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Tax Midterms
Tax Midterms
II
By Atty. Raegan Capuno
INCLUDED IN GROSS ESTATE: (Sec 85, NIRC) The power to alter, amend or revoke is considered to exist on
(A) Decedent's Interest the date of the decedent's death even though:
o To the extent of the interest therein of the decedent at the a. The exercise of the power is subject to a precedent giving
time of his death; of notice or
b. The alteration, amendment or revocation takes effect only
o It Includes: on the expiration of a stated period after the exercise of
i. Any interest including its fruits, having value or the power, whether or not on or before the date of the
capable of being valued transferred by the decedent decedent's death
at his death i. notice has been given or
ii. Rental incomes from bldgs ii. the power has been exercised.
iii. Dividends from investments
iv. Interest on bank deposits which have accrued at the In such cases, proper adjustment shall be made representing
time of his death the interests which would have been excluded from the power
v. Decedent’s interest in the partnerships contribution if the decedent had lived, and for such purpose if the notice has
and shares in the partnership profits and surplus not been given or the power has not been exercised on or
before the date of his death, such notice shall be considered to
(B) Transfer in Contemplation of Death have been given, or the power exercised, on the date of death.
o It is a transfer motivated by the thought of an impending
death regardless of WON death is imminent NOTE: Transferor can revoke the transfer any time, such person
wields tremendous amount of power such that he can revoke the
o This takes place: transfer as if none was actually made.
i. When the decedent has, at any time, made a transfer
in contemplation of or intended to take effect in Is it necessary that the decedent should have exercised such right?
possession or enjoyment at or after death; or GR: No. It is sufficient that the decedent has the power to revoke,
though he did not exercise such
ii. When decedent has, at any time, made a transfer
under which he has retained for his life or for a period XPN: in case of bona fide sale for an adequate and full consideration
not ascertainable without reference to his death or any in money or money's worth
period which does not in fact end before his death:
a. Possession, enjoyment or right to income from (D) Property Passing Under General Power of Appointment
the property; or
b. The right, either alone or in conjunction with any POWER OF APPOINTMENT – It is the right to designate the person/s
other person, to designate the person who will who shall enjoy or possess certain property from the estate of a
possess or enjoy the property or income prior transferor
XPN: In case of a bona fide sale for an adequate and full Two Parties Involved:
consideration in money or money’s worth. a. DONOR OF POWER – a person having property subject to
disposition who created, reserved, or granted the power to
NOTE: designate the transferees or recipients of the property.
The concept of transfer does not constitute any transfers made
by a dying person. b. DONEE OF POWER – a person to whom the power to designate
It is not the mere transfer that constitutes a transfer in the transferees or recipient of the property is given or
contemplation of death but the retention of some type of conferred. For estate tax purposes: He is the Decedent.
control over the property transferred.
EFFECT: No full transfer of all interests in the property inter
vivos GPA SPA
DEFINITION It authorizes the done When the done can
(C) Revocable Transfer – involves a transfer of possession over the (Capuno, 2020) the power to appoint appoint only among a
property during the lifetime of the decedent but not transfer of nay person he pleases, restricted or designated
ownership of the said property. including: class of persons other
o Interest in the property of which the decedent has at any a. Himself than himself
time made a transfer by trust or otherwise is included in b. His estate
decedent’s gross estate c. His creditors, or
o Value of GE is determined by: including the value at the d. The creditors of
time of his death of all properties (R/P/T/IT) wherever his estate
situated to the extent of any interest, of which the NATURE Donee has the power Donee appoints
decedent has at any time made a transfer by trust – where to appoint any person successor to the
the enjoyment was subject at the date of his death to any he chooses or enjoy property within a
change through the exercise of a power by the decedent the property without limited group or class of
to alter or amend or revoke or terminate, or where any restriction persons according to
such power is relinquished in contemplation of the the will of the donor
decedent’s death. TAX Not included in the GE
IMPLICATIONS Forms part of the GE of the donee when he
Rationale: such transfer in trust at the time of death of the trustor is dies
to reach transfers which are really substitutes for testamentary EFFECTS Donee holds the Donee holds the
disposition and thus prevent evasion of estate tax appointed property appointed property in
with all the attributes trust or under the
To be exempt: The transfer inter vivos must be absolute and of ownership under concept of a trustee
outright with no strings attached whatsoever by the transferor. the concept of an
owner
Taxation Law Vol. II
By Atty. Raegan Capuno
FAMILY HOME Note: NRA not allowed to In fine, the tax credit allowed shall depend on whether one
An amount equivalent to the avail family home deduction foreign country or multiple foreign countries are involved
current FMV of the decedent's because under the Consti,
family home: 10M they are expressly prohibited a. ONE FOREIGN COUNTRY
if current FMV 10M – excess from acquiring lands.
shall be subject to estate tax The tax credit is whichever is lower of the actual DT paid in the
foreign country and the limit as determined below:
Requisites for deductibility:
a. The family home must be the Net Taxable Gift – Foreign x DT due in PH = Limitation
actual residential home of the Net Taxable Gift – World
decedent and his family at the
time of his death, certified by b. MULTIPLE FOREIGN COUNTRIES
the Brgy Captain of the locality
b. Total value of the family home I. Determine whichever is lower of the actual DT paid in each
must be included as part of the of the foreign countries and the limit per country using the
GE formula above
c. Allowable deductions must be
in the amount equivalent to: II. Determine the total world DT credit limit using the formula
i. Current FMV of the family below
home declared or
included in GE Total Net Taxable Gift – Foreign x DT Due in PH = Limitation
ii. Extent of the decedent’s Net Taxable Gift – World
interest (whether
conjugal/community/excl III. The allowable DT credit is whichever is lower between the
usive) whichever is lower limitations in items 1 and 2 above
d. Deduction does not exceed
10M
Taxation Law Vol. II
By Atty. Raegan Capuno
1. Notice of Death
o Filing of notice of death is no longer required
3. Certification by a CPA
o The amount of gross value of estate provided in the estate
tax return that must be supported by a statement duly
certified by a CPA is increased from P2M to P5M
DONOR’S TAX
b) CANCELLATION OF INDEBTEDNESS
DONATION – An act of liberality whereby a person disposes
gratuitously of a thing or right in favour of another, who accepts it. The cancellation and forgiveness of indebtedness may amount
to a:
(For tax purposes) Kinds of Donation: 1. Payment of income
2. To a gift
DONATION INTER VIVOS DONATION MORTIS CAUSA 3. To a capital transaction
Subj to DT Subj to ET
A donation made between Donation which takes effect If the creditor merely desires to benefit a debtor and without
living persons upon the death of the any consideration, cancels the debt – the amount of the debt is
Perfection: at the moment donor a gif from the creditor to debtor; Therefore subject to DT
when the donor knows the On the part of the debtor who is the done, the debt
acceptance of the done cancelled need not be included in his gross income for
income tax purposes.
RATE: Each calendar year is 6% in excess of 250K If a corporation to which a stockholder is indebted forgive the
Contribution for campaign election: Governed by Election Code debt – the transaction has the effect of the payment of a
dividend.
Requisites of a Valid Donation: (Capuno, 2020) In this case, the cancellation of debt treated as
a. CAPACITY OF THE DONOR – The donor must have the capacity declaration of dividends may be subject to income tax
to donate which is determined as the time of the making of (RR 2-1940, Sec 50)
donation.
c) RENUNCIATION OF INHERITANCE
b. DONATIVE INTENT – The intent of the donor to make a give.
Donative Intent is presumed present when ne gives a part of The heirs of he decedent, including the surviving spouse , may
one’s patrimony to another without consideration renounce, his share in the inheritance or hereditary estate left
by the decedent
c. ACCEPTANCE OF THE DONEE – the transfer of property by gift is Renunciation may either be:
perfected from the moment the donor knows of the acceptance 1. GENERAL RENUNCIATION – a refusal to receive
by the done. inheritance or hereditary estate in favour of no specifically
identified heir; Not subject to DT because principle of
d. DELIVERY OF GIFT – Delivery of gift, whether actual or accretion applies.
constructive, of the donated property to the donee completes
the donation. 2. SPECIAL RENUNCIATION – A refusal to receive inheritance
or hereditary estate specifically and categorically done in
Note: DT shall not apply unless and until there is a completed gift. favour of identified heirs to the exclusion or disadvantage
The transfer is perfected from the moment the donor knows of the of the other co-heirs in the hereditary estate’ Subject to
accepted by the done. it is completed by the delivery, either actual DT.
or constructive.
d) RENUNCIATION OF THE SURVIVING SPOUSE OF THE SHARE IN
FORMAL REQUISITES OF DONATION: THE CONJUGAL PARTNERSHIP or ABSOLUTE COMMUNITY
1. Real Property – Donation must be In a public instrument
Acceptance shall not take effect unless it is done during The renunciation of the surviving spouse of his share in the
the lifetime of the donor. conjugal partnership or absolute community after the
dissolution of marriage in favour of the heirs of the deceased
2. Personal Property – may be made: spouse or any other person is subject to DT (RR 8-2018, Sec 12,
a) Orally – if the value does not exceed 5K par. 4)
b) In Writing - If value exceed 5K; otherwise, void. (Art 748,
NCC) e) TRANSFER FOR LESS THAN ADEQUATE AND FULL
CONSIDERATION (Sec 100, NIRC)
DONOR’s TAX (DT) – tax imposed on the privilege of transferring
property by way of a gift intervivos. Where the sale is less than adequate and full consideration
Is a transfer tax levied, assessed, collected, and paid upon when the fair maket value is higher than or exceeded the
the transfer of any person, resident or non-resident, of the agreed or actual consideration or the selling price.
property by gift intervivos.
It applies whether the transfer is in trust or otherwise, DONOR’S TAX LIABILITY
whether the gift is direct or indirect, whether the property Gross Gift
is real or personal, intangible or tangible (Sec 9, NIRC) Less: Deductions______________
NET TASABLE GIFT
Multiply: Donor’s Tax Rate_________
Transfers which may be constituted as donation: DONOR’S TAX DUE
a) CAMPAIGN CONTRIBUTIONS Less: Tax Credits_____ _________
DONOR’S TAX STILL DUE
GR: Any contribution in cash or in kind to any candidate,
political party or coalition of parties for campaign purposes
shall be governed by the Election Code (Sec 99(c), NIRC)
The following graduated and progressive rates shall Reciprocity rule provides the following instances:
apply. a. If the donor at the time of donation was a citizen and
resident of a foreign country which at the time the
2. Stranger – Any person not falling in the definition of gift is made did not impose donors tax , in respect of
relative is considered a stranger; the tax payable by the intangible personal property of citizens of the PH not
donor shall be 30% of the net gifts. residing in that foreign country; and
b. If the laws of the foreign country of which the donor
The first net gift is exempt from donor’s tax when the done is a was a citizen and resident at the time of donation
relative. allows a similar exemption from transfer or donor’s
This exemption is not applicable when the done is a stranger taxes every character or description in respect of
because a rate of 30% applies regardless of the value of the intangible personal property owned by citizens of the
value PH not residing in that foreign country.
Note: Sec 104, NIRC provides the intangible personal properties deemed
Under the TRAIN Law, the donor’s tax rates are modified located in the PH, to wit:
The tax for each calendar year shall be 6% computed on the 1. Shares, obligations, or bonds issued by
basis of the total net gifts in excess of P250K exempt gift made a. Any corporation or sociedad anonima organized or
during the calendar year constituted in the PH in accordance with its laws;
The flat rate of 6% applies both to a relative and stranger. b. Any foreign corporation 85% of the business of which is
6% Donor’s tax rate is in excess of P250K net gift making the located in the PH
first P250K exempt from Donor’s tax c. Any foreign corporation if such shares, obligations, or
bonds have acquired a business situs in the Ph; and
DETERMINATION OF GIFTS 2. Shares or rights in any partnership, business, or industry
established in the PH
GROSS GIFT NET GIFT
All property (R/P/T/IT) that was The net economic benefit from Note: before a reciprocity rule may apply, a donor must be citizen
given by the donor to the done the transfer that accrues to the and resident of a foreign country that does not impose donors tax or
by way of gift, without the donee grants exemption.
benefit of any deduction (Sec
104, NIRC) If a donor is a citizen of one foreign country but a resident of
another at the time of donation, reciprocity rule cannot be applied.
The value of the property or
right donated or transferred by VALUATION OF GIFTS MADE IN PROPERTY:
the donor to the done before
any deduction 1) PERSONAL PROPERTY
o VALUE OF GG: FMV of the prop at the time of the gift
Properties included in the gross o CASH – valued at face amount.
gift or those subject to donor’s
tax are determined based on the 2) REAL PROPERTY
classification of the donor, the o VALUE OF GG: FMV as determined by the CIR (Zonal Value)
location of the property, and at the time of donation or the value fixed by the assessor
whether the reciprocity rule (assessed value), whichever is higher (Sec 102, NIRC)
applies.
o If no zonal value – the taxable base is the FMV that
Note (INGLES): If mortgaged property is transferred as a gift, but appears in the latest Tax Dec.
imposing upon the done the obligation to pay the mortgage liability
– the net gift is measured by deducting from the FMV of the o If there is an improvement – the value of improvement:
property the amount of mortgage assumed. construction cost per bldg permit and or occupancy permit
plus 10% per year after year of construction. Or the market
CLASSIFICATION OF DONOR value per latest tax dec.
Donor may either be a natural person or a juridical person
The Donor may be classified as follows: 3) SHARES OF STOCKS
a. CITIZEN AND RA – Subject to Donor’s Tax regardless of a. If the share is listed in the stock exchange – FMV is the
where the gift is made or where the property donated is price quote on the date of death.
located. (DT in all properties donated within and without
PH) If there is no available price quote on the date of death –
FMV is the arithmetic mean between the highest and
b. NRA – Subject to Donor’s tax only on their donations of lowest quotation at a date nearest the date of death
properties located in the PH. Subject to reciprocity rule.
b. If the share is unlisted in the stock exchange:
c. DOMESTIC AND RFC – Subject to Donor’s tax regardless of i. Unlisted common shares are valued based on their
where the gift is made or where the property donated is book value; and
located. ii. Unlisted preferred shares are valued at par value
Taxation Law Vol. II
By Atty. Raegan Capuno
Note: the reckoning point for valuation is the date when
the donation is made.
If Mr B assumes the mortgage, meaning he will pay the V. Determine the total world DT credit limit using the formula
balance of the mortgage, then the net gift is P400K, This is below
because only P400K is the net economic benefit that accrued
to Mr B. Total Net Taxable Gift – Foreign x DT Due in PH = Limitation
Net Taxable Gift – World
If Mr B does not assume the mortgage, then the taxable net
gift is the full P1M VI. The allowable DT credit is whichever is lower between the
limitations in items 1 and 2 above
Taxation Law Vol. II
By Atty. Raegan Capuno
Under the TRAIN Law, the 6% DT rate applies regardless of who the
done is, RR 12-2018 removed the relationship of the donor to the
done as required information in the return
As applied to services: Performance or successful completion b) INCIDENCE OF TAXATION – the point on which the tax burden
of a contractual duty, usually resulting in the performer’s finally rests or settles down. It takes place when shifting has
release from any past or future liability. been effected from the statutory taxpayer to another.
As applied for tax purposes: Consumption arises when the PERSONS LIABILE
goods/properties are sold, exchanged or leased. When VAT is impose on any person who, in the course of trade or
goods/properties purchased are subsequently re-sold, there is business: (Sec 105, NIRC)
consumption. Consumption goes on until the goods/properties a. Sells, barters, exchanges, leases goods or properties
reach the ultimate or final consumer. (Manufacturer – b. Sells services; or
Wholesaler – Retailer – Buyer) c. Imports goods, WON in the court of trade or business
DIRECT TAXES – those that are exacted from the very person, to 2. TRANSACTIONS INCIDENTAL TO THE COURSE OF TRADE OR
whom it is intended or desired, and should pay them; they are BUSINESS
impositions for which a taxpayer is directly liable on the transaction In the course of trade or business includes transactions
or business he is engaged in. incidental thereto or transactions accompanying or arising
from the regular course of trade or business.
INDIRECT TAXES – those that are demanded, in the first instance,
from, or are paid by, one person in the expectation and intention Example:
that he can shift the burden to someone else. a) Bakeshop – through the years accumulated empty sacks of
Taxes wherein the liability for the payment of the tax falls flours and the sold them is subject to VAT even though selling
on one person but the burden can be shifted or passed on of empty sacks of flours is not its trade or business.
to another person. The sale of empty sacks of flours is a transaction incidental
to trade or business of a bakeshop. Similarly, a restaurant
Taxation Law Vol. II
By Atty. Raegan Capuno
selling empty bottles of oil is subject to VAT because the (b) Dissolution of a partnership and creation of
sale of bottles of oil is incidental to the restaurant a new partnership which takes over the
business. business
Def: A sale, barter, or exchange of goods or properties of a VAT e. Those considered export sales under EO 226 (Omnibus
registered person subject to 0% VAT. Invest Code, and other special laws;
It is a vatable transaction for all intents and purposes but
considering the VAT rate is 0%, there is no resulting output tax. f. The sale of goods, supplies, equipment, and fuel to
The input tax on purchases of goods, properties or services, persons engaged in international shipping or international
related to such zero-rated sales, shall be available as a tax air transport operations: Provided, that the good, supplies,
refund in accordance with existing regulations. equipment and fuel shall be used for international shipping
AS stated, a zero-rated sale of goods or properties is subject or air transport operations
VAT except that VAT rate is 0% instead of 12%, thus, no
resulting output tax and no VAT liability. Note: Must be used for international shipping or air transport
operations to qualify for 0% VAT
Selling Price without VAT 100%
Plus: VAT 0% SALE OF GOLD to BSP – considered an export sale subject to 0%
Gross Selling Price 100% VAT. However, TRAIN Law removed the zero-rated status and
reclassified such as an exempt transaction.
In general, the following sales by a VAT-registered person shall
be subject to 0% rate: If the export is made by a non-VAT registered person – the
i. Export Sales sale is merely an exempt sale (Sec 109(1)(O), NIRC)
DEF: The sale, barter, or exchange of goods or properties ii. Foreign Currency Denominated Sales
destined for consumption outside the PH.
DEF: Sale to a non-resident of goods, except those mentioned
As used in Sec 106(A)(2)(a), export sales may either be: in Sec 149 and 150, Assembled or manufactured in the Ph for
1. Actual Export Sales – When there is an actual shipment of delivery to a resident in the Ph, paid for in acceptable foreign
goods from the PH to a foreign country or when the goods currency and accounted for in accordance with the rules and
physically left the Ph Territory. regulations of the BSP.
Foreign currency denominated sale is zero-rated under the
2. Constructive Export Sales – When the goods do not leave NIRC. Upon the effectivity of the TRAIN LAW, foreign currency
the Ph but delivered to a resident or an entity which in the denominated sale is now a sale subject to 12% VAT.
eyes or by fiction of law is considered as export sales.
iii. Effectively Zero-Rated Sales
Only export sales made by a VAT-registered person are zero-
rated sales. It means: DEF: Sale of goods and properties by a VAT-registered person to
a. The sale and actual shipment of goods from the PH to a a person or entity who was granted indirect tax exemption
foreign country irrespective of any shipping arrangement under special laws or international agreements.
that may be agreed upon, which may influence or In order to qualify as effectively zero-rated sales, there must be
determine the transfer of ownership of the goods so a special law or international agreement classifying the sales as
exported and paid for in acceptable foreign currency or its such.
equivalent in goods or services, and accounted for in
accordance with the rules and regulations of the BSP d) EXEMPT SALES
b. Sales and delivery of goods to: DEF: A sale of goods, properties, or services and the use ore
I. Registered enterprises within a separate customs lease of properties which is not subject to output tax and
territory as provided under special laws; and whereby the buyer is not allowed any tax credit or input tax
II. Registered enterprises within tourism enterprise related to such exempt sale.
zones as declared by the Tourism Infrastructure and Object of Exemption: may either be the transactions itself or
Enterprise Zone Authority (TIEZA) subject to Tourism any of the parties to the transaction,
Act
EXEMPT TRANSACTION – involves goods or services which, by
Note: This item were added in the TRAIN Law. However, their nature, are specifically listed in the expressly exempted
the President vetoed this additional provision on the from the VAT under the Tax Code. Such transaction is not
ground that the provision go against the principle of subject to the VAT, but the seller is not allowed any tax refund
limiting VAT zero-rating to direct exporters. of or credit for any input taxes paid.
Taxation Law Vol. II
By Atty. Raegan Capuno
EXEMPT PARTY – a person or entity granted VAT exemption
under the Tax code, a special law or an international agreement
to which the PH is a signatory and by virtue of which its taxable
transactions become exempt from the VAT. Such party is also
not subject to VAT but may be allowed a tax refund of or credit
for input taxes paid, depending on its registration as a VAT or
Non-VAT taxpayer.
IMPLEMENTATION OF ENHANCED VAT REFUND SYSTEM and the SPECIAL RULES ON SALE OF REAL PROEPRTIES
CHANGE OF ZERO-RATED SALES TO 12% VATABLE SALES It is held primarily for sale to customers ro held for lease in the
Sec 31, TRAIN Law, provides that items 3, 4, and 5 shall be ordinary course of trade or business of the seller.
subject to 12% VAT and no longer be considered export sales In the case of sale of properties on instalment plan: the real
subject to 0% VAT rate upon satisfaction of the following estate dealer shall be subject to VAT on the instalment
conditions: payments, including interest and penalties, actually and/or
a. The successful establishment and implementation of an constructively received by the seller.
enhanced VAT refund system that grants refunds of
creditable input tax within 90 days from the filing of the EX. Sale of residential lot with gross selling price exceeding P
VAT refund application with the BIR: Provided, that, to 1,919,599.00 residential house and lot or other residential dwellings
determine the effectivity of item no 1 – all applications with gross selling price exceeding P 3,199,200.00, where the
filed from Jan 1 2018 shall be processed and must be instrument of sale (whether the instrument is nominated as a deed
decided within 90 days from the filing of the VAT refund of absolute sale, deed of conditional sale or otherwise) is executed
application; and and notarized on or after January 1, 2012 and shall be subject to
12% output VAT
b. All pending VAT refund claims as of Dec 31, 2017 shall be
fully paid in cash by Dec 31, 2019 Instalment sale of residential of residential house and lot and
other residential dwellings is subject to VAT,
DOF shall establish a VAT refund center in the BIR and BOC that
will handle the processing and granting of cash refunds of SALE OF REAL PROPERTY ON INSTALMENT PLAN – sale of real
creditable input tax. property by a real estate dealer, the initial payments of which in the
An amount equivalent to 5% of the total VAT collection of the sale of sale do not exceed 25% of the gross selling price.
BIR and the BOC from the immediately preceding year shall be
automatically appropriated annually and shall be treated as a In case of sale of real properties on deferred-payment basis, not
special account in the General Fund or as trust receipts for the on the instalment plan – the transaction shall be treated as cash
purpose of funding claims for VAT refund: Provided, that any sale which makes the entire selling price taxable in the month
unused fund, at the end of the year shall revert to the General of sale
Fund.
The BIR and BOC shall be required to submit to the SALE OF REAL PROPERTIES BY A REAL ESTATE DEALER ON A
Congressional Oversight Committee on the Comprehensive Tax DEFERRED PAYMENT BASIS, NOT ON THE ISNTALMENT PLAN – sale
Reform Program (COCCTRP) a quarterly report of all pending of real property, initial payments of which in the year of sale exceed
claims for refund and any unused fund. 25% gross selling price.
The above provisions only cover the following zero- rated sales: INITIAL PAYMENTS – payment/s which the seller receives before or
a. Sale of raw materials or packaging materials to a non- upon the execution of the instrument of sale and payments which
resident buyer for delivery to a resident local export- the seller expects or is scheduled to received in case or property
oriented enterprise to be used in manufacturing, (other than evidence of indebtedness of the purchaser) during the
processing, packing, or repacking in the PH of the said year when the sale or disposition of the real property was made.
buyer’s goods and paid for in acceptable foreign currency It covers any down payment made and includes all payments
and accounted for in accordance with the rules and actually or constructively received during the year of sale – the
regulations of the BSP aggregate of which determines the limit set by law.
b. Sale of raw aterials or packaging materials to export It does not include the amount of mortgage on the real
oriented enterprise whose export sales exceed 70% of property sold except when such mortgage excess the costs or
total annual production; and other basis of the property to the seller, in which case, the
c. Those considered export sales under EO 226 (Omnibus excess shall be considered part of the initial payments
Investment Code) and other special laws It also excludes the notes or other evidence of indebtedness
issued by the purchaser to the seller at the time of sale. Pre-
AUTOMATIC ZERO-RATED SALE EFFECTIVE ZERO-RATED SALE selling of real estate properties by real estate dealers shall be
Refers to the export sale of Refers to the sale of goods or subject to VAT in accordance with the rules prescribed above.
goods and supply of services supply of services to persons or
entities whose exemption under REAL ESTATE DEALER – includes any person engaged in the business
Tax Rate: 0% special laws or international of buying, developing, selling, exchanging real properties as principal
agreements to which the PH is a and holding himself out as a full or part-time dealer in real estate
signatory effectively subjects
such transactions to a zero rate CHANGE OR CESSATION OF STATUS AS VAT-REGISTERED PERSON
VAT under Sec 106, applies to goods or properties originally
When applied to the tax base, As applied to the tax base, such intended for sale or use in business, and capital goods which
such rate obviously results in no rate does not yield any tax are existing as of the occurrence of the following:
tax chargeable against the chargeable against the a) Change of business activity from VAT taxable status to VAT-
purchaser purchaser EXEMPT Status.
o EX. A VAT registered person engaged in a taxable activity
The seller of such transactions The seller who charges zero like wholesaler or retailer who decides to discontinue such
charges no output tax, but can output tax on such transactions activity and engages instead in life insurance business or in
claim a refund of or a tax credit can also claim a refund of or a any other business not subject to VAT
certificate for the VAT previously tax credit certificate for the VAT b) Approval of a request for cancellation of registration due to
charged by suppliers previously charged by suppliers reversion to exempt status
c) Approval of a request for cancellation of registration due to a
desire to revert to exempt status after the lapse of 3
Taxation Law Vol. II
By Atty. Raegan Capuno
consecutive years from the time of registration by a person Tax due on such importation shall constitute lien on the goods
who voluntarily registered despite being exempt under Sec superior to all charges or liens on the goods, irrespective of the
109(2), TRAIN Law. possessor
d) Approval of a request for cancellation of registration of one
who commenced business with the expectation of gross sales
or receipts exceeding P 3M but who failed to exceed this
amount during the first 12mos.
VAT shall not apply to goods or properties existing as of the VAT ON SALE OF SERVICES AND USE OR LEASE OF PROPERTIES
occurrence of the following: For purposes of imposing VAT, sale of services and use or lease
a) Change of control of a corporation by the acquisition of the of properties may be classified as:
controlling interest of such corporation by another stockholder a) Vatable Sale of Services
or group of stockholders. b) Zero-Rated Sale of Services; and
o The goods or properties used in business or those c) Exempt Sale of Services
comprising the stock-in-trade of the corporation, having a
change in corporate control, will not be considered sold, VATABLE SALES OF SERVICES
bartered, or exchanged despite the change in the Sale or exchange of services, as well as the use or lease of
ownership interest in the said corporation; properties, in the course of trade or business is subject to VAT
b) Change in the trade or corporate name of the business VAT: 12% of the gross receipts.
c) Merger or consolidation of corporation
o The unused input tax of the dissolved corporation, as of SALE OR EXCHANGE OF SERVICES – the performance of all kinds of
the date of merger or consolidation, shall be absorbed by services in the PH for others for a fee, renumerations or
the surviving or new corporation consideration, including those performed or rendered by the
following:
VAT IMPORTATION a) Construction and service contractors
IMPORTATION – an act of bringing goods from foreign a b) Stock, Real Estate, Commercial, Customs and immigration
country into the Philippines. brokers
Sec 1202, Tariff and Customs Code, Importation begins when c) Lessors of property, whether personal or real
the carrying vessel or aircraft enters the jurisdiction of the d) Warehousing services
Philippines with the intention to unlade therein. e) Lessors or distributors of cinematographic films
Importation is deemed terminated upon payment of duties, f) Persons engaged in milling processing, manufacturing or
taxes, and other charges due upon the articles, or secured be repacking goods for others
paid, at a port of entry and the legal permit for withdrawal shall g) Proprietors, operators or keepers of hotels, motels, rest houses,
have been granted, or in case said are free of duties, taxes and pension houses, inns, resorts
other chares, until they have legally left the jurisdiction of the h) Proprietors, operators of restaurants refreshments parlors,
customs. cafes and other eating places, including clubs and caterers
In General, VAT is imposed on goods brought into the PH, i) Dealers in securities
whether for business use or not. j) Lending investors
o Tax based: on the total value used by the BOC in k) Transportation contractors on their transport of goods or
determining tariff and customs duties, plus customs duties, cargoes, including persons who transport goods or cargoes fro
excise tax, if any, and other charges, such a postage, hire and other domestic common carriers by land relative to
commission, and similar charges, prior to the release of their transport of goods or cargoes
the goods from customs custody. l) Common carriers by air and sea relative to their transport of
o In case the valuation used by the BOC in computing passengers, goods or cargoes from one place in the PH to
customs based on volume or quantity of the imported another place in the PH
good – the landed cost shall be the basis for computing m) Sales of electricity by generations companies, transmission, and
VAT. distribution companies
o Landed cost consist of the invoice amount, customs duties, n) Franchise grantees of electric utilities, telephone and telegraph,
freight, insurance and other charges. radio and television broadcasting and all other franchise
o If the goods imported are subject to excise tax – the excise grantees except franchise grantees of radio and.or television
tax shall form part of the tax base broadcasting whose annual gross receipts of the preceding year
VAT is also imposed on technical importation, which is the sale do not exceed P10M, and franchise guarantees of gas and
of goods by a person located in a Special Economic Zone to a water utilities
customer located in a customs territory. o) Non-life insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding companies;
PERSONS LIABLE TO VAT ON IMPORTATION and
GR: Seller is the statutory taxpayer of VAT. He is the one liable p) Similar services regardless of whether or not the performance
to declare and pay the VAT to the BIR thereof calls for the exercise or use of the physical or mental
faculties.:
XPN: the importer who is actually the buyer of goods is the one
liable to pay the VAT on importation THE PHRASE “SALE OR EXCHANGE OF SERVICES” shall likewise
include:
IMPORTER – it is a person who brings goods into the PH, whether or a) The lease or the use of or the right or privilege to use any
not made in the course of his trade or business. It includes non- copyright, patent, design or model, plan, secret formula or
exempt persons or entities who acquire tax-free imported goods process, goodwill, trademark, trade brand or other like
from exempt persons, entities or agencies. property or right;
VAT on importation is paid by the importer prior to the release b) The lease or the use of, or the right to use of any industrial,
of such goods from customs custody. commercial or scientific equipment;
c) The supply of scientific, technical industrial or commercial
TRANSFER OF GOODS BY TAX-EXEMPT PERSONS knowledge or information;
In case of goods imported into the PH by VAT-exempt persons, d) The supply of any assistance that is ancillary and subsidiary to
entities or agencies which are subsequently sold, transferred or and is furnished as a means of enabling the application or
exchanged in the PH to non-exempt person or entities, the enjoyment of any such property, or right as is mentioned in
purchasers, transferees or recipients shall be considered the subparagraph (2) or any such knowledge or information as is
importers and shall be liable for the VAT due on such mentioned in subparagraph (3);
importation
Taxation Law Vol. II
By Atty. Raegan Capuno
e) The supply of services by a non-resident person or his employee c) The services are paid for in acceptable foreign currency
in connection with the use of property or rights belonging to, or and accounted for in accordance with the rules and
the installation or operation of any brand, machinery or other regulations of the (BSP);
apparatus purchased from such non-resident person;
(1) GOODS or PROPERTIES – means all tangible and intangible (5) Those considered export sales under EO 226: Omnibus
objects which are capable of pecuniary estimation and shall include: Investment Code of 1987, and other special laws; and
(a) Real properties held primarily for sale to customers or held for
lease in the ordinary course of trade or business; Par. (3), (4), and (5) Subject to the (12%) VAT and no longer be
(b) The right or the privilege to use patent, copyright, design or considered export sales subject to (0%) VAT rate upon
model, plan, secret formula or process, goodwill, trademark, satisfaction of the following conditions:
trade brand or other like property or right; 1. Successful establishment and implementation of an
(c) The right or the privilege to use in the Philippines of any enhanced VAT refund system that grants refunds of
industrial, commercial or scientific equipment; creditable input tax within (90) days from the filing of the
(d) The right or the privilege to use motion picture films, tapes and VAT refund application with the Bureau:
discs; and - To determine the effectivity of item no. 1, all
(e) Radio, television, satellite transmission and cable television applications filed from January 1, 2018 shall be
time. processed and must be decided within (90) days from
the filing of the VAT refund application; and
Note: This is not an exclusive list. 2. All pending VAT refund claims as of December 31, 2017
shall be fully paid in cash by December 31, 2019.
GROSS SELLING PRICE – means the total amount of money or its
equivalent which the purchaser pays or is obligated to pay to the Department of Finance shall establish a VAT refund center in
seller in consideration of the sale, barter or exchange of the goods or the (BIR) and (BOC) that will handle the processing and granting
properties, excluding the VAT. of cash refunds of creditable input tax.
The excise tax, if any, on such goods or properties shall
form part of the gross selling price. An amount equivalent to (5%) of the total VAT collection of the
BIR and the BOC from the immediately preceding year shall be:
(2) The ff sales by VAT-registered persons shall be subj to (0%) rate: a. Automatically appropriated annually; and
b. Treated as a special account in the General Fund or as
Note: For goods, a rate of 0% of the gross selling price will be trust receipts for the purpose of funding claims for VAT
applied if: refund:
a. Export Sale - Any unused fund, at the end of the year shall revert
b. Sales to persons or entities whose exemption under to the General Fund.
special laws, or international agreements to which the PH
is a signatory (effectively-zero rated sales) BIR and the BOC shall be required to submit to the
Congressional Oversight Committee on the Comprehensive
(a) EXPORT SALES: Tax Reform Program (COCCTRP) a quarterly report of all
(1) The sale and actual shipment of goods from the Philippines pending claims for refund and any unused fund.
to a foreign country, irrespective of any shipping
arrangement that may be agreed upon which may (b) Sales to persons or entities whose exemption under
influence or determine the transfer of ownership of the special laws or international agreements to which the
goods so exported; and Philippines is a signatory effectively subjects such sales to
zero rate.
Paid for in acceptable foreign currency or its equivalent in
goods or services, and accounted for in accordance with (B) Transactions Deemed Sale – SUBJ TO VAT
the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);
Taxation Law Vol. II
By Atty. Raegan Capuno
(1) Transfer, use or consumption not in the course of business of
goods or properties originally intended for sale or for use in LANDED COST meant:
the course of business; a. Invoice Cost
(2) Distribution or transfer to: b. Freight Insurance
(a) Shareholders or investors as share in the profits of the c. Custom Duties
VAT-registered persons; or d. Excise Tax (If any); and
(b) Creditors in payment of debt; e. Other charges prior to the removal of the goods from customs
(3) Consignment of goods if actual sale is not made within (60) custody.
days following the date such goods were consigned; and
(4) Retirement from or cessation of business, with respect to (B) Transfer of Goods by Tax-exempt Persons.
inventories of taxable goods existing as of such retirement or
cessation. When a (Person/Entities/Agencies) who was exempt from VAT
on his importation – subsequently sells, transfers, exchanges in
the Ph such imported articles to a non-exempt person.
The purchaser, transferee or assignee will be required to
pay the VAT.
Sec 108 VAT on Sale of Services and Use or Lease of Properties LEASE OF PROPERTIES – subject to the tax, irrespective of the place
where the contract of lease or licensing agreement was executed, if
(A) Rate and Base of Tax: (12%) of gross receipts derived from the the property is leased or used in the Philippines.
sale or exchange of services, including the use or lease of properties.
GROSS RECEIPT – means cash or its equivalent actually received or
SALE OR EXCHANGE OF SERVICES: constructively received (not including the VAT) as:
The services: a. Payments on the Contract price, compensation, service fee,
a. Should be rendered in the PH rental or royalty,
b. Can be any and all kinds of services rendered to others b. Payments or materials supplied with the services and
(Provided there is no EE-REL) c. Deposits and advanced payments on the contract for the
c. There is a fee, remuneration or consideration services
10. Services other than those mentioned in the preceding BIR and the BOC shall be required to submit to the COCCTRP a
paragraph, rendered to a: quarterly report of all pending claims for refund and any
d) Person engaged in business conducted outside the unused fund.
Philippines or
e) Nonresident person not engaged in business who is Note:
outside the Philippines when the services are performed ZERO RATED TRANSACTIONS EFFECTIVELY ZERO-RATED
f) The consideration for which is paid for in acceptable
TRANSACTIONS
foreign currency and accounted for in accordance with the
rules and regulations of the (BSP);
DEF: Export sale of goods and DEF: Sale of goods or supply of
11. Services rendered to persons or entities whose exemption supply of services services to persons or entities
under special laws or international agreements to which the whose exemption under special
Philippines is a signatory effectively subjects the supply of such laws or international agreements
services to (0%) rate; to which the PH is a signatory
effectively subjects such
12. Services rendered to persons engaged in international shipping transactions to a zero rate.
or international air transport operations, including leases of
property for use thereof:
These services shall be exclusive for international shipping
or air transport operations; Such Rate does not yield any tax
chargeable against the
DESTINATION PRINCIPLE – exports are zero-rated whereas imports purchaser.
are taxed.
The seller of such transactions
13. Services performed by subcontractors and/or contractors in charges no output tax, but can
processing, converting, or manufacturing goods for an claim a refund or a tax credit
enterprise whose export sales exceed (70%) of total annual certificate for the VAT previously
production; charged by suppliers
For the benefit of the purchaser
Note:
subject to the (12%) VAT and no longer be subject to zero For the Benefit of the Seller
percent (0%) VAT rate upon satisfaction of the following
conditions: In both, the seller who charges zero output tax can claim a refund or
g. The successful establishment and implementation of an a tax credit certificate for the VAT previously charged by suppliers.
enhanced VAT refund system that grants refunds of
creditable input tax within (90) days from the filing of the
VAT refund application with the Bureau:
To determine the effectivity of item no. 1, all applications Sec 109 Exempt Transactions.
filed from January 1, 2018 shall be processed and must be
decided within (90) days from the filing of the VAT refund VAT-EXEMPT TRANSACTIONS – the sale of goods or properties
application; and and/or services and the use or lease of properties that is not subject
h. All pending VAT refund claims as of December 31, 2017 shall to VAT (output tax) and the seller is not allowed any tax credit of
be fully paid in cash by December 31, 2019. VAT (input tax) on purchases.
14. Transport of passengers and cargo by domestic air or sea (1) Subject to the provisions of Subsection (2) hereof
vessels from the Philippines to a foreign country; and
the following transactions shall be exempt from the VAT:
15. Sale of power or fuel generated through renewable sources of (A) Sale of agricultural products; marine food products in their
energy such as, but not limited to, biomass, solar, wind, original state, livestock and poultry of a kind generally used as,
hydropower, geothermal, ocean energy, and other emerging or yielding or producing foods from human consumption; and
energy sources using technologies such as fuel cells and breeding stock and genetic materials therefor.
hydrogen fuels.
Products classified under this par shall be considered in their
16. Services rendered to: original state even if they have undergone the simple
Taxation Law Vol. II
By Atty. Raegan Capuno
processes of preparation or preservation for the market such Laboratory services are exempted. But if hospital or clinic
as freezing, drying, salting, broiling, roasting, smoking or operates a pharmacy or drug store, the sale of drugs and
stripping. Polished and/or husked rice, corn grits, raw cane medicine is subject to VAT
sugar and molasses, ordinary salt and copra shall be Health care company which merely provides and arranges
considered in their original state. for the provision of pre-med health care services to its
members in NOT VAT-EXEMPT. It does not provide
Note: medical services.
LIVESTOCK – does not include fighting cocks, race horses, zoo
animals and other animals generally considered as pets. (H) Educational services rendered by private educational
institutions, duly accredited by the (DepEd), (CHED), (TESDA)
ORIGINAL STATE – include even if the products have and those rendered by government educational institutions;
undergone the simple process of preparation or preservation
for the market. Note:
Educational services do not include seminars, in-service
training, review classes and other similar services
rendered by persons who are not accredited by the
DEPED, CHED or TESDA
RAW CANE SUGAR – natural sugar extracted from sugarcane (I) Services rendered by individuals pursuant to an employer-
through simple mechanical process. employee relationship;
It only refer to raw cane sugar produced from conducting
only 1 stage of filtering and centrifuging without any other (J) Services rendered by regional or area headquarters
further process applied thereto established in the Philippines by multinational corporations
which act as supervisory, communications and coordinating
(B) Sale or importation of fertilizers; seeds, seedlings and centers for their affiliates, subsidiaries or branches in the Asia-
fingerlings; fish, prawn, livestock and poultry feeds, including Pacific Region and do not earn or derive income from the
ingredients, whether locally produced or imported used in the Philippines;
manufacture of finished feeds (except specialty feeds for race
horses, fighting cocks, aquarium fish, zoo animals and other (K) Transactions which are exempt under international
animals generally considered as pets) agreements to which the Philippines is a signatory or under
special laws, except those under PD 529;
Note:
SPECIALTY FEEDS – non-agricultural feeds or foods for race (L) Sales by agricultural cooperatives duly registered with the CDA
horses, fighting cocks, aquarium fish, zoo animals and other to their members as well as sale of their produce, whether in
animals generally considered as pets its original state or processed form, to non-members; their
importation of direct farm inputs, machineries and equipment,
(C) Importation of personal and household effects belonging to including spare parts thereof, to be used directly and
the residents of the PH returning from abroad and non- exclusively in the production and/or processing of their
resident citizens coming to resettle in the PH produce;
Such goods are exempt from customs duties under the
Tariff and Customs Code (M) Gross receipts from lending activities by credit or multi-
purpose cooperatives duly registered with the Cooperative
(D) Importation of professional instruments and implements, Development Authority;
tools of trade, occupation or employment, wearing apparel,
domestic animals, and personal and household effects (Except (N) Sales by non-agricultural, non-electric and non-credit
vehicles, aircrafts, machineries and other similar goods for use cooperatives duly registered with the Cooperative
in manufacture – subject to duties, taxes and other charges) Development Authority: Provided, That the share capital
Belonging to: contribution of each member does not exceed (₱15,000) and
a. Persons coming to settle in the Philippines or regardless of the aggregate capital and net surplus ratably
b. (Overseas Filipinos) Filipinos or their families and distributed among the members;
descendants who are now residents or citizens of
other countries (O) Export sales by persons who are not VAT-registered;
in quantities and of the class suitable to the profession,
rank or position of the persons importing said items, for (P) Sale of real properties not primarily held for sale to customers
their own use and not for barter or sale, accompanying or held for lease in the ordinary course of trade or business or
such persons, or arriving within a reasonable time: real property utilized for low-cost and socialized housing as
- BOC may, upon the production of satisfactory defined by RA 7279: Urban Development and Housing Act of
evidence that such persons are actually coming to 1992, and other related laws, residential lot valued at
settle in the Philippines and that the goods are (1,500,000) and below, house and lot, and other residential
brought from their former place of abode, exempt dwellings valued at (₱2,500,000) and below: Provided, That
such goods from payment of duties and taxes: beginning January 1, 2021, the VAT exemption shall only apply
to sale of real properties not primarily held for sale to
(E) Services subject to percentage tax under Title V; customers or held for lease in the ordinary course of trade or
business, sale of real property utilized for socialized housing as
(F) Services by agricultural contract growers and milling for others defined by RA. 7279, sale of house and lot, and other
of palay into rice, corn into grits and sugar cane into raw residential dwellings with selling price of not more than
sugar; (₱2,000,000): Provided, further, That every (3) years
thereafter, the amount herein stated shall be adjusted to its
(G) Medical, dental, hospital and veterinary services except those present value using the Consumer Price Index, as published by
rendered by professionals; the Philippine Statistics Authority (PSA);
Note:
Taxation Law Vol. II
By Atty. Raegan Capuno
(Q) Lease of a residential unit with a monthly rental not exceeding
(₱15,000);
RECORDINGS