;
VALUE-ADDED TAX
A. Sections 105-115 of the tax code
VALUE ADDED TAX
CHAPTER I
IMPOSITION OF TAX
SEC. 105. Persons Liable. - Any person who, in the course of
trade or business, sells barters, exchanges, leases goods or
properties, renders services, and any person who imports goods
shall be subject to the value-added tax (VAT) imposed in
Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may
be shifted or passed on to the buyer, transferee or lessee of the
goods, properties or services. This rule shall likewise apply to
existing contracts of sale or lease of goods, properties or
services at the time of the effectivity of Republic Act No. 7716.
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 engaged therein is a
non-stock, nonprofit private organization (irrespective of the
disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as
defined in this Code rendered in the Philippines by nonresident
foreign persons shall be considered as being rendered in the
course of trade or business.
SEC. 106. Value-Added Tax on Sale of Goods or Properties. -
(A) Rate and Base of Tax. - There shall be levied, assessed and
collected on every sale, barter or exchange of goods or
properties, value-added tax equivalent to twelve percent (12%) of
the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by
the seller or transferor.
(1) “Goods or Properties.” The term “goods” or “properties“
shall mean all tangible and intangible objects which are capable
of pecuniary estimation and shall include:
(a) Real properties held primarily for sale to customers or held for
lease in the ordinary course of trade or business;
(b) The right or the privilege to use patent, copyright, design or
model, plan, secret formula or process, goodwill, trademark,
trade brand or other like property or right;
(c) The right or the privilege to use in the Philippines of any
industrial, commercial or scientific equipment;
(d) The right or the privilege to use motion picture films, tapes
and discs; and
(e) Radio, television, satellite transmission and cable television
time.
The term “gross selling price” means the total amount of money
or its equivalent which the purchaser pays or is obligated to pay
to the seller in consideration of the sale, barter or exchange of
the goods or properties, excluding the value-added tax. The
excise tax, if any, on such goods or properties shall form part of
the gross selling price.
(2) The following sales by VAT-registered persons shall be
subject to zero percent (0%) rate:
(a) Export Sales. - The term “export sales” means:
(1) The sale and actual shipment of goods from the Philippines to
a foreign country, irrespective of any shipping arrangement that
may be agreed upon which may influence or determine the
transfer of ownership of the goods so exported and paid for in
acceptable foreign currency or its equivalent in goods or
services, and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Sale and delivery of goods to:
(i) Registered enterprises within a separate customs territory as
provided under special laws; and
(ii) Registered enterprises within tourism enterprises zones as
declared by the Tourism Infrastructure and Enterprise Zone
Authority(TIEZA) subject to the provisions under Republic Act
No. 9593 or The Tourism Act of 2009. [28]
(NOTE: The amendment introduced by the TRAIN Law on
Section 106(A)(2)(9)(2) was vetoed by the President. The veto
message reads:
I am constrained to veto the provisions under Section 31 of the
enrolled bill, to wit:
Section 31:
(2) Sale and Delivery of Goods to:
(i) Registered Enterprises With a Separate Customs Territory As
Provided Under Special Laws; and
(ii) Registered Enterprises Within Tourism Enterprise Zones As
Declared By The Tourism Infrastructure And Enterprise Zone
Authority(TIEZA) Subject To The Provisions Under Republic Act
No. 9593 Or The Tourism Act of 2009.)
(3) Sale of raw materials or packaging materials to a nonresident
buyer for delivery to a resident local export-oriented enterprise to
be used in manufacturing, processing, packing or repacking in
the Philippines of the said buyer's goods and paid for in
acceptable foreign currency and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);
(4) Sale of raw materials or packaging materials to export-
oriented enterprise whose export sales exceed seventy percent
(70%) of total annual production;
(5) Those considered export sales under Executive Order NO.
226, otherwise known as the “Omnibus Investment Code of
1987”, and other special laws; and
(6) The sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air transport
operations: Provided, That the goods, supplies, equipment and
fuel shall be used for international shipping or air transport
operations. [4]
Provided, That subparagraphs (3), (4), and (5) hereof shall be
subject to the twelve percent (12%) value-added tax and no
longer be considered export sales subject to zero percent (0%)
VAT rate upon satisfaction of the following conditions:
(1) The successful establishment and implementation of an
enhanced VAT refund system that grants refunds of creditable
input tax within ninety (90) days from the filing of the VAT refund
application with the Bureau: Provided, That, to determine the
effectivity of item no. 1, all applications filed from January 1, 2018
shall be processed and must be decided within ninety (90) days
from the filing of the VAT refund application; and
(2) All pending VAT refund claims as of December 21, 2017 shall
be fully paid in cash by December 31, 2019.
Provided, That the Department of Finance shall establish a VAT
refund center in the Bureau of Internal Revenue(BIR) and in the
Bureau of Customs(BOC) that will handle the processing and
granting of cash refunds of creditable input tax.
An amount equivalent to five percent (5%) of the total VAT
collection of the BIR and the BOC from the immediately
preceding year shall be automatically appropriated annually and
shall be treated as a special account in the General Fund or as
trust receipts for the purpose of funding claims for VAT refund:
Provided, That any unused fund, at the end of the year shall
revert to the General Fund.
Provided, further, That the BIR and the BOC shall be required to
submit to the Congressional Oversight Committee on the
Comprehensive Tax Reform Program (COCCTRP) a quarterly
report of all pending claims for refund and any unused fund.
(b) Sales to persons or entities whose exemption under special
laws or international agreements to which the Philippines is a
signatory effectively subjects such sales to zero rate. [4]
(B) Transactions Deemed Sale. - The following transactions
shall be deemed sale:
(1) Transfer, use or consumption not in the course of business of
goods or properties originally intended for sale or for use in the
course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the VAT-
registered persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty
(60) days following the date such goods were consigned; and
(4) Retirement from or cessation of business, with respect to
inventories of taxable goods existing as of such retirement or
cessation.
(C) Changes in or Cessation of Status of a VAT-registered
Person. - The tax imposed in Subsection (A) of this Section shall
also apply to goods disposed of or existing as of a certain date if
under circumstances to be prescribed in rules and regulations to
be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner, the status of a person as
a VAT-registered person changes or is terminated.
(D) Sales Returns, Allowances and Sales Discounts. - The
value of goods or properties sold and subsequently returned or
for which allowances were granted by a VAT-registered person
may be deducted from the gross sales or receipts for the quarter
in which a refund is made or a credit memorandum or refund is
issued. Sales discount granted and indicated in the invoice at the
time of sale and the grant of which does not depend upon the
happening of a future event may be excluded from the gross
sales within the same quarter it was given.
(E) Authority of the Commissioner to Determine the
Appropriate Tax Base. - The Commissioner shall, by rules and
regulations prescribed by the Secretary of Finance, determine
the appropriate tax base in cases where a transaction is deemed
a sale, barter or exchange of goods or properties under
Subsection (B) hereof, or where the gross selling price is
unreasonably lower than the actual market value.
SEC. 107. Value-Added Tax on Importation of Goods. -
(A) In General. - There shall be levied, assessed and collected
on every importation of goods a value-added tax equivalent to
twelve percent (12%) based on the total value used by the
Bureau of Customs in determining tariff and customs duties plus
customs duties, excise taxes, if any, and other charges, such tax
to be paid by the importer prior to the release of such goods from
customs custody: Provided, That where the customs duties are
determined on the basis of the quantity or volume of the goods,
the value-added tax shall be based on the landed cost plus
excise taxes, if any. [8]
(B) Transfer of Goods by Tax-exempt Persons. - In the case
of tax-free importation of goods into the Philippines by persons,
entities or agencies exempt from tax where such goods are
subsequently sold, transferred or exchanged in the Philippines to
non-exempt persons or entities, the purchasers, transferees or
recipients shall be considered the importers thereof, who shall be
liable for any internal revenue tax on such importation. The tax
due on such importation shall constitute a lien on the goods
superior to all charges or liens on the goods, irrespective of the
possessor thereof.
SEC. 108. Value-added Tax on Sale of Services and Use or
Lease of Properties. -
(A) Rate and Base of Tax. - There shall be levied, assessed and
collected, a value-added tax equivalent to twelve percent (12%)
of gross receipts derived from the sale or exchange of services,
including the use or lease of properties.  (2) The lease of the use of, or the right to use of any industrial,
The phrase “sale or exchange of services” means the
performance of all kinds of services in the Philippines for others
for a fee, remuneration or consideration, including those
performed or rendered by construction and service contractors;
stock, real estate, commercial, customs and immigration brokers;
lessors of property, whether personal or real; warehousing
services; lessors or distributors of cinematographic films; persons
engaged in milling processing, manufacturing or repacking goods
for others; proprietors, operators or keepers of hotels, motels,
rest houses, pension houses, inns, resorts; proprietors or
operators of restaurants, refreshment parlors, cafes and other
eating places, including clubs and caterers; dealers in securities;
lending investors; transportation contractors on their transport of
goods or cargoes, including persons who transport goods or
cargoes for hire another domestic common carriers by land
relative to their transport of goods or cargoes; common carriers
by air and sea relative to their transport of passengers, goods or
cargoes from one place in the Philippines to another place in the
Philippines; sales of electricity by generation companies,
transmission, and distribution companies; services of franchise
grantees of electric utilities. [29] telephone and telegraph, radio
and television broadcasting and all other franchise grantees
except those under section 119 of this Code, and non-life
insurance companies (except their crop insurances), including
surety, fidelity, indemnity, and bonding companies; and similar
services regardless of whether or not the performance thereof
calls for the exercise or use of the physical or mental faculties.
The phrase “sale or exchange of services” shall likewise
include:
(1) The lease or the use of or the right or privilege to use any
copyright, patent, design or model, plan secret formula or
process, goodwill, trademark, trade brand or other like property
or right;
commercial or scientific equipment;
(3) The supply of scientific, technical, industrial or commercial
knowledge or information;
(4) The supply of any assistance that is ancillary and subsidiary
to and is furnished as a means of enabling the application or
enjoyment of any such property, or right as is mentioned in
subparagraph (2) or any such knowledge or information as is
mentioned in subparagraph (3);
(5) The supply of services by a nonresident person or his
employee in connection with the use of property or rights
belonging to, or the installation or operation of any brand,
machinery or other apparatus purchased from such nonresident
person.
(6) The supply of technical advice, assistance or services
rendered in connection with technical management or
administration of any scientific, industrial or commercial
undertaking, venture, project or scheme;
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television,
satellite transmission and cable television time.
Lease of properties shall be subject to the tax herein imposed
irrespective of the place where the contract of lease or licensing
agreement was executed if the property is leased or used in the
Philippines.
The term “gross receipts” means the total amount of money or
its equivalent representing the contract price, compensation,
service fee, rental or royalty, including the amount charged for
materials supplied with the services and deposits and advanced
payments actually or constructively received during the taxable
quarter for the services performed or to be performed for another
person, excluding value-added tax. [4]
(B) Transactions Subject to Zero Percent (0%) Rate - The
following services performed in the Philippines by VAT-
registered persons shall be subject to zero percent (0%) rate.
(1) Processing, manufacturing or repacking goods for other
persons doing business outside the Philippines which goods are
subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);
(2) Services other than those mentioned in the preceding
paragraph, rendered to a person engaged in business conducted
outside the Philippines or to a nonresident person not engaged in
business who is outside the Philippines when the services are
performed, [19] the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);
(3) Services rendered to persons or entities whose exemption
under special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of such
services to zero percent (0%) rate;
(4) Services rendered to persons engaged in international
shipping or international air transport operations, including leases
of property for use thereof: Provided, That these services shall be
exclusive for international shipping or air transport operations; [4]
(5) Services performed by subcontractors and/or contractors in
processing, converting, or manufacturing goods for an enterprise
whose export sales exceed seventy percent (70%) of total annual
production;
(6) Transport of passengers and cargo by air or sea vessels from
the Philippines to a foreign country; and
(7) Sale of power or fuel generated through renewable sources of
energy such as, but not limited to, biomass, solar, wind,
hydropower, geothermal, ocean energy, and other emerging
energy sources using technologies such as fuel cells and
hydrogen fuels. [8]
(8) Services rendered to: [28]
(i) Registered enterprises within a separate customs territory as
provided under special law; and
(ii) Registered enterprises within tourism enterprise zones as
declared by TIEZA subject to the provisions under Republic Act
No. 9593 or the Tourism Act of 2009.
(NOTE: The amendment introduced by the TRAIN Law was
vetoed by the President. The veto message reads:
I am constrained to veto the provisions under Section 33 of the
enrolled bill, to wit:
Section 33:
(8) Services Rendered To:
I. Registered Enterprises Within A Separate Customs Territory
As Provided Under Special Laws; and
II. Registered Enterprises Within Tourism Enterprise Zones As
Declared By the TIEZA Subject To the Provisions Under
Republic Act No. 9593 Or The Tourism Act of 2009.
The above provisions go against the principle of limiting the VAT
zero-rating to direct exporters. The proliferation of separate
customs territories, which include buildings, creates significant
leakages in our tax system. This makes the tax system highly
inequitable and significantly reduces the revenues that could be
better used for the poor. As to tourism enterprises, the current
law only allows for duty and tax free importation of capital
equipment, transportation equipment and other goods. The
TIEZA Law explicitly allows only duty and tax free importation of
capital equipment, transportation equipment and other goods (in
certain cases and always subject to rules provided by the
DOF). Thus, this provision actually grants a new incentive to
suppliers of registered tourism enterprises. At any rate, TIEZA
law, which is still in effect for two more years, can be used to
avail of the above-mentioned incentives.)
Provided, That subparagraphs (B)(1) and (B)(5) hereof shall be
subject to the twelve percent (12%) value-added tax and no
longer subject to zero percent (0%) VAT rate upon satisfaction of
the following conditions:
(1) The successful establishment and implementation of an
enhanced VAT refund system that grants refund of creditable
input tax within ninety (90) days from the filing of the VAT refund
application with the Bureau; Provided, That, to determine the
effectivity of item no. 1, all applications filed from January 1, 2018
shall be processed and must be decided within ninety (90) days
from the filing of the VAT refund application; and
(2) All pending VAT refund claims as of December 31, 2017 shall
be fully paid in cash by December 31, 2019.
Provided, That the Department of Finance shall establish a VAT
refund center in the Bureau of Internal Revenue(BIR) and in the
Bureau of Customs(BOC) that will handle the processing and
granting of cash refunds of creditable input tax.
An amount equivalent to five percent (5%) of the total value-
added tax collection of the BIR and the BOC from the
immediately preceding year shall be automatically appropriated
annually and shall be treated as a special account in the General
Fund or as trust receipts for the purpose of funding claims for
VAT Refund: Provided, That any unused fund, at the end of the
year shall revert to the General Fund.
Provided, further, That the BIR and the BOC shall be required to
submit to the COCCTRP a quarterly report of all pending claims
for refund and any unused fund. [4]
SEC. 109. Exempt Transactions. – [30]
(1) Subject to the provisions of Subsection (2) hereof, the
following transactions shall be exempt from the value-added tax.
(A) Sale or importation of agricultural and marine food products in
their original state, livestock and poultry of or king generally used
as, or yielding or producing foods for human consumption; and
breeding stock and genetic materials therefor.
Products classified under this paragraph shall be considered in
their original state even if they have undergone the simple
processes of preparation or preservation for the market, such as
freezing, drying, salting, broiling, roasting, smoking or stripping.
Polished and/or husked rice, corn grits, raw cane sugar and
molasses, ordinary salt and copra shall be considered in their
original state; [29]
(B) Sale or importation of fertilizers; seeds, seedlings and
fingerlings; fish, prawn, livestock and poultry feeds, including
ingredients, whether locally produced or imported, used in the
manufacture of finished feeds (except specialty feeds for race
horses, fighting cocks, aquarium fish, zoo animals and other
animals generally considered as pets);
(C) Importation of personal and household effects belonging to
the residents of the Philippines returning from abroad and
nonresident citizens coming to resettle in the Philippines:
Provided, That such goods are exempt from customs duties
under the Tariff and Customs Code of the Philippines;
(D) Importation of professional instruments and implements, tools
of trade, occupation or employment, wearing apparel, domestic
animals, and personal and household effects belonging to
persons coming to settle in the Philippines or Filipinos or their
families and descendants who are now residents or citizens of
other countries, such parties hereinafter referred to as overseas
Filipinos, in quantities and of the class suitable to the profession,
rank or position of the persons importing said items, for their own
use and not for barter or sale, accompanying such persons, or
arriving within a reasonable time: Provided, That the Bureau of
Customs may, upon the production of satisfactory evidence that
such persons are actually coming to settle in the Philippines and
the goods are brought from their former place of abode, exempt
such goods from payment of duties and taxes: Provided, further,
That the vehicles, vessels, aircrafts, machineries and other
similar goods for use in manufacture, shall not fall within this
classification and shall therefore be subject to duties, taxes and
other charges; [4]
(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;
(G) Medical, dental, hospital and veterinary services except those
rendered by professionals; [19]
(H) Educational services rendered by private educational
institutions, duly accredited by the Department of
Education(DepED), the Commission on Higher Education
(CHED), the Technical Education and Skills Development
Authority (TESDA) and those rendered by government
educational institutions; [8]
(I) Services rendered by individuals pursuant to an employer-
employee relationship;
(J) Services rendered by regional or area headquarters
established in the Philippines by multinational corporations which
act as supervisory, communications and coordinating centers for
their affiliates, subsidiaries or branches in the Asia-Pacific Region
and do not earn or derive income from the Philippines;
(K) Transactions which are exempt under international
agreements to which the Philippines is a signatory or under
special laws, except those under Presidential Decree No. 529; [8]
(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 spare parts thereof, to be
used directly and exclusively in the production and/or processing
of their produce;
(M) Gross receipts from lending activities by credit or multi-
purpose cooperatives duly registered with the Cooperative
Development Authority;
(N) Sales by non-agricultural, non- electric and non-credit
cooperatives duly registered with the Cooperative Development
Authority: Provided, That the share capital contribution of each
member does not exceed Fifteen thousand pesos (P15,000) and
regardless of the aggregate capital and net surplus ratably
distributed among the members;
(O) Export sales by persons who are not VAT-registered;
(P) Sale of real properties not primarily held for sale to customers
or held for lease in the ordinary course of trade or business or
real property utilized 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 other related laws,
residential lot valued at One million 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 beginning January 1, 2021, the VAT
exemption shall only apply to sale of real properties not primarily
held for sale to customers or held for lease in the ordinary course
of trade or business, sale of real property utilized for socialized
housing as defined by Republic Act No. 7279, sale of house and
lot, and other residential dwellings with the selling price of not
more than Two million pesos (P2,000,000): Provided, further,
That every three (3) years thereafter, the amount herein stated
shall be adjusted to its present value using the Consumer Price
Index, as published by the Philippine Statistics Authority(PSA); [4]
(Q) Lease of a residential unit with a monthly rental not
exceeding Fifteen thousand pesos (₱15,000); [4]
(R) Sale, importation, printing or publication of books and any
newspaper, magazine review or bulletin which appears at regular
intervals with fixed prices for subscription and sale and which is
not devoted principally to the publication of paid advertisements;
(S) Transport of passengers by international carriers;
(T) Sale, importation or lease of passenger or cargo vessels and
aircraft, including engine, equipment and spare parts thereof for
domestic or international transport operations;
(U) Importation of fuel, goods and supplies by persons engaged
in international shipping or air transport operations: Provided,
That the fuel, goods, and supplies shall be used for international
shipping or air transport operations; [4]
(V) Services of bank, non-bank financial intermediaries
performing quasi-banking functions, and other non-bank financial
intermediaries;
(W) Sale or lease of goods and services to senior citizens and
persons with disability, as provided under Republic Act Nos.
9994 (Expanded Senior Citizens Act of 2010) and 10754 (An Act
Expanding the Benefits and Privileges of Persons With
Disability), respectively; [31]
(X) Transfer of property pursuant to Section 40(C)(2) of the
NIRC, as amended;
(Y) Associations dues, membership fees, and other assessments
and charges collected by homeowners’ associations and
condominium corporations;
(Z) Sale of gold to the Banko Sentral ng Pilipinas (BSP);
(AA) Sale of or importation of prescription drugs and medicines
for:
(i) Diabetes, high cholesterol, and hypertension beginning
January 1, 2020; and
(ii) Cancer, mental illness, tuberculosis, and kidney diseases
beginning January 1, 2023.
Provided, That the DOH shall issue a list of approved drugs and
medicines for this purpose within sixty (60) days from the
effectivity of this Act; [40] and
(BB) Sale or lease of goods or properties or the performance of
services other than the transactions mentioned in the preceding
paragraphs, the gross annual sales and/or receipts do not
exceed the amount of Three million pesos (P3,000,000). [4]
SEC. 110. Tax Credits. -
A. Creditable Input Tax. –
(1) Any input tax evidenced by a VAT invoice or official receipt
issued in accordance with Section 113 hereof on the following
transactions shall be creditable against the output tax:
(a) Purchase or importation of goods:
(i) For sale; or
(ii) For conversion into or intended to form part of a finished
product for sale including packaging materials; or
(iii) For use as supplies in the course of business; or
(iv) For use as materials supplied in the sale of service; or
(v) For use in trade or business for which deduction for
depreciation or amortization is allowed under this Code. [19]
(b) Purchase of services on which a value-added tax has been
actually paid.
(2) The input tax on domestic purchase or importation of goods
or properties by a VAT-registered person [8] shall be creditable:
(a) To the purchaser upon consummation of sale and on
importation of goods or properties; and
(b) To the importer upon payment of the value-added tax prior to
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 month for use in trade or business for which deduction
for depreciation is allowed under this Code shall be spread
evenly over the a month of acquisition and the fifty-nine (59)
succeeding months if the aggregate acquisition cost for such
goods, excluding the VAT component thereof, exceeds One
million pesos (P1,000,000): Provided, however, That if the
estimated useful life of the capital good is less than five (5) years,
as used for depreciation purposes, then the input VAT shall be
spread over such a shorter period: [8] Provided, further, That the
amortization of the input VAT shall only be allowed until
December 31, 2021 after which taxpayers with unutilized input
VAT on capital goods purchased or imported shall be allowed to
apply the same as scheduled until fully utilized: Provided, finally,
That in the case of purchase of services, 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 free. [4]
(3) A VAT-registered person who is also engaged in transactions
not subject to the value-added tax shall be allowed tax credit as
follows:
(a) Total input tax which can be directly attributed to transactions
subject to value-added tax; and
(b) A ratable portion of any input tax which cannot be directly
attributed to either activity.
The term “input tax” means the value-added tax due from or
paid by a VAT-registered person in the course of his trade or
business on importation of 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 input tax
determined in accordance with Section 111 of this Code.
The term “output tax” means the value-added tax due on the
sale or lease of taxable goods or properties or services by any
person registered or required to register under Section 236 of this
Code.
(B) Excess Output or Input Tax. - If at the end of any taxable
quarter the output tax exceeds the input tax, the excess shall be
paid by the Vat-registered person. If the input tax exceeds the
output tax, the excess shall be carried over to the succeeding
quarter or quarters. Provided, however, That any input tax
attributable to zero-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 Section 112.
(C) Determination of Creditable Input Tax. - The sum of the
excess input tax carried over from the preceding month or
quarter and the input tax creditable to a VAT-registered person
during the taxable month or quarter shall be reduced by the
amount of claim for refund or tax credit for value-added tax and
other adjustments, such as purchase returns or allowances and
input tax attributable to exempt sale.
The claim for tax credit referred to in the foregoing paragraph
shall include not only those filed with the Bureau of Internal
Revenue but also those filed with other government agencies,
such as the Board of Investments and the Bureau of Customs.
SEC. 111. Transitional/Presumptive Input Tax Credits. –
(A) Transitional Input Tax Credits. - A person who becomes
liable to value-added tax or any person who elects to be a VAT-
registered person shall, subject to the filing of an inventory
according to rules and regulations 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%) [19] of the value of such
inventory or the actual value-added tax paid on such goods,
materials and supplies, whichever is higher, which shall be
creditable against the output tax.
(B) Presumptive Input Tax Credits. - Persons or firms engaged
in the processing of sardines, mackerel and milk, and in
manufacturing refined sugar and cooking oil, shall be allowed a
presumptive input tax, creditable against the output tax,
equivalent to four percent (4%) [8] of the gross value in money of
their purchases of primary agricultural products which are used
as inputs to their production.
As used in this Subsection, the term 'processing' shall mean
pasteurization, canning and activities which through physical or
chemical process alter the exterior texture or form or inner
substance of a product in such manner as to prepare it for
special use to which it could not have been put in its original form
or condition.  from the date of submission of the official receipts or invoices and
SEC. 112. Refunds or Tax Credits of Input Tax. -
(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-
registered person, whose sales are zero-rated or effectively zero-
rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a
tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the
extent that such input tax has not been applied against output
tax: Provided, 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 exchange proceeds
thereof had been duly accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP):
Provided, further, That where the taxpayer is engaged in zero-
rated 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 cannot be directly and entirely
attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales. Provided,
finally, That for a person making sales that are zero-rated under
Section 108(B) (6), the input taxes shall be allocated ratably
between his zero-rated and non-zero-rated sales. [8]
(B) Cancellation of VAT Registration. - A person whose
registration has been cancelled due to retirement from or
cessation of business, or due to changes in or cessation of status
under Section 106(C) of this Code may, within two (2) years from
the date of cancellation, apply for the issuance of a tax credit
certificate for any unused input tax which may be used in
payment of his other internal revenue taxes.
(C) Period within which Refund or Tax Credit of Input Taxes
shall be Made. [4] - In proper cases, the Commissioner shall
grant a refund for creditable input taxes within ninety (90) days
other documents in support of the application filed in accordance
with Subsections (A) and (B) hereof: Provided, That should the
Commissioner find that the grant of refund is not proper, the
Commissioner must state in writing the legal and factual basis for
the denial.
In case of full or partial denial of the claim for tax refund, the
taxpayer affected may, within thirty (30) days from the receipt of
the decision denying the claim, appeal the decision with the
Court of Tax Appeals: Provided, however, That failure on the part
of any official, agent, or employee of the BIR to act on the
application within ninety (90) days period shall be punishable
under Section 269 of this Code.
(D) Manner of Giving Refund. - Refunds shall be made upon
warrants drawn by the Commissioner or by his duly authorized
representative without the necessity of being countersigned by
the Chairman, Commission on audit, the provisions of the
Administrative Code of 1987 to the contrary notwithstanding:
Provided, That refunds under this paragraph shall be subject to
post audit by the Commission on Audit.
 
CHAPTER II
COMPLIANCE REQUIREMENTS
SEC. 113. Invoicing and Accounting Requirements for VAT-
Registered Persons. -
(A) Invoicing Requirements. - A VAT-registered person shall
issue:
(1) A VAT invoice for every sale, barter or exchange of goods or
properties; and
(2) A VAT official receipt for every lease of goods or properties,
and for every sale, barter or exchange of services.
(B) Information Contained in the VAT Invoice or VAT Official
Receipt. - The following information shall be indicated in the VAT
invoice or VAT official receipt:
(1) A statement that the seller is a VAT-registered person,
followed by his Taxpayer's Identification Number (TIN); and
(2) The total amount which the purchaser pays or is obligated to
pay to the seller with the indication that such amount includes the
value-added tax. Provided, That:
(a) The amount of the tax shall be known as a separate item in
the invoice or receipt;
(b) If the sale is exempt from value-added tax, the term VAT-
exempt sale: shall be written or printed prominently on the
invoice or receipt;
(c) If the sale is subject to zero percent (0%) value-added tax, the
term “zero-rated sale” shall be written or printed prominently on
the invoice or receipt.
(d) If the sale involved goods, properties or services some of
which are subject to and some of which are VAT zero-rated or
Vat exempt, the invoice or receipt shall clearly indicate the break-
down of the sale price between its taxable, exempt and zero-
rated components, and the calculation of the value-added tax on
each portion of the sale shall be known on the invoice or receipt:
Provided, That the seller may issue separate invoices or receipts
for the taxable, exempt, and zero-rated components of the sale.
(3) The date of transaction, quantity, unit cost and description of
the goods or properties or nature of the service; and
(4) In the case of sales in the amount of One thousand pesos
(P1,000) or more where the sale or transfer is made to a VAT-
registered person, the name, business style, if any, address and
Taxpayer Identification Number (TIN) of the purchaser, customer
or client. [27] 
(C) Accounting Requirements. - Notwithstanding the provisions
of Section 233, all persons subject to the value-added tax under
Sections 106 and 108 shall, in addition to the regular accounting
records required, maintain a subsidiary sales journal and
subsidiary purchase journal on which the daily sales and
purchases are recorded. The subsidiary journals shall contain
such information as may be required by the Secretary of Finance.
(D) Consequence of Issuing Erroneous VAT Invoice or VAT
Official Receipt.-
(1) If a person who is not a VAT-registered person issues an
invoice or receipt showing his Taxpayer Identification Number
(TIN), followed by the word “VAT”;
(a) The issuer shall, in addition to any liability to other percentage
taxes, be liable to:
(i) The tax imposed in Section 106 or 108 without the benefit of
any input tax credit; and
(ii) A 50% surcharge under Section 248(B) of this Code; [8]
(b) The VAT shall, if the other requisite information required
under Subsection (B) hereof is shown on the invoice or receipt,
be recognized as an input tax credit to the purchaser under
Section 110 of this Code.
(2) If a VAT-registered person issues a VAT invoice or VAT
official receipt for a VAT-exempt transaction, but fails to display
prominently on the invoice or receipt the term ‘VAT exempt sale,’
the issuer shall be liable to account for the tax imposed in section
106 or 108 as if Section 109 did not apply. [8]
(E) Transitional Period. – Notwithstanding Subsection (B)
hereof, taxpayers may continue to issue VAT invoices and VAT
official receipt for the period July 1, 2005 to December 31, 2005
in accordance with Bureau of Internal Revenue administrative
practices that existed as of December 31, 2004.
SEC. 114. Return and Payment of Value-Added Tax. –
(A) In General. [4] - Every person liable to pay the value-added
tax imposed 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 quarter prescribed for each
taxpayer: Provided, however, That VAT-registered persons shall
pay the value-added tax on a monthly basis: Provided, finally,
That beginning January 1, 2023, the filing and payment required
under this Subsection shall be done within twenty-five (25) days
following the close of each taxable quarter.
Any person, whose registration has been cancelled in
accordance with Section 236, shall file a return and pay the tax
due thereon within twenty-five (25) days from the date of
cancellation of registration: Provided, That only one consolidated
return shall be filed by the taxpayer for his principal place of
business or head office and all branches.
(B) Where to File the Return and Pay the Tax. - Except as the
Commissioner otherwise permits, the return shall be filed with
and the tax paid to an authorized agent bank, Revenue
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.
(C) Withholding of Creditable Value-added Tax. - The
Government or any of its political subdivisions, instrumentalities
or agencies, including government-owned or -controlled
corporations (GOCCs) shall, before making payment on account
of each purchase of goods and services which are subject to the
value-added tax imposed in Sections 106 and 108 of this Code,
deduct and withhold the value-added tax imposed in Sections
106 and 108 of this Code, deduct and withhold a final value-
added tax at the rate of five percent (5%) of the gross payment
thereof: Provided, That beginning January 1, 2021, the VAT
withholding system under this Subsection shall shift from final to
creditable system: Provided, further, That the payment for lease
or use of properties or property rights to nonresident owners shall
be subject to ten percent (12%) withholding tax at the time of
payment. Provided, finally, That payments for purchases of
goods and services arising from projects funded by Official
Development Assistance (ODA) as defined under Republic Act
No. 8182, otherwise known as the Official Development
Assistance Act of 1996, as amended, shall not be subject to the
final withholding tax system as imposed in this Subsection. [4] For
purposes of this Section, the payor or person in control of the
payment shall be considered as the withholding agent. [29]
The value-added tax withheld under this Section shall be remitted
within ten (10) days following the end of the month the
withholding was made.
SEC. 115. Power of the Commissioner to Suspend the
Business Operations of a Taxpayer. - The Commissioner or
his authorized representative is hereby empowered to suspend
the business operations and temporarily close the business
establishment of any person for any of the following violations:
(a) In the case of a VAT-registered Person. –
(1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as required under
Section 114; or
(3) Understatement of taxable sales or receipts by thirty percent
(30%) or more of his correct taxable sales or receipts for the
taxable quarter.
(b) Failure of any Person to Register as Required under Section
236.
The temporary closure of the establishment shall be for the
duration of not less than five (5) days and shall be lifted only
upon compliance with whatever requirements prescribed by the
Commissioner in the closure order.
B. RA No. 10963 (effective January
1, 2018)
C. Relevant VAT regulations:
RR 13-2018 RR
2-2007
CONCEPT
Value-Added Tax (VAT) is a tax on consumption levied on the sale, barter,
exchange (including any transaction deemed by law as sale) or lease of goods or
properties and services in the Philippines and on importation of goods into the
Philippines.
It is an indirect tax and the amount of tax may, by law, be shifted or passed on to
the buyer, transferee or lessee of the goods, properties or services. (Sec. 105,
NIRC)
It is a tax on the estimated market value added to a tax product or material at each
stage of its manufacture or distribution, ultimately passed on to the consumer
D. NATURE, CHARACTERISTIC
AND PURPOSE OF VAT
o The seller is the one statutorily liable for the payment of the tax but the amount of
the tax may be shifter or passed on to the buyer, transferee or lessee of the goods,
properties or services. However, in the case of importation, the importer is the
one liable for the VAT (Sec.4, 105-2 RR
16-2005) o Value added is the value that a producer adds to his raw materials or
purchases (other than labor) before selling the new or improved product or service.
o VAT is an indirect tax levied on goods and services; not on persons, and
ultimately paid by consumers in the form of higher prices.
o Apply to existing contracts of sale or lease of goods, properties or services at the
time of affectivity of RA No 7716 (9337).
o VAT system assures fiscal adequacy through the collection of taxed on every
level of consumption, yet assuages the manufacturers or provides of goods and
services by enabling them to pass on their respective VAT liabilities to the next
link of the chain until finally the end consumer shoulders the entire tax liability
o It is a method of imposing an ad valorem tax on value added.
o VAT is a multi-stage or multi-point sales tax as it is collected at each stage or
point in the production and distribution process. However, although the tax is
levied at all stages, their total value is subject to tax once and once only, so that
the amount of tax collected would be equal to that of a single, first-stage tax on
original sales, which is said to be more equitable than the former sales tax.
ELEMENTS OF A VAT-TAXABLE TRANSACTION
1. It involves any person;
2. There must be a sale (including deemed sale transaction), barter,
exchange, lease of goods or properties or rendering services;
3. It must be done in the ordinary course of business;
4. The transaction is done in the Philippines;
5. It must neither be VAT-Exempt or VAT Zero-rated
DESTINATION PRINCIPLE
General Rule: VAT system uses the destination principle as a basis for the
jurisdictional reach of the tax. Goods and services are taxed in the country where
they are consumed or used.
• Exports – Zero-rated
• Imports – taxed
 CROSS-BOARDER DOCTRINE
No VAT shall be imposed to form part of the cost of goods sold destined for
consumption outside of the territorial border of the taxing authority.
ORIGIN PRINCIPLE
Only national taxpayers would be exposed to the tax, without distinguishing between
transactions
“consumed” locally or abroad. (Situs; country of production)

CASE: TOLENTINO V. SEC. OF FINANCE G.R. NO. 115455 (Oct.
20, 1995) ID.; ID.; ID.; TAXATION AND FREEDOM OF THE
PRESS, ELABORATED. — As a general proposition, the press is not
exempt from the taxing power of the State and that what the constitutional
guarantee of free press prohibits are laws which single out the press or
target a group belonging to the press for special treatment or which in any
way discriminate against the press on the basis of the content of the
publication, and R.A. No. 7716 is none of these. Since the law granted the
press a privilege, the law could take back the privilege anytime without
offense to the Constitution. The reason is simple: by granting exemptions,
the State does not forever waive the exercise of its sovereign prerogative.
Indeed, in withdrawing the exemption, the law merely subjects the press
to the same tax burden to which other businesses have long ago been
subject. And VAT is not a license tax. It is not a tax on the exercisse of a
privilege, much less constitutional right. It is imposed on the sale, barter,
lease or exchange of goods or properties or the sale or exchange of
services and the lease of properties purely for revenue purposes. To
subject the press to its payment is not to burden the exercise of its right
any more than to make the press pay income tax or subject it to general
regulation is not to violate its freedom under the Constitution.
ID.; ID.; ID.; TAXATION
AND FREEDOM OF
RELIGION IN CASE AT
BAR. — The
Philippine Bible Society, Inc. claims that although it sells bibles, the
proceeds derived from the sales are used to subsidize the cost of printing
copies which are given free to those who cannot afford to pay so that to
tax the sales would be to increase the price, while reducing the volume of
sale. Granting that to be the case, the resulting burden on the exercise of
religious freedom is so incidental as to make it difficult to differentiate it
from any other economic imposition that might make the right to
disseminate religious doctrines costly. The registration fee imposed by
§107 of the NIRC, as amended by 7 of R.A. No. 7716, although fixed in
amount, is really just to pay for the expenses of registration and
enforcement of provisions such as those relating to accounting in §108 of
the NIRC. That the PBS distributes free bibles and therefore is not liable
to pay the VAT does not excuse it from the payment of this fee because it
also sells some copies. At any rate whether the PB S is liable for the VAT
must be decided in concrete cases, in the event it is assessed this tax by
the Commissioner of Internal Revenue.
ID.; ID.; ID.; TAXATION AND NON-IMPAIRMENT OF
CONTRACTS. — "Authorities from numerous sources are cited by the
plaintiffs, but none of them show that a lawful tax on a new subject, or an
increased tax on an old one, interferes with a contract or impairs its
obligation, within the meaning of the Constitution. Even though such
taxation may affect particular contracts, as it may increase the debt of one
person and lessen the security of another, or may inpose additional
burdens upon one class and release the burdens of another, still the tax
must be paid unless prohibited by the Constitution, nor can it be said that
it impairs the obligation of any existing contract in its true legal sense."
Indeed not only existing laws but also "the reservation of the essential
attributes of sovereignty, is . . . read into contracts as a postulate of the
legal order." Contracts must be understood as having been made in
reference to the possible exercise of the rightful authority of the
government and no obligation of contract can extend to the defeat of that
authority.
ID.; ID.; ID.; ON REAL ESTATE TRANSACTIONS; EQUALITY AND
UNIFORMITY OF TAXATION; VALIDITY OF VAT. — CREBA claims
that real estate transactions of "the less poor," i.e., the middle class, who are
equally homeless, should be exempted. There is a difference between the
"homeless poor’ and the "homeless less poor" in the example given by
petitioner, because the second group or middle class can afford to rent houses
in the meantime that they cannot yet buy their own homes. The two social
classes are thus differently situated in life. "It is inherent in the power to tax
that the State be free to select the subjects of taxation, and it has been
repeatedly held that ‘inequalities which result from a singling out of one
particular class for taxation, or exemption infringe no constitutional
limitation." ‘ Equality and uniformity of taxation means that all taxable
articles or kinds of property of the same class be taxed at the same rate. The
taxing power has the authority to make reasonable and natural classifications
for purposes of taxation. To satisfy this requirement it is enough that the
statute or ordinance applies equally to all persons, forms and corporations
placed in similar situation. Indeed, the VAT was already provided in E.O. No.
273 long before R.A. No. 7716 was enacted. R.A. No. 7716 merely expands
the base of the tax. The validity of the original VAT Law was questioned on
grounds similar to those made in these cases, namely, that the law was
"oppressive, discriminatory, unjust and regressive in violation of Art. VI,
§28(1) of the Constitution." This Court held: EO 273 satisfies all the
requirements of a valid tax. It is uniform . . . . The sales tax adopted in EO 273
is applied similarly on all goods and services sold to the public, which are not
exempt, at the constant rate of 0% or 10%. The disputed sales tax is also
equitable. It is imposed only on sales of goods or services by persons engaged
in business with an aggregate gross annual sales exceeding P200,000.00.
Small corner sari-sari stores are consequently exempt from its application.
Likewise exempt from the tax are sales of farm and marine products, so that
the costs of basic food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and within the reach
of the general public.
ID.; ID.; ID.; VAT IS AN INDIRECT AND REGRESSIVE TAX WHICH
IS NOT ACTUALLY PROHIBITED BY THE CONSTITUTION. — The
Constitution does not really prohibit the imposition of indirect taxes which,
like the VAT, are regressive. What it simply provides is that Congress shall
"evolve a progressive system of taxation." The constitutional provision has
been interpreted to mean simply that "direct taxes are . . . to be preferred [and]
as much as possible, indirect taxes should be minimized." Indeed, the mandate
to Congress is not to prescribe, but to evolve, a progressive tax system. Sales
taxes, are form of indirect taxes, and they are also regressive. Resort to
indirect taxes should be minimized but not avoided entirely because it is
difficult, if not impossible, to avoid them by imposing such taxes according to
the taxpayers’ ability to pay. In the case of the VAT, the law minimizes the
regressive effects of this imposition by providing for zero rating of certain
transactions (R.A. No. 7716, 3, amending §102 (b) of the NIRC), while
granting exemptions to other transactions. (R.A. No. 7716, §4, amending §103
of the NIRC) Transactions involving basic and essential goods and services
are exempted from the VAT. On the other hand, the transactions which are
subject to the VAT are those which involve goods and services which are used
or availed of mainly by higher income groups.
CASE: DIAZ V. SEC OF FINANCE
, GR NO 193007 (JULY 19,
2011)
FACTS: Petitioners filed this petition for declaratory relief assailing the
validity of the impending imposition of VAT by the BIR on the
collections of tollway operators.
ISSUE: May toll fees collected by tollway operators be subjected to
value- added tax?
YES.
HELD:
RE VAT/ SALE OR EXCHANGE OF SERVICES
The third paragraph of Section 108 defines "sale or exchange of services."
The law imposes VAT on "all kinds of services" rendered in the
Philippines for a fee, including those specified in the list. The
enumeration of affected services is not exclusive. By qualifying
"services" with the words "all kinds," Congress has given the term
"services" an all-encompassing meaning. The listing of specific services
are intended to illustrate how pervasive and broad is the VAT's reach
rather than establish concrete limits to its application.
Thus, every activity that can be imagined as a form of "service"
rendered for a fee should be deemed included unless some provision
of law especially excludes it.
RE TOLLWAY OPERATOR/SERVICE
P.D. 1112 or the Toll Operation Decree establishes the legal basis for the
services that tollway operators render. Essentially, tollway operators
construct, maintain, and operate expressways, also called tollways, at the
operators' expense. In consideration for constructing tollways at their
expense, the operators are allowed to collect governmentapproved fees
from motorists using the tollways until such operators could fully recover
their expenses and earn reasonable returns from their investments.
When a tollway operator takes a toll fee from a motorist, the fee is in
effect for the latter's use of the tollway facilities over which the operator
enjoys private proprietary rights that its contract and the law recognize. In
this sense, the tollway operator is no different from the following service
providers under Section 108 who allow others to use their properties or
facilities for a fee:
 1. Lessors of property, whether personal or real;
2. Warehousing service operators;
3. Lessors or distributors of cinematographic films;
4. Proprietors, operators or keepers of hotels, motels, resthouses,
pension houses, inns, resorts;
5. Lending investors (for use of money);
6. Transportation contractors on their transport of goods or
cargoes, including persons who transport goods or cargoes for
hire and other domestic common carriers by land relative to
their transport of goods or cargoes; and 7. Common carriers
by air and sea relative to their transport of passengers, goods
or cargoes from one place in the Philippines to another place
in the Philippines.
Section 108 subjects to VAT "all kinds of services" rendered for a fee
"regardless of whether or not the performance thereof calls for the
exercise or use of the physical or mental faculties." This means that
"services" to be subject to VAT need not fall under the traditional
concept of services, the personal or professional kinds that require
the use of human knowledge and skills.
And not only do tollway operators come under the broad term "all kinds
of services," they also come under the specific class described in Section
108 as "all other franchise grantees" who are subject to VAT, "except
those under Section 119 of this Code." Tollway operators are franchise
grantees and they do not belong to exceptions (the low-income radio
and/or television broadcasting companies with gross annual incomes of
less than P10 million and gas and water utilities) that Section 119 spares
from the payment of VAT. "FRANCHISE" broadly covers government
grants of a special right to do an act or series of acts of public concern.
Nothing in Section 108 indicates that the "franchise grantees" it speaks of
are those who hold legislative franchises. The term "franchise" has been
broadly construed as referring, not only to authorizations that Congress
directly issues in the form of a special law, but also to those granted by
administrative agencies to which the power to grant franchises has been
delegated by Congress.
Tollway operators are, owing to the nature and object of their business,
"franchise grantees." The construction, operation, and maintenance of toll
facilities on public improvements are activities of public consequence that
necessarily require a special grant of authority from the state. Apart from
Congress, tollway franchises may also be granted by the TRB, pursuant to the
exercise of its delegated powers under P.D. 1112. The franchise in this case is
evidenced by a "Toll Operation Certificate." RE SALE OF SERVICE:
In specifically including by way of example electric utilities, telephone,
telegraph, and broadcasting companies in its list of VAT-covered businesses,
Section 108 opens other companies rendering public service for a fee to the
imposition of VAT. Businesses of a public nature such as public utilities and
the collection of tolls or charges for its use or service is a franchise.
RE USER’S TAX
MIAA CASE: The terminal fees MIAA charges to passengers, as well as the
landing fees MIAA charges to airlines, constitute the bulk of the income that
maintains the operations of MIAA. The collection of such fees does not
change the character of MIAA as an airport for public use. Such fees are often
termed user's tax. This means taxing those among the public who actually use
a public facility instead of taxing all the public including those who never use
the particular public facility. A user's tax is more equitable - a principle of
taxation mandated in the 1987 Constitution."
Petitioners assume that "user's tax" must also pertain to tollway fees. The
discussion in the MIAA case on toll roads and toll fees was made, not to
establish a rule that tollway fees are user's tax, but to make the point that
airport lands and buildings are properties of public dominion and that the
collection of terminal fees for their use does not make them private properties.
Tollway fees are not taxes. They are not assessed and collected by the BIR
and do not go to the general coffers of the government. It would of course be
another matter if Congress enacts a law imposing a user's tax, collectible from
motorists, for the construction and maintenance of certain roadways. The tax
in such a case goes directly to the government for the replenishment of
resources it spends for the roadways. This is not the case here. What the
government seeks to tax here are fees collected from tollways that are
constructed, maintained, and operated by private tollway operators at their
own expense under the build, operate, and transfer scheme that the
government has adopted for expressways. Except for a fraction given to the
government, the toll fees essentially end up as earnings of the tollway
operators.
RE VAT ON TOLLWAYS:
VAT on tollway operations cannot be deemed a tax on tax due to the nature of
VAT as an indirect tax. In indirect taxation, a distinction is made between
the liability for the tax and burden of the tax. The seller who is liable for the
VAT may shift or pass on the amount of VAT it paid on goods, properties or
services to the buyer. In such a case, what is transferred is not the seller's
liability but merely the burden of the VAT.
Thus, the seller remains directly and legally liable for payment of the
VAT, but the buyer bears its burden since the amount of VAT paid by the
former is added to the selling price. Once shifted, the
VAT ceases to be a tax and simply becomes part of the cost that the
buyer must pay in order to purchase the good, property or service.
Consequently, VAT on tollway operations is not really a tax on the
tollway user, but on the tollway operator. Under Section 105 of the Code,
VAT is imposed on any person who, in the course of trade or business,
sells or renders services for a fee. In other words, the seller of services,
who in this case is the tollway operator, is the person liable for VAT. The
latter merely shifts the burden of VAT to the tollway user as part of the
toll fees.
For this reason, VAT on tollway operations cannot be a tax on
tax even if toll fees were deemed as a "user's tax." VAT is
assessed against the tollway operator's gross receipts and not
necessarily on the toll fees. Although the tollway operator may
shift the VAT burden to the tollway user, it will not make the
latter directly liable for the VAT. The shifted VAT burden
simply becomes part of the toll fees that one has to pay in order
to use the tollways.
RE ADMINISTRATIVE FEASIBILITY:
Administrative feasibility is one of the canons of a sound tax
system. It simply means that the tax system should be capable of
being effectively administered and enforced with the least
inconvenience to the taxpayer. Nonobservance of the canon,
however, will not render a tax imposition invalid "except to
the extent that specific constitutional or statutory limitations are
impaired." Thus, even if the imposition of VAT on tollway
operations may seem burdensome to implement, it is not
necessarily invalid unless some aspect of it is shown to violate
any law or the Constitution.
Here, it remains to be seen how the taxing authority will actually
implement the VAT on tollway operations. Any declaration by
the Court that the manner of its implementation is illegal or
unconstitutional would be premature.
WHEREFORE, the Court DISMISSES the petitioners’ petition for
lack of merit, and SETS ASIDE the Court's TRO
E. PERSONS LIABLE
Sec. 105. Persons Liable
A. Any persons who, in the course of trade or business
i. Sells, barters, or exchanges goods or
properties; ii. Lease goods or properties
iii. Renders services
B. Any person, whether or not made in the course trade or business,
imports goods;
C. Any non-resident persons who performs services in the Philippines as
they are deemed to be making sales in the course of trade or business,
even if the performance of their services is not regular;
D. Any persons whop issues VAT-registered invoices and/or Official
receipts even if their transaction is not subject to VAT.
Note: Persons refers to any individual, trust, estate, partnership,
corporation, joint venture, cooperative or association. Consequently, any
sale, barter or exchange of goods or services not in the course of trade or
business is NOT subject to VAT.
CASE: CIR v. CA and COMASERCO GR No. 125355 MARCH 30, 2000
FACTS: Commonwealth Management and Services Corporation
(COMASERCO) is a corporation duly organized and existing under the laws
of the Philippines. It is an affiliate of Philippine American Life Insurance Co.
(Philamlife), organized by the letter to perform collection, consultative and
other technical services, including functioning as an internal auditor, of
Philamlife and its other affiliates.
BIR issued an assessment to COMASERCO for deficiency VAT amounting to
P351,851.01 for taxable year 1988. COMASERCO’s annual corporate income
tax return ending December 31, 1988 indicated a net loss in its operations in
the amount of P6,077.
COMASERCO asserted that the services it rendered to Philamlife and its
affiliates, relating to collections, consultative and other technical assistance,
including functioning as an internal auditor, were on a "no-profit,
reimbursement-of-cost-only" basis. It averred that it was not engaged in the
business of providing services to Philamlife and its affiliates. It was
established to ensure operational orderliness and administrative efficiency of
Philamlife and its affiliates, and not in the sale of services. It was not
profitmotivated, thus not engaged in business. In fact, it did not generate profit
but suffered a net loss in taxable year 1988. COMASERCO averred that since
it was not engaged in business, it was not liable to pay VAT.
CIR avers that to "engage in business" and to "engage in the sale of services"
are two different things. Petitioner maintains that the services rendered by
COMASERCO to Philamlife and its affiliates, for a fee or consideration, are
subject to VAT. VAT is a tax on the value added by the performance of the
service. It is immaterial whether profit is derived from rendering the service.
The CTA rules in favour of CIR. The CA reversed.
ISSUE: WON COMASERCO was engaged in the sale of services and must
be liable to pay for VAT.
HELD: VAT is a tax on transactions, imposed at every stage of the
distribution process on the sale, barter, exchange of goods or property, and on
the performance of services, even in the absence of profit attributable thereto.
The term "in the course of trade or business" requires the regular conduct or
pursuit of a commercial or an economic activity regardless of whether or not
the entity is profit-oriented.
The Commissioner of Internal Revenue issued BIR Ruling No. 010-98
emphasizing that a domestic corporation that provided technical, research,
management and technical assistance to its affiliated companies and received
payments on a reimbursement-ofcost basis, without any intention of realizing
profit, was subject to VAT on services rendered. In fact, even if such
corporation was organized without any intention realizing profit, any income
or profit generated by the entity in the conduct of its activities was subject to
income tax.
Hence, it is immaterial whether the primary purpose of a corporation
indicates that it receives payments for services rendered to its affiliates on
a reimbursement-on-cost basis only, without realizing profit, for purposes
of determining liability for VAT on services rendered. As long as the
entity provides service for a fee, remuneration or consideration, then the
service rendered is subject to VAT.
At any rate, since taxes are the lifeblood of the nation, statutes that allow
exemptions are construed against the grantee and liberally in favour of the
government. Any exemption from the payment of a tax must be clearly
stated in the language of the law; it cannot be merely implied therefrom.
In the case of VAT, Section 109, Republic Act 8424 clearly enumerates
the transactions exempted from VAT. The services rendered by
COMASERCO do not fall within the exemptions.
F. DEFINITION OF
“In the course of trade of
business” and “subsistence and
livelihood”
1 In the course of trade of
business (Rule of Regularity)
• The regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a non-
stock, nonprofit private organization or government entity.
• Non-resident persons who perform services in the Philippines are
deemed to be making sales in the course of trade or business,
even if the performance of services is not regular.
• The term course of business or doing business connotes
regularity of activity. Any sale, barter, exchange of goods or
services not in the course of trade or business in not subject to
VAT.
 • A transaction will be characterized as having been entered into
by a person in the course of trade or business if it is
1) Regularly conducted; and 2) Undertaken in pursuit of a
commercial or economic activity are considered as
entered into in the course of trade or business.
NOTE: “PERSON” refers to any individual, trust, estate,
partnership, corporation, joint venture, cooperative or
association.
RULE OF REGULARITY (defining “in the course of trade or business”
as used under the VAT law)
- It means the regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a non-stock,
non-profit private organization (irrespective of the dispositions of its ne
income and whether or not it sells exclusively to members or their
guests), or government entity.
GENERAL RULE: If the disposition of goods or services is not in the course
of trade or business then it is not subject to VAT. EXEMTPION TO THE
GR: Importation is subject to VAT regardless of whether or not it is in the
course of trade or business. Reason: This is to protect our local or domestic
goods or articles and to regulate the entry or introduction of foreign articles to
our local market.
Exceptions to the Rule of Regularity
• Any business where the gross sales or receipt do not exceed P100,
000 during any 12-month period shall be considered principally for
subsistence or livelihood and not in the course of trade or business.
• Services rendered in the Philippines by non-resident foreign persons
shall be considered as being rendered in the course of trade or
business.
2 Subsistence and livelihood
• Any business where the gross sales or receipt do not exceed P100, 000
during any 12-month period. – an exception to the REGULARITY
RULE.
Non-resident persons who perform services in the Philippines are deemed to
be making sales in the course of trade or business, even if the performance of
services is not regular. (Sec. 4. 105-3, RR 16-2005)
Taxable persons refer to any person liable for the payment of VAT, whether
registered or registrable in accordance with Sec. 236 of the Tax Code.
VAT-Registered person refers to any person who is registered as a VAT
taxpayer under Sec. 236 of the Tax Code or a person who opted to be
registered as VAT taxpayer. His status as a VAT registered person shall
continue until the cancellation of the registration.
PERSONS REQUIRED TO REGISTER FOR VAT – every person who in
the course of trade of business, sells, barter or exchanges goods or properties,
or engages in the sale or exchange of goods, services subkect to VAT if:
1) The Gross sale or gross receipts have exceeded 1.5 million; or
2) There are reasonable grounds to believe that his gross receipts or
gross sales in the next 12 month shall exceed 1.5 million. (Sec.
236[G], NIR
G. VAT TAX RATES
Q:How are transactions classified under the VAT
system? A: VAT taxable transaction: ü 12%
ü Zero-rated
ü Exempt transaction
Q:Define taxable transactions under the VAT law.
A: Taxable transactions are those transactions which are subject to VAT either
at the rate of 12% (effective January 1, 2006, VAT rate was increase from 10-
12%) or 0%, and the seller shall be entitled to tax credit for the VAT paid on
purchases and leases of goods, properties or services.
Mr. A, a VAT-exempt retailer sells to Mr. O, a non-VAT exempt purchaser. Is
Mr. O liable to pay VAT on the transaction?
Yes. The purchaser is subject to VAT because it is merely added as part
of the purchase price and not as a tax because the burden is merely
shifted. The seller is still exempt because it could pass on the burden of
paying the tax to the purchaser.
 Lily’s Fashion Inc is a garment manufacturer located and registered as a
Subic Bay Freeport Enterprise under R.A. 7227 and a non-VAT taxpayer.
And as such, it is exempt from payment of all local and national internal
revenue taxes. During its operations, it purchased various supplies and
materials necessary in the conduct of its manufacturing business. The
supplier of these goods shifted to Lily’s Fashion, Inc. the 10% VAT on the
purchased items amounting to P500,000. Lily’s Fashion Inc. filed with
the BIR a claim for refund for the input tax shifted to it by the suppliers. If
you were the CIR will you allow the refund?
No. The exemption of Lily’s Fashion Inc. is only for taxes which it is
directly liable, hence, it cannot claim exemption for tax shifted to it,
which is not at all considered a tax to the buyer but part of the purchase
price. Lily’s Fashion Inc. is not a taxpayer in so far as the passed-on tax is
concerned and therefore, it cannot claim for a refund of a tax merely,
shifted to it. Only taxpayers are allowed to file a claim for refund.
H. VATABLE
ACTIVITIES
1. SALE OF GOODS OR PROPERTIES (Sec 106)
A. 12% (Sec 106.A.1)
REQUISITES OF
TAXABILITY OF SALE
OF GOODS OR
PROPERTIES
A. There is an actual or deemed sale, barter or exchange of goods or
personal properties for valuable consideration
B. The sale is in the course of trade or business or exercise of
profession in the Philippines
C. The goods or properties are located in the Philippines and are for
use or consumption therein; and
D. The sale is not VAT exempt under Sec 109 NIRC, special laws,
or international agreements binding upon the Government of the
Philippines
NOTE: Absence of any of the above requisites EXEMPTS the
transaction from VAT. However, percentage taxes may apply
(Sec 116)
REQUISITES OF
TAXABILITY OF SALE
OR EXCHANGE OF REAL
PROPERTY
(a) The seller executes a deed of sale, including dacion en pago,
barter or exchange, assignment, transfer or conveyance, or
merely contract to sell
involving real property
(b) The real property is located within the Philippines
(c) The seller or transferor is a real estate dealer
(d) The real property is an ordinary asset held primarily for sale or
for lease in the ordinary course of business
(e) The sale is not exempt from VAT under Sec 109 NIRC, special
law, or international agreement binding upon the government of
the Philippines
(f) The threshold amount set by law should be met
NOTE: Absence of any of the above requisites EXEMPTS the
transaction
from VAT. However, percentage taxes may apply under Sec 116
NIRC
TAX RATE OF SALE OF
GOODS OR PROPERTIES
12% on every sale, barter or exchange of goods or properties added to the
gross selling price or gross value in money of the goods or properties sold,
bartered or exchanged, to be paid by the seller or transferor.
GOODS OR PROPERTIES
SUBJECT TO VAT
A. Real properties held primarily for sale to costumers or held for lease
in the ordinary course or business
B. The right or privilege to use patent, design or model, plan, secret
formula or process, goodwill, trademark, trade brand or other like
property or right
 C. The right or the privilege to use in the Philippines of any industrial,
commercial or scientific equipment
D. The right or privilege to use motion picture films, films, tapes and
discs, Radio, television, satellite transmission and cable television
time.
Q: Are all intangible properties subject to VAT?
A: No, only those capable of pecuniary estimation (Sec 4.106, RR 16-2005)
Q: Is the sale of real properties subject to VAT?
A: Sale of real properties primarily for sale to customers or held for lease in
the ordinary course of trade or business of the seller shall be subject to VAT
(1st par, Sec 4.16-3, RR) As such, capital transactions of individuals are not
subject to VAT.
Only real estate dealers are subject to VAT.
Q: What are taxable sales?
A: Taxable sales refer to the sale, barter, exchange, and/or lease of goods or
properties, including transactions deemed sale and the performance of service
for
consideration, whether in cash or in kind
Q: What is gross selling price?
A: It means the total amount of money or its equivalent which the purchaser
pays or is obligated to pay to the seller in consideration of the sale, barter or
exchange of the goods or properties, excluding the VAT. The excise tax, if
any, on such goods or properties shall form part of the gross selling price.
Q: What are the allowable deductions from the selling price?
A:
(1) Discounts determined and granted at the time of sale
(2) Sales returns and allowances for which proper credit or refund was
made during the month or quarter to the buyer for sales previously
recorded as taxable sales
Q: When is the sale of real property subject to VAT?
A:
(1) Residential lot with gross selling price exceeding P1.5 million;
(2) Residential house and lot or other residential dwellings with gross
selling price exceeding P2.5 million.
NOTE: Whether the instrument is denominated as a deed of absolute
sale, deed of conditional sale or otherwise.
Q: What is the gross selling price (in case of sale or exchange) of real
property?
A: It is the consideration stated in the sales document or the FMV
whichever is higher. If the VAT is not billed separately in the document
of sale, the selling price or the consideration stated therein shall be
deemed to be inclusive of VAT. Payment/s which the seller receives
before or upon execution of the instrument of sale and payments which he
expects or is scheduled to receive in cash or property (other than evidence
of indebtedness of the purchaser/ during the year when the sale or
disposition of real property was made.
B. 0% (sec 106 A.2)
ZERO-RATED SALES OF
GOODS OR PROPERTIES,
AND EFFECTIVELY
ZERORATED SALES OF
GOODS OR PROPERTIES
Q: What is the meaning of zero-rated transaction?
A: The gross selling price of goods or properties is multiplied by the 0%
VAT rate. The zero-rated sale of goods or properties by a VAT registered
person is a taxable transaction for VAT purposes but the sale does not
result in any output tax. However, the input tax on the purchases of
goods, properties or services related to such zerorated sale shall be
available as a tax credit or refund.
Q: What is a VAT exemption transaction?
A: A VAT exempt transaction refers to sale, lease, barter or exchange of
goods, properties, and/or services that are exempt from VAT under Sec
103 NIRC
 EXEMPT ZERO-RATED
Q: What is the difference between “zero-rated” and “VAT-exempt” Nature of Not taxable; Transaction is
transactions? A: The difference lies in the input tax. In VAT-exempt transactions removes taxable for VAT
transactions, there is no input tax credit allowed. In case of zero-rated VAT at the exempt purposes although
transaction of a VAT registered person, the sale of goods or properties is stage the tax levied is 0%
multiplied by 0% thus his output tax is P0.00. Since the person is VAT- By whom made Need not be a VAT Can claim or enjoy
registered, he can claim input tax for purchases made from VAT registered person tax
registered entities. credit/refund (Total
(RMC 17-96) relief)
Tax credit/refund Cannot avail of tax Can claim or enjoy
EXAMPLE of ZERO-RATED VAT
Output tax --------------------------------------------- credit or refund. tax
P 0.00 Less: Thus, may result in credit/refund (Total
Input tax ----------------------------------------- P 5,000 increased prices
relief)
VAT Creditable (Refund) P 5,000 (Partial relief)
A. The sale and actual shipment of goods from the Philippines to a
VAT-EXEMPT AND foreign country:
ZERO-RATED i. Irrespective of any shipping arrangement
TRANSACTIONS ii. Paid for in an acceptable foreign currency or its equivalent
DISTINGUISHED in goods or services
iii. Accounted for in accordance with the rules and regulations
of BSP
Q: Who shall qualify for zero-rating? B. Sale of raw materials or packaging materials by a VAT registered
A: Any VAT registered person whose sales fall under Sec 100.a.2 and 102.b entity to a non-resident buyer:
NIRC i. For delivery to a non-resident local export-oriented
(RMC 17-96) enterprise
ii. Used in the manufacturing, processing, packing, repacking
Q: What are the zero-rated sales of goods by a VAT registered person?
in the
A: (a) Export sales – Destination principle
Philippines of the said buyer’s goods iii.
(B) Foreign currency denominated sale – To encourage purchase in the
Paid for in acceptable foreign currency iv.
Philippines Accounted in accordance with the rules of
(C) Sales to persons or entities whose exemption under special laws or BSP
international agreements to which the Philippines is a signatory C. Sale of raw material or packaging materials to export oriented
effectively subjects such sales to zero rate (Sec (Sec 106.A.2.c) enterprise whose export sales exceed 70% of total annual production
EXPORT SALES D. Sale of gold to BSP
E. Those considered as export sales under EO 226 (Omnibus Investment
Q: What is meant by export sales?
Code of 1987) – sale to Export Processing Zone (EPZ)
A: The term export sales means:
 F. Sale of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations (Sec
106.A.2.a NIRC; RMC 17-96)
NOTE: Under the Omnibus Investment Code:
a) The Philippine port FOB value determined from
invoices, bills of lading, inward letters of credit,
landing certificates, and other commercial documents,
of export products exported direct by a registered
export producer; or
b) The net selling price of export products sold by
registered export producer to another export producer,
or to an export trader that subsequently export the
same;
c) Provided, that sales of export products to another
producer or to an export trader shall only be deemed
expert sales when actually exported by the latter, as
evidenced by landing certificates or similar
commercial documents
Q: When is export sale exempt and when is it zero-rated?
A: Export sale is exempt if made by a non-VAT person (Sec 109 NIRC).
On the other hand, it is zero-rated if it is made by a VAT registered
person (Sec 4.106-5, RR
16-2005)
Q: Is the sale of goods to ecozone, such as PEZA, considered as export
sale? A: Yes. Notably, while an ecozone is geographically within the
Philippines, it is deemed as a separate customs territory and is regarded in
law as foreign soil. Sales by suppliers from outside the borders of the
ecozone to this separate customs territory are deemed as exports and
treated as export sales.
These sales are zero-rated or subject to a tax rate of 0% (CIR v. Sekisui
Jushi Phils Inc,
G.R. no 149671, July 21, 2006)
Q: What is an ecozone?
A: An ecozone or a special economic zone has been described as —
selected areas within highly developed or which have the potential to be
developed into agroindustrial, industrial, tourist, recreational, commercial,
banking, investment and financial centers whose metes and bound are
fixed or delimited by Presidential Proclamations. An ecozone may
contain any or all of the following: industrial estates (IEs), export
processing zones (EPZs), free trade zones and tourist/recreational centers.
The national territory of the Philippines outside of the proclaimed borders
of the ecozone shall be referred to as Customs Territory (CIR v. Toshiba
Information Equipment Phils
Inc, G.R. no 150154, August 9, 2005)
Q: What are constructive reports?
A:
A. Sales to bonded manufacturing warehouses
of export-oriented manufacturers
B. Sales to export processing zones (EPZs)
C. Sales to enterprises duly registered and accredited with SBMA
pursuant to RA 7227
D. Sales to registered export traders operating bonded trading
warehouses supplying raw materials in the manufacture of export
products under guidelines to be set by the Board in consultation
with BR and Bureau of Customs (BOC)
E. Sales to diplomatic missions and under agencies and/or
instrumentalities granted tax immunities, of locally
manufactured, assembled, repacked
products whether paid for in foreign currency or not
Q: What is the rationale for zero-rating exports sale?
A: It is because the Philippine VAT system adheres to the cross border
doctrine, according to which, no VAT shall be imposed to form part of ht
costs of goods destined for consumption outside of the territorial border of the
taxing authority.
NOTE: For purposes of zero-rating, export sales of registered export
traders shall include commission income.
 Exportation of goods on consignment shall not be deemed export ZERO-RATED
sales until the export products consigned are in fact sold to the TRANSACTION AND
consignee. Provided, finally, that the sales of goods, properties, or AUTOMATIC ZERO-
services made a by a VAT registered supplier to a BOI registered RATED
manufacturer/producer whose products are 100% exported are TRANSACTION
considered export sales. DISTINGUISHED

A certification to this effect must be issued by the BOI which shall be

good for 1 year unless subsequently reissued by BOI.
EFFECTIVELY
FOREIGN CURRENCY ZERO-
DENOMINATED SALE AUTOMATIC ZERO-
RATED
The phrase ‘foreign currency denominated sale’ means sale to a non-resident RATED
of goods, except those mentioned in Sec 149 and 150, assembled or TRANSACTION
manufactured in the Philippines for delivery to a resident of the Philippines, TRANSACTION
paid for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of BSP (Sec Nature Refers to the sale of Refers to
106.A.2.b) taxable goods, properties or transaction for
VAT services by a VAT- purposes, but
NOTE: Sec 149 refers to excise tax on automobiles. Sec 150 refers to excise shall not registered person to a result in any output tax. person, or entity
tax on non-essential goods. who was However, the input tax on
granted indirect tax purchases of
goods, exemption under special properties
or services laws or international related
to such zero-rated agreements
sale, shall be available as
tax credit or refund

Need to apply An application for zero- Need not file an zero-rating

rating must be filed and application form and to BIR approval is
necessary secure BIR approval
before the transaction before sale
Considered effectively
may be zero-rated
 For whose Primarily intended to be Intended to benefit the iii. The domestic corporation is either a real estate dealer (in
benefit it is enjoyed by the seller who purchaser who, not case of real property) or dealer in securities (in case of
being intended is directlyand legally directly and shares of stock)
legally liable liable for the VAT, making for
the payment of the such seller internationally VAT, NOTE: Only real estate dealers and dealers in securities are liable for
ultimately bear the competitive by payment of VAT in case of sale, barter, or exchange of real property
allowing burden of the tax shifted the or shares of stocks under Sec 106 and 108, respectively.
refund or credit of by the suppliers
input taxes that are attributable to export sales 3. Consignment of goods if actual sale is not made within 60 days
Effect Results in no tax chargeable against the purchaser. The following the date such goods were consigned
seller can claim a refund or a tax credit certificate for the
EXCEPTION: If the consigned goods were physically returned by the
VAT previously charged by suppliers
consignee within the 60-day period

4. Retirement from or cessation of business, with respect to inventories

NOTE: For zero-rated transactions, whether automatic or effectively zero-
rated, the word “zero-rated” must be prominently stamped on the face of
the VAT invoice or receipt issued by the seller (failure to comply will
make the transaction VAT taxable).
C. TRANSACTIONS DEEMED SALE
of taxable goods existing as of such retirement or cessation (Sec
106.B)
NOTE: The transactions are “deemed sale” because in reality, there is no sale
but the law provides that the following transactions are considered as sale and
are thus subject to VAT.

Q: What are the transactions deemed sale and therefore subject to VAT?
A:
1) Transfer, use or consumption not in the course of business of goods
or properties originally intended for sale or for use in the course of
business (i.e., when a VAT-registered person withdraws goods
from his business for his personal use)
2) Distribution or transfer to:
A. Shareholders or investors as share in the profits of the VAT-
registered persons; or B. Creditors in payment of debt REQUISITES:
i. The VAT registered person distributing or paying is a
domestic corporation
ii. What is being declared or paid is either real property owned
by the company or shares of stocks owned in another
company; and
Q: What transactions considered retirement or cessation of business “deemed
sale” subject to VAT?
A:
1) Change of ownership of the business. There is change in the
ownership of the business when a single proprietorship incorporates;
or the proprietor of a single proprietorship sells his entire business
2) Dissolution of a partnership and creation of a new partnership which
takes over the business. (Sec 4.106-7, RR 16-2005)
Q: What is necessary to consider in determining whether a transaction is
“deemed sale”?
A: Before considering whether the transaction is “deemed sale,” it must first
be determined whether the sale was in the ordinary course of the trade or
business. Even if ht transaction was “deemed sale” if it was not done in the
ordinary course of trade or business, still the transaction is not subject to VAT
(CIR v. Magsaysay Lines Inc, G.R.
no 146984, July 28, 2006)
Q: What is the tax base of transactions deemed sale?
A: The output tax shall be based on the market value of the goods deemed
sold at the time of the occurrence of the transactions enumerated above in
numbers 1, 2 and 3. However, in case of retirement or cessation of
business, the tax base shall be the acquisition cost or the current market
price of the goods or properties whichever is lower.
In the case of a sale where the gross selling price is unreasonably lower
than the FMV, the actual market value shall be the tax base.
ISOLATED
TRANSACTION
CRITERIA AND
INCIDENTIAL
TRANSACTION
CRITERIA (BIR RULING
113-98)
The sale of a microwave backbone transmission network by Liberty
Broadcasting Network, Inc., a domestic corporation holding a
congressional franchise to provide the public with wireless radio
communication services and to operate radio communication stations
nationwide, to another wireless communications carrier, being an isolated
transaction, is not in the course of its trade or business of selling
communication services. Thus, not subject to VAT. Moreover, the subject
sale shall not result in any input tax credit to the buyer.
ISSUE: WON the said sale are in the ordinary course of trade or business
BIR Ruling: The phrase “in the course of trade or business” under Sec
106 NIRC means the regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental thereto.
CAB: The sale of microwave backbone transmission network to another
wireless communications network is not the course of trade or business of
selling telecommunications services. Neither is it incidental thereto since
the same does not necessarily follow the primary function of selling
telecommunication services. According, since the sale of microwave
backbone transmission network is an isolated transaction, the said sale is
not subject to VAT. Moreover, the subject shall not result in any input tax
credit to the buyer.
VAT RULING 027-96
ISSUE: In case of sales of private property in favor of the government for
road right-ofway purposes, WON the private property owners shall not be
subject o VAT
BIR Ruling: Under Sec 100.a.1.A NIRC, real properties held primarily for
sale to customers are subject VAT. Conversely, the seller who is not
engaged in a VAT taxable business; or if engaged in a VAT taxable
business, but the stock in trade is not real property, cannot be subject to
VAT.
In other words,. Sale of real property under a negotiated sale for a road
right of way is not subject to VAT if the seller is not selling property in
the regular conduct of his business. However, even if the seller is engaged
in the sale of real property in the course of business, if the transaction is
forced on the seller by virtue of the exercise of the government’s power of
eminent domain, i.e. negotiated purchase for road right of way, it cannot
be said that the sale is conducted in the course of the taxpayer’s trade or
business; hence, pursuant to Sec 99, it is not subject to VAT.
D. CHANGE OR CESSATION OF STATUS AS VAT-REGISTERED
PERSON
Q: When is a change in or cessation of status of a VAT registered person
subject to VAT?
A: The following are subject to 12% output VAT:
1. Change of business activity from VAT taxable status to VAT exempt
status
 2. Approval of a request for cancellation of registration due to reversion
to exempt status
3. Approval of a request for cancellation of registration due to a desire
to revert to exempt status after the lapse of 3 consecutive years from
the time of registration by a person who voluntarily registered despite
being exempt under Sec 109.2 NIRC
4. Approval of a request for cancellation of registration of one who
commenced business with the expectation of gross sales or receipt
exceeding P1.5 million but who failed to exceed this amount during
the first 12 months of operations
Q: When is a change in or cessation of status of a VAT registered person not
subject to VAT?
A: The following are not subject to 12% output VAT:
1. Change of control in the corporation as corporation by the acquisition
of controlling interest of the corporation by another stockholder or
group of stockholders
The goods or properties used in the business or those comprising the
stockin-trade of the corporation will not be considered sold, bartered
or exchanged, despite the change in the ownership interest. However,
exchange of property by corporation acquiring control for the shares
of stocks of the target
corporation is subject to VAT
2. Change in the trade or corporate name of the business
3. Merger or consolidation of corporations. The unused input tax of the
dissolved corporation, as of the date of merger or consolidation, shall
be absorbed by the surviving new corporation.
2. IMPORTATION OF GOODS
Sec 107 NIRC
Determination of Tax Base
Sec. 107. VAT on Importation of
Goods -
A. In General – there shall be levied, assessed and collected on every
importation of goods a VAT equivalent to 12% based on the total
value used by the Bureau of Customs in determining tariff and
custom duties, plus customs duties, excise taxes, if any, and other
charges, such tax to be paid by the importer prior to the release of
such goods from customs custody: Provided, That where the
customs duties are determined on the basis of the quantity or
volume of the goods, the value-added tax shall be based on the
landed cost plus excise taxes, if any: Provided, further, That the
President, upon the recommendation of the Secretary of Finance,
shall, effective Jan. 1, 2005, raise the r,ate of VAT to 12%, after
any of the following conditions has been satisfied:
i. VAT collections as a percentage of Gross Domestic
Product(GDP) of previous year exceeds 2 4/5%; or
ii. National government deficit as a percentage of GDP of
previous year exceeds 1 1/2 %
B. Transfers of Goods by Tax-exempt Persons. – In the case of tax-
free importation of goods into the Philippines by persons, entities
or agencies exempt from tax where such goods are subsequently
sold, transferred or exchanged in the Philippines to non-exempt
persons or entities, the purchasers, transferees or recipients shall be
considered the importers thereof, who shall be liable for any
internal revenue tax on such importation. The tax due on such
importation shall constitute a lien on the goods superior to all
charges or liens on the goods, irrespective of the possessor thereof.
o Importation is subject to VAT, it shall be assessed and
collected upon goods brought into the Philippines
whether for use in business or not.
TAX BASE OF
IMPORTATION
General Rule: The tax base shall be based on the total value used by the
BOC in determining tariff and customs duties plus customs duties excise
 taxes, if any, and other charges to be paid by the importer prior to the
release of such goods from customs custody. (Sec. 107[A])
TAX BASE = Total value used by BOC in determining tariff and custom
duties + custom duties + excise tax + other charges (postage, commission,
and similar charges, prior to the release of the goods from customs
custody)
Exception: Where the customs duties are determined on the basis of
quantity or volume of the goods, the VAT shall be based on the landed
cost plus excise taxes, if any.
LAND COSTS = invoice amount + customs duties + freight
A. insurance + other charges (excise tax shall form part of the tax base)
The importer shall pay the tax prior to the release of the imported goods.
An importer is a person who brings goods into the Philippines, whether or
not made in the course of trade or business. It includes non-exempt
persons or entities who acquire tax free imported goods from exempt
persons, entities or agencies.
Importation begins when a vessel or aircraft enters the Philippine jurisdiction
with the intention to unload goods/cargo. Importation ends upon the payment
of duties, taxes, and other charges due upon the article, or to be paid at the
port of entry and legal permit for withdrawal shall have been granted.
Technical Importation – Sale of goods by a PEZA registered enterprise to a
buyer from the customs territory shall be treated as a technical importation.
Such buyer shall be treated as an importer thereof and shall be imposed with
the corresponding import taxes
3. SALE OF SERVICES AND USE OR LEASE OF PROPERTIES (Sec
108)
12% (Sec 108.A)
0%
Determination of Tax Base
12% Sec. 108. VAT on Sale of
Services and Used or Lease of
Properties
B. Rate and Base of Tax. – There shall be levied, assessed and collected, a
VAT equivalent to 12% (RMC 7-2006, [Jan 1, 2006] effective Feb 1, 2006) of
gross receipts derived from the sale or exchange of services, including the use
or lease of properties; Provided, that the President, upon the recommendation
of the Secretary of Finance, shall effective Jan. 1, 2006, raise the rate of VAT
to 12%, after any of the following conditions has been satisfied:
III. VAT collection as a percentage of GDP of previous year exceeds
to 2 4/5% ; or
IV. National government deficit as a percentage of GDP of previous
year exceeds 1 ½%.
The phrase “sale or exchange of services” means the performance of all kinds
of services in the Philippines for others for a fee, remuneration or
consideration, including those performed or rendered by construction and
service contractors; stock, real estate, commercial, customs and immigration
brokers; lessors of property whether personal or real; warehousing services;
lessors or distributors of cinematographic films. Persons engaged in milling,
processing, manufacturing or repacking goods for others; proprietors,
operators, or keepers of hotels, motels, resthouses, pension houses, inns,
resorts; proprietors or operators of restaurants, refreshment parlors, cafes and
other eating places, including clubs and caterers; dealers in securities; lending
investors; transportation contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for hire and other domestic
common carriers by land relative to their transport of goods or cargoes;
common carries by air and sea relative to their transport of passengers, goods
or cargoes from one place in the Philippines to another place in the
Philippines; sales of electricity by generation companies, transmission, and
distribution companies; services of franchise grantee of electric utilities,
telephone and telegraph, radio and television broadcasting and all other
franchise grantees except those under Section 119 of this Code; and non-life
insurance companies; and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or mental
faculties. The phrase “sale or exchange of services” shall likewise include:
1) The lease or the use of or the right or privilege to use any
copyright, patent, design or model plan, secret formula or
process, goodwill, trademark, trade brand or other like property
or right;
2) The lease or the use of, or the right to use of any industrial,
commercial or scientific equipment;
3) The supply of scientific, technical, industrial or commercial
knowledge or information;
4) The supply of any assistance that is ancillary and subsidiary to
and is furnished as a means of enabling the application or
enjoyment of any such property, or right as mentioned in
subparagraph (2) or any such knowledge or information as is
1.
mentioned in subparagraph (3);
2.
5) The supply of services by a nonresident person or his employee
3.
in connection with the use of property or rights belonging to, or
4.
the installation or operation of any brand, machinery or other
5.
apparatus purchased from such nonresident person;
6.
6) The supply of technical advice, assistance or services rendered in
connection with technical management or administration of any
7.
scientific, industrial or commercial undertaking, venture, project
or scheme;
houses, inns, resorts, theaters, and movie house
7) The lease of motion picture films, films, tapes and disc; and
8) The lease or the use of or the right to use radio, television, 8.
satellite transmission and cable television time.
9.
Lease of properties shall be subject to the tax herein imposed
irrespective of the place where the contract of lease or licensing 10.
agreement was executed if the property is leased or used in the 11.
Philippines.
The term “gross receipts” means the total amount of money or its
equivalent representing the contract price, compensation, service 12.
fee, rental or royalty, including the amount charged for materials
supplied with the services and deposits and advance payments
actually or constructively received during the taxable quarter for
the services performed or to be performed for another person,
excluding VAT.
MEANING OF SALE OR
EXCHANGE OF
SERVICES SUBJECT TO
VAT
-It means the performance of all kinds of services in the Philippines for
others for a fee, remuneration or consideration, whether in cash or in kind.
-Sale or exchange of service, as well as the use or lease of properties shall
be subject to 12% VAT
Ø Sales or Exchange includes:
Construction and service contract
Stock, real estate, commercial customs and immigration brokers
Lessors of property, whether personal or real
Persons engaged in warehouse services
Lessors or distributors of cinematographic film
Persons engaged in milling processing, manufacturing or repacking
goods for others
Proprietors, operators, or keepers of hotels, motels, rest houses,
pension
Proprietors or operators of restaurants, refreshment parlors, cafes,
and other eating places, including clubs and caterers
Dealers in securities
Lending investor
Transportation contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for hire and other
domestic common carriers by land relative to their transport of goods
or cargoes
Common carriers by air and sea relative to their transport of
passenger, goods, or cargoes from one place in the Philippines to
 another place in the Philippines 13. Sales of electricity by
generation, transmission, and/or distribution companies
14. Franchise grantees of electric utilities, telephone and telegraph, radio
and/or broadcasting television and all other franchise grantees except
franchise grantees of radio and/or television broadcasting whose annual gross
receipt of the preceding year do not exceed P10,000,000 and franchise
grantees of gas and water utilities 15. Non-life insurance companies (except
their crop insurances), including surety, fidelity, indemnity and bonding
companies
16. Similar services regardless of whether or not the performance thereof calls
for the exercise or use of the physical or mental faculties
Ø Sale or exchange of services shall also include:
1. Lease or the use of or the right or privilege to use any copyright,
patent, design or model, plan, secret formula or process, goodwill,
trademark, trade brand, or other like property or right
2. The lease or the use of, or the right to use any industrial, commercial
knowledge or information
3. The supply of scientific, technical, industrial or commercial
knowledge or information
4. The supply of any assistance that is ancillary and subsidiary to and
furnished as a means of enabling the application or enjoyment of any
such property or right as is mentioned in subparagraph (b) hereof or
any such knowledge or information as is mentioned in subparagraph
(c) hereof
5. The supply of services by a non-resident person or his employee in
connection with the use of property or rights belonging to, or the
installation or operation of any brand, machinery, or other apparatus
purchased from such nonresident person
6. The supply of technical advice, assistance or services rendered in
connection with technical management or administration of any
scientific, industrial or commercial undertaking, venture, project or
scheme
7. The lease of motion picture films, film tapes, and discs
8. The lease or use of, or the right to use, radio, television, satellite
transmission and cable television time.
o Lessors of Property – All forms of property for lease,
whether real or personal, are liable to VAT Note: Lease
of properties shall be subject to the tax herein imposed
irrespective of the place where the contract of lease or
licensing agreement was executed if the property is
leased or used in the Philippines.
o Real Estate Lessor – includes any person engaged in the
business of leasing or subleasing real property
1. Regardless of the place where the contract of lease
or licensing agreements was executed if the
property leased or used is located in the Philippines
2. VAT on rental and/or royalties payable to non-
resident foreign corporation or owners for the sale
of services and use or lease of properties in the
Philippines shall be based upon the contract price
agreed upon by the licensor and the licensee
o Non-Resident Lessor/Owner – any person, natural or juridical, an
alien, or a citizen who establishes to the satisfaction of the CIR the
fact of the physical presence abroad with definite intention to reside
therein, and who owns/leases properties, real or personal whether
tangible or intangible, located in the Philippines.
o Advance payments:
1. A loan to the lessor from the lessee,
2. An option money for the property, or
3. A security deposit to insure the faithful performance of
certain obligations of the lessee to the lessor, or
4. Pre-paid rental
§ If the advance paymet is for the faithful performance of
certain obligations of the lessee, it is not subject to
VAT.
 § A security deposit that is applied to rental shall be
subject to VAT at the time of its application
§ If the advance payment constitutes a prepaid rental, then
such payment is taxable to the lessor in the month when
received, irrespective of the accounting method
employed by the lessor.
o Warehousing service – rendering personal service of a warehouseman
such as:
i. Engaging in the business of receiving and storing goods
for compensation
ii. Receiving goods and merchandise to be stored in his
warehouse for hire; or iii. Keeping and storing goods for
others as a business and for use
o Miller – a person engaged in milling for others (except palay into rice
and corn into corn grits, and sugarcane into raw sugar) is subject to
VAT on sale of services.
§ Cash: VAT shall be based on his gross receipts for the
month or quarter
§ Receives a share of the milled products instead of cash:
VAT shall be based on the actual market value of his share
§ Sale by the owner or miller of his share of the milled
product (except rice, corn grits and raw sugar) shall be
subject to VAT
o Common Carriers – refers to persons, corporations, firms or
associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water or air for compensation,
offering services to the public and shall include transportation
contractors.
o Common Carriers by land with respect to their gross receipts from
the transport of passengers including operators of taxicabs, utility
cars for rent or hire driven by the lessees, and tourist buses used for
the transport of passengers shall be subject to percentage tax.
o Domestic common carriers by air and sea are subject to 12% VA on
their gross receipts from their transport of passengers, goods or
cargoes from one place in the Philippines to another place in the
Philippines.
o Sale of electricity by generation, transmission, and distribution
companies shall be subject to 12% VAT on their gross receipts
(sale of power or fuel generated through renewable sources of
energy such as biomass, solar, wind, hydropower, geothermal,
ocean energy, and other emergingsources using technologies such
as fuel cells and hydrogen fuels shall be subject to
0% VAT)
o Generation companies – refers to persons or entities authorized by the
ERC to operate facilities used in the generation of electricity.
o Gross Receipts (Sale of electricity):
i. Total amount charged by generation companies for the sale
of electricity and related ancillary services; and/or
ii. Total amount charged by transmission companies for
transmission of electricity and related ancillary services;
and/or
iii. Total amount charged by distribution companies and
electric cooperatives for distribution and supply of
electricity and related electric services. The universal
charged passed on and collected by distribution companies
and electric cooperative shall be exclude from the
computation of the gross receipts.
o Dealers in securities and lending investors: subject to VAT on the
basis of their gross receipts. For dealer in securities, the term gross
receipts means gross selling price less cost of the securities sold.
o Service of franchise grantees of telephone and telegraph, radio
and/or television broadcasting, toll road operations and all other
franchise grantees, except gas and water utilities, shall be subject to
VAT.
 § Radio and/or television broadcasting annual gross
receipt of the preceding year do not exceed
P10,000,000 shall not be subject to VAT but 3%
percentage tax.
§ Gas and water utilities: subject to 2% franchise tax on
their gross receipts
§ Telephone and telegraph: Subject to VAT on their
gross receipts derived from their telephone, telegraph,
telewriter exchange, wireless and other communication
equipment services
§ Amounts received for overseas dispatch, message, or
conversion originating frm the Philippines are subject
to percentage tax and
hence exempt from VAT
o Non-Life Insurance Companies: including surety, fidelity, indemnity
and bonding companies are subject to VAT
§ Not liable to premium tax under Sec. 23 (percentage
tax) of NIRC
§ Gross receipts: total premium collected, whether paid in
money, notes, credits or any substitution for money
§ Insurance and reinsurance commissions, whether life or
non-life, are subject to VAT VAT due from the foreign
reinsurance company is to be withheld by the local
insurance company and to be remitted to the BIR
o Pre-need companies: the compensation for their services is the
premiums or payments received from the plan holders
o Health maintenance organization (HMO)
§ Gross receipts: total amount of money or its equivalent
representing the service fee actually or constructively
received during the taxable period
for the services performed or to be performed, excluding
VAT
GROSS RECEIPTS – total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or
royalty, including the amount charged for materials supplied with the
services and deposits applied as payments for services rendered and
advance payments actually or constructively received during the taxable
period for the services performed or to be performed for another person,
excluding VAT.
CONSTRUCTIVE RECEIPTS – occurs when the money consideration or
its equivalent is placed at the control of the person who rendered the
services without restrictions by the payor.
§ Deposit in banks which are made available to the seller of
service without restrictions
§ Issuance by the debtor of a notice to offset any debt or
obligation and acceptance thereof by the seller as payment
of services rendered
§ Transfers of amount retained by the payor to the account of
the contractor
REQUISITES FOR TAXABILITY OF SALE OR EXCHANGE OF
SERVICES OR LEASE OR USE OF PROPERTY:
1. There is a sale or exchange of service or lease or use of property
enumerated in the law or other similar services;
2. The service is performed or to be performed in the Philippines
3. The service is in the course of trade of taxpayer’s trade or business or
profession;
4. The service is for a valuable consideration actually or constructively
received; and
5. The service is not exempt under the Tax Code, special law or
international agreement.
Note: Absence of any of the requisites renders the transaction exempt
from VAT but may be subject to other percentage tax under the Title
V of NIRC.
• Zero-rated Sales of Service
The following services performed in the Philippines by a VAT-
registered person shall be subject to 0% VAT rate:
 Products classified under this paragraph shall be considered in
their original state even if they have undergone the simple
processes of preparation or preservation for the market, such as
freezing, drying, salting, broiling, roasting, smoking or
stripping. Polished and/or husked rice, corn grits, raw cane
sugar and molasses, ordinary salt and copra shall be considered
in their original state;
1. Processing, manufacturing, or repacking goods for other persons 7.
B. Sale or importation of fertilizers; seeds, seedlings and
doing business outside the Philippines: 7.
fingerlings; fish, prawn, livestock and poultry feeds, including
a) Which goods are subsequently exported 7.
ingredients, whether locally produced or imported, used in the 7.
b) Where the services are paid for in acceptable foreign
currency manufacture of finished feeds (except specialty feeds for race 7.
c) Accounted for in accordance with the rules and regulations horses, fighting cocks, aquarium fish, zoo animals and other 7.
of the BSP animals generally considered as pets); 7.
2. Services other than processing, manufacturing, or repacking: C. Importation of personal and household effects belonging to the 7.
a) Rendered to a person engaged in business conducted outside the residents of the Philippines returning from abroad and non- 7.
Philippines or to a non-resident person not engaged in business resident citizens coming to resettle in the Philippines: Provided, 7.
who’s outside the Philippines when the services are performed that such goods are exempt from customs duties under the Tariff 7.
[CIR v. Busmeirter, et al. GR No 153205 (2007) require and Customs Code of the Philippines; 7.
performance of services to nonresident to qualify as zero-rated.] D. Importation of professional instruments and implements, tools 7.
b) The consideration of which is paid for in acceptable foreign of trade, occupation or employment, wearing apparel, domestic 7.
currency animals, and personal household effects belonging to persons 7.
c) Accounted for in accordance with the rules and regulations of the coming to settle in the Philippines or Filipinos or their families 7.
BSP and descendants who are now residents or citizen of other 7.
countries such parties hereinafter referred to as overseas 7.
3. Services rendered to persons or entities whose exemptions under filipinos, in quantities and of the class suitable to the profession, 7.
special laws or international agreements to which the Philippines is a 7.
rank or position of the persons importing said items, for their
signatory effectively subjects the supply of such services to zero 7.
own use and not for barter or sale, accompanying such persons,
percent rate 7.
or arriving within a reasonable time: provided, that the bureau
4. Services rendered to persons engaged in international shipping or air 7.
of Customs may, upon the production of satisfactory evidence
transport operations, including leases of property for use thereof 7.
that such person are actually coming to settle in the Philippines
§ Shall not pertain to those made to common carriers by air and 7.
and that the goods are bought from their former places of adobe, 7.
sea relative to their transport of passengers, goods, or
cargoes from one place in the Philippines to another place in exempt such goods from payment of duties and taxes: provided, 7.
the Philippines (subject to 12% VAT) further, that vehicle, vessel, aircraft, machinery and other 7.
5. Services performed by subcontractors and/or contractors in similar goods for use in manufacture, shall not fall within this 7.
processing, converting, or manufacturing goods for an enterprise classification and shall therefore be subject to duties, taxes and 7.
whose export sales exceed 70% of the total annual production other charges; 7.
6. Transport of passengers and cargo by domestic air or sea carriers from the E. Services subject to percentage tax under title V; 7.
Philippines to a foreign country F. Services by agricultural contract growers and milling for others 7.
§ Gross receipts of international air carriers doing business in the Philippines of palay into rice, corn into grits and sugar cane into raw sugar; 7.
and international sea carriers doing business in the G. Medical, dental, hospital and veterinary services except those 7.
Philippines are still liable to percentage tax 7.
rendered by professionals.
7.
H. Educational services rendered by private educational
institutions, duly accredited by the Department of Education
(DepED), the Commission on Higher Education (CHED), the
Technical Education and Skills Development Authority
(TESDA) and those rendered by government educational
institutions;
I. Services rendered by individuals pursuant to an employer-
 J. Services rendered by prices for orsubscription
regional and sale
area headquarters and which is not devoted
established
in the Philippines by multinational corporations which advertisements;
principally to the publication of paid act as
supervisory, communications
S. Transport and coordinating
of passengers centers for their
by international carriers;
affiliates, subsidiaries or branches in the Asia-Pacific Region
and do not earn T. Sale, income
or derive importation
from the or Philippines;
lease of passenger or cargo vessels and
aircraft, including engine, equipment and spare parts thereof for
K. Transactions which are exempt under international agreements
domestic or international transport operations;
to which the Philippines is a signatory or under special laws,
and stream, ocean energy, and other emerging sources using U. Presidential
ImportationDecreeof fuel, goods
except those under No. 529; and supplies by persons engaged in
technologies such as fuel cells and hydrogen fuels. international shipping or air transport
§ Zero rating shall apply strictly to the sale of power or fuel L. Sales by agricultural cooperatives duly registered withoperations;
the Provided, that
the fuel, goods, and supplies
Cooperative Development Authority to their members as well as shall be used for international
generated through renewable sources of energy, and shall shipping or air transport operation;
not extend to the sale of services related to the maintenance sale of their produce, whether in its original state or processed
or operation of plants generating said power V. Services
form, to non-members; their of bank, non-bank
importation of directfinancial intermediaries performing
farm inputs,
machines and equipment, including spare parts thereof, to be non-bank financial
quasibanking functions, and other
EFFECTIVELY ZERO-RATED SALE OF SERVICES –refer to the local used directly and intermediaries;
exclusively in the production and/or
sale of services by a VAT-registered person to a person or entity who was processing of their produce;
W. Sale or lease of goods and services to senior citizen and persons
granted indirect tax exemption under special laws or international agreement M Gross receipts from with
lending disability,
activities by creditas or multi-purpose
provided under Republic Act
(limited to 3,4,5) . Nos.994(expanded
cooperatives duly registered Senior Citizens
with the Cooperative Act of 2010) and 10754 (An
Development
Authority; act expanding the benefits and privileges of persons with
§ Concerned taxpayer must seek prior approval or prior disability), non-
respectively;
N. Sales by non-agricultural, electric and non-credit
confirmation from appropriate offices to the BIR so that a
transaction is qualified for effectively zero-rating cooperatives dulyX. registered
Transfer with the Cooperative
of property pursuant to Development
section 40(C)(2) of the NIRC, as
§ Without an approved application for effective zero-rating, Authority: Provided,amended;
That the share capital contribution of each
the transaction otherwise entitled to zero-rating shall be member does not exceed Fifteen thousand pesos (P15, 000) and
regardless of theY. aggregate
Associationcapital
dues, and membership
net surplusfees, ratably
and other assessments and
considered exempt. charges collected by homeowners associations and condominium
distributed among the members;
corporations;
• DETERMINATION OF TAX BASE Categories of Services: O. Export sales by persons who are not VAT-registered;
1. Professional/technical consultancy Z. Sale of gold to Bangko Sentral ng Pilipinas (BSP);
P. Sale of real properties not primarily held for sale to customers
2. Transfer of technology or held for leaseAA.
in Sale
the ordinary
of drugs courseand ofmedicines
trade or business
prescribedor for diabetes, high
3. Lease or use of intangible property real property utilizedcholesterol,
for low-costand hypertension
and socialized beginning
housingJanuary
as 1, 2019; and
4. Lease or use of tangible property defined by Republic Act No. 7279, otherwise known as the
BB. Sale or lease of goods or properties or the performance of
Urban Developmentservices
and HousingotherAct thanof the
1992, and other related
transactions mentioned in the preceding
Note: Non-life insurance policies are subject to VAT while life
laws, residential lot valued
paragraphs, the gross annual sales thousand
at one million five hundred and/or receipts do not exceed
insurance policies are VAT exempt but subject to 5% premium tax
pesos (P1,500,000)theand below,
amount house
of three and pesos
million lot, and other
(P3,000,000).
under Sec. 123 of
residential dwellings valued at two million five hundred
NIRC
thousand pesos(P2,500,000) and below: provided, that
beginning January 1, 2021, the VAT exemption shall only apply
to sale of real properties not primarily held for sale to customers
I. EXEMPT TRANSACTIONS (Sec 109) or held for lease in the ordinary course of trade or business, sale
of real property utilized for socialized housing as defined by
Republic Act No. 7279, sale of house and lot, and other
Section 109. EXEMPT TRANSACTIONS: residential dwellings with selling price of not more than two
million pesos (P2,000,000): provided, further, that every three
(3) years thereafter, the amount herein stated shall be adjusted
to its present value using the Consumer Price Index, as
published by the Philippine Statistics Authority (PSA);
Q. Lease of a residential unit with a monthly rental not exceeding
Twelve thousand eight hundred pesos (P15,000);
R. Sale, importation, printing or publication of books and any
newspaper, magazine review or bulletin which appears at
RA No. 9238 NEW SECTIONS: R
The following are exempt from VAT: SEC 109 (aa) Services of banks, E
non-bank financial intermediaries V
performing
(bb) Services Rendered by Doctors quasibanking
of Medicine duly Registered with the E
Professional Regulatory Commission (PRC), and ü (cc) Services functions, and other non-bank N
Rendered by Lawyers Duly Registered with the Integrated Bar of the financial intermediaries; U
Philippines (IBP) S109 (bb) Services Rendered by E
Doctors of Medicine duly
RR 7-2004 Registered with the Professional M
The following are VAT exempted: Regulatory Commission (PRC), E
ü services rendered by a doctor of medicine duly registered and of good and M
standing with the PRC in the practice of his medical profession, for S109 (cc) Services Rendered by O
such services which may be rendered, under existing law, only by a Lawyers Duly Registered with the R
duly licensed doctor of medicine in good standing with the PRC, Integrated Bar of the Philippines A
ü legal services rendered by a lawyer duly registered and of good (IBP) N
standing with the IBP in the practice of his legal profession for such D
services which may be U
rendered, under existing doctor of medicine in good M
law, only by a lawyer standing with the PRC, or
duly registered and in ü legal services rendered by a C
good standing with the general professional I
IBP. partnership whose partners R
ü medical services rendered are composed exclusively of C
by a general professional lawyers duly registered with U
partnership whose partners the IBP in the practice of L
are composed exclusively legal profession where the A
of doctors of medicine general professional R
registered with the PRC partnership was organized N
where the general solely and exclusively for O
professional partnership the practice of law, and for .
was organized solely and such services which may be
exclusively for the practice rendered, under existing 0
of medical profession, and law, only by a lawyer duly 7
for such services which may registered and of good -
be rendered, under existing standing with the IBP.” 9
law, only by a duly licensed 4
Water, being a mineral rather than
agricultural product may not
legally be classified as agricultural
food product within the purview of
Section 103(b), NIRC. Hence, sale
of water, whether in the form of
bottled mineral water or water
delivered/supplied to inter-island
and ocean-going vessels by
persons engaged in the business of
supplying water to the aforesaid
inter-island and ocean-going
vessels, shall be subject to 10%
VAT, pursuant to Section 100(a),
NIRC.
R selling price exceeding Memorandum Circular 47-91,
E P3,199,200.00, where the which implemented VAT Ruling
V instrument of sale (whether the 190-90, copra was classified as
E instrument is nominated as a deed agricultural food product. And
N of absolute sale, deed of under Sec. 103(b) of the NIRC,
U conditional sale or otherwise) is the sale of agricultural food
E executed and notarized on or after products in their original state is
January 1, 2012 and shall be exempt from VAT at all stages of
R subject to twelve percent (12%) production or distribution.
E output VAT. However, for
G instruments of sale executed and • Under §103(a) the sale of
U notarized on or after Nov. 1, 2005 agricultural non-food products in
L but prior to January 1, 2012, the their original state is exempt
A threshold amounts should from VAT only if the sale is
T appropriately be P1,500,000 and made by the primary producer or
I P2,500,000 respectively, and owner of the land from which the
O excess thereof shall be subject to same are produced. The sale
N ten percent (10%) output VAT, made by any other person or
and starting Feb. 1, 2006, to entity, like a trader or dealer, is
0 twelve percent (12%) output VAT. not exempt from the tax.
3
- • On the other hand, under §103(b)
2 the sale of agricultural food
0 products in their original state is
1 exempt from VAT at all stages of
CASE: MISAMIS ORIENTAL
2 production or distribution
COCO TRADERS vs. SEC. OF
regardless of who the seller is.
FINANCE
Sale of Real Properties. — Sale of • The question is whether copra is
real properties held primarily for FACTS: Petitioner is a domestic
an agricultural food or non-food
sale to customers or held for lease corporation whose members,
product for purposes of this
in the ordinary course of trade or individually or collectively, are
provision of the NIRC. On June
business of the seller shall be engaged in the buying and selling
11, 1991, respondent
subject to VAT. Sale of residential of copra.
Commissioner of Internal
lot with gross selling price Revenue issued the circular in
exceeding P1,919,500.00, • The petitioner alleges that prior
to the issuance of Revenue question, classifying copra as an
residential house and lot or other agricultural non-food product and
residential dwellings with gross declaring it "exempt from VAT
 only if the sale is made by the
primary producer pursuant to
Section 103(a) of the Tax Code,
as amended."
• The reclassification had the effect
of denying to the petitioner the
exemption it previously enjoyed
when copra was classified as an
agricultural food product under
§103(b) of the NIRC. Petitioner
challenges RMC No. 47-91 on
various grounds.
ISSUES:
1. Whether the BIR is the
proper competent
government agency to
determine the proper
classification of food
products. YES
2. Whether Commissioner
erred in not considering
copra as an "agricultural
food product" within the
meaning of § 103(b) of
the NIRC. NO.
3. Whether RMC No. 47-91
is discriminatory and
violative of the equal
protection clause of the
Constitution. NO.
4. Whether RMC No. 47-91
is counterproductive
because traders and
dealers would be forced
to buy copra from
coconut farmers who are
exempt from the VAT
and that to the extent that
prices are reduced the
government would lose
revenues as the 10% tax
base is correspondingly
diminished. NO.
HELD:
1. The BIR, as the government
agency charged with the
implementation and interpretation
of the tax laws, is entitled to great
respect.
In interpreting Section 103 of the
NIRC, the CIR correctly gave it a
strict construction consistent with
the rule that tax exemptions must
be strictly construed against the
taxpayer and liberally in favor of
the state.
The ruling was made by the CIR
in the exercise of his power under
§ 245 of the NIRC to "make
rulings or opinions in connection
with the implementation of the
provisions of internal revenue
laws,
including rulings on the
classification of articles for sales
tax and similar purposes.”
2. In the case at bar, we find
no reason for holding that
respondent Commissioner erred in
not considering copra as an
"agricultural food product" within
the meaning of § 103(b) of the
NIRC. As the Solicitor General
contends, "copra per se is not
food, that is, it is not intended for
human consumption. Simply
stated, nobody eats copra for
food." That previous
Commissioners considered it so, is
not reason for holding that the
present interpretation is wrong.
The Commissioner of Internal
Revenue is not bound by the
ruling of his predecessors. 7 To
the contrary, the overruling of
decisions is inherent in the
interpretation of laws.
3. Petitioner likewise claims
that RMC No. 47-91 is violative of
the equal protection clause
because while coconut farmers
and copra producers are exempt,
traders and dealers are not,
although both sell copra in its
original state.
Petitioners add that oil millers do
not enjoy tax credit out of the
VAT payment of traders and
dealers. The argument has no
merit. There is a material or
substantial difference between
coconut farmers and copra
producers, on one hand, and copra
traders and dealers, on the other.
The former produce and sell
copra, the latter merely sell copra.
The Constitution does not forbid
the differential treatment of
persons so long as there is a
reasonable basis for classifying
them differently. It is not true that
oil millers are exempt from VAT.
Pursuant to §102 of the NIRC,
they are subject to 10% VAT on
the sale of services.
4. This is not so. The sale of
agricultural non-food products is
exempt from VAT only when
made by the primary producer or
owner of the land from which the
same is produced, but in the case
of agricultural food products their
sale in their original state is
exempt at all stages of production
or distribution. At any rate, the
argument that the classification of
copra as agricultural nonfood
product is counterproductive is a
question of wisdom or policy
which should be
ad
dr
es
se
d
to
res
po
nd
en
t hence, this petition for (12) Medical, Dental, Hospital and that selling of drugs and other
off review. Veterinary Services. Laboratory pharmacy items to in-patients
ici • The petitioner advanced services are also exempted. If the form part of its hospital services.
als the view in its petition hospital or clinic operates a Dispensing of drugs is different
an that the respondent pharmacy or drugstore, the sale of from selling of drugs.
d exceeded its legal drugs and medicine, if it exceeds
to authority when it assessed 200k during a 12 month period is Pharmacy services were not
Co VAT on its use and subject to VAT. included in the exemptions
ng consumption of pharmacy mentioned in Sec 103 of the tax
res items for in-patients, ISSUE: WON the in-patient code, thus it behooves the Court to
s. those used by its special pharmacy sale is subject to VAT apply the principle of STRICT
units such as operating H CONSTRUCTION OF TAX
and delivery rooms E EXEMPTION AGAINST THE
during medical L TAX PAYER.
CASE: ST. LUKE’S MEDICAL D To be exempted from tax, the
procedures, and
CENTER vs. CIR CTA CASE : taxpayer has the duty to justify the
pharmaceutical items
NO. 5068 MARCH 17, 1999 exemption by words too plain to
used by other departments
of the hospital, since Y be mistaken and too categorical to
FACTS: Petitioner is a non-stock, E
these items are be misinterpreted. Thus
non-profit corporation duly S
necessarily included in PHARMACY SALES NOT
organized and existing under
the term "hospital BEING MENTIONED IN SEC.
Philippine laws, and primarily Respondent contends the Sec (9)
services" which are 103 OF THE TAX CODE AS
engaged in the hospital business. (b) (12) of Revenue Regulations
exempt from value-added EXEMPT FROM VAT, IT
• The controversy started No. 5-87 is very clear and
tax under Section 103(1) SHOULD BE DEEMED
when the respondent unequivocable, that pharmacy
of the National Internal SUBJECT TO VAT.
assessed the petitioner on sales, if it exceeds P200k during
August 2, 1993 Revenue Code.
the twelve-month period, is “Expressio unius est exclusion
deficiency value-added “SEC. 103. Exempt Transactions -
subject to VAT, thus, the question alterius” and “Ubi lex non
tax (VAT) on its The following shall be exempt
of whether such drugs or distinguit nec nos distinguere
pharmacy sale for the from VAT:
pharmaceutical products sold to debemos”, where the law does not
year 1991 in the total Xxx xxx xxx out-patients or in-patients is
(1) Medical, dental, hospital and distinguish, under statutory
amount of P9,866,151.23 immaterial, and that petitioner construction, applies in the instant
to which the petitioner veterinary services failed to present proof that would
Xxx xxx xxx case.
filed a protest and prayed substantiate its claimed
for cancellation.However, Revenue regulations no. 5-87, deductions.
petitioner's protest was implementing the said code states: CASE: TAMBUNTING
denied by the respondent, “Sec. 9 . Exemptions. Petitioner HAS UTTERLY PAWNSHOP, INC. vs. CIR
Xxx xxx xxx FAILED to convince the court,
FACTS:
Petitioner was assessed for
deficiency Value Added Tax and
Documentary Stamp Tax on the
premise that, for the Value Added
Tax, it was engaged in the sale of
services.
ISSUES:
(1)Is Petitioner liable for the Value
Added Tax?
(2)Can the imposition of surcharge
and interest be waived on the
imposition of deficiency
Documentary Stamp Tax?
HELD:
(1) NO. Since Petitioner is
considered a non-bank financial
intermediary, it is subject to 10%
VAT for the tax years 1996 to
2002 but since the collection of
Value Added Tax from non-bank
financial intermediaries was
specifically deferred by law,
Petitioner is not liable for Value
Added Tax during these tax years.
With the full implementation of
the Value Added Tax system on
non-bank financial intermediaries
starting January 1, 2003, Petitioner
is liable for 10% Value Added Tax
for said tax year. And beginning
2004 up to the present, by virtue
of R.A. No. 9238, petitioner is no
longer liable for VAT but it is
subject to percentage tax on gross
receipts from 0% to 5%, as the J (ii) For
case may be. . conversion
into or
(2) YES. Petitioner's T intended to
argument against liability for A form part of a
surcharges and interest — that it X finished
was in good faith in not paying product for
documentary stamp taxes, it C sale including
having relied on the rulings of R packaging
respondent CIR and the CTA that E materials; or
pawn tickets are not subject to D (iii) For use as
documentary stamp taxes — was I supplies in the
found to be meritorious. Good T course of
faith and honest belief that one is business; or
(
not subject to tax on the basis of (iv) For use as
S
previous interpretations of materials
e
government agencies tasked to supplied in the
c
implement the tax law are sale of service;or
sufficient justification to delete the (v) For use in
1
imposition of surcharges and trade or business
1
interest. for which
0
deduction for
)
depreciation or
SEC. 110. Tax Credits. – amortization is
allowed under
(A) Creditable Input Tax. - (1) this Code.
Any input tax evidenced by a (b)Purchase of services on
VAT invoice or official receipt which a value-added tax
issued in accordance with Section has been actually paid.
113 hereof on the following
transactions shall be creditable (2)The input tax on domestic
against the output tax: purchase of goods or properties
shall be creditable: (a) To the
(a)Purchase or importation of purchaser upon consummation
goods: of sale and on importation of
(i) For goods or properties; and
sale; or
 (b) To the importer upon
payment of the value-
added tax prior to 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 month for use on trade or
business for which deduction is
allowed under this Code, shall be
spread evenly over the month of
acquisition and the 59 succeeding
months if the aggregate
acquisition cost for such goods,
excluding the VAT component
thereof, exceeds 1Million pesos:
provided, however, that if the
estimated useful life of the capital
good is less than 5 years, as used
for depreciation purposes, then the
input VAT shall be spread over
such a shorter period: provided,
finally that in that case of purchase
of services, lease or use of
properties, the input tax shall be
creditable to the purchaser, lessee
or license upon payment of the
compensation, rental, royalty or
fee.
(3)A VAT-registered person who
is also engaged in transactions
not subject to the value-added
tax shall be allowed tax credit
as follows:
(a) Total input tax
which can be directly
attributed to transactions
subject to value-added
tax; and
(b) A ratable portion
of any input tax which
cannot be directly
attributed to either
activity.
The term "input tax" means the
value-added tax due from or paid
by a VAT-registered person in the
course of his trade or business on
importation of 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
input tax determined in
accordance with Section 111 of
this Code.
The term "output tax" means the
value-added tax due on the sale or
lease of taxable goods or
properties or services by any
person registered or required to
register under Section 236 of this
Code.
(B) Excess Output or Input
Tax- If at the end of any taxable
quarter the output tax exceeds the
input tax, the excess shall be paid
by the VAT-registered person. If shifted by the seller to the buyer is
the input tax exceeds the output credited against the buyer’s output
tax, the excess shall be carried taxes when he in turn sells the
over to the succeeding quarter or taxable goods, properties or
quarters. services.
Provided, however, that any input
tax attributable to zero-rated sales
1.
by a VATregistered person may at
C
his option be refunded or credited
R
against other internal revenue
E
taxes, subject to the provisions of
D
Section 112.
I
(C) Determination of T
Creditable Input Tax- The sum S
of the excess input tax carried over
F
from the preceding month or
O
quarter and the input tax creditable
R
to a VATregistered person during
the taxable month or quarter shall I
be reduced by the amount of claim N
for refund or tax credit for value- P
added tax and other adjustments, U
such as purchase returns or T
allowances and input tax
attributable to exempt sale. T
A
The claim for tax credit referred to
X
in the foregoing paragraph shall
include not only those filed with
other government agencies, such • The VAT due on or paid by a
as the Board of Investments and VAT-registered person on
the Bureau of Customs. importation of goods or local
purchases of goods, properties, or
Q: Explain the Tax Credit Method services, including lease or use of
(also called “invoice method”) of properties, in the course of trade
collecting VAT? A: The input tax or business.
• Includes the transaction and the goods (which are depreciable B. H
presumptive input tax goods for income tax purposes) M A
• Includes input taxes which can be • If aggregate acquisition cost of A N
directly attributed to transactions all capital goods (exclusive of N
subject to the VAT plus a ratable VAT) in a calendar month N 1
portion of any input taxes which exceeds P1million, the input tax E M
cannot be directly attributed to cannot be claimed outright but R I
either the taxable or exempt should be subject to amortization L
activity. over a period of 5 years or useful O L
• Evidenced by a VAT invoice or life of the capital goods, F I
official receipt issued by a VAT- whichever is lower. O
C N
registered person. • If the aggregate acquisition cost
L
of all capital goods in a calendar
A P
month does not exceed P1
I E
million, the input tax may be
CLAIM M S
claimed outright as credit against
FO I O
output tax.
R N S
INP Aggregate acquisition cost refers G
UT 1. Estimated useful life of a
to the total price agreed upon for
TA I capital good is 5 years or more:
one or more assets acquired and
X N § Input tax spread evenly
not the payments actually made
ON P over a period of 60
during the calendar month.
DE U months §
PR T Commenced in
ECI the calendar month when
AB T the capital good is
LE A acquired 2.
GO X Estimated useful
OD life is less than 5 years:
O § Input tax spread evenly
S A.
F on monthly basis by the
RE
QUI actual number of months
M
SIT comprising the estimated
O
ES: useful life of the capital
R
•A VAT-registered person good
E
purchases or imports capital
T
 § Commenced in the
calendar month when the
capital good is acquired.
§ TRANSITIONAL INPUT
If the depreciable capital good is
sold/transferred within the period
of 5 years or prior to the
exhaustion of the amortizable
input tax thereon: entire
unamortized input tax on the
capital goods sold, can be claimed
as Input tax credit during the
month or quarter when the sale or
transfer was made but subject to
limitation.
2 t the Commissioner, be
. i allowed input tax on his
v beginning inventory of
e goods, materials and
T supplies equivalent to 2%
A I of the value of such
X n inventory or the actual
p value-added tax paid on
S u such goods, materials and
E t supplies, whichever is
C higher, which shall be
. T creditable against the
a output tax.
1 x
1
1 C
. r
e
T d
r i
a t
n s
s .
i
t -
i
o
n (A) Transitional Input Tax
a Credits.- A person who
l becomes liable to value-
/ added tax or any person
P who elects to be a VAT-
r registered person shall,
e subject to the filing of an
s inventory according to
u rules and regulations
m prescribed by the
p Secretary of finance,
upon recommendation of
3 T been put in its original form or K
. a condition. .
x C
PRESUMPTIVE INPUT O
T C (2) Public works contractors M
A r shall be allowed a presumptive P
X e input tax equivalent to one and U
d one-half percent (1 1/2%) of the T
S i contract price with respect to A
e t government contracts only in lieu T
c s of actual input taxes therefrom. I
. . O
1 N
-
1 O
1 F
(1) Persons or firms engaged
( in the processing of sardines, V
B mackerel and milk, and in A
) manufacturing refined sugar and T
cooking oil, shall be allowed a
P presumptive input tax, creditable P
r against the output tax, equivalent A
e to one and one-half percent (1 Y
s 1/2%) of the gross value in money A
u of their purchases of primary B
m agricultural products which are L
p used as inputs to their production. E
t As used in this Subsection, the
i term "processing" shall mean 1
v pasteurization, canning and .
e activities which through physical
or chemical process alter the C
I O
exterior texture or form or inner
n M
substance of a product in such
p P
manner as to prepare it for special
u U
use to which it could not have
t T
A ü Sales returns and 2
T allowances for which a . All creditable input taxes during
I proper credit or refund the month or quarter
O was made during the D + any amount of input taxes
N month or quarter to the E carried-over from
buyer from sales T precedingmonth/quarter
O previously recorded as E - (claim for VAT refund or tax
F taxable sales. R credit certificate)
II. Sellers of service: Gross M - (other adjustments – purchase
O I returns)
Receipts x VAT rate
U N - (input tax attributable to exempt
T A sales)
P T - (input tax on capital goods
U I purchased during the
T O month/quarter subject to
N amortization)
T
+/- (difference between standard
A O input and actual input on
X F government sales)
I + (creditable VAT withheld on
I. Goods or properties: Gross N payments to non-residents
Selling Price x VAT rate P = INPUT TAX CREDIT
U
Allowable deductions from gross NOTE: Adjustment to
T
selling price: Input Tax
ü Discounts determined and T
granted at the time of sale A
(expressly indicated in the Addition to Creditable Input Tax
X • Input tax arising from qualified
invoice, amount thereof
should from part of gross transactions in the current month
C
sales duly recorded in or quarter
R
the books, and the E • Input tax carried-over from the
granting of the discount D preceding month or quarter
does not depend on the I
Reduction in Creditable Input Tax
happening of the future T
• Amount of claim for VAT refund
event);
Determination of Input Tax Credit or Tax Credit Certificate
during a taxable month or quarter (whether filed with the BIR, the
 Department of Finance, the 3. T at his option be refunded or
Board of Investments or the E credited against other internal
BOC) X O revenue taxes subject to
• Other adjustments, such as C V provisions of Section 112.
purchase returns or allowances, E E
input tax attributable to sales S R
subject to final VAT S
O ALLOCATION OF INPUT TAX
withholding.
O U ON MIXED TRANSACTIONS
U T A VAT-registered person who is
T P also engaged in transactions not
P U subject to VAT shall be allowed to
U T recognize input tax credit on
T transactions subject to VAT as
follows:
O Determination of the output tax
V and VAT payable and 1.
All the input taxes that
E computation of VAT payable or can be directly attributed
R excess tax credits to transactions subject to
VAT may be recognized
I VAT payable computation: for input tax credit
N OUTPUT TAX - • Input
P INPUT TAX taxes
U ______________ which
T = VAT PAYABLE are
directly
/ • If at the end of any attribut
taxable quarter the output tax ed to
E exceedsthe input tax, the excess VATax
X shall be paid by the able
C VATregistered person. sales of
E • If the input tax exceeds goods
S the output tax, the excess shall and
S be carried over to the succeeding services
quarter or quarters. from
I • Any input tax
N the
attributable to zero-rated sales Govern
P by a VATregistered person may
U ment or
 any of subject to VAT may be S A
its recognized for input tax U X
political credit. B
subdivi S C
sions, NOTE: T R
instrum • Input tax attributable to VAT- A E
entalitie exempt sales shall not be N D
s or allowed as credit against the T I
agencie output tax but should be I T
s, treated as part of cost of goods A S
includin sold. T
g • For persons engaged in both I
Required Supporting Documents
GOCCs zero-rated sales and non-zero O
for claiming Input VAT
shall rates sales, the aggregate input N
taxes shall be allocated ratably TRANSACTIONS REQUIRED S
not be
between the zero-rated sale R On domestic purchases of goods or VAT invoice
credited
against and non-zero-rated sale. E properties made in the course of
output Q trade or business
taxes U On purchase of real property Public instru
arising I Cash/deferred payment basis absolute sale,
from R Installment basis sale, contrac
sales to E etc) together
non- M with the VA
govern E entire selling
ment N ORs for the i
entities T payments Pu
S VAT OR for e
2. If any input tax cannot be On domestic purchase of services VAT OR
directly attributed to O
On importation of goods Import entry
either a VAT taxable or F
document sho
VATexempt transaction, of VAT on th
I
the input tax shall be pro- BOC OR
N
rated to the VAT taxable On transitional input tax Inventory of
P
and VAT-exempt
U detailed list to
transactions
T BIR
• Only the ratable portion
On “demand sale” transactions Required invo
pertaining to transactions T On payments made to non- Monthly Rem
 residents issuance of a tax ( –
credit certificate or B
refund of creditable ) • A person whose
input tax due or paid registration has been
attributable to such C cancelled due to
sale. a retirement from or
Advance VAT on sugar
• The creditable input n cessation of business, or
tax allowed to be c due to changes in or
refunded does not e cessation of status may,
A cash register machine tape include transitional l within 2 years from the
issued to a registered buyer shall input tax. l date of cancellation,
constitute valid proof of • In case the taxpayer a apply for the issuance of
substantiation of tax credit only if is engaged in zero- t a tax credit certificate for
it shows the information required rated or effectively i any unused input tax.
under sec. 113 and zero-rated sale and o
237 of the Tax Code also in taxable or n
(C) Period Within Which
(invoicing requirements) exempt sale and the
o Refund or Tax Credit of Input
amount of creditable
f Taxes Shall be Made.
input tax due or paid
• the Commissioner shall
cannot be directly V
L. REFUNDS (Sec 112) SEC. grant a refund or issue the
and entirely A
112. Refunds or Tax Credits of tax credit certificate for
attributed to any one T
Input Tax. - creditable input taxes
of the transactions, it
within 120 days from the
(A) Zero-Rated or shall be allocated R date of submission of
Effectively Zero- proportionately on e complete documents in
Rated Sales of the basis of the g support of the application.
goods, properties or volume of sales. i
• Taxpayer may appeal to
services s
the CTA within 30 days
• Any VAT-registered t
from receipt of said
person, whose sales r
denial.
are zero-rated or a
• If no action on the claim
effectively zerorated t
for refund has been taken
may, within 2 years i
by the CIR after 120-day
after the close of the o
period from the date of
taxable quarter when n
submission of the
the sales were made, .
application with complete
apply for the documents, the taxpayer,
 may appeal to the CTA ( Chairman, Commission 1.
within 30 days from the D on audit. P
lapse of the 120-day ) • Refunds under this E
period. paragraph shall be subject R
• The CIR has 120 days, M to post audit by the S
from the date of the a Commission on Audit. O
submission of the n N
complete documents n S
within which to grant or e M. COMPLIANCE
deny the claim for r REQUIREMENTS C
refund/credit of input Vat. O
o M
In case of full or partial REGISTRATION
f M
denial of the by the CIR,
the taxpayer’s recourse is E
G N
to file an appeal before i
the CTA within 30 days C
v I
from receipt of the i
decision of the CIR. N
n G
Otherwise, if after the g
120-day period, the CIR
B
fails to act on the R U
application for tax e S
refund/credit, the remedy f I
of the taxpayer is to u N
appeal the inaction of the n E
CIR to CTA within 30 d S
days. Hence, if filed with . S
the CTA before the 120-
day period expires, CTA – (
will dismiss for S
prematurity. If filed with • Refunds shall be made
E
the CTA after the 150- upon warrants drawn by
C
day (120+30 days), CTA the Commissioner or by
will dismiss for being his duly authorized 2
late. This only applies to representative without the 3
credit input tax refunds. necessity of being 6
countersigned by the .
G E
) F
Q: Who are the persons required to
register for VAT?
A: Every person who in the course
of business or trade, sells, barters
or exchanges goods or properties,
or engages in the sale or exchange
of services shall register for VAT
if:
1.The gross sale or gross
receipts have exceeded
P1.5 million for the past
12 months; or
2. There are reasonable
grounds to believe that
his gross sales or receipts
in the next 12 months
shall exceed P1.5 million
NOTE: Those who are liable to
register for VAT under Sec
236.G.1 shall register with the
RDO which has jurisdiction over
the head branch or office of that
person and shall pay the annual
registration fee prescribed in Sec
B thereof.
2. shall be assigned only to one TIN.
P Q: What is the effect of a franchise
F E grantee of radio and TV
E R broadcasting, whose annual gross
C S income receipts for the preceding
T O year do not exceed P10 million,
N who opts for VAT registration?
O S A: The registration becomes
F irrevocable.
B
F E
A C 4
I O .
L M O
U I P
R N T
E G I
O
T L N
O I A
A L
R B
E L R
G E E
I G
S T I
T O S
E T
R V R
A A
If a person fails to register for T T
VAT, he shall be taxed as if he
I
were a VAT-registered person but
Q: Who is a VAT-registered O
without the benefit of input tax
person? N
credits for the period in which he
was not properly registered. A: Any person who has registered
(
VAT as a tax type in accordance
S
with Sec 236.C shall be referred to
E
as a VAT-registered person who
C (3) Franchise for VAT zero-rating on the
f grantees of radio and TV following sales:
2 o broadcasting with annual 2. In April 1990, petitioner
3 r gross receipts of the filed a VAT return with BIR for
6 preceding year do not the first quarter of 1990, declaring
. V exceed P10 million may its sales to the Central Bank,
H A opt for VAT PASAR and Philphos as zero-
) T registration. Registration rated sales and therefore not
? is irrevocable subject to any output tax
Q
A: Any person who is not required 3. Of the claim P33 million
: Q: What is the effect of optional
to register for VAT under Sec filed by petitioner, BIR only
registration? approved/credited P2.5 million.
W 236.G may elect to register for
A: He shall not be entitled to BIR alleged that BIR regulations
h VAT by registering with RDO that
cancel his registration under automatically disallow VAT
o has jurisdiction over the head
Subsection F.2 for the next 3 refund for failure to present the
office of that person, and paying
m years, except a franchise grantee, required documents although the
the annual registration fee in
a with gross receipts of P10 million purchases can be substantiated by
Subsection B. (Sec 236.H).
y and below, who opts for VAT other documents
NOTE: Under RR 16-05 registration. 4. Petitioner contends that
o (1) Any person who its sales to Philphos and PASAR
p is VAT-exempt under Sec should be zero-rated for the 1 st
t 4.109-1 (VAT exempt quarter of 1990
i persons) may elect to be 5. On the other hand, BIR
o VAT registered CASE: ATLAS argues that by virtue of the joint
n (2) Any person who CONSOLIDATED MINING V. stipulation of facts, petitioner is
a is VAT-registered but CIR, G.R. NO 134467 bound by its admission that it was
l enters into a transaction registered for VAT only from
l which are exempt from FACTS: Petitioner Atlas August 15, 1990, well beyond the
y VAT (mixed transactions) Consolidated Mining is engaged in 1st quarter for which it was
may opt that the VAT the business of mining, production applying for tax credit
r and sale of various mineral
apply to his transaction
e products, consisting principally of ISSUE: WON petitioner is a
which would have been
g copper concentrates and gold and VAT-registered for the 1st quarter
exempt under Sec 109.2
i duly licensed with BIR of 1990 despite clear
NIRC.
s 1. Respondent BIR evidence showing the effectivity
Registration is
t approved petitioners’ application of petitioners’ VAT registration to
irrevocable for 3 years
e be January 1, 1988
r
HELD: Yes. As a general rule, a
judicial admission is binding on
the declarant.
However, such rule does not apply
when there is a showing that:(1)
the admission was made through
a “palpable mistake;” and (2) “no
such admission was made” in
accordance with Sec 4, Rule 129
ROC.
In the present case, it is clear that
petitioner had committed a
palpable mistake. Based on the
BIR records, the registration
certificate is 32-0-004622
effective August 15, 1990. But the
actual VAT registration certificate,
which petitioner mentioned in the
stipulation is numbered 36-A-6-
002224 effective January 1, 1988
thereby showing that it had been
VAT-registered even prior to the
1st quarter of 1990.
This can only mean that the
petitioner made a “palpable
mistake” either in referring to the
wrong BIR record or in attaching
the wrong VAT registration
certificate. At any rate, the fact
remains that petitioner was VAT-
registered as of January 1, 1988.
That petitioner’s explanation of
the discrepancy was made only
after the CTA had promulgated its
decision is understandable. It was
only when that promulgation was
made that petitioner became aware 5 3
of the clerical error in the joint . 6
stipulation of facts. Petitioner’s .
other registration number 32-0- C F
004622 came about when it moved A )
its principal place of business to a N
different revenue district. Its 2nd C Q: What is required for the
registration as a VAT enterprise E cancellation of VAT registration?
on August 1990, was made in L A:
compliance with Sec 3 of RMC no L 1.The VAT-registered person
6-88, which required it to re- A makes written application and
register after it moved its principal T demonstrates to the CIR’s
place of business to another RDO. I satisfaction that his gross sales or
O receipts for the following 12
N months, other than those that are
exempt under Sec 109 A to U, will
O not exceed P1.5 million
F 2. He has ceased to carry on his
trade or business and does not
R
expect to recommence any trade or
E
business within the next 12
G
months (Sec 236.F)
I
S
T EFFECTIVITY OF
R CANCELLATION: The
A cancellation of registration will be
T effective from the 1st day of the
I following month.
O
N
(
S
E
C
2
V A B T
A . .
T 1. Statement that the seller
I I is VAT-registered,
I N N followed by his Tax
N V F Identification Number
V O O (TIN)
O I R 2. Total amount purchaser is
I C M obligated to pay seller
C I A with indication that such
I N T amount includes VAT
N G I a) The amount of
G O tax shall be
R N shown as a
A E separate item in
N Q C the invoice
D U O
b) If the sale is
I N
A exempt from
R T
C VAT, the term
E A
C VATexempt
M I
O shall be
E N
U indicated
N E
N c) If the sale is
T D
T subject to zero-
S
I I rating, the term
N 1. VAT invoice for every N Zerorated sale”
G sale, barter or exchange shall be
of goods or properties V indicated
INVOICING AND 2. VAT receipt for every A d) If it is a mixed
ACCOUNTING lease of goods or T transaction
REQUIREMENTS FOR properties, and every sale, (partly zero-
VATREGISTERED R rated, partly
barter or exchange of
PERSONS (SEC 113) E exempt or partly
services
C subject to 12%
E VAT), the
I invoice shall
P indicate the
 breakdown of
the sale price
between its
taxable, exempt
and zero-rated
3. The date of transaction,
quantity, unit cost, and
description of goods or
nature of service
4. If the sale is worth P1000
or more, or the transfer is
made to a VAT-registered
person, the name, TIN of
purchaser or customer
should be indicated
A addition to regular accounting C
C records required, maintain a O
C subsidiary sales journal and N
O subsidiary purchase journal S
U showing daily sales and purchases. E
N Q
T U
I E
N N
G C
E
R S
E
Q F
U O
I R
R
E I
M S
E S
N U
T I
S N
G
(
S E
e R
c R
O
1 N
1 E
3 O
. U
C S
)
B
Notwithstanding Sec 233, all A
persons subject to VAT shall in T
 (1)The tax I M
I imposed in S M
N Sec 106 or S E
V 108 without U R
O benefit of any A C
I input tax N I
C credit; and C A
E (2)50% E L
surcharge
O O S
under Sec
R F A
248.B
b. The VAT shall be L
R R E
E recognized as an input tax
E S
C credit tothe purchaser under
C
E Sec 110
E (
I I S
P 2 If a VAT-registered
P E
T person issued a VAT invoice for a
T C
VAT exempt transaction but fails
S
( to indicate it is a VAT-exempt 2
S sale, the issuer shall be liable to O 3
e account for the tax R 7
c imposed under Sec 106 108 )
(despite Sec 109) I
1 N Q: When are receipts or sales or
1 V commercial invoices issued?
3 O A: All persons subject to an
. I internal revenue tax for each sale
D C or transfer of merchandise or for
) E services rendered valued at 25
S pesos or more, issue duly
1 If a person who is not registered receipts or sales or
VAT-registered issues an invoice F commercial invoices, prepared at
or receipt showing it is O least in duplicate, showing the
VATregistered: R date of transaction, quantity, unit
a. The issuer shall be liable to, cost and description of
in addition to any liability to C
merchandise or nature of service.
other percentage taxes: O
(Sec. 237) be punished by a fine of not less R -
than P1000 but not more than M 2
Q: How many years should the P50,000 and imprisonment of not C 0
issuer and purchaser keep the less than 2 years but not more than 0
receipts? A: They shall keep the 4 years. 6 3
receipts for a period of 3 years 1
from the close of the taxable year S Pursuant to Sec 109 NIRC, a VAT-registered person whose sales of goods,
in which such invoice or receipt E properties 2. Failure of any person to registered as required under Sec 236 –
was issued (Sec 237). C Temporary or services which are not subject to VAT but nonetheless issues a
VAT invoice or receipt close of the establishment for the duration of not less
1 than 5 days but shall for such transactions shall have the following
R 0 consequences: be lifted only upon compliance with the requirements
R 9 prescribed by CIR in the closure order.
1. S
0 N
h
8 I
a
- R
l
9 C
l
9
l
b
This Revenue Regulation provides a
e
penalties for violation of the s
requirement that Output tax on the t l
sale of goods and services should i
not be separately indicated in the p
a
sales invoice or receipt. a
b
r
l
SCOPE: All VAT-registered
A VAT-registered person may opt e
persons who are required under
Sec 237 NIRC to issue receipts or that Subsection (1) not apply to its
t
sales or sales or commercial goods or properties. Such election
o
invoices are no longer allowed to shall be irrevocable for a period of
separately bill the VAT. The 3 years from the quarter the t
amount appear in the election was made. h
receipts/invoices should be e
deemed inclusive of VAT.
p
PENALTY: Failure or refusal to a
comply with he requirement shall y
m e
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n e
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p
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p RETURN AND PAYMENT OF
p VAT
l BIR Form 2550M
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c
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c N.POWER OF THE
e COMMISSIONER TO
SUSPEND BUSINESS
m
OPERATIONS (Sec 115)
u
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b
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 • the gift is
f I DIRECT or
o m INDIRECT; and
l p • the property is
l o REAL or
o s PERSONAL,
w i tangible or
i t intangible.
n i
g o
n
v
i o
o f
l
a T
t a
i x
o
n –
s a. There shall be levied,
: assessed, collected, and
paid upon the
1. In case of a VAT-registered person: TRANSFER BY ANY
a) Failure to issue receipts or invoices PERSON, resident or
b) Failure to file VAT return as required under Sec 114 nonresident, of the
c) Understatement of taxable sales or receipts by 30% or more property, by GIFT, a tax,
of his correct taxable sales or receipts for thetaxable computed as provided in
quarter. Section 99.
DONOR’S TAX S
b. The tax shall apply
e
A. Sections 98-103, NIRC WHETHER:
c
. • the transfer is IN
TRUST or
9 otherwise;
8
.
S – su o then the
e bj AMOUNT by
c a. In general, the tax for ec which the FMV
. EACH CALENDAR t of the property
YEAR shall be 6% to EXCEEDED
9 computed on the basis of 6 the VALUE OF
9 the GIFTS IN EXCESS % THE
. of P250,000 exempt gift ta CONSIDERAT
made during the calendar x. ION shall, for
R year. the purpose of
a b. Any contribution in cash
• Th the tax imposed
t or in kind to ANY
us, by this Chapter,
e CANDIDATE,
P2 be DEEMED a
s POLITICAL PARTY or
50 GIFT, and
,0 COALITION of parties SHALL be
o
00 for CAMPAIGN INCLUDED in
f
an PURPOSES shall be COMPUTING
T d governed by the Election the AMOUNT
a be Code, as amended. of GIFTS
x lo o Candidate MADE
w himself MUST DURING the
P = CALENDAR
declare/state
a E YEAR.
y such donation to
X • Provided,
a E be EXEMPT.
however,
b M that a sale,
l P exchange, or
e T. Sec. 100. Transfer for Less Than
other
• O Adequate and Full
transfer of
b Consideration – Other than real
V property
y property referred to in Section
E MADE in
R 24(d) (capital gains from sale of
D the
P2 real property), where property is
o ORDINAR
50 TRANSFERRED for LESS
n Y COURSE
,0 THAN an ADEQUATE and
o OF
00 FULL CONSIDERATION in
r BUSINESS
= money or money’s worth:
 (a ( D ho
transaction a E we
which is a ) N ver,
bona fide, at T that
arms’ I NO
length, and n – T
free from M
any t 1) Gifts MADE TO or OR
donative h FOR THE USE OF E
intent), will e the NATIONAL TH
be GOVERNMENT or AN
c any entity created by
CONSIDE a 30
RED as any of its agencies %
s which is not
MADE e OF
FOR AN conducted for profit, SA
ADEQUAT or to any political ID
o
E and subdivision of the GI
f
FULL said Government; FT
CONSIDE g and S
RATION in i 2) Gifts in favor of sha
money or f EDUCATIONAL ll
money’s t and/or be
worth. s CHARITABLE, US
RELIGIOUS, ED
m CULTURAL or BY
Sec. 101. Exemption of Certain a SOCIAL WELFARE SU
Gifts – d corporation, CH
e institution, DO
accredited NE
b nongovernment E
y organization, trust or for
philanthropic AD
a organization or MI
research institution or NI
R
organization. ST
E
o Pro RA
S
vid TI
I
ed,
 ON ited • Thus, • OVER
PU non P250,000 P250,000 =
RP gov and below = subject to
OS ern EXEMPT. 6% tax.
ES. me
o For nt C. Gross Gifts a transfer tax of any character in
the org respect of
pur ani Sec. 104. Definitions –
pos zati • Gross estate and gifts citizens of the Philippines not o
e of on, Real and personal property, whether tangible or intangible,
this trus
or residing in that foreign country. mixed,
exe t or
mp phi WHEREVER SITUATED: b) the laws of the foreign
tio lant country of o Provided, however, that if decedent or
n, a hro donor was which the decedent or donor was a a
'no pic NONRESIDENT ALIEN at the time of his death citizen
n- org
and resident at the time of his or donation, as the case may
pro ani
fit zati be: death or donation ALLOWS A SIMILAR o
edu on his real and personal property so EXEMPTION FROM
cati and TRANSFER OR transferred but which are situated
ona /or DEATH TAXES OF EVERY outside the
l res
Philippines shall NOT be CHARACTER OR
and ear
/or ch DESCRIPTION in included as part of his ‘gross estate’ or
cha inst respect of intangible personal property ‘gross gift’. owned
rita itut by citizens of the Philippines not residing in that foreign
ble ion country.
cor or
org o Provided, further, that
por
ani the following shall be
atio
zati considered as
n,
on' situated in the
inst
is: Philippines: •
itut
Deficiency
ion,
acc a) franchise which must be exercised in
red the o the amount by which the
 TAX IMPOSED by this Chapter o Provided, still further, that NO tax shall be
EXCEEDS the collected under this Title in respect of
Philippines; AMOUNT SHOWN AS intangible personal Other than real property
THE TAX BY THE DONOR UPON HIS
referred to in Section 24(d) (capital gains from
b) shares, obligations or bonds issued by
RETURN any corporation or sociedad sale property IF: of real property), where
anonima - but the amount so shown property is TRANSFERRED for LESS THAN
on the return shall first be organized an
or constituted in the increased by the a) the decedent (at the time of his death) or
amount previously assessed (or
ADEQUATE and FULL
Collected
CONSIDERATION in money or
Philippines in accordance with its
laws; without assessment) as a deficiency, money’s worth: the donor (at the time
and decreased by the c) shares, of the donation) o then the AMOUNT
obligations or bonds by any amounts by which the FMV of the property
previously abated, refunded or was a citizen and resident of a
otherwise repaid foreign corporation 85%
foreign EXCEEDED the VALUE
of the business in respect of such tax; or
of which is located in the Philippines; OF THE CONSIDERATION shall,
o if NO amount is shown as the tax by the country for the purpose of the tax
donor, then the amount by d) shares, imposed by this Chapter, be
obligations or bonds issued by which the § which at the time of his death
tax exceeds the amounts previously DEEMED a GIFT, and
assessed, (or any foreign corporation if SHALL be INCLUDED in
such shares, collected without assessment) or donation did NOT
as a deficiency, but such amount IMPOSE
obligations or bonds have acquired a COMPUTI •
previously assessed, or collected without NG the Pro
assessment, shall first business situs in AMOUNT vid
the Philippines; be decreased by the of GIFTS ed,
amount previously abated, refunded or MADE ho
e) shares or rights in any partnership, DURING we
otherwise repaid in respect of such tax. the ver
business or industry established in the CALEND ,
Philippines. AR YEAR. that
D. Transfer for Inadequate Consideration (Sec. 100) a
sal whi AD upon expiration on July 3, 1974 of
e, ch EQ the Parity Amendment. Thus,
exc is a UA private respondent sold its Basilan
han bo TE land holding to Siltown Realty
ge, na an Phil. Inc., (Siltown) for P500,000
or fid d on January 21, 1974. Under the
oth e, FU terms of the sale, Siltown would
er at LL lease the property to private
tra ar CONSIDERATION in respondent for 25 years with an
nsf ms’ money or money’s worth. extension of 25 years at the option
er len of private respondent.
of gth, CASE: CIR v. BF Goodrich
pro and Philippines Private respondent books of
per fre accounts were examined by BIR
ty e Facts: Private respondent BF for purposes of determining its tax
M fro Goodrich Philippines Inc. was an liability for 1974. This
AD m American corporation prior to July examinationresulted in the April
E any 3, 1974. As a condition for 23, 1975 assessment of private
in don approving the manufacture of tires respondent for deficiency income
the ativ and other rubber products, private tax which it duly paid. Siltown’s
OR e respondent was required by the books of accounts were also
DI inte Central Bank to develop a rubber examined, and on the basis
NA nt), plantation. In compliance thereof, on October 10, 1980, the
RY wil therewith, private respondent Collector of Internal Revenue
CO l be bought from the government assessed deficiency donor’s tax of
UR CO certain parcels of land in P1,020,850 in relation to said sale
SE NS Tumajubong Basilan, in 1961 of the Basilan landholdings.
OF ID under the Public Land Act and the
BU ER Parity Amendment to the 1935 Private respondent contested this
SI ED constitution, and there developed a assessment on November 24,
NE as rubber plantation. 1980. Another assessment dated
SS M March 16, 1981, increasing the
(a AD On August 2, 1973, the Justice amount demanded for the alleged
tra E Secretary rendered an opinion that deficiency donor’s tax, surcharge,
nsa FO ownership rights of Americans interest and compromise penalty
ctio R over Public agricultural lands, and was received by private
n AN including the right to dispose or respondent on April 9, 1981. On
sell their real estate, would be lost appeal, CTA upheld the
assessment. On review, CA prescription should perforce be ( D
reversed the decision of the court strictly construed. a E
finding that the assessment was ) N
made beyond the 5-year T
prescriptive period in Section 331 E. Exemption of Certain I
of the Tax Code. Gifts (Sec. 101) n –

Issue: Whether or not petitioner’s t 3) Gifts MADE TO or

right to assess has prescribed. h FOR THE USE OF
e the NATIONAL
Held: Applying then Sec. 331, GOVERNMENT or
NIRC (now Sec. 203, 1997 NIRC c any entity created by
which provides a 3year a any of its agencies
prescriptive period for making s which is not
assessments), it is clean that the e conducted for profit,
October 16, 1980 and March 16, or to any political
o
1981 assessments were issued by subdivision of the
f
the BIR beyond the 5-year statute said Government;
of limitations. The court g and
thoroughly studied the records of i 4) Gifts in favor of
this case and found no basis to f EDUCATIONAL
disregard the 5-year period of t and/or
prescription, expressly set under s CHARITABLE,
Sec. 331 of the Tax Code, the law RELIGIOUS,
then in force. m CULTURAL or
a SOCIAL WELFARE
For the purpose of safeguarding d corporation,
taxpayers from any unreasonable e institution,
examination, investigation or accredited
assessment, our tax law provides a b nongovernment
statute of limitations in the y organization, trust or
collection of taxes. Thus, the law philanthropic
or prescription, being a remedial a organization or
measure, should be liberally research institution or
construed in order to afford such R
organization.
protection. As a corollary, the E
o Pro
exceptions to the law on S
vid
I
ed,
ho ON ited coll
we PU non ege
ver, RP gov or
that OS ern uni
NO ES. me ver
T o For nt sity
M the org and
OR pur ani /or
E pos zati cha
TH e of on, rita
AN this trus ble
30 exe t or cor
% mp phi por
OF tio lant atio
SA n, a hro n,
ID 'no pic acc
GI n- org red
FT pro ani ited
S fit zati non
sha edu on gov
ll cati and ern
be ona /or me
US l res nt
ED and ear org
BY /or ch ani
SU cha inst zati
CH rita itut on,
DO ble ion trus
NE cor or t or
E por org phi
for atio ani lant
AD n, zati hro
MI inst on' pic
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ST ion, o a ani
RA acc sch zati
TI red ool, on
 and d o m
/or e e
res n c ,
ear d o w
ch s m h
inst , p e
itut e) g e t
ion o n h
or v s e
org e a r
ani r t s
zati n i t
on, e o u
inc d n d
orp , e
ora b a n
ted y n t
as a d s
non t '
- r f) d f
sto u e e
ck s v e
enti t o s
ty: e t o
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d) p
s n g
a
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o a
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e
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i n
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o i
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n , h A
, t e r
s o p t
u u i
b t r c
s h p l
i e o e
d a s s
i c e o
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s o e I
o m n n
r p u c
o l m o
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f e e a
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m a i o
s n n n
o d .
f i
p p t
h r (b) In the case of gifts made by a NONRESIDENT NOT a PH
i o CITIZEN benefits thereof are not enjoyed by everybody but
l m by one or more
a o (nonresident alien) –
n t
3) Gifts MADE TO or FOR THE USE OF the NATIONAL
t i
GOVERNMENT
h o
or any entity created by any of its agencies which is not conducted for
r n Accordingly, since the renunciation by Mrs. Paciencia G.

o o A
p f suncion of the properties she inherited her late husband, Felipe
 profit, or to any political subdivision of the said Government; and F. which the NET GIFTS Revenue Regulations No. 1-75, Sec. 1 &
Asuncion in favor of their first-born grandchildren who are not 4) Sec. 2(a), Revenue SITUATED WITHIN SUCH COUNTRY
Gifts in favor of EDUCATIONAL and/or CHARITABLE, TAXABLE under this Title Regulations No. 15-72, Sec. 1,
RELIGIOUS, her co-heirs but are heirs of different degree as that of Revenue Regulations No. 3-73].
Mrs. CULTURAL or SOCIAL WELFARE corporation, institution,
accredited Paciencia G. Asuncion as well as the disposition of her bears to his entire net gifts; and
conjugal nongovernment organization, trust or philanthropic F
organization or shares in said properties in favor of the same first- urthermore, under Section 49(a)(4) of the Tax Code, as d) The
born research institution or organization. grandchildren were made TOTAL AMOUNT OF THE CREDIT shall NOT EXCEED the
out of pure liberality on the part of Mrs. amended, no registration of any document transferring real same
proportion of the tax against which such credit is taken, which
o Provided, however, that NOT MORE THAN 30% OF property shall be effected by the Registry of Deeds unless the
SAID Asuncion, she shall be subject to the donor's tax imposed under the DONOR'S NET GIFTS SITUATED OUTSIDE THE
then Section 108 (now Section 91) of the Tax Code, as amended, Commissioner of Internal Revenue or his duly authorized
GIFTS shall be USED BY SUCH DONEE for PHILIPPINES TAXABLE under this title bears to his entire
on such renunciation or disposition of properties. net gifts. representative has certified that such transfer has been reported,
ADMINISTRATION PURPOSES. and the tax imposed under the Tax Code, if any, has been paid.
Hence, a BIR clearance is necessary for purposes of registering the properties
in the name of the first-born grandchildren of Mrs.
(c) Tax Credit for Donor’s Taxes Paid to a Foreign Country – tax F. Repudiation of Inheritance: Tax Consequence
amnesties under Presidential Decree Nos. 23, 157 and 631 as 3) In Paciencia G. Asuncion as a consequence of the donation she
General. - The tax imposed by this Title upon a DONOR who was a made in their favor.
implemented respectively by Revenue Regulations Nos. 15-72, o BIR Ruling 455-
3CITIZEN OR A RESIDENT AT THE TIME OF DONATION shall 93, dated
be 73 and 1-75 did not relieve her of her donor's tax liability on the November 19, 1993.
CREDITED with the amount of any donor's tax of any character I
and aforesaid donation she made in favor of his first-born n
grandchildren as contained in the supplemental/amendatory
extrajudicial description imposed by the authority of a foreign r
country. settlement she and her children executed on March 25, e
1971, p
3) Limitations:
considering that the tax amnesties under the l
aforesaid Presidential c) The amount of the credit in respect to y
the TAX PAID TO ANY Decrees do not include tax liabilities ,
arising from the disposition or COUNTRY shall NOT EXCEED
p
the same proportion of the tax transfer of property by reason of
l
death or by donation [Sec. 4, against which such credit is taken,
e o
a n
s ,
e
a
b c
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r
i e
n t
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r n
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e t
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e
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s
s r
i e
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d
i T
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s e

o t
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e
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d r
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e t
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i e
n
i
l n
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g e
a r
l i
t
s a
u n
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c e
e ,
s
s f
i o
o r
n
w
a h
r i
e c
h
c
o reason there is always a right of
-
o accretion among them, unlike in G.
w Filing of Returns and Payment of Tax
n
e testamentary succession where there
r may or may not be a right of
s
accretion (Arts. 1018, 977, 967, New Civil Code). However, if the
o 1) Imposition of Tax
f renunciation by an heir or heirs is made in favor of one or more

t
 heirs but not all the other heirs, the act of renunciation is in effect o OVER P250,000 = subject to 6% tax. MAKE A RETURN
Sec. 98. Imposition of Tax – UNDER OATH IN DUPLICATE. The return shall set forth:
an act of disposition inasmuch as the act of disposition and the a. b. Any contribution in cash or in kind to ANY CANDIDATE,
There shall be levied, assessed, collected, and paid upon the a) Each gift made during the calendar year which is to
be
TRANSFER BY ANY PERSON, resident or nonresident, of
POLITICAL PARTY or COALITION of parties for CAMPAIGN
the property, by GIFT, a tax, computed as provided in Section included in computing net gifts;
b) The TOTAL AMOUNT PURPOSES shall be governed by the Election Code, as
OF THE CREDIT shall b) T
99. NOT EXCEED the same proportion of the tax and allowable;
against which such credit is taken, which the b. The
amended.
tax shall apply WHETHER: DONOR'S NET GIFTS
Any previous net gifts made during the same calendar
SITUATED OUTSIDE
• the transfer is IN TRUST or otherwise; THE o Candidate himself
PHILIPPINES TAXABLE under this title MUST
• the gift is DIRECT or INDIRECT; and bears declare/state such
to his entire net gifts. year; donation to
• the property is REAL or PERSONAL, tangible be EXEMPT. d)
or intangible. The name of the
donee; and
e) Such further information as may be required by rules and
regulations made pursuant to law.
2) Tax Rate Sec. 103. Filing of Return and
3) Tax Credit
Payment of Tax – Sec. 99. Rates of Tax
Sec. 101
Payable by Donor – 2) Time
and Place of Filing and
a. In general, the tax for EACH CALENDAR YEAR shall be 6%
Payment. –
1) Requirements. – computed on the basis of the GIFTS IN
(c) Tax Credit for Donor’s Taxes Paid to a Foreign Country –
EXCESS of P250,000 Except those which, under Section 101, Such return shall be filed within 30 days after the date
are exempt from the tax exempt gift made during the calendar 1) In General. - The tax imposed by this Title upon a
year. provided for in this Chapter, ANY INDIVIDUAL WHO the gift is made AND the tax due thereon shall
be paid DONOR who was a CITIZEN OR A
MAKES ANY o Thus, P250,000 and below = EXEMPT.
RESIDENT AT THE at the time of filing.
TRANSFER BY GIFT SHALL, for the purpose of the said tax,
 TIME OF DONATION shall be CREDITED with o directly with the OFFICE OF THE COMMISSIONER.
the • Except in cases where the Commissioner Note: TRAIN provides that any contribution in cash or in kind to any
otherwise amount of any donor's tax of any candidate, political party or coalition of parties for campaign
character and permits, the return shall be filed and purposes shall be governed by the Election Code.
the tax paid to:
2 description imposed by the authority of a foreign
) country. Limitations: 5) BIR Form 1800
a) The amount of the credit in respect to the
TAX PAID TO ANY COUNTRY Description
shall NOT EXCEED the same • T
proportion of the tax against which h
such credit is taken, which the NET i
GIFTS s
SITUATED WITHIN SUCH COUNTRY
r
TAXABLE under this Title bears to his
e
entire net gifts; and
t
u
there r
NO n
RESIDENCE IN THE
The Court did not give credence to their arguments. The contributions are s
PHILIPPINES. considered gifts h
under the NIRC. It is a voluntary a
transfer of property without any l
consideration or compensation. l
Accordingly, the purpose for which
the b
e
• In the case of gifts made by a NONRESIDENT, the return may be
sums of money were
given cannot be considered a material consideration to f
negate a donation. Donative intent is not negated by the i
presence of other filed with: intentions, motives or purposes l
which do not contradict donative intent. The o the e
PHILIPPINE EMBASSY OR CONSULATE in the country d
petition is denied. where he is domiciled at the time of the
transfer, OR i
n
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