated (Ingles, 2015).

In the course of trade or business (Rule of Regularity)

It 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 (irrespective of
the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity (Sec.
105, NIRC).

This includes incidental transactions. Thus, the sale of a VAT taxpayer (engaged in catering business) of its delivery van or
vehicle, while an isolated event, is considered an incidental transaction in the course of trade or business. In the course of its
business, MKI bought and eventually sold its delivery van. Prior to the sale, the van was part of MKI’s property, plant, and
equipment (Mindanao II Geothermal Partnership v. CIR, G.R. No. 193301, March 11, 2013).
However, the involuntary sale of vessels by a taxpayer not engaged in the sale of vessels pursuant to the government policy of
privatization is NOT subject to VAT because the sale was not made the course of trade or business (CIR v. Magsaysay Lines Inc.,
G.R. No. 146984, July 28, 2006).

Two conditions of “in the ordinary course of trade or

business” (CR)

There should be:

1. Commercial or economic activity - It implies that a transaction is conducted for profit; and
2. Regularity or habituality in the action - Regularity involves more than one isolated transaction and involves repetition and
continuity of action (Ingles, 2015).

XPNs to regularity:

1. Non-resident alien who perform services in the Philippines are deemed to be making sales in the course of trade or
business, even if the performance of services is not regular (Sec. 4.105-3, RR 16-2005).

2. Importations are subject to VAT whether in the course of trade or business or not.

3. Any business where the gross sales or receipts do not exceed P100,000 during the 12-month period shall be considered
principally for subsistence or livelihood and not in the course of trade or business.

Sale, barter, exchange, lease of goods or properties, or rendering of service in the Philippines

When there is no sale, barter or exchange of goods or properties, then no VAT should be imposed.
 LAW ON TAXATION

exclusively for the purpose of maintaining and preserving the building and its premises which they themselves own and
possess (First e-Bank Tower Condominium Corp., v. BIR, Special Civil Action No. 121236, RTC Br. 146, Makati City).

Thus, when an affiliate provides funds to a taxpayer who then uses the funds to pay a third party, the transaction is not subject to VAT, as
there was no sale, barter, or exchange between the affiliate and the taxpayer. The money was simply given as a dole-out (CIR v. Sony
Philippines, Inc., G.R. No. 178697, November 17, 2010).

However, if a taxpayer renders service to an affiliate for a fee (even if the fee is merely to reimburse costs), the service is subject to VAT.
Thus, the collection of condominium corporations of association dues and membership fees from its member condominium-unit owners
are subject to VAT even if receives payments for services rendered to its affiliates in trust and on reimbursement-of-cost basis only,
without realizing profit (CIR v. CA and COMASERCO, G.R. No. 125355, March 30, 2000).

Also, the fees collected by toll operators are subject to VAT as they are engaged in rendering service of constructing, maintaining and
operating expressways (Diaz v. Secretary of Finance, G.R. No. 193007, July 19, 2011).

NOTE: If the transaction is outside the Philippines, then it is not subject to VAT.

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Q: The Bureau of Internal Revenue (BIR) issued Rvenue Memorandum Circular (RMC) No. 65-2012 imposing Value-Added Tax
(VAT) on association dues and membership fees collected by condominium corporations from its member condominium-unit
owners. The RMC’s validity is challenged before the Supreme Court (SC) by the condominium corporations. The Solicitor General,
counsel for BIR, claims that association dues, membership fees, and other assessment/ charges collected by a condominium
corporation are subject to VAT since they constitute income payments or compensation for the beneficial services it provides to
its members and tenants. On the other hand, the lawyer of the condominium corporations argues that such dues and fees are
merely held in trust by the condominium corporations exclusively for their members and used solely for administrative expenses
in implementing the condominium corporations’ purposes. Accordingly, the condominium corporations, do not actually render
services for a fee subject to VAT. Whose argument is correct? Decide. (2014 Bar)

A: The lawyer of the condominium corporations is correct. The association dues, membership fees, and other assessment/charges do not
constitute income payments because they were collected for the benefit of the unit owners and the condominium corporation is not
created as a business entity. The collection is the money of the unit owners pooled together and will be spent
 LAW ON TAXATION

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Profit element not required for VAT to be imposed

VAT is a tax on trasaction, there is no need for a taxable gain, unlike in the income tax. It is not required either by law or
jurisprudence (Ingles, 2015).

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 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 (CIR v. COMASERCO, March 30, 2000).

IMPACT AND INCIDENCE OF TAX

VAT as an Indirect Tax

The amount of VAT payable may be passed on by the seller, transferor, or lessor to the buyer, transferee or lessee. When
passed on, the amount of VAT due forms part of the purchase price of goods or services. As a result, it is the buyer who
bears the burden of tax, although the one liable to pay it is the seller.

The VAT, thus, forms a substantial portion of consumer expenditures as part of the cost of goods or services purchased.
What is transferred in such instances is not the liability for the tax, but the tax burden. In adding or including the VAT due
to the selling price, the seller remains the person primarily and legally liable for the payment of the tax. What is shifted only
to the intermediate buyer and ultimately to the final purchaser is the burden of the tax (Contex v. CIR, GR No. 151135, July 2,
2004).

IMPACT
The one statutorily liable
for the payment of tax,
thus, the one who can avail
of a tax refund.
The seller upon whom the
tax has been imposed. He
collects the tax and pays it
to the government.
INCIDENCE
The one who bears the
economic burden
(payment) of tax (VAT),
the place at which the tax
comes to rest.
The tax is shifted to the
final consumer or the
buyer of the goods,
properties, or services as
part of the purchase price.

Effect of VAT being an indirect tax on Exemptions

If a special law merely exempts a party as a seller from its direct liability for payment of the VAT, but does not relieve the
same party as a purchaser from its indirect burden of the VAT shifted to it by its VAT-registered suppliers, the purchase
transaction is not exempt. It is because VAT is a tax on consumption, the amount of
 VALUE-ADDED TAX

which may be shifted or passed on by the seller to the purchaser of the goods, properties or services (CIR v. Seagate Technology,
G.R. No. 153866, February 11, 2005).

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Q: Is VAT a withholding tax?

A: NO. Indirect taxes, like VAT and excise tax, are different from withholding taxes. To distinguish, in indirect taxes, the incidence
of taxation falls on one person but the burden thereof can be shifted or passed on to another person. On the other hand, in
withholding taxes, the incidence and burden of taxation fall on the same entity, the statutory taxpayer. The burden of taxation is
not shifted to the withholding agent who merely collects, by withholding, the tax due from income payments to entities arising
from certain transactionsand remits the same to the government (Asia International Auctioneers, Inc., v. CIR, G.R. No. 179115,
September 26, 2012).
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Q: Mr. A, a VAT-exempt retailer sells to Mr. O, a non VAT-exempt purchaser. Is Mr. O liable to pay VAT on the transaction?

A: YES. The purchaser is subject to VAT because he is not exempted from the indirect burden of VAT passed on to him as part of
the purchase price. The VAT is added as part of the purchase price and not as a tax because the burden is merely shifted. On the
other hand, the seller is still exempt because he could pass on the burden of paying the tax to the purchaser.
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Q: Lily’s Fashion Inc. is registered as a Subic Bay Freeport Enterprise under R.A. 7227 and a non-VAT taxpayer. As such, it
is exempt from payment of all local and national internal revenue taxes. During its operations, it purchased various
supplies and materials necessary in the conduct of its manufacturing business. The supplier of these goods shifted to
Lily’s Fashion, Inc. the 10% (now 12%) VAT on the purchased items amounting to P500,000. Lily’s Fashion Inc. filed with
the BIR a claim for refund for the input tax shifted to it by the suppliers. If you were the CIR will you allow the refund?
(2006 Bar)

A: NO. The exemption of Lily’s Fashion Inc. is only for taxes for which it is directly liable, hence, it cannot claim exemption for tax
shifted to it, which is not at all considered a tax to the buyer but part of the purchase price. Lily’s Fashion Inc. is not a taxpayer in
so far as the passed-on tax is concerned and therefore, it cannot claim for a refund of a tax merely shifted to it. Only taxpayers are
allowed to file a claim for refund.
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TAX CREDIT METHOD

The input tax shifted by the seller to the buyer is credited or deducted against the buyer’s output taxes when he in turn sells the
taxable goods, properties or services.
 VALUE-ADDED 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, G.R. No. 153866, Feb. 11, 2005).

Formula: Output Tax –Input Tax = Net VAT Payable or

Excess Input Tax

Net VAT Payable = Output Tax > Input Tax

Excess Input Tax = Output tax < Input Tax

Illustration: For the month of January 2017, Mr. A sells to Mr. B steel cabinets for P112,000. Within the same month, Mr. A
purchased steel plates and other materials to make these cabinets for P56,000. Determine Mr. A’s VAT payable.

To compute for the output tax from sale:

Total selling price (equivalent to 112%) P112,000
Vatable gross sales or receipts
(112,000/1.12 to get 100%) 100,000
Output VAT (12% of P100,000) P 12,000

To compute for the input tax from purchases:

Domestic purchase of good P 56,000
(equivalent to 112%)
Vatable gross purchases
(56,000/1.12 to get 100%) 50,000
Input VAT (12% of P50,000) P 6,000

To compute for the VAT payable:

Output VAT P 12,000
Less: Input VAT 6,000
VAT payable P 6,000

In the same example, if Mr. B is a trader of steel cabinets, he now has an input tax of P12,000 from the purchase of steel cabinets
from Mr. A. If Mr. B sells it for P168,000, he would be liable to pay the ouput tax of P18,000. He could reduce the output tax by
deducting or crediting his input tax, arriving at a VAT payable of P6,000 (P18,000 less P12,000).

Refer to discussion on Output and Input Tax.

DESTINATION PRINCIPLE / CROSS BORDER

DOCTRINE

Goods and services are taxed only in the country where they are consumed. Thus, exports are zero-rated, while imports are taxed
(Domondon, 2014).

Under the Destination Principle, the goods and services are taxed only in the country where these are consumed, and in
connection with the said principle, the Cross Border Doctrine mandates that NO VAT shall be imposed to form part of the cost
of the goods destined for consumption OUTSIDE the territorial border of the taxing authority. Hence, actual export of goods and
services from the Philippines to a foreign country must
 LAW ON TAXATION
be free of VAT, while those destined for use or consumption within the Philippines shall be imposed with 10% (now 12%) VAT (Atlas
Consolidated Mining and Development Corporation v. CIR, G.R. No. 141104 & 148763, June 8, 2007).

Exception to the destination principle

Our VAT law clearly provides for an exception to the destination principle; that is, for a zero percent VAT rate for services that are
performed in the Philippines, "paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the
BSP (Commissioner of Internal Revenue v. American Express International, Inc., G.R. No. 152609, June 29, 2005).

PERSONS LIABLE

Persons liable to pay VAT, in general

1. Any person who, in the course of trade or business,

a. sells, barters, exchanges or leases goods or properties, or
2. renders services; and Any person who imports goods, whether or not made in the course of his trade or business
 LAW ON TAXATION

gross sales and/or gross receipts is P1,919,500 or less.

Taxable persons must register for VAT purposes

Any person who, in the course of trade or business, sells, barters, or exchanges goods or properties, or engages in the sale or
exchange of services, shall be liable to register for VAT if:

1. Gross sales or gross receipts for the past 12 months have exceeded P1,919,500, other than those that are exempt under
Sec. 109 (A) to (V); or

2. There are reasonable grounds to believe that his gross receipts or gross sales in the next 12 months shall exceed
P1,919,500, other than those that are exempt under Sec. 109 (A) to (V) (Sec. 236(G), NIRC).

Failure to register as VAT taxpayer

He shall be held liable to pay the tax as if he is a VAT registered person but he cannot avail of the input tax credit for the
period that he has not properly registered (Sec. 236(G), NIRC).

"Person" refers to any individual, trust, estate, partnership, corporation, joint venture, cooperative or association.

"Taxable person" refers to any person liable for the payment of VAT, whether registered or registrable in accordance with Sec. 236 of the
NIRC.

"VAT-registered person" refers to any person who is registered as a VAT taxpayer under Sec. 236 of the NIRC. His status as a VAT-
registered person shall continue until the cancellation of such registration (RR 16-05).

NOTE: In importation, it shall be the importer who shall pay VAT upon release of the goods from the customs territory. This is an exception
to the general rule requiring a sale before VAT shall be incurred.

Special considerations to the following persons:

1. Husband and wife – for VAT purposes, shall be treated as separate taxpayers.
2. Joint ventures – although exempt from income tax, is liable to value added tax.
3. Government – subject to VAT if they sell goods, properties or services in the course of trade or business or when they perform
proprietary functions. In case of transactions essential for governmental functions, such are exempt from VAT.
4. Non-stock, non-profit association – generally, receipts from association dues or special assessments from members is not subject to
VAT.

However, the moment the non-stock, non-profit association engages in any taxable sale of goods or services, it is liable to VAT where
the amount of its gross sales and/or gross receipts exceeds P1,919,500, or subject to the 3% percentage tax, if

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 LAW ON TAXATION

Persons NOT LIABLE to pay VAT

1. A Non-VAT registered person whose annual gross sales or receipts do not exceed P1,919,500 shall not be liable to VAT,
instead, he shall be liable for 3% percentage tax (Sec. 116, NIRC).

2. An individual who is a Marginal Income Earner (MIE) not deriving compensation as employee under an Er-Ee relationship,
self-employed and deriving gross sales or receipts not exceeding P100,000 in any 12-month period, and where the
activities of such MIE is principally for subsistence or livelihood, he shall be exempt from payment of VAT or any OPT
(RMC No. 7-2014).

3. In transactions subject to VAT but became not subject from VAT because his annual gross sales do not exceed P1,919,500
(Sec. 109(1)(V), NIRC). Though not subject from VAT, he shall pay percentage tax under Section 116.

He should register as a non-VAT taxpayer unless he opts to become VAT registered under Section 109(2) of NIRC.

NOTE: A VAT-registered person, regardless whether his gross sales or gross receipts exceeds P1,919,500 or not, he shall
be liable for VAT. Once VAT- registered, he shall be liable for VAT on sale of goods or services, regardless of the amount. If
a person is VAT-registered, his gross sales or gross receipt shall always be subject to VAT whether or not it exceeds the
P1,919,500 threshold.

4. In VAT-exempt transactions under Section 109(1) (A to V) of NIRC, regardless of their annual gross sales.
 VALUE-ADDED TAX
IMPOSITION OF VAT

When it come to normal VAT transactons, or those subject to 12%, we have three categories:

Nature of Transaction Tax Base

1) Sale of goods or Gross Selling Price
properties
2) Importation of goods Total landed cost
3) Sale of services and
use or lease of Gross receipts
properties

The above are discussed in details below.

VAT ON SALE OF GOODS OR PROPERTIES

VAT is imposed and collected on

1. every sale, barter or exchange, or
2. transactions "deemed sale"
of taxable goods or properties at the rate of 12% of the gross selling price or gross value in money of the goods or properties sold,
bartered, or exchanged, or deemed sold in the Philippines (R.R. 16-2005).

Note: A transaction is outside the scope of VAT unless it is made for a valuable consideration. Transfer of property without
valuable consideration (e.g. gift) is exempt from VAT (Mamalateo, 2014).

Gross Selling Price

It 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 VAT. The excise tax, if any, on such goods or properties shall
form part of the gross selling price.

Gross selling price in case of sale or exchange of real property

It is the consideration stated in the sales document or the fair market value whichever is higher.

The term "fair market value" shall mean whichever is the higher of:
1. the fair market value as determined by the Commissioner (zonal value), or
2. the fair market value as shown in schedule of values of the Provincial and City Assessors (real property tax declaration).

However, in the absence of zonal value, gross selling price refers to the market value shown in the latest real property tax
declaration or the consideration, whichever is higher. If the gross selling price is based on the zonal value or market value of the
property, the zonal or market value shall be deemed inclusive of VAT. If the VAT is not billed separately, the selling price stated in
the sales document shall be deemed to be inclusive of VAT.

Allowable deductions from gross selling price

 VALUE-ADDED TAX

In computing the taxable base during the month or quarter, the following shall be allowed as deductions from gross selling price:

(a) Discounts
- determined and granted at the time of sale,
- which are expressly indicated in the invoice,
- the amount thereof forming part of the gross sales duly recorded in the books of accounts,
- the grant of which is not dependent upon the happening of a future event
(b) Sales returns and allowances for which a proper credit or refund was made during the month or quarter to the buyer for
sales previously recorded as taxable sales (R.R. 16-2005).

Note: Senior citizens are entitled to a 20% discount under R.A. 9257 or the Expanded Senior Citizens Act of 2003. The tax base
thereof shall be the net sales after the deducting the 20% discount without requiring the indication of buyer-senior citzen’s TIN
(RR No. 1-2007).

Goods or properties

It refers to all tangible and intangible objects which are capable of pecuniary estimation and shall include, among others:
1. Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business;
2. 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;
3. The right or the privilege to use any industrial commercial or scientific equipment;
4. The right or the privilege to use motion picture films, films, tapes and discs;
5. Radio, television, satellite transmission and cable television time.

Note: The above is NOT an exclusive list.

The VAT accrues upon the consummation of sale of goods or properties, regardless of the terms of payment between the
contracting parties (Sec. 106 in relation to Secs. 113 and 237 of NIRC). Thus as soon as the seller issues a VAT invoice, whether the
sale is for cash or on credit, he becomes liable to VAT on such sale (Mamalateo, 2014).

Sale of Real Properties

Sale of real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business of the
seller shall be subject to VAT.

Sale of residential lot with gross sellig price exceeding P1,919,500, residential house and lot or other residential dwellings
with gross sellig price exceeding P3,199,200, where the instrument of sale (whether the instrument is nominated as a deed of
absolute sale, deed of conditional sale or otherwise) is executed on or after July 1, 2012, shall be subject to 12% VAT (R.R. 16-
2005, as amended by RR 16-2011 and RR 03-2012).
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This includes 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 one buyer from the same seller, for the purpose of utilizing the lots, house and lots or other residential
dwellings as one residential area wherein the aggregate value of the adjacent properties exceeds P1,919,500.00, for residential lots and
P3,199,200.00 for residential house and lots or other residential dwellings. Adjacent residential lots, house and lots or other residential
dwellings although covered by separate titles and/or separate tax declarations, when sold or disposed to one and the same buyer, whether
covered by one or separate Deed/s of Conveyance, shall be presumed as a sale of one residential lot, house and lot or residential dwelling.
 LAW ON TAXATION

This however, does not include the sale of parking lot which may or may not be included in the sale of condominium
units. The sale of parking lots in a condominium is a separate and distinct transaction and is not covered by the rules on
threshold amount not being a residential lot, house & lot or a residential dwelling, thus, should be subject to VAT regardless
of amount of selling price (RR 13-12).

NOTE: It is only the sale of real properties primarily held for sale to customers or held for lease in the ordinary course of
trade or business of the seller which shall be subject to VAT. As such, capital transactions of individuals are not subject to VAT.
Only persons engaged in real estate business either as a real estate dealer, developer or lessors, are subject to VAT.

Elements of VAT-taxable sale of goods or properties:

Sale of goods and personal properties Sale or exchange of real property

1. There is an actual or deemed sale, barter or exchange
of goods or personal properties for valuable
consideration;
2. Undertaken in the course of trade or business;
3. For use or consumption in the Philippines; and
4. Not exempt from VAT under Section 109 of NIRC,
special law or international agreement binding upon
the government of the Philippines.
NOTE: Absence of any of the above requisites exempts the
transaction from VAT. However, percentage taxes may
apply (Sec. 116, NIRC).
1. The seller executes a deed of sale, including dacion en
pago, barter or exchange, assignment, transfer, or
conveyance, or merely contracts to sell involving real
property;
2. The real property is located within 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 an ordinary asset held primarily
for sale or for lease in the ordinary course of business;
5. The sale is not exempt from VAT under Section 109 of
NIRC, special law, or international agreement binding
upon the government of the Philippines;
6. The threshold amount set by law should be met.

NOTE: Absence of any of the above requisites exempts the

transaction from VAT. However, percentage taxes may
apply under Section 116 of NIRC.
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The sale of real property subject to VAT shall either be in
(1) cash basis, (2) installment basis, or (3) deferred payment basis.

Sale on installment plan

It means sale of real property by a real estate dealer, the initial payments of which in the year of sale do not exceed twenty-five
percent (25%) of the gross selling price.

In this case, the real estate dealer shall be subject to VAT on the installment payments, including interest and penalties, actually
and/or constructively received by the seller.

Correspondingly, the buyer of the property can claim the input tax in the same period as the seller recognized the output tax.

Sale on a deferred payment basis

It means sale of real property, the initial payments of which in the year of sale exceed twenty-five percent (25%) of the gross
selling price.

In this case, the transaction shall be treated as cash sale which makes the entire selling price taxable in month of sale (R.R. 16-
2005).

Output tax shall be recognized by the seller and input tax shall accrue to the buyer at the time of the execution of the instrument of
sale. Payments that are subsequent to “initial payments” shall no longer be subject to output VAT (R.R. 4-2007).

Initial payments

It means payment or payments which the seller receives before or upon execution of the instrument of sale and payments which
he expects or is scheduled to receive in cash or property (other than evidence of indebtedness of the purchaser) during the year
when the sale or disposition of the real property was made. It covers any down payment made and includes all payments actually
or constructively received during the year of sale, the aggregate of which determines the limit set by law.

Initial payments do not include the amount of mortgage on the real property sold except when such mortgage exceeds the cost or
other basis of the property to the seller, in which case, the excess shall be considered part of the initial payments.

Also excluded from initial payments are notes or other evidence of indebtedness issued by the purchaser to the seller at the time
of the sale.

Distinctions between sale on installment plan and sale on a deferred payment basis

INSTALLMENT PLAN DEFERRED PLAN

Initial payments do not Initial payments exceed
exceed 25% of the gross 25% of the gross selling
selling price price
 VALUE-ADDED TAX

Seller shall be subject to Transaction shall be

output VAT on the treated as cash sale
installment payments which makes the entire
received, including the selling price taxable in
interests and penalties for the month of sale.
late payment, actually
and/or constructively
received.
The buyer of the property Output tax shall be
can claim the input tax in recognized by the seller
the same period as the and input tax shall
seller recognized the output accrue to the buyer at
tax. the time of the
execution of the
instrument of sale.
Payments that are Payments that are
subsequent to “initial subsequent to “initial
payments” shall be subject payments” shall no
to output VAT longer be subject to
output VAT

NOTE: Real estate dealer includes any person engaged in the business of buying, developing, selling, exchanging real
properties as principal and holding himself out as a full or part-time dealer in real estate.

Transmission of property to a trustee shall not be subject to VAT if the property is to be merely held in trust for the trustor
and/or beneficiary. However, if the property transferred is one for sale, lease or use in the ordinary course of trade or business
and the transfer constitutes a completed gift, the transfer is subject to VAT as a deemed sale transaction. The transfer is a
completed gift if the transferor divests himself absolutely of control over the property, i.e., irrevocable transfer of corpus and/or
irrevocable designation of beneficiary.

Sale of scrap materials

Sale of scrap materials by a VAT-registered person such as empty drums, plastic bags, cartons, and wood crates; obsolete
inventories and fully-depreciated fixed assets sold at minimal prices or lower than purchase price are subject to VAT (VAT Ruling
No. 25-92, March 11, 1992).

VAT ON IMPORTATION OF GOODS

Importation is an act of bringing goods and merchandise into a country (Philippines) from a foreign country.

VAT is imposed on goods brought into the Philippines, whether for use in business or not, except those specifically exempted
under Section 109(1) of the NIRC.

Purpose: This is to protect our local or domestic goods or articles and to regulate the entry or introduction of foreign articles to
our local market.

Tax base of VAT on importation

GR: The tax base shall be based on the total value used by the BOC in determining tariff and customs duties plus customs duties,
excise taxes, if any, and other charges to be
 LAW ON TAXATION
paid by the importer prior to the release of such goods from customs custody. (Transaction value)

XPN: In case the valuation used by the BOC in computing customs duties is based on volume or quantity of the imported goods, the landed
cost shall be the basis for computing VAT.
 LAW ON TAXATION

into the Philippines by persons, entities or agencies exempt from tax, where the goods are subsequently, sold, transferred or
exchanged in the Philippines to non- exempt persons or entities, the purchasers, transferees or recipients shall be
considered a the importer thereof, who shall be liable for any internal revenue tax on such importation.

Landed cost consists of the invoice amount, customs duties, freight, insurance and other charges. If the goods imported are subject to
excise tax, the excise tax shall form part of the tax base.

The same rule applies to technical importation of goods sold by a person located in a Special Economic Zone to a customer located in a
customs territory (Sec. 4.107-1, R.R. 16-2005).

Payment of tax on imported goods

The VAT on importation shall be paid by the importer

prior to the release of such goods from customs custody.

Importer refers to any person who brings goods into the Philippines, whether or not made in the course of his trade or business. It includes
non-exempt persons or entities who acquire tax-free imported goods from exempt persons, entities or agencies.

Beginning and end of importation

Importation begins when the carrying vessel or aircraft enters the Philippine territory with the intention to unload therein. Importation is
deemed terminated when the duties, taxes and other charges due upon the goods have been paid or secured to be paid at the port of entry
or in case the goods are deemed free of duties, taxes and other charges, when the goods have legally left the jurisdiction of the Bureau (Sec.
103, CMTA).

Transfer of goods by tax-exempt persons

Consequence if a tax exempt person would transfer imported goods to a non-exempt person

The purchaser or transferee shall be considered as an importer and shall be held liable for VAT and other internal revenue tax due on such
importation (Sec. 107[B], NIRC).

The tax due on such importation shall constitute a lien on the goods, superior to all charges/or liens, irrespective of the possessor of said
goods.

---
Q: Anshari, an alien employee of Asian Development Bank (ADB) who is retiring soon has offered to sell his car to you, which he
imported tax-free for his personal use. The privilege of exemption from tax is recognized by tax authorities. If you decide to
purchase the car, is the sale subject to tax? Explain. (2005 Bar)

A: Yes. The sale is subject to tax. Sec. 107 (B) of the NIRC provides that “In case of tax-free importation of goods
 LAW ON TAXATION

---

VAT ON SALE OF SERVICE AND USE OR LEASE OF

PROPERTIES

Sale or exchange of services, as well as the use or lease of properties, shall be subject to VAT, equivalent to 12% of the gross
receipts (excluding VAT) (RR 16-2005).

Sale or exchange of services

It means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration,
whether in kind or in cash, including those performed or rendered by the following:

1. Construction and service contractors;

2. Stock, real estate, commercial, customs and immigration brokers;
3. Lessors of property, whether personal or real;

Lease of property shall be subject to VAT regardless of the place where the contract of lease or licensing agreement
was executed if the property leased or used is located in the Philippines.

VAT on rental and/or royalties payable to non- resident foreign corporations or owners for the sale of services and use
or lease of properties in the Philippines shall be based on the contract price agreed upon by the licensor and the
licensee. The licensee shall be responsible for the payment of VAT on such rentals and/or royalties in behalf of the non-
resident foreign corporation or owner.

Non-resident lessor/owner refers to any person, natural or juridical, an alien, or a citizen who establishes to the
satisfaction of the Commissioner of Internal Revenue the fact of his physical presence abroad with a definite intention
to reside therein, and who owns/leases properties, real or personal, whether tangible or intangible, located in the
Philippines.

Rules on advance payments made by lessee

In a lease contract, the advance payment by the lessee may be:

1. a loan to the lessor from the lessee, or
2. an option money for the property, or
3. a security deposit to insure the faithful performance of certain obligations of the lessee to the lessor, or
4. pre-paid rental.

If the advance payment is either (1), (2), or (3) of the above, such advance payment is not subject to VAT. However, a
security deposit that is applied to
 VALUE-ADDED TAX
rental shall be subject to VAT at the time of its application.

If the advance payment constitutes a pre-paid rental, then such payment is taxable to the lessor in the month when received,
irrespective of the accounting method employed by the lessor.

4. Persons engaged in warehousing services;

5. Lessors or distributors of cinematographic films;
6. Persons engaged in milling, processing, manufacturing or repacking goods for others;
7. Proprietors, operators, or keepers of hotels, motels, rest houses, pension houses, inns, resorts, theaters, and movie houses;
8. Proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers;
9. Dealers in securities;
10. Lending investors;
11. Transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire
and other domestic common carriers by land relative to their transport of goods or cargoes;
12. Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines
to another place in the Philippines;
13. Sales of electricity by generation, transmission, and/or distribution companies;

NOTE: That sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar,
wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and
hydrogen fuels shall be subject to 0% VAT.

14. Franchise grantees of electric utilities, telephone and telegraph, radio and/or television broadcasting and all other franchise
grantees, except franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding
year do not exceed Ten Million Pesos (P10,000,000.00), and franchise grantees of gas and water utilities;
15. Non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies;
and
16. Similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental
faculties.

This shall likewise include:

1. The lease or the use of or the right or privilege to use any copyright, patent, design or model plan, secret formula or process,
goodwill, trademark, trade brand or other like property or right;
2. The lease or the use of, or the right to use of any industrial, commercial or, scientific equipment;
3. The supply of scientific, technical, industrial or commercial knowledge or information;
4. The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling
 VALUE-ADDED TAX

the application or enjoyment of any such property, or right as is mentioned in subparagraph (2) or any such knowledge or
information as is mentioned in subparagraph (3);
5. The supply of services by a non-resident person or his employee in connection with the use of property or rights belonging
to, or the installation or operation of any brand, machinery or other apparatus purchased from such nonresident person;
6. The supply of technical advice, assistance or services rendered in connection with technical management or administration of
any scientific, industrial or commercial undertaking, venture, project or scheme;
7. The lease of motion picture films, films, tapes and discs; and
8. The lease or the use of or the right to use radio, television, satellite transmission and cable television time.(RR 16-2005).

NOTE: The above list is not exclusive.

Requisites for the taxability of sale or exchange of services or lease or use of property

1. There is a sale or exchange of service or lease or use of property enumerated in the law or other similar services;
2. The service is performed or to be performed in the Philippines;
3. The service is in the course of trade of taxpayer’s trade or business or profession;
4. The service is for a valuable consideration actually or constructively received; and
5. The service is not exempt under the NIRC, special law or international agreement.
NOTE: Absence of any of the requisites renders the transaction exempt from VAT but may be subject to other percentage tax
under Title V of the NIRC.

Gross receipts

It pertains to 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 (1) actually
or (2) constructively received during the taxable quarter for the services performed or to be performed for another person,
excluding VAT, except those amounts earmarked for payment to unrelated third (3rd) party or received as reimbursement for
advance payment on behalf of another which do not redound to the benefit of the payor (service provider).

A payment is a payment to a third (3rd) party if the same is made to settle an obligation of another person. Such obligation
should be evidenced by the sales invoice/ official receipt issued by the said third party to the customer/client of the service
provider.

An advance payment is an advance payment on behalf of another if the same is paid to a third (3 rd) party for a present or future
obligation of said customer/client which obligation is evidenced by a sales invoice/official receipt issued by the creditor (3 rd
party) to the
 LAW ON TAXATION

customer/client (the aforementioned another party) for the sale of goods or services by the former to the latter.

For this purpose, ‘unrelated party’ shall not include taxpayer’s employees, partners, affiliates (parent, subsidiary and other related
companies), relatives by consanguinity or affinity within the fourth (4th) civil degree, and trust fund where the taxpayer is the trustor,
trustee or beneficiary, even if covered by an agreement to the contrary (Sec. 11, R.R. 04-2007).

Constructive receipt

It occurs when the money consideration or its equivalent is placed at the control of the person who rendered the service without
restrictions by the payor. The following are examples of constructive receipts under RR 16- 2005:
 LAW ON TAXATION

VAT being on top of the 30% amusement tax imposed by the Local Government Code of 1991, thereby killing the “[goose]
that lays the golden egg[s].”

The “lease of motion picture films, films, tapes and discs” under Sec. 108 of the NIRC is not the same as the showing or
exhibition of motion pictures or films. “Exhibition” is defined as “to show or to display. x x x To produce anything in public
so that it may be taken in possession”. On the other hand, “lease” is defined as “a contract by which one owning such
property grants to another the right to possess, use and enjoy it on specified period of time in exchange for periodic
payment of a stipulated price, referred as rent.” Thus, the legislature never intended to include cinema/theater operator
operators or proprietors in the coverage of VAT (CIR v. SM Prime Holdings, Inc., G.R. No. 183505, February 26, 2010).

1. Deposit in banks which are made available to the seller without restrictions.
2. Issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment for services
rendered.
3. Transfer of the amounts retained by the payor to the account of the contractor.
---
Q: Are non-stock, non-profit entities liable to pay VAT for sale of goods and services?

A: YES. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT
(Commissioner v. CA, G.R. No. 125355, March 30, 2000).
---
---
Q: Are toll fees collected by tollway operators are subject to VAT?

A: Yes, because tollway operators are not VAT exempt franchise holders and tollway operation is not a VAT exempt transaction.
VAT is imposed on “all kinds of services” and tollway operations who are engaged in construction, maintaining and operating expressways
(Diaz v. Sec. of Finance, 654 SCRA 96).
---
---
Q: Are gross receipts derived from sales of admission tickets in showing motion pictures subject to VAT?

A: NO. The legislative intent is not to impose VAT on persons already covered by the amusement tax. The repeal by the LGC of 1991 of the
Local Tax Code transferring the power to impose amusement tax on cinema/theater operators or proprietors to the local government did
not grant nor restore the said power to the national government nor did it expand the coverage of VAT. Since the imposition of a tax is a
burden on the taxpayer, it cannot be presumed nor can it be extended by implication. As it is, the power to impose amusement tax on
cinema/theater operators or proprietors remains with the local government.

A contrary ruling will subject cinema/theater operators or proprietors to a total of 40% tax, the 10% (now 12%)
 LAW ON TAXATION

---

TRANSACTIONS DEEMED SALE

There is no actual sale of goods took place but such transactions are subject to VAT.

In a transaction deemed sale, the input VAT was already used by the seller as a credit against output VAT. However, since
there was no actual sale, no output VAT is actually charged to customers. Consequently, the State will be deprived of its
right to collect the output VAT. To avoid the situation where a VAT registered taxpayer avail of input VAT credit without
being liable for corresponding output VAT, certain transactions should be considered sales even in the absence of actual
sale (Tabag, 2015).

The following are transactions deemed sale and therefore subject to VAT:

[CORD]
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 (i.e., when a VAT-registered person withdraws goods from his business for his personal
use)
2. Distribution or transfer to:
a. Shareholders or investors as share in the profits of the VAT-registered persons

NOTE: Property dividends which constitute stocks in trade or properties primarily held for sale or lease declared
out of retained earnings on or after January 1, 1996 and distributed by the company to its shareholders shall be
subject to VAT based on the zonal value or fair market value at the time of distribution, whichever is applicable
(Sec. 106.7, R.R. 16- 2005).

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.
 VALUE-ADDED TAX
NOTE: Consigned good returned by the consignee within the 60-day period are not deemed sold.

4. Retirement from or cessation of business with respect to all goods on hand, whether capital goods, stock-in-trade, supplies or
materials as of the date of such retirement or cessation, whether or not the business is continued by the new owner or
successor (Sec. 106 (B) NIRC).

Transactions that are considered retirement or cessation of business

1. Change of ownership of the business. There is change in the ownership of the business when a single proprietorship
incorporates; or the proprietor of a single proprietorship sells his entire business.
2. Dissolution of a partnership and creation of a new partnership which takes over the business (Sec. 4.106- 7, R.R. 16-2005).

Consideration in determining whether a transaction

is “deemed sale”

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 or not. Even if the transaction was “deemed sale” if it was not done in the ordinary course of trade or
business or was not originally intended for sale in the ordinary course of business, the transaction is not subject to VAT (CIR v.
Magsaysay Lines Inc., G.R. No. 146984, July 28, 2006).

Tax base of transactions deemed sale

In cases where a transaction is a deemed sale, barter or exchange of goods or where the selling price is unreasonably lower than
the actual market value, the Commissioner shall determine the appropriate tax base.

NOTE: The gross selling price is unreasonably lower than the actual market value if it is lower by more than 30% of the actual
market value of the same goods of the same quantity and quality sold in the immediate locality on or nearest the date of sale (Sec.
4 106-7, R.R. 16-2005).

The output tax shall be based on the market value of the goods deemed sold as of the time of the occurrence of the transactions
enumerated above in numbers 1, 2, and 3.

However, in the case of retirement or cessation of business, the tax base shall be the acquisition cost or the current market price of
the goods or properties, whichever is lower.

In the case of a sale where the gross selling price is unreasonably lower than the fair market value, the actual market value shall
be the tax base (Sec. 4 106-7, R.R. 16-2005).

Nonetheless, if one of the parties in the transaction is the government as defined and contemplated under the Administrative
Code, the output VAT on the transaction
 VALUE-ADDED TAX

shall be based on the actual selling price (Sec. 7, R.R. 4- 2007).

Inventory used for promotions and office supplies

Goods given for free in the course of trade or business in order to promote sales efforts are not considered deemed sale
transactions (VAT Ruling No. 109-88, April 25, 1988).

CHANGE OR CESSATION OF STATUS AS

VAT-REGISTERED PERSON

The following change in or cessation of status of a VAT registered person are subject to VAT:

1. Change of business activity from VAT taxable status to VAT-exempt status

2. Approval of a request for cancellation of registration due to reversion to exempt status
3. Approval of a request for cancellation of registration due to a desire to revert to exempt status after the lapse of 3
consecutive years from the time of registration by a person who voluntarily registered despite being exempt under Sec 109
(2) of the NIRC
4. Approval of a request for cancellation of registration of one who commenced business with the expectation of gross sales or
receipt exceeding P1,919,500 but who failed to exceed this amount during the first 12 months of operations.

The following change in or cessation of status of a VAT registered person are NOT subject to Output Tax

1. Change of control in the corporation of as corporation by the acquisition of controlling interest of the corporation by
another stockholder or group of stockholders.

The goods or properties used in the business or those comprising the stock-in-trade of the corporation will not be
considered sold, bartered or exchanged despite the change in the ownership interest. However, the exchange of real estate
properties held for sale or for lease, for shares of stocks, whether resulting to corporate control or not, is subject to VAT,
subject to exceptions provided under Section 4.106-3 (Sale of real properties) hereof. On the other hand, if the transferee of
the transferred real property by a real estate dealer is another real estate dealer, in an exchange where the transferor gains
control of the transferee- corporation, no output VAT is imposable on the said transfer (Sec. 8, R.R. 4-2007).

2. Change in the trade or corporate name of the business.

3. Merger or consolidation of corporations.

The unused input tax of the dissolved corporation, as of the date of merger or consolidation, shall be absorbed by the
surviving or new corporation.

ZERO-RATED SALES

U NIVERSITY OF S ANTOT O MAS

183 F A C U L T Y O F C I V I L L AW
 LAW ON TAXATION
Zero-rated sale by a VAT-registered person is a taxable transaction for VAT purposes but the sale does not result in any output tax.
However, the input tax on the purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or
refund.

To be subject to zero tax-rate, however, the seller must be a VAT-registered person because if he is not VAT registered, the transactions
entered into by him are exempt from the tax.
Purpose: To exempt the transaction completely from VAT previously collected since input taxes passes to him may be recovered as refund
or credits (Ingles, 2015).

The zero-rated seller becomes internationally competitive by allowing the refund or credit of input taxes that are attributable to export
sales (CIR v. Seagate Technology (Phil.), G.R. No. 153866, Feb. 11, 2005).

Zero-rated vs. VAT-exempt transactions

 LAW ON TAXATION

BASIS EXEMPT ZERO-RATED

Nature of Not taxable; Transaction is
transaction removes VAT at taxable for VAT
the exempt purposes
stage although the tax
levied is 0%
By whom made Need not be a Made by a VAT-
VAT-registered registered
person person
Input tax Not subject to May claim input
output tax, thus tax credit
cannot claim although the
input tax credit. transaction
resulted to zero
ZERO-RATED VAT- EXEMPT
output tax.
ItTaxgenerally refersCannot to theavailInof VAT-exempt
Can claim orsales,
export sale of good
Credit/Refund and orthe taxpayer/seller
tax credit enjoy tax shall
supply of services. TheThus,
refund. not bill credit/refund
any output tax
output tax rate is setmay at zero. on his (Total
result in salesRelief)
to his
When applied to increased the tax prices
customers and
base, such rate obviously corollarily,
(Partial Relief) is not
results in no tax chargeable allowed any credit or
against the purchaser.
ZERO-RATED SALE refund of the input taxes [FEE]
OF GOODS
1. Export sales he paid on his
The
2. Foreign sellercurrencyof denominated
such purchases.
sale
transactions
3. Effectivelycharges zero-ratedno sales
output tax but can claim a This non-crediting of
refund or tax EXPORT
credit SALES
input taxes is exempt
certificate for the VAT transactions is the
previously
The term export charged
sales means:by [FINE
underlying
GO] reason why
suppliers (AT&T the NIRC adopted the
Communications
1. The sale and actual Services ruleof on
shipment goodsapportionment
from the Philippines to a Foreign country:
Phils.,a. Inc.irrespective
v. CIR, G.R. No. shipping
of any of taxarrangement;
credits under and
182364,b. August
paid for 3, 2010).
in acceptable Section
foreign currency 104(A)
or its equivalent in goods or services and accounted for in accordance with
the rules and regulations whenever
of BSP. a VAT-
No
2. VAT Sale shall
of rawbematerials
shifted or registered
or packaging materialstaxpayer
by a VAT-registered entity to a Non-resident buyer:
passed-on
a. for deliveryby toVAT- engages
a resident in other VAT enterprise;
local export-oriented
registered
b. used in the manufacturing, processing,non-VAT
sellers or taxable and packing, repacking in the Philippines of the said buyer’s goods;
suppliers from the Customs taxable sales (CIR v.
Territory on their sale, Eastern Telecomm.
barter or exchange of goods, Phils., Inc., G.R. No.
properties or services to the 163835, July 7, 2010).
subject registered Freeport
Zone enterprises.

Simply put, the difference lies in the input tax. In VAT- exempt transactions there is no input tax credit allowed. In the case of 0% rated
transaction of a VAT registered person, the sale of goods or properties is multiplied by 0% thus his output tax is P 0.00. If the person is VAT
registered, he may claim such input tax as tax credit or refund.

E.g.: Output tax P 0.00

Less: Input tax 5,000.00
Excess input tax P 5, 000.00
 LAW ON TAXATION

c. paid for in acceptable foreign currency and accounted in accordance with the rules of BSP.
3. Sale of raw material or packaging materials to Export oriented enterprise whose export sales exceed 70% of total
annual production
4. Sale of Gold to BSP
5. Those considered as export sales under the
Omnibus Investment Code of 1987(E.O. 226)

“Considered export sales under EO 226” shall mean the Philippine port F.O.B. value determined from invoices, bills
of lading, inward letters of credit, landing certificates, and other commercial documents, of export products exported
directly by a registered export producer, or the net selling price of export products sold by a registered export
producer to another export producer, or to an export trader that subsequently export the same; Provided, that sales of
export products to another
 VALUE-ADDED TAX
producer or to an export trader shall only be deemed export sales when actually exported by the latter, as evidenced by
landing certificates or similar commercial documents.

Constructive exports

a) Sales to bonded manufacturing warehouses of export-oriented manufacturers

b) Sales to export processing zones
c) Sales to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant to R.A. 7227
d) Sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of
export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue (BIR) and
the Bureau of Customs (BOC)
e) Sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally
manufactured, assembled or repacked products whether paid for in foreign currency or not (Sec. 4.106-5, RR 16- 2005).

6. The sale of goods, supplies, equipment and fuel to persons engaged in International shipping or international air transport
operations (Sec. 106[A][2][a], NIRC as amended by RA 9337).

Rationale for zero-rating exports sale

The Philippine VAT system adheres to the cross border doctrine, according to which, no VAT shall be imposed to form part of the
cost of goods destined for consumption outside of the territorial border of the taxing authority.

Export sale, when exempt and when zero-rated

Rules on Export Sales

By a Non-VAT registered VAT exempt
By a VAT registered VATable at 0% (zero
rated)

---
Q: Is the sale of goods to ecozone, such as PEZA, considered as export sale?

A: YES. While an ecozone is geographically within the Philippines, it is deemed a separate customs territory and is regarded in law
as foreign soil. Sales by suppliers from outside the borders of the ecozone to this separate customs territory are deemed as exports
and treated as export sales. These sales are zero-rated or subject to a tax rate of zero percent (CIR v. Sekisui Jushi Philippines, Inc.,
G.R. No. 149671, July 21, 2006).

An ecozone or a Special Economic Zone has been described as selected areas with highly developed or which have the potential to
be developed into agro- industrial, industrial, tourist, recreational, commercial, banking, investment and financial centers whose
metes and bounds are fixed or delimited by Presidential
 VALUE-ADDED TAX

Proclamations. An ecozone may contain any or all of the following: industrial estates (IEs), export processing zones (EPZs), free
trade zones and tourist/recreational centers. The national territory of the Philippines outside of the proclaimed borders of the
ecozone shall be referred to as the Customs Territory (CIR v. Toshiba Information Equipment (Phils.), Inc., G.R.. No. 150154, August
9, 2005).
---
---
Q: Royal Mining is a VAT-registered domestic mining entity. One of its products is silver being sold to Bangko Sentral ng
Pilipinas. It filed a claim with the BIR for tax refund in the ground that under Section 106 of the NIRC, sales of precious
metals to Bangko Sentral are considered export sales subject to zero- rated VAT. (2006 Bar)

A: NO. Royal Mining’s claim is bereft of merit. It is the sale of gold (and not silver) to the BSP that is considered as export sale
subject to zero-rated VAT.
---

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) (Sec.
106[A][2][b], NIRC).

NOTE: Section 149 refers to excise tax on automobiles. Section 150 refers to excise tax on non-essential goods.

Requisites:

1. The buyer must be a non-resident;

2. The goods sold must be assembled or manufactured in the Philippines;
3. Goods sold are to be delivered to a resident of the Philippines; and
4. Paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP.

EFFECTIVELY ZERO-RATED TRANSACTION

The term “effectively zero-rated sale of goods and properties” shall refer to the local sale of goods and properties by a VAT-
registered person to a person or entity who was granted indirect tax exemption under special laws or international agreement.

Since the buyer is exempt from indirect tax, the seller cannot pass on the VAT and therefore, the exemption enjoyed by the buyer
shall extend to the seller, making the sale effectively zero-rated (R.M.C. 50-2007).

Effectively Zero-rated vs. Automatic Zero-rated transaction

U NIV E RS ITY OF S A NTOT O MA S

185 F A C U L T Y O F C I V I L L AW
 LAW ON TAXATION
BASIS EFFECTIVELY AUTOMATIC
ZERO-RATED ZERO-RATED
TRANSACTION TRANSACTION
Nature Refers to sales to Refers to export
persons or entities sales and foreign
whose exemption currency
under special laws denominated sales
or international
agreements to
which the
Philippines is a
signatory
Need to An application for No need to file an
apply for zero-rating must application form
zero- be filed and the and to secure BIR
rating BIR approval is approval before
necessary before the sale is
the transaction considered zero-
may be considered rated.
effectively zero-
rated.
For whose Intended to benefit Primarily intended
benefit is it the purchaser who, to be enjoyed by
intended not being directly the seller who is
and legally liable directly and
for the payment of legally liable for
the VAT, will the VAT, making
ultimately bear the such seller
burden of the tax internationally
shifted by the competitive by
suppliers. allowing the
refund or credit of
input taxes that
are attributable to
export sales.
Stamping Required. The Not required. The
of “zero- buyer, as shown by buyer, as shown
rated” on his address in the by his address in
VAT sales invoice and the sales invoice
invoice or shipping and shipping
receipt documents, is documents, is
located outside the located outside the
Philippines merely Philippines.
by fiction of law.
Effect Results in no tax chargeable against the
purchaser.
The seller can claim a refund or a tax
credit certificate for the VAT previously
charged by suppliers.

---
Q: Cebu Toyo Corp., an export enterprise, is a subsidiary of a foreign corporation duly registered with the Philippine Economic
Zone Authority pursuant to PD 66 and is also registered with the BIR as a VAT taxpayer. It sells 80% of its products to its mother
corporation, and the rest are sold to various enterprises doing business in the Mactan Export Processing Zone. Inasmuch as both
sales are considered export sales subject to VAT at 0% rate under the National Internal Revenue Code, as amended, it filed an
application for tax credit/refund of VAT paid for the said period representing excess VAT input payments. The CIR belies the
claim for
 LAW ON TAXATION

refund. Is the grant of a refund representing unutilized input VAT to Cebu Toyo proper?

A: YES. Cebu Toyo is engaged in taxable rather than exempt transactions. Taxable transactions are those transactions which
are subject to VAT either at the rate of twelve percent (12%) or zero percent (0%). In taxable transactions, the seller shall
be entitled to tax credit for the value-added tax paid on purchases and leases of goods, properties or services. An exemption
means that the sale of goods, properties or services and the use or lease of properties is not subject to VAT (output tax) and
the seller is not allowed any tax credit on VAT (input tax) previously paid. A VAT-registered purchaser of goods, properties
or services that are VAT exempt, is not entitled to any input tax on such purchases despite the issuance of a VAT invoice or
receipt. Under the system, a zero rated sale by a VAT-registered person, which is a taxable transaction for VAT purposes,
shall not result in any output tax, but the input tax on his purchase of goods, properties or services related to such zero-
rated sale shall be available as tax credit or refund (CIR v. Cebu Toyo Corporation, G.R. No. 149073, February 16, 2005).
---
---
Q: SEAGATE is a resident foreign corporation duly registered with the SEC to do business in the Philippines. It is
also registered with the PEZA to engage in the manufacture of recording components primarily used in computers
for export. SEAGATE is a VAT-registered entity. An administrative claim for refund of VAT input taxes in the
amount of P28,369,226.38 with supporting documents was filed with Revenue District Office in Cebu. The
administrative claim for refund was not acted upon by the petitioner prompting the respondent to elevate the case
to the CTA. The CIR contended that since ‘taxes are presumed to have been collected in accordance with laws and
regulations, Seagate has the burden of proof that the taxes sought to be refunded were erroneously or illegally
collected. Unfortunately, Seagate failed to do so. Is Seagate entitled to the refund or issuance of Tax Credit
Certificate representing alleged unutilized input VAT paid on capital goods purchased?

A: YES. As a PEZA-registered enterprise within a special economic zone, it is entitled to the fiscal incentives and benefits
provided for in either PD 66 or EO 226 which would not subject respondent to internal revenue laws and regulations,
among others. Thus, Seagate enjoys preferential tax treatment. The VAT on capital goods is an internal revenue tax from
which the entity is exempt. Although the transactions involving such tax are not exempt, Seagate as a VAT-registered
person, however, is entitled to their credits.

Since the purchases of Seagate are not exempt from the VAT, the rate to be applied is zero. Its exemption under both P.D. 66
and R.A. 7916 effectively subjects such transactions to a zero rate, because the ecozone within which it is registered is
managed and operated by the PEZA as a separate customs territory. This means that in such zone is created the legal fiction
of foreign territory. Under the cross-border principle of the VAT system
 VALUE-ADDED TAX
being enforced by the BIR, no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the
territorial border of the taxing authority. If exports of goods and services from the Philippines to a foreign country are free of the
VAT, then the same rule holds for such exports from the national territory – except specifically declared areas – to an ecozone (CIR
v. Seagate Technology (Phil.), G.R. No. 153866, Feb. 11, 2005).
---

ZERO-RATED SALE OF SERVICE

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 Sentral ng Pilipinas (BSP);
2. Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted
outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services
are 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 i.e. recruitment;
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 persons engaged in international shipping or international air transport operations, including leases of
property for use thereof;
5. Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an
enterprise whose export sales exceed seventy percent (70%) of total annual production;
6. Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country; and
7. Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind,
hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and
hydrogen fuels (Sec. 108, NIRC as amended by R.A. 9337).

Services other than processing manufacturing, or repacking of goods (Sec 108 (B)(2)

Requirements to qualify for zero-rating

1. The services other than “processing, manufacturing or repacking of goods” must be performed in the Philippines,
 VALUE-ADDED TAX

2. That the payment for such services be in acceptable foreign currency accounted for in accordance with BSP rules, and
that
3. The recipient of such services is doing business outside of the Philippines.

In CIR vs. American Express International, Inc., (2005), the Court ruled that the Legislature does not to impose the condition of
being "consumed abroad" in order for services performed in the Philippines by a VAT- registered person to be zero-rated. In this
case, the taxpayer renders services in the Philippines and facilitates the collection and payment of receivables belonging to its
non-resident foreign client, for which it gets paid in acceptable foreign currency inwardly remitted and accounted for in
conformity with BSP rules and regulations.

In Accenture Inc. vs CIR (2012), the Court ruled that the recipient of the service must be doing business outside the Philippines for
the transaction to qualify for zero- rating under Section 108 (B) of the NIRC. To come within the purview of Section 108 (B) (2), it
is not enough that the recipient of the service be proven to be a foreign corporation; rather, it must be specifically proven to be a
nonresident foreign corporation.

Services rendered to persons engaged in international shipping or international air transport operations

In order to qualify for zero-rating, the services rendered by a VAT-registered person to a person engaged in international air
transport operations must pertain to or must be attributable to the transport of goods and passengers from a port in the
Philippines directly to a foreign port without docking or stopping at any port in the Philippines.

Accordingly, the services provided by hotels to their clients engaged in international air transport operations pertaining to room
accommodations and food and beverage services should be subject to the 12% VAT. As they are rendered within the hotel's
premises, they have no direct connection with the transport of goods or passengers, and as such, they cannot be considered as
services directly attributable to the transport of goods and passengers from a Philippine port directly to a foreign port entitled to
zero-rating (RMC No. 031-11).

---
Q: Are the following transactions subject to VAT? If yes, what is the applicable rate for each transaction. State the
relevant authority/ies for your answer.

a. Construction by XYZ Construction Co. of concrete barriers for the Asian Development Bank in Ortigas Center to
prevent car bombs from ramming the ADB gates along ADB Avenue in Mandaluyong City.

b. Call Center operated by a domestic enterprise in Makati that handles exclusively the reservations of a hotel chain
which are all located in North America. The services are paid for in US$ and duly accounted for with the Bangko Sentral
ng Pilipinas. (2010 Bar)
 LAW ON TAXATION

A:
a. The transaction is subject to VAT at the rate of zero percent (0%). ADB is exempt from direct and indirect taxes under a special law,
thereby making the sale of services to it by a VAT-registered construction company effectively zero-rated (Sec. 108(B)(3), NIRC).

b. The sale of services subject to VAT at zero percent (0%). Zero-rated sale of services includes services rendered to a person engaged in
business outside the Philippines and consideration is paid in acceptable foreign currency duly accounted for by the Bangko Sentral ng
Pilipinas (Sec. 103(B)(2)NIRC).
---

VAT-EXEMPT TRANSACTIONS

These 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 (Sec 4.109-1, R.R. No. 16-2005).

Exempt Party vs. Exempt Transaction

EXEMPT PARTY EXEMPT TRANSACTION

A person or entity
granted VAT exemption
under the NIRC, special
law or international
agreement to which RP is
a signatory, and by virtue
of which its taxable
transactions become
exempt from the VAT.
Such party is not subject
to the VAT, but may be
allowed a tax refund or
credit of input tax paid,
depending on its
registration as a VAT or
non-VAT taxpayer.
Involves goods or services
which, by their nature are
specifically listed in and
expressly exempted from
the VAT under the NIRC,
without regard to the tax
status of the parties in the
transactions.
Transaction is not subject
to VAT, but the seller is
not allowed any tax
refund or credit for any
input taxes paid.

Reason for electing VAT registration

A VAT-registered person who opted to be subject to VAT may avail of the input tax credit. The input tax is deducted from the output tax
thereby reducing his tax liabilities but a VAT-registered person who opted to be exempt therefrom cannot avail of the input tax credit.
Thus a VAT-registered person may choose to be subjected to rather than exempt from payment of VAT.

NOTE: Oil companies are not exempt from the payment of excise tax on petroleum products manufactured and sold by them to
international carriers (CIR v. Pilipinas Shell, G.R. no. 188497, April 25, 2012).

Exempt transactions, enumerated

 LAW ON TAXATION

a. Sale or importation of
i. agricultural and marine food products in their original state,
ii. livestock and poultry of
a. a kind generally used as, or yielding or producing foods for human consumption; and
b. breeding stock and genetic materials therefor

Livestock shall include cows, bulls and calves, pigs, sheep, goats and rabbits. Poultry shall include fowls, ducks, geese and
turkey. Livestock or poultry does not include fighting cocks, race horses, zoo animals and other animals generally considered
as pets.

Marine food products shall include fish and crustaceans, such as, but not limited to, eels, trout, lobster, shrimps, prawns,
oysters, mussels and clams.

Meat, fruit, fish, vegetables and other agricultural and marine food products classified under this paragraph shall be
considered in their original date even if they have undergone the simple processes of preparation or preservation for the
market, such as freezing, drying, salting, broiling, roasting, smoking or stripping, including those using advanced
technological means of packaging, such as shrink wrapping in plastics, vacuum packing, tetra-pack, and other similar
packaging methods.

Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and copra shall be considered as
agricultural food products in their original state.

Sugar whose content of sucrose by weight, in the dry state, has a polarimeter reading of 99.5º and above are presumed to be
refined sugar.

Cane sugar produced from the following shall be presumed, for internal revenue purposes, to be refined sugar:
(1) product of a refining process,
(2) products of a sugar refinery, or
(3) product of a production line of a sugar mill accredited by the BIR to be producing and/or capable of producing sugar
with polarimeter reading of 99.5o and above, and for which the quedan issued therefor, and verified by the Sugar
Regulatory Administration, identifies the same to be of a polarimeter reading of 99.5º and above.

Bagasse is not included in the exemption provided for under this section (Sec. 4.109-1(B)(1)(a), R.R. 16-2005).

Refined sugar subject to VAT

Raw Sugar refers to sugar produced by simple process of conversion of sugar cane without a need of any of mechanical or
similar device such as muscovado. For this purpose, raw sugar refers only to muscovado sugar.

Centrifugal process of producing sugar is not in itself a simple process. Therefore, any type of sugar produced therefrom is
not exempt from VAT (R.R. No. 13-2013).
 VALUE-ADDED TAX

b. Sale or importation of
1. fertilizers;
2. seeds, seedlings and fingerlings;
3. fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the
manufacture of finished feeds
a.except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally
considered as pets)

Specialty feeds refers to non-agricultural feeds or food for race horses, fighting cocks, aquarium fish, zoo animals and other
animals generally considered as pets.

c. Importation of personal and household effects belonging to

1. residents of the Philippines returning from abroad, and
2. non-resident citizens coming to resettle in the Philippines;
Provided, that such goods are exempt from customs duties under the Tariff and Customs Code of the Philippines

Requisites under Sec. 800 of Customs Modernization and Tariff Act of 2016

1. That the personal and household effects of returning residents shall neither be in commercial quantities nor intended for
barter, sale or hire and that the total dutiable value of which shall not exceed:
a. P350,000 – for those who have stayed in a foreign country for at least 10 yrs, and has not availed of this privilege within
10 years prior to arrival
b. P250,000 – for those who have stayed for at least 5 but not more than 10 yrs and has not availed of this privilege within
5 years prior to arrival
c. P150,000 – for those who have stayed for a period of less than 5 yrs and has not availed of this privilege within 6 months
prior to arrival;
d. P150,000 – in case of returning OFWs. This privilege is available once in a given calendar year.

NOTE: Prior to the amendment of the Tariff and Customs Code, the ceiling amount is P10,000.

2. Amount in excess of the above threshold shall be subject to tax.

d. Importation of
1. professional instruments and implements,
2. wearing apparel,
3. domestic animals, and
4. personal household effects (except any vehicle, vessel, aircraft, machinery and other goods for use in the
manufacture and merchandise of any kind in commercial quantity)
 VALUE-ADDED TAX

belonging to persons coming to settle in the Philippines,

1. for their own use and
2. not for sale, barter or exchange,
3. accompanying such persons, or arriving within ninety (90) days before or after their arrival,
4. upon the production of evidence satisfactory to the Commissioner of Internal Revenue, that such persons are
actually coming to settle in the Philippines and that the change of residence is bonafide;

e. Services subject to percentage tax

Refer to discussion on percentage tax.

f. Services by
1. agricultural contract growers, and
2. milling for others of
a. palay into rice,
b. corn into grits, and
c. sugar cane into raw sugar

Agricultural contract growers refer to those persons producing for others poultry, livestock or other agricultural and marine
food products in their original state.

g. Medical, dental, hospital and veterinary services, except those rendered by professionals

Laboratory services are exempted. If the hospital or clinic operates a pharmacy or drug store, the sale of drugs and medicine is
subject to VAT.

---
Q: PHILHEALTH, a corporation that establishes, maintains, conducts and operates a prepaid group practice health care
delivery system or a health maintenance organization to take care of the sick and disabled persons enrolled in the
health care plan, inquired before the CIR whether the services it provided to the participants in its health care program
were exempt from the payment of VAT. The Commissioner issued VAT Ruling 231-88 stating that PHILHEALTH, as a
provider of medical services, was exempt from the VAT coverage.

Meanwhile, Republic Act 7716 (E-VAT Law) took effect, amending further the NIRC of 1977. Subsequently, R.A. 8424
(NIRC of 1997) took effect, substantially adopting and reproducing the provisions of E.O. 273 on VAT and the E-VAT law.
With the passage of these laws, the BIR sent PHILHEALTH a Preliminary Assessment Notice for deficiency in its payment
of the VAT and documentary stamp taxes (DST) for taxable years 1996 and 1997 and a letter demanding payment of
“deficiency VAT” and DST for taxable years 1996 to 1997.

PHILHEALTH filed a protest with the Commissioner but the latter did not take action on its protest. Consequently,
PHILHEALTH brought the matter to
 LAW ON TAXATION
the CTA. The CTA declared that VAT Ruling 231-88 is void and without force and effect and ordered it to pay the VAT
deficiency, but canceling the payment of DST. After a Motion for Partial Reconsideration, CTA overruled its decision with respect
to the payment of deficiency VAT and held that PHILHEALTH was entitled to the benefit of non- retroactivity of rulings
guaranteed under Section 246 of the NIRC, in the absence of showing of bad faith on its part. Are the services of PHILHEALTH
subject to VAT?

A: YES, PHILHEALTH’s services are not VAT-exempt. Those exempted from VAT are those engaged in the performance of medical, dental,
hospital and veterinary services except those rendered by professionals. PHILHEALTH is not actually rendering medical service but merely
acting as a conduit between the members and their accredited and recognized hospitals and clinics. It merely provides and arranges for the
provision of pre- need health care services to its members for a fixed prepaid fee for a specified period of time; that it then contracts the
services of physicians, medical and dental practitioners, clinics and hospitals to perform such services to its enrolled members; and that it
enters into contract with clinics, hospitals, medical professionals and then negotiates with them regarding payment schemes, financing and
other procedures in the delivery of health services (CIR v. Philippine Health Care Providers Inc., G.R. No. 168129, April 24, 2007).
---

h. Educational services
1. rendered by private educational institutions duly accredited by the
a. Department of Education (DepED),
b. the Commission on Higher Education (CHED), and
c. the Technical Education and Skills Development Authority (TESDA)
2. and those rendered by government educational institutions;

Educational services shall refer to academic, technical or vocational education provided by private educational institutions duly accredited
by the DepED, the CHED and TESDA and those rendered by government educational institutions and it does not include seminars, in-
service training, review classes and other similar services rendered by persons who are not accredited by the DepED, the CHED and/or the
TESDA.

i. Services rendered by individuals pursuant to an employer-employee relationship

j. Services rendered
b. by regional or area headquarters established in the Philippines by multinational corporations
c. which act as
1. supervisory,
2. communications and
3. coordinating centers for their
a. affiliates,
b. subsidiaries or
c. branches
 LAW ON TAXATION

in the Asia Pacific Region, and

d. do not earn or derive income from the Philippines

k. Transactions which are exempt under international agreements to which the Philippines is a signatory or
under special laws except those granted under PD No. 529 which refers to Petroleum Exploration
Concessionaires under the Petroleum Act of 1949

l. Sales by agricultural cooperatives duly registered and in good standing with the Cooperative Development
Authority (CDA) to their members, as well as sale of their produce, whether in its original state or processed
form, to non- members; their importation of direct farm inputs, machineries and equipment, including spare
parts thereof, to be used directly and exclusively in the production and/or processing of their produce

m. Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered and in good
standing with the Cooperative Development Authority

n. Sales by non-agricultural, non-electric and non- credit cooperatives duly registered with and in good standing
with the CDA; Provided, That the share capital contribution of each member does not exceed Fifteen Thousand
Pesos (P15,000.00) and regardless of the aggregate capital and net surplus ratably distributed among the
members.

Importation by non-agricultural, non-electric and non- credit cooperatives of machineries and equipment, including spare
parts thereof, to be used by them are subject to VAT.

Summary rules on cooperatives

Sales/Gross Receipts To/From To/From

by Members Non-
Members
Agricutural
Cooperatives
 Own produce Exempt Exempt
(processed or at its
origial state)
 Other that own Exempt VAT*
produce (i.e. from
traders)
Credit or Multipurpose
Cooperatives
 From lending
activities Exempt Exempt
 From non-lending
activities VAT VAT
Electric cooperatives VAT VAT
Non-agricultral, non-
lending and
multipurpose, non-
electric
 VALUE-ADDED TAX

 Contribution per Exempt Exempt

member < P15K
 Contribution per VAT VAT
member > P15K
*Exempt if referring to agricultural food product at its original state.
(Tabag, 2015)

o. Export sales by persons who are not VAT- registered

Rules on Export Sales

By a Non-VAT registered VAT exempt
By a VAT registered VATable at 0% (zero
rated)

NOTE: The reason is to encourage exporters of goods to register as a VAT-registered person with the BIR to be able to claim
unused input tax in the form of refund or tax credit.

If he is a VAT-registered person, his export sales are zero-rated.

p. Sales of real properties, namely:

1. Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or
business.
2. Sale of real properties utilized for low-cost housing as defined by RA No. 7279, otherwise known as the "Urban
Development and Housing Act of 1992" and other related laws, such as RA No. 7835 and RA No. 8763.

"Low-cost housing" refers to housing projects intended for homeless low-income family beneficiaries, undertaken by the
Government or private developers, which may either be a subdivision or a condominium registered and licensed by the Housing
and Land Use Regulatory Board/Housing (HLURB) under BP Blg. 220, PD No. 957 or any other similar law, wherein the unit selling
price is within the selling price ceiling per unit of P750,000.00 under RA No. 7279, otherwise known as the "Urban Development
and Housing Act of 1992" and other laws, such as RA No. 7835 and RA No. 8763.

3. Sale of real properties utilized for socialized housing as defined under RA No. 7279, and other related laws, such
as RA No. 7835 and RA No. 8763, wherein the price ceiling per unit is P225,000.00 or as may from time to time be
determined by the HUDCC and the NEDA and other related laws.

"Socialized housing" refers to housing programs and projects covering houses and lots or home lots only undertaken by the
Government or the private sector for the underprivileged and homeless citizens which shall include sites and services
development, long-term financing, liberated terms on interest payments, and such other benefits in accordance with the
provisions of RA No. 7279, otherwise known as the "Urban Development and Housing Act of 1992" and RA No. 7835 and RA No.
8763. "Socialized housing" shall also refer to
 VALUE-ADDED TAX

projects intended for the underprivileged and homeless wherein the housing package selling price is within the lowest interest
rates under the Unified Home Lending Program (UHLP) or any equivalent housing program of the Government, the private
sector or non-government organizations.

4. Sale of residential lot valued at P1,919,500.00 and below, or house & lot and other residential dwellings valued
at P3,199,200.00 and below

If two or more adjacent residential lots, house and lots or other residential dwellings are sold or disposed in favor of one buyer
from the same seller, for the purpose of utilizing the lots, house and lots or other residential dwellings as one residential area,
the sale shall be exempt from VAT only if the aggregate value of the said properties do not exceed P1,919,500.00 for residential
lots, and P3,199,200.00 for residential house and lots or other residential dwellings. Adjacent residential lots, house and lots or
other residential dwellings although covered by separate titles and/or separate tax declarations, when sold or disposed to one
and the same buyer, whether covered by one or separate Deed/s of Conveyance, shall be presumed as a sale of one residential
lot, house and lot or residential dwelling.

This however, does not include the sale of parking lot which may or may not be included in the sale of condominium units. The
sale of parking lots in a condominium is a separate and distinct transaction and is not covered by the rules on threshold amount
not being a residential lot, house & lot or a residential dwelling, thus, should be subject to VAT regardless of amount of selling
price.

Summary Rules on Sales of Real Properties

Sale not in the ordinary course of
trade or business
 In general VAT exempt
Sale of residential lot by a real
estate dealer
 Selling price < P1,919,500* VAT exempt
 Selling price > P1,919,500 VAT
Sale of residential lot by a non-
dealer
 Use in business (incidental VAT
transaction)
 Not use in business (regardless of 6% CGT
amount)
Sale of residential house & lot and
other residential dwellings by a
real estate dealer
 Selling price < P3,199,200**
 Selling price > P3,199,200 VAT exempt
VAT
Sale of residential house & lot and
other residential dwellings by a
non-dealer
 Use in business (incidental VAT
transaction)
 Not use in business (regardless of 6% CGT
amount)
 LAW ON TAXATION
Sale of real property classified as low VAT exempt
cost housing Summary of rules on lease of residential units:
Monthly rental P12,800 VAT exempt and no
Sale of real property classified as VAT exempt
or less regardless of percentage tax
socialized housing annual gross sales
* Apply rules on adjacent lots Monthly rental above VAT-exempt under Sec.
P12,800 but annual 109 (W) but shall pay
** Apply rules on adjacent house and lots and other residential dwellings
(Tabag, 2015) gross sales do not exceed 3% percentage tax under
P1,919,500 Section 116 of NIRC
q. Lease of residential units with a monthly rental per unit not exceeding
Monthly rental
Twelve above
ThousandSubject
EighttoHundred
VAT Pesos (P12,800.00),
regardless of the amount of aggregate rentals received by the lessor
P12,800 during
andthe year
annual
gross sales exceed
P1,919,500
Provided, every three (3) years thereafter, the amount shall be adjusted to its present value using the Consumer Price Index, as published
by the NSO; Provided, further, that such adjustment shall be published through revenue
 LAW ON TAXATION

NOTE: Lease of commercial units, regardless of the amount of monthly rental is subject to VAT unless the lessor is non-
VAT registered and annual gross receipts < P1,919,500 (Tabag, 2015).

---
regulations to be issued not later than March 31 of each year.

The foregoing notwithstanding, lease of residential units where the monthly rental per unit exceeds Twelve Thousand Eight Hundred Pesos
(P12,800.00) but the aggregate of such rentals of the lessor during the year do not exceed One Million Nine Hundred Nineteen Thousand
Five Hundred Pesos (P1,919,500.00) shall likewise be exempt from VAT, however, the same shall be subjected to three percent (3%)
percentage tax.

In cases where a lessor has several residential units for lease, some are leased out for a monthly rental per unit of not exceeding P12,800.00
while others are leased out for more than P12,800.00 per unit, his tax liability will be as follows:

1. The gross receipts from rentals not exceeding P12,800.00 per month per unit shall be exempt from VAT regardless of the aggregate
annual gross receipts.

2. The gross receipts from rentals exceeding P12,800.00 per month per unit shall be subject to VAT if the aggregate annual gross
receipts from said units only (not including the gross receipts from units leased for not more than P12,800.00) exceeds P1,919,500.00.
Otherwise, the gross receipts will be subject to the 3% tax imposed under Section 116 of the NIRC.

The term 'residential units' shall refer to apartments and houses & lots used for residential purposes, and buildings or parts or units
thereof used solely as dwelling places (e.g., dormitories, rooms and bed spaces) except motels, motel rooms, hotels, hotel rooms, lodging
houses, inns and pension houses.

The term 'unit' shall mean:

- an apartment unit in the case of apartments,
- house in the case of residential houses,
- per person in the case of dormitories, boarding houses and bed spaces; and
- per room in case of rooms for rent (RR 16-11).
 LAW ON TAXATION

Q: X operates a dormitroy beside the school compound. Student bed-spacers are charged Php 2,500 each per
month. X has an average of 40 students every month. Since “Lease” is VATable, can X pass the 12% VAT to the
students? Why?

A: The lease is VAT exempt because the monthly rental per student is less than P12,800 regardless of the total annual
aggregate income of X received during the year.

NOTE: If the rent of an apartment is more than P12,800 per unit but the aggregate rent income of the lessor does not exceed
P1,919,500, the lessor is not VATable, but he is subject to the 3% direct percentage tax (Lim, 2014).
---

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 which is not devoted principally to
the publication of paid advertisements

A newspaper, magazine, review or bulletin must be: (1) printed or published at regular intervals; (2) available for
subscription and sale at fixed prices; and (3) are not principally devoted to the publication of paid advertisements.

The terms "book", "newspaper", "magazine", "review" and "bulletin" as used in the provision refer to printed materials in
hard copies. They do not include those in digital or electronic format or computerized versions, including but not limited to:
e-books, e-journals, electronic copies, online library sources, CDs and software (RMC No. 57-2012).

s. Transport of passengers by international carriers transport of passengers by international carriers doing

business in the Philippines

The transport of cargo by international carriers doing business in the Philippines shall be exempt from VAT as the same is
subject to Common Carrier's Tax (Percentage Tax on Internatonal Carriers). International carriers
 VALUE-ADDED TAX

exempt under Sections 109(1)(S) and 109(1)(E) of the NIRC, as amended, shall not be allowed to register for VAT purposes (RR
No. 15-15).

Summary of rules for transport of passengers or cargoes

12% VAT 0% VAT EXEMPT

Domestic International Transport of
transport of transport of passengers by
passengers or passengers or international air
cargoes by air cargoes by air and shipping
and sea or sea carriers

NOTE: In case of
NOTE: If transport of
domestic NOTE: cargoes, the
transport of
Transport international air
passengers or should be done or shipping
cargoes by
by domestic carrier shall be
land, the
carriers with subject to 3%
common international percentage tax
carrier is liableflightssuch as on international
to percentage PAL, Cebu carriers
tax on common Pacific, etc.,
carriers otherwise,
exempt
t. Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts
thereof for domestic or international transport operations

Provided, that the exemption from VAT on the importation and local purchase of passenger and/or cargo vessels shall be limited
to those of one hundred fifty (150) tons and above, including engine and spare parts of said vessels; Provided, further, that the
vessels to be imported shall comply with the age limit requirement, at the time of acquisition counted from the date of the
vessel's original commissioning, as follows:
(i) for passenger and/or cargo vessels, the age limit is fifteen (15) years old, (ii) for tankers, the age limit is ten
(10) years old, and (iii) For high-speed passenger crafts, the age limit is five (5) years old; Provided, finally, that exemption shall
be subject to the provisions of Section 4 of Republic Act No. 9295, otherwise known as "The Domestic Shipping Development Act
of 2004";

u. Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations

Provided, that the said fuel, goods and supplies shall be used exclusively or shall pertain to the transport of goods and/or
passenger from a port in the Philippines directly to a foreign port without stopping at any other port in the Philippines; Provided,
further, that if any portion of such fuel, goods or supplies is used for purposes other than that mentioned in this paragraph, such
portion of fuel, goods and supplies shall be subject to 12% VAT.

Fuel, When exempt from VAT and when zero-rated

 VALUE-ADDED TAX

Fuel is exempt if imported by persons engaged in international shipping or air transport operations. On the other hand, fuel is
zero-rated when sold to persons engaged in international shipping or international air transport operations without docking or
stopping at any other port in the Philippines.

v. Services of
1. banks,
2. non-bank financial intermediaries performing quasi-banking functions, and
3. other non-bank financial intermediaries subject to percentage tax under Secs. 121 and 122 of the NIRC, such as
money changers and pawnshops

In Tambunting Pawnshop, Inc. vs. CIR, G.R. No. 179085 (2010), since the taxpayer (pawnshop) is a non-bank intermediary, it is
subject to 10% (now 12%) VAT for the tax years 1996-2002; however, with the levy, assessment and collection of VAT from
non-bank intermediaries being specifically deferred by law, then taxpayer is not liable for VAT during these tax years. But with
the full implementation of the VAT system on non-bank financial intermediaries starting January 1, 2003, taxpayer is liable for
10% VAT for the said tax year. And beginning 2004 up to the present, by virtue of R.A. no. 9238, taxpayer is no longer liable for
VAT but it is subject to percentage tax on gross receipts from 0% to 5% as the case may be.

Pawnshops are not liable to pay VAT

Pawnshops are not classified as lending investors and therefore, they are not subject to VAT. They are subject to percentage tax
as imposed on Section 122 of NIRC (Tambunting Pawnshop, Inc., v CIR, G.R. No. 179085, January 21, 2010; R.A. 9238; RMC 74-
2005).

w. Sale or lease of goods or properties or the 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 One Million Nine
Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00)

Provided, every three (3) years thereafter, the amount shall be adjusted to its present value using the Consumer Price Index, as
published by the NSO; Provided, further, that such adjustment shall be published through revenue regulations to be issued not
later than March 31 of each year.

For purposes of the threshold of P1,919,500.00, the husband and the wife shall be considered separate taxpayers. However, the
aggregation rule for each taxpayer shall apply. For instance, if a professional, aside from the practice of his profession, also
derives revenue from other lines of business which are otherwise subject to VAT, the same shall be combined for purposes of
determining whether the threshold has been exceeded. Thus, the VAT-exempt sales shall not be included in determining the
threshold.
 LAW ON TAXATION
----
Q: State whether the following transactions are: a) VAT Exempt, b) subject to VAT at 12%; or c) subject to VAT at 0%:

1. Sale of fresh vegetables by Aling Ining at the Pamilihang Bayan ng Trece Martirez.
2. Services rendered by Jake's Construction Company, a contractor to the World Health Organization in the renovation of its
offices in Manila.
3. Sale of tractors and other agricultural implements by Bungkal Incorporated to local farmers.
4. Sale of RTW by Cely's Boutique, a Filipino dress designer, in her dress shop and other outlets.
5. Fees for lodging paid by students to Bahay- Bahayan Dormitory, a private entity operating a student dormitory (monthly fee
P1,500). (1998 Bar)

A:
1. VAT exempt. Sale of agricultural products, such as fresh vegetables, in their original state, of a kind generally used as, or producing
foods for human consumption is exempt from VAT (Sec. 109[A], NIRC).
2. VAT at 0%. Since Jake's Construction Company has rendered services to the World Health Organization, which is an entity exempted
from taxation under international agreements to which the Philippines is a signatory, the supply of services is subject to zero percent
(0%) rate (Sec. 108[B][3], NIRC).
3. VAT at 12%. Tractors and other agricultural implements fall under the definition of goods which include all tangible objects which are
capable of pecuniary estimation (Sec. 106[A][1], NIRC).
4. This is subject to VAT at 12%. This transaction also falls under the definition of goods which include all tangible objects which are
capable of pecuniary estimation (Sec. 106[A][1], NIRC).
5. VAT Exempt. The monthly fee paid by each student falls under the lease of residential units with a monthly rental per unit not
exceeding P12,800 (R.R. 16-2011), which is exempt from VAT regardless of the amount of aggregate rentals received by the lessor
during the year (Sec. 109[Q], NIRC, as amended by R.R. 16-2011). The term unit shall mean per person in the case of dormitories,
boarding houses and bed spaces (Sec. 4.103-1, R.R. No. 7-95).
---

OUTPUT AND INPUT TAX

Output Tax

It means the value-added tax due on the sale or lease of taxable goods or properties or services by (1) any person registered or (2)
required to register under Sec. 236 of the NIRC (Sec. 110[A][3], NIRC).

Output tax is what the taxpayer-seller passes on to the purchases. Note that what is output tax for the seller is input tax to the purchaser
(Ingles, 2015).
 LAW ON TAXATION

Output tax may come from:

i. Actual sale
ii. Transaction deemed sales

Input Tax

It means the value-added tax due on or paid by a VAT- registered person on importation of goods or local purchase of
goods, properties or services, including lease or use of properties, in the course of his trade or business. It shall also
include the transitional input tax and the presumptive input tax determined in accordance with Section 111 of the NIRC
(Sec. 110[A][3], NIRC).

It includes input taxes which can be

1. directly attributed to transactions subject to the VAT, plus
2. a ratable portion of any input tax which cannot be directly attributed to either the taxable or exempt activity (R.R. 16-
2005).

Input tax is what is passed on to the purchaser/taxpayer by the seller. If the purchaser is VAT-registered person, then he
can use the input tax as credit to the output taxes that he is liable to remit to the BIR (Ingles, 2015).

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. 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 (CIR v. Benguet Corporation, G.R. No. 145559, July 14,2006).

Effect of VAT exempt purchases to input tax

VAT exempt transactions cannot be credited for input tax. However, a transaction which cannot be directly attributed in
either the taxable or exempt activity, a ratable portion of the input tax may be credited.

Input tax not a property right under the Due Process Clause

A VAT-registered person’s entitlement to the creditable input tax is a mere statutory privilege which may be limited or
removed by law.

Categories of input tax

Type of Input Tax Rate

Input tax on importation of goods and 12%
local purchases of goods, properties standard or
and services (Sec. 110, NIRC) 0%
Presumptive input tax credit (Sec. 4%
111[B], NIRC) – may be calimed by persons
engaged in the business of processing
ssardines, mackerel and milk;
manufacturing refined sugard and cooking
oil; and noodle based instant meals; all of
which are substantially produced from
primary agricultural and marine food
producs, the supply of which is exempt
from VAT
 VALUE-ADDED TAX

Sources of Creditable Input Tax

Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 of the NIRC on the following
transactions shall be creditable against the output tax:

1. Purchase or importation of goods:

a. For sale; or
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 materials supplied in the sale of service; or
 VALUE-ADDED TAX

Transitional input tax credit (Sec. 111 2%

acquisition cost of
[A], NIRC) each capital
– may good,by
be claimed shall be claimed
persons as credit against output tax in the following manner:
transitional
who become liable to VAT for the first time or 12%
a. Ifand
the estimated useful lifeinput
such represent of a capital
tax good
on is five input
actual
(5) years or more
inventories – Input materials
goodsw, tax shall be spread
and tax evenly
rate over a period of sixty (60) months and the claim for input tax credit
will commence
supplies in the
existing calendar
on the date of month when the capital good is acquired.
b. Ifcommencement
the estimated useful life of astatus
of a person’s capital
asgood
a is less than five (5) years – Input tax shall be spread evenly on a monthly
basis by dividing
taxable person the input tax by the actual number of months comprising the estimated useful life of the capital good. Such
claim
Finalfor input tax credit
withholding shall commence
tax credit in the calendar5%
(Sec. 114[C], month that the capital goods were acquired.
NIRC) – is based on the amount paid to the
Aggregate
supplier costofdoes
goodsnotor exceed P1M by
services - Where
the the aggregate acquisition cost (exclusive of VAT) of the existing or finished
depreciable
governmentcapital
andgoods purchased
is required to beor imported during any calendar month does not exceed P 1,000,000.00, the total input
withheld
taxesby
willthe
be allowable
government as credit
to theagainst outputtotax in the month of acquisition.
BIR (refer
withholding of final tax on sales to
Aggregate cost exceeds P1M but acquired in instalment payments - The aggregate acquisition cost of a depreciable asset in
government).
any calendar
Excess month input refers
tax tocredit
the total(refer
price agreed
to upon for NA
one or more assets acquired and not on the payments actually made
during the calendar
discussion month. Thus,
on application an asset
on tax refundacquired
or in installment for an acquisition cost of more than P 1,000,000.00 will be
subject
taxto the amortization
credit certificate) of input tax despite the fact that the monthly payments/installments may not exceed P1,000,000.00
(Sec 4.110-3 R.R. No. 16-2005).
e. For use in trade or business for which deduction for depreciation or amortization is allowed under NIRC, except
automobiles, aircraft and yachts. (Capital Goods)

2. Purchases of real properties for which a VAT has actually been paid;
3. Purchases of services in which a VAT has actually been paid (Sec. 110, NIRC);
4. Transactions “deemed sales”;
5. Presumptive input tax;
6. Transitional input tax credits allowed under the transitory and other provisions (Sec. 4.110-1 R.R. 16- 2005).

Capital goods (depreciable goods)

Capital goods are those goods or properties

a. with an estimated useful life of more than one year;
b. which are treated as depreciable under the income tax law;
c. and used directly or indirectly in the production or sale of taxable goods or services (Ingles, 2015).

Input tax on capital goods

Aggregate cost exceeds P1M - Where a VAT registered person purchases or imports capital goods, which are depreciable assets
for income tax purposes, the aggregate acquisition cost of which (exclusive of VAT) in a calendar month exceeds P1,000,000,
regardless of the
Summary Rules on recognition of Input VAT for
Capital Goods
Aggregate acquisition for the month > P1M, exclusive
of VAT, and:
 Life > 1 year
Input tax shall be spread evenly over such usefule lfe
but not to exceed 60 months.
 Life < 1 year
Not a capital asset. Input tax is not allocated.
Aggregate acquisition for the month < P1M, exclusive
of VAT (regardless of useful life):
The related input VAT is not allocated. Consequently, the
total amount of input VAT shall be treated as tax credit
against output VAT in the month of acquisition.
 VALUE-ADDED TAX

(Tabag, 2015)

NOTE: When an asset with unamortized input tax is retired from business, the unamortized input tax will be closed against the
output taxes during the month or quarter when the sale/disposal is made.

Presumptive input tax

It is an input tax credit allowed to persons or firms engaged in the: [SMM-RCN]

1. processing of:
a. sardines
b. mackerel
c. milk
2. manufacturing of:

U NIVERSITY OF S ANTOT O MAS

195 F A C U L T Y O F C I V I L L AW
 LAW ON TAXATION
a. refined sugar
b. cooking oil
c. packed noodle based instant meals

The allowed input tax shall be equivalent to four percent (4%) of the gross value in money of their purchases of primary agricultural
products which are used as inputs to their production (Sec. 111 [B], NIRC).

They are given this 4% presumptive input tax because the goods used in the said enumeration are VAT-exempt (Ingles, 2015).

NOTE: The term 'processing' shall mean pasteurization, canning and activities which through physical or chemical process alter the
exterior texture or form or inner substance of a product in such manner as to prepare it for special use to which it could not have been put
in its original form or condition.

Transitional input tax

Transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they previously paid taxes in the
acquisition of their beginning inventory of goods, materials, and supplies. During that period of transition from non-VAT to VAT status, the
transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the VAT- registered taxpayer is
obliged to remit a significant portion of the income it derived from its sales as output VAT.
The transitional input tax credit mitigates this initial diminution of the taxpayer’s income by affording the opportunity to offset the losses
incurred through the remittance of the output VAT at a stage when the person is yet unable to credit input VAT payments (Fort Bonifacio
Development Corporation v. CIR, 583 SCRA 168).

These can be availed by taxpayers who become VAT registered persons upon:
1. Exceeding the minimum turnover of P1,919,500 in any 12 month period, or
2. Who voluntarily register even if they do not reach the threshold, except for franchise grantees of radio and TV broadcasting whose
threshold is P10,000,000)

The said taxpayers shall be entitled to a transitional input tax on the inventory on hand as of the effectivity of their VAT registration on the
following:
1. Goods purchased for resale in the present condition;
2. Raw materials - Materials purchased for further processing but which have not yet undergone processing;
3. Manufactured goods
4. Goods in process for sale; or
5. Goods and supplies for use in the course of the taxpayer’s trade or business as a VAT- registered person (Sec. 4. 110-1(a.), R.R 16-
2005).

The allowed input tax shall be whichever is higher

between:
 LAW ON TAXATION

1. 2% of the value of the taxpayer’s beginning inventory

of goods, materials and supplies; or
2. The actual value-added tax paid on such goods
(Sec.111[A], NIRC).

NOTE: Transitional input tax credit may only be availed once. It may be carried over to the next taxing period, until fully
utilized.

Prior payment of taxes is not necessary before a taxpayer could avail of transitional input tax credit. All that is required
from the taxpayer is to file a beginning inventory with BIR.

A transitional input tax credit is not a tax refund per se but a tax credit. Section 112 of the NIRC does not prohibit cash
refund or tax credit of transitional input tax. The grant of a refund or issuance of tax credit certificate in this case would not
contravene the above provision. The refund or tax credit would not be unconstitutional because it is precisely pursuant to
section 105 of the old NIRC which allows refund/tax credit (Fort Bonifacio Development Corporation vs. CIR, G.R. No. 173425,
January 22, 2013).

---
Q: Is Transitional Input Tax Credit applicable to real property?

A: YES. Under Sec. 105 of the old NIRC (now Sec. 111[A]), the beginning inventory of “goods” forms part of the valuation of
the transitional input tax credit. Goods, as commonly understood in the business sense, refer to the product which the VAT-
registered person offers for sale to the public. With respect to real estate dealers, it is the real properties themselves which
constitute their “goods”. Such real properties are the operating assets of the real estate dealer (Ibid.).
---

PERSONS WHO CAN AVAIL OF

INPUT TAX CREDIT

The input tax credit on importation of goods or local purchases of goods, properties or services by a VAT- registered person
shall be creditable:

1. To the importer upon payment of the VAT prior to the release of the goods from the customs custody;
2. To the purchaser of the domestic goods or properties upon consummation of the sale; or
3. To the purchaser of the services or the lessee or the licenses upon payment of the compensation, rental, royalty or fee
(R.R. 16-2005).

As long as the invoices from the suppliers are issued in the name of the taxpayer and expenses were actually incurred by
the taxpayer, then the input tax pertaining to such expenses must be credited to the taxpayer. Where the money came from
to pay these expenses is another matter all together but it does not change the fact that input tax has been incurred (CIR v.
Sony Philippines, Inc., G.R. No. 178697, November 17, 2010).
 VALUE-ADDED TAX
DETERMINATION OF OUTPUT/INPUT TAX; VAT
PAYABLE; EXCESS INPUT TAX CREDITS

Determination of output tax

In a sale of goods or properties, the output tax is computed by multiplying the gross selling price by the regular rate of VAT. For
sellers of services, the output tax is computed by multiplying the gross receipts by the regular rate of VAT.

In all cases where the basis for computing the output tax is either the gross selling price or the gross receipts, but the amount of
VAT is erroneously billed in the invoice, the total invoice amount shall be presumed to be comprised of the gross selling
price/gross receipts plus the correct amount of VAT. Hence, the output tax shall be computed by multiplying the total invoice
amount by a fraction using the rate of VAT as numerator and one hundred percent (100%) plus rate of VAT as the denominator.
Accordingly, the input tax that can be claimed by the buyer shall be the corrected amount of VAT computed in accordance with the
formula herein prescribed.

There shall be allowed as a deduction from the output tax the amount of input tax deductible to arrive at VAT payable on the
monthly VAT declaration and the quarterly VAT returns (RR 16-2005).

Determination of input tax creditable

The amount of input taxes creditable during a month or

 VALUE-ADDED TAX
Basis Example Amount
Ouput Vatable gross Sale of hanky P12.00
tax sales or for total price
receipts of P112
(amount VAT-Ex. Amt:
exclusive P100
VAT) x VAT (P112/1.12)
rate (12% or
0%) Output tax:
P100*12%

Input Vatable Purchase of 6.00

tax purchases materials for
(amount total price of
exclusive of P56
VAT) x
applicable VAT-Ex-Amt.:
VAT rate P50
(P56/1.12)

Input tax:
P50*12%
Net VAT Payable or Excess tax credits P6.00
(Output tax less Input Tax)

Net VAT payable = Output tax > Input tax

Excess tax credits = Output tax < Input tax

NOTE: VAT-exempt transactions do not result to any output or input taxes.

Allocation of input tax on mixed transactions

quarter shall be determined by adding all creditable input taxes arising from the transactions enumerated under “Sources of input
tax” in page during the month or quarter plus any amount of input tax carried-over from the preceding month or quarter,
reduced by the amount of claim for VAT refund or tax credit certificate (whether filed with the BIR, the Department of Finance,
the Board of Investments or the BOC) and other adjustments, such as purchases returns or allowances, input tax attributable to
exempt sales and input tax attributable to sales subject to final VAT withholding.

The table below illustrates the computation of output tax, creditable input tax and the resulting net VAT payable or excess of tax
credits:
 VALUE-ADDED TAX

A VAT-registered person 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:
Provided, that input taxes which are directly attributable to VAT taxable sales of goods and services from the Government or
any of its political subdivisions, instrumentalities or agencies, including GOCCs shall not be credited against output taxes
arising from sales to non- government entities, and
2. 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; only the ratable portion pertaining to transactions subject to VAT
may be recognized for input tax credit.
Input tax attributable to VAT-exempt sales shall not be allowed as credit against the output tax but should be treated as part of
cost of goods sold.

For persons engaged in both zero-rated sales and non- zero-rated sales, the aggregate input taxes shall be allocated ratably
between the zero-rated and non-zero- rated sales (R.R. No. 16-2005).

Determination of VAT payable or Excess tax credits

 LAW ON TAXATION
The resulting computation of output tax and crediting of Official Receipt for the
input tax shall result to either the net VAT payable or initial and succeeding
excess tax credits. payments
b. Installment basis
Net VAT Payable (NVP) – if at the end of any taxable Public instrument and VAT
quarter the output tax exceeds the input tax, the excess Official Receipt for every
shall be paid by the VAT-registered person. payment
Input tax on domestic Official receipt showing the
Excess Tax Credits (ETC) – If the input tax inclusive of purchases of service information required in
input tax carried over from the previous quarter exceeds Sec. 113 and 237 of the
the output tax, the excess input tax shall be carried over NIRC
to the succeeding quarter or quarters. Transitional input tax Inventory of goods as
- Provided, that any input tax attributable to zero- shown in a detailed list to
rated sales by a VAT-registered person may at his be submitted to the BIR
option be refunded or applied for a tax credit Input tax on “deemed Required invoices
certificate which may be used in the payment of sale transaction”
internal revenue taxes Input tax from payments Monthly Remittance
- Thus, input tax, attributable to zero-rated sales made to non-residents Return of Value Added Tax
may be: (such as for services, Withheld (BIR Form 1600)
1. Refunded, or rentals, or royalties) filed by the resident payor
2. Credited against other internal revenue taxes in behalf of the non-
of the VAT taxpayer (e.g. income tax) resident evidencing
remittance of VAT due
Illustration: which was withheld by the
payor.
Period Output Input tax NVP or ETC Advance VAT on sugar Payment order showing
tax payment of the advance
Jan. P 12 M P6M NVP P6M VAT
Feb. 6M 18 M ETC (P12M)
Mar. 6M 18 M ETC (P12M)
Q1 P24 M P 42 M ETC (P18M)

For the months of January and February, only the monthly taxes are computed. However, for the month of March, the accumulated taxes
for the first quarter will be aggregated to determine the NVP or ETC.

In the example, the excess tax credit of P18 can be refunded or credited against the other internal revenue taxes of the taxpayer after the
application and approval from the BIR Commissioner.

SUBSTANTIATION OF INPUT TAX CREDITS

TRANSACTIONS REQUIRED SUPPORT

Importation of goods Import entry or other
equivalent document
showing actual payment of
VAT on imported goods
Input taxes on domestic Invoice showing
purchases of goods or information required
properties made in the under Section 113 and 237
course of trade or of the NIRC
business
Input tax on purchases of
real property

a. Cash/deferred basis Public instrument (i.e.,

deed of absolute sale, deed
of conditional sale,
contract/agreement to sell,
etc.) together with the VAT
invoice for the entire
selling price and non-VAT
 LAW ON TAXATION

NOTE: Cash register machine tape issued to a registered buyer constitute valid proof of official receipt. All purchases
covered by invoices/receipts other than VAT Invoice/VAT Official Receipt shall not give rise to any input tax. (Sec. 4.113-
1(A), R.R. 16-2005).

REFUND OR TAX CREDIT OF EXCESS INPUT TAX

Who may claim for refund/apply for issuance of tax credit certificate

The following can avail of refund or tax credit:

1. Zero-rated and effectively zero-rated sales - Any VAT-registered person, whose sales are zero-rated or effectively
zero-rated (Sec. 112 [A]).
2. Cessation of business or VAT status - A person whose registration has been cancelled due to retirement from or
cessation of business, or due to changes in or cessation of status under Section 106(C) of NIRC (Sec. 112[B]).

Requirements to claim for VAT refund

1. The taxpayer is VAT-registered;

2. The taxpayer is engaged in zero-rated or effectively zero-rated sales;
3. The input taxes are due or paid;
4. The input taxes are not transitional input taxes as it cannot be claimed as a refund or credit;
5. The input taxes have not been applied against output taxes during and in the succeeding quarters;
6. The input taxes claimed are attributable to zero- rated or effectively zero-rated sales;
7. For zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign
currency exchange proceeds have been duly
 VALUE-ADDED TAX
accounted for in accordance with the rules and regulations of the BSP;
8. 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; and
9. The claim is filed within two years after the close of the taxable quarter when such sales were made (Luzon Hydro Corporation
v. CIR, G.R. No. 188260, November 13, 2013, penned by Justice Bersamin).

The taxpayer must prove the following for a tax refund to prosper:

1. That it is a VAT-registered entity;

2. It must substantiate the input VAT paid by purchase invoices or official receipts (Commissioner v. Manila Mining Corporation,
G.R. No. 153204, August 31, 2005).

Failure to comply with the invoicing requirements is a ground to deny a claim for tax refund or tax credit

Case law dictates that in a claim for tax refund or tax credit, the applicant must prove not only entitlement to the claim but also
compliance with all the documentary and evidentiary requirement (Eastern Telecommunication Phils. Inc. v. CIR, G.R.
No. 183531, March 25, 2015).

Section 110(A)(1) of the NIRC provides that creditable input taxes must be evidenced by a VAT invoice or official receipt, which
must, in turn, comply with Sections 237 and 238 of the same law, as well as Section 4.108.1 of RR 7-95. The foregoing provisions
require, inter alia, that an invoice must reflect, as required by law: (a) the BIR Permit to Print; (b) the TIN-V of the purchaser;
and
(c) the word "zero-rated" imprinted thereon. In this relation, failure to comply with the said invoicing requirements provides
sufficient ground to deny a claim for tax refund or tax credit (J. R. A. Philippines, Inc. v. CIR, G.R. No. 171307, August 28, 2013).

In the case of Luzon Hydro Corporation v. CIR, G.R. No. 188260, the taxpayer-claimant did not competently establish its claim for
refund or tax credit. The Court ruled, though Justice Bersamin, that the petitioner did not produce evidence showing that it had
zero-rated sales for taxable year 2001. The claimant did not reflect any zero-rated sales from its power generation in its VAT
returns, which indicated that it had not made any sale of electricity. Had there been zero-rated sales, it would have reported them
in the returns. Indeed, it carried the burden not only that it was entitled under the substantive law to the allowance of its claim for
refund or tax credit but also that it met all the requirements for evidentiary substantiation of its claim.

Although the claimant has correctly contended that the sale of electricity by a power generation company like it should be subject
to zero-rated VAT under Republic Act No. 9136, its assertion that it need not prove its having actually made zero-rated sales of
electricity by
 VALUE-ADDED TAX

presenting the VAT official receipts and VAT returns cannot be upheld. It ought to be reminded that it could not be permitted to
substitute such vital and material documents with secondary evidence like financial statements.
---
Q: Are sales invoices sufficient as evidence to prove zero-rated sale of services by a taxapayer thereby entitling him to
claim the refund of its excess input VAT?

A: NO. The claim for refund must be denied on the ground that the taxpayer had not established its zero- rated sales of services
through the presentation of official receipts.

As evidence of an administrative claim for tax refund or tax credit, there is a certain distinction between a receipt and an invoice.

Section 113 of the NIRC of 1997 provides that a VAT invoice is necessary for every sale, barter or exchange of goods or
properties, while a VAT official receipt properly pertains to every lease of goods or properties, as well as to every sale, barter or
exchange of services.

A "sales or commercial invoice" is a written account of goods sold or services rendered indicating the prices charged therefor or
a list by whatever name it is known which is used in the ordinary course of business evidencing sale and transfer or agreement
to sell or transfer goods and services.

A "receipt" on the other hand is a written acknowledgment of the fact of payment in money or other settlement between seller
and buyer of goods, debtor or creditor, or person rendering services and client or customer.

The taxpayer submitted sales invoices, not official receipts, to support its claim for refund. In light of the aforestated distinction
between a receipt and an invoice, the submissions were inadequate to comply with the substantiation requirements for
administrative claims for tax refund or tax credit (Takenaka Corporation – Philippine Branch vs. CIR, G.R. No. 193321, October 19,
2016, penned by Justice Bersamin).
---
---
Q: Is a taxapayer located within an ECOZONE, entitled to the refund of its unutilized input taxes incurred before it
became a PEZA-registered entity?

A: NO. With the issuance of RMC 74-99, the distinction under the old rule was disregarded and the new circular took into
consideration the two important principles of the Philippine VAT system: the Cross Border Doctrine and the Destination
Principle.

The old VAT rule for PEZA-registered enterprises was based on their choice of fiscal incentives: (1) If the PEZA- registered
enterprise chose the five percent (5%) preferential tax on its gross income, in lieu of all taxes, as provided by Rep. Act No. 7916,
as amended, then it would be VAT-exempt; (2) If the PEZA-registered
 LAW ON TAXATION
enterprise availed of the income tax holiday under Exec. Order No. 226, as amended, it shall be subject to VAT at ten percent (10%). Such
distinction was abolished by RMC No. 74-99, which categorically declared that all sales of goods, properties, and services made by a VAT-
registered supplier from the Customs Territory to an ECOZONE enterprise shall be subject to VAT, at zero percent (0%) rate, regardless of
the latter's type or class of PEZA registration.

Furthermore, Section 8 of Republic Act No. 7916 mandates that PEZA shall manage and operate the ECOZONE as a separate customs
territory. The provision thereby establishes the fiction that an ECOZONE is a foreign territory separate and distinct from the customs
territory. Accordingly, the sales made by suppliers from a customs territory to a purchaser located within an ECOZONE will be considered
as exportations. Following the Philippine VAT system's adherence to the Cross Border Doctrine and Destination Principle, the VAT
implications are that "no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border
of the taxing authority"

As such, the purchases of goods and services by the taxpayer that were destined for consumption within the ECOZONE should be free of
VAT; hence, no input VAT should then be paid on such purchases, rendering the taxpayer not entitled to claim a tax refund or credit.

Verily, if the taxpayer had paid the input VAT, the proper recourse is not against the Government but against the seller who had shifted to it
the output VAT (Coral Bay Nickel Corp. vs. CIR, G.R. No. 190506, June 13, 2016, penned by Justice Bersamin).
---
---
Q: May a taxpayer who has pending claims for VAT input credit or refund, set off said claims against his other tax liabilities?
Explain your answer. (2001 Bar)

A: NO. Set-off is available only if both obligations are liquidated and demandable. Liquidated debts are those where the exact amounts have
already been determined. In the instant case, a claim of the taxpayer for VAT refund is still pending and the amount has still to be
determined.

A fortiori, the liquidated obligation of the taxpayer to the government cannot, therefore, be set-off against the unliquidated claim which the
taxpayer conceived to exist in his favor (Philex Mining Corp. v. CIR, 294 SCRA 687).
---
---
Q: Petitioner X Cola, Inc. (X Cola) failed to declare certain input taxes in its VAT return for the 3 rd and 4th quarters of 2007. X Cola
alleged overpayment of VAT for the said taxable periods since the undeclared input taxes were not credited against output tax.

Since X Cola could not amend its VAT returns due to the issuance of a BIR Letter of Authority for 2007, it filed with the BIR claims
for refund of alleged overpaid VAT for the 3rd and 4th quarters of 2007.
 LAW ON TAXATION

The BIR failed to act on the claims so X Cola filed a Petition for Review with the CTA. Is X Cola entitled to its claims
for refund?

A: NO. X Cola is not entitled to the refunds as the amounts claimed represent undeclared input taxes, not erroneously paid
taxes, as contemplated under Section 229 of the NIRC. Section 229 of the NIRC allows recovery of any national internal
revenue tax (including VAT) which was erroneously or illegally assessed or collected.

X Cola’s input taxes for the 3rd and 4th quarters of 2007 should have been declared in its quarterly VAT returns so that these
could be creditable against the output tax for the same taxable periods. Since it failed to report the input taxes in its VAT
returns, it could not offset the undeclared input taxes against the output VAT. Under RR No. 16-2005, input taxes must be
substantiated and reported in the VAT returns to be able to claim credit against the output tax. While X Cola was able to
substantiate a portion of its claims, the input taxes were not reported in its VAT Returns (Coca-cola Bottlers Phils., Inc. v. CIR,
CTA Case Nos. 7986 & 8028, June 14, 2013).
---

Period to file claim for refund/apply issuance of tax credit certificate

The claim, which must be in writing, for both cases, must be filed within 2 years after the close of the taxable quarter when
the sales were made.

Reckoning point for the Two (2)-year period

1. Zero-rated or effectively zero rated sales – Any VAT-registered person, whose sales are zero-rated or effectively
zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made (Sec. 112(A),
NIRC).

The two-year period should be reckoned from the close of the taxable quarter when the relevant sales were made
pertaining to the input VAT regardless of whether said tax was paid or not (CIR vs Mirant Pagbilao Corporation, GR
172129, September 12,
2008).

Thus, when a zero-rated VAT taxpayer pays its input VAT for the purchase from its supplier a year after the pertinent
transaction of its sale to its purchaser, the said taxpayer only has a year to file claim for refund or tax credit of the
unutilized creditable input VAT (Ingles, 2015).

In case the taxpayer is engaged in zero-rated and also in taxable or exempt sale, and the amount of creditable input tax
due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales.

2. Cessation of business or VAT status - The person may, within two (2) years from the date of cancellation, apply for
the issuance of a tax credit certificate for any unused input tax which may be
 VALUE-ADDED TAX
used in payment of his other internal revenue taxes
(Sec. 112(B), NIRC).

Summary of rules on prescriptive periods for

claiming refund or credit of input tax
Administrative Claim: Two-Year Prescriptive Period
Only the administrative claim that must be filed within
the period

GR: The reckoning date is the close of the taxable quarter

when the relevant sales were made

XPN: From June 8, 2007 to September 12, 2008 the two-

year prescriptive period for filing a claim for tax refund
or credit should be counted from the date of filing of the
VAT return and payment of the tax (Atlas Consolidated
Mining and Dev. Corp v CIR, G.R. No. 141104, June 8, 2007).
Judicial Claim: 120+30 Day Period
Two ways of filing an appeal to the CTA:
a. Within 30 days after the CIR denies the claim
within the 120-day period, or
b. Within 30 days from the expiration of the
120-day period if the CIR does not act within
the 120-day period.

GR: The 30-day period to appeal always applies as it is

both mandatory and jurisdictional

XPN: As an exception, premature filing is allowed only if

filed between 10 December 2003 and 5 October 2010,
when BIR Ruling No. DA-489-03 was still in force

NOTE: Late filing is absolutely prohibited

(Commissioner of Internal Revenue v. Mindanao II

Geothermal Partnership, G.R. No. 191498, January 15,
2014)
NOTE: The rule on a claim for refund or credit of an
erroneously or illegally collected tax under Section 229
of the NIRC is different. Under such, both the
administrative and judicial claim must be filed within the
two (2)-year prescriptive period from the date of
payment. The claim for refund or credit and the appeal to
CTA may occur simultaneously.

Period within which BIR Commissioner grants Tax Credit Certificates/refund for creditable input taxes

The Commissioner may grant TCC/ refund for creditable input taxes within 120 days from the day of submission of the complete
documents in support of the application filed (Sec. 112, NIRC; RMC 54-2014).

The application for VAT refund/tax credit must be accompanied by complete supporting documents. In addition, the taxpayer
shall attach a statement under oath attesting to the completeness of the submitted documents. Upon submission of the
administrative claim and its supporting documents, the claim shall be processed and no other documents shall be
accepted/required from the taxpayer in the course of its evaluation. The CIR shall render a decision based only on the documents
submitted by the taxpayer. The
 VALUE-ADDED TAX

application for tax refund/tax credit shall be denied where the taxpayer/claimant failed to submit the complete supporting
documents (RMC 54-2014).

Note that the 120-day period begins to run from the submission of complete documents supporting the administrative claim. If
there is no evidence showing that the taxpayer was required to submit – or actually submitted – additional documents after the
filing of the administrative claim, it is presumed that the complete documents accompanied the claim when it was filed (Silicon
Philippines, Inc., v. CIR, G.R. No. 182737, March 2, 2016).

If the claim for VAT is not acted upon by the Commissioner within 120-day period as required by law, such inaction shall be
deemed a denial of the application for tax refund or credit.

Effect of failure to submit complete supporting documents to judicial claim of refund in the CTA

A distinction must be made between administrative cases appealed due to:

1. Inaction of the CIR or the Commissioner

2. Failure of the taxpayer to submit supporting documents – If the CIR dismissed an administrative claim due to the taxpayer's
failure to submit complete documents despite notice/request, then the judicial claim before the CTA would be dismissible,
not for lack of jurisdiction, but for the taxpayer's failure to substantiate the claim at the administrative level.

When a judicial claim for refund or tax credit in the CTA is an appeal of an unsuccessful administrative claim, the taxpayer has to
convince the CTA that the CIR had no reason to deny its claim. It, thus, becomes imperative for the taxpayer to show the CTA that
not only is he entitled under substantive law to his claim for refund or tax credit, but also that he satisfied all the documentary
and evidentiary requirements for an administrative claim. It is, thus, crucial for a taxpayer in a judicial claim for refund or tax
credit to show that its administrative claim should have been granted in the first place.

Consequently, a taxpayer cannot cure its failure to submit a document requested by the BIR at the administrative level by filing
the said document before the CTA (Pilipinas Total Gas, Inc. v. CIR, G.R. No. 207112, December 8, 2015).

Taxpayer must await the lapse of the 120-day period before taxpayer can appeal to CTA

The second paragraph of Section 112(D) of the NIRC envisions two scenarios: (1) when a decision is issued by the CIR before the
lapse of the 120-day period; and (2) when no decision is made after the 120-day period. In both instances, the taxpayer has 30
days within which to file an appeal with the CTA. As we see it then, the 120- day period is crucial in filing an appeal with the CTA
(CIR
v. Aichi Forging Company of Asia, Inc., GR 184823, October 6, 2010).
 LAW ON TAXATION

Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine of exhaustion of
administrative remedies and renders the petition premature and thus without a cause of action, with the effect that the CTA does not
acquire jurisdiction over the taxpayer's petition.

One of the conditions for a judicial claim of refund or credit under the VAT System is compliance with the 120+30 day mandatory and
jurisdictional periods. Thus, strict compliance with the 120+30 day periods is necessary for such a claim to prosper, whether before,
during or after the effectivity of the Atlas doctrine, except for the period from the issuance of Bill Ruling No. DA- 489-03 on December 10,
2003 to October 6, 2010 when the Aichi doctrine was adopted, which again reinstated the 120+30 day periods as mandatory and
jurisdictional (CIR v. Mirant Pagbilao Corp., G.R. No. 180434, January 20, 2016).

Exception to the mandatory and jurisdictional nature of the 120+30 day period (BIR Ruling No. DA- 489-03 dated December 10,
2003)

As an exception to the mandatory and jurisdictional 120+30 day period, it was emphasized that from the time of issuance of BIR Ruling
No. DA-489-03 on December 10, 2003 up to its reversal by the Supreme Court in the Aichi case on October 6, 2010, taxpayers/claimant need
not wait for the lapse of 120- day period before it could seek judicial relief with the CTA by way of Petition for Review (RMC 54-2014).

Before and after the aforementioned period (i.e, December 10, 2003 to October 6, 2010), the observance of the 120-day period is
mandatory and jurisdictional to the filing of judicial claim for refund of excess input VAT (CE Luzon Geothermal Power Co., Inc. v. CIR, G.R.
No. 200841-42, August 26, 2015).

There is no need for a taxpayer to specifically invoke BIR Ruling No. DA-489-03 to benefit from the same. As long as the judicial claim was
filed between December 10, 2003 and October 6, 2010, then the taxpayer would not be required to wait for the lapse of 120-day period
(CIR v. Air Liquide Phils. Inc., G.R. No. 210646, July 29, 2015).

Remedy in case of CIR’s inaction within 120-day

period or CTA’s denial of claim for TCC/ tax refund

1. CIR’s inaction - The taxpayer may also appeal to the CTA within 30 days after the lapse of 120 days from the submission of the
complete documents, if no action has been taken by the Commissioner.

2. CTA’s denial -The taxpayer may appeal the full or partial denial of the claim to the Court of Tax Appeal (CTA) within 30 days from the
receipt of said denial, otherwise the decision shall become final.

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Q: Gangwam Corporation (GC) filed its quarterly tax returns for the calendar year 2012 as follows:
 LAW ON TAXATION

First quarter - April 25, 2012

Second quarter - July 23, 2012
Third quarter - October 25, 2012
Fourth quarter - January 27, 2013

On December 22, 2013, GC filed with the Bureau of Internal Revenue (BIR) an administrative claim for refund of its
unutilized input Value-Added Tax (VAT) for the calendar year 2012. After several months of inaction by the BIR on
its claim for refund, GC decided to elevate its claim directly to the Court of Tax Appeals (CTA) on April 22, 2014. In
due time, the CTA denied the tax refund relative to the input VAT of GC for the first quarter of 2012, reasoning that
the claim was filed beyond the two-year period prescribed under Section 112(A) of the National Internal Revenue
Code (NIRC).

a. Is the CTA correct?

b. Assuming that GC filed its claim before the CTA on February 22, 2014, would your answer be the same? (2014
Bar)

A:
a. NO. The CTA is not correct. The two-year period to file a claim for refund refers to the administrative claim and does
not refer to the period within which to elevate the claim to the CTA. The filing of the administrative claim for refund
was timely done because it is made within two years from the end of the quarter when the zero-rated transaction took
place (Section112 (A), NIRC). When GC decided to elevate its claim to the CTA on April 22, 2014, it was after the lapse
of 120 days from the filing of the claim for refund with the BIR, hence, the appeal is seasonably filed. The rule on VAT
refunds is two years to file the claim with the BIR, plus 120 for the Commissioner to act and inaction after 120 days is a
deemed adverse decision on the claim, appealable to the CTA within thirty (30) days from the lapse of the 120-day
period (CIR v. Aichi Forging Company of Asia, Inc., G.R. No. 184823, October 6, 2010).

b. YES. The two-year prescriptive period to file a claim for refund refers to the administrative claim with the BIR and not
the period to elevate the claim to the CTA. Hence, the CTA cannot deny the refund for reasons that the first quarter
claim was filed beyond the two-year period prescribed by law. However, when the claim is made before the CTA on
February 24, there is definitely no appealable decision as yet because the 120-day period for the Commissioner to act
on the claim for refund has not yet lapsed. Hence, the act of the taxpayer in elevation the claim to the CTA is premature
and the CTA has no jurisdiction to rile thereon (CIR v. Aichi Forging Company of Asia, Inc., G.R. No. 184823, October 6,
2010).
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Q: For calendar year 2011, FFF, Inc., a VAT-registered corporation, reported unutilized excess input VAT in the
amount of Pl ,000,000.00 attributable to its zero- rated sales. Hoping to impress his boss, Mr. G, the accountant of
FFF, Inc., filed with the BIR on January
 VALUE-ADDED TAX
31, 2013 a claim for tax refund/credit. Not having received any communication from the BIR, Mr. G filed a Petition for
Review with the CTA on March 15, 2013, praying for the tax refund/credit of the Pl,000,000.00 unutilized excess input
VAT of FFF, Inc. for 2011.

a. Did the CTA acquire jurisdiction over the Petition of FFF, Inc.?
b. Discuss the proper procedure and applicable time periods for administrative and judicial claims for refund/credit of
unutilized excess input VAT. (2015 Bar)

A:
a. NO. The CTA has not acquired jurisdiction over the Petition of FFF, Inc. because the juridical claim has been prematurely filed
on March 15, 2013. The Supreme Court ruled that the 30-day period after the expiration of the 120-day period fixed by law
for the Commissioner of Internal Revenue to act on the claim for refund is jurisdictional and failure to comply would bar the
appeal and deprive the CTA of its jurisdiction to entertain the appeal.

In this case, Mr. G filed the administrative claim on January 31, 2013. The petition for review should have been should have
been filed on June 30, 2013. Filing the judicial claim on March 15, 2013 is premature, thus the CTA did not acquire
jurisdiction.

b. The administrative claim must be filed with the CIR within the two-year prescriptive period. The proper reckoning period
date for the two-year prescriptive period is the close of the taxable quarter when the relevant sales were made. However, as
an exception, are claims applied only from June 8, 2007 to September 12, 2008, wherein the two-year prescriptive period for
filing a claim for tax refund or credit of unutilized input VAT payments should be counted from the date of filing of the VAT
return and payment of the tax.

The taxpayer can file a judicial claim in one of two ways: (1) file the judicial claim within thirty days after the Commissioner
of Internal Revenue denies the claim within the 120-day period, or (2) file the judicial claim within 30 days from the
expiration of the 120-day period if the Commissioner does not act within the 120-day period.

As a general rule, the 30-day period to appeal is both mandatory and jurisdictional. As an exception, premature filing is
allowed only if filed between December 10, 2003 and October 5, 2010, when the BIR Ruling No. DA-489-03 was still in force.
---
---
Q: X Corporation enjoys a blanket tax exemption under PD 1869 (the Charter creating PAGCOR). X rents a building from
Y where it operates its casino activities. Y passes to X the VAT on lease as required by law. X refused to pay invoking its
blanket tax exemption. Y paid the subject taxes for fear of the legal consequences of non-payment of the tax to the
 VALUE-ADDED TAX

BIR. Thereafter, albeit belatedly Y realized it should not have paid because the transactions it had with X is subject to
“zero-rated” VAT. Immediately, Y filed an administrative claim for tax refund with the CIR, but the latter failed to resolve
in favor of Y. Is the refusal of the CIR on Y’s claim for refund valid? Reason.

A: NO. The blanket tax exemption of X under PD 1869 applies to both direct and indirect taxes that extend to entities and
individuals dealing with it in its casino operations. Considering that Y paid the tax under a mistake of fact and was not aware at
the time of payment that the transactions it has with X is “zero-rated”, the invalid payment can be recovered or refunded. The
principle of solutio indebiti applies to the Government as well, the basis thereto is grounded upon the right of recovery of money
paid through misapprehensions of facts belongs in equity and in good conscience to the person who paid it and the government
cannot enrich itself at the expense of another (CIR v Acecite (Phils.) Hotel Corporation, 516 SCRA 93).
---

Difference between Sec. 112 on refund for VAT and Sec. 229 on refund of other taxes

SEC. 112 (VAT) SEC. 229 (OTHER

TAXES)
Period is 2 years after the close of Period is 2 years
the taxable quarter when the from the date of
sales were made payment of the
tax
The 30-day period of appeal to the Period to file an
CTA need not necessarily fall administrative
within the two-year prescriptive claim before the
period, as long as the CIR AND judicial
administrative claim before the claim with the
CIR is filed within the two-year CTA must fall
prescriptive period. This is within the 2 year
because Sec. 112 (D) of the 1997 prescriptive
NIRC mandates that a taxpayer can period
file the judicial claim: (1) only
within thirty days after the
Commissioner partially or fully
denies the claim within the 120-
day period, or (2) only within
thirty days from the expiration of
the 120-day period if the
Commissioner does not act within
the 120-day period (CIR v. San
Roque Power Corporation, G.R. Nos.
187485, 196113, 197156, February
12, 2013)

Manner of Givng Refund

Refund shall be made upon warrants drawn by the Commissioner or by his duly authorized representative without the necessity
of being countersigned by the Chairman of Commission on Audit (COA). Refund shall be subject to post audit by COA (Sec 112(D)
NIRC).
 LAW ON TAXATION
Summary of Rules

Any VAT-registered person, whose sales are zero-

rated or effectively zero-rated may, within two (2)
years after the close of the taxable quarter when the
sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or
paid attributable to such sales, except transitional
input tax, to the extent that such input tax has not
been applied against output tax, with the appropriate
BIR Office-Large Taxpayer or RDO having jursidiction
over the principal place of business of the taxpayer.

Commissioner shall grant a refund or issue the tax

credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of
submission of compete documents in support of the
application

In case of full or partial denial of the claim for tax

refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the
period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision
denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals

INVOICING REQUIREMENTS

Invoicing requirements, in general A VAT-registered person shall issue:

1. A VAT invoice for every sale, barter or exchange of goods or properties; and
2. A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services.

Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoice or official receipts. Said
documents shall be considered as a "VAT Invoice" or VAT

Information required to be indicated on the VAT invoice or VAT official receipts

1. A statement that the seller is a VAT-registered person, and the 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:
 LAW ON TAXATION

a. The amount of the tax shall be shown as a separate item in the invoice or receipt;

NOTE: Under R.R. 18-2011 (November 21, 2011), in case of failure to indicate the VAT as a separate item in the
sales invoice or official receipt, a fine of not less than Php 1,000 but not more than Php 50,000 shall, upon
conviction, be collected for each act or omission in addition to imprisonment of not less than two (2) years but not
more than four (4) years.

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 zero-
rated 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 (Sec. 113[B], NIRC).

NOTE: The appearance of the word “zero rated” on the face of invoices covering zero rated sales prevents buyers from
falsely claiming input VAT from their purchases when no VAT was actually paid. If, absent such word, a successful claim for
input VAT is made, the government would be refunding money it did not collect. Further, the printing of the word “zero-
rated” on the invoice helps segregate sales that are subject to 12% VAT from those sales that are zero-rated. Unable to
submit the proper invoices, taxpayer has been unable to substantiate its claim for refund (Eastern Telecommunication Phils.
Inc. v. CIR, G.R. No. 183531, March 25, 2015).

The failure to print the word “zero-rated” in the invoice/receipts is fatal to a claim for credit/refund of input VAT on zero
rated sales (JRA Philippines, Inc. v. CIR, G.R. No. 177127, October 11, 2010).

Invoicing requirements in deemed sale transactions

In the case of Sec. 106, (B)(1) [transfer, use or consumption not in the ordinary course of business of goods or properties
originally intended for sale or for use
 VALUE-ADDED TAX
in the ordinary course of business], a memorandum entry in the subsidiary sales journal to record withdrawal of goods for personal
use is required.

In the case of Sec. 106 (B)(2), [distribution or transfer to shareholders or creditors] and Sec. 106 (B)(3) [consignment of goods if
actual sale is made within 60 days after the date of such consignment],an invoice shall be prepared at the time of the occurrence of
the transaction, which should include, all the information prescribed in Sec. 113-1. The data appearing in the invoice shall be duly
recorded in the subsidiary sales journal. The total amount of “deemed sale” shall be included in the return to be filed for the month
or quarter.

In the case of Sec. 106(B)(4), [retirement or cessation of business], an inventory shall be prepared and submitted to the RDO who
has jurisdiction over the taxpayer’s principal place of business not later than 30 days after retirement or cessation from 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, but it must show the total amount. It is sufficient to just
make a reference to 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. 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. If the business is to be
liquidated and the goods in the inventory are sold or disposed of to VAT-registered buyers, an invoice or instrument of sale
or transfer shall to 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 (Sec. 4.113-2, R.R. 16- 2005).

Consequences of issuing erroneous VAT invoice or VAT official receipt

1. In case of non-VAT registered person who issues a VAT invoice/receipt shall be held liable for:
a. Payment of percentage tax if applicable;
b. Payment of VAT without input tax;
c. 50% surcharge on tax due as provided for under Sec. 248(B); and

The purchaser shall be allowed to recognize an input tax credit provided that the invoice/official receipt contains the
required information under Sec. 110 on Tax Credits.

2. In case a VAT-registered who issues a VAT invoice/official receipt for a VAT-exempt sale without the words “VAT Exempt
Sale,” the transaction shall become taxable and the issuer shall be liable to pay VAT thereon. The purchaser shall be entitled to
claim an input tax credit on his purchase.
 VALUE-ADDED TAX

FILING OF RETURN AND PAYMENT

Persons required to file a VAT Return

1. Every person or entity who in the course of 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 twelve month period
2. A person required to register as VAT taxpayer but failed to register
3. Any person who imports goods
4. Professional practitioners whose gross fees exceed P1,919,500 for any 12-month period.

Filing of return

Every taxable person is required to account for and pay VAT by reference to each accounting period consisting of three months,
referred to as a taxable quarter.
- A VAT declaration for the month (form 2550M) must be filed within 20 days after the end of the month concerned
- A VAT return covering the amount of his gross sales or receipts and purchases for the prescribed taxable quarter (for
2550Q) must be filed by the taxable person within 25 days following the close of the quarter to which it relates (Sec.
114, NIRC)

Only one consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches (Sec.
114[A], NIRC).

Payment of VAT

VAT must be paid every month.

Form 2550-M Form 2550-Q

Scope Monthly sales Quarterly sales
and/or receipts and/or receipts
within 20 days within 25 days after
following the end the close of each
of month. taxable quarter.

Accomplished The VAT payable for

only for each of each calendar quarter
the first 2 months shall be reduced by
of each taxable the total amount of
quarter. taxes previously paid
for the preceding 2
months and/or the
sum of the allowance
excess input tax
carried over and the
VAT withheld by the
government.
Deadline 20th day of 25th day of following
following month calendar quarter

Other special transactions:

1. Cancellation of VAT registration - Any person, whose registration has been cancelled in accordance
 LAW ON TAXATION
with Section 236, shall file and pay a return within 25 days from the date of cancellation of registration;

NOTE: Under Section 236 of NIRC, a VAT – registered person may cancel his registration for VAT if:
a. He makes written application and can demonstrate to the commissioner’s satisfaction that his gross sales or receipts for the
following twelve
(12) months, other than those that are exempt under Section 109(A) to (U), will not exceed P1,919,500 or
b. He has ceased to carry on his trade or business, and does not expect to recommence any trade or business within the next twelve
(12) months.

The cancellation of registration will be effective from the first day of the following month (Sec. 236 (F), NIRC).

2. VAT on sale of refined sugar- payable in advance by the owner/seller to the BIR through the sugar refinery. The advance payment
must be made prior to or upon the issuance of the refined sugar release order or similar instruments. However, the owner- seller may
withdraw his refined sugar from the sugar mill or refinery warehouse with advance payment of the tax if it will not be locally sold but
rather for use exclusively as raw material in the manufacture of sugar-based food products intended for zero-rated export (VAT Ruling
No. 198-90, September 14, 1990).

3. VAT on sale of flour – The VAT on the sale of flour milled from imported wheat shall be paid in advance prior to the withdrawal of the
imported wheat from customs custody based on the formulate prescribed in the regulation (Rev. Regs. No. 29-2003, October 30, 2003).
Purchases by flour millers of imported wheat from traders shall also be subjected to advance VAT and shall be paid by the flour miller
prior to delivery (Sec. 4.114-1 (B) (2), Rev. Regs. No. 16-05).

Where to File the Return and Pay the Tax GR: It shall be filed with and the tax paid to
1. An Authorized Agent Bank (AAB);
2. Revenue Collection Officer (RCO); or
3. Duly authorized city or municipal Treasurer, where such Treasurer is
a. Within the Philippines; and
b. Located within the revenue district where the taxpayer is registered or required to register (Sec. 114[B]).

XPN: As the Commissioner otherwise permits.

WITHHOLDING OF FINAL VAT ON SALES TO

GOVERNMENT

Rule regarding the withholding of Final VAT on sales to government

 LAW ON TAXATION

The Government or any of its political subdivisions, instrumentalities or agencies, including government owned or
controlled corporations (GOCCs) shall, before making payment on account of its purchase of goods and/or services taxed at
12% shall deduct and withhold a final VAT of 5% of the gross payment. The payment for lease or use of properties or
property rights to nonresident owners shall be subject to 12% withholding tax at the time of payment. For purposes of this
section, the payor or person in control of the payment shall be considered as the withholding agent (Sec. 114(C), NIRC).

NOTE: The five percent (5%) final VAT withholding rate shall represent the net VAT payable to the seller

The remaining seven percent (7%) effectively accounts for the standard input VAT for sales of goods or services to
government or any of its political subdivisions, instrumentalities or agencies including GOCCs, in lieu of the actual Input
VAT directly attributable or ratably apportioned to such sales.

Should actual input VAT attributable to sale to government exceed seven percent (7%) of gross payments, the excess may
form part of the seller’s expense or cost.

If actual input VAT attributable to sale to government is less than 7% of gross payment, the difference must be closed to
expense or cost.

The government or any of its political subdivisions, instrumentalities or agencies, including GOCCs, as well as private
corporations, individuals, estates and trusts, whether large or non-large taxpayers, shall withhold ten percent (12%) VAT
with respect to the following payments:
(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.

VAT withheld and paid for the non-resident recipient (remitted using BIR Form No. 1600), which VAT is passed on to the
resident withholding agent by the non- resident recipient of the income, may be claimed as input tax by said VAT-registered
withholding agent upon filing his own VAT Return, subject to the rule on allocation of input tax among taxable sales, zero-
rated sales and exempt sales. The duly filed BIR Form No. 1600 is the proof or documentary substantiation for the claimed
input tax or input VAT.

Nonetheless, if the resident withholding agent is a non- VAT taxpayer, said passed-on VAT by the non-resident recipient of
the income, evidenced by the duly filed BIR Form No. 1600, shall form part of the cost of purchased services, which may be
treated either as an "asset" or "expense", whichever is applicable, of the resident withholding agent.
 VALUE-ADDED TAX
The VAT withheld shall be remitted within 10 days
Overseas dispatch, Gross Receipts 10%
following the end of the month the withholding was
message or
made (Sec. 4.114-2, RR. 16-2005).
conversation
originating from
NOTE: It was held in the case of Abakada Guro Partylist v.
the Philippines
Ermita, G.R. No. 168056, September 1, 2005, that the since
it has not been shown that the class subject to the 5% Banks and non- On interest, commissions and
final withholding tax has been unreasonably narrowed, bank financing discounts from lending activities as
there is no reason to invalidate the provision. It applies intermediaries well as income from financial
to all those who deal with the government. performing quasi- leasing, on the basis of remaining
banking functions maturities of instruments
PERCENTAGE TAXES (CONCEPT AND NATURE) maturities of instruments from
which recipts are derived:
As a rule, VAT is imposed on every sale, barter, or
exchange of goods or services and on importations. • Maturity period is five 5%
However, there are instances where the same does not years or less
apply because the transaction is subject to other • Maturity period is 1%
percentage taxes (OPT) as required by the NIRC. more than five years

Percentage tax is a tax imposed on sale, barter, exchange On dividends and equity 0%
or importraion of goods, or sale of services based upon shares and net income of
gross sales, vaue in money of receipts derived by the subsidiaries
manufacturer, producer, importer or seller measured by On royalties, rentals of 7%
certain percentage of the gross selling price or receipts. property, real or
If the transaction is subject to OPT, it is no longer subject personal, profits from
to VAT. Nonethelss, OPT as well as VAT may be imposed exchange and all other
together with excise taxes (Tabag, 2015). items treated as gross
income under Sec. 32 of
Tax Rates the NIRC, as amended
On net trading gains 7%
Coverage Basis Tax Rate within the taxable year
of foreign currency, debt
Persons exempt Gross Receipts on sale or 3% securities, derivatives
from VAT under lease of goods, and other similar
Section 109 (W) properties or services financial instruments
Domestic carriers Gross Receipts on 3% Other non-bank Interest, commissions 5%
and keepers of transport of passengers financial and discounts and all
garages by land (except those intermediaries other items treated as
thru animal drawn two- gross income under the
wheeled vehicles) NIRC, as amended
International Interest, commissions and
Carriers: discounts from lending activities,
International Gross Receipts from 3% as well as income from financial
air/shipping transpot of cargo from leasing on the basis of remaining
carriers doing the Philippines to maturities of instruments:
business in the another country • Maturity period is five 5%
Philippines years or less
Franchise Grantees: • Maturity period is 1%
Gas and water Gross Receipts 2% more than five years
utilities Life Insurance Total premiums 2%
Radio and Gross Receipts 3% Companies (except collected
television purely cooperative
broadcasting companies or
companies whose associations)
annual gross Agents of foreign insurance companies (except
receipts of the reinsurance premium):
preceding year do
not exceed P Insurance agents Total premiums 4%
10,000,000 and did authorized under collected
not opt to register the Insurance Code
as VAT taxpayer to procure policies
 VALUE-ADDED TAX

of insurance for dealer of

companies not securities
authorized to [Sec. 127 (A)]
transact business
in the Philippines Sale, barter or Gross selling price or gross value in
exchange or money
Owners of Total premiums paid 5% other
property obtaining disposition Proportion of disposed shares to
insurance directly through total outstanding shares after the
with foreign initial public listing in the local stock exchange:
insurance offering (IPO)
companies of shares of  Up to 25% 4%
stock in
Proprietor, lessee or operator of the following:
closely-held
Cockpits Gross receipts 18% corporations  Over 25% but 2%
[Sec. 127 not over 33
Cabarets, Night or Gross receipts 18% (B)] 1/3%
Day Clubs videoke
bars, karaoke bars,
karaoke 1%
 Over 33 1/3%
televisions,
karaoke boxes and
music lounges (www.bir.gov.ph)
Boxing exhibitions Gross receipts 10%
Professional Gross receipts 15%
basketball games
Jai-alai and race Gross receipts 30%
track (operators
shall withheld tax
on winnings)
Winnings on horse  Winnings or 10%
races 'dividends'

 Winnings from 4%
double
forecast/quinel
la and trifecta
bets

 Prizes of 10%
owners of
winning race
horses

Sale, Barter, Exchange of Shares of Stock Listed and

Trased through the Local Stock Exchange or Through
Initial Public Offering
Sale, barter, Gross selling price or ½ of 1%
exchange or gross value in money
other
disposition of
shares of
stock listed
and traded
through the
Local Stock
Exchange
other than the
sale by a