Professional Documents
Culture Documents
Tax 2 Midterms Reviewer 1
Tax 2 Midterms Reviewer 1
2
ESTATE TAXES ................................................................................................................................. 2
Valuation of gross estate.3
Determination of the value of the estate4
Exclusions and exemptions..7
Deductions from gross estate..8
Ordinary deductions.9
Special deductions14
Notice of death and filing of return.18
DONORS TAXES..22
Imposition of gift tax..22
Transfer for inadequate consideration.22
Exemption from gift tax23
Tax credit..23
Tax return.24
Political considerations.24
VALUE ADDED TAX .......................................................................................................................... 25
VAT in general25
Imposition of the tax..26
Sales of goods or properties29
Importation of goods..36
Sale of services and use or lease or property.37
Exemptions..41
Tax credits or refunds45
Compliance requirements52
PERCENTAGE TAX..58
Carriers tax.58
Franchise tax..59
Overseas communications tax..59
Gross receipts tax.59
Tax on insurance premiums61
Tax on agents of foreign insurance companies62
Amusement taxes.62
Tax on winnings62
Percentage tax on IPOs.62
Returns and payment.65
1
TRANSFER TAXES 4. Redistribution of wealth theory Receipt of
inheritance is a contributing factor to the
Concept and Nature of Transfer Taxes inequalities in wealth and income. The imposition
Transfer Taxes are taxes imposed upon the gratuitous of estate tax reduces the property received by the
disposition of private properties. Taxes of this general successor, this helping to promote a more equitable
character are predicated on the passing of property as distribution of wealth in society. The tax base is
distinguished from those imposed on property as such the value of the property and the progressive
because of its ownership and possession. scheme of taxation is precisely motivated by the
desire to mitigate the evils of inheritance in the
Lorenzo v. Posadas (1937) present form.
Facts: Hanleys Estate was assessed with inheritance tax.
Lorenzo, the trustee, paid under protest and then sued the Source of Power
CIR. The CIR claimed more penalty interest. Estate and inheritance tax laws rest in their essence upon the
Held: In awarding the interest to the CIR, the SC explained principle that death is the generating source from which the
several concepts: (1) inheritance tax accrues at the time of taxing power takes it being and that it is the power to
the decedents death, but the obligation to pay the same is transmit, or the transmission from the dead to the living on
different and is fixed by law; (2) the value of the estate (i.e. which the tax is more immediately based. Hence, it accrues
basis for the tax) should be at the time of the decedents as of the death of the decedent by operation of law.
death; (3) trustees compensation do not form part of
administrative expenses that can be deducted from the gross Accrual of, and obligation to pay the tax distinguished
value of the estate; and (4) tax laws cannot be given Ordinarily, an estate or inheritance tax accrues at the date of
retroactive effect unless they explicitly provide for it. the decedents death, although the amount of tax may then
(Note that inheritance taxes are no longer imposed under the be unknown, but on determination thereof, it relates back to
NIRC) the time of death. Upon the death of the decedent,
succession takes place and the right of the State to tax the
ESTATE TAX transmission of the estate vests instantly upon death.
Estate Tax is the tax on the right to transmit property at
The accrual of the tax is to be distinguished from the
death and on certain transfers by the decedent diring his
obligation to pay the same. The time when the heir legally
lifetime which are made by the law the equivalent of
succeeds to the inheritance may differ from the time when
testamentary dispositions. The tax is measured by the value
he actually receives such inheritance. The property belongs
of the property at the time of death.
to the heir at the moment of the death of the ancestor as
completely as if the latter had executed and delivered to the
Nature and Object of Estate Tax
former a deed for the same before his death. However, it
1. Estate tax is not a direct tax on property. Neither is
does not follow that the obligation to pay the tax arises as of
it a capitation tax; that is, the tax is laid neither on
that date. The time for payment is clearly fixed by law.
the property nor on the transferor or the transferee.
In other words, it is an excise or privilege tax.
2. The object of estate tax is to tax the shifting of Time and Transfer of Properties
economic benefits and enjoyment of property from Decedents interest is to its extent at the time of his death.
the dead to the living. (Sec. 85(A))
Purpose and Justification of Estate Tax Estate taxation is governed by the statute in force at the time
of death of the decedent. Estate tax accrues as of the death of
1. Benefit received theory The State collects the tax
the decedent and the accrual of the tax is distinct from the
because of the services it renders in the distribution
obligation to pay the same. Upon the death of the decedent,
of the estate of the decedent, either by law or in
succession takes place and the right of the State to tax the
accordance with his wishes.
privilege to transmit the estate vests instantly upon death.
2. Privilege theory or state partnership theory
(Sec. 3, RR 2-2003)
Succession to the property of a deceased person is
Upon the death of the decedent, succession takes place, and
not a right but a privilege granted by the State and
the right of the State to tax the privilege to transmit the
consequently, the legislature can constitutionally
estate vests instantly upon death. (Sec. 3 RR 2-2003) Thus:
burden such succession with a tax. The State
1. The notice of death must be made within 2 months after
collects the tax because of the protection it provides
the death of the decedent or within 2 months after
in the acquisition of large estates. Consequently, the
qualifying as an executor or administrator (Sec. 89)
State, as a passive and silent partner in the
2. The properties comprising the gross estate shall be
accumulation of property, has the right to collect
valued based on their fair market value as of the time of
the share which is properly due to it.
the death of the decedent (Sec. 5 RR 2-2003)
3. Ability to pay theory Receipt of inheritance,
3. The return must be filed within 6 months from the
which is in the nature of unearned wealth or
decedents death (Sec. 90(B))
windfall, place assets into the hands of the heirs and
4. Despite the transfer of properties and rights at the time
beneficiaries. This creates an ability to pay the tax
of death, the executor or judicial administrator shall not
and thus contributes to government income.
2
deliver a distributive share to any party interested in the death was not a citizen of the Philippines, it shall
estate unless ther is a certification from the include to the extent of his interest, the value of the
Commissioner that the estate tax has been paid (Sec. 94) time of his death of all:
a. Real property situated in the Philippines
Section 84. Rates of Estate Tax. There shall be levied, b. Tangible personal property situated in the
assessed, collected and paid upon the transfer of the net Philippines
estate as determined in accordance with Sections 85 and 86 c. Intangible personal property with a situs in the
of every decedent, whether resident or nonresident of the Philippines unless exempted on the basis of
Philippines, a tax based on the value of such net estate, as reciprocity
computed in accordance with the following schedule:
If the net estate is: Concept of residence
Residence and domicile are used interchangeably without
distinction. For purposes of estate taxation, residence
Of the
But Not The Tax refers to the permanent home, the place to which whenever
Over Plus Excess
Over shall be absent, one intends to return, and depends on facts and
Over
circumstances, in the sense that they disclose intent. It is
P 200,000 Exempt therefore, not necessarily the actual place of residence.
P 200,000 550,000 0 5% P 200,000
Situs of Intangible Personal Properties
500,000 2,000,000 P 15,000 8% 500,000 Such as credits, bills, bank deposits promissory notes, and
2,000,000 5,000,000 135,000 11% 2,000,000 corporate stocks
5,000,000 10,000,000 465,000 15% 5,000,000 General Rule Situs is the domicile or residence of the
owner
10,000,000 And Over 1,215,000 20% 10,000,000 Exceptions:
1. When it is inconsistent with express provisions of law
Basic Formula for Estate Tax 2. When justice does not demand that it should be, as
Gross Estate (Sec. 85) where the property in fact has a situs elsewhere
Less: Deductions (Sec. 86)
Net share of the surviving spouse in the conjugal Collector v. Fisher (1961)
property (Sec. 86(C)) Facts: Stevenson, a Brit who resided in San Francisco, died
------------------------------------------------------- and left properties including shares of stock and parcels of land
= Net taxable estate in Baguio. In these returns, the administrator based the value of
Multiply by: Tax rate (Sec. 84) the shares on the market quotation of the stock in San
------------------------------------------------------- Francisco, asked for certain deductions according to reciprocity
= Estate Tax Due supposedly granted by the NIRC, as well as certain deductions.
Less: Tax Credit, if any (Sec. 86(E), or 110 (B)) Held: The situs of the shares of stock, for purposes of taxation,
------------------------------------------------------- being located in the Philippines, the fair market value of those
= Estate Tax Due, if any shares should be taxed on the basis of the price prevailing in the
Philippines.
VALUATION OF GROSS ESTATE
In the Philippines, upon the death of any citizen or resident or
non-resident with properties therein, an estate and an
Section 85. Gross Estate. - the value of the gross estate of the decedent
inheritance tax are imposed upon his estate. In California, only
shall be determined by including the value at the time of his death of all
property, real or personal, tangible or intangible, wherever situated: inheritance tax is imposed. The Federal Internal Revenue Code
Provided, however, that in the case of a nonresident decedent who at the imposes an estate tax on non-residents not citizens of the US,
time of his death was not a citizen of the Philippines, only that part of the but does not provide for any exemption on the basis of
entire gross estate which is situated in the Philippines shall be included in reciprocity. Thus, his shares are not exempt from inheritance
his taxable estate. taxes because there is no complete reciprocity between the
xxx
Philippine laws and the foreign laws.
(H) Capital of the Surviving Spouse. - The capital of the surviving Rule: Property over which the decedent held a power of
spouse of a decedent shall not, for the purpose of this Chapter, be deemed a
part of his or her gross estate. appointment is not includible in his gross estate unless such
power is general.
1. General Power of Appointment the decedent must
1. Property owned by the decedent actually and physically have had a power exercisable in favor of himself,
present in his estate at the time of his death; his creditors or creditors of his estate (AmJur)
2. Decedents interest; 2. A power is NOT general (thus, specific_) if it can
3. Properties not physically in the estate, such as: be exercised only in favor of one or more
a. Transfers in contemplation of death designated person or classes of persons exclusive of
b. Transfers with retention or reservation of certain the decedent, his estate, the creditors of his estate,
rights or if it is expressly not exercisable in favor of the
c. Revocable transfers decedent, his estate, his creditors, or creditors of his
d. Property passing under general power of appointment estate.
e. Transfers for insufficient consideration
f. Proceeds of life insurance Among those to be included in the gross estate is property
g. Claims against insolvent persons; and arising under a general power of appointment exercised by
h. Capital of the surviving spouse the decedent:
1. By will; or
Decedents interest (Sec. 85(A)) 2. By deed executed in contemplation of or intended
It includes any interest having value or capable of being to take effect in possession or enjoyment at or after
valued, transferred by the decedent at the time of his death. his death; or
3. By deed under which he has retained for his life or
Transfers in Contemplation of Death (Sec. 85(B)) any period not ascertainable without reference to
The term in contemplation of death, as used in estate his death or for any period which does not in fact
taxation, does not refer to the general expectation of death. end before his death
The words mean that it is the thought of death, as a a. The possession or enjoyment of, or the right to the
controlling motive, which induces the disposition of the income from the property; or
property for the purpose of avoiding the tax. The decedents b. The right either alone or in conjunction with any
motive is a question of fact. Thus, the imminence of death person, to designate the persons who shall enjoy or
may afford convincing evidence of the impelling cause of possess the property or the income therefrom.
transfer. However, it is a contemplation of death and not
necessarily contemplation of imminent death to which the Transfers for insufficient consideration (Sec. 85(G))
statute refers. Transfers, trusts, interests, rights, or powers (denominated as
transfer in contemplation of death, revocable transfer and
The law does not specify the number of years prior to a property passing under general power of appointment) made,
decedents death within which a transfer can be considered created, exercised or relinquished for a consideration in
in contemplation of death. (De leon) money or moneys worth, but is NOT a bona fide sale for an
adequate and full consideration in money or moneys worth.
Revocable Transfers (Sec. 85(C))
Rule: A transfer is a revocable transfer where: The value to be included in the gross estate is the excess of
1. There is a transfer by trust or otherwise, the fair market value of the property at the time of the
2. The enjoyment thereof was subject at the date of his decedents death over the consideration received.
death to any change through the exercise of a power (in
whatever capacity exercisable) by: FMV of the property at the date of the decedents death
a. The decedent alone; Less: Actual consideration received by the decedent
b. The decedent in conjunction with any other person ----------------------------------------------------------
without regard to when or from what source the = Amount which can be included in the decedents gross
decedent acquired such power, to alter, amend, estate
revoke, or terminate; or
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Example (from UP Law Reviewer) To determine the conjugal or separate character of proceeds,
Case A: If bona fide sale no value shall be included in the the following factors are considered:
gross estate 1. Policy was taken before marriage Source of funds
Case B: If not a bona fide sale - the excess of the fair market determines ownership of the proceeds of life insurance
value at the time of death over the value of the consideration 2. Policy was taken during marriage
received by the decedent shall form part of his gross estate. a. Beneficiary is estate of the insured Proceeds are
Case C: If inter vivos transfer is proven fictitious/simulated presumed conjugal; hence, one-half share of the
total value of the property at the time of death included in surviving spouse is not taxable
the gross estate. b. Beneficiary is third person Proceeds are payable
to beneficiary even in premiums were paid out of
Case Case the conjugal
Over Case A
B C
EXCLUSIONS AND EXEMPTIONS
FMV, transfer 2,000 1,500 2,500
FMV, death 2,500 2,000 2,000 Sec. 85 x x x
(H) Capital of the Surviving Spouse. - The capital of the surviving
Consideration received 2,000 800 0 spouse of a decedent shall not, for the purpose of this Chapter, be deemed a
part of his or her gross estate
Value included in the Gross 0 1,200 2,000
Estate
SEC. 87 Exemption of Certain Acquisitions and Transmissions. -
The following shall not be taxed:
The transfer for insufficient consideration must fall under (A) The merger of usufruct in the owner of the naked title;
any of the following: (B) The transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicommissary;
1. Transfer in contemplation of death; (C) The transmission from the first heir, legatee or donee in favor of another
2. Revocable transfer, or beneficiary, in accordance with the desire of the predecessor; and
3. Property passing under a GPA. (D) All bequests, devises, legacies or transfers to social welfare, cultural
- Otherwise, the tax imposed is donors tax. and charitable institutions, no part of the net income of which insures to the
benefit of any individual: Provided, however, That not more than thirty
percent (30%) of the said bequests, devises, legacies or transfers shall be
Proceeds of life insurance (Sec. 85(E)) used by such institutions for administration purposes.
When taxable
Proceeds of life insurance taken out by the decedent on his Capital of the Surviving Spouse (Sec. 85(H))
own life shall be included in the gross estate in the following Capital under the provisions of the NIRC should be taken to
cases: mean the property of the spouses brought into marriage.
1. Beneficiary is the estate of the deceased, his executor or Strictly speaking, capital under the Civil Law refers to the
administrator, irrespective of whether or not the insured property brought by the husband to the marriage while that
retained the power of revocation; or brought into the marriage by the wife known is as
2. Beneficiary is other than the decedents estate, executor paraphernal property. (Domondon)
or administrator, when designation of beneficiary is not
expressly made irrevocable. The capital of the surviving spouse of a decedent shall not be
- Under the Insurance Code of 1978, if not deemed a part of the gross estate.
clear or silent, the designation of the
beneficiary is presumed to be revocable; Exclusive Property of Each Spouse
hence, includible in the decedents gross If ACP governs property relations
estate. The community of property shall consist of all the property
owned by the spouses at the time of the celebration of the
When not taxable marriage or acquired thereafter. (Art. 91 Family Code)
1. Accident insurance proceeds as the Tax Code 1. The following are excluded from the community
specifically mentions only life insurance policies property:
2. Proceeds of a group insurance policy taken out by a a. Property acquired by gratuitous title by either
company for its employees spouse, and the fruits as well as the income thereof,
3. Amount receivable by any beneficiary irrevocably if any, unless it is expressly provided by the donor,
designated in the policy of insurance by the insured. The testator, or grantor that they shall form part of the
transfer is absolute and the insured did not retain any community property.
legal interest in the insurance b. Property for personal and exclusive use of either
4. Proceeds of insurance policies issued by the GSIS to spouse; however, jewelry shall form part of the
government officials and employees , which are exempt community property.
from all taxes; c. Property acquired before the marriage by either
5. Benefits accruing under the SSS law spouse who has legitimate descendants from a
6. Proceeds of life insurance payable to heirs of deceased former marriage, and the fruits as well as the
members of military personnel income, if any, of such property. (Art. 92 Family
Code)
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2. Property acquired during the marriage is presumed to b. Transmission or delivery of the inheritance or
belong to the community, unless it is proved that it is legacy by the fiduciary heir or legatee to the
one of those excluded therefrom. fideicomissary
c. The transmission from the first heir, legatee, or
If CPG governs property relations done in favor of another beneficiary in accordance
Under this regime, the husband and wife place in a common with the desire of the predecessor
fund the proceeds, products, fruits, and income from their d. All bequests, devises, legacies, or transfers to social
separate properties and those acquired by either or both welfare, cultural and charitable institutions, no part
spouses through their efforts or by chance, and, upon of the net income of which inures to the benefit of
dissolution of the marriage or of the partnership, the net any individual, and provided that not more than
gains or benefits obtained by either or both spouses shall be 30% of the said bequests, etc shall be used by such
divided equally between them, unless otherwise agreed in institution for administration purposes.
marriage settlements. (Art. 106, Family Code)
1. The following are exclusive property of each spouse: Exemptions under special laws
a. That which is brought to the marriage as his or her 1. Benefits received by members from the GSIS and the
own SSS by reason of death
b. That which each acquires DURING the marriage by 2. Amounts received from the Philippines and US
gratuitous title governments for damages suffered during the last war.
c. That which is acquired by right of redemption, by 3. Benefits received by beneficiaries residing in the
barter or by exchange with property belonging to Philippines under laws administered by the US Veteran
only one of the spouses Administration
d. That which is purchased with exclusive money of 4. Bequests, legacies, or donations mortis causa to social
the wife or the husband (Art. 109, Family Code) welfare, cultural, or charitable organizations. Bequests
2. Property bought on instalments paid partly from to be used actually, directly and exclusively for
exclusive funds of either or both spouses and partly educational purposes are also exempt from tax.
from conjugal funds belong to the buyer or buyers if full 5. Grants and donations to the Intramuros Administration
ownership was vested BEFORE the marriage subject to
reimbursement advanced by the conjugal partnership or
by either or both spouses. (Art. 118, Family Code) DEDUCTIONS FROM GROSS ESTATE
3. Whenever an amount or credit payable within a period I. Citizens and Resident Aliens
of time belongs to one of the spouses, the sums collated A. Expenses, Losses, Indebtedness, and Taxes (ELIT)
during the marriage in partial payments or by or Ordinary Deductions
instalments on the principal are considered the exclusive 1. Funeral Expenses
property of the spouse. However, interest falling due 2. Judicial Expenses
during the marriage on the principal belong to the 3. Claims against the estate
conjugal partnership. 4. Claims against insolvent persons
4. All property acquired during the marriage whether the 5. Unpaid Mortgages
acquisition appears to have been made, contracted or 6. Unpaid Taxes
registered in the name of one or both spouses,, is 7. Losses
presumed to belong to the conjugal partnership, unless it B. Property Previously Taxed (Vanishing Deductions)
is proved that it pertains exclusively to the husband or to C. Transfers for Public Use
the wife. D. Amount received by heirs under RA 4917
E. Net share of the surviving spouse in the conjugal
If separation of property governs property relations: property
Separation of property may refer to present or future F. Special Deductions
property or both. It may be total or partial. In the latter case, 1. Family Home
the property not agreed upon as separate shall pertain to the 2. Standard Deduction
absolute community. (Art. 144, Family Code) 3. Medical Expenses
To each spouse shall belong all earnings from his or her II. Non-Resident Aliens
profession, business or industry, and all fruits, natural, A. Expenses, Losses, Indebtedness, and Taxes (ELIT)
industrial, or civil, due or received during the marriage from or Ordinary Deductions
his or her separate property. (Art. 145, Family Code)
Allowable Deduction = Philippine Gross Estate
Exemptions: ------------------------------ x ELIT
1. Where net estate does not exceed P200,000. (Sec. 84) World Gross Estate
2. The following transmissions shall not be taxed: B. Transfers for Public Use
a. Merger of the usufruct in the owner of the naked C. Property Previously Taxed for Property in the
title Philippines (Vanishing Deductions)
D. Net share of the surviving spouse in the conjugal
property
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Expenses NOT allowed as deductions to non- Actual funeral expenses shall mean those which are actually
resident aliens incurred in connection with the interment or burial of the
a. Family Home deceased and must be paid out of the estate and not by
b. Standard Deduction another person or out of contributions from friends and
c. Medical Expenses relatives. These must be duly supported by receipts or
d. Amount received by heirs under RA 4917 invoices or other evidence to show that they were actually
incurred.
Section 86. Computation of Net Estate. - For the purpose of the tax The unpaid portion of the funeral expenses incurred which is
imposed in this Chapter, the value of the net estate shall be determined: in excess of the P200,000 threshold is NOT allowed to be
claimed as a deduction under claims against the estate.
(A) Deductions Allowed to the Estate of Citizen or a Resident. - In the case
of a citizen or resident of the Philippines, by deducting from the value of the
(Sec. 6(A)(1), RR 02-2003)
gross estate -
(1) Expenses, Losses, Indebtedness, and taxes. - Such amounts - The term funeral expenses is not confined to its ordinary or
usual meaning. They include:
(a) For actual funeral expenses or in an amount equal to five percent (5%)
of the gross estate, whichever is lower, but in no case to exceed Two
a. The mourning apparel of the surviving spouse and
hundred thousand pesos (P200,000); unmarried minor children of the deceased bought and used
on the occasion of the burial;
(b) For judicial expenses of the testamentary or intestate proceedings; a. Expenses for the deceaseds wake, including food
(c) For claims against the estate: Provided, That at the time the indebtedness
and drinks;
was incurred the debt instrument was duly notarized and, if the loan was b. Publication charges for death notices;
contracted within three (3) years before the death of the decedent, the c. Telecommunication expenses incurred in informing
administrator or executor shall submit a statement showing the disposition relatives of the deceased;
of the proceeds of the loan;
d. Cost of burial plot, tombstones, monument or
(d) For claims of the deceased against insolvent persons where the value of mausoleum but not their upkeep. In case the deceased
decedent's interest therein is included in the value of the gross estate; and owns a family estate or several burial lots, only the value
corresponding to the plot where he is buried is deductible;
(e) For unpaid mortgages upon, or any indebtedness in respect to, property
where the value of decedent's interest therein, undiminished by such
e. Interment and/or cremation fees and charges; and
mortgage or indebtedness, is included in the value of the gross estate, but f. All other expenses incurred for the performance
not including any income tax upon income received after the death of the of the rites and ceremonies incident to interment.
decedent, or property taxes not accrued before his death, or any estate tax.
The deduction herein allowed in the case of claims against the estate,
unpaid mortgages or any indebtedness shall, when founded upon a promise
Expenses incurred after the interment, such as for prayers,
or agreement, be limited to the extent that they were contracted bona fide masses, entertainment, or the like are not deductible. Any
and for an adequate and full consideration in money or money's worth. portion of the funeral and burial expenses borne or
There shall also be deducted losses incurred during the settlement of the defrayed by relatives and friends of the deceased are not
estate arising from fires, storms, shipwreck, or other casualties, or from
robbery, theft or embezzlement, when such losses are not compensated for
deductible. (Sec. 6, RR 2-2003)
by insurance or otherwise, and if at the time of the filing of the return such
losses have not been claimed as a deduction for the income tax purposes in Illustrations
an income tax return, and provided that such losses were incurred not later a. If 5% of the gross estate is P220,000 and the amount
than the last day for the payment of the estate tax as prescribed in
Subsection (A) of Section 91.
actually incurred is P215,000, the maximum amount
that may be deducted is only P200,000;
b. If 5% of the gross estate is P 100,000 and the total
No deduction shall be allowed in the case of a non-resident
amount incurred is P150,000 where P20,000 thereof is
decedent not a citizen of the Philippines, unless the executor,
still unpaid, the only amount that can be claimed as
administrator, or anyone of the heirs, as the case may be,
deduction for funeral expenses is P100,000. The entire
includes in the return required to be filed under Section 90 of
P50,000 excess amount consisting of P30,000 paid
the Code the value at the time of the decedents death of that
amount and P20,000 unpaid amount can no longer be
part of his gross estate NOT situated in the Philippines. (Sec.
claimed as funeral expenses. Neither can the P20,000
86 (D), NIRC; Sec 7, RR 2-2003)
unpaid portion be deducted from the gross estate as
claims against the estate.
ORDINARY DEDUCTIONS
Judicial Expenses of Testamentary and Intestate
Expenses, Losses, Indebtedness and Taxes, Etc.
Proceedings (Sec. 86 (A)(1)(b))
(ELIT)
Expenses allowed as deduction under this category are
those incurred in the inventory-taking of assets comprising
Funeral Expenses (Sec. 86 (A)(1)(a))
the gross estate, their administration, the payment of debts
Allowable deduction is not to exceed P200,000 and of the estate, as well as the distribution of the estate among
whichever is lower of: the heirs. In short, these deductible items are expenses
(a) The actual funeral expenses (whether or not paid) up to
incurred during the settlement of the estate but not beyond
the time of interment, or the last day prescribed by law, or the extension thereof, for
(b) An amount equal to 5% of the gross estate.
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the filing of the estate tax return. (Sec. 86 (A)(2), RR 2- d. The indebtedness must not have been condoned by
2003) the creditor or the action to collect from the
decedent must not have prescribed.
Judicial expenses may include:
a. Fees of executor or administrator Substantiation Requirements
b. Attorneys fees In case of simple loan (including advances):
c. Court fees 1. The debt instrument must be duly notarized at the
d. Accountants fees time the indebtedness was incurred, such as
e. Appraisers fees promissory note or contract of loan, except for
f. Clerk hire loans granted by financial institutions where
g. Costs of preserving and distributing the estate notarization is not part of the business
h. Costs of storing or maintaining property of the estate practice/policy of the financial institution-lender.
i. Brokerage fees for selling property of the estate 2. Duly notarized Certification from the creditor as
to the unpaid balance of the debt, including
Any unpaid amount for the aforementioned cost and interest as of the time of death
expenses claimed under Judicial Expenses should be - If the creditor is a corporation, the sworn
supported by a sworn statement of account issued and signed certification should be signed by the
by the creditor. President, or Vice-President, or other
principal officer of the corporation.
The expenses should be supported by receipts or invoices or - If the creditor is a partnership, the sworn
by a sworn statement of account issued by the creditor. certification should be signed by any of
the general partners.
Expenses not deductible - In case the creditor is a bank or other
a. Compensation paid to a trustee of the decedents estate financial institutions, the Certification
for his services rendered for the purpose of managing shall be executed by the branch manager
the decedents real estate for the benefit of the of the bank/financial institution which
testamentary heirs (Lorenzo v. Posadas) monitors and manages the loan of the
b. Expenses incurred by the presumptive heir and that of decedent-debtor.
her witnesses for appearance at the trial to oppose the - If the creditor is an individual, the sworn
probate of a will. certification should be signed by him. In
c. Attorneys fees incident to litigation incurred by the any of these cases, the one who should
heirs in asserting their respective rights, or claims as to certify must not be a relative of the
who are entitled to the estate left by the deceased. borrower within the fourth civil degree,
d. Premiums paid by the administrator on his bond, being either by consanguinity or affinity, except
exclusively used for his account, since the giving of the when the requirement below is complied
bond is in the nature of a qualification for the office and with.
not necessary in the settlement of his estate. When the lender, or the
President/Vice-president/principal
Claims Against the Estate (Sec. 86 (A)(1)(c)) officer of the creditor-corporation, or
The word claims is generally construed to mean debts or the general partner of the creditor-
demands of a pecuniary nature which could have been partnership is a relative of the debtor
in the degree mentioned above, a
enforced against the deceased in his lifetime and could copy of the promissory note or other
have been reduced to simple money judgements. evidence of the indebtedness must be
filed with the RDO having
Claims against the estate or indebtedness in respect of jurisdiction over the borrower within
property may arise out of: contract, tort, or operation of law. 15 days from the execution thereof.
Requisites for Deductibility of Claims Against the 3. Proof of financial capacity of the creditor to lend
Estate: the amount at the time the loan was granted, as well
a. The liability represents a personal obligation of the as its latest audited balance sheet with a detailed
deceased existing at the time of his death except schedule of its receivable showing the unpaid
unpaid obligations incurred incident to his death balance of the decedent-debtor
such as unpaid funeral expenses (i.e., expenses - In case the creditor is an individual who is
incurred up to the time of internment) and unpaid no longer required to file income tax
medical expenses which are classified under a returns with the Bureau, a duly notarized
different category of deductions. declaration by the creditor of his capacity
b. The liability was contracted in good faith and for to lend at the time when the loan was
adequate and full consideration in money or granted without prejudice to verification
moneys worth that may be made by the BIR to
c. The claim must be a debt or claim which is valid in substantiate such declaration of the
law and enforceable in court; creditor. If the creditor is a non-resident,
9
the executor/ administrator or any of the a. The value of the decedents interest therein,
legal heirs must submit a duly notarized undiminished by such mortgage or indebtedness, is
declaration by the creditor of his included in the value of the gross estates.
capacity to lend at the time when the b. The mortgages were contracted bona fide and for an
loan was granted, authenticated or adequate and full consideration in money or moneys
certified to as such by the tax authority of worth.
the country where the non-resident
creditor is a resident; In case the loan of the decedent is only an accommodation
loan where the loan proceeds went to another person, the
4. A statement under oath executed by the value of the unpaid loan must be included as a receivable of
administrator or executor of the estate reflecting the the estate. If there is a legal impediment to recognize the
disposition of the proceeds of the loan if it was same as a receivable of the estate, the said unpaid obligation
contracted within 3 years prior to the death of the shall not be allowed as a deduction. In all instances, the
decedent. mortgaged property, to the extent of the decedents interest
therein, should always form part of the taxable gross estate.
If the unpaid obligation arose from purchase of goods
or services: Unpaid Taxes
1. Pertinent documents evidencing the purchase of Requisites for Deductibility
goods or service, such as sales invoice/delivery a. Taxes which have accrued as of or before the death
receipt (for sale of goods), or contract for the of the decedent, and
services agreed to be rendered (for sale of services), b. Unpaid as of the time of his death, regardless of
as duly acknowledged, executed and signed by whether or not it was incurred in connection with
decedent-debtor and creditor, and statement of trade or business
account given by the creditor as duly received by
the decedent-debtor This deduction will not include:
2. Duly notarized certification from the creditor as to a. Income tax upon income received after death, or
the unpaid balance of the debt, including interest as b. Property taxes not accrued before his death, or
of the time of death. c. The estate tax due from the transmission of his
3. Certified true copy of the latest audited balance estate
sheet of the creditor with a detailed schedule of its
receivable showing the unpaid balance of the Casualty Losses
decedent-debtor. Moreover, a certified true copy of Requisites for Deductibility
the updated latest subsidiary ledger/records of the a. Incurred during the settlement of the estate
debtor-decedent, should likewise be submitted. b. Arising from fires, storms, shipwreck, or other
casualties from robbery, theft, or embezzlement
c. Not compensated by insurance or otherwise
Where the settlement is made through the Court in a testate d. At the filing of the estate tax return, such losses
or intestate proceeding, pertinent documents filed with the have not been claimed as a deduction for income
Court evidencing the claims against the estate, and the tax purposes in an income tax return
Court Order approving the said claims, if already e. Incurred not later than the last day for the payment
issued, in addition to the documents mentioned in the of the estate tax as prescribed by law.
preceding paragraphs.
Casualty loss can be allowed as deduction in one instance
Claims Against Insolvent Persons (Sec. 86 (A)(1)(d)) only, either for income tax purposes or estate tax purposes.
These are claims that are not collectible. To be deductible (Sec. 6(A)(5)), Rev. Reg 2-2003)
from the gross estate:
a. The incapacity of the debtor to pay his obligation should Sec. 86 x x x
be proven, although a judicial declaration of insolvency
Property Previously Taxed. - An amount equal to the value specified
is not required;
below of any property forming a part of the gross estate situated in the
b. The full amount owed by the insolvent must first be Philippines of any person who died within five (5) years prior to the death
included in the decedents gross estate; and of the decedent, or transferred to the decedent by gift within five (5) years
c. If the insolvent could only pay a partial amount, the full prior to his death, where such property can be identified as having been
received by the decedent from the donor by gift, or from such prior
amount owed shall be included in the gross estate, and decedent by gift, bequest, devise or inheritance, or which can be identified
the amount uncollectible shall be allowed as a as having been acquired in exchange for property so received:
deduction.
One hundred percent (100%) of the value, if the prior decedent died within
one (1) year prior to the death of the decedent, or if the property was
Unpaid Mortgages, Losses and Taxes (Sec. transferred to him by gift within the same period prior to his death;
86(A)(1)(e))
Unpaid Mortgages Eighty percent (80%) of the value, if the prior decedent died more than one
Requisites for Deductibility (1) year but not more than two (2) years prior to the death of the decedent,
or if the property was transferred to him by gift within the same period prior
to his death;
10
2. Identity of the property The property with respect to
Sixty percent (60%) of the value, if the prior decedent died more than two which deduction is sought can be identified as the one
(2) years but not more than three (3) years prior to the death of the decedent,
or if the property was transferred to him by gift within the same period prior who received from prior decedent, or from the donor, or
to his death; as the property acquired in exchange for the original
property so received.
Forty percent (40%) of the value, if the prior decedent died more than three 3. Inclusion of the property The property must have
(3) years but not more than four (4) years prior to the death of the decedent,
or if the property was transferred to him by gift within the same period prior formed part of the gross estate situated in the
to his death; Philippines of the prior decedent, or have been included
in the total amount of the gifts of the donor made
Twenty percent (20%) of the value, if the prior decedent died more than within 5 years prior to the present decedents death.
four (4) years but not more than five (5) years prior to the death of the
decedent, or if the property was transferred to him by gift within the same 4. Previous taxation of property The estate tax on the
period prior to his death; prior succession, or the donors tax on the gift must
have been finally determined and paid by the prior
These deductions shall be allowed only where a donor's tax or estate tax decedent or by the donor, as the case may be.
imposed under this Title was finally determined and paid by or on behalf of
such donor, or the estate of such prior decedent, as the case may be, and 5. No previous vanishing deduction on the property
only in the amount finally determined as the value of such property in No such deduction on the property, or the property
determining the value of the gift, or the gross estate of such prior decedent, given in exchange therefor, was allowed in determining
and only to the extent that the value of such property is included in the
decedent's gross estate, and only if in determining the value of the estate of
the value of the net estate of the prior decedent. This is
the prior decedent, no deduction was allowable under paragraph (2) in intended to preclude the application of the vanishing
respect of the property or properties given in exchange therefor. Where a deduction on the same property more than once.
deduction was allowed of any mortgage or other lien in determining the
donor's tax, or the estate tax of the prior decedent, which was paid in whole
or in part prior to the decedent's death, then the deduction allowable under Limitations
said Subsection shall be reduced by the amount so paid. Such deduction 1. Value of property The deduction is limited by the
allowable shall be reduced by an amount which bears the same ratio to the value of property previously taxed or the aggregate
amounts allowed as deductions under paragraphs (1) and (3) of this value of such property if more than one item, as finally
Subsection as the amount otherwise deductible under said paragraph (2)
bears to the value of the decedent's estate. Where the property referred to determined for the purpose of the prior estate tax (or gift
consists of two or more items, the aggregate value of such items shall be tax) or the value of such property in present decedents
used for the purpose of computing the deduction. gross estate, whichever is lower.
2. Deduction for mortgage or lien The initial value
Property Previously Taxed/PPT (Sec. 86(A)(2)) also (in number 1 above) shall be reduced by the total
called as vanishing deductions amount paid, if any, by the present decedent on any
This is an amount allowed to reduce the taxable estate of a mortgage or other lien on the property where a
decedent where property: deduction was allowed, by reason of the payment, of
1. Received by him from a prior decedent by gift, bequest, such mortgage or other lien from the gross estate of the
device, or inheritance prior decedent, or gift or donor, in determining the
2. Transferred to him by gift, has been the object of estate tax of the prior decedent or the donors tax.
previous transfer transaction 3. Deductions for expenses, etc. The value as reduced
in #2 shall be further reduced by an amount which bears
Conditions the same ratio to the amounts allowed as deductions for:
1. There must be 2 deceased persons and the first one is a. Expenses, losses, indebtedness, and taxes (ordinary
the donor deductions), and
2. The second decedent dies within 5 years after the death b. Transfers for public use as the amount otherwise
of a prior decedent, or in case of gift, the decedent- deductible for property previously taxed bears to
donee dies within the same period after the date of the the value of the decedents gross estate; and
gift. 4. Percentage of deductions The vanishing deduction
shall be the value (final basis) in #3 multiplied by the ff.
The vanishing deduction is allowable to the gross estate percentages:
situated in the Philippines of a resident or Filipino decedent
as well as to the gross estate of a non-resident alien Vanishing If received by inheritance or gift
decedent. Deduction
Rate
Reason
The deduction operates to ease the harshness of successive Within one (1) year prior to the death of
100%
taxation of the same property within a relatively short period the present decedent
of time, occasioned by the untimely death of the transferee More than one year but not more than
after the receipt of the property form the prior decedent or 80% two years prior to the death of the
donor. decedent
Twenty percent (20%) of the value, if the prior decedent died more than
Requisites for Deductibility four (4) years but not more than five (5) years prior to the death of the
1. The expenses were incurred by the decedent within 1 decedent, or if the property was transferred to him by gift within the same
year prior to his death period prior to his death.
2. The expenses are duly substantiated with receipts and
These deductions shall be allowed only where a donor's tax, or estate tax
other documents in support thereof imposed under this Title is finally determined and paid by or on behalf of
Provided, that in no case shall the deductible medical such donor, or the estate of such prior decedent, as the case may be, and
expenses exceed Five Hundred Thousand Pesos (P500,000). only in the amount finally determined as the value of such property in
determining the value of the gift, or the gross estate of such prior decedent,
and only to the extent that the value of such property is included in that part
Any amount of medical expenses incurred within one year of the decedent's gross estate which at the time of his death is situated in the
from death in excess of P500,000 shall no longer be allowed Philippines; and only if, in determining the value of the net estate of the
as a deduction under this subsection. Neither can any unpaid prior decedent, no deduction is allowable under paragraph (2) of Subsection
amount thereof in excess of the P500,000 threshold nor any (B) of this Section, in respect of the property or properties given in
exchange therefore. Where a deduction was allowed of any mortgage or
unpaid amount for medical expenses incurred prior to the other lien in determining the donor's tax, or the estate tax of the prior
one-year period from date of death be allowed to be decedent, which was paid in whole or in part prior to the decedent's death,
deducted from the gross estate under Claims against the then the deduction allowable under said paragraph shall be reduced by the
estate. (RR 2-2003, Sec. 6-F) amount so paid. Such deduction allowable shall be reduced by an amount
which bears the same ratio to the amounts allowed as deductions under
paragraphs (1) and (3) of this Subsection as the amount otherwise
Net share of the surviving spouse in the conjugal deductible under paragraph (2) bears to the value of that part of the
partnership property (Sec. 86(C), NIRC; Sec. 6(H), RR 2- decedent's gross estate which at the time of his death is situated in the
Philippines. Where the property referred to consists of two (2) or more
2003) items, the aggregate value of such items shall be used for the purpose of
The amount deductible is the net share of the surviving computing the deduction.
spouse in the conjugal partnership property. The net share is
equivalent to of 50% of the conjugal property after (3) Transfers for Public Use. - The amount of all bequests, legacies,
devises or transfers to or for the use of the Government of the Republic of
deducting the obligations chargeable to such property. The the Philippines or any political subdivision thereof, for exclusively public
share of the surviving spouse must be removed to ensure that purposes.
only the decedents interest in the estate is taxed. Net share
of the surviving spouse is neither an ordinary nor a special (C) Share in the Conjugal Property. - the net share of the surviving
deduction. spouse in the conjugal partnership property as diminished by the obligations
properly chargeable to such property shall, for the purpose of this Section,
be deducted from the net estate of the decedent.
NON RESIDENT ALIENS
(D) Miscellaneous Provisions. - No deduction shall be allowed in the
case of a nonresident not a citizen of the Philippines, unless the executor,
Sec. 86 x x x
administrator, or anyone of the heirs, as the case may be, includes in the
(B) Deductions Allowed to Nonresident Estates. - In the case of a
return required to be filed under Section 90 the value at the time of his death
nonresident not a citizen of the Philippines, by deducting from the value of
of that part of the gross estate of the nonresident not situated in the
that part of his gross estate which at the time of his death is situated in the
Philippines.
Philippines:
(1) Expenses, Losses, Indebtedness and Taxes. - That proportion of the
deductions specified in paragraph (1) of Subsection (A) of this Section
which the value of such part bears to the value of his entire gross estate III. Non-Resident Aliens
wherever situated; A. Expenses, Losses, Indebtedness, and Taxes (ELIT)
(2) Property Previously Taxed. - An amount equal to the value specified or Ordinary Deductions
below of any property forming part of the gross estate situated in the
Philippines of any person who died within five (5) years prior to the death
of the decedent, or transferred to the decedent by gift within five (5) years Allowable Deduction = Philippine Gross Estate
prior to his death, where such property can be identified as having been ------------------------------ x ELIT
received by the decedent from the donor by gift, or from such prior World Gross Estate
decedent by gift, bequest, devise or inheritance, or which can be identified
as having been acquired in exchange for property so received:
B. Transfers for Public Use
13
C. Property Previously Taxed for Property in the
Philippines (Vanishing Deductions) Decedents net estate
D. Net share of the surviving spouse in the conjugal situated in foreign country
property --------------------------------- x PH estate tax = Tax Credit
Limit
Expenses NOT allowed as deductions to non- Entire net estate
resident aliens
a. Family Home
b. Standard Deduction B. For estate taxes paid to 2 or more foreign countries
c. Medical Expenses The total amount of the credit shall not exceed the same
d. Amount received by heirs under RA 4917 proportion of the tax against which such credit is taken,
which the decedent's net estate situated outside the
Allowable Deductions form the Gross Estate of Non- Philippines taxable under the tax code bears to his entire net
Resident Aliens estate.
In case of non-resident aliens, no deduction shall be allowed
unless the executor, administrator, or anyone of the heirs as Decedent net estate
the case may be, includes in the estate tax return of the Situated outside the PH
decedent required to be filed, the value at the time of his ------------------------------ x PH estate tax = Tax Credit
death that part of the gross estate of the non-resident not Limit
situated in the Philippines. (Sec. 7, RR 2-2003) Entire net estate
14
property such as real property, motor vehicle, shares of stock or other
Actually paid to Country H 1,400 similar property for which a clearance from the Bureau of Internal Revenue
Tax credit allowed under Limitation P 4,400 is required as a condition precedent for the transfer of ownership thereof in
the name of the transferee, the executor, or the administrator, or any of the
A legal heirs, as the case may be, shall file a return under oath in duplicate,
setting forth:
Solution Limitation B:
(1) The value of the gross estate of the decedent at the time of his death, or
1. Apply Formula B. The result after applying the in case of a nonresident, not a citizen of the Philippines, of that part of his
formula above is compared to the tax actually paid gross estate situated in the Philippines;
in total to foreign countries. (2) The deductions allowed from gross estate in determining the estate as
defined in Section 86; and
2. The lower of the two amounts will be added to get
the total tax credit allowed under Limitation B. (3) Such part of such information as may at the time be ascertainable and
such supplemental data as may be necessary to establish the correct taxes.
Amount Provided, however, That estate tax returns showing a gross value exceeding
Allowed Two million pesos (P2,000,000) shall be supported with a statement duly
(Lower) certified to by a Certified Public Accountant containing the following:
(a) Itemized assets of the decedent with their corresponding gross value at
450/1500 x 15,000 4,500 the time of his death, or in the case of a nonresident, not a citizen of the
Philippines, of that part of his gross estate situated in the Philippines;
Total foreign income taxes paid 6,400 (b) Itemized deductions from gross estate allowed in Section 86; and
Tax credit allowed under Limitation P 4,400 (c) The amount of tax due whether paid or still due and outstanding.
(B) Time for filing. - For the purpose of determining the estate tax
Compare the tax credit allowed under Limitation A and provided for in Section 84 of this Code, the estate tax return required under
Limitation B. The lower of the two amounts is the final the preceding Subsection (A) shall be filed within six (6) months from the
allowable tax credit. In this case, the amount computed decedent's death.
A certified copy of the schedule of partition and the order of the court
under Limitation A (4,400) is lower, thus it becomes the approving the same shall be furnished the Commissioner within thirty (30)
final allowable tax credit. after the promulgation of such order.
If there is only one foreign country involved, both (C) Extension of Time. - The Commissioner shall have authority to grant,
in meritorious cases, a reasonable extension not exceeding thirty (30) days
Limitations will yield the same answer. for filing the return.
To get the tax credit allowable, use the formula in Limitation (D) Place of Filing. - Except in cases where the Commissioner otherwise
A. permits, the return required under Subsection (A) shall be filed with an
authorized agent bank, or Revenue District Officer, Collection Officer, or
duly authorized Treasurer of the city or municipality in which the decedent
The resulting amount will be compared to the actual tax paid was domiciled at the time of his death or if there be no legal residence in the
to the foreign country. The lower amount will be the final Philippines, with the Office of the Commissioner.
allowable tax credit.
Period for Filing Where the taxes are assessed by reason of negligence, intentional disregard
General Rule: Filed within 6 months from the decedent's of rules and regulations, or fraud on the part of the taxpayer, no extension
death. will be granted by the Commissioner.
Where to file the estate tax return and pay the tax due (C) Liability for Payment - The estate tax imposed by Section 84 shall be
(Sec. 9, RR 2-2003) paid by the executor or administrator before delivery to any beneficiary of
his distributive share of the estate. Such beneficiary shall to the extent of his
Resident Citizen distributive share of the estate, be subsidiarily liable for the payment of such
The executor or administrator shall register the estate of the portion of the estate tax as his distributive share bears to the value of the
decedent and secure a new TIN from the RDO where the total net estate.
decedent was domiciled at the time of his death and shall file
For the purpose of this Chapter, the term 'executor' or 'administrator' means
the estate tax return and pay the corresponding estate tax the executor or administrator of the decedent, or if there is no executor or
with: administrator appointed, qualified, and acting within the Philippines, then
1. An authorized agent bank (AAB), or any person in actual or constructive possession of any property of the
2. Revenue District Officer (RDO), or decedent.
3. Collection Officer,
4. Duly authorized Treasurer of the city or municipality in
which the decedent was domiciled at the time of his Rule: Pay as you file
death, or At the time the return is filed by the executor, administrator
or the heirs.
Non-resident decedent, whether non-resident citizen
or non-resident alien, with executor or administrator The executor or administrator means the executor or
in the Philippines administrator of the decedent, or if there is none appointed,
The estate tax return shall be filed with and the TIN for the qualified, and acting within the Philippines, then any person
estate shall be secured from the RDO where such executor in actual or constructive possession of any property of the
or administrator is registered. decedent. The estate tax shall be paid by the executor or
administrator before the delivery of the distributive share in
If the executor or administrator is not registered, the estate the inheritance to any heir or beneficiary.
tax return shall be filed with and the TIN for the estate shall
be secured from the RDO having jurisdiction over the Exception: In meritorious cases, The Commissioner grant
executor or administrators legal residence. reasonable extension not exceeding 30 days.
Non-resident decedent does not have an executor or Extension of Payment (Sec. 9(E), RR 2-2003)
administrator in the Philippines The Commissioner may allow an extension of payment, if he
The estate tax return shall be filed with and the TIN for the finds that the payment on the due date of the estate tax or of
estate shall be secured from the Office of the Commissioner any part thereof would impose undue hardship upon the
through RDO 39 QC. estate or any of the heirs:
1. Extension not to exceed 5 years, in case the estate is
The foregoing provisions notwithstanding, the settled judicially, or
Commissioner of Internal Revenue may continue to exercise 2. 2 years in case the estate is settled extrajudicially.
16
Where the taxes are assessed by reason of negligence, upon his return; but the amounts so shown on the return shall first be
increased by the amounts previously assessed (or collected without
intentional disregard of rules and regulations, or fraud on the assessment) as a deficiency and decreased by the amount previously abated,
part of the taxpayer, no extension will be granted by the refunded or otherwise repaid in respect of such tax; or
Commissioner.
(b) If no amount is shown as the tax by the executor, administrator or any of
the heirs upon his return, or if no return is made by the executor,
If extension granted, the Commissioner may require the
administrator, or any heir, then the amount by which the tax exceeds the
executor, or administrator, or beneficiary, as the case may amounts previously assessed (or collected without assessment) as a
be, to furnish a bond in such amount, not exceeding double deficiency; but such amounts previously assessed or collected without
the amount of the tax and with such sureties as the assessment shall first be decreased by the amounts previously abated,
Commissioner deems necessary, conditioned upon the refunded or otherwise repaid in respect of such tax.
payment of the said tax in accordance with the terms of the SEC. 94. Payment before Delivery by Executor or Administrator. -
extension. No judge shall authorize the executor or judicial administrator to deliver a
distributive share to any party interested in the estate unless a certification
from the Commissioner that the estate tax has been paid is shown.
Effects of granting an extension
1. Payment of the amount in respect of which the SEC. 95. Duties of Certain Officers and Debtors. - Registers of Deeds
extension is granted on or before the date of the shall not register in the Registry of Property any document transferring real
expiration of the period of the extension property or real rights therein or any chattel mortgage, by way of gifts inter
2. Suspension of the running of statute of limitations for vivos or mortis causa, legacy or inheritance, unless a certification from the
Commissioner that the tax fixed in this Title and actually due thereon had
deficiency assessment for the period of any extension been paid is show, and they shall immediately notify the Commissioner,
3. Any amount paid after the statutory due date of the tax, Regional Director, Revenue District Officer, or Revenue Collection Officer
but within the extension period, shall be subject to or Treasurer of the city or municipality where their offices are located, of
interest but not to surcharge. the non payment of the tax discovered by them. Any lawyer, notary public,
or any government officer who, by reason of his official duties, intervenes
in the preparation or acknowledgment of documents regarding partition or
Can estate tax be paid in installments? Yes! disposal of donation intervivos or mortis causa, legacy or inheritance, shall
In case the available cash of the estate is not sufficient to pay have the duty of furnishing the Commissioner, Regional Director, Revenue
District Officer or Revenue Collection Officer of the place where he may
its total estate tax liability, the estate may be allowed to pay have his principal office, with copies of such documents and any
the tax by installment and a clearance shall be released only information whatsoever which may facilitate the collection of the
with respect to the property the corresponding/computed tax aforementioned tax. Neither shall a debtor of the deceased pay his debts to
on which has been paid. (Sec. 9(F), RR 2-2003) the heirs, legatee, executor or administrator of his creditor, unless the
certification of the Commissioner that the tax fixed in this Chapter had been
paid is shown; but he may pay the executor or judicial administrator without
Who are liable for the payment of estate taxes said certification if the credit is included in the inventory of the estate of the
Primarily, the estate, through the executor or administrator. deceased.
1. Payment shall be made before the delivery of the
SEC. 96. Restitution of Tax Upon Satisfaction of Outstanding
distributive share in the inheritance to any heir or Obligations. - If after the payment of the estate tax, new obligations of the
beneficiary. decedent shall appear, and the persons interested shall have satisfied them
2. If there are two or more executors or by order of the court, they shall have a right to the restitution of the
administrators, all of them are severally liable for the proportional part of the tax paid.
payment of the tax. SEC. 97. Payment of Tax Antecedent to the Transfer of Shares,
3. The estate tax clearance issued by the Bonds or Rights. - There shall not be transferred to any new owner in the
Commissioner or the RDO having jurisdiction over the books of any corporation, sociedad anonima, partnership, business, or
estate, will serve as the authority to distribute the remaining industry organized or established in the Philippines any share, obligation,
bond or right by way of gift inter vivos or mortis causa, legacy or
properties/share in the inheritance to the heir or beneficiary. inheritance, unless a certification from the Commissioner that the taxes
fixed in this Title and due thereon have been paid is shown.
Subsidiarily, heirs or beneficiaries, for the payment of that
portion of the estate which his distributive share bears to the If a bank has knowledge of the death of a person, who maintained a bank
deposit account alone, or jointly with another, it shall not allow any
value of the total net estate. withdrawal from the said deposit account, unless the Commissioner has
certified that the taxes imposed thereon by this Title have been paid:
The extent of his liability, however, shall in no case exceed Provided, however, That the administrator of the estate or any one (1) of the
the value of his share in the inheritance. heirs of the decedent may, upon authorization by the Commissioner,
withdraw an amount not exceeding Twenty thousand pesos (P20,000)
without the said certification. For this purpose, all withdrawal slips shall
Claims for taxes, whether assessed before or after the death contain a statement to the effect that all of the joint depositors are still living
of the deceased, can be collected from the heirs even after at the time of withdrawal by any one of the joint depositors and such
the distribution of the properties of the decedent, xxx. The statement shall be under oath by the said depositors.
heirs shall be liable therefor, in proportion to their share in
the inheritance. Marcos v. CA (1997)
17
2. Judge will not issue authorization to deliver distributive
shares unless certification of payment is shown. (Sec.
94)
3. Register of Deeds shall not register in the Registry of
property any document transferring real property or real
interest rights therein without certification from the
Commissioner that the tax actually due thereon had
been paid. (Sec. 95)
4. Lawyer, notary public, or any government officer
intervening in the preparation or
acknowledgement of documents regarding
partition or disposal of donation inter vivos or
mortis causa, legacy or inheritance, shall have the
duty of furnishing the Commissioner, Regional
Director, Revenue District Officer, or Revenue
Collector Officer such documents. (Sec. 95)
5. A debtor of the deceased shall not pay his debts to
the heirs, legatee, executor or administrator of his
creditor, unless the certification of the Commissioner
that the estate tax imposed by NIRC has been paid is
shown, BUT he may pay the executor or judicial
administrator without said certification if the credit is
included in the inventory of the estate of the deceased.
(Sec. 95)
6. A corporation will not transfer to the new owners of
shares, bonds, obligations, or rights without the
certification from the Commissioner that the tax
actually due thereon had been paid. (Sec. 97)
7. When a bank has knowledge of the death of a person
who maintained a joint account, it shall not allow any
withdrawal by the surviving depositor without the above
certification.
18
DONORS TAX SEC. 104. Definitions. x x x Provided, still further, that no tax shall be
collected under this Title in respect of intangible personal property: (a) if
the decedent at the time of his death or the donor at the time of the donation
1. IMPOSITION OF GIFT TAX was a citizen and resident of a foreign country which at the time of his death
SEC. 98. Imposition of Tax. - or donation did not impose a transfer tax of any character, in respect of
(A) There shall be levied, assessed, collected and paid upon the transfer intangible personal property of citizens of the Philippines not residing in
by any person, resident or nonresident, of the property by gift, a tax, that foreign country, or (b) if the laws of the foreign country of which the
computed as provided in Section 99. decedent or donor was a citizen and resident at the time of his death or
(B) The tax shall apply whether the transfer is in trust or otherwise, donation allows a similar exemption from transfer or death taxes of every
whether the gift is direct or indirect, and whether the property is real or character or description in respect of intangible personal property owned by
personal, tangible or intangible. citizens of the Philippines not residing in that foreign country.
1.3.1. Requirements
1.1. Tax rates (Sec. 99) 1. Resident and citizen of a foreign country
1.1.1. If the donee is a STRANGER: 30% 2. No transfer tax on intangible personal property of non-
resident Philippine citizens
Stranger: a person who is not a: 3. Allows exemption from transfer tax same as (2)
1. Brother, sister (whether by whole or half-blood),
spouse, ancestor and lineal descendant; or 2. TRANSFER FOR INADEQUATE
2. Relative by consanguinity in the collateral line within CONSIDERATION
the fourth degree of relationship.
SEC. 100. Transfer for Less Than Adequate and full Consideration.
RR 2-2003: Donations made between business organizations, and those - Where property, other than real property referred to in Section 24(D), is
made between an individual and a business organization shall be considered transferred for less than an adequate and full consideration in money or
donations made to a stranger. money's worth, then the amount by which the fair market value of the
property exceeded the value of the consideration shall, for the purpose of
the tax imposed by this Chapter, be deemed a gift, and shall be included in
1.1.2. If the donee is NOT A STRANGER to the computing the amount of gifts made during the calendar year.
donor:
2.1. Transfers which may be constituted as donation
Of the
Over But not over Tax is Plus
Excess Over
(from the BOC reviewer and RR 2-2003)
0 100,000 Exempt
100,000 200,000 0 2% 100,000 1. Sale, exchange or transfer of property for insufficient
200,000 500,000 2,000 4% 200,000 consideration
500,000 1,000,000 14,000 6% 500,000 2. Condonation or remission of debt where the debtor did
1,000,000 3,000,000 44,000 8% 1,000,000 not render service in favor of the creditor
3,000,000 5,000,000 204,000 10% 3,000,000 3. Renunciation in favor of other heirs
5,000,000 10,000,000 404,000 12% 5,000,000 a. Renunciation by the surviving spouse of their share
10,000,000 1,004,000 15% 10,000,000 in the ACP/CPG after the dissolution of the
marriage in favor of heirs of the deceased spouse or
1.2. Tax base any other person/s
1.2.1. General formula b. Renunciation specifically and categorically in favor
of identified heir/s to the exclusion or disadvantage
Gross gifts of the other co-heirs in the hereditary estate
Less: Deductions from the gross gifts c. However, general renunciation by an heir,
Net gifts including the surviving spouse, of their share in the
Multiplied by the applicable rate hereditary estate left by the decedent is NOT
Donors tax on the net gifts subject to DT
1.2.2. Several gifts during the year 3. EXEMPTION FROM GIFT TAX
Gross gifts made on this date SEC. 101. Exemption of Certain Gifts. - The following gifts or
donations shall be exempt from the tax provided for in this Chapter:
Less: Deductions from the gross gifts (A) In the Case of Gifts Made by a Resident. -
Net gifts made on this date (1) Dowries or gifts made on account of marriage and before its
Add: all prior net gifts during the year celebration or within one year thereafter by parents to each of their
legitimate, recognized natural, or adopted children to the extent of the first
Aggregate net gifts Ten thousand pesos (P10,000):
Multiplied by applicable rate (2) Gifts made to or for the use of the National Government or any
Donors tax on the aggregate net gifts entity created by any of its agencies which is not conducted for profit, or to
any political subdivision of the said Government; and
Less: Donors tax paid on prior net gifts (3) Gifts in favor of an educational and/or charitable, religious, cultural
Donors tax due on the net gifts to date or social welfare corporation, institution, accredited nongovernment
organization, trust or philanthrophic organization or research institution or
organization: Provided, however, That not more than thirty percent (30%)
1.3. Rule on reciprocity of said gifts shall be used by such donee for administration purposes. For
the purpose of the exemption, a 'non-profit educational and/or charitable
19
corporation, institution, accredited nongovernment organization, trust or SEC. 101. (C) Tax Credit for Donor's Taxes Paid to a Foreign
philanthrophic organization and/or research institution or organization' is a Country. -
school, college or university and/or charitable corporation, accredited (1) In General. - The tax imposed by this Title upon a donor who was a
nongovernment organization, trust or philanthrophic organization and/or citizen or a resident at the time of donation shall be credited with the
research institution or organization, incorporated as a nonstock entity, amount of any donor's tax of any character and description imposed by the
paying no dividends, governed by trustees who receive no compensation, authority of a foreign country.
and devoting all its income, whether students' fees or gifts, donation, (2) Limitations on Credit. - The amount of the credit taken under this
subsidies or other forms of philanthrophy, to the accomplishment and Section shall be subject to each of the following limitations:
promotion of the purposes enumerated in its Articles of Incorporation. (a) The amount of the credit in respect to the tax paid to any country
(B) In the Case of Gifts Made by a Nonresident not a Citizen of shall not exceed the same proportion of the tax against which such credit is
the Philippines. - taken, which the net gifts situated within such country taxable under this
(1) Gifts made to or for the use of the National Government or any Title bears to his entire net gifts; and
entity created by any of its agencies which is not conducted for profit, or to (b) The total amount of the credit shall not exceed the same proportion
any political subdivision of the said Government. of the tax against which such credit is taken, which the donor's net gifts
(2) Gifts in favor of an educational and/or charitable, religious, cultural situated outside the Philippines taxable under this title bears to his entire net
or social welfare corporation, institution, foundation, trust or philanthrophic gifts.
organization or research institution or organization: Provided, however,
That not more than thirty percent (30% of said gifts shall be used by such
donee for administration purposes. 4.1. Who may claim the tax credit
1. Resident citizen
These are deductible from gross gifts in order to arrive at the 2. Non-resident citizen
taxable net gifts, and are not treated as exclusions from the 3. Resident alien
gross gifts of the donor.
4.2. Limitations on the tax credit
3.1. Gifts made by a RESIDENT 1. Per country limit
1. Dowries or donations made: NET GIFT (foreign
country) PHIL DONORS
a. On account of marriage x
TAX
b. Before its celebration or within one year thereafter ENTIRE NET GIFTS
c. By parents to each of their legitimate, recognized
natural, or adopted children 2. Worldwide limit
d. To the extent of the first P10,000 NET GIFT (all
countries) PHIL DONORS
x
2. Gifts made to or for the use of the National TAX
ENTIRE NET GIFTS
Government or any entity created by any of its
agencies which is not conducted for profit, or to any
5. TAX RETURN
political subdivision of the said Government.
3. Gifts in favor of an educational and/or charitable,
SEC. 103. Filing of Return and Payment of Tax. -
religious, cultural or social welfare corporation, (A) Requirements. - any individual who makes any transfer by gift (except
institution, accredited nongovernment organization, those which, under Section 101, are exempt from the tax provided for in this
trust or philanthropic organization or research Chapter) shall, for the purpose of the said tax, make a return under oath in
institution or organization, Provided not more than duplicate. The return shall se forth:
(1) Each gift made during the calendar year which is to be included in
30% of said gifts will be used by such donee for computing net gifts;
administration purposes. (2) The deductions claimed and allowable;
(3) Any previous net gifts made during the same calendar year;
3.2. Gifts made by a NON-RESIDENT (4) The name of the donee; and
(5) Such further information as may be required by rules and regulations
1. Gifts made to or for the use of the National made pursuant to law.
Government or any entity created by any of its (B) Time and Place of Filing and Payment. - The return of the donor
agencies which is not conducted for profit, or to any required in this Section shall be filed within thirty (30) days after the date
political subdivision of the said Government. the gift is made and the tax due thereon shall be paid at the time of filing.
Except in cases where the Commissioner otherwise permits, the return shall
2. Gifts in favor of an educational and/or charitable, be filed and the tax paid to an authorized agent bank, the Revenue District
religious, cultural or social welfare corporation, Officer, Revenue Collection Officer or duly authorized Treasurer of the city
institution, accredited nongovernment organization, or municipality where the donor was domiciled at the time of the transfer,
trust or philanthropic organization or research or if there be no legal residence in the Philippines, with the Office of the
Commissioner. In the case of gifts made by a nonresident, the return may be
institution or organization, provided not more than filed with the Philippine Embassy or Consulate in the country where he is
30% of said gifts will be used by such donee for domiciled at the time of the transfer, or directly with the Office of the
administration purposes. Commissioner.
20
6. Such further information as the Commissioner may
require.
5.2. Filing
The return must be filed within 30 days after the date when
the gift was made or completed. The tax due thereon shall be
paid at the same time that the return is filed.
5.3. Payment
5.3.1. Residents
21
VALUE-ADDED TAX 1. The output tax exceeds the input tax, the excess
shall be paid by the VAT-registered person
2. The input tax exceeds the output tax, the excess
VAT IN GENERAL
shall be carried over to the succeeding quarter or
VAT is a consumption tax imposed at every stage of
quarters
distribution process on the sale, barter, exchange, or lease of
goods or properties and rendition of services in the course of
Illustration:
trade or business, or the importation of goods, whether such
Producer Manufacturer Retailer Consumer
imported goods are for use in business or non-business
Producer Manufacturer Retailer Consumer
purposes. Selling Price SP: P1,000 SP: 10,000
(SP): P100
Tax Base: Gross Selling Price or Gross Value in money of Input VAT: 0 Input VAT: Input VAT: Input VAT:
the goods or Gross Receipts derived from the transaction or P12 P120 P1,200
Total Value/Landed Cost in case of imported Goods Output VAT: Output VAT: Output VAT: Output VAT:
P12 P120 P1,200 0
Three basic rates: Remittance to Remittance to Remittance to Remittance to
1. 12% all goods, properties, and services the BIR: P12 the BIR: the BIR: the BIR:
2. 0% for export and sales and services which are zero- P108 P1,080 0
rated or effectively zero-rated * Total Remittance to the Government: P1,200. This amount
3. 5% withholding when selling to the government is equal to the total VAT paid by the end consumer.
The value-added tax is an indirect tax and the amount of tax may be shifted CIR v SM PRIME HOLDINGS (2010)
or passed on to the buyer, transferee or lessee of the goods, properties or Facts: SM Prime and First Asia operated cinema houses. At
services. issue was whether they were liable to pay VAT, on top of
This rule shall likewise apply to existing contracts of sale or lease of goods,
the amusement tax imposed by the LGC. SM Prime argued
properties or services at the time of the effectivity of Republic Act No. the list in the NIRC imposing VAT (which did not include
7716. cinema houses) is exhaustive. CIR argued the list is not
exhaustive.
The phrase "in the course of trade or business" means the regular conduct or
pursuit of a commercial or an economic activity, including transactions
incidental thereto, by any person regardless of whether or not the person Held: The Court held that the list was not exhaustive. The
engaged therein is a nonstock, nonprofit private organization (irrespective activity of showing motion pictures, films or movies by
of the disposition of its net income and whether or not it sells exclusively to cinema/theater operators or proprietors may fall under the
members or their guests), or government entity. cralaw
phrase similar services. The intent of the legislature must
"incidental thereto" - case to case basis
The rule of regularity, to the contrary notwithstanding, services as defined therefore be ascertained. Court found that the intent was not
in this Code rendered in the Philippines by nonresident foreign persons shall to impose VAT on persons already covered by the
be considered as being course of trade or business. Cralaw amusement tax. The VAT law was intended to replace the
percentage tax on certain services. To hold otherwise would
Transactions subject to VAT: impose an unreasonable burden on cinema/theater houses
1. Sale, Barter or Exchage of Goods or Properties operators or proprietors, who would be paying an additional
2. Sale of Services, including Lease or use of Properties 10% VAT on top of the 30% amusement tax.
3. Importation of Goods.
CIR also argued that the LGC, which eliminated the
DIAZ v SECRETARY OF FINANCE (2011) prohibition to impose tax on places of amusement, makes
Facts: Diaz contested the validity of the impending the VAT imposition on SM Prime valid. Court ruled that this
imposition of VAT on the collections of tollway operators. did not grant nor restore to the national government the
power to impose amusement tax.
Held: The VAT is valid. VAT is levied on the gross receipts Mindanao v. CIR
derived from the sale or exchange of services as well as from
the use or lease of properties. Sec. 108 of the NIRC states CIR v PHILIPPINE AMERICAN ACCIDENT
that sale or exchange of services means the performance INSURANCE COMPANY (2005)
of all kinds of services in the Philippines for others for a fee,
remuneration, or consideration. Thus, the government is not
23
Facts: The insurance companies were being charged lending Subsection (G) hereof may elect to register for Value-added tax by
registering with the Revenue District Office that has jurisdiction over the
investors tax. Insurance companies argued that they were not head office of that person, and paying the annual registration fee in
lending investors. Subsection (B) hereof.
(2) Any person who elects to register under this Subsection shall not be
Held: The Court held that the pertinent law does not entitled to cancel his registration under Subsection (F)(2) for the next three
(3) years.
encompass insurance companies under the definition of
lending investor (persons who make a practice of lending For purposes of Title IV of this Code, any person who has registered value-
money for themselves or others at interest). Though added tax as a tax type in accordance with the provisions of Subsection (C)
insurance companies grant mortgages and other kinds of hereof shall be referred to as a "VAT-registered person" who shall be
assigned only one Taxpayer Identification Number (TIN).
loans, these are not independent of the insurance business.
These transactions are means of investment allowed to
insurance companies. Insurance companies are required by In the course of trade or business
law to maintain substantial legal reserves to meet their Rule of Regularity: the regular conduct or pursuit of a
obligations to policyholders. Investment income is commercial or an economic activity, including transactions
therefore, necessary and essential to the business of incidental thereto, by any person regardless of whether or
insurance. When a company is taxed on its main business, it not the person engaged therein is a nonstock, nonprofit
is no longer taxable further for engaging in an activity or private organization (irrespective of the disposition of its net
work which is merely a part of, incidental to and is income and whether or not it sells exclusively to members or
necessary to its main business. Respondents already paid their guests), or government entity.
percentage and fixed taxes. To require them to pay said tax
again for an activity which is necessarily a part of the same EXC:
business, the law must expressly require such. 1. Non-resident persons who perform services in the
Philippines are deemed to be making sales in the course
The Court also cited sec. 182 (A)(3) (gg): Banks, insurance of trade or business, even if the performance of services
companies, finance and investment companies doing is not regular. (Sec. 105, NIRC; RR 16-2005)
business in the Philippines and franchise grantees, five 2. Importation og Goods, may be for business or non-
hundred pesos. The separate provisions on lending business use.
investors and insurance companies demonstrate an intention
to treat these businesses differently. Grouping insurance CIR v CA (2000)
companies together with banks and finance companies show Facts: BIR issued an assessment to COMASERCO for
that insurance companies had more in common with these deficiency VAT. COMASERCO contended that it rendered
enterprises than with lending investors. Even current tax law services only to Philamlife (which organized it) relating to
does not treat insurance companies as lending investors. consultative and technical services on a no-profit,
Under Sec. 108(A) of the NIRC, lending investors and non- reimbursement-of-cost basis, and not engaged in the sale of
life insurance companies, except for their crop insurance are services. It was not profit motivated.
subject to VAT. Life insurance companies are exempt from
VAT but are subject to percentage tax under Sec. 123 of the Held: Sec. 99 of the NIRC states that any person who, in
NIRC. the course of trade or business, sells, barters or exchanges
goods, renders services, or engages in similar transactions
VAT Registration and any person who imports goods shall be subject to the
Sec. 236. Registration Requirements value-added tax (VAT) imposed in Sections 100 to 102 of
(G) Persons Required to Register for Value-added Tax. - this Code." In the course of trade or business requires the
(1) Any person who, in the course of trade or business, sells, barters or regular conduct or pursuit of a commercial or economic
exchanges goods or properties, or engages in the sale or exchange of
services, shall be liable to register for Value-added tax if:
activity, regardless of WON it is profit-oriented. BIR Ruling
(a) His gross sales or receipts for the past twelve (12) months, no. 010-98 also emphasized that domestic corporations
other than those that are exempt under section 109 (a) to (u), have exceeded which prove technical, research, management and technical
One million five hundred thousand pesos (P1,500,000)**; or assistance to its affiliated companies and received payments
(b) There are reasonable grounds to believe that his gross sales
or receipts for the next twelve (12) months, other than those that are exempt
on a reimbursement-of-cost basis, without any intention of
under Section 109 (A) to (U), will exceed one million five hundred realizing profit, was subject to VAT. In fact, even if it was
thousand pesos (P1,500,000)**. organized without any intention of realizing profit, any
income generated by the entity in the conduct of its activity
** The threshold amount has been increased from P1,500,000 to
P1,919,500 per RR 16-2011.
was subject to income tax.
(2) Every person who becomes liable to be registered under paragraph (1) of Mindanao II Geothermal v. CIR (2013)
this Subsection shall register with the Revenue District Office which has Facts: Mindanao II entered into a BOT with PNOC-EDC
jurisdiction over the head office or branch of that person, and shall pay the
annual registration fee prescribed in Subsection (B) hereof. If he fails to for the construction and maintenance of a geothermal power
register, he shall be liable to pay the tax under Title IV as if he were a VAT- plant. It filed for refund of input VAT but the BIR ruled that
registered person, but without the benefit of input tax credits for the period the VAT for the sale of their Nissan Patrol was not included,
in which he was not properly registered. therefore decreased the refund granted.
(H) Optional Registration for Value-added Tax of Exempt Person. -
(1) Any person who is not required to register for Value-added tax under
24
Held: The sale of a fully depreciated Nissan Patrol is an Held: The SC ruled against Philamlife. The services were
incidental transaction, not an isolated one, and is therefore taxable as they fall under the expanded meaning of royalties
subject to 10% VAT. Mindanao IIs sale of the Nissan Patrol under the amended Tax Code (sec. 37(a)(4) Rentals and
is said to be an isolated transaction. However, it does not Royalties). The services in the contract call for the supply by
follow that an isolated transaction cannot be an incidental AIGI of technical and commercial information, knowledge,
transaction for purposes of VAT liability. Indeed, a reading advice, assistance or services in connection with technical
of Section 105 of the 1997 Tax Code would show that a management or administration of Philamlifes business.
transaction "in the course of trade or business" includes Therefore, the income derived from the services performed
"transactions incidental thereto." Mindanao IIs business is by AIGI for PHILAMLIFE shall be considered as income
to convert the steam supplied to it by PNOC-EDC into from services within the Philippines. The test of taxability is
electricity and to deliver the electricity to NPC. In the course the source, and the source of an income is that activity
of its business, Mindanao II bought and eventually sold a which produced the income. It is not the presence of any
Nissan Patrol. Prior to the sale, the Nissan Patrol was part of property from which one derives rentals and royalties that is
Mindanao IIs property, plant, and equipment. Therefore, the controlling, but rather as expressed under the expanded
sale of the Nissan Patrol is an incidental transaction made in meaning of "royalties.
the course of Mindanao IIs business which should be liable
for VAT.
SALES OF GOODS OR PROPERTIES (Sec. 106)
CIR v MAGSAYSAY LINES (2006)
Facts: National Development Company sold private SEC. 106. Value-Added Tax on Sale of Goods or Properties. -
(A) Rate and Base of Tax. - There shall be levied, assessed and collected on
enterprises through public bidding its shares in National every sale, barter or exchange of goods or properties, a value-added tax
Marine Corporation and 5 vessels, and Magsaysay Lines equivalent to ten percent (10%) of the gross selling price or gross value in
won the bidding. The BIR held that the sale of the vessel money of the goods or properties sold, bartered or exchanged, such tax to be
was subject to 10% VAT, because the transaction was paid by the seller or transferor: Provided, That the President, upon the
recommendation of the Secretary of Finance, shall, effective January 1,
incidental to NDCs normal VAT registered activity of 2006, raise the rate of value-added tax to twelve percent (12%), after any of
leasing out personal property, including sale of its own the following conditions has been satisfied:
assets. (i) Value-added tax collection as a percentage of Gross Domestic
product (GDP) of the previous year exceeds two and four-fifth percent (2
4/5%); or
Held: The sale of the vessels should not have been subject (ii) National government deficit as a percentage of GDP of the
to VAT, as the transaction was not in the ordinary course of previous year exceeds one and one-half percent (1 1/2%).
trade or business of NDC. VAT is levied only on the sale,
barter, or exchange of goods or services by persons who (1) The term 'goods or properties' shall mean all tangible and intangible
objects which are capable of pecuniary estimation and shall include:
engage in such activities in the course of trade or business. (a) Real properties held primarily for sale to customers or held
Transactions outside the course of trade or business may for lease in the ordinary course of trade or business;
invariably contribute to the production chain, but they do so (b) The right or the privilege to use patent, copyright, design or
only as a matter of accident or incident. Carrying on model, plan secret formula or process, goodwill, trademark, trade brand or
other like property or right;
business does not mean the performance of a single (c) The right or the privilege to use in the Philippines of any
disconnected act, but means continuing or conducting industrial, commercial or scientific equipment;
business by performing progressively all the acts normally (d) The right or the privilege to use motion picture films, films,
incident thereof. tapes and discs; and
(e) Radio, television, satellite transmission and cable television
time.
PHILAMLIFE v CA (2000) The term 'gross selling price' means the total amount of money or its
equivalent which the purchaser pays or is obligated to pay to the seller in
Facts: Philamlife entered into a management services consideration of the sale, barter or exchange of the goods or properties,
contract with AIRCO, a non-resident foreign corporation, excluding the value-added tax. The excise tax, if any, on such goods or
which later merged with AIGI. The CIR granted a tax credit properties shall form part of the gross selling price.
to Philamlife for erroneous payment of withholding tax at
source on remittances to AIGI for services rendered abroad TAX RATE TAX BASE TAX
in 1979. Philamlife then filed a claim for a similar refund for PAYABLE
1980, but the CIR denied the claim, and also cancelled the 12% Gross Selling VAT Payable
tax credit and ordered Philamlife to pay deficiency (Starting Feb. 1, Price/Gross Value (paid by
withholding tax at source for 1979. Philamlife contended 2006 RMC 7-06) in Money seller/transferor)
that the compensation it received for the advisory services it
rendered outside the Philippines to AIGI (a non-resident Goods or properties all tangible and intangible objects
foreign corporation not engaged in trade or business in the which are capable of pecuniary estimation, including:
Philippines) is not considered rentals or royalties from 1. Real properties held primarily for sale to customers or
properties located in the Philippines, and that AIGI is not held for
covered by the Tax Code provision because it has no Actual Collection x Zonal Value x 12%
lease in the
properties located in the Philippines from which rentals and Agreed Consideration
ordinary
royalties can be derived. course of
trade or business;
25
2. The right or the privilege to use patent, copyright, 2. Pre-selling by real estate dealers
design, or model, plan, secret formula or process, 3. Sale of residential lot >P1,919,500 ; or house and
goodwill, trademark, trade brand or other like property lot/other residential dwelling >P3,199,200 (
or right; 4. Lease of residential units (rental per unit >
3. The right or the privilege to use in the Philippines of 12,800/month OR total rental from ALL
any industrial, commercial or scientific equipment; units>P1,919,500/year)
4. The right or the privilege to use motion picture films,
films tapes and discs; Not taxable: (Sec. 109 (P)(Q)(V))
5. Radio, television, satellite transmission and cable 1. Not primarily held for sale or lease
television time. 2. Low cost or socialized housing
3. Residential lot < P1,919,500
Requisites of taxability of sale of goods or properties 4. House and lot/other residential dwelling < P3,199,200
The sale of goods (tangible or intangible) must be: 5. Lease (rental per unit < 12,800/month and total rental
1. an actual or deemed sale of goods or properties for a from all units < P1,919,500/ year)
valuable consideration; 6. Transmission to a trustee (Except: transmission is
2. undertaken in the course of trade or business; deemed sale transaction)
sale * Transmission of property to a trustee shall NOT be
3. for the use or consumption in the Philippines; and
4. not exempt from value added tax under the Tax Code, subject to VAT IF the property is to be merely held in
special law, or international agreement trust for the trustor and/or beneficiary.
** However, IF the property transferred is originally
Gross Selling Price (GSP) The total amount of money intended for sale, lease or use in the ordinary course of
or its equivalent which the purchaser pays or is obligated to trade or business AND the transfer constitutes a
pay to the seller in consideration of the sale, barter or completed gift, the transfer is subject to VAT as a
exchange of the goods or properties, excluding the VAT. deemed sale transaction. The transfer is a completed
The excise tax, if any, on such goods or properties shall form gift if the transferor divests himself absolutely of control
part of the gross selling price. over the property, i.e., irrevocable transfer of corpus
and/or irrevocable designation of beneficiary.
For real property, GSP means the higher of the ff values: 7. Transfer to corporation in exchange of shares of stocks
(RR 16-2005) (see Sec. 40, NIRC for Tax-free exchange)
1. The consideration stated in the sales document, or 8. Advance payment by the lessee
2. The fair market value (FMV), whichever is the 9. Security deposits for lease agreements
HIGHER of:
a. FMV as determined by the Commissioner Sale of Real Property on installment plan [RR 16-
(zonal value), or 2005]:
b. FMV as shown in schedule of values of the The real estate dealer shall be subject to VAT on the
Provincial & City assessors (real property tax installment payments, including interest and penalties,
declaration) actually and/or constructively received by the seller.
In the absence of zonal value, gross selling price refers
to the FMV shown in the latest real property tax
declaration or the consideration, whichever is HIGHER. Installment Plan Deferred Payment
If GSP is based on the zonal value or market value of
the property, the zonal or market value shall be deemed Initial payments in the year Initial payment in the year of
EXCLUSIVE of VAT. of sale do not exceed 25% of sale exceeds 25% of the
If the VAT is not billed separately, the selling price the gross selling price gross selling price
stated in the sales document shall be deemed to be Taxable only on the payment Treated as cash sale and the
EXCLUSIVE of VAT. actually or constructively entire selling price is taxable
If the sale of real property is on installment plan where received on the month of sale
the zonal value/FMV is higher than the consideration
exclusive of VAT: (RR 4-2007) Initial payments payment/payments which the seller
Sale of Real Property receives before or upon execution of the instrument of sale
Person Liable: gross sales/receipts > P1,919,500/year and payments which he expects or is scheduled to receive in
1. Any person (natural or juridical) engaged in sale or cash or property during the year when the sale or disposition
exchange of real properties of the real property was made.
2. Real estate lessors or sub-lessors It includes down payment and all payments actually or
3. Non-resident lessors (property located in the constructively received during the year of sale.
Philippines) It does not include the amount of mortgage on the real
4. Non-stock, Non-profit organizations property sold (except as to the excess when such
5. Government agencies, instrumentalities, GOCCs mortgage exceeds the cost or other basis of the property
to the seller) and notes or other evidence of
Taxable: indebtedness issued by the purchaser to the seller at the
1. On installment plan time of the sale.
26
payment of output VAT and its opportunity to recover input
VAT.
ZERO-RATED SALES OF GOODS OR
PROPERTIES, AND EFFECTIVELY ZERO- Prejudice obtained: Even if Benguet may treat the VAT as
RATED SALES OF GOODS OR PROPERTIES an expense, such benefit from treating it as such is
(2) The following sales by VAT-registered persons shall be subject to zero substantially less than claiming the entire portion as input
percent (0%) rate: tax refund. (Treating it as expense will only equal 30% of
(a) Export Sales. - The term 'export sales' means:
(1) The sale and actual shipment of goods from the Philippines what it could get by claiming the entire input VAT)
to a foreign country, irrespective of any shipping arrangement that may be
agreed upon which may influence or determine the transfer of ownership of
the goods so exported and paid for in acceptable foreign currency or its
equivalent in goods or services, and accounted for in accordance with the
1. Export Sales
rules and regulations of the Bangko Sentral ng Pilipinas,(BSP); 1. The sale and actual shipment of goods from the
(2) Sale of raw materials or packaging materials to a nonresident Philippines to a foreign country AND paid for in
buyer for delivery to a resident local export-oriented enterprise to be used in acceptable foreign currency or its equivalent in goods or
manufacturing, processing, packing or repacking in the Philippines of the
said buyer's goods and paid for in acceptable foreign currency and
services, AND accounted for in accordance with the
accounted for in accordance with the rules and regulations of the Bangko rules and regulations of the BSP
Sentral ng Pilipinas (BSP): 2. Sale of raw materials or packaging materials to a
(3) Sale of raw materials or packaging materials to export- nonresident buyer for delivery to a resident local export-
oriented enterprise whose export sales exceed seventy percent (70%) of
total annual production;
oriented enterprise to be used in manufacturing,
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); processing, packing or repacking in the Philippines of
(5) Those considered export sales under Executive Order No. the said buyer's goods AND paid for in acceptable
226, otherwise known as the Omnibus Investment Code of 1987, and other foreign currency AND accounted for in accordance with
special laws; and
(6) The sale of goods, supplies, equipment and fuel to persons
the rules and regulations of the BSP
engaged in international shipping or international air transport operations. 3. Sale of raw materials or packaging materials to export-
oriented enterprise whose export sales exceed seventy
(b) Foreign Currency Denominated Sale. - The phrase 'foreign currency percent (70%) of total annual production.
denominated sale' means sale to a nonresident of goods, except those
mentioned in Sections 149 and 150, assembled or manufactured in the
a. Any enterprise whose export sales exceed 70%
Philippines for delivery to a resident in the Philippines, paid for in of the total annual production of the preceding
acceptable foreign currency and accounted for in accordance with the rules taxable year shall be considered an export-
and regulations of the Bangko Sentral ng Pilipinas (BSP). oriented enterprise upon accreditation under
(c) Sales to persons or entities whose exemption under special laws or
the rules & regulations of Export Development
international agreements to which the Philippines is a signatory effectively Act, RA 7844 (RR 7-95)
subjects such sales to zero rate. 4. Sale of gold to the Bangko Sentral ng Pilipinas (BSP)
5. The sale of goods, supplies, equipment and fuel to
Zero-Rated Sales on Goods or Property persons engaged in international shipping or
A zero-rated sale of goods or properties by a VAT-registered intenrational air transport operations (RA 9337)
person is a taxable transaction for VAT purposes, but shall a. Limited to goods, supplies, equipment and fuel
not result in any output tax. However, the input tax on pertaining to or attributable to the transport of
purchases of goods, properties or services, related to such goods and passengers from a port in the Phil.
zero-rated sale, shall be available as tax credit or refund. directly to a foreign port without docking or
1. Export Sales stopping at any other port in the Phil.
2. Foreign Currency Denominated Sales b. If any portion of such fuel, goods, or supplies
3. Sales of Goods or Property to perons or entites who are is used for purposes other than that mentioned,
tax-exempt/Effectively Zero-Rated Sales such portion of fuel, goods, and supplies shall
CIR v BENGUET CORP. (2005) be subject to VAT. (RR 16-2005)
Facts: Benguet sold gold to the Central Bank. The 6. Those considered export sales under the Omnibus
transactions occurred when Sec. 99 of the NIRC as amended Investment Code of 1987, and other special laws (ex.
by EO 273 was in effect. Benguet applied for and was Bases Conversion & Development Act of 1992)
granted zero-rated status on its sale of gold to Central Bank,
and the CIR even issued a VAT Ruling declaring so. **Under Omnibus Investment Code:
However, when Benguet filed applications for tax Considered Export Sales
refunds/credits, the CIR instead issued a deficiency 1. Phil. port FOB value of export products exported
assessment. BIR even issued subsequent VAT rulings directly by a registered export producer; OR
revoking the first VAT ruling, and said that doing so would 2. Net selling price of export products sold by a registered
not prejudice mining companies. export producer to another export producer, or to an
export trader that subsequently exports the same (only
Held: The VAT ruling revoking the zero-rated status cannot when actually exported by the latter).
be given retroactive effect. The retroactive application of the Constructive Exports (without actual exportation):
VAT Ruling would unilaterally forfeit the option of 1. Sales to bonded manufacturing warehouses of export-
respondent to pass on its VAT costs to the Central Bank. oriented manufacturers;
The change resulted in the loss of its exemption from 2. Sales to export processing zones;
27
3. Sales to registered export traders operating bonded Held: The collection of receivables is different from the
trading warehouses supplying raw materials in the consumption of the outcome of such service. While
manufacture of export products; the collection is done in the Philippines, the consumption is
4. Sales to diplomatic missions and other agencies and/or not.Consumption applied to services means the performance
instrumentalities granted tax immunities, of locally or successful completion of a contractual duty, usually
manufactured, assembled or repacked products, whether resulting in the performers release from any past or future
paid for in foreign currency or not. liability. The services of respondent are performed or
successfully completed upon its sending to its foreign client
Export sales of registered export traders shall include the drafts and bills it has gathered from service
commission income, and that exportation of goods on establishments here.
consignment shall not be deemed export sales until the
export products consigned are in fact sold by the consignee, However, the law clearly provides for an exception the
and destination principle: for 0% VAT rate for services that
are performed in the Philippines, paid for in acceptable
Sales by a VAT-registered supplier to a foreign currency and accounted for in accordance with the
manufacturer/producer whose products are 100% exported rules and regulations of the BSP
are considered export sales. A certification to this effect Thus, for the supply of service to be zero-rated as an
must be issued by the Board of Investment which shall be exception to the destination principle, the law requires that:
good for 1 year unless subsequently re-issued. (RR 16- The service be performed in the Philippines
2005) The service fall under any of the categories in
Section 102(b) of the Tax Code
CIR v BURMEISTER (2007) It be paid in acceptable foreign currency accounted
Facts: A foreign consortium was entered into by BSWC- for in accordance with BSP rules and regulations.
Denmark and Mitsui on the one hand and NAPOCOR on the
other for the operation and maintenance of NAPOCORs
power barges. BSWC-Denmark established Burmeister, a 2. Foreign Currency Denominated Sale (FCDS)
domestic corporation, for the actual operation and 1. Sale to a nonresident of goods, except those mentioned
maintenance. The consortium pays Burmeister in foreign in Sections 149 and 150 (automobiles and non-essential
currency inwardly remitted to the Philippines. Burmeister goods like jewelry, perfume, and yachts), assembled or
claims that it is subject to 0% VAT, asserting that he meets manufactured in the Philippines for delivery to a
all the requirements under Sec. 102(b) (payment of its resident in the Philippines paid for in acceptable foreign
service fees was in acceptable foreign currency; there was currency AND accounted for in accordance with the
inward remittance of the foreign currency into the rules and regulations of the BSP.
Philippines; and accounting of such remittance was in 2. Sales of locally manufactured or assembled goods for
accordance with BSP rules). household and personal use to Filipinos abroad and
other non-residents of the Philippines as well as
Held: These three are not the only requisites under the Tax returning Overseas Filipinos under the Internal Export
Code to qualify for zero-rating under Sec. 102(b)(2). The Program of the government paid for in convertible
provision not only requires that the services be other than foreign currency AND accounted for in accordance with
processing, manufacturing, or repacking of goods and that the rules and regulations of the BSP shall also be
payment for such service be in acceptable foreign currency considered export sales. (RR 16-2005)
accounted for in accordance with BSP rules, but also that the
recipient of such service is doing business outside the 3. Effectively Zero-Rated Sales
Philippines. This requirement is not expressly stated in Sales to persons or entities whose exemption under special
102(b)(2) but is stated in 102(b)(1), where the listed services laws or international agreements to which the Philippines is
must be for other persons doing business outside the a signatory effectively subjects such sales to zero rate.
Philippines. This phrase not only refers to 102(b)(1) but The local sale of goods and properties by a VAT-registered
also to the term services found in 102(b)(2). person to a person or entity who was granted indirect tax
exemption under special laws or international agreement.
Services under 102(b)(1) and (2) are in the nature of export (RR 16-2005)
sales since the payer-recipient of services is doing business
outside the Philippines. In the present case, although the Examples:
consortiums principal members are foreign corporations, 1. Sales to enterprises duly registered & accredited with
the consortium itself is doing business in the Philippines. the
However, the Court allowed Burmeister a refund of its a. Subic Bay Metropolitan Authority,
excess output tax because it relied on a (mistaken) BIR b. Philippine Economic Zone Authority (PEZA),
ruling saying that he was subject to 0% VAT. 2. International agreements to which the Phil. is signatory,
such as
CIR v AMERICAN EXPRESS INTERNATIONAL a. Asian Development Bank (ADB),
(2005) b. International Rice Research Institute (IRRI)
Facts: SUPRA
28
ECOZONES Facts: Seagate is a foreign corporation registered with the
The ECOZONES shall be managed and operated by the PEZA to engage in the manufacture of recording
PEZA as separate customs territory. (Sec. 8, RA 7916 components primarily used in computers for export. It filed a
Special Economic Zone Act of 1995). Consequently, claim for refund of VAT input taxes.
sales made by a person in the customs territory to a
PEZA-registered entity are considered exports to a Held: Seagate as a PEZA-registered enterprise within a
foreign country and thus, zero-rated. Conversely, sales special economic zone is entitled to financial incentives
by a PEZA-registered entity to a person in the customs under PD 66 and EO 226, and is thus entitled to a tax credit
territory are deemed imports from a foreign country. or refund.
Tax treatment of sales to & by PEZA-registered enterprise A zero-rated transaction generally refers to the export sale
within & without the ecozone [rmc 74-99]: of goods and supply of services. The tax rate is set at zero. In
1. Any sale of goods, property or services made by a VAT contrast, an effectively zero-rated transaction is the sale of
registered supplier from the Customs Territory** to any goods or supply of services to persons or entities whose
registered enterprise operating in the ecozone, exemption under special laws or international agreements
REGARDLESS of the class or type of the latters PEZA effectively subjects such transactions to a zero rate.
registration, is actually qualified and thus LEGALLY
ENTITLED TO THE 0% VAT. In terms of VAT computation, zero rating and exemption are
the same, but the extent of relief is not.
**Customs Territory shall mean the national territory Applying the destination principle to the exportation of
of the Philippines outside of the proclaimed boundaries goods, automatic zero rating is intended to be enjoyed by the
of the ECOZONES except those areas specifically seller, making the latter internationally competitive by
declared by other laws and/or presidential proclamations allowing the refund or credit of input taxes that are
to have the status of special economic zones and/or free attributable to export sales. On the other hand, effective zero
ports. [Sec. 2(g), Rule 1, Part I, RA 7916-IRR] rating is intended to benefit the purchaser, who will
ultimately bear the burden of the tax shift. In both instances
2. By a VAT-Exempt Supplier from the Customs Territory of zero rating, there is total relief for the purchaser from the
to a PEZA registered enterprise burden of the tax, but in exemption there is only partial
Sale of goods, property and services by VAT-Exempt relief, because the purchaser is not allowed a tax refund or
supplier from the Customs Territory to a PEZA credit for input taxes paid.
registered enterprise shall be treated EXEMPT FROM
VAT, regardless of whether or not the PEZA registered TRANSACTIONS DEEMED SALE
buyer is subject to taxes under the NIRC or enjoying the (B) Transactions Deemed Sale. - The following transactions shall be
5% special tax regime. deemed sale:
(1) Transfer, use or consumption not in the course of business of
3. By a PEZA Registered Enterprise goods or properties originally intended for sale or for use in the course of
a. Sale of Goods by a PEZA registered enterprise business;
to a buyer from the Customs Territory (ie (2) Distribution or transfer to:
domestic sales) -- this case shall be treated as a (a) Shareholders or investors as share in the profits of the VAT-
registered persons: or
technical IMPORTATION made by the buyer. (b) Creditors in payment of debt;
Such buyer shall be treated as an IMPORTER (3) Consignment of goods if actual sale is not made within sixty
thereof and shall be imposed with the (60) days following the date such goods, were consigned; and
corresponding VAT. (4) Retirement from or cessation of business, with respect to
inventories of taxable aoods existing as of such retirement or cessation.
b. Sale of Services by a PEZA registered
enterprise to a buyer from the Customs TAX RATE TAX BASE TAX
Territory this is NOT embraced by the 5% PAYABLE
special tax regime, hence, such seller shall be Market value as of the VAT Payable
SUBJECT TO 12% VAT. 12% time of the occurrence of
c. Sale of Goods by a PEZA registered enterprise the transaction as the
to Another PEZA registered enterprise (ie Commissioner shall
Intra-ECOZONE Sales of Goods) this shall prescribe
be EXEMPT from VAT. Retirement/ Acquisition cost or the
4. Sale of Services by ECOZONE enterprise, to Another cessation of current market price of
ECOZONE enterprise (Intra-ECOZONE enterprise Sale business the goods or properties,
of Service) whichever is lower.
a. if PEZA registered seller is subject to 5%
special tax regime - EXEMPT from VAT GSP is Actual market value
b. if PEZA registered seller is subject to taxes unreasonably
under NIRC (ie not subject to 5% special tax lower than the
regime) subject to 0% VAT pursuant to FMV
cross border doctrine
29
In the case of a sale where the gross selling price is VAT shall apply to goods disposed of or existing as of a
unreasonably lower than the fair market value, the certain date if under the circumstances to be prescribed in
actual market value shall be the tax base. rules and regulations to be promulgated by the Secretary of
o The gross selling price is unreasonably lower Finance, upon recommendation of the Commissioner, the
than the actual market value if it is lower by status of a person as a VAT-registered person changes or is
more than 30% of the actual market value of terminated.
the same goods of the same quantity and
quality sold in the immediate locality on or Subject to VAT - applicable to goods/properties originally
nearest the date of sale. (RR 16-2005) intended for sale or use in business and capital goods which
1. Transfer, use or consumption not in the course of are existing as of the occurrence of the following:
business of goods or properties originally intended for 1. Change of business activity from VAT taxable status to
sale or for use in the course of business. VAT-exempt status
Ex.. when a VAT-registered person withdraws Example: A VAT-registered person engaged in a
goods from his business for his personal use. (RR taxable activity like wholesaler or retailer who
16-2005) decides to discontinue such activity and engages
2. Distribution or transfer to shareholders, investors or instead in life insurance business or in any other
creditors business not subject to VAT.
a. Shareholders or investors as share in the profits of 2. Approval of request for cancellation of a registration
the VAT-registered persons; due to reversion to exempt status
i. Property dividends which constitute stocks in 3. Approval of request for cancellation of registration due
trade or properties primarily held for sale or lease to desire to revert to exempt status after lapse of 3
declared out of retained earnings on or after Jan. consecutive years from the time of registration by a
1, 1996 and distributed by the company to its person who voluntarily registered despite being exempt
shareholders shall be subject to VAT based on under Sec. 109 (2)
the zonal value or FMV at the time of the 4. Approval of request for cancellation of registration of
distribution, whichever is applicable. (RR 16- one who commenced business with the expectation of
2005) gross sales/receipts exceeding P1,919,500 (per RR 16-
b. Creditors in payment of debt; 2011) but who failed to exceed this amount during the
3. Consignment of goods if actual sale is not made within first 12 months of operation
60 days following the date such goods were consigned
Consigned goods returned by the consignee within Not Subject to Vat goods or properties existing as of the
the 60-day period are not deemed sold. (RR 16- occurrence of the following:
2005) 1. Change of control of a corporation by the acquisition of
4. Retirement from or cessation of business, with respect the controlling interest of such corporation by another
to inventories of taxable goods existing as of such stockholder (individual or corporate) or group of
retirement or cessation. stockholders.
With respect to ALL goods on hand, whether Note: Exchange of goods or properties including
capital goods, stock-in-trade, supplies or materials, the real estate properties used in business or held
as of the date of such retirement or cessation, for sale or for lease by the transferor, for shares of
whether or not the business is continued by the new stocks, whether resulting in corporate control or
owner or successor. not, is SUBJECT TO VAT (RR 10-11)
Examples are change of ownership of the business 2. Change in the trade or corporate name of the business
(e.g. when a sole proprietorship incorporates, or the 3. Merger or consolidation of corporations. The unused
proprietor sells his entire business) and dissolution input tax of the dissolved corporation, as of the date of
of a partnership and creation of a new partnership merger or consolidation, shall be absorbed the surviving
which takes over the business. (RR 16-2005) or new corporation.
30
a. Sales returns and allownaces for which a proper value-added tax to twelve percent (12%), after any of the following
conditions has been satisfied:
credit/refund was made during the month or quarter (i) Value-added tax collection as a percentage of Gross Domestic
to the buyer for sales previously recorded as taable Product (GDP) of the previous year exceeds two and four-fifth percent (2
sales are allowed as a deduction in the period when 4/5%); or
they are made. Excess may be carried over to the (ii) National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%).
succeeding period.
b. The value of goods or properties sold and (B) Transfer of Goods by Tax-exempt Persons. - In the case of tax free
subsequently returned or for which allowances importation of goods into the Philippines by persons, entities or agencies
were granted by a VAT-registered person may be exempt from tax where such goods are subsequently sold, transferred or
deducted from the gross sales or receipts for the exchanged in the Philippines to non-exempt persons or entities, the
purchasers, transferees or recipients shall be considered the importers
quarter in which a refund is made or a credit thereof, who shall be liable for any internal revenue tax on such
memorandum is issued. importation. The tax due on such importation shall constitute a lien on the
2. Sales Discounts bona fide or regular discounts given goods superior to all charges or liens on the goods, irrespective of the
to purchasers, which are ascertainable and definitely possessor thereof.
agreed upon between the vendor and the vendee at the TAX RATE TAX BASE TAX
time of sale are deductible from the GSP. PAYABLE
a. If given after the sale or are in the nature of a rebate 12% Total value used by VAT Payable
or partial remission of indebtedness, they will not Customs in (paid by the
be allowed as a deduction from the GSP. determining tariff and importer prior to
b. Furthermore the discuont must be expressly custom duties + the release of such
indicated in the sales invoice and the amount custom duties, excise goods from
forming part of the gross sales duly recorded in the taxes and other customs custody)
books fo accounts. charges such as
c. Credits for allowances to cover roll back in prices postage, commission
and other adjustments are not deductible. and similar charges
32
an option money for the property - NOT subject to Common Transporting Kind of carrier Tax Liability
VAT carrier
a security deposit to insure the faithful performance Philippines -
3% percentage
of certain obligations of the lessee to the lessor - tax (Sec. 118,
NOT subject to VAT BUT if the security deposit is NIRC)
applied to rental, it shall be subject to VAT at the International
time of its application trip - zero-
Pre-paid rental - subject to VAT when received, rated VAT
irrespective of the accounting method employed by (Sec. 108
the lessor (B)(6), NIRC)
4. Persons engaged in warehousing service.
5. Lessors or distributors of cinematographic films 13. Sales of electricity by generation, transmission, and/or
6. Persons engaged in milling, processing, manufacturing distribution companies
or repacking goods for others are subject to VAT, EXCEPT sale of power or fuel generated through
EXCEPT palay into rice, corn into corn grits, and renewable sources of energy, such as, but not
sugarcane into raw sugar limited to, biomass, solar, wind hydropower,
7. Proprietors, operators, or keepers of hotels, motels, rest geothermal, ocean energy, and other emerging
houses, pension houses, inns, resorts, theaters, and energy sources using technologies such as fuel cells
movie houses and hydrogen fuels, which shall be subject to 0%
8. Proprietors or operators of restaurants, refreshment rate of VAT (zero-rated).
parlors, cafes and other eating places, including clubs The universal charge passed on and collected by
and caterers distribution companies and electric cooperatives
9. Dealers in securities shall be excluded from the computation of gross
Gross receipts means gross selling price less cost receipts.
of the securities sold. RR 7-95: 14. Franchise grantees of electric utilities, telephone and
Pre-need companies are considered dealers in telegraph, radio and/or television broadcasting and all
securities. other franchise grantees (including PAGCOR and its
10. Lending investors licensees/franchisees)
All persons OTHER than banks, non-bank financial EXCEPT franchise grantees of radio and/or
intermediaries, finance companies and other television broadcasting whose annual gross receipts
financial intermediaries NOT performing quasi- of the preceding year do not exceed Ten Million
banking functions who make a practice of lending Pesos (P10,000,000.00) (which shall be subject to
money for themselves or others at interest 3% franchise tax under Sec. 119, subject to optional
11. Transportation contractors on their transport of goods or registration), and franchise grantees of gas and
cargoes, including persons who transport goods or water utilities (under Sec. 109, subject to 2%
cargoes for hire and other domestic common carriers by franchise tax)
land relative to their transport of goods or cargoes With respect to franchise grantees of telephone and
12. Common carriers by air and sea relative to their telegraph services, amounts received for overseas
transport of passengers, goods or cargoes from one dispatch, message, or conversation originating from
place in the Philippines to another place in the the Philippines are subject to the percentage tax
Philippines under Sec. 120 and hence exempt from VAT
15. Non-life insurance companies (except their crop
On transportation (#11 & 12): All receipts from service, hire, insurances), including surety, fidelity, indemnity and
or operating lease of transportation equipment not subject to bonding companies; and
the percentage tax on domestic common carriers and keepers Insurance and reinsurance commissions, as opposed
of garages shall be subject to VAT. to premiums, whether life or non-life, are subject to
VAT.
Common Transporting Kind of carrier Tax Liability Non-life insurance premiums are subject to VAT.
carrier Life insurance premiums are NOT subject to VAT,
By land Persons Domestic 3% percentage for they are subject to percentage tax.
tax (Sec. 117,
NIRC)
16. Similar services regardless of whether or not the
Goods/ cargo Domestic 12% VAT performance thereof calls for the exercise or use of the
(Sec. 108, physical or mental faculties
NIRC)
By sea/air Domestic Domestic trip - Lease of Properties -Subject to the tax imposed
Whether 12% VAT irrespective of the place where the contract of lease or
transporting International licensing agreement was executed if the property is leased or
persons or trip zero- used in the Philippines.
goods/ cargo rated VAT 1. The lease or the use of or the right or privilege to use
International Doing business any copyright, patent, design or model, plan secret
in the
33
formula or process, goodwill, trademark, trade brand or (5) Services performed by subcontractors and/or contractors in
other like property or right processing, converting, or manufacturing goods for an enterprise whose
export sales exceed seventy percent (70%) of total annual production;
2. The lease of the use of, or the right to use of any (6) Transport of passengers and cargo by air or sea vessels from
industrial, commercial or scientific equipment the Philippines to a foreign country; and
3. The supply of scientific, technical, industrial or (7) Sale of power or fuel generated through renewable sources of
commercial knowledge or information energy such as, but not limited to, biomass, solar, wind, hydropower,
geothermal, ocean energy, and other emerging energy sources using
4. The supply of any assistance that is ancillary and technologies such as fuel cells and hydrogen fuels.
subsidiary to and is furnished as a means of enabling the
application or enjoyment of any such property, or right A zero-rated sale by a VAT-registered person is a taxable
as is mentioned in #2 or any such knowledge or transaction for VAT purposes, but shall not result in any
information as is mentioned in #3 output tax. However, the input tax on purchases of goods,
5. The supply of services by a nonresident person or his properties or services related to such zero-rated sale shall be
employee in connection with the use of property or available as tax credit or refund.
rights belonging to, or the installation or operation of
any brand, machinery or other apparatus purchased from The following services performed in the Philippines by
such nonresident person VAT-registered persons shall be subject to 0%:
6. The supply of technical advice, assistance or services 1. Processing, manufacturing or repacking goods for other
rendered in connection with technical management or persons doing business outside the Philippines which
administration of any scientific, industrial or goods are subsequently exported, where the services are
commercial undertaking, venture, project or scheme paid for in acceptable foreign currency AND accounted
7. The lease of motion picture films, films, tapes and discs for in accordance with the rules and regulations of the
8. The lease or the use of or the right to use radio, BSP
television, satellite transmission and cable television 2. Services other than those mentioned in the preceding
time paragraph rendered to a person engaged in business
conducted outside the Philippines or a nonresident
Additional services subject to VAT: person not engaged in business who is outside the
1. Services performed in the exercise or practice of Philippines when the services are performed, the
profession or calling by individuals subject to consideration for which is paid for in acceptable foreign
professional tax under the LGC, and professional currency AND accounted for in accordance with the
services rendered by general professional partnerships rules and regulations of the BSP
(GPPs);
The services referring to processing,
2. Services performed by actors/actresses, talents, singers,
manufacturing, repacking and services other than
emcees, radio/television broadcasters, choreographers,
those in (1) both require (i) payment in foreign
musical/radio/movie/television/stage directors, and
currency; (ii) inward remittance; (iii) accounted for
professional athletes;
by the BSP; AND (iv) that the service recipient is
3. Services rendered by customs, real estate, stock,
doing business outside the Philippines. If this is not
immigration and commercial brokers;
the case, taxpayers can circumvent just by
4. Services rendered by doctors, and lawyers.
stipulating payment in foreign currency. (CIR v.
Burmeister)
The performance of the services should not be in pursuit of
an employer-employee relationship between the service-
3. Services rendered to persons or entities whose
provider and the service-recipient.
exemption under special laws or international
agreements to which the Philippines is a signatory
ZERO-RATED SALE OF SERVICES
effectively subjects the supply of such services to zero
(B) Transactions Subject to Zero Percent (0%) Rate. - The following
services performed in the Philippines by VAT-registered persons shall be percent (0%) rate (as amended by RA 9337)
subject to zero percent (0%) rate: 4. Services rendered to persons engaged in international
(1) Processing, manufacturing or repacking goods for other shipping or international air transport operations,
persons doing business outside the Philippines which goods are
including leases of property for use thereof [as amended
subsequently exported, where the services are paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of by RA 9337];
the Bangko Sentral ng Pilipinas (BSP); 5. Provided, however, that the services referred to herein
(2) Services other than those mentioned in the preceding shall not pertain to those made to common carriers by
paragraph rendered to a person engaged in business conducted outside the air and sea relative to their transport of passengers,
Philippines or to a nonresident person not engaged in business who is
outside the Philippines when the services are performed, the consideration goods or cargoes from one place in the Phil. to another
for which is paid for in acceptable foreign currency and accounted for in place in the Phil. (the same being subject to 12% VAT
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas under Sec. 108)
(BSP); 6. Services performed by subcontractors and/or contractors
(3) Services rendered to persons or entities whose exemption
under special laws or international agreements to which the Philippines is a in processing, converting, or manufacturing goods for
signatory effectively subjects the supply of such services to zero percent an enterprise whose export sales exceed seventy percent
(0%) rate; (70%) of total annual production.
(4) Services rendered to persons engaged in international
shipping or international air transport operations, including leases of
property for use thereof;
34
7. Transport of passengers and cargo by air or sea vessels (H) Educational services rendered by private educational institutions, duly
from the Philippines to a foreign country (as added by accredited by the Department of Education (DEPED), the Commission on
Higher Education (CHED), the Technical Education And Skills
RA 9337) and; Development Authority (TESDA) and those rendered by government
8. Sale of power or fuel generated through renewable educational institutions;
sources of energy such as, but not limited to, biomass, (I) Services rendered by individuals pursuant to an employer-employee
solar, wind, hydropower, geothermal, ocean energy, and relationship;
(J) Services rendered by regional or area headquarters established in the
other emerging energy sources using technologies such Philippines by multinational corporations which act as supervisory,
as fuel cells and hydrogen fuels. (as added by RA 9337) communications and coordinating centers for their affiliates, subsidiaries or
Zero-rating shall apply strictly to the sale of power branches in the Asia-Pacific Region and do not earn or derive income from
or fuel generated through renewable sources of the Philippines;
(K) Transactions which are exempt under international agreements to which
energy, and shall not extend to the sale of services the Philippines is a signatory or under special laws, except those under
related to the maintenance or operation of plants Presidential Decree No. 529;
generating said power. (L) Sales by agricultural cooperatives duly registered with the Cooperative
Development Authority 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
Effectively zero-rated sale of service a local sale of spare parts thereof, to be used directly and exclusively in the production
services by a VAT-registered person to a person or entity and/or processing of their produce;
granted indirect tax exemption under special laws or (M) Gross receipts from lending activities by credit or multi-purpose
international agreement. cooperatives duly registered with the Cooperative Development Authority;
(N) Sales by non-agricultural, non-electric and non-credit cooperatives duly
The taxpayer must seek prior approval or prior registered with the Cooperative Development Authority: Provided, That the
confirmation from the appropriate offices of the share capital contribution of each member does not exceed Fifteen thousand
BIR so that a transaction is qualified for effective pesos (P15,000) and regardless of the aggregate capital and net surplus
ratably distributed among the members;
zero-rating (O) Export sales by persons who are not VAT-registered;
RR 4-2007 removed the distinction between (P) Sale of real properties not primarily held for sale to customers or held
automatic and effectively zero-rated transactions for lease in the ordinary course of trade or business, or real property utilized
found in prior Revenue Regulations (inc. RR 16- for low-cost and socialized housing as defined by Republic Act No. 7279,
otherwise known as the Urban Development and Housing Act of 1992, and
2005) with respect to prior application from the other related laws, residential lot valued at One million five hundred
BIR. thousand pesos (P1,500,000) and below, house and lot, and other residential
dwellings valued at Two million five hundred thousand pesos (P2,500,000)
and below: Provided, That not later than January 31, 2009 and every three
(3) years thereafter, the amounts herein stated shall be adjusted to their
present values using the Consumer Price Index, as published by the
EXEMPTIONS National Statistics Office (NSO);
SEC. 109. Exempt Transactions. - (1) Subject to the provisions of (Q) Lease of a residential unit with a monthly rental not exceeding Ten
subsection (2) hereof, the following transactions shall be exempt from the thousand pesos (P10,000)Provided, That not later than January 31, 2009 and
value-added tax: every three (3) years thereafter, the amount herein stated shall be adjusted to
(A) Sale or importation of agricultural and marine food products in their its present value using the Consumer Price Index as published by the
original state, livestock and poultry of a kind generally used as, or yielding National Statistics Office (NSO);
or producing foods for human consumption; and breeding stock and genetic (R) Sale, importation, printing or publication of books and any newspaper,
materials therefor. magazine, review or bulletin which appears at regular intervals with fixed
Products classified under this paragraph shall be considered in prices for subscription and sale and which is not devoted principally to the
their original state even if they have undergone the simple processes of publication of paid advertisements;
preparation or preservation for the market, such as freezing, drying, salting, **(S) Transport of Passengers by International Carriers
broiling, roasting, smoking or stripping. Polished and/or husked rice, corn (T) Sale, importation or lease of passenger or cargo vessels and aircraft,
grits, raw cane sugar and molasses, ordinary salt, and copra shall be including engine, equipment and spare parts thereof for domestic or
considered in their original state; international transport operations;
(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, (U) Importation of fuel, goods and supplies by persons engaged in
prawn, livestock and poultry feeds, including ingredients, whether locally international shipping or air transport operations;
produced or imported, used in the manufacture of finished feeds (except (V) Services of banks, non-bank financial intermediaries performing quasi-
specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals banking functions, and other non-bank financial intermediaries; and
and other animals generally considered as pets); (W) Sale or lease of goods or properties or the performance of services
(C) Importation of personal and household effects belonging to the residents other than the transactions mentioned in the preceding paragraphs, the gross
of the Philippines returning from abroad and nonresident citizens coming to annual sales and/or receipts do not exceed the amount of One million five
resettle in the Philippines: Provided, That such goods are exempt from hundred thousand pesos (P1,500,000): Provided, That not later than January
customs duties under the Tariff and Customs Code of the Philippines; 31, 2009 and every three (3) years thereafter, the amount herein stated shall
(D) Importation of professional instruments and implements, wearing be adjusted to its present value using the Consumer Price Index as
apparel, domestic animals, and personal household effects (except any published by the National Statistics Office (NSO);
vehicle, vessel, aircraft, machinery, other goods for use in the manufacture
and merchandise of any kind in commercial quantity) belonging to persons (2) A VAT-registered person may elect that Subsection (1) not apply to its
coming to settle in the Philippines, for their own use and not for sale, barter sale of goods or properties or services: Provided, That an election made
or exchange, accompanying such persons, or arriving within ninety (90) under this Subsection shall be irrevocable for a period of three (3) years
days before or after their arrival, upon the production of evidence from the quarter the election was made."
satisfactory to the Commissioner, that such persons are actually coming to *** RA 10378 July 23, 2012: (S) Transport of Passenger
settle in the Philippines and that the change of residence is bona fide; by International Carriers
(E) Services subject to percentage tax under Title V;
(F) Services by agricultural contract growers and milling for others of palay
into rice, corn into grits and sugar cane into raw sugar; Vat Exempt Transactions
(G) Medical, dental, hospital and veterinary services except those rendered Sale of goods or properties and/or services and the
by professionals;
use or lease of properties that is exempt from VAT
35
(output tax) and the seller is not allowed any tax by the DepED, CHED, and/or TESDA. [RR 16-
credit of VAT (input tax) on purchases. 2005]
The person making the exempt sale of goods, 9. Services rendered by individuals pursuant to an
properties or services shall not bill any output tax to employer-employee relationship
his customers. (RR 16-2005) 10. Services rendered by regional or area headquarters
But, the VAT-registered person may elect that the established in the Philippines by multinational
exemption not apply to its sale of goods or corporations which act as supervisory, communications
properties or services; provided that the election and coordinating centers for their affiliates, subsidiaries
made shall be irrevocable for a period of three (3) or branches in the Asia-Pacific Region and do not earn
years from the quarter the election was made. or derive income from the Philippines
11. Transactions which are exempt under international
Exempt Transactions agreements to which the Philippines is a signatory or
1. Sale/import of agricultural, marine food products in under special laws, except those under PD No. 529
original state; of livestock and poultry; breeding stock [Petroleum Exploration Concessionaires under the
and genetic materials Petroleum Act of 1949]
Original state even if they have undergone the 12. Sales by agricultural cooperatives duly registered with
simple processes of preparation or preservation for the Cooperative Development Authority to their
the market, such as freezing, drying, salting, members as well as sale of their produce to non-
broiling, roasting, smoking or stripping. Also members. Exemption includes importation of direct
includes preservation using advanced technological farm inputs, machineries and equipment, including
means of packaging, such as shrink wrapping in spare parts thereof, to be used directly and exclusively
plastics, vacuum packing, tetra-pack, and other in the production and/or processing of their produce.
similar packaging methods (RR 16-2005) Sale by agricultural cooperatives to non-members
Polished and/or husked rice, corn grits, raw cane can only be exempted from VAT if the producer of
sugar and molasses, ordinary salt, AND COPRA the agricultural products sold is the cooperative
shall be considered in their original state itself. If the cooperative is not the producer (e.g.,
trader), then only those sales to its members shall
Livestock or poultry do not include fighting cocks,
be exempted from VAT. [RR 16-2005]
race horses, zoo animals and other animals
13. Gross receipts from lending activities by credit or multi-
generally considered as pets.
purpose cooperatives duly registered with the
2. Sale/ import of fertilizers; seeds, seedlings and
fingerlings; fish, prawn, livestock and poultry feeds Cooperative Development Authority
14. Sales by non-agricultural, non- electric and non-credit
(including ingredients)
cooperatives duly registered with the Cooperative
3. Import of personal and household effects of Phil
Development Authority are exempt BUT their
resident returning from abroad and nonresident citizens
importation of machineries and equipment, including
coming to resettle in the Philippines
spare parts thereof, to be used by them are SUBJECT to
4. Import of professional instruments and implements,
VAT.
wearing apparel, domestic animals, and personal
15. Export sales by persons who are not VAT-registered
household effects belonging to persons coming to settle
16. Sale of real properties the ff. sales are exempt:
in the Philippines, for their own use and not for sale,
a. Sale of real properties NOT primarily held for sale
barter or exchange
to customers or held for lease in the ordinary course
Does not include vehicles, vessels, aircrafts,
of trade or business.
machineries, and other goods for use in
o However, even if the real property is not
manufacturing in commercial quantities)
primarily held for sale to customers or held for
5. Services subject to percentage tax
lease in the ordinary course of trade or business
6. Services by agricultural contract growers and milling
but the same is used in the trade or business of
for others of palay into rice, corn into grits and sugar
the seller, the sale thereof shall be subject to
cane into raw sugar
VAT being a transaction incidental to the
7. Medical, dental, hospital and veterinary services except
taxpayers main business. [RR 4-2007]
those rendered by professionals:
b. Sale of real properties utilized for low-cost housing
Laboratory services are exempted. If the hospital as defined by RA No. 7279, otherwise known as the
or clinic operates a pharmacy or drug store, the sale "Urban Development and Housing Act of 1992"
of drugs and medicine is subject to VAT. [RR 16- and other related laws, such as RA No. 7835 and
2005] RA No. 8763.
8. Educational services rendered by private educational o Low-cost housing" refers to housing projects
institutions, duly accredited by DEPED, CHED, intended for homeless low-income family
TESDA, and those rendered by government educational beneficiaries, undertaken by the Government
institutions; or private developers, which may either be a
Educational services does not include seminars, subdivision or a condominium registered and
in-service training, review classes and other similar licensed by the Housing and Land Use
services rendered by persons who are not accredited Regulatory Board/Housing (HLURB) under
36
BP Blg. 220, PD No. 957 or any other similar 17. Lease of residential units with a monthly rental per unit
law, wherein the unit selling price is within the not exceeding P12,800, regardless of the amount of
selling price ceiling per unit of P750,000.00 aggregate rentals received by the lessor during the year.
under RA No. 7279, and other laws, such as Lease of residential units where the monthly rental
RA No. 7835 and RA No. 8763. per unit exceeds P12,800 but the aggregate of such
c. Sale of real properties utilized for socialized rentals of the lessor during the year do not exceed
housing as defined under RA No. 7279, and other One Million Five Hundred Pesos P1,919,500 shall
related laws, such as RA No. 7835 and RA No. likewise be exempt from VAT, however, the same
8763, wherein the price ceiling per unit is shall be subjected to three percent (3%) percentage
P225,000.00 or as may from time to time be tax.
determined by the HUDCC and the NEDA and In cases where a lessor has several residential units
other related laws. for lease, some are leased out for a monthly rental
o "Socialized housing" refers to housing per unit of not exceeding P12,800 while others are
programs and projects covering houses and lots leased out for more than P12,800 per unit, his tax
or home lots only undertaken by the liability will be as follows:
Government or the private sector for the a. The gross receipts from rentals not exceeding
underprivileged and homeless citizens which P12,800 per month per unit shall be exempt from
shall include sites and services development, VAT regardless of the aggregate annual gross
long-term financing, liberated terms on interest receipts.
payments, and such other benefits in b. The gross receipts from rentals exceeding P12,800
accordance with the provisions of RA No. per month per unit shall be subject to VAT IF the
7279 and RA No. 7835 and RA No. 8763. aggregate annual gross receipts from said units only
o "Socialized housing" shall also refer to projects (not including the gross receipts from units leased
intended for the underprivileged and homeless for not more than P12,800 ) exceeds P1,919,500 .
wherein the housing package selling price is Otherwise, the gross receipts will be subject to the
within the lowest interest rates under the 3% tax imposed under Section 116 of the Tax
Unified Home Lending Program (UHLP) or Code.
any equivalent housing program of the The term 'residential units' shall refer to apartments
Government, the private sector or non- and houses & lots used for residential purposes, and
government organizations. buildings or parts or units thereof used solely as
d. Sale of residential lot valued at P1,919,500 and dwelling places (e.g., dormitories, rooms and bed
below, or house & lot and other residential spaces) except motels, motel rooms, hotels and
dwellings valued at P3,199,200 and below hotel rooms.
o If two or more adjacent residential lots are sold or The term 'unit' shall mean an apartment unit in the
disposed in favor of one buyer, for the purpose of case of apartments, house in the case of residential
utilizing the lots as one residential lot, the sale shall houses; per person in the case of dormitories,
be exempt from VAT only if the aggregate value of boarding houses and bed spaces; and per room in
the lots does not exceed P1,919,500. [RR 13-2012] case of rooms for rent. [RR 16-2005]
o Adjacent residential lots, although covered by 18. Sale, importation, printing or publication of books and
separate titles and/or separate tax declarations, any newspaper, magazine review or bulletin which
when sold or disposed to one and the same buyer, appears at regular intervals with fixed prices for
whether covered by one or separate Deed of subscription and sale and which is not devoted
Conveyance, shall be presumed as a sale of one principally to the publication of paid advertisements;
residential lot. [RR 16-2005] 19. Transport of passengers by international carriers
o Sale, transfer or disposal within a 12-month period
Added by RA 10378
of 2 or more adjacent residential lots, house and
20. Sale, importation or lease of passenger or cargo vessels
lots or other residential dwellings to one buyer,
and aircraft, including engine, equipment and spare
whether from the same or from different sellers
parts thereof for domestic or international transport
shall be considered one single transaction. Hence,
operations [added by RA 9337];
the sale of the adjacent lots shall be subject to VAT
if the aggregate value exceeds P1,919,500 for The exemption from VAT on the importation and
residential lots and P3,199,200 for residential house local purchase of passenger and/or cargo vessels
lots or residential dwellings, notwithstanding that shall be limited to those of 150 tons and above,
the value of the individual properties do not exceed including engine and spare parts of said vessels;
the VAT exemption thresholds. Provided, further, that the vessels to be imported
o Sale/purchase of parking lots shall not be shall comply with the age limit requirement, at the
considered a sale of residential lot/dwelling. time of acquisition counted from the date of the
Hence, it shall be subject to VAT regardless of its vessel's original commissioning, as follows:
selling price. [RR 13-2012] o for passenger and/or cargo vessels, the age
limit is 15 years old,
o for tankers, the age limit is 10 years old, and
37
o for high-speed passenger crafts, the age limit is Seller is entitled to claim No claim of any tax
5 years old [RR 16-2005] input tax credit/refund credit/refund
21. Importation of fuel, goods, and supplies by persons All VAT is removed from Exemption only removes the
engaged in international shipping or air transport the good, propery or service. VAT at the exempt stage.
operations; [added by RA 9337] It is completely freed from
The said fuel, goods and supplies shall be used VAT.
exclusively or shall pertain to the transport of goods
and/or passenger from a port in the Philippines PAGCOR v BIR (2011)
directly to a foreign port without stopping at any Facts: PAGCOR contested the constitutionality of RA
other port in the Philippines; 9337. The new law enumerates the GOCCs exempted from
If any portion of such fuel, goods or supplies is payment of corporate income tax, of which PAGCOR was
used for purposes other than that mentioned in this not included (while a previous law, PD 1067-B, exempts
paragraph, such portion of fuel, goods and supplies PAGCOR from payment of any type of tax except franchise
shall be subject to 12% VAT starting Feb. 1, 2006. tax.) The SC upheld the constitutionality of the law. Thus,
[RR 16-2005] BIR issued a RR identifying PAGCOR as one of the
22. Services of banks, non-bank financial intermediaries franchisees subject to VAT.
performing quasi-banking functions and other non-bank
financial intermediaries; and Held: The RA is valid, while the RR is null and void insofar
23. Sale or lease of goods or properties or the performance as it subjects PAGCOR to VAT. Nowhere in the RA is it
of services other than the transactions mentioned in the stated that PAGCOR can be subjected to VAT, as it is clear
preceding paragraphs, the gross annual sales and/or only as to PAGCORs removal from exemption from
receipts do not exceed the amount of P1,919,500 payment of corporate income tax. The charter creating
For purposes of the threshold of P1,919,500, the PAGCOR, PD 1869, gives PAGCOR a blanket exemption to
husband and the wife shall be considered separate taxes, both direct and indirect. Therefore, in effect, services
taxpayers. However, the aggregation rule for each rendered to PAGCOR are considered zero-rated
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 TAX CREDITS OR REFUNDS
subject to VAT, the same shall be combined for SEC. 110. Tax Credits. -
purposes of determining whether the threshold has (A) Creditable Input Tax. -
(1) Any input tax evidenced by a VAT invoice or official receipt issued in
been exceeded. accordance with Section 113 hereof on the following transactions shall be
The VAT-exempt sales shall NOT be included in creditable against the output tax:
determining the threshold. [RR 16-2005] (a) Purchase or importation of goods:
(i) For sale; or
(ii) For conversion into or intended to form part of a finished
Other Services Exempt from VAT such services are product for sale including packaging materials; or
those subject to percentage tax (infra) (iii) For use as supplies in the course of business; or
1. Services rendered by domestic common carriers by land (iv) For use as materials supplied in the sale of service; or
(v) For use in trade or business for which deduction for
for the transport of passengers and keepers of garages;
depreciation or amortization is allowed under this Code.
2. Services rendered by international air/shipping carriers; (b) Purchase of services on which a value-added tax has actually been paid.
3. Services rendered by franchise grantees of radio and/or
television broadcasting whose annual gross receipts of (2) The input tax on domestic purchase or importation of goods or
properties by a VAT-registered person shall be creditable:
the preceeding year do not exceed P10,000,000 and by
(a) To the purchaser upon consummation of sale and on
franchise grantees of gas and water utilities; importation of goods or properties; and
4. Services rendered for overseas dispatch, message, by (b) To the importer upon payment of the value-added tax prior to
franchise grantees or conversation originating from the the release of the goods from the custody of the Bureau of Customs.
Provided, That the input tax on goods purchased or imported in a calendar
Philippines;
month for use in trade or business for which deduction for depreciation is
5. Services by any person, company or corporation (except allowed under this Code, shall be spread evenly over the month of
purley cooperative companies or associations) doing life acquisition and the fifty-nine (59) succeeding months if the aggregate
insurance business of any sort in the Philippines; acquisition cost for such goods, excluding the VAT component thereof,
exceeds One million pesos (P1,000,000): Provided, however, That if the
6. Services rendered by fire, marine or miscellaneous
estimated useful life of the capital good is less than five (5) years, as used
insurance agents of foreign insurance companies; for depreciation purposes, then the input VAT shall be spread over such a
7. Services rendered by proprietors, lessees or operators of shorter period: Provided, finally, that in the case of purchase of services,
cockpits, cabarets, night or day clubs, boxing lease or use of properties, the input tax shall be creditable to the purchaser,
lessee or licensee upon payment of the compensation, rental, royalty or fee.
exhibitions, professional basketball games, jai-alai and
race tracks; and (3) A VAT-registered person who is also engaged in transactions not
8. Receipts on sale, barter for exchange of shares of stock subject to the value-added tax shall be allowed tax credit as follows:
listed and traded through the local stock exchange or (a) Total input tax which, can be directly attributed to
transactions subject to value-add tax; and
through initial public offering.
(b) A ratable portion of any input tax which cannot be directly
attributed to either activity.
Zero-Rating Tax Exemption
38
The term 'input tax' means the value-added tax due from or paid by a VAT- e. For use in trade or business for which
registered person in the course of his trade or business on importation of deduction for depreciation or amortization
goods or local purchase of goods or services, including lease or use of
property, from a VAT-registered person. It shall also include the transitional
is allowed under the Code.
input tax determined in accordance with Section 111 of this Code. 2. Purchase of real properties for which VAT has
actually been paid
The term 'output tax' means the value-added tax due on the sale or lease of 3. Purchase of services in which VAT has actually been
taxable goods or properties or services by any person registered or required
to register under Section 236 of this Code.
paid
4. Transactions deemed sale
(B) Excess Output or Input Tax. - If at the end of any taxable quarter the 5. Presumptive Input Tax
output tax exceeds the input tax, the excess shall be paid by the VAT- 6. Transitional Input Tax
registered person. If the input tax exceeds the output tax, the excess shall be
carried over to the succeeding quarter or quarters: Provided, That the input
tax inclusive of input VAT carried over from the previous quarter that may CIR v SONY (2010)
be credited in every quarter shall not exceed seventy percent (70%) of the Facts: CIR issued assessment for deficiency taxes against
output VAT: Provided, however, That any input tax attributable to zero- Sony. Upon Sonys petition for review, CTA disallowed the
rated sales by a VAT-registered person may at his option be refunded or
credited against other internal revenue taxes, subject to the provisions of
deficiency VAT assessment on Sonys subsidized
Section 112. advertising expense, because this was covered by a VAT
invoice that resulted in an input VAT credit.
(C) Determination of Creditable Input Tax. - The sum of the excess input
tax carried over from the preceeding month or quarter and the input tax
creditable to a VAT-registered person during the taxable month or quarter
Held: CIR's argument that Sony's advertising expense could
shall be reduced by the amount of claim for refund or tax credit for value- not be considered as an input VAT credit because the same
added tax and other adjustments, such as purchase returns or allowances was eventually reimbursed by Sony International Singapore
and input tax attributable to exempt sale. (SIS) is erroneous. CIR said Sony thus never incurred any
The claim for tax credit referred to in the foregoing paragraph shall include
advertising expense, so Sony is not entitled to a tax credit.
not only those filed with the Bureau of Internal Revenue but also those filed But under Sec. 110 of the Tax Code, an advertising expense
with other government agencies, such as the Board of Investments and the covered by a VAT invoice is a legitimate business expense.
Bureau of Customs. Where the money came from is another matter but will not
change that fact.
INPUT TAX AND OUTPUT TAX, DEFINED CIR said that Sony itself admitted that the reimbursement
Output tax the VAT due on the sale or lease of taxable from SIS was income and thus, taxable. While the Court
goods or properties or services by any person registered or agrees that the subsidy may be considered as income, it does
required to register under Section 236 of the Code. not agree that the same should be subject to VAT. The
subsidy was not even exclusively earmarked for Sony's
Input tax the VAT due on or paid by a VAT-registered advertising expense, as it was only an assistance in view of
person on importation of goods or local purchases of goods, dire economic conditions and was only equivalent to Sony's
properties, or services, including lease or use of properties, advertising expenses.
in the course of his trade or business.
1. It includes the transitional input tax and the Sec. 106 of the Tax Code states that VAT may be imposed
presumptive input tax as determined in accordance on every sale, barter or exchange of goods or property.
with Section 111 of the Code. There must be a sale, barter or exchange of goods or
2. It includes input taxes which can be directly properties before VAT may be levied. In this case, there was
attributed to transactions subject to the VAT plus a none in the subsidy, which was only a dole out.
ratable portion of any input tax which cannot be
directly attributed to either the taxable or exempt
activity. Transitional Input Tax
3. Input tax must be evidenced by a VAT invoice or SEC. 111. Transitional/ Presumptive Input Tax Credits. -
(A) Transitional Input Tax Credits. - A person who becomes liable to value-
official receipt issued by a VAT-registered person added tax or any person who elects to be a VAT-registered person shall,
in accordance with Secs. 113 and 237 of the Code. subject to the filing of an inventory according to rules and regulations
[RR 16-2005] prescribed by the Secretary of Finance, upon recommendation of the
Commissioner, be allowed input tax on his beginning inventory of goods,
materials and supplies equivalent to two percent (2%) of the value of such
Source of Input Tax inventory or the actual value-added tax paid on such goods, materials and
1. Purchase or importation of goods supplies, whichever is higher, which shall be creditable against the output
a. For sale; or tax.
b. For conversion into or intended to form part 1. 2% of the value of the beginning inventory on hand or
of a finished product for sale including actual VAT paid on such, goods, materials and supplies,
packaging materials; or whichever is HIGHER, which amount shall be
c. For use as supplies in the course of creditable against the output tax of VAT-registered
business; or person.
d. For use as materials supplied in the sale of 2. The value allowed for income tax purposes on
service; or inventories shall be the basis for the computation of the
2% transitional input tax, EXCLUDING goods that are
39
exempt from VAT under Sec. 109 of the Tax Code. (RR 2. Taxpayer has to prove the direct connection of the
16-2005) motor vehicle to the business;
3. A real estate dealer is entitled to claim transitional input 3. Only one vehicle for land transport is allowed for
VAT based on the value of the entire real property sold the use of an official/employee with value not
regardless of whether there was in fact actual payment exceeding P2.4 million;
of VAT on the purchase of the real property. At the time 4. No depreciation shall be allowed for yachts,
the purchase was made, there was still no VAT helicopters, airplanes or land vehicles over P2.4
imposed. (Fort Bonifacio Development Corp. v. CIR) million unless the vehicle is used in the
company's transport operations or lease of
FORT BONIFACTIO v CIR transport equipment. [RR 12-2012]
Facts: Fort Bonifacio Development Corp. (FBDC) acquired
land from the national government without payment of
VAT. VAT law was later imposed. FBDC then sold 2 PERSONS WHO CAN AVAIL OF INPUT TAX
parcels of land to Metro Pacific Corp. In reporting the sale CREDIT
for VAT purposes, FBDC claimed transitional input VAT Input tax on domestic purchase or importation of goods or
corresponding to its inventory of land. The BIR disallowed properties shall be creditable:
the claim of presumptive input VAT and assessed FBDC for 1. To the purchaser upon consummation of sale and on
deficiency VAT. importation of goods or properties; and
2. To the importer upon payment of the VAT prior to the
Held: FBDC is entitled to claim the transitional input VAT release of the goods from the custody of the Bureau of
on its sale of real properties given its nature as a real estate Customs.
dealer, and the transitional input VAT should be based on a. The input tax on goods purchased or imported
the value of not just the improvements but of the entire real in a calendar month for use in trade or business
property, and regardless of whether there was in fact actual for which deduction for depreciation is allowed
payment of tax on the purchase of the real property or not. under the Code, shall be spread evenly over the
month of acquisition and the fifty-nine (59)
The amendments to the VAT law do not show any intention succeeding months if the aggregate acquisition
to make those in the real estate business subject to a different cost for such goods, excluding the VAT
treatment from those engaged in the sale of other goods or component thereof, exceeds One million pesos
properties. The CIR has no power to limit the meaning and (P1,000,000)
coverage of the term goods in sec. 105 of the Tax Code b. However, if the estimated useful life of the
without basis, with regard to the scope of the basis of capital good is less than five (5) years, as used
determining the available transitional input VAT. The for depreciation purposes, then the input VAT
transitional input tax credit operates to benefit newly VAT- shall be spread over such a shorter period
registered persons, WON they previously paid taxes in the 3. To the purchaser of services or the lessee or licensee
acquisition of their beginning inventory. upon payment of the compensation, rental, royalty or
fee.
4. Transitional tax- Any person liable for VAT or who
Presumptive Input Tax
elects to be a VAT-registered person shall be allowed
(B) Presumptive Input Tax Credits. -
Persons or firms engaged in the processing of sardines, mackerel and milk, INPUT TAX in his beginning inventory of goods,
and in manufacturing refined sugar, cooking oil and packed noodle based materials and supplies
instant meals, shall be allowed a presumptive input tax, creditable against a. equivalent to TWO PERCENT (2%) of the
the output tax, equivalent to four percent (4%) of the gross value in money value of such inventory; OR
of their purchases of primary agricultural products which are used as inputs
to their production. b. the actual VAT paid on such goods, materials
As used in this Subsection, the term 'processing' shall mean pasteurization, and supplies, whichever is HIGHER, which
canning and activities which through physical or chemical process alter the shall be creditable against the OUTPUT TAX.
exterior texture or form or inner substance of a product in such manner as to
5. Presumptive input tax - Persons or firms engaged in the
prepare it for special use to which it could not have been put in its original
form or condition. processing of sardines, mackerel and milk, and in
manufacturing refined sugar and cooking oil and packed
Persons or firms engaged in the processing of sardines,
noodle based instant meals, shall be allowed a
mackerel and milk, and in manufacturing refined sugar
presumptive input tax, creditable against the output tax,
and cooking oil and packed noodle based instant meals,
shall be allowed a presumptive input tax, creditable equivalent to 4% of the gross value in money of their
purchases of primary agricultural products which are
against the output tax, equivalent to FOUR PERCENT
(4%) of the gross value in money of their purchases of used as inputs to their production.
primary agricultural products which are used as inputs "Processing" shall mean pasteurization, canning and
to their production. activities which through physical or chemical process
alter the exterior texture or form or inner substance of a
Claiming of input Tax on motor vehicles subject to the
ff conditions: product in such manner as to prepare it for special use to
which it could not have been put in its original form or
1. Purchase of vehicle must be substantiated with
condition. [RR 16-05]
official receipts and other records;
40
Sale to gov't. subjected to 5% final VAT
CREDITABLE INPUT TAX w/holding 100,000.00
Spreading of input tax credit for Capital Goods Total sales for the month 400,000.00
Input tax on goods purchased or imported in a calendar
month for use in trade or business for which deduction The following were its input taxes (or passed on by its VAT
for depreciation is allowed under this Code, shall be suppliers):
spread evenly over the month of acquisition and the Input tax on taxable goods (12%) 5,000.00
fifty-nine (59) succeeding months if the aggregate Input tax on zero-rated sales 3,000.00
acquisition cost for such goods, excluding the VAT Input tax on sale of exempt goods 2,000.00
component thereof, exceeds One million pesos Input tax on sale to government 4,000.00
(P1,000,000). If the aggregate acquisition cost does not Input tax on depreciable capital good 20,000.00
exceed P1,000,000, the total input taxes will be not attributable to any specific activity
allowable as credit against output tax in the month of (monthly amortization for 60 months)
acquisition.
If the estimated useful life of the capital good is less Step 1: The creditable input tax for the month shall be
than five (5) years, as used for depreciation purposes, computed as follows:
then the input VAT shall be spread over such a shorter Input tax on sale subject to 12% P5,000.00
period:. Ratable portion of the input tax not directly attributable to
In the case of purchase of services, lease or use of any activity, computed below
properties, the input tax shall be creditable to the
purchaser, lessee or licensee upon payment of the Taxable sales (12%) Amount of input tax
compensation, rental, royalty or fee. x not directly
Total Sales attributable
Determination of Input Tax Creditable
1. The sum of the excess input tax carried over from the P100,000.00
preceding month or quarter and the input tax creditable P400,000.00 x P20,000.00 =P5,000.00
to a VAT-registered person during the taxable month or
quarter shall be reduced by the amount of claim for Total creditable input tax for the month: P10,000 (P5,000
refund or tax credit for value-added tax and other input + P5,000 ratable portion)
adjustments, such as purchase returns or allowances and
input tax attributable to exempt sale. VAT PAYABLE: P12,000 (output) P10,000 (input) =
2. The claim for tax credit referred to includes not only P2,000
those filed with the BIR but also those filed with other
government agencies, such as the Board of Investments Step 2: The creditable input tax to zero-rated sales for the
the Bureau of Customs. month shall be computed as follows:
Input tax on zero-rated sale 3,000.00
Allocation of input tax on mixed transactions Ratable portion of the input tax not directly attributable to
A VAT-registered person who is also engaged in any activity, computed below
transactions not subject to VAT shall be allowed to
recognize input tax credit on transactions subject to VAT as Amount of input tax
follows: Taxable sales (0%)
x not directly
1. All the input taxes that can be directly attributed to Total Sales attributable
transactions subject to VAT may be recognized for
input tax creditInput taxes that can be directly P100,000.00
attributable to VAT taxable sales of goods and services x P20,000.00 =P5,000.00
P400,000.00
to the Government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs shall
Total creditable input tax for the month: P8,000 (P3,000
not be credited against output taxes arising from sales to
input + P5,000 ratable portion)
non-Government entities
2. If any input tax cannot be directly attributed to either a
VAT REFUND: P0 (output) P8,000 (input) = P8,000
VAT taxable or VAT-exempt transaction, the input tax
refund
shall be pro-rated to the VAT taxable and VAT-exempt
transactions and ONLY the ratable portion pertaining to
transactions subject to VAT may be recognized for Step 3: The input tax attributable to VAT-exempt sales for
input tax credit. the month shall be computed as follows:
Input tax on VAT-exempt sales P2,000.00
Illustration: ERA Corporation has the following sales
during the month: Ratable portion of the input tax not directly attributable to
Sale to private entities subject to 12% 100,000.00 any activity, computed below:
Sale to private entities subject to 0% 100,000.00
Sale of exempt goods 100,000.00 VAT-exempt sales Amount of input tax
41
Total Sales x not directly finished goods for sale is allowed as tax credit in
attributable determining VAT liability.
42
5. Advance VAT on sugar shall be supported by the case of zero-rated transactions paid for in
Payment Order showing payment of the advance VAT. acceptable foreign currency and requiring that
such be accounted for in accordance with BSP
REFUND OR TAX CREDIT OF EXCESS INPUT rules & regulations (Secs. 106(A)(2)(a)(1) and
TAX/ VAT REMEDY (2), and Sec. 106(A)(2)(b) and Sec. 108(B)(1)
SEC. 112. Refunds or Tax Credits of Input Tax. - and (2), NIRC).
(A) Zero-Rated or Effectively Zero-Rated Sales. - Any VAT-registered c. Where the taxpayer is engaged in zero-rated or
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, effectively zero-rated sale and also in taxable
apply for the issuance of a tax credit certificate or refund of creditable input or exempt sale of goods of properties or
tax due or paid attributable to such sales, except transitional input tax, to the services, and the amount of creditable input tax
extent that such input tax has not been applied against output tax: Provided, due or paid cannot be directly and entirely
however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1),
(2) and (b) and Section 108 (B)(1) and (2), the acceptable foreign currency attributed to any one of the transactions, it shall
exchange proceeds thereof had been duly accounted for in accordance with be allocated proportionately on the basis of the
the rules and regulations of the Bangko Sentral ng Pilipinas volume of sales.
(BSP): Provided, further, That where the taxpayer is engaged in zero-rated d. In the case of a person engaged in the transport
or effectively zero-rated sale and also in taxable or exempt sale of goods of
properties or services, and the amount of creditable input tax due or paid of passenger and cargo by air or sea vessels
cannot be directly and entirely attributed to any one of the transactions, it from the Philippines to a foreign country, the
shall be allocated proportionately on the basis of the volume of input taxes shall be allocated ratably between
sales: Provided, finally, That for a person making sales that are zero-rated his zero-rated sales and non-zero-rated sales
under Section 108 (B)(6), the input taxes shall be allocated ratably between
his zero-rated and non-zero-rated sales. (sales subject to regular rate, subject to final
VAT withholding and VAT-exempt sales).
(B) Cancellation of VAT Registration. - A person whose registration has (RR 16-2005)
been cancelled due to retirement from or cessation of business, or due to 2. Cancellation of VAT Registration.
changes in or cessation of status under Section 106(C) of this Code may,
within two (2) years from the date of cancellation, apply for the issuance of a. A person whose registration has been cancelled
a tax credit certificate for any unused input tax which may be used in due to retirement from or cessation of business,
payment of his other internal revenue taxes. or due to changes in or cessation of status
under Section 106(C) of the Code may, within
(C) Period within which Refund or Tax Credit of Input Taxes shall be
Made. - In proper cases, the Commissioner shall grant a refund or issue the two (2) years from the date of cancellation,
tax credit certificate for creditable input taxes within one hundred twenty apply for the issuance of a tax credit certificate
(120) days from the date of submission of complete documents in support for any unused input tax which may be used in
of the application filed in accordance with Subsection (A) hereof. payment of his other internal revenue taxes.
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 b. He shall be entitled to a refund if he has no
the period prescribed above, the taxpayer affected may, within thirty (30) internal revenue tax liabilities against which
days from the receipt of the decision denying the claim or after the the tax credit certificate may be utilized.
expiration of the one hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals.
Period to file claim/apply for issuance of tax credit
(D) Manner of Giving Refund. - Refunds shall be made upon warrants certificate this periods must be distinguished from normal
drawn by the Commissioner or by his duly authorized representative tax refunds for erroneous payments where an administrative
without the necessity of being countersigned by the Chairman, Commission claim and judicial claim may be made together, and the
on Audit, the provisions of the Administrative Code of 1987 to the contrary
notwithstanding: Provided, That refunds under this paragraph shall be
reckoning point of the 2 years is from the date of the
subject to post audit by the Commission on Audit. erroneous payment.
1. Application for issuance of tax credit certificate or
Who may claim for refund/apply for issuance of tax refund of creditable input tax (except transitional
credit certificate input tax)
1. Zero-Rated Sales (Sec. 112(A), NIRC) o 2 years after the close of the taxable quarter
a. Any VAT-registered person, whose sales are when the sale was made.
zero-rated or effectively zero-rated may apply o If the VAT registration has been cancelled due
for the issuance of a tax credit to retirment or cessation of business, or change
certificate/refund of creditable input tax due or of status, the 2 year period shall be after the
paid attributable to such sales, EXCEPT date of cancellation
transitional input tax, to the extent that such 2. Administrative Claim
input tax has not been applied against output o The CIR shall grant the tax credit/refund within
tax, within two (2) years after the close of the 120 days from the date of submission of
taxable quarter when the sales were made. The complete documents in support of the
input tax that may be subject of the claim shall application
exclude the portion of input tax that has been o Complete Documents is determined by
applied against the output tax. taxpayer himself.
b. The acceptable foreign currency exchange o Taxpayer may only resort to a Judicial Claim
proceeds must have been duly accounted for in either after the end of the 120 day period or
accordance with the rules and regulations of after a decision is made by the Commission,
the Bangko Sentral ng Pilipinas (BSP) in the whichever comes first.
43
3. Judicial Claim o Example he files a claim on June 1, 2013, and
o In case of denial of the application or the completes all documents on June 30, 2013.
expiry of the 120 days, the taxpayer may June 30 is the reckoning point for the
appeal to the CTA within 30 days from the 120 days.
receipt of said denial or inaction. Code is silent on what complete
documents is. Maam says its up to
CIR v. Aichi (2010) the taxpayer to determine if it is
Facts: Aichi Forgin is a VAT-registered company, complete or not
registered with the BOI under a pioneer status. Aichi filed its o Commissioner has 120 days or up to October
claim for creditable input VAT for the quarter ending Sept. 28, 2013 to decide.
30, 2002 on Sept. 30, 2004. It simultaneously filed its
judicial claim on the same date. STEP 3: Judicial Claim - If Commissioner has no decision
by October 28, or has denied the claim anytime before the
Held: The reckoning period betins at the end of the taxable end of the 120 days, taxpayer has 30 days to appeal the
quarter, regardless of whether the tax was paid or not. This is decision to the CTA.
different from Sec. 229 which only applies to erroneous o If no decision was made on October 28, 2013,
payments of tax. taxpayer has 30 days or until November 27,
The Court ruled that leap years do not affect the 2 year 2013 to file his judicial claim.
reckoning point. Even though the Civil Code provides a year o Failure to file within the 30 day period means
to be 365 days, the Administrative Code of 1987, which was the decision is final and executory.
a later legislation, counts a year as 12 months. o As emphasized by the cases, the taxpayer has
The court also explained that the judicial claim was to wait for the 120 days to end or a decision by
premature since such judicial claim may only be filed after the commissioner, before he can go up to the
the adminsitrative claim is dispensed with or after the end of CTA.
the 120 day period.
Manner of giving refund
CIR v. San Roque Power Corporation (2013) Refunds shall be made upon warrants drawn by the
Facts: San Roque filed its judicial claim 13 days after it Commissioner or by his duly authorized representative
filed its amended adminsitrative claim. without the necessity of being countersigned by the
Taganito filed its judicial claim before the end of the 120 Chairman, Commission on Audit, the provisions of the
days for its administrative claim. Administrative Code of 1987 notwithstanding: provided that
refunds shall be subject to post audit by the Commission on
Philex Mining filed its judicial claim 426 days after the last Audit.
day of filing its judicial appeal.
44
shown on the invoice or receipt: Provided, That the seller may issue b. If the sale is exempt from VAT, the term "VAT-
separate invoices or receipts for the taxable, exempt, and zero-rated
components of the sale.
exempt sale" shall be written or printed prominently
(3) The date of transaction, quantity, unit cost and description of on the invoice or receipt;
the goods or properties or nature of the service; and c. If the sale is subject to zero percent (0%) value-
(4) In the case of sales in the amount of one thousand pesos added tax, the term "zero-rated sale" shall be
(P1,000) or more where the sale or transfer is made to a VAT-registered
written or printed prominently on the invoice or
person, the name, business style, if any, address and taxpayer identification
number (TIN) of the purchaser, customer or client. receipt;
d. If the sale involves goods, properties or services
(C) Accounting Requirements. - Notwithstanding the provisions of Section some of which are subject to and some of which are
233, all persons subject to the value-added tax under Sections 106 and 108 VAT zero-rated or VAT-exempt, the invoice or
shall, in addition to the regular accounting records required, maintain a
subsidiary sales journal and subsidiary purchase journal on which the daily receipt shall clearly indicate the breakdown of the
sales and purchases are recorded. The subsidiary journals shall contain such sale price between its taxable, exempt and zero-
information as may be required by the Secretary of Finance. rated components, and the calculation of the value-
added tax on each portion of the sale shall be
(D) Consequence of Issuing Erroneous Vat Invoice or Vat Official
Receipt. - shown on the invoice or receipt. The seller has the
(1) If a person who is not a VAT-registered person issues an invoice or option to issue separate invoices or receipts for the
receipt showing his Taxpayer Identification Number (TIN), followed by the taxable, exempt, and zero-rated components of the
word "VAT":
sale.
(a) The issuer shall, in addition to any liability to other
percentage taxes, be liable to: 3. The date of transaction, quantity, unit cost and
(i) The tax imposed in Section 106 or 108 without the description of the goods or properties or nature of the
benefit of any input tax credit; and service; and
(ii) A 50% surcharge under Section 248 (B) of this
code;
4. In the case of sales in the amount of one thousand pesos
(b) The VAT shall, if the other requisite information required (P1,000) or more where the sale or transfer is made to a
under Subsection (B) hereof is shown on the invoice or receipt, be VAT-registered person, the name, business style, if any,
recognized as an input tax credit to the purchaser under Section 110 of this address and taxpayer identification number (TIN) of the
Code.
purchaser, customer or client.
(2) If a VAT-registered person issues a VAT invoice or VAT official receipt
for a VAT-exempt transaction, but fails to display prominently on the
invoice or receipt the term "VAT-exempt Sale", the issuer shall be liable to Invoicing and Recording Deemed Sale Transactions
account for the tax imposed in Section 106 or 108 as if Section 109 did not
apply. Transaction Invoicing Requirement
(E) Transitional Period. - Notwithstanding Subsection (B) hereof, taxpayers
may continue to issue VAT invoices and VAT official receipts for the Transfer, use or Memorandum entry in the
period July 1, 2005 to December 31, 2005, in accordance with Bureau of consumption not in the subsidiary sales journal to
Internal Revenue administrative practices that existed as of December 31,
course of business of goods record withdrawal of goods
2004.
or properties originally for personal use
Invoicing requirements in general intended for sale or for use
in the course of business
A VAT-registered person shall issue:
1. A VAT invoice for every sale, barter or exchange of Distribution or transfer to Invoice, at the time of the
goods or properties; and shareholders/investors or transaction, which should
2. A VAT official receipt for every lease of goods or creditors include all the info prescribed
properties, and for every sale, barter or exchange of above; data in the invoice
services shall be duly recorded in the
subsidiary sales journal
Only VAT-registered persons are required to print their TIN Consignment of goods if Invoice, at the time of the
followed by the word VAT in their invoice or ORs. Said actual sale is not made transaction, which should
documents shall be considered as a VAT Invoice or VAT within 60 days include all the info prescribed
official receipt. All purchases covered by invoices/receipts above; data in the invoice
other than VAT Invoice/VAT OR shall not give rise to any shall be duly recorded in the
input tax. [RR 16-05] subsidiary sales journal
Retirement from or An inventory shall be
Information Contained in the VAT Invoice or VAT cessation of business with prepared and submitted to the
Official Receipt: respect to all goods on RDO who has jurisdiction
1. A statement that the seller is a VAT-registered person, hand over the taxpayers principal
followed by his taxpayer's identification number (TIN); place of business not later
2. The total amount which the purchaser pays or is than 30 days after retirement
obligated to pay to the seller with the indication that or cessation from business.
such amount includes the VAT: An invoice shall be prepared
a. The amount of the tax shall be shown as a separate for the entire inventory, which
item in the invoice/receipt; shall be the basis of the entry
into the subsidiary sales
journal. The invoice need not
45
withhold a final value-added tax at the rate of five percent (5%) of the gross
payment thereof: Provided, That the payment for lease or use of properties
Transaction Invoicing Requirement or property rights to nonresident owners shall be subject to ten percent
(10%) withholding tax at the time of payment. For purposes of this Section,
enumerate the specific items the payor or person in control of the payment shall be considered as the
appearing in the inventory withholding agent.
regarding the description of The value-added tax withheld under this Section shall be remitted within ten
the goods. If the business is (10) days following the end of the month the withholding was made."
to be continued by the new
owners or successors, the
entire amount of output tax on VAT returns - VAT paid on a monthly basis. Payments in
the amount deemed sold shall the monthly VAT declarations shall be credited in the
be allowed as input taxes. quarterly VAT return to arrive at the net VAT payable or
excess input tax/over-payment as of the end of a quarter.
Consequences of issuing erroneous vat invoice or vat 1. Filed by person liable to pay the VAT
official receipt 2. Quarterly return of the amount of his gross sales or
Issuance of a VAT Invoice or VAT Receipt by a non- receipts within twenty-five (25) days after the close of
VAT person - If a person who is not a VAT-registered each taxable quarter prescribed for each taxpayer.
person issues an invoice or receipt showing his 3. The monthly VAT Declarations of taxpayers whether
Taxpayer Identification Number (TIN), followed by the large or non-large shall be filed and the taxes paid not
word "VAT", the erroneous issuance shall result to the later than the 20th day following the end of each month.
ff:
o The non-VAT person shall be liable to: Administrative and Penal Provisions
SEC. 115. Power of the Commissioner to Suspend the Business Operations
Percentage taxes applicable to his transactions; of a Taxpayer. - The Commissioner or his authorized representative is
VAT due on transactions under Section 106 or hereby empowered to suspend the business operations and temporarily close
108 of the Code, without the benefit of any the business establishment of any person for any of the following violations:
input tax credit; and (a) In the case of a VAT-registered Person. -
(1) Failure to issue receipts or invoices;
A 50% surcharge under Section 248 (B) of the (2) Failure to file a value-added tax return as required under
code; Section 114; or
o The VAT shall, if the other requisite information (3) Understatement of taxable sales or receipts by thirty percent
required is shown on the invoice/receipt, be (30%) or more of his correct taxable sales or receipts for the taxable quarter.
(b) Failure of any Person to Register as Required under Section 236. - The
recognized as an input tax credit to the purchaser. temporary closure of the establishment shall be for the duration of not less
Issuance of a VAT Invoice or VAT Receipt on an than five (5) days and shall be lifted only upon compliance with whatever
Exempt Transaction by a VAT-registered Person - If a requirements prescribed by the Commissioner in the closure order.
VAT-registered person issues a VAT invoice or VAT 1. Suspension of business operations. In addition to other
official receipt for a VAT-exempt transaction, but fails administrative and penal sanctions provided for in the
to display prominently on the invoice or receipt the term Tax Code and implementing regulations, the
"VAT-exempt Sale", the transaction shall become Commissioner of Internal Revenue or his duly
taxable and the issuer shall be liable to pay VAT authorized representative may order suspension or
thereon. The purchaser shall be entitled to claim an closure of a business establishment for a period of not
input tax credit on his purchase. [RR 16-05] less than five (5) days for any of the following
violations:
FILING OF RETURN AND PAYMENT a. Failure to issue receipts and invoices.
SEC. 114. Return and Payment of Value-Added Tax. - b. Failure to file VAT return as required under the
(A) In General. - Every person liable to pay the value-added tax imposed provisions of Sec. 114 of the Tax Code.
under this Title shall file a quarterly return of the amount of his gross sales
or receipts within twenty-five (25) days following the close of each taxable c. Understatement of taxable sales or receipts by 30%
quarter prescribed for each taxpayer: Provided, however, That VAT- or more of his correct taxable sales or receipt for
registered persons shall pay the value-added tax on a monthly basis. the taxable quarter.
d. Failure of any person to register as required under
Any person, whose registration has been cancelled in accordance with
Section 236, shall file a return and pay the tax due thereon within twenty- the provisions of Sec. 236 of the Tax Code.
five (25) days from the date of cancellation of registration: Provided, That 2. Surcharge, interest and other penalties. The interest on
only one consolidated return shall be filed by the taxpayer for his principal unpaid amount of tax, civil penalties and criminal
place of business or head office and all branches. penalties imposed in Title XI of the Tax Code shall also
(B) Where to File the Return and Pay the Tax. - Except as the apply to violations of the provisions of Title IV of the
Commissioner otherwise permits, the return shall be filed with and the tax Tax Code (VAT).
paid to an authorized agent bank, Reveenue Collection Officer or duly
authorized city or municipal Treasurer in the Philippines located within the
revenue district where the taxpayer is registered or required to register. Withholding of Final VAT on Sales to Government
1. The Government or any of its political subdivisions,
(C) Withholding of Value-Added Tax. - The Government or any of its
political subdivisions, instrumentalities or agencies, including government-
instrumentalities or agencies, including GOCCs shall,
owned or -controlled corporations (GOCCs) shall, before making payment before making payment on account of each purchase of
on account of each purchase of goods and services which are subject to the goods and services which are subject to the VAT (Secs.
value-added tax imposed in Sections 106 and 108 of this Code, deduct and
46
106 and 108, NIRC), deduct and withhold a final VAT RR 7-95, which say that official receipts must have the
due at the rate of five percent (5%) of the gross payment imprinted word zero-rated on its face to be valid.
thereof.
2. The payment for lease or use of properties or property Held: The invoicing requirements for a VAT-registered
rights to nonresident owners shall be subject to 12% taxpayer as provided in the NIRC and revenue regulations
withholding tax at the time of payment. are clear. A VAT-registered taxpayer is required to comply
a. The payor or person in control of the payment is with all the VAT invoicing requirements to be able to file a
considered as the withholding agent. claim for input taxes on domestic purchases for goods or
b. The VAT withheld shall be remitted within ten (10) services attributable to zero-rated sales. A "VAT invoice" is
days following the end of the month the an invoice that meets the requirements of Section 4.108-1 of
withholding was made. RR 7-95. Contrary to Microsoft's claim, RR 7-95 expressly
states that "[A]ll purchases covered by invoices other than a
VAT invoice shall not give rise to any input tax."
The 5% final VAT shall represent the net VAT payable of Microsoft's invoice, lacking the word "zero-rated," is not a
the seller. The remaining 7% effectively accounts for the "VAT invoice," and thus cannot give rise to any input tax.
standard input VAT, in lieu of the actual input VAT directly
attributable or ratably apportioned to such sales. AT&T v CIR (2010)
(This means that where the 5% final VAT applies, the basic Facts: AT&T is domestic corporation engaged in providing
formula of output tax less input tax does not apply.) information and liason services for AT&T International. It is
Should actual input VAT exceed 7% of the gross paid in dollars which is remitted to it. It is claiming input
payments, the excess may form part of the sellers VAT for its zero-rated sales in connection with its service
expense or cost. agreements and other purchases.
On the other hand, if actual input VAT is less than 7%
of gross payment, the difference must be closed to Held: AT&T can claim tax refund based on its unutilized
expense or cost, in effect reducing it. input VAT attributable to its zero-rated sales. It complied
with the following requirements: 1) taxpayer is engaged in
Illustration: sales which are zero rated (i.e. export); 2) taxpayer is VAT
DOTC contracts the services of ABC for P100M, who registered; 3) claim must be filed within 2 years after sales
subcontracts the service to DEF for P80M. were made; 4) creditable input tax must be attributable to
such sales, except the transitional input tax, to the extent that
**This is a sale of service, DEF rendering service to ABC, such input tax has not been applied against the output tax;
and ABC rendering service to DOTC. and 5) in case of zero-rated sales, the acceptable foreign
DOTC ABC DEF currency exchange proceeds have been duly accounted for in
Income: P100M Income: P80M accordance with BSP rules and regulations.
- Input: 0 -
Output: Output: P5M Output: P9.6M Court ruled that under Rev. Regs and Sec. 113 of the Tax
withheld Code, there is no distinction made between sales invoices
Remittance: P5M Remittance: 0 Remittance: and official receipts in the claiming of input VAT. Either
P9.6M may be submitted to substantiate its claim.
Scenario 1: If DOTC were a normal buyer
ABC Input VAT: P9.6M KEPCO v CIR (2010)
Output VAT: P12M Facts: KEPCO filed VAT returns declaring zero-rated sales,
Remittance: P2.4M claiming tax refund.
Scenarion 2: DOTC as govt Held: KEPCO did not comply with the substantiation
ABC Input: 0 requirements under the appropriate RR and Sec. 113 of
Output VAT: P5M withheld NIRC, when the word zero-rated was not printed on its
Remittance: P5M VAT invoices and receipts. Non-compliance in invoicing
requirements result in denial of the refund claim.
* The P2.6M difference (P5M actually paid as opposed to
the P2.4 it should have paid if DOTC were a normal buyer) There is a distinction between a VAT invoice and a VAT
is to be treated as part of the cost of dealing with the receipt such that only a VAT invoice might be presented to
government. substantiate a sale of goods or properties, while only a VAT
receipt could substantiate a sale of services. These cannot be
MICROSOFT v CIR (2011) used interchangeably for purposes of substantiation.
Facts: Microsofts services are paid for in acceptable
foreign currency and qualify as zero-rated sales for VAT
purposes under Sec. 108(B)(2). Microsoft filed an SILICON PHIIPPINES v CIR (2011)
administrative claim for tax credit of VAT input taxes, but Facts: Silicon applied for tax credit/refund 1) on their tax
the CTA denied it, saying that Microsoft failed to comply paid on its purchase of capital equipment, and 2) on its zero-
with the invoicing requirements of secs. 113 and 237 and of rated export sales. The CTA only partially granted #1,
47
saying that the other items such as office supplies were not Illustration
considered capital goods. #2 was denied because Silicon
failed to present an Authority to Print (ATP) from the BIR,
and it did not print on its export sales invoices ATP and
also the word zero-rated.
2. Government
Input VAT: 0
Output VAT:
(20k x P2) x 5% withheld = P2,000
Profit: P1,600 [compare how much paid if govt (2,000) vs. supermarket (3,600)]
3. Exports
Input VAT:
20k x .06/can = 1,200 48
Output VAT:
0 (zero-rated sales)
Refund: P1,200
49
Car for hire (without chauffer) 1,800
PERCENTAGE TAXES
- Percentage tax is a business tax. It is imposed mostly on - This only covers the transport of passengers by land,
sale of services. It is an ad valorem tax ordinarily. The transport of cargo (by land, sea or air),
and domestic transport of passengers by air or sea, are
- Businesses subject to VAT may not be subjected to
covered by VAT under Sec. 108(A)
percentage tax, but excise tax and percentage tax may
o Ordinarily because the transport business may
be imposed at the same time
have a franchise, in which case it would have its
- If it is not identified under the percentage tax
own tax regime
provisions, it is subject to VAT
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of
SEC. 116. Tax on Persons Exempt from Value-Added Tax (VAT). - Properties. -
Any person whose sales or receipts are exempt under Section 109(z) of this
Code from the payment of value-added tax and who is not a VAT-registered
(A) Rate and Base of Tax. - There shall be levied, assessed and
person shall pay a tax equivalent to three percent (3%) of his gross quarterly
collected, a value-added tax equivalent to ten percent (10%) of gross
sales or receipts: Provided, That cooperatives shall be exempt from the
receipts derived from the sale or exchange of services, including the use or
three percent (3%)gross receipts tax herein imposed.
lease of properties.
This provision should now read Section 109(w) as per RA The phrase 'sale or exchange of services' means the performance of all kinds
10378 (An Act Recognizing the Principle of Reciprocity as or services in the Philippines for others for a fee, remuneration or
consideration, including xxx transportation contractors on their transport of
Basis for the Grant of Income Tax Exemptions to goods or cargoes, including persons who transport goods or cargoes for hire
International Carriers and Rationalizing Other Taxes another domestic common carriers by land, air and water relative to their
Imposed Thereon by Amending Sections 28(A)(3)(a), 109, transport of goods or cargoes; services of franchise grantees of telephone
118 and 236 of the NIRC, as amended.) The provision now and telegraph, radio and television broadcasting and all other franchise
grantees except those under Section 119 of this Code; xxx (emphasis
reads: supplied)
CARRIERS TAX: TRANSPORT OF PERSONS SEC. 118. Percentage Tax on International Carriers.
(A) International air carriers doing business in the Philippines on their gross
BY DOMESTIC CARRIERS receipts derived from transport of cargo from the Philippines to another
SEC. 117. Percentage Tax on Domestic Carriers and Keepers of country shall pay a tax of three percent (3%) of their quarterly gross
Garages. - Cars for rent or hire driven by the lessee, transportation receipts.
contractors, including persons who transport passengers for hire, and other
domestic carriers by land, air or water, for the transport of passengers, (B) International shipping carriers doing business in the Philippines on their
except owners of bancas and owner of animal-drawn two wheeled vehicle, gross receipts derived from transport of cargo from the Philippines to
and keepers of garages shall pay a tax equivalent to three percent (3%) of another country shall pay a tax equivalent to three percent (3%) of their
their quarterly gross receipts. quarterly gross receipts. (emphasis supplied)
The gross receipts of common carriers derived from their incoming and
outgoing freight shall not be subjected to the local taxes imposed under
Republic Act No. 7160, otherwise known as the Local Government Code of Thus, this tax for international carriers is derived only from
1991. transport of cargo. Transport of passengers by international
In computing the percentage tax provided in this Section, the following carriers is no longer taxed under this provision. Moreover,
shall be considered the minimum quarterly gross receipts in each particular RA 10378 also amended Sec. 109 to read as follows:
case:
Jeepney for hire -
1.Manila and other cities P2,400 SEC. 109. Exempt Transactions. - The following shall be exempt from
2.Provincial 1,200 the value-added tax:
xxx
Public utility bus - (S) Transport of passengers by international carriers;
Not exceeding 30 passengers 3,600 xxx
Exceeding 30 but not exceeding 50 passengers 6,000
Exceeding 50 passengers 7,200
FRANCHISE TAX
Taxis - SEC. 119. Tax on Franchises. - Any provision of general or special law
1.Manila and other cities P3,600 to the contrary notwithstanding, there shall be levied, assessed and collected
2.Provincial 2,400 in respect to all franchises on radio and/or television broadcasting
companies whose annual gross receipts of the preceding year does not
Car for hire (with chauffer) 3,000 exceed Ten million pesos (P10,000,000), subject to Section 236 of this
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Code, a tax of three percent (3%) and on gas and water utilities, a tax of two Sec. 121 on Tax on Banks and Non-Bank Financial
percent (2%) on the gross receipts derived from the business covered by the
law granting the franchise: Provided, however, That radio and television
Intermediaries Performing Quasi-Banking Functions was
broadcasting companies referred to in this Section shall have an option to be amended a number of times. RA 7716 (July 26 1993)
registered as a value-added taxpayer and pay the tax due thereon: Provided, removed the imposition of the tax on banks and non-bank
further, That once the option is exercised, said option shall be irrevocable. financial intermediaries, and imposing instead a tax on life
insurance premium. RA 9238 (January 1 2004) restored and
The grantee shall file the return with, and pay the tax due thereon to the
Commissioner or his duly authorized representative, in accordance with the amended the tax. RA 9337 (July 1 2005) amended it again.
provisions of Section 128 of this Code, and the return shall be subject to
audit by the Bureau of Internal Revenue, any provision of any existing law Gross receipts are entire receipts without any deductions
to the contrary notwithstanding. (China Banking v Court of Appeals)
- Franchise is a special privilege or right granted to
persons or corporations by the State through the Tax on Banks and Financial Intermediaries
legislature, subject to such conditions, regulations, and SEC. 121. Tax on Banks and Non-Bank Financial Intermediaries
restrictions as the government may impose in the public Performing Quasi-Banking Functions. - There shall be collected a tax
interest. on gross receipts derived from sources within the Philippines by all banks
and non-bank financial intermediaries in accordance with the following
- The term franchise has a meaning different from a schedule:
certificate of public convenience, which operators of
public utility vehicles may secure without securing a (a) On interest, commissions and discounts from lending activities as well
franchise (municipal or legislative). as income from financial leasing, on the basis of remaining maturities of
instruments from which such receipts are derived:
- The franchise grantees referred to here are only the
legislative franchise grantees pertaining to radio and/or Maturity period is five years or less 5%
television broadcasting companies, and on gas and Maturity period is more than five years 1%
water utilities. If the franchise is not embraced in this
(b) On dividends and equity shares and
section, the sale or exchange of sercices is subject to net income of subsidiaries 0%
VAT under Sec. 108.
- Franchise grantees of electric utilities are subject to (c) On royalties, rentals of property, real or personal,
VAT under Sec. 108(A). Radio and television profits, from exchange and all other items treated as
gross income under Section 32 of this Code 7%
companies on the other hand are given the option to
register as VAT-taxpayers. Once exercised, the option is (d) On net trading gains within the taxable year on
irrevocable. foreign currency, debt securities, derivatives,
and other similar financial instruments 7%
OVERSEAS COMMUNICATIONS TAX Provided, however, That in case the maturity period referred to in paragraph
SEC. 120. Tax on Overseas Dispatch, Message or Conversation (a) is shortened thru pre-termination, then the maturity period shall be
Originating from the Philippines. - reckoned to end as of the date of pre-termination for purposes of classifying
(A) Persons Liable. - There shall be collected upon every overseas dispatch, the transaction and the correct rate of tax shall be applied accordingly.
message or conversation transmitted from the Philippines by telephone,
telegraph, telewriter exchange, wireless and other communication Provided, finally, That the generally accepted accounting principles as may
equipment service, a tax of ten percent (10%) on the amount paid for such be prescribed by the Bangko Sentral ng Pilipinas for the bank or non-bank
services. The tax imposed in this Section shall be payable by the person financial intermediary performing quasi-banking functions shall likewise be
paying for the services rendered and shall be paid to the person rendering the basis for the calculation of gross receipts.
the services who is required to collect and pay the tax within twenty (20)
days after the end of each quarter. Nothing in this Code shall preclude the Commissioner from imposing the
same tax herein provided on persons performing similar banking activities.
(B) Exemptions. - The tax imposed by this Section shall not apply to:
(1) Government. - Amounts paid for messages transmitted by the
Government of the Republic of the Philippines or any of its political What are quasi-banking activities?
subdivisions or instrumentalities; It means borrowing funds from twenty (20) or more personal
(2) Diplomatic Services. - Amounts paid for messages transmitted by any or corporate lenders at any one time, through the issuance,
embassy and consular offices of a foreign government;
(3) International Organizations. - Amounts paid for messages transmitted by
endorsement, or acceptance of debt instruments of any kind
a public international organization or any of its agencies based in the other than deposits for the borrower's own account, or
Philippines enjoying privileges, exemptions and immunities which the through the issuance of certificates of assignment or similar
Government of the Philippines is committed to recognize pursuant to an instruments, with recourse, or of repurchase agreements for
international agreement; and
(4) News Services. - Amounts paid for messages from any newspaper, press
purposes of relending or purchasing receivables and other
association, radio or television newspaper, broadcasting agency, or similar obligations: Provided, however, That commercial,
newstickers services, to any other newspaper, press association, radio or industrial and other non-financial companies, which borrow
television newspaper broadcasting agency, or newsticker service or to a funds through any of these means for the limited purpose of
bona fide correspondent, which messages deal exclusively with the
collection of news items for, or the dissemination of news item through,
financing their own needs or the needs of their agents or
public press, radio or television broadcasting or a newsticker service dealers, shall not be considered as performing quasi-banking
furnishing a general news service similar to that of the public press. functions. (Sec. 22 [X])
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- It is similar to income tax in that the longer the maturity, 2005 3 100k 5% 5,000
the lower the tax rate. This encourages banks to lend for 2006 2 100k 5% 5,000
a longer period of time 2007 1 100k 5% 5,000
- If loan is pre-terminated, the tax rate applicable would 2008 Less than 1 100k 5% 5,000
depend on the remaining period of maturity. year
Total Gross Receipts Tax P25,000
Wrong Example
Bank extended a loan on January 1, 2014. Total Gross Receipts Tax P25,000
Principal amount: P10M Less: Gross Receipts previously paid
Interest rate per annum: 2% 9,000
Term: 6 years Gross Receipts Tax Due as recomputed
How much is received every year? P200k P16,000
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on/follow-through sale which are shares issued subsequent
to IPO shall no longer be taxed pursuant to Section 6
hereof. The transaction, however, is subject to Documentary
Stamp Tax similar to the transaction covered by Primary
Offering as well as Secondary Offering of shares of stock.
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