VALUE ADDED "TAX

Taxation Law

I I
or lessee of the goods or properties or services
VALUE ADDED TAX (INGLES, Reviewer, supra at 312).

EXCEPTION: Technical importations

VALUE-ADDED TAX (VAT) In the case of tax-free importation of goods into

It is a tax on consumption levied on the sale, barter,
exchange or lease of . goods or p~opertie~ and
services in the Philippines and on 1mportat1on of
goods into the Philippines (R.R. No. 16-2005, Sec.
4.105-2).
CHARACTERISTICS
OF PHILIPPINE
VAT:
1. It is an indirect tax
The amount of tax maybe shifted or passed on
by the seller to the buyer, transferee or [essee of
goods, properties or services (NIRC, Sec. 105).
It is one paid by a person who is indirectly liable
therefor; and who may thereafter shift_or pass on
the tax to another person • or entity, which
ultimately assumes the tax burden (Maceda v.
~acaraig, Jr., G.R. No. 8829_1, May_31, 1991). --· ~
Impact of Taxation
the Philippines by persons, entities or a~encies
exempt from tax , where such goods a~e
subsequently sold, transferred or exchanged in
the Philippines to non-exempt · perso~~ .or
entities, the purchasers, transferees or rec1p1ents
shall be considered the importers thereof, who
shall be liable for any internal r~venue tax on
sucn importation (NIRC, Sec. 107(8)).
Effect When VAT Shifted to the Customer
Once the VAT is shifted to the buyer/cuStomer as
an addition to the cost of goods or services s~ld,
it is no longer a tax but an additional coSt whi~h
the buyer/customer has to pay in order to obtain ·
the goods or services. The buyer cannot be h~ld
directly li~ble to pay tax or invoke an exemption
privilege .to avoid paying the o~tput tax pass~d on
. to them· by the vendor, in the form of higher
selling price ·(BIR Ruling No. 639-12, December
4, 2012) . •. · • .
' ,, f

- point where the tax is originally imposed or the 2. It is\ a ta, im-pdsed on value added to
one on whom the tax ls· formally '. assessea -goocis, prop~rties or~ services of a
>' • • •
(INGLES, Tax Made Less Ta,fing: A Re~iewer , ~axpayer '
with Codals and Cases (2018), p. 7 Jh~remafter -
INGLES, Reviewer]). .1 ~ ~ .' The tax is so-called ·VAT because it is imposed
011 th~ value ~ot previously subjected to the VAT,
a1
Incidence of Taxation (; -~ ~ i.e. , on the varue dded to the goods or services
at eac h stage of the distribution chain · (2 DE
_ refers to the person r entity to whom · the · LEON, The National Internal Revenue Code
burden of the indirect tax is shifted, the one who ~ . ; ··Annotatea. (2016 , p. 2 (hereinafter 2 DE LEON,
ultimately bears the burdep of the tax (~-C:·· ~ i _ NIRCJ) .
DOMONDON, National Taxation (20 ~8), p. 10- -· - · . • · •
[hereinafter 2-C DO MONDON]). ,... , . • V~lue,.ad~ed
1

The seller is · the one statutorily liable for the

1j 1 '.. ._ _ , the difference between total sales of the
payment of the tax, but the amount of the tax may , ~ taxpayer for the taxable quarter subject to value-
be shifted or passed on to the buyer, transferee added tax and his total purchases for the same
period subject also to value-added tax

DOHN ALFRED E. AQUILIZAN, Over-Al/ Chairperson I NICHOLE VA.NE B. SANTOS, Cha irperson for Academics I RONALYN A.
GACULA. Ad Hoc Director for Bar Ma tters I MARIELLE CIELO B. BELGIRA, Vice Chairperson f or Finance i JUAN INIGO S. MIGUEL,
Vice Chairperson for Operations I ALISSA MARIE D.C. DELOS SANTOS, Vice Chairperson for Audit I CORINA R. TAMPUS, Vice
Chairperson for Secretariat I ARVY KEITH N. CHUNG, Vice Chairperson for Logistics I ANTONIO JUN-JUN C. MANALIGOD IV, Vice
Chairperson for Membership IJ?RDAN N. CHAVEZ, Vice Chairperson for Electronic Data Processing

•
JOSE WRENZO C. DAVE, Subject Chair / LOUISE MARIE C. CONTACTO, Assistant Subject Chair ) KATRYNA ANNE R. TOMENIO,
Subject Electronic D~ta Processing I SUB[ECT HEADS: MARY GRACE A. GRANTL, Ge11.eral Principles I SHEENA ROSETfE D_G.
DOMINGO, Admlmstrat/011, Enfo rceme111, Remedies and Court of Tax Appeals IJERRLITO P. CUSTODIO, Local and Real Property Taxation
/ SlEVIE
H. R. A.RCIU.A
MALALUAN, and PATRICK
Value-Added Ta xi MARRION Y. MELENDRES, fll come Taxation I MARY ANN C. TAN, Transfer Tax )MARILYN

KATRINA MICHAELA D. DELFIN, AJlMAN T. PAEZ, AN DRE I AN~ U. PALOMAR, MARY KATHERINE A. SIMEON, JAM£5
KARL DANIEL B. ALVARO, ARIESA JANE V.. DOMINGO, JOSEPHJNE MARJE T. SALAZAR, YNA MAREI AGUILAR, NERY
ROYCE T. LAZARO, JOHN KENNETH Q. CRISOLOGO, LOIS DANIELLE P. DIMAANO, ANDRELA M. AQUINO, ANNA LOREN
DC. MANUEL and GILBERT OWENS. APILADO

Atl
y.
NICASJO C. CABANEIRO, CPA, Atty. DANTE 0 . DELA CRUZ, C PA, Jus1lccJAPAR n. DIMAAMPAO, Ally. EFREN
VINCE NT M. DIZON, CPA •
 (MAMALA_ TEO'. Reviewer onTaxation (2019), p.
488 [hereinafter MAMALATEO, Reviewer]). ··
ILLUSTRATION:
Andres sold a piece Boris crafts the wood
of wood to Boris: into a rocking chair
and sold it to Cletus:
Price: . ~100 Price: · ~150
VAT 12% ___J2 VAT 12% 18
Total P112 Total P168
Boris'. Net VAT Payable may be computed as
follows: -
Output tax (VAT on Boris' sale) P18 ·
Less: Input tax (VAT on Boris' purchase) · 11£)
*Net VAT Payable ~6
*The tax on the value added by Boris can be seen
in the level of the price ·(Value added of P50 x
12% VAT = t-6 which is also the Net Vat Payable . •
of Boris) (INGLES, Reviewer, supra at 313).
NOTE: As it is a tax on the transaction, there is · .
no need whatsoever for there to be a taxable gain
(unlike in income tax) (Id.).
3. It is a transparent form of sales tax
VAT is a tax on the taxable sale, barter or
exchange of goods, ·properti~s- or. services. A _
barter or · exchange has .the .same . tax
consequence as a sale. A sale may be c!~ actual,
sale.or a deemed sale, or an export ,sal~ or a locaJ
sale (MAMALATEO, Reviewer, ·s_ upra at .491) .
I
Transparent •. · -
- t~e law requires that the tax be sho':'n as a
separate item in the VAT invoice or rece1pt_(RR.
No. 18-201.1, Sec.•1) . .· , ·•. •
4. It is a broad-based tax oh consumption
imposed on all stages of taxable sale but
the burden rests with the final consumer
who consumes the goods, properties or
services in the Philippines (MAMALATEO,
Reviewer; supra at 492).
Broad-based .
- every sale of goods, properties, or services at
nd
the levels of manufacturers or producers a
distributors is subject to VAT (Id.).
5. It is collected through the tax cretdhit
method (sometimes referred to as e export to a country other than the Philippines) or
"invoice method'J (Id. at 49 o) .
Tax Credit Method (or Invoice Method)
- the input taxes shifted by' the sellers to the
buyer are credited against the buyer's output
ta,xes when he in turn sells the .taxable goods,
properties_or services (NIRC, Secs. 105 and 110
(A)) . . .
ILLUSTRATION:
In the transaction above, when Andres sold' the
wood to Boris, the ~12· Output Tax of Andres
becomes the Input Tax of Boris. When the chair .
is sold to Cletus, Boris may claim the ~12 as. his
·input tax which is deductible from his output tax
of ~18 (INGLES, Reviewer, supra at 313).
6. It adopts the "tax-inclusive method"
Unless otherwise stated, any-price charged by a
VAT registered person. shall be deemed to
includE1 the VAT charged (MAMALATEO,
Reviewer, supra at 494).
NOTE: the VAT component shall be separately
indicated in the VAT invoice or receipt (R.R. No.
18-2011, Sec. 1) .
f:.~} ~},lt fo!l9~ s,.the-Destination Principle/Cross
, Bon:ler D9ctrine (Id. at 492). ·
11:,. kJ
Destinatldn Principle or Cross Border .
Doctrine ' ·
Good ~·an~ services are taxed only in the country ·
where these ar.e consumed . The Cross Border .
Doctrine in8:n~ates that no VAT shali be imposed
to form part of the cost of the goods destined for
consumpt\on outside the territorial border of the
. taxing authority (Atlas Consolidated Mining ancJ
Dey~lop ent Corp. v. Commissioner of Internal
Revenue, G.R. No. 141104, June 8, 2007) .
Exports are zero-rated because these ·shall be
consumed outside the Philippines, while imports
. are generally subject to 12% VAT because they
are for consumption within the Philippines
(MAMALA TEO, Reviewer, supra at 492) .
NOTE: In the case of services, the consumption
takes place where the service is performed
following the "situs_of service principle" (Id:) .
Freeport and Economic Zones
Freeport Zones and Economic Zones . are
·considered a~ separate customs territories.
Sales by entities registered with these zones are
· either treated as sales outside the country (if the
purchaser is also a locator, or if the goods are for
domestic sales. If considered as domestic sales
these sales 'are importations in the hands of th~
purchaser and are thus subject to the
", .. ' - - - - - -- - --
corresponding customs duties and other taxes on
imported praoucts (R.R. No. 02-2012, Sec. 2).
Philippine Economic Zone -Authority (PEZA)-
registered enterprises are VAT-exempt _and no
VAT can be passed on to them. Consistently,
under the Cross Border Doctrine, actual export
of goods and services from the Philippin~s to a
foreign country must be free of VAT albeit zero
rated ; while, those destined for use or
consumption within the Philippines shall be
imposed witn 12% VAT . (Toshiba Information
Equipment (PHL) Inc. v. Commissioner of ·
Internal Revenue, G.R. No. 157594, March 9,
2010).
(Please refer to page 252 . to 254 for the full
discussion of VAT on PEZA-registered entity on
the ·~inds of Zero_-rated Sales'.)
8. It does not cascade (tax on tax), .hen ce, .
there is no tax pyramiding (M~MAL.Jt, TEO,
Reviewer, supra at 494) . l ·
:' /
Tax Pyramiding ,'
- Tax passed on by the Pi vious seller, wh fch-is
now a component of gross selling priqe/receipts
of the seller, is again sut:ijected to tax (Id.) . It is a · .
tax imposed upon apoiher tax (People
San_diganbayan, G.R. No. 5?532, A'ugust. 16,
2005). ( . -}.
-....i_
REASON:· Because VAT f!llp'1's a selli~ fo cred it
his input tax (which is equivalenKto the output tax
of the previous seller) from his output tax: Heiice'. I
there is no tax on tax (2-C DOMONDON, ,supra
1
at oJ. z._ '.{
. •
-TRANSACTION• IS SUBJECT TO VAT:
9. Under "catching-up · princ pie'' 0~ -- - -:(-=O.. :S=:-~~N.. :o~t:!..
"recoupment principle", the VAT foregonl in a ,. , 1 '.I . Must be~done in the Ordinary course of trade or
prior exempt transaction may be recovered rom I "' .,_
the succeeding customer liable to VAT under the
(MAMALA TEO, Reviewer, supra at 495).
10. It is a regressive tax
The VAT is an antithesis of progressive taxation.
By its very nature, it is regressive. The principle
of progressive taxation has no relation with the
VAT system inasmuch as the VAT paid by the
pon~umer or_business for every goods bought or
~ervices enJoyed is the same regardless of
income (ABAKADA Guro Party List v. Executive
Secretary, G.R. No. 168056 September 1 ,
2005). ' •
· ADVANTAGES OF VAT:
1. VAT has a built-in self:policing featu
This feature will ensure p~oper collection i~the
tax at all stages of distribution, · since tax
VALUE ADDED TAX
Taxation Law
payments are based on the outp_ ut tax (VAT) and
the input tax (tax credits) as supported by
receipts, thereby providing a m~re ~ccurate_audit
trail or evidence for BIR monitonng purposes.
Furthermore, it will encourage purcnasers to
demand accurate receipts to accu_mulate· more
tax credits. It will thus minimize tax evasion (2 DE
LEON, supra at 14).
2. VAT covers more transactions in a wider
tax base.
VAT is generally more · broad-based (it is
extended to cover both goods and services).
Every sale of goods, properties or services at the
levels of ·manufacturers or producers and
distributors is subject to VAT (MAMA LA TEO,
Reviewer, supra at 492) .
3. VAT makes ·sales tax a more equitable
. _sx stem and encourages savings. .
Tne· VAT system encourages savings because
1
• •• :the tax is imposed only upon consumption.
' l · - ,. ~fore~ve'r, investments in capital goods such as
· ... • machinery and equipment are effectively not
r I ·subject to VA .. 1due 'to the provision in the Tax
~•; Code al OY/in_g ,taxpayers to recove-r input taxes
· paid ' on . acquisition of capital - goods through
. refun ·o r ta cr}dlt '(Id.) .
'7 - ·---- --1 . .. ,
4. It is ,simple and consister:at.
· ,. It has only 2 tax ra e~ (0% and 12%). Hence, it is
easy;, t6 1 admini~ er and to comply . with, and
expected to ger:ierate1 large revenues (2 DE
{..E._QN; NIRC, supra at 14).
I . , '.
ELEMENTS ON WHETHER THE
J-· •
)..:..
\;-:---/--:---:-----::~-----;-:::-::;:-:-;;;
• business; -
"In the course of trade or business" means the
regular conduct or pursuit of economic acitivity
(Sec. 105, NIRC) . .
NOTE: Importations are subject to VAT, whether
or not in the course of trade or business.
2. There must be a Sale barter, exchange, lease-of
1
goods or properties, 0 r rendering of service in th e
_Philippines; and
3. It is Not VAT-exempt or VAT zero-rated.
(INGLES, Reviewer, supra at 313) .
 \ I
MEM:Q~y AID
e.
Sa'I lleda lW.w9lty College of Law - ROCT ~ Ce,11er
PERSONS LIABLE FOR .
VAT
1. . Any person who in the course of trade or
business:
a. Sells, barters, or exchanges goods or
properties (seller or transferor), leases goods
or properties (lessor); or
b. Renders services (service provider) (NIRC,
Sec. 105).
EXCEPTION: A person, whether or not VAT-
registered, whose annuai gross sales or receipts
does not exceed ~3,000,000 shall not be liable to
VAT, but instead he shall be liable for the 3%
percentage tax, unless he opted to be registered
as a VAT person (NIRC, Sec. 116, as·amended
by TRAIN Law) .
2. Any person who imports goods (Importer)
- the person who brings goods into the
Philippines, whether or not made in the course of
trade or business (R.R. No. 16-20051 Sec. 4.105- ·
1 an~ 4.107.1).
IN THE COURSE OF TRADe OR
BUSINESS (RULE OF REGULARITY)
Regular conduct or pursuit of a ~on:imer~ial_ o~ an
economic activity, including tran.sactIons incidental
thereto, by any person regardless of wheth er or not
0
the person engaged therein is a non-stoc~. no~~profit
private organization (irrespective of the dIspos1tI~n of
its net in•come and whether or not it sells.el;(~lus1v~ly
to members or their guests), or gover~Tent entity
(NIRC, Sec. .105; R.R. No. 16-200 5, Sec.~4·105-3).
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 ~ommercial 0 ~
economic activity (INGLES, Reviewer, supra a
314).
Regular . t d transaction. It
- involves more than one iso1a e .
requires repetition and continuity of action (Id.).
Incidental
. NOTE: VAT shall be levied, assessed and
- means depending upon or appertaining
. to
. . something necessary,
something else primary: ther which is ·
appertaining to, or depend in~ u~o~ an~al to' the main
termed the principal; something incide . .
purpose (Black's Law Dictionary_, 6th Edition).
Isolated transaction
- is generally not in the ordinary course of trade· or
business, hence, not subject to business t~x (TABAG
& GARCIA, Transfer and Business Taxation (2018),
p. 228 [hereinafter TABAG & GARCIA]).
NOTES:
1. Transactions incidental to the pursuit of a
commercial or economic activity are considered
as entered into in the course of trade or business
and are also subject to VAT (Kepco llijan Corp. v.
Commissioner of Internal Revenue, CTA Case
No. 8091, October 23, 2012). .
2. It does not follow that an isolated transaction
cannot be an incidental ·transaction _for VAT
purposes. (Mindanao II Geothermal Partnership
v. Commissionef of Internal Revenue, G.R. ~os.
193301 and 194637, March 11, 2013) .
· a. A bakeshop which through the years
accumulated empty sacks of flours and then
sold them is subject-to VAT. The sale' is a
transaction incidental to traqe or business of
bakeshop (2 CAPUNO, Taxation Law (2020),
p. 69 {i ereinafter CAPUNO]).
..., -. - .
3. T~e ,~ai~ ~r hich was involuntary and made
pursuant'to ttte declared policy of Government for
privatization -eould no longer be _repeated ~r
carried on wit regularity. Hence, 1f the sale Is
made not in pursuant to its regular activity, it is
considered as an isolated transaction not subject
. to VAT (Commissioner of Internal Reyenue v.
Magsaysay Lines, G.R. No. 146984, July 28,
2006).
•"4. Tlie sale of the power plants is not "in the course
of trade or business" as contemplated under Sec.
105 of the NIRC, and thus, not subject to VAT.
The sale of the power plants is not in pursuit of a
commercial or economic activity but a
governmental function mandated by law to
privatize NPC generation assets (Power Sector
Assets and Liabilities Management Corp. v.
Commissioner of Internal Revenue, G.R. No. ·
198146,AugustB, 2017).
Exceptions to the Rule of Regularity (INS):
1. Importation is subject to VAT regardless of
whether or not it is in the course of trade or
business (R.R. No. 16-2005, Sec. 4.107-1).
collected on every importation of goods (NIRC,
Sec. 107 (A), as amended by TRAIN Law).
2. Services rendered in the Philippines by lion-
resident foreign persons shall be considered as
being rendered in the course of trade or business

even if the performance of services is not regular
(NIRC, Sec. 105).
3. Any business where the gr~ss sales or receipt dtoh
not exceed 19100,000 . during any 12-mon
period shall be considered ~rincipally for
Subsistence or livelihood and not m the course of
trade or business (R.M.C. No. 4-98) .
VAT-REGISTERED PERSON
These are taxpayers that are either: . Not liable for the imposition of Output VAT on its
1. R·egistered in accordance with the law (NIRC,
Sec. 236 (G)) ; or · 1. His transactions are those falling under the hst of
2. Opted to be registered as a VAT person (NIRC,
Sec. 236 (H)) .
Such status shall continue until registration is
cancelled or until the 3• consecutive years
moratorium has lapsed for a person who opted to
register as a VAT person and thereafter decides
to revert to exempt status (NIRC, Sec: 236 (H)(2F
as amended by TRAIN Law).
~ EXCEPTION: Franchise grantees of radio and ,
TV broadcasting whose annual gross receipts for
the preceding year do not exceed ,-10,000,000
where the option becomes ~rpetually
irrevocable (R.R. No. 13!20!_§, rSec.2/ - -
VAT-REGISTRABLE PERSON
A taxable person must register for VAT purposes.
However his failure to register as a VAT person does
not excuipate him from paying ,VAT (MAMA?,ATEO,
R~viewer, supra at 497). _ . 1 - j . , .Sec. 109 {1)(Bf3)) ; and
: .,,,-, : b_:., Non-stock/no,n-profit organizatio~s.
Any person, who in the course of trade r bus1ne~s, . ;-
sells, barters or exchanges goods or pro_pe ies, 9£ . ____ . . NOTE: A non-stock, non-profit association or
engages in the sale or exchange of services,ishall be
liable to register for VAT if: - ~ ;./
l • -
1. His gross sales or receipts for the past 1-2
months, other than those that are exempt under
Sec. 109 (A) to (BB) have exceeded ,-3,000,000;
or ·
2. There are reasona6Ie grounds to believe that his
gross sales or receipts for the next 12 months,
other than those that are exempt under Sec. 109
(A) to (BB), will exceed ,-3,000,000 (NIRC, Sec.
236 (G)(1) as amended by TRAIN Law) .
VALUE ADDED TAX
Taxation Law
EFFECT OF FAILURE TO REGISTER
WHEN REQUIRED ·'
A ers~n who is required to register but failed to do
si~~all be liable to pay VAT as if he were_~ VAT-
registered person , but witho_
ut the benefit of rnput tax
credits for the period in which he was not properly
registered (NIRC, Sec. 236 (G)(2) as amended by .
TRAIN Law) .
VAT-EXEMPT PERSON
· sales, either because: .
transactions that are exempt from VAT under
Sec. 109 A to AA as amended (/1-C
DOMONDON, supra at 58); or .
2. He is specifically exempt from VAT by specific
provision of the Code, by special laws or by
international agreements (Id. at 56) .
•
) . NOTE: :rhe seller has no output tax liability on his
• ..... sales; but the input taxes passed on to him by his
suppliers _,of. goods, properties or services form
part · of his assets or operating expenses
(MAMAL.AT_5O, Reviewer, supra at 529).
THE FOLLOWING PERSONS ARE VAT•
"-EXEMP-T (ES2TC): ·
1. ·Persons not §rigaged in undertaking .
VAT-taxable transactio•ns:
a. ;Those whose annual gross sales and/or
• foceipts do ·not exceed ,-3,000,000 (NIRC,
· , / / .
_,._...~ -~rg~nization whose receipts come purely
{ \ 1 ' t ram association .dues or special
. assessments from members is not subject to
the value-added tax. These are organized
primarily for the purpose of engaging in non-
taxable transactions.
Reasons for the exemption
i. It is not engaged in business or in taxable
sale of goods, properties, or services: or
ii. The amount received· by it from the
members. is not income but represents
additional capital contribution ; or
iii. It is a liability of the association which
must be spent by the association for the
special purposes for which the fund was
created (MAMALA TEO, Reviewer, supra
at 499).
A person, who is engaged in the business of
undertaking exempt transactions, is not liable to
value added tax. However, if at the same time, he
 \ I .
'MEM:Q~y AID
a.
Sen Bede ~ Colege of law - RGCT 0pe,mj6ne Center
also undertakes taxable transactions, the value
of which does not . exceed · the prescribed
threshold, he is not liable to pay value added tax, ·
unless he opts to register as a VAT person
(MAMALA TEO, Reviewer, supra at 528) .
2. §ubsistence Livelihood lncorrie
Any business or businesses pursued by an
individual where the aggregate gross sales or
receipts do not exceed 19100,000 during the 12-
month period shall be considered principally for
subsistence or livelihood and not in the course of
. business (R.M.C. No. 7-2014).
Hence, not subject to business taxes (TABAG &
GARCIA, supra .at 228) . - threshold. However, the aggregation rule for ·
' .
3. Persons exempt from VAT under §peciaJ
Laws:
a. Cooperative Development Authority
registered cooperatives (R.A. No. 6938; R.A.
No. 8424); .
,/.
A qualified cooperative also enjoys · :."
exemption from the requirement of adva~c~ ; .··
payment of VAT upon withdrawal fro~ th.~.:-
refinery/mill. The agricultural coo~~ra~1ve s •• 2. Joint V
exemption from the requiremeqt _of -~dvance::.:/
payment is a logical c~nseq~en.ce of t~~:
. exemption from VAT of it~ s.~les J~ reflhed
sugar (CIR v. United cagJPSugar.,.,:armers__
Association Mu/ti-Purpo~_9°0 Pf!,1p,_!!ve, ~.R.
No. 209776, December], 2016). i'J
. .-
,,;,, .. ""
-~
.,
b. Enterprise registered with S~ _.'~Ei nomic
Zone~ ~r Free Ports in the Phi11~pme :li
While an ecozone is geograp11& 11y ":'it~in
the Philippines, it is deemed a sepr rat!3
· customs territory and is rega rd ecil:. n !gw as
• · er . . of. Internal
foreign soil (CornrnIssIon
Revenue v. Sekisu; Jushi Philippines, Inc., 3. Government
G.R. No. 149671, July 21, 2006)-
c. Regional or Area Headquarters e~!fn~~f
in the Philippine~ by ;_~ )' and
:::i
corporations (BIR Ru/mg No. 17 8 '
d. Inventors (R.A. No. 7459)-
4. VAT-Exempt under Ireatr n Diplomatic
Under the Vienna Conve~tione~ts are exempt
· Relations of ·1961 , diplomatic ~g r real· national ,
from all dues, taxes, persona O 1 . as long as a government entity sells, barters,
regional or municipal.
b'ect to the indirect
They are, neverth~less, su imally incorporated
taxes of a kind which are n~res (BIR Ruling No.
in the price of goods or servic . government falls within the provision of Sec.
065-96, June 18, 1996).
5. Cinemaltheater Operators
Gross receipts of cinema/theater owners or
operators from sales of-tickets to moviegoers are
exempt from VAT. Cinema/theater movie houses
are not included in· the enumeration of_taxable
services in the' VAT law (Commissioner of
Internal Revenue v. SM Prime Holdings, G.R. No.
183505, February 26, 2010) .
TRANSACTIONS OF SPECIAL VAT
.PERSONS
1. Husband and Wife
Husband and wife shall be considered separate
.taxpayers for .. pu'rppses · of · the 193,000,000
ea.ch taxpayer shall apply .(R.R. No. 16-2005, -,
Sec. 4.109-1).
Aggregation -Rule . .
Revenue derived by a spouse not only from the
practice 6f his/her profession' but also from other
• •' lines of trades or businesses which are ott)erwise
subject to VAT, shall .be combined for purposes
of determinin'Q whether.the threshold amount has ·
been exc~ed,ed (R.R. No. 16-2011, Sec. 3).
• t, -,., ' ' -
ure
An uni "orated joint venture un~ertaking
·constru r · energy-related contractual
activitie government, although exempt
from in shall be liable to VAT
( -~MA iewer, supra at 498).
~, EXCEPTION: .If the unincorporated joint venture
is treated merely as a "flow-through entity~. the
, · members of the joint venture are responsible for
• Jhei respective _obliga~ons under the joint
venture agreement and can claim input taxes on -
their taxable · purchases .(BIR Ruling No. 2-97,
January 14, -1997).
a. Performance of essential governmental
functions exempt from
(MAMALA TEO, Reviewer, supra at 499):
VAT
b. Performance of their proprietary functions ~
liable to pay VAT (BIR Ruling No. 060-2000
dated 8, 2000).
NOTE: 'There is no automatic exemption
from value-added tax registration
requirements of local government units. For
exchanges, leases goods, properties or
renders services in the course of trad~ or
business, it is required to register as a VAT
taxpayer. A~cordingly, if the local
105 of the Tax Code _(i.e·., in the performance
 . . .I
242
of its proprietary functions) , it is required to
register as a VAT taxpayer; otherwise, it is
not (BIR Ruling No. 060-2000 dated
November 8, 2000) .
4. Non-Stock, Non-Profit Association
a. Not undertaking any taxable transaction -
exempt from VAT (MAMALA TEO, Reviewer,
supra at 499).
b. Engages in any taxable sale of goods or
services - liable to pay VAT (NIRC, Sec.
105).
It is exempt only from direct taxes such as
income tax, and this exemption cannot be
extended to indirect taxes like VAT. Thus, its
purchases of goods and services (as well as
importations of goods) from VAT registered
(or VAT registrable) suppliers are subject to
VAT (VAT Ruling No. 005-009 and 007-09,
April 22, 2009). '~
5. Importer ··' ·· · ,
Generally, it is the seller who si(all pay t e output
tax on his taxable sales. Howev t,. in case of -
importation, it shall be the importer who shall pay
VAT prior to the releas~ of th& good from the
custom_s territory. This is an exception to the
general rule requiring a salel:iefore V h' sfialloe--···-
incurred. ,<._, " · ·,
,-' _., . :~
-NOTE: Altho~gh the a~tu t seller of g~~!~ the ·_
head off!ce in a foreign c untry, ~-:c~,nnot be
made hable for VAT - as the sate was 1 -
consummated outside the Philippines. N~ther is ,
a Philippine branch of a foreign corppration liable-,· •
for VAT as it is not the actual seller. 't,ence, vATf · .,_
is properly a~d legally du_e on the 1~ -buy ers:.··._
who are considered the importers. Since VAT on
~mportation was already paid by the local b~yers, ~ .,
it should no longer be imposed on the hilippine .,
branch (Kanematsu Corporation, Manila Branch
v. CIR, CTA Case No. 4875, February 12, 1997) .
· exercise of profession in the Philippines
6. Subdivisions or VIiiage Homeowners
Associations, and Condominium
Corporation
Association dues, membership fees and other
assessments and charges by homeowners'
associations and condominiums established are
exempt from VAT (R.R. No. 13-2018, Sec. 2).
' - th e total amount of money or its equivalent which
YALU~ ADDED TAX
Taxation Law
VAT ON SALE OF
GOODS OR PROPERTIES
GOODS OR PROPERTIES
All tangible and intangible objects which are capable
of pecuniary estimation and shall include, among
others: (RP-EMT)
1. Beal properties held primarily for sale to
customers or held for lease in the ordinary course
of trade or business;
2. The right or privilege to use fatent, copyright,
design·or model, plan, secret formula or process,
goodwill, trademark, trade brand, or other like
property or right;
3. The right or privilege to use in the Philippines of
any industrial, commercial, or . scientific
gquiP.ment; ·
~- The right.or privilege to use Motion pictures films,
tapes, and discs; and _
5. Radio, ,, teJ~v ion, satellite -Iransmission and
cable televisiorn time (NIRC, Sec. 106 (A)(1) as
...., am nded b T~ AIN Law).
(
NOT~: The list s)not an exclusive list (/NGLES,
evl wer; s1:Jpra a{ ~19).
• ,► · ....---
- REQUI ITES FiE>R AXABILITY OF SALE
......,Of _ , lt;OODS 1 AND PERSONAL
, PROPERTIES' : nri 11:NT)
, - • \ •,"' -
1. / r~~~~goods or properties are for the use or
.,consum_etion Within the Philippines;
2,: ..T~ere . is an Actual or deem~d sale, barter or
.L~ exchange of ~oods_or personal properties for a
va uable cons1derat1on; .
• \ at~ is ttot exemp_t from VAT und~r Sec. 109
... of the NIRC, special law, or international
agreement; and
4. The s~le is in the course of Irade or business or
(MAMALA TEO, Reviewer, supra at 507).
Tax Base an_d Ta~ Rate: Twelve percent (12%) of
the gross selling price or gross value in money of the
goods or properties sold, bartered or exchanged.
Such ta~ 1s to be paid by 'the seller or transferor
(NIRC, Sec. 106 (A) as amended by TRAIN Law).
NOTE: Transactions include barters, exchanges and
leases of goods or properties (NIRC, Sec. 105).
Gross Selling Price for Goods or Properties Other
than Real Property
!he pur?haser pays or is obligated to pay to the seller
in consideration of the sale, barter or exchange of th e
 . \ I
MEM:Q~y AID
San lleda lkwnt)' ColeQe of Law - RGCT a. Ope,atjons Cant.
goods or properties, excluding VAT. The excise tax,
if any, on such goods or properties shall form part of
the gross selling price (NIRC, Sec. 106 (A)(1) as
amended by TRAIN Law) .
If the VAT is not .billed separately, the selling price
stated in the sales document shall be deemed to be
inclusive of VAT (R.R. No. 16-2005, Sec. 4.106-4).
ALLOWABLE DEDUCTIONS
GROSS SELLING PRICE:
1. Sales discounts determined and granted at ttie
time of the sale as expressly indicated in the
invoice. . Discounts conditioned upon the
subsequent happening of an event or fulfillment
of certain conditions shall not be allowed as
deductions (R.R. No. 16-2005, Sec. 4. 106-9);
and
2. Sales returns and allowances granted where
proper credit or refund was made during the
month or quarter to the buyer for sales previously,
recorded as taxable sales (R.R. No. 1672005,
Sec. 4. 106-9).
Sales returns arise when customers return afl or
a portion of the goods that they purchased due to
wrong specifications, poor quality o_f . the
merchandise, or if erroneous merchandise was··
delivered (BET/CON, . HINA YON, IRENEO,
Fundamentals of Accounting (2015), p. 284) .
Sales allowances arise when the customet •i s,
willing to accept the goods despite • certain
defects in exchange for a price adjustme~,t or an
"allowance" granted by the seller (Id.) . , _.
-rl
VATONSALEOF~
PROPERTIES
REQUISITES FOR TAXABILITY OF SALE
OR EXCHANGE OR REAL PROPERTY:
2 selling price is based on the zonal value or ·
(SEP0 N) . d"
1. The seller executes a deed of ~le, i_nc1~~~f
dacion en pago barter or exchange, assign
transfer, or con~eyance, or merely contract to se 11
involvlng real property; . d in real estate
2. The seller or_transferor is fng~geestate dealer,
business either as a rea
developer, or lessor; . t d within
3. The real property is loca ~
Philippines· • f I or for
- ' . h Id primarily or sa e
4. The real property is e of his trade · or
lease in the Ordinary course
243
business,. or at least an Ordinary asset used in
the trade or business of the VAT taxpayer as an
incident to his VAT taxable activity; and
5. The sale is Not exempt from VAT under Sec. 109
of the NIRC, special law, or international
agreement binding upon the government of t~e
Philippines (MAMALA TEO, Reviewer, supra at
507).
FROM NOTE: T~ansmission of property to a trustee
shall not be subject to VAT if the property is to be
merely held in trust for _the trusfor and/or
beneficiary. However, if the property transferred
is one for sale, lease or use in the-ordinary course
of trade or business and the transfer_constitutes
a completed gift, the transfer is subject to VAT as
a deemed sale transaction. The . transfer 1s a
· completed gift if the transferor divests him~elf
absolutely of control over the property, -,.e.,
irrevocable transfer of corpus and/or irrevocable
designation of beneficiary (R.R. No. 4-2007, Sec.
3).
Tax Base and Tax Rate: Twelve p~rcent (12o/~) of
the gross selling price or gross value in money of the
. goods or properties sold, bartered or exchanged.
Si.Jctl'tax is to be paid by the seller or transferor
(NIRC, Sec. 106 (A)) .
GROSS SELl!.ING PRICE IN CASE OF
REAL PROPERTY
It is whichever is higher between:
1. Ttie consideration stated in the sales document;
m .
Fair market value which shall mean the higher of
the fair market value as:
a. Determined by the Commissioner (zonal
/7 value); or _
b. Shown in schedule of values of the Provincial
and City Assessors/Real Property Tax
·oeclaration (real property tax declaration)
(R.R. No. 16-2005, Sec. 4.106-4).
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. However, if the gross
market _value of the property, the zonal or
market value shall be deemed exclusiv·e of
VAT. Thus, the zonal value/market value, net
of the output VAT, should still be higher than
the consideration in the document of sale,
exclusive of the VAT (R.R. No. 4-2007, Sec. .
4) .
the
Real Estate Dealer
- any person engaged in the business of buying;
developing, selling, exchanging real properties as
principal and holding himself out as a full or part-time
 VALUE ADDED TAX
244 Taxation Law

dealer in real estate (R.R. No. 16-2005, Sec. 4.106-
3).
SALE OF REAL PROPERTY COVERED
BYVAT .
1. Real properties held primarily for sale to
customers or held for lease in the ordinary course
of trade or business of the seller sh~II be subject
to VAT (CAPUNO, supra at !32); and
2. Sale of residential lot, residential house and lot,
or other dwellings with gross selling price
exceeding the VAT-exempt sale under Sec. 109
(1 )(P} of NIRC .
The sale of parking lots in a condominium is a
separate and distinct transaction and is not
covered by the rules on threshold amount not
being a residential lot, house & lot or a residential
2. on a Deferred Payment Basis . th
_ A sale which has initial payments m e year
of sale exceeding 25% of the gross selling price.
The transaction shall be treat~d as cash_ sale
which makes the entire selling pnce taxable mthe
month of the sale (R.R. No. 16-2005, Sec. 4.106-
3).
NOTE: Output tax shall be recognized by_the
seller and input tax shall accrue t~ the buyer at
the time of the execution "Of the instrument of
sale. Payments subsequent to "initial payments"
shall no longer be subje~t tQ output NAT
_ (MAMALA TEO, Reviewer, supra at 543).
. SALE ON INSTALLMENT PLAN V. SALE
ON A DEFERRED PAYMENT
. . . BASIS
' ~

?1i~~tallril~nt Plan
,'

.dwelling, thus, shoul_d be s_ubject . to VAT . · · Def;rred Plan

regardless of amount of selling price (R.;~• No. .... -,
13-2012, Sec. 2). .~ i j ,. : ::: ·.. ; '.="~~:· As 'to. Initial Payme~t~

MODES OF SALE OF ~E~~ _PRO~_ ERTY ,~.,,.._ .. "'lniti~l p~ym; .!lts, do not Initial payments
BY A "REAL ESTATE DEAL:ER\' . ~
~·-=-
.=.:....:...:_::..::=::...:.:=--=-=---:----::-
-=-~--···-·
-. --'i,, .,,-,,--.,....-'~
- -----
~t:eed ~.5 ~ "- of
gross selhng-pn~.
th e
·
exceed 25% of the
gross selling price .
1. On Installment Plan / : ......., ," -~ ·' - "' ·
- A sale which has initial payrn'J' ts i the year ·, ·
of sale not exceeding 25,~ of tfie gr~ss _se~i_ng _
price. ✓----; I ., , ..,.9eJler , hall bS :i.Ubje t Transaction shall be
\, ,.., . to ' output VAJ1 on the treated· as cash sale
The real estate dealer l'l 411 pay 1\YAT :-cm, .. .-. lristallmeo~ pay e~tf whic·h makes the
installment payments, 1 iC udlng 0~~"IB---:-an .-- receivecf;-"1/lclutling ~ · entire selling price
penalties, actually and/or fT1 uctivel race1veci,. I '. ,
") ntere J nd pe a~t1es taxable in the month of
by the seller (R.R. No. 16-20ut>, ec.'"4} ~ ?·· ·' •.~for 8 !~te payme t, . sale.
, J _:. .. • , ac_!u.ally and/or
Initial payments • •· ',/ ''-i. • ,.J, · ,. J x>nsfructjYely received .
- Payment or payments which the ' seller,;---:: . . · •
. . ..... ' ; . ·~ .. f -- .,- ,,. ~ -., -· ~ •

receives . before or upon 8 ecuti91), . f - the' I J

;:\, :~{~:-~:~~ ~Ai to
lnput/0.utput Tax · ·
instrument of sale and pay.me_ nti -~ 1gh. h -- . . • v· ,
expects or is scheduled to receIv m cash or ~ ·\ ·.lr ~e ).~wer of the Output tax shall be. ·
property (other than the purchaser's ev1denc~ of l V . P. _opeffy can claim the . recognized by the
indebtedness), during the year when the sale or· - input tax in the same
seller and input tax
disposition of the real property was made. It period as the . seller. shall accrue to the
covers any down payment made and includes all · recognized the output ·buyer at the time of the
payments actually or - constructively received tax.
during the year of sale, the aggregate of which execution of the
determines the limit set by law (i.e., ~1. 500, 000 instrument of sale.
or n , 500, 000) (R.R. No. 16-2005, Sec. 4.106-
3). · As to Subsequent Payments

Payments that are Payments that ~.re

NOTE: lnitlal payments do not include the subsequent to "initial subsequent to "initial
amount of mortgage on the real property sold payments" shall be payments" • shall no
except when such mortgage exceeds the cost or subject to output VAT. longer be subject to
other basis of t~e property to the seller. Also
output VAT.
excluded from initial payments are notes or other
evidence of indebtedness Issued by the (R.R. No. 16-2005, SecA .106-3) .
purchaser to the seller at the time of the sale
(R.R. No. 16-2005, Sec. 4.106-3).
 \ I
MEM:Q~y AID
Sen Bede lkMnily Colege of law - RGCT 13w ~ Center
NOTE: While the sale of low-cost housing units that
exceed the price ceiling of ~750, 000 per unit is not
eligible for VAT exemption for low-cost housing under
Sec. 109 (P_) of the Nl~C, the sale may still be exempt
from VAT 1f the selling price of. the property held
primarily for sale to customers does not exceed the
thresholds of ~1. 500, 000 on sale of residential lots,
and 192, 500, 000 for sale of house and lot and other·
residential dwellings pursuant to the same provisions
of Sec. 109 (P) of the NIRC. · PERSONS (TECHNICAL IMPORTATION)
The BIR held that while the selling price of
191,250,000 of the low-cost housing units sold by a
real estate company does not qualify under the
classification of a low-cost housing, the selling price
still meets the VAT-Exempt threshold of 193,199,200
(now 192,500,000] for sale of house and lot and other
residential dwellings under Sec. 109 (P). of the _NIRC.
Hence, the sale of the housing units with selling·price
of ~1,250,000 is exempt from VAT (BIR Ruling No.
285-2014, July 9, 2014). • VAT registered person. E has to pay for the VAT. E
VAT ON IMPORTATION
OF GOODS ,•
1
'
VAT ON IMPORTATION OF GOODS
The importation of goods herein contemplated refers
to importatio_n by any person, who may or may not be
engaged in trade or business in the Philippirles -(R.R:
No. 16-2005, Sec. 4.107-1 .(a)). - ·- · ... 2005, Sec. -1. 0,: 1 (b)).
Importation begins when the carrying vessel or
aircraft enters the jurisdiction of the Philippines_...Y!'!th · .. - IMP. OR"fA"TION
the intention to unlade therein. It is terminated upon
payment of duties, taxes, and other chprg~~ due
upon the articles, or secured be paid, at a port of
entry and the legal permit for withdrawal shall have
been granted (Sec. 1202, Tariff and Customs Code) ..
. .
Tax Base and Tax Rate: Twelve percent (12%)
based on:
1. Total value used by the BOC in determi~ing
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
goods from the customs; or
2. Landed cost in case the valuation used by the
BOC is based on volume and quantity. La nd ed
cost consists of the invoice amount. cuStoms
duties freight insurance and other charges and
also ~xcise tax, if any (NIRC, Sec. 107 ·as
amended by TRAIN Law; R.R. No. - 16 2005 , Sec.
4.107-1 (a)) .
'
245
-
· The same rule applies to technical importation
of goods sold by a person located in a Special
Economic Zone to a customer located in a
customs territory (R.R. No. 16-2005, Sec. 4.107-
1 (a)).
I
SALE, TRANSFER OR EXCHANGE OF
IMPORTED GOODS BY TAX EXEMPT
In the case of goods imported into the Philippines by
VAT-exempt persons, entities ·or agencies which are
subsequently sold, transferred or exchanged in the
Philippines to non-exempt persons or entities, the
latter shall be considered the importers thereof, who
shall be· liable for the VAT due on such importation
(R.R. No. 16-2005, Sec. 4.107-1 (c)).
ILLUSTRATION: MD is a tax-exempt entity that
impo'rted goods, and then sµbsequently sold it to E, a
can claim the VAT paid as creditable input tax.
· · When and by whom paid:· The VAT on importation
' ·shall be paid by the importer prior to the -release of
~_,.,.•.s1,1ch- goods ram customs cus.tody (R.R. No. 16-
:· 2005, S.llc. 4.1Q7-1 (b)).
Importer .
- refers to, a ~y (~erson who brings goods into the
Philippines;; wt:i'etHer or not made in the course of his
. trade or b.JJsin~ss. it1includes pan-exempt persons or.
. ) entities ~\"'h9. acqui_re _tax-free imported goods from
• t exempf-:p~rson~. entities or agencies (R.R. No. 16- ·
- .-PERSONS . LIABLE TO VAT ON
The seller is the statutory taxpayer of VAT. The seller
is the one liable to ~eclare and pay the VAT to the
BIR. As an exception, the importer who is actually the
buyer of goods is the one liable to pay VAT
(CAPUNO, supra at 85).
VAT ON THE SALE OF
SERVICE AND USE OR
LEASE OF PROPERTIES
SALE OR EXCHANGE OF SERVICES
The performance of all kinds of services in the
Philippines for others for a fee, remuneration or
consideration whether in kind or in cash (NIRC Sec
108 (A) -as amended by TRAIN Law; R.R. N~. 16~
2005, Sec. 4.108-2).
 '
246
. VALUE ADDED -TAX
· Taxation Law

LEASE OF PROPERTIES · Except:

1. Those amounts earmarked for payment to
All forms of property for lease, whether real or
unrelated third party; or
personal, are liable to VAT except when the gross_
2. Amounts received as reimbursement for
annual sales do not exceed the threshold . It shall be
advanced payment on behalf of another which do
. subject to VAT irrespective of the place where the
not redound to the benefit of the payor
contract or lease or licensing agreement was
(MAMALA TEO, Reviewer, supra at 545).
executed if the property is leased or used in the
Philippines (INGLES, Reviewer, supra at 322) .
Payment to Unrelated Third Party
- payment made to settle an obligation ·of another
REQUISITES FOR TAXABILITY: (SPCVN) person, which obligation is evidenced by the sales
1. There is a §.ale or exchange of service or lease invoice/official receipt issued by said third party to the
or use of property enumerated in the law or other obligor/debtor (e.g. , customer or client of the payor of
similar services; the obligation) (Id.) .
2. The service is ferformed or to be performed in
the Philippines, and in case of lease, property Advance Payment
leased or used must be located in the Philippines - made on behalf of another if the same is paid to a •·
(place where the contract of le~se or the third party for a present or future obligation of said
licensing agreement was executed is irrelevant); another party, which obligation is eviden_ced by a
3. The service is in the ~ourse of the taxpayer's sales - invoice/official receipt issued by the
trade or business or profession (excepJ ·n h'e obligee/credifor to the obligor/debtor (i.e., the
case of services done in the Philippines dpne by 1 ; aforementioned "another party") for the sale of goods
a non-resident person); • ~ · .... qr se . ices by t e former to the latter (MAMALA TE~.
4. The service is for a Valuabl~ CQnsideration""' Revrewe , UP.ta t 545-546).
actually or constructivelyreceived, an ~. . - • -
5. The service is Not exemp uncl~r the NIRC, 4,nrelated Pa"rty "
special law or internation agreement ::1 :-?--shall not incl_ ~ e ta ayer's employees, partners,
(MAMALA TEO, Reviewer, supra at 546). .• '. ~ affiliates (parent Jslil •
idiary a~d other relat~d
. .. -,--• . companies), re allv~ y consanguinity or affinity
If any of the above essentiaLrequ1s1tes js not met, . . within the 4th civil·c:legree, and trust fund where the
the t_ransaction is e_xempt from value added ta~ . :. .'taxp~yer ~ the truster, ~ stee or beneficiary, ever, if
but 1t may be subJect to .other p~rce tage tax :-- :covered1by,an agreeme1 t to the contrary (Id. at 546).
(MAMALATEO, Reviewer, s wa at\546) . - , - --_-· , / / ,.._.,...-
( ) . y;_, ':' I .'CONSfRUCTIVE'RECEIPT
NOTE: The place where the service 1s perforn;ied i . . .
determines the jurisdiction to impose the valpe I 0 9~ rs ·1 w~e n the money ·cons1derat1on or its
added tax also known as the situ !'Of-service ~~- J!Q_uiva(ent is placed at the control of the person who
principle.' The place of payq,ent is immater[ili L ·,, Y~~tterect,,the s~rvice without restric~ions by the payor
(Id at 522) ,- · - ---~e.g., tr~po fJ banks made available to seller of
• ~ _ ~ , ) -: • r se ioe~ r et-off of seller of services' debt with the
Tax Base and Tax Rate: Twelve percent (1 2%) of ;. , -~ , n~enf of -the latter as payment for services
the gross receipts derived from the·sale or exchange _ rendered to the former) (R.R. No. 16-2005, Sec.
of services, including the use or lease of properties 4.108-4) ..
(NIRC, Sec. 108 as amended by TRAIN La_w) .
Amounts are constructively received when:
GROSS RECEIPTS 1. Credited to the taxpayer's account;
Total amount of money or its equivalent actually or 2. Set apart for the taxpayer; or
constructively received during the taxable period_ for 3. Otherwise made available so that the taxpaye_r
the services performed or to be performed for another may draw upon it at any time, or draw upon 11
person, excluding VAT representing: when notice of intention to withdraw has been
1. Payments on the contract price, compensation, given (R.R. No. 16-2005, Sec. 4.108-4).
service fee, rental or royalty;
2. The amount charged for materials supplied with Actual or constructive receipt of the contract price,
the services; and compensation, remuneration or fee -makes the seller
3. Deposits applied as payments for services of service liable to VAT, even if the service is yet to
rendered and advance payments (R.R. No. 16- be performed by him (MA MALA TEO, Rev/ewer,
supra at 523).
2005, Sec. 4.108-4).
 \ I
MEM:Q~Y AID
s., B e d e ~ ';o11eoe of Law - RGCT Bar Ope,ationa Center
SALE OR EXCHANGE OF SERVICES
INCLUDES SERVICES PERFORMED OR
RENDERED BY:
1. Construction and service contractors;
2. Stock, real estate, commercial, customs and
immigrati_on brokers; and
3. Lessors-of property, whether personal or real
(NIRC, _Sec. 108 as amended by TRAIN Law).
Lease of property shall be subject to VAT
regardless of the place where the contract of
lease or licensing agreement was executed if the
property leased or used is located in the
Philippines (Destination Principle) (R.R. No.
16-2005, Sec. 4.108-3 (a)).
A non-resident person who derives ·rental income
from lease of tangible property physically
situated in the Philippines or receives royalty for
granting the right to use in the Philippines of an
intangible person · is a taxabte person
(MAMALA tEO, Reviewer, supra at 523).
. '
The · licensee shall be responsible for Jti~ ·
paym~nt of VAT on such rentals and/or royal~e~ ~ ·
in behalf of the non-resident foreign corpC?.tat1on ,;;
or owner (R.R. No. 16-2005, Sec. 4.10§1-3 (a)). : . _
.[1 ,f .
In a lease contract, the ·advance pay[Tl~"! ~y,the'
lessee may be: - , 1·' - :. ·
a. A loan to the lessor from the -les~e_ e;
b. An option money for the •~fOP.eqy:tJ., . ,
c. A security deposit . to insure _tt,e. faithful
perfonnance of certain o~ligat!<rms_ of the
· lessee to the lessor; or - corporation in exchange for share~ of the_latter is
d.- Prepaid rental · (R.R. No. 1~ 2 5, · Sec. oo
4.108-3 (a)). 1T ; ._.·;
.. . ,
If the advance payme.nt is either of (a) ·_(b) o~ (c)
above such advance payment is not sub~ ct to
VAT b~cause (a), {b) ~r (c) is ~ott r8~fi~~~d~:~
as actual or constructive receip ,a
(R.R. No. 16-2005, Sec. 4.108-3 (a)).
·t in lease contracts are
However, security depost.~ tat at the time
subject to VAT when apphed todren ce payment
of its application. If th e a van ch ayment
constitutes a prepaid rental_, th: s~onih when
1
is taxable to the. lessor m counting method
th
received, irrespective of e a~o
16_2005, Sec.
employed by the lessor (R.R. ·
4.108-3 (a)).
. requirement of the
T~e receipt of a deposi~ as a form of security or
seller from his tenants m •~e e a sale and the
collateral does not con st,tut art of the lessor's
amount thereof does n?t form p on forfeiture of
gross selling price. It ts only ~~s failure to fulfill
such deposit due to the cu stom
· ' 247
certain conditions creating a taxable event that
will justify inclusion of the d~posit and tax base
(VAT Ruling No. 276-88) .
4. Warehousing services;
5. Lessors or distributors of cinematographic films ;-
6. Persons engaged in · milling, processing,
manufacturing or repacking goods for others;
7. Proprietors, operators, or keepers ·of hotels,
motels, rest houses, pension houses, inns,
resorts;
8. Proprietors· or operators of restaurants,
refreshment parlors, . cafes and other eating
places,_including clubs and caterers;
The gross receipts of recreational clubs including
but not limited to membership fees, assessment
dues, rental income, and se,vice fees are subject
to VAT.
9. Dealers iri securities;
Dealer in Securities .
.. ,.. - means · merchant of stock or securities,
..,
whether an individual, partnership or corporation ,
with an established place of business, regularly
engaged l n the purchase of securities and their
resale • o customers (R.R. No. 16-2005, Sec.
4.108-3 (g)) .
'·
For Dealer in Securities, the term ,•gross receipts"
means gross selling price less cost of the
· securifies sold (R.R: No. 16-2005, Sec. 4.108-3
(g)).
The transfer of assets of a corporation to another -
subject to VAT. The transfer of assets is not
among the transactions enu'}'lerated under-Sec. ·
109 of the NIRC which is exempt from VAT .
Tax exemptions are construed strictly against the •
taxpayer and liberally in favor of the taxing
authority; he who claims an exemption must be
able to justify its claim by the clearest grant of
statute. No,where in Sec: 109 of the NIRC does it
state that the transfer 9f .assets in exchange for ·
shares is exempt from VAT. Hence, in the
absence of legal basis to exempt from VAT the
transfer of assets by a cprporation to another
corporation in exchange for shares, the same
should be subject to VAT (BIR Ruling No. 424-
2014, Octobe( 24, 2014) .
10. Lending investors;
A "lending investor" is a person other than a
bank, non-bank financial intennediary, finance
company . and other financial intermediary not
performing quasi-banking functions who makes a
practice of lending money for himself or others at
 VALUE ADDED.TAX
Taxation Law

interest (MAMALATEO, Reviewer, supra at 526) . be subject to 12% VAT on their gross re'ceipts
(R.R. No. 13-2018, Sec. 2); ·
REAS.ON: Services of banks, non-bank financial
intermediaries performing quasi-banking 14. Franchise grantees of-electric utilities, telepho'ne
functions, and other non-bank financial and telegraph, radio and/or television
intermediaries are VAT-exempt transactions broadcasting and all other franchise grantees
(NIRC, Sec. 109 (V)) . except those under Sec. 119 of the NIRC; .

The act of extending cash advances with interest
to related parties is. a form of service for a.fee
which is cover~d by the.provisions of Sec. 108 of
'the NIRC that sh_ould be subject t0 VAT. Whether.
a profit is realized or not is immaterial. As I0!19 as
there is financial assistance or service for a fee,
remuneration or consideration, such service
rendered is subject to . VAT (Waterfront
Philippines, Inc. v. Commissioner of Internal
Revenue, CTA EB Case No. 1070, December 4,
2014).
11 . Transportation contractors -on their transpd of -
NOTE: Franchise grantees of radio and/or
television broadcasting whose annual gross
receipts of the preceding year do not ·exceed
1910, 000, 000, and franchise grantees of gas and
water utilities are riot subject to VAT (R.R. No.
16-2005, Sec. 4.108-3 (h)) .
15. Non-life insurance companies (except their crop
insurances) including surety, fidelity, indemnity
and bonding companies; and
The gross receipts _from non-life insurance
? ¢ompanies shall mean total premiums-collected,
• {

goods or cargoes, including R8 ons who ' j\ w~eth..er paid in money, notes, . credits or any
transport goods or cargoes for hire- and other . °VSJ:1bstffu~ for mQney (R.R. No. 16-2005, Se~.
domestic common carriers by~lan elatiV'e to '4.10IJ.J (il>--.. . _ .
their transport of goods or cargoe§;.l .,...,---- --. ...,, ',.- · ·
- f J "' · ·", ., _,_. Non~life.~ 're.Jtnsurance premiums are not
12: Common carriers by air nd ' elati e to their ., •,. subj~ct.to\V~T(R~R No. 4-2007, Sec. 10).
transport o~ passen~~rs! goods ..or cargoes fro~ . , . l . "I,, ( ·'"'1 · .
one pl~?8 _m the Ph1hpJ;?me~ to another p1ace·m ------ Insurance and <\reinsurance commissions,
the Ph1hppmes; i L.., f l · . · . . ·, , _whet~er life o~. on~llfe, -are subject to VAT (R.R.
. \_ '- ~ • -~·:•.: No. 4-2007, Sec .1pf .
, .. ,_. , 'Jfr) ,
COMMON .
CARRIER TRANSPORTATION TAX ....:7 --- 1p~Sifni!af;ervices regpi rd less of whether or not the
; • , :/, .. P~(fQ_r~anc~ thereof calls for the exercise or use
By air or sea Domestic (Phil to Phil) " 12%., I ·_, _}'>f'th_e physical or p,ental faculties (R.R. No. 16-
(NIRC, Secs. .Passengers, goods or VA'P 1 ~,,.,.29os, Sec. 4.108-'2).
108 (A) and cargoes. ( .,'r ,-F -::- '>.. > / I
(8)(6) and -~ , i.·~..:T OLLWAY OJ:>ERATORS
118). International (Phil ' @,0% --- ~ When, a tollway operator takes a toll fee from a
for~ign country) • .... '-V'iT i 'l mot?rist, th~. f~e is in effect for the latter's.use of the
Passengers, goods or .1.. t~llway fac1ht1es over which the operator enjoys
cargoes. · - -. private proprietary rights that its contract arid the law
recognize (Diaz v. Secretary' of Finance, G.R. No.
International 3% 193007, July 19, 2011) . . . .
(doing business in the OPT
Philippiaes) Tollway Operators are Franchise Grantees
Cargoes. Not only do tollway operators conie under the broad
term _"all kinds of services," they also come under the
By land Domestic (Phil to Phil 12% specific class described in Section 108 as "all other
(NIRC, Secs. .Goods or cargoes. VAT
108 and 117). · franchise grantees" who are subject to VAT, "except _
those under Section 119 of this Code." (Diaz v.
Domestic (Phil to Phil 3% Secretary of Finance, supra). ·
Passengers. OPT
Tollway operator~ are franchise grantees and they ~o
not belong. _t_o exceptions (the low-income radio
13. Sale of electricity by generation, transmission by and/or ~elev1s1on broadcasting companies with ~ross
any entity including the National Grid Corporation annual incomes of less than P10 million and gas and
water utilities) that Section 119 ·spares trom 1h0
of the Philippines (NGCP), and distribution
payment of VAT. The word "franchise" broadly covers
companies including electric cooperatives shall
government grants of a special right to do an act or
 \ I
MEM:Q~Y -AID
SIi\ Beda UrwenRy_co1ege flf ~ - RGCT Bar 0peialiona Center
series of acts of public con~rn (Diaz v. Secretaiy of
Finance, G.R. No. 193007, July 19, 2011) .
TOLL FEES ARE NOT TAXES
On the a~gumeht that a toll fee is a "user's tax" and to
impose VAT pn toll fees is tantamount to taxing a tax,
the Court has held that 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.
Toll fees are collected by private tollway operators as
reimbursement for the costs and expenses incurred
in the construction, maintenance and operation of the
tollways_, as wen · as to assure them a reasonable
margin of income. (Diaz v. Secretary of Finance,
supra). - -.
VAT ON TOLLWAY OPERATORS IS A
TAX ON THE TOLLWAY OPERATOR
The .seller r~mains 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 ._ · 1'
to the selling price. Orice 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 \t: ~· is only )jmited to the gross receipts derived by
operations is not really a tax on the tollway user, but _51.,. , , cinerna7tbeater operators or proprietors from
on the tollway operator. The seller of services; who in,.
this case is the tollway operator, is the p_erson liabl~
for VAT. The latter merely shifts the burden ibf\/AT to
the tollway user as part of the toll fees' (Diaz v.
· Secretary of Finance, supra). · com~onen\ to cinema/theater operaiors or
The phrase "sale or exchange of -~entice~" sti~II_
likewise include: · "'· · .
• 1. ·The lease or the use of or the right or privjlege to
use any copyright, patent, _design or m~d.el_, plan,
secret formula or process, goodwill, -tradell]ark,
trade brand or other like property or \right; ', •
Royalty payments to non-residents are subject to
12% withholding value-added tax (WVAT). The
resident payor is required to withhold 12% _VAT
. before paying the .royalties to the non-resident
payee (BIR Ruling No. /TAD 02-2012, January
10, 2012) .
Royalties paid for the use of trademarks are
generally subject to VAT. Ho~ever, whe~ th e
incom,e payor is a PEZA-reg1stered entity . to
whom VAT may not be passed on, the royalties
shall be exempt from VAT (BIR Ruling No. /TAD
365-2012, October 24, 2012).
2. The lease or the use of, or the right t~ use any
industrial, commercial, or scient~fic_e~uipm~nt;
3. The supply of scientific, ~echnica~ 1~du~tna\ or
commercial knowledge or mforma!ion , .
4. The'supply of any assistance that 1s 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 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 undertakii:ig, .venture,
. project or scheme; •.
7. The lease of motion picture films, films, tapes,
·and ·discs; and
NOTE: Cinema/theater operators may not refuse
to shoulder the VAT component from their lease
· of cinematograp~ic films. The exemption from
VAT of cinema/theater operators or proprietors,
which was upheld by the Supreme_ Court
(Commissioner of Internal Revenue v. SM Prime
Holdings, G.R. No. 183505, February 26, 2010) ,
admissio ickets and does not extend to the
purchase or lease of cinematographic films.
Hence, , owners , producers, and lessors of
cinematograpl\c films may pass on the VAT
proprietors on the sale or _ lease of
cinernatograpbicfilms (BIR Ruling No. 047-2013,
.. ~: January 24, 2013) . ·
•8. The lease or the use of, or the right to use, radio ,
..:;:,r television , satellite _ transmission and cable
television time (R.R. No. 16-2005, Sec. 4. t'oB-2).
>,
VAT ON PROFESSION~LS
Professional, classified as self-employed, refers to an
individual or a group, practicing his or their profession
or calling, with or w_ithout license under a regulatory
board or body. _Apart from applicable income taxes
and withholding taxes, he or they are also subject to
VAT (R.M.C. No. 64-2012, October 31, 2012) .
NOTE: The gross annual receipts must exceed the
~3. 000, 000 threshold to be held liable to VAT-
otherwise it is subject to 3% other percentage ta;
under Sec. 109(1 )(BB). ·
'
NOTE: Services rendered by doctors and lawyers
were previously VAT-:.exernpt under RA. No. 9238 . .
These exemptions have been deleted under RA No.
9337 and made VATable effective November 1
2005. Professionals now covered by VAT pursuant t~
R.A. No. 9337 are required to update their
registration (R.M.C. No. 62-2005, October 18, 2005).
 . ..'

250 VALUE ADDED TAX

.Taxation Law

A professional practicing his profession is
subject to VAT if:
1. There is no employer-employee relationship
between him and the person to whom he renders
professional service; and
2. His gross receipts for the next twelve (12) months
- exceed t-3,000,000 (R.R. No. 13-2018).
NOTE: If a professional, aside from the practice
of his profession, also derives revenue from other
lines of business which are otherwise subject to
VAT, _the same shall be combined for purposes
of determining whether the threshold has been
exceeded (R.R. No. 16-2005, Sec. 4.108-3 (v)) .
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);
The donation by a VAT-registered person of ifs
ord_inary assets is subject to _VAT pursuant to
Sec. 4.106-7 of R.R. No. 16-05, as amended, the
same being considered a transaction deemed .
sale. · ·
ILLUSTRATION:
A Co., a domestic real estate dealer, donated 23
residential lots with the improvements th~reon to

NOTE: · Self-employed
. individuals and ·
B Co,, a non-stock non-profit organization
established for charitable purposes and -
professionals availing of the 8% tax on gross · registered with the Philippine Council for NGO
~ales and/or receipts and other non-operating Certification (PCNC).
income, under Sec. 24 of NIRC shall be exempt
from the payment of. 12% VAT (R.R. No. 13- 2. Qistribution or transfer to :
2018, Sec. 2). ,," . "' a:- Shareholders or fnvestors as share in the
1
"• , , : ', I ;- pr_ofit.5 of a VAT-registered person (Properfy
VAT ON HEALTH MAINTENANCE\ ( ~. ·--..:, _>i I Divi9ehds); or
ORGANIZATIONS : ,, b-;.. Creditors in payment of a debt or obligation;
-;-;-:~;-::;-:--;---~--:--.;.~~::......!•:.....;...._:_
· _.,,__ . )
Health Maintenance Organizations / · ~ ..-- ---.. •· ,.. · ·· · ·
- entities, organized in acfur aapce {vith the ·• ;• ILL:l:ISTRAT~O_N!
· . ,
1
provisions of the Corporation Code bf the Philippines , ·t Somk o~ tbe ,,mP.,?,rts of JGU Corporation are 100
and licensed by the appropriate gov.ernmer t.agency.,.._ - - -~ars_ hrch -~re .r11ten~ed to b~ sold locally. The
which arranges for coverage puf§sfgnate~ ma(laged . " carssbare curren,!!y"_~~rng sold rn ~he local market
care services needed by plan holclers/mem bers for . _ at~ t 0, OOO fPer unrt. Twenty unrts of these cars
fixed prepaid membership fees"'aQd f9i:.,a \ pecified - . · ' '-".er~ ... decla~ . ,s property dividends and
-period o!time (R.R. No. 16-20,0;.,sec.\t ,108-3..(k)). _.::_ .. ~ n?,9tE:d t~ 1ts stoc holders.
C..Jt /~~ ! (' f -'-"..,...,--""

HM O's gross receipts shall be the ~total" ain'ount of ', : Th~ 9\Slrib~tion of
20 units is deemed,a sale and
money or its equivalent representing he se'rvice fee ! . ~ub!ett to A~ 2% VAT on the taxable base of ~500,
actually or constructively received during the taxa ble · · ·. ·, OOO pe~_unit. · /
period for the services performed or to be ~ rformed , , ., -· ~ • ,.'.; ./ . . · . .
for another person, excluding the value.!ad.ded ta5c ·_ 3 - ~~n~1gi;i~nts of good~ 1f..actual sale Is not made
(R.R. No. 16-2005, Sec. 4.108-3 (k)) . . " _· , " - ' · • - W!thm 9,0
,;d ys following the date such goods
· ,.: ·wer~ consigned; and
The amounts earmarked and eventually paid by • · .,,..,.. •
MEDICARD to the medical service providers do not - -""NOTE: Consigned goods physically returned by
form . part of gross receipts for VAT purposes the .consignee within the 60-day period are not
(Med,card PHL, Inc. v. Commissioner of Internal deemed sold .
Revenue, G.R.No. 222743,Aprll5, 2017) .
4. Retirement from or cessation of business with
respect to all goods on hand whether capital
. goods, stock-in-trade, supplies ~r materials as of
TRANSACTIONS . . th e date of such retirement or cessation.
· a. _ Change of ownership of a business when:
DEEMED SALE 1. Singl~ proprietorship incorporates; or
ii. Proprietor of single proprietorship sells
his business.
b. Dissolution of a partnership and creation of a
THE FOLLOWING ARE TRANSACTIONS new partnership which takes over the
DEEMED SALES: (TDCR) (NIRC, SEC. business (NIRC, Sec. 106(8); R.R. No. 16·
106 (B)).' 2005, Sec. 4.106-7).
1. Iransfer, use, consumption of goods or
properties not in the course of business of goods
 \ I .
MEM:Q~Y -AID
s., Seda lkMl1ity Colege of Law - RGCT Ber Clperatic,ns Center
ILLUSTRATION:
A_ Co., a . domestic_ realty corporation, was
dissolved via shortening of its corporate term. It
executed a Deed o_f Assignment to transfer a
parcel of land to ,ts stockholder M X
liquidating dividend. Is the. transfe~ a ~d- ' ads
. ,, ~ eeme
sale transac t,on ,or VAT purposes?
YES. U_nder Sec. 106 (8)(4 ) of the NIRC, ·
t~nsactions de~med sale include the retirement
~om or .cessation of business, with respect to
mv_entones of taxable goods existing as of such
retirement and cessation. Thus, the conveyance
?f th e real property as liquidating dividend is a
deemed sale transaction" subject to the 120/4
VAT (BIR Ruling No. 363-2014 dated Septembe;
22, 2014).
Tax Base and Tax Rate: Twelve percent (12%) of
t~e market value of the goods deemed sold as of the
time of the occurrence of the transactions
enumerated in (1), (2), and (3) above. However in
(4) retirement or cessation of business, tax b~se
· shall be the acquisition cost or the current market
price of the goods or properties, whichever is
lower (R.R. No. 16-2005, Sec. 4.106-_7) .
In the case of a sale where the gross selling price is
unreasonably lower than the fair market value, the
actual market value shall be the tax base (R.R. N d.
16-2005, Sec. 4.106-7). ,,
REASON: The inventory left at the retirement of
business is deemed sold for VAT• purposes because1
it gave rise to Input VAT when acqijired which may
have been claimed by the VAT registered person·as
input VAT credit. To recapture the inputtax tt,at was
claimed by the buyer in the month of the purchase, · . '
the inventory left . shall be considered •. sold
(VALENCIA & ROXAS, Transfer and Bus~ness
Taxation (2016), p. 332 {hereinafter VALENCIA &
ROXAS]).
NOTE: Sec. 106 (B) of NIRC -enumerates
transactio_ns deem~d sale of goods and properties
and not of services.
While the subject sales transaction inv?lvin~ the fi~e
vessels may not be considered a "sale env1sag~d ~n
Sec. 99 (now Sec. 106 (B)) of the Tax C~de, w~1ch 1s
a general provision, it is, and it should be, considered
a "sale" within the purview of Sec. 100(b) (now
Sec.106 (B)) of the Tax- Code as implemented by
Sec. 4 of R.R. No. 5-87, ..yhich enumerates the
transactions "deemed sale" (CIR v. CTA and
Magsaysay Lines, et.al., C.A.-G.R. SP No. 29994,
March 11, 1997) .
CHANGE OR CESSATION
OFSTATUSASVAT-
REGISTERED PERSON
SUBJECT TO 12% OUTPUT VAT,: .
The 12% VAT shall ~pply to goods or properties
existing as of the occurrence of the following :
1. Change of business activity from VAT taxable
status to VAT-exempt status; or
An example is a VAT-registered person engaged
in a taxable activity like a whoi'esaler or a retailer
who decides to discontinue such activity and
engages instead in life insurance business or in
any other business not subject to VAT. ·
- 2. Approval of a request for cancellation of VAT
registration due to:
a. Reversion to e~empt status;
b. Desire to revert to exempt status after lapse
·of. 3 :consecutive years from the time of
regis(_r,tion by a ·person who voluntarily
regi~t red despite being exempt under Sec.
109(2) o the NIRC; or
c. Faifure to meet the specific threshold
(1'3,000,000) by one who commencecl
busini ss with the expectation of reaching the
r~quired gross sales or receipts during the
first 12 months of operation (R.R. No. 16-
2005, Sec. 4.106-8).
'NQT·SUBJECT TO 12% OUTPUT VAT
The 12% VAT shall not apply to goods or properties
which are originally intended for sale or for use in the
co~rse of business existing as of the occurrence of
the following : (CTM)
1. Cha~g~- of ~ontrol of a corporation by the
acqu1sIt1on of the controlling interest of such
corporation by another.stockhol~er (individual or
corporate) or group of stockholders.
The goods or properties used in the business
(including those held for lease) or those
comprising the stock in trade of the corporation
having a change in corporate control will not be
considered ~old, bartered, or exchanged despite
the change m the ownership interest in the said
corporation since the.same corporation still owns
them .
~XCE_PTIONS: Exchange of goods or properties
mcludmg the real· estate properties used in
business or held for sale or for lease by the
 'I

VALUE ADDED TAX

Taxation Law

transferor, for shares of stocks, whether resulting ILLUSTRATION:

in corporate control or not, is subject to VAT. X is a VAT-registered business, engaged in.export of
locally made products. During the taxable year, its
ILLUSTRATION: total export sales all denominated in foreign currency
ABC Corp. (transferee) is a merchandising is equivalent to the value of 1'500,000. Its total input
concern and has an inventory of goods for sale tax payments for purchases and 'Utilized services all
amounting to 1'1,000,000. DEF Corp (transferor), in connection with the conduct of business amounted
a real estate developer, exchanged its real to 1'36,000.
properties for the shares of stock of ABC Corp.
resulting in the acquisition of corporate control. If X has no other transactions which will give rise to
business tax liability, its tax crediUrefund would be as
The inventory of ABC Corp. is not subject to follows:
output tax despite c~ange in corporate control
because the same corporation s~ill owns them. Export Sale-Output tax (1'500,000 x 0%) I' 0
This is in recognition of the separate and distinct Less: Creditable Input Tax · 36,000
personality of the corporation from its Net VAT Refundable I' 36,000
stockholders. However, the exchange of real
properties held for sale or lease by DEF Corp., NOTE: The seller must be a VAT-registered person
for the _shares of stock of ABC Corp., whether itto make his export sales zero-rated. Any Input VAT
attributable to the purchase of capital goods or to
would result in corporate control or not, is subject
to VAT. •. ~
zero rated sales by a VAT-registered person may at
1
t - his 1option be refunded or credited against other
2. Change in Irade or corporate·• name O the . . . mtern~I revepue taxes, subject to the provisions of
business; and _,_ h"e· NI C,. S~c,, 112 (VALENCIA & RO,XAS, supra at
3. Merger or consolidation of cd'rpo(atio~s~· ~ - 284). • ~
• '"' V / ..,,,,~ ,

The unused input t bf th·e ~issolved Export s~le by )i ,r10n-VAT registered entity is a VAT-
corporation, as of th date of rrerger or exempttransaction. Untler Sec. 109 of the Tax Code,
consolidation, shall be sorbed by the surviving --a VA:r-exempt saie ·ls'n t subject to VAT (output tax)
corporation (R.R. No. 116-2005, Sec. 4.106-8; and ,the shller/sur:1pttel'is ot allowed any tax credit of
-R.R. No. 10-2011, Sec. 2) .• ,,-i __ ..\ _ YAT (inp t tax) o I R..l.l.l,!¥1BSes related to such exempt
'. transactions:-(TA AG & ARCIA supra at 276).
-~~;"-· - - - , - __ _j 5' ~ I I .
I
-

r---~ - _ _ _ __;,_,,~j .;.

_ ---. · INPUt :·TAX 1ATTRIBUTABLE TO ZERO-
1
ZERO-RATED SALESOF . ...RATED' SALES OF VAT-REGISTERED
VAT REGISTERED - ·.- - .. PERSON MAY, AT HIS OPTION, BE:
PERSONS ' ,~ ,~ ,.:. ,1.; Refu~ded; or .1 1

2. Credited against other internal revenue taxes,

A zero-rated sale by a VAT-registered person is a
taxabl~ transaction for VAT purposes, but shall not
result in any output tax. However the input tax on
purchases of goods, properties or ~ervices related to
such zero-rated sale shall be available as tax credit
or refund (R.R. No. 16-2005 Secs 4 106 5 d
4.108-5). ' · · •
The pu~po~e of applying 0% rate on a taxable
transaction 1s to exempt the transaction completely
fr~m VAT previously collected on purchases. This
arises because the sales of the VAT-registered seller
are subject to 0% rate, while the input taxes on his
purchases passed on to him by the VAT-registered
suppliers may be recovered back from the BIR in the
form of tax refunds or credits (MAMALA TEO ,
Rf]viewer, supra at 573) . ' ownership of the goods so exported, P~ 1d
subiect,t the provisions of Sec. -112 (R.M.C. No.
~~013, August 23, 2013; NIRC, Sec. 110(8)).
KINDS OF ZERO-RATED SALES:
AS ,TO OBJECT OF THE SALE
1. Zero-Rated Sales of Goods or Properties:
(SRROII) (NIRC, Sec. 106 (A)(2)). .
an The following sales by VAT-registered person§
shall be subject -to zero percent (0%) VAT r~
{Sec. 4.106-5, RR No. 16-2005, as amended.])'.
RR No. 13-2018) ·
a. Export Sales
i. Sale an?. actual ~hipment of goods from
!he Ph1hppines to a foreign country
irrespective of any shipping arrangement
that. may be agreed upon which maY
influence or determine the transfer ?'
for l_
n acceptable foreign currency or ,ts
equivalent in goods or services, and
 \ I
MEM:Q~y AID
Sin Seda lkMflity Colega otlaw. ROCT Bar 0paadgna 0...
accounted· for in accordance with the
fl.lies and regulations of the BSP· . Bureau of Internal Revenue (BIR)
ii. Sale . _of Raw materials or packaging
ma~nals to a nonresident buyer for
dehve~ to resident local export-oriented
enterpn~e to be_~sect in manufacturing,
p~s~mg, packing, or repacking in the
Ph~hppmes of the ~aid buyer's goods,
wh1~h must be paid for in acceptable
foreign currency and accounted for in
accord~nce . with . the rules and
regulations of BSP;
iii. Sale of ,Baw materials or packaging
materials to an export-oriented
enterprise;
iv· Export~riented Enterprise · _ Any
enterpnse whose export sales exceed
70% of the total.annual production (R.R.
No. 13-2018, Sec. 2) ;
v. ~ransactions "considered export sales
under E.O. No. 226" (Qmnibus
Investment . Code of 1987) and other
special laws; and
Considered Export Sales (under E.O.
No. 226) shall mean the Ph!lippine Port
Free On Board (FOB) value determined
from invoices, bills of lading, and other .
commercial documents of export
products exported . directly, ' by a
registered export proaucer. or the net
selling price of export products sold by a
registered export producer to another
export producer, or to an export trader :
that subsequently exports the same.
' .
GENERAL RULE: Sales of' export
products to another producer or to ·an
export trader shall only be deemed
export sales when actually exported by
the latter, as evidenced by landing
certificates or similar commercial
documents.
EXCEPTION: Without actual
exportation, the following shall be
considered constructively exported:
1.) sales to bonded manufact~ring
warehouses -of export-oriented
manufacturers;
2.) sales to export processing zones;
3.) sales to registered export traders
operating boflded trad_ing
warehouses supplying raw materials
in the manufacture of export
products under guidelines to be set
by the Board in consultation with the
and the Bureau ·o f Customs (BOC);
and
4 .) sales to foreign diplomatic missions
and other agencies and/or
instrumentalities granted tax
immunities, of locally manufactured,
assembled or repacked _ products
whether paid for in foreign currency
or not. -
NOTE~:
1.} Export sales of registered export
traders shall include commission
income.
2.} Exportation of, goods on
consignment shall not be deemed
export sales until the export
products consigned are in fact
sold by the consignee.·
3.) Sales of goods, properties or
services made by a VAT-registered
supplier to a BO1-registered
manufacturer/producer . whose
products are 100% exported are
considered export.sales.
A certification to this effect must be ·
issued by the Board of Investment
(BO1) which shall be good for one
year unless subsequently reissued
by the BO1.
· vi. Sale of goods, supplies, equipment and
fuel to persons engaged in !ntemational
s!lipping or international air transport
operations.
The goods, supplies, equipment, and
fuel shall be used exclusively for
international shipping or air transport
operations which includes the sale of
goods, supplies, equipment and fuel to
persons engaged in international
shipping or international air transport
operations is limited to goods, supplies,
equipment and fuerthat shall be used in
the transport of goods and passengers
from a port in the Philippines directly to a
foreign port, or vice versa, without
docking or stopping at any other port
in the Philippines.
NOTE: If any portion of such fuel, goods,
supplies or equipment is used for
purposes other than that mentioned
su·ch portion of fuel, goods, supplies, and
equipment shall be subject to 12% VAT.
 . .
254
"Without docking or stopping at any
other port in the Philippines" .:.. an
international airline that makes - a
stopover in a Philippine port to unload
passengers and/or cargoes from · a
foreign destination or to pick up
passenger and/or cargoes for foreign
destination is deemed not to have
docked or stopped at any other port in
the Philippine-s (R.R. No. 4-2007, Sec.
5) .
, b.
b. Sales to persons or entities deemed tax-
exempt under Special Law or International
Agreement
~he following sales to enterprises duly
· registered and accredited with the following
shall be effectively subject to zero-rate:
i. Subic Bay Metropolitan Authority
(SBMA);
ii. PEZA; •"
iii. Asian Developmel')t Ba k tAOB ), ~nd • ,
· iv. International Rice ~ ~search 1 Jnstitute
(IRR!) (R.R. No. 4-2{)07, Sec ,.5) . ,.-- - - - - - -
. .. ~ ,(''j / / . , -,--:~
NOTE. The Pres1der:it vetoed See;s. 31 aod
33 of TRA_ IN La w ~m sale and delivery of
goods/s~rv,ces rendered to. . . _ -- • - - -
i. Registered en_t~rprts~ w1th1~ separ~te · <~:'
cust~ms territory as provided unde_ r ,. :i
spe~1al laws; a d · . C:~\_ _. ______
ii. Reg,~tered e tr I'f eS ~ ~~'.n ! . ,
he_
Tounsm Enterpnse onEi,. \ ./ •.. ! ,;... . •
. .. • · \• \ . · l ' <· 1
However, the prov1s10Q_of Sec_ 106 (A)(2){b) , .. (..:"" / of Internal Revenue v. Burmeister and Wain
and Sec. 108 (B)(3)
·t· sli I considers• salesrto
h •' J- -► •· , -• 'i.. ,, 1 Scandinavian Contr.actor Mm
pers~ns or en t11es_w ose_exemp~~>n unde ~--· _:-;. .;.,,--
special law or international " agreemen
remains effective. . _.,,,
, · 1
, c , erv,ces rendered to persons or entities
PEZA Memorandum Circular No. 2018-33
dated March 12, 2018 provides that the
· Department of Finance informed that the
TRAIN Law does not affect the zero-rating
of sales of goods and services to PEZA
locators. Accordingly, Sec. 8 of R.A. No.
-7916, known as the "Special Economic
Zon~ Act of 1995", which provides that
special economic zones are to be operated
an~ managed as . separate customs
territory, has not been amended or repealed
by the TRAIN Law.
2. Zero-Rated Sales of Services: (PO-
SISTR) (NIRC, Sec. 108 (8))
The following services performed in the
Philippines by a VAT-reqistered person shall be
subject to zero percent (0%) VAT rate: (Sec.
VALUE ADDED TAx
Taxation Law
4.108-5, RR No. 16-2005, as amended by RR
No. 13-20181
a. frocessing, .manufacturing or repacking of
goods for other persons doing business
outside the Philippines, which goods are
subsequently_exported, where .the services
are paid for in acceptable foreign curren_cy
and accounted for in accordance with the
rules and regulations of the BSP;
Services other than processing,
manufacturing or' repacking rendered to a
person engaged in business conducted
Qutside the Philippines or to a non-resident
person not ·engaged in business who is
ou_tside the Philippines when the services are
performed, the consideration for which is
paid. for in acceptable foreign currency and
accounted for in accordance with the rules
a ~d regulations of the BSP;
' T he > VAT system generally follows the .
~ "de"§tination principle" (exports are zero-
• raled' w ereas imports are taxed). However,
~n excepfign to this principle is the 0% VAT
on seryices enumerated in Sec. · 108
(previously s,c. 102) and performed in the
_--P,h,hppme . To be exempt from the
estinationprinciple under Sec: 108 (b)(1)
and (2), the services mYst be (a) performed
1nf ~ e Philippines; (b) for a person doing
' l)us,ness outside the Philippines; and (c) paid
✓.~ih ,acceptable ,f o eign currency accounted for
in accordance with BSP rules (Commissioner
' danao, Inc., .
G.R No. 153205 Janua 22 2007)
~ .... ' ry ' ·
's\
1
' •.
· · whose exemption under .§pecial laws or
international agreements to which the
Philippines is a signatory effectively subjects .
the supply of such services to 0% rate;
-
d. Services rendered to persons engaged in
!nternational sl)ipping or air transport
operations, including leases of property for
use thereof;
NO~E: These services shall ·be exclusively
for rnt~rnational shipping or air transport
oper~t,ons. Thus, the services referred to
herein shall not pertain to those made to
co~mon carriers by air and sea relative to
their transport of passengers, ,goods or
· cargoes from one place in the Philippines to
an?ther place in the Philippines, the same
berng subject to 12% VAT under Sec. 1OB of
the Tax Code.
 .I
\ I
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MEM:Q~y AID .
Ssl Beda IJrMnlty Colege ol Law - RGCT Bar 0peratkns Center
255

NO:E: Crewing services rendered by a VAT-
registered c?mp~ny to a foreign ocean-going
- ve5:>el that is paid for in foreign currency is
su~Ject to VAT at 0%. , However, the
ent1t~ement to 0% VAT does not extend to
s~rv1ces rendered to common carriers by sea
with respect to . transport of passengers
go~s •. or cargoes from one place in th~
Ph~l~pp~nes to another place in the
Ph1hpp1nes, the same being subject to ~2%
VAT in accordance with Sec. 4_ 108_5 (b)( 4)
of ~.R. No. 16-2005, as · amended (BIR
Ru/mg No. 295-2012 dated May 3, 201 2).
\
unde·r special laws or international agreements.
Since the buyer is exempt from indirect tax, the
· seller cannot pass on the VAT and therefore, 'the
exemption enjoyed by the buyer shall extend to
the seller, making the sale effectively zero-rated
(R.M.C. No. 50-2007, Sec.·3).
DISTINCTIONS BETWEEN
AUTOMATICALLY ZERO-RATED SALES
AND EFFECTIVELY ZERO-RATED
SALES

e. Services performed by ~ubcontractors

and/or contrac~ors in processing, converting,
or manufacturing goods for an enterprise
whose export sales exceed 70% of the total Refers to the export Refers to the local sale
annual production; sale of goods, of goods, properties
properties and supply and supply of services
f. Iranspo_rt ot
passengers and cargo by
of services by a VAT-
registered person
by a VAT-registered
person to a person or
domestic air or sea carriers from the
entity who was granted
Philippines to a foreign country; and
indirect tax exemption
under special laws or
NOTE: Gross receipts of international air and international
shipping carriers doing business in J he · , ;.,1,,\ ...,
agreements
Philippines shall be exempt from VAT. ...... ~ .......~•").."
.,.,,;.,.. ,

However, they are still subject · to 3% -~

percentage tax (NIRC, Sec. 118; RR No. 13-·... l.ll
2018, Sec. 2) . · -
Primarilwintended to be . Intended to benefit the
g. Sale of power . or fuel <generated through enjoyed# by the seller purchaser who, not
,Benewable sources of energy ·such as, but .who i~ directly and being directly and
not limited to, biomass, sofar, wind, legally liable for · the legally, liable for the
hydropower, geothermal and steam, ocean' VAT, making such payment of _the VAT,
energy, and other emerging sources. using seller internationally will ultimately bear the
technologies such as fuel cells ahd hy~rogen COITJP.etitive by allowing burden of the tax shifted
the refu d or credit of by the suppliers
fuels. · .-·
input taxes that are
The zero-rating shall not exte; <i to sale of attributable to export
services related to the · maintenance or sales
operation of the plants generating said power (Commissioner of Internal Revenue v. Seagate
(R.R. No. 13-2018, Sec. 2). · Technology (PHL), G.R. No. 153866, February 11
2005) '
AS TO HOW THE TRANSACTION SHALL
BE SUBJECT TO ZERO-RATING: APPLICATION FOR EFFECTIVE ZERO
1. Automatically Zero-Rated Sales . RATING
- · refers to a sale of goods, properties and Sec. 6 of R.R. No. 4-07, which amended Sec. 4.106-
services by a VAT-registered ~eller/supplier t~at 6 of R.R. No. 16-05 dispensed with the requirement
is regarded as either an export sale or a foreign for prior BIR approval for effectively zero-r·ated sales
currency denorriinated sale under Sec. 106 of the of g_oods and properties. However, the VAT zero-
NIRC. Examples are sales to registered rated sellers have to submit the supporting
ecozones and freeport zones (R.M.C. No. 50- documents as required by the existing· rules and
2007, Sec. 3) . regulations to qualify for VAT zero-rating to the
concerned BIR Offices for post-audit and for
2. Effectively Zero-Rated Sales . validation of the zero-rated transactions (BIR Ruling
- refers to the local sale of goods, properties · DA No. (VAT-003) 010-2009, January 14, 2009).
and services by a VAT-registered person to _an
entity that was granted indirect tax exemption
 VALUE ADDED TAX
256 . Taxation Law

Customs Territory
DOCTRINE ON EFFECTIVELY ZERO- The national territory of the Philippines outside of the
RATED SALES proclaimed boundaries of the Ecozones except those
The SC held that P.O. No. 1869, the charter creating areas specifically declared by o~her laws and/or
PAGCOR, gave the latter blanket exemption t~ taxes, presidential proclamations to have the status of
with no distinction on whether the taxes are direct or special economic zones and/or free po~ : (PEZA
indirect. The legislature clearly granted PAGC?R Rules and Regulations, Sec. 1 (g); Comm1ss1oner of
exemption from indirect taxes by extending Internal Re.venue v. Seagate Technology Philippines,
exemption to entities or individuals dealing with the Inc., G.R. No. 153866, . February 1.1, 2005;
latter. It follows therefore, that services, such as lease Commissioner of Internal Revenue v. Toshiba
services rendered to PAGCOR will be zero-rated Information Systems PHL, G.R: No. 150154, August
(Commi~sioner of Internal Revenue v. Acesite 9, 2005) .
(Philippines) Hotel Corp., G.R. No. 147295, February
16, 2007). While an ecozone is geographically within the
· Philippines, it is deemed a separate customs territory
Even with the passage of RA No. 9337 which -and is regarded in laws as foreign, soil. Sales by
removed PAGCOR's exemption from corporate suppliers outside the borders of the ecozone to this
income tax, PAGCOR remains to be exempt from separate custom~ territory are deemed exports and
VAT because R.A. No. 9337 retained Sec. 108 (B)(3) treated as export sales. These sales are zero-rated
(transactions subject to 0% rate) of the NIRC or subject to a tax rate of ze~o ·. p~rcent._
(Philippine Amusement and Gaming Corp: v. Bureau {yo(!lmissioner of Internal Rev(!nue v. Sek,sw Jush,
of Internal Revenue, G.R. No. 172087,,.March 15, i Philjppjnes,--l(IC:, G.R. No. 149671, July 21, ,2006)._
2011). ..
... ~" ~ - ~ .
/ /.. ~ , ·Goods t:?r6ught'i - and traded within an ecozone are
SALES MADE TO FOREIGN EMBASSIES...,... gene.r,€1IIY' yend , he reach of national internal
For taxation purposes, embassies are cqrisidered revenue ta>tes d q,istoms duties enforced in the
extensions of their respective co n\nes' tel ritory. A's _·-' P.hilippine cu oms tdrritory. Therefore, the act of
such, any sale within I foreign .enibassy is - bringing the goqds Jiito an ecozone is not a taxable
considered foreign sale or ransaction optside he- - - importatlqn. As lphg as t he goods remain (e.g., sale
Philippine territory (2 DE LEON, supra at 93) . ·, and/or consumptldn oQtte article within the ecozon~)
, . _ in -the epozone r re!exported to another foreign
Transactions of a VAT-registered perso~ with the · • .jurisdiction-,;.1he~ shall, continue to be tax-free
embassy of a foreign state a~d ·t~ perso~ llr b~ -1 .- Wiiiis1ma v. .Lazatin; f'- 1·No. 210588, November 29,
zero-rated, provided that the . can subrijit l(? the j ~ 2016)./~_ ·. , · ·, /
Commissioner a copy of the special legislatloh. or I - ;-' ,' i • .,
international agreement showing that said -~9~ gn .. / P__R00F OF VAT ZERO-RATED SALES '-
government allows similar tax exemptionoQrivilt!ge to, ' - " ,,. · • . · .
the Philippine embassy and its personnel, °'lt- .is! f'. 2 ro..,,. prove th at th \,re is a direct_ export sale, _th e
however limited to sales made to the em~assie9 ·n... .... _ taxpP~r ~~~Id present !he foll~wmg docum'ents.
their official capacities and does not pl
individual purchases made by the members~ f'their
9 the _ • V
j f ·, \ " . . .
'1
(1Y01ces or official receipts;

diplomatic staff (VA r Ruling No. 382-88 dated August _ . ,
24, 1988).
SALE, BARTER OR EXCHANGE OF
GOODS, PROPERTIES OR SERVICES IN
ECOZONES
Ecozone or Speclal Economic Zone
Selected areas with highly developed or which have
the potential to be developed into agro-industrial,
industrial, tourist, recreational, commercial , banking,.
investment and financial centers whose metes a·nd
bounds are fixed or delimited by Presidential
Proclamations. Ecozones, by . fiction of law, are
considered foreign territories (R.A. No. 7916, Sec. 4
(a)) .
A VAT invoice 1s necessary for ·every sale, barter
or exchange of g(?ods or properties while a VAT
official receipt properly pertains to every lease of ·
goods or properties, and for every sale, barter or
exchange of services. Thus, we held that a VAT
invoice and a VAT receipt should not beconfused
as referring to one and the same thing; the law
did not intend the two to be used alternatively
.(Nippon Express (Philippines) : Corp. v.
Commissioner of Internal Revenue, G.R. No.
191495, July 23, 2018) .
2. · Export declaration and bill of lading or ajrway bill
as ~ro?f of actual shipment of goods from the
Phihppmes to a foreign country (Philippine Gold
Processing and Refining Corp. v. Commissioner
of lnterncfil Rev_enue, G.R. No. 222904 (Notice),
July 15, 2020); and
3. The bank credit advice certificate of bank
remittance - or any oth~r document proving
 \ I

MEM:Q~YAID
s., Bedl LW,,eqity Colege d law - RGCT 9- ~ Cerar ,

payment fo~ the ~oods ~n acceptable _tor~ign 2. · Zero-Rated Sale of Service:

currency or its equivalent in goods and services
(Philippine Gold Processing & Refining Corp. v.
Commissioner of Internal Revenue, CTA Case
No. 8270, June 11, 2013).
NOTE: Documentary proofs to substantiate zero-
rated sales of services consisted of sales
invoices and other secondary evidence like
tran~fer slips, credit memos, cargo manifests,
and credit notes are inadequate to support sales
of services (Nippon Express (Philippines)
Corporation v. Commissioner . of Internal
Revenue, supra).
ENHANCED VAT REFUND SYSTEM
- a VAT refund system that grants and pays refunds
of creditable input tax within ninety (90) days from the
filing of the VAT ·refund application with the Bureau
(R.R. No. 13-18, Sec. 2) .
Processing period: The 90-clay period shall start •
from the filing of the application/claim for_refund UI?. fo
the release of the payment of the VAT refund.
The claim/application is considered to have bee
filed only upon submission of the official receipts r,
invoices and other documents in support of the
application as prescribed under pertine t revenu
issuances (R.R. No. 26-2018 is~ue on Depember
27, '2018).
EFFECT OF ·., SUCCESS~
ESTABLISHMENT OF ENH~~fED V /
REFUND SYSTEM: · · by the 2020/2021 Bar-Examination_s.
The following shall be subject to 12% VA_,T a nd no ·
longer be subject to 0% VAT: • •
a. Processing, -manufc!cturing or repacki~g of
goods for ot/ler persons doing business
outside the Philippines, which goods are
subsequently exported, where ·services are
paid for in acceptable foreign currency and
accounted for in accordance with the rules
· and regulations of the BSP; and
b. Services performed by subcontractors
and/or contractors in processing, converting,
or manufacturing goods ·for anc enterprise
whos~ export sales exceed ·70% of the _total
annual production (R.R. No. 13-18, Sec. 2).
NOTE: All pending VAT refun'd claims as of
December 31 2017 shall be fully paid in cash
by Decembe; 31, 2019 (R.R. No. 26--2018,
Sec. 2) . ·
The Department of Finance shall establish a
VAT refund center in the BIR and in the
Bureau of Customs (BOC) that will handle
¼-tie processing and granting of cash refuncfs
of creditable • input tax (R.R. No. • 13-2018, ·
I
Sec. 2) ..
. fi_OTE; The above-enumerated Zero-Rated
Sales- of Goods or Properties and- Zero-
Rated Sales of Services above are
-were
subjected to 12% VAT pursuantto-R.R. No.
9-2021. However, the implementation R.R.
No. 9-2021 was deferred in view of the
continuing GOVID-19 pandemic and its
impact in the export industry pursuant to
R.R. No. 15-2021. These are not yet covered

1. Zero-Rated Sale of Goods or Prop~rfiesk~ ··ng·

a. The sale of Raw materials or pac ~91
materials to a non-resident buyer for dehv~ry
to a resident local export-oriented enterp~se
s
to be Used in manufacturing, proces ing,
hT · es of the
packing or repacking in the p ,_,ppm table
said buyer's goods, paid for m tc:8for in .
foreign currency, and accodun :1ations of
accordance with the rules an reg
the BSP; . ackaging
b The sale of raw materials or P ·
· rt •ented enterprise
materials · to an expo -on nt
whose export sales exceed ~ev~nty/erce
(70%) of total ann~al prc ductio~,s:~es under
c. Transactions considered expo as the
E.O . No . 226 , otherwised known 7
of 198 , an
d
Omnibus Investments, Co 8
other speci_al laws.
 VALUE:-ADDeD TAX
Taxation Law

VAT. Such party is also not subject to th·e VAT, but

VAT-EXEMPT may be allowed a tax re~und ~f or _credit for input

\ TRANSACTIONS
J taxes paid, depending on its re_gI~trat1on as a VAT or
non-VAT' taxpayer · (Commissioner of . Internal
Revenue v. Seagate Technology, G.R. No. 15.3.f.J6($,
February 11, 2005) .

•vAT -exempt transactions" ref~r to the sale of DISTINCTIONS BETWEEN ZERO-RATED

goods or prop~rties and/or service~ arid the use or
- lease of properties that are-nqt subject to VAT( output
SALES AND VAT-EXEMPT SALES. .
tax) and~he sell~r is not allowed any tax credit of VAT
(input tax) on p~rchases (R.R. No. 16-2005, Sec.
4.109-1) .
Still a taxable Not subject to·output tax
The person making the exempt sale of goods, transaction but does not
properties or services .shall not bill any outpµt tax to result in an output tax
his customers because the said transaction is not
subject to VAT (R.R. No. 16-2005, Sec. 4. 109-1).
' Input tax on purchas~s Seller is not entitled to
The seller does not charge VAT and he can.not claim . ._ . ll}_ay be allowed as tax any input tax on t)is
exemption from what has been passed o him ~ . creoits-or refund . purchases despite .the
(INGLES, Reviewer, supra at 338). . !',,;· ·
i'.- _ ~~; •''. / / :: '-. issuance o_f VAT invo_ice
~ .t
1
• ~ 1' ,.. "' ' _,;. ""-,. or receipt
;f...P,................. ·, , ,,,. '-

FEATURES OF AlAT'!:',~~MPi
TRANSACTIONS / '· t; ~ __. - _,
1. VAT--exempt transactions sh~II n9t _·•e inc l~deQ:!J:_l. ,.::. ftequirep td ~ gi't~r~ ., Registration is optional
determlning the general efiresh old pre cnbed by .-;.: '(2-C DOMONflOl)l,~u/Jra at 40)
law [~3,000,000) (R.R. If, . 16-~011, Sep. 3 . , ·., : . __ :__ • ·~ "-.....- •' '
2. VAT-ex~mpt transactions $rnllt not be liable f<;>r . • TRANSA.CTIG>NS EXEMPT FROM VAT:
VAT or the 3% percentage a~ nder Sec.
the NIRC exceptthose aJe.pr l~as~ ~f. oods and ;:_ , --
n?
<?f - c' _· -(N/RC ! SEC : 109 :, AS AMENDED 'BY
1 '·=-=- _ 1 ·t ,. :
properties under Sec. , o'9J.(BB) W fJ.~ ~.t:@!Lpe _.. _._ ___ T_~~ ltfµ,WJ t . . .
subjectto3%perqentag~ta . otex~~citngthe 1. SALE OR IMPORTATION: (AFAB)
VAT threshold [Inferable ·from ~ec. '1 j.6 of the ; · • ·1 _,,,~ ricl:fltui"al and ryarine fQod product~· in -tlieir
NIRC and Sec. 4 :109-1 of. RR. No. 16-2,00~ J'°·' .... , 1 ·"'<-) ;>riginal ~tate, livestock and poultry of a kirJd
3. The pe_rson mak1~g the e er:npt_s le of go~q~ · _i~-:_· ,_:;-~ gf nerally used as, or yielding or produci_ ng fo~ds ·
properties, or services shall not b~II any p utp~~t~:Ct' 1 \. \.~ or human consumption; and breeding stock and
to his customers because the ~id tr~'J,sactio~, s --- - - ge etic\ matel'ials therefor: ,
not subject to VAT (R.R. No. 16-~151pee: _; . .~:. Npn:food products are not included under
4.109-1). •
""'
1- /1 . \
,
.1. - •.
~ 'this category. (R.M.C. No. 53-2007, August
7, 2007). · . .
EXEMPT TRANSACTIONS V. b. Livestock and Poultry
PARTY Livestock
An exempt transaction involves goods or services Include cows; bulls and calves, pigs, sheep, -
which, by their nature, are specifically listed in and goats and rabbits.
expressly exempted from VAT under the NIRC Poultry
without regard to the tax status - VAT exempt or not Include fowls, _
ducks, gee_se and turkey.
· - of the party to the transaction. Indeed, such
transaction is not subject to the VAT, but the seller is Livestock or poultry does not include fighting
not allowed any tax refund of or credit for any input cocks, race 'horses, zoo animals, €Ind other
taxes paid (Commissioner of Internal Revenue v. animals generally considered as pets (R.R-
Seagate Technology, G.R. No. 153866,'February 11, No. 16-2005, Sec. 4. 109-1).
2005).
c. Marine ·Food products t
An exempt party. on the other hand, is a person or Include fish and crustaceans, such as, bU
entity granted VAT exemption under the NIRC, a not limited to, eels, trout, lobster, shrimP;:
special law or an international agreement to which prawns, oysters, mussels and clams (R.
the Philippines is a signatory, and by virtue of which No. 16-2005, Sec. 4. 109-1).
its taxable transactions become exempt from the
 \ I
MEK-Q~y AID
San 8eda UrMnty College of I.aw • RGCT Ber ()peratJona Center
d. Original State
Products classified as such shall remain
such even if they have undergone the simple
process of preparation or preservation for the
ma~et such ~s freezing , drying, salting,
bro1hng, roasting , smoking or stripping
(NIRC, Sec. 109 (1) (A)). Advanced
technological means of packaging such as
shrink wrapping in plastics, vacuum packing,
tetra-pack, in itself does not make the same
liable to VAT (R.R. No. 16-2005, Sec. 4.109-
_1).
Examples of products in 'their original
state: frozen boneless briskets, frozen
boneless buffalo meat, deboned fish .
Polished and/or ·husked rice, corn grits, raw
cane sugar and molasses, ordinary salt and
copra shall be considered in their original
state (R.R. No. 16-2005, Sec. 4.109-1).
Raw Cane Sugar
Natural sugar extracted from sugarcane
through simple mechanical process by
pressing for the juice; boiled to crystallize;
•filtered and dried, resulting to crystallized
brown sugar due to natural molasses ~ntent
present in sugarcane. It shall be produced ·
from conducting only one stage of filtering
and centrifugal without any other further
process. Its color is greater than 800 ICU and
that its content of sucrose· by weight in dry
state corresponds to a _poiarimeter reading of
· less than 99° (R.R. No. 8-201~. S~. _2) . ·
NOTE: For internal revenue purposes, the
sale of raw cane sugar is exempt from VAT
because it is considered to be in its o~~inal
state. On the other hand, refined sugar 1s an
agricultural product_ that_ '?8n no longer be
considered to be in ,ts ongmal state b~cause
it has undergone the refining proc~ss: its sale
is thus subject to VAT (Comm,s~ioner of
Internal Revenue v. United Cad!z Sugar
Farmers Association · Multi-Purpose
Cooperative, G.R. No. 209776, December 7•
2016).
~ot a ,;simple process" if it is a _physical or
chemical process whiGh would alter te
exterior or form or inner sub stance fa
product in sucti a manner as to prepare ,t or
. h •t Id not have been
special use to wh1c ' cou . . (R R No.
put in its original form or co nd ition · ·
16-2005, Sec. 4.111-1).
. . I d d in the VAT
Bagasse is not me_ u e T (R R. No.
exemption. Hence, sub1ect to VA
16-2005, Sec. 4.109-1).
259 .
NOTES:
i. Sale of Andok's roasted chicken is
exempt from VAT. However, should
Andok's maintain a facility by which the
roasted chicken will be offered as a
menu to customers w.ho would dine-in,
then it will be subject.to the VAT on sale
of service which is similarly imposed on
restaurants , and other eateries (VAT
Ruling No. 09-2007, June 21, 2007) .
ii. R.M.C. No. 53-2007 reiterates the
amendment under R.~. No. 9337
imposing VAT on the sale of non-food
agricultural products, marine and forest
products, and on the sale of cotton and
co~on seeds in their original state.
- 2. Fertilizers; seeds, seedlings; and fingerlings; fish,
prawn, livestock and poultry fee~s. including
ingredients, whether locally produced or
imported, used in the manufacture of finished
feeds (NIRC, Sec. 109 (B));
EXCEPTION: (RFAZO)
Specialty feeds for ,Race horses, fighting cocks,
Aquadum fish, ~oo animals and Qther animals
generally considered as pets (NIRC, Sec. 109
(8)). _,.
.J
. 3. Sale, importation or lease of passenger or· cargo
vessels arid Aircraft, including engine, equipment
·and spare parts thereof for domestic or
international transport operations;
NOTE: The exemption from VAT on the
importation and local purchase of passenger
and/or cargo vessels shall be subject to the
requirements on restriction on vessel importation
and mandatory vessel retirement program of
Maritime Industry Authority (MARINA) (R.R. No.
13-2018, Sec. 2).
4. Sale, importation, printing or publication of ~ooks
and any newspaper, magazine, review, or
bulletin; ·
Requisites _to be VAT-Exempt:
The book, newspaper, magazine, review or
bulletin must: (If PH)
a. Be printed or published at regular !ntervals;
b. Be available for subscription and sold at
? fixed prices; and _
c. Not principally be devoted to the Publication
of paid advertisements; and - .
d. Be printed in Hard copies (BIR Ruling No.
372-13). _
GENERAL RULE: All imported books, whether
·
for commercial or personal use; are exempt from
 VALUE ADDED TAX
Taxation Law

VAT and customs duties (DOF Order No. 57-
2011).
EXCEPTION: Books published by or for a private
commercial enterprise essentially for advertising
purposes as stated in Annex A of the Florence
Agreement (Agreement on the Importation of
l;ducational, Scientific and Cultural Materials)
must first seek an exemption -from the Revenue _
Office of the Department of Finance (DOF Order
No. 57-2011).
SALE: (REC 2-SGD) .
1. Sale of Beal . properties uhder Sec. 109
(1 )(P);
The Sale of the following Real Properties are
VAT-Exempt: (SLSV2)
a. Not ·primarily held for Sale to customers or
held for lease in the ordinary course of trade .,.._.. ~-
,or business; ~l
., •:: , _> \. ~ 1 /" 1 1 ii.' .Sale of real property utilized for
NOTE: Even .if the real,..J?roperty I is not
primarily held for sale t fcustop,(rs or heJd- .
·for lease in the ordinary course of tijl e or
business, but the same ·s· used in /the trade
or business of the seller,l he s e thereof
shall be subject to YAT.b~ing a trari~action ______
incidental to the taxpayer's main1 business ·
(R.R. No. 13-2018, Sec. 2). 1
<:.:.i r- ,
, ··
- .,
1
EXAMPLE: When a VAT-registereo.person~--
engaged in manufacturing ' -'s~lfs his• . ·
wherein the housing package selling price is
within the lowest interest rates under the
Unified Home Lending· Program (UHL~) or
any equivalent housing program of the
Government, the private sector or non-
government organizations (R.R. No. 13-
2018, Sec. 2).
d. Residential lot ~alued at 191,500,000 and
.below; and
e. House and lot and other residential dwellings'
~alued at ~2.500,000 and below (NIRC,
Sec.109 (1)(P), as amended by TRAIN Law).
NOTES:
Beginning . January 1, 2021, the · VAT
exemption shall only apply to:
i. Sale of real properties not primarily held
for sale to customers or held for lease in
'the ordinary course of trade or_business;
1 ~ ·~ .- or
-· - ' ~ ,,socialized hqusing; and
""· ·lii:' · Sate) f)f house and lot, and other
..._ ·· te_sider:itlal dwellings with selling price
_, _ \ ·q_~\,ex eding ~2,000,000 (R.R. No. 13-
,,·;\ 1 20.18, Se 2).
fl \ _\ · ·
_. ._ Evei:y- t f.~ (3) years thereafter, the
.. _.
- - ::- ,- , ,._ amo9 ts s1tated shall be adjusted to its
present va) e using ttie Customer Price.
1
___ ~ , 1::,-r def (R.R. No. 13.:.2018, Sec. 2).
.:,._ '. f ..,. · ·
_

warehouse which was'" used in h~ ·6Gsiness, l ·.: ·· ,- :~GJ:NEWAL Rlp-E: Threshold is on a per
~he_ sate shall be subject to VAT' i:iei g a11_ ! / ,.</-~ tfans~ction b sis (MAMALA TEO, Reviewer, _
incidental to his business. . ~'1...._..-.l.-~- y' 1/ supp1 at 582.
"---· ' ( I . ;- , - ·'
b. Utilized for ,bow-cbst housing; /c ~__;__,_
~ ✓EX-CEf!l N: If two or more - adjace~I
L ()j , res1d~n 1al lots are sold or disposed of in
ow~ost h~usi~g . - \ /j /: \'\
favor of one buyer, for the purpose of utilizing
~ousmg pro!ects intended for homeless low-. 1 " i · , the lots as one residential lot, the sale shall
income family beneficiaries, undertaken by be exempt from VAT only if the aggregate
the ~overnme_ nt or pri~ate. developers value of the lots do not exceed ~1,500,000
wh~rem ~e unit s~lling price 1s within the· (R.R. No. 13-2018, Sec. 2)
selling pri~ per unit as set by the Housing · -
and Urban Development Coordinating Adjacent residential lots, although covered -
g~uncil (HUDCC) (R.R. No. 13-2018, Sec. by sep~rate titles and/or separate tax
declarations, when sold or disposed to one
and the same buyer, whether covered by one
c. U~ilized ~?r ~ocialized housing wherein the or separate Deed of Conveyance, shall be
price ceiling _per unit is 19450,000.00 or as. presumed as a sale of one residential lot
may from time to time determined by the (R.R. No. 13-2018, ~ec. 2).
HUDCC and the NEDA and other related
laws ;
In BIR Ruling No. 185-2013, the ~IR ruled
that . the . transfer of properties by th e
Socialized housing
Pres1dent1al Commission on Go~d
Housing programs and projects covering Government (PCGG) to private individuals in
house and lots or home lots only undertaken a sale at public auction is exempt frorn
by the Government or the private sector for income tax, WT, VAT, DST and CGT since
the underprivileged and homeless citizens these properties are presumptively owned bY
 \ I
MEM:Q~y 'Al D
s-, ~ \.k"MBlly Colege of Law - ROCT Bar ~ c.:witer
the Republic of the Philippines, and the
PCGG is mandated by law to dispose of
these ~roperties, (BIR Ruling No. 360-2014).
The sale of power plants pursuant to Electric
Power Industry Reform Act (EPIRA) law is
not in pursuant of a commercial or economic
activity nor an incidental transaction made in
the course business, but a governmental
function mandated by law to privatize
National Power Corporation (NPC)
generation assets. Therefore, the sale of the
power plants should .not be subject to VAT
(Power Sector Asse'ts and Liabilities
Management Corp. v. Commissioner of
Internal Revenue, G.R. No. 198146, August
8, 2017).
2. 5.xport sales by persons who are not VAT-
registered;
If he is VAT-registered, his export sales are zero-
rated under Sec. 106 (A)(2) and S~c. 108 (B) of·
the NIRC and claim tax credit or refund.
(Please refer to pages 270 to 274 for the , fu/1 .
discussion of VAT Refund)
3. Sales by agricultural ~ooperatives of too~ .
and non-food products (whether in original or
processed form) duly regi$tered and in good
standing with 't he Cooperative Development
Authority (CDA) to: .
I
a. Their members - VAT-exenipt'whether or
not the coo·perative is the produce~}f th e
goods; or ~ ' . h •
b. Non-members - VAT-exempRt· ~lyN,if ~:
cooperative is the producer ( ·1 ' · ~ 0 · •
.2007, Sec. 14).
Importation of direct farm inputs, ,machineries
and equipment including spare parts thereof,. to
be used directly and exclusively in the product1obn
. of th eir
and/or processing · Produce shall also e
exempt (R.R. No. 04-2007, Sec. 14).
(Compare with No. 4 below).
•
Sale of Marine or Agncu 1tur~
I Food Products
In Processed Form
· or agricultural
GENERAL RULE: Sale of dm;n~e are subject to
food products in processe or
VAT. · b agricultural
EXCEPTION: Thos~ sold dir CDA (NIRC,
cooperatives duly registered ~n ( ){L)) .
109 1
Sec. 109 (1)(A) correlated to ec.
261
0
NOTE: Sales by agricultural cooperatives are
exempt from VAT provided the following
conditions concur:
a. Seller must be an agricultural cooperative
duly registered with the CDA; and
An agricultural cooperative is "duly
registered" when it has been issued .a
certificate of registration by the CDA. This
certificate is conclusive evidence . of its
registration. . ·
b. The cooperative must sell either:
i. Exclusively to its members; or
ii. ,To both members and non-members, its
produce, whether' in its original state or
processed form (Commissioner of
Internal Revenue v. United Cadiz Sugar
Fa,,.;,ers Association Multi-Purpose
Cooperative, G.R. No. · 209776,
December 7, 2016) .
4. Sales by non-agricultural, non-electric and
non-credit Cooperatives duly registered and
in good standing with the GOA. Provided
that: .
a. Share capital contribution of each member
does not exceed t-15,000; and
b. Regarpless of the aggregate capital and net
surplus ratably distributed among the
members (R.R. No. 16-2005, Sec. 4.109-1).
lmporfation by these cooperativ~s of
machineries and equipment, including spare
parts thereof, to be used by them are subject
to VAT (R.R. No. 16-20D_5, Sec. _4.109-1)
(Compare with No. 3 above).
5. Sale or lease of goods and services to
Senior citizens and persons _with disability,
as provided under RA. Nos. 9994
(Expanded Senior Citizens Act of 2010) and
10754 (Ari Act Expanding the Benefits and
Privileges of Persons with Disability),
respectively;
6. Sale of Gold to the Bangko Sentral ng
Pilipinas; and
7. Sale of Qrugs and medicines prescribed for
diabetes, high cholesterol, and hypertension
to beginning January 1, 2019 as determined
by t~e Department of Health (DOH) (R.R.
No. 13-2018, Sec. 2).
NOTE: The above provision has been amended
by R.R. No. 18-20 dated June 26, 2020. The new'
provision provides for VAT exemption to sale or

importation of prescription drugs and medicines
for:
a. Diabetes, high cholesterol, and hypertension
beginning January 1, 2020; and
b. Cancer, mental illness, tuberculosis, and
kidney diseases beginning January 1, 2023.
The exemption from VAT shall only apply to
the sale or importation by t~e manufacturers,
distributors, wholesalers and retailers of
drugs and medicines included in the "list of
approved drugs and- medicines" issued by
the DOH for this purpose.
IMPORTATION: (PPF)
~. fersonal and household effects belonging
to:
a. Residents of the Philippines returning from
abroad; and
b. Non-resident citizens coming to reseWe in '
the Philippines (NIRC, Sec. 109 (1)(C)) . l
,· -
NOTE: Provided that sticli. goods are
exempt from customs d~ ,...unde(the Tariff
and Customs Code of the.Ph .lip lnes·(l'v/RC,
Sec. 109 (1)(C)). t • · / --
• J
' 2. frofessional instrument and implements,
tools of trade, occupatkfn r employment,
wearing apparel, dom~s_tic -animals, and .
personal and househ Id e.tfects'1 · · ·. - ·,.~ - onguw1e~ fr rh ~a · road or to load pcfssengers
. I-:), -
Requls,te~ to be VAT-Elem . (SO~OA)
a. Belonging to persons coming to §ettle io-the 1
Philippines or Qverse s Filipinos; ' .._· .,
, ~-------:.: u~ed for purposes other than that mentioned,
Overseas Filipinos · 0 <:__ '['~ -:1. \_. sue~ •Portion of fuel, goods and supplies shall be
Filipinos or their fan:iilies a d d'$~ndants- ~ -
who are now residents or c1tizens"if>tJother
countries (NIRC, Sec. 109 (1)(0); as
amended by TRAIN Law).
b. In quantities and of the class Suitable to the
profes~ion, rank or position of the persons
importing said items·
c. For their Qwn use a~d not for barter or sale·
and
d. A~mpanying such persons, or arriving
within a reasonable time (NIRC, Sec. 109
(1)(0), as amended by TRAIN Law).
The V~T exemption does not apply to the
following Importations:
Vehicle.s, ~essels, aircrafts, machineries, and
0th.er s1m1lar goods for use in manufacture
which shall be subject to duties, taxes, and
other charges (NIRC, Sec. 109 (1)(0), as
amended by TRAIN Law).
VALUE ADDED.TAX
Taxation Law
NOTE: The Bureau of Customs may exempt
such goods from payment of duties and
taxes on the following conditions:
i. Upon production of satisfactory evidence
that such persons are actually coming to
settle in the Philippines; and ·
ii. The goods are brought from their former
place of abode (NIRC, Sec. 109 (1)(D),
as amended by TRAIN Law).
3. fuel , goods and supplies by persons
engaged in international shipping or air
transport operations;
NOTE: Provided_ that the fuel, goods and
supplies shall be used for international shipping
or air transport operations (NIRC, Sec. 109
(1)(U); as amended by TR(J,IN Law).
GENERAL RULE: Such fuel, goods and/or
I .. pupplies shall be used exclusively or shall pertain
__, J.. Ito the ti'a sport of goods· and/or passengers from
a po ~ the Philippines directly to a foreign port,_
or vi.ce vers~. without docking or stopping at any
ether poq m !he Philippines (R.R. No. 4-2007,
,:-,- Sec. 14} J.
j
~ ' \· .
· ..EX.fEPTION~ The docking or stopping at any
~ther1 :hilippine port is for the purpose of
:, u~l~ading P.asse gers and/9r cargoes that
_ T-· ........s.~d/r ~- cargqes bound for abroad (R.R. No. 4-
, ·: , _ :0:, 1
ec. 14).
.- ·, .--; •
I / ; , 1 any P0!,ll0 n of ~uch fuel , goods or supplies is
subJec 2% VAT (R.R. No. 13-2018, Sec. 2).
" •
M SERVICES: (PAMEERB)
1. Subject to the fercentage taxes under Secs.
116-128 of the NIRC;
2. By Agricultural contract growers and milling for
0th
e~ of palay into rice, corn into grits, and sugar
' cane mto raw sugar;
Agrlcultur~I contract growers
Persons pr d · -..
or ~ ucmg for others, poultry, _livestock,
th
~ e_r ~gncultural and marine food products in
h
t eir onginal state (R.R. No 16-2005 Sec 4 109-
1 (B)(1)(f)) . · • · ·
3
· Medical, dental, hospital and veterinary services
~xcept th0 se rendered by professionals (N/RC,
_ec. 109 ( 1)(G), as a"!ended by TRAIN Law):
labor~tory services are exempted because it is
a hospital service (R.R. No 16-2005 Sec 4.109-
1 (8)(1 }(g)) . . . ' .
 \ I
MEK-Q~y AID
5-1 Bedll lkMl1ity Calege of Law - RGCT Bar ~ Center
Sales of medicines by the hospital pharmacy to
in-patients is exempt from VAT, but sale to-out-
patients is subject to 12% VAT (MAMALA TEO
Reviewer, supra at 580). '
To claim Vt:,.T e~emption for sale of drugs or
pharmaceutical items classified as hospital
services, the following must be established :
(HDI)
a. The taxpayer operates a Hospital;
b. The said hospital has a pharmacy or
Qrugstore; and - subject to 3% percentage tax (R.R.' No. 13-
c. The sale of drugs claimed to be exempt from
VAT was made by the said hospital drugstore
or pharmacy to !i:,-patients of the hospital
being operated by the taxpayer (Hermano
(San) Miguel Febres Cordero Medical
Education Foundation (De La Salle - Health
Sciences Institute), Inc. v. Commissioner of
lntemal Revenve, CTA Case No. 8194, May
15, 2012).
4. Educational services rendered by private
educational institutions duly accredited by the
Department of Education (DepEd), Commissio~
on Higher Education (CHED) and Technical
Education and Skills Development Authority
(TESDA) and those rendered by government_
educational institutions;
Educational Services
Academic, technical or vocational .education
provided by private educational institutions duly
accredited by the DepEd, the CHED and_TESDA
and those rendered by goverrimeot educational
institutions. . It does not inclu e - seminars, in-
service training, review classes and o!~er similar
services rendered by persons who are, riot
accredited by the aforementioned institutipns
(R.R. No. 16-2005, Sec. 4.109-1 (B)(1)(h)).
5. Rendered by individuals pursuant to an
~mployer-employee relationship;
6. Rendered by Regional o~ area · head~uat_rters
established in the Philippines by mu1tin a.iona1
corporations which act as supervisory'
communications and coordinating cent~ for
their affiliates subsidiaries or branches ; t_he
Asia-Pacific Region and do not earn or enve
income from the Philippines; and
7 Bank non-bank financial intermediaries
· - ' . f rans and other
performing quasi-banking _un_c 1 '
non-bank financial intermediaries.
·dered as non-bank
NOTE: Pawnshops are consi xempted from
·. I . .in termed"ar·1es
fiinancia 1 • thus te (Tambunting
VAT, but liable to percentage ax _
,
263
Pawnshop, Inc. v. Commissioner of lntemal
Revenue, G.R. No. 179085, January 21, 2010) .
OTHERS: (L2IT-MASO)
1. ,bease of residential units, if the monthly rent per
unit:
a. Does not exceed 1915,000; or ;
b. Exceeds 1915,000· but the aggregate annual
rentals received by the lessor do not exceed
P3,000,000. However, the same shall be
2018, Sec. 2) .
Summary of Rules:
a. Monthly rental 1915,000 or less regardless of
annual gross sales· - VAT-exempt and no
percentage tax.
0
b. Monthly rental above 1915,000 and
i. annual gross sales do not exceed
193,000,000 - VAT-exempt but shall pay
. 3% percentage tax under Sec. 116 of the ,
NIRC.
ii. _annual gross sales exceed 193,000,000 -
ifl leforVAT.
Specific threshold (1915,000 monthly rental)
and ·general threshold (193,000,000 annual
gross sa es) should be both met for this
transactio to be liable to VAT. -
, N"OTE: The specific threshold is on a per
· -residential - unit per month basis.
(MAMALA TEO, Revie~er, supra at 583) .
In case the lessor has several residential
units for lease, some are leased out for a
monthly rental not _ exceeding 1915,000 while ·
others are leased out for more than P15,000
per unit, the tax liability will be as follows:
i. The gross receipts - from rentals not ·
exceeding 1915,000 per month per unit
shall be exempt from VAT regardless of
the aggregate annual gross receipts. It is
also exempt from the 3% percentage tax.
ii. The -gross receipts from rentals
exceeding P15,000 per month per unit:
1.) Aggregate annual gross receipts
from said units does not exceed
193,000,000 - VAT-exempt but
subject to the 3% percentage tax;
2.) Aggregate annual gross receipts
from said units exceed 193 000 000 -
subject to VAT (R.R. No'. 13~2018,
Sec. 2) .
Residential Unit
Ap~rtm~nts and houses & lots used for
res1dent1al purposes, and buildings or parts
 ' VALUE ADDED TAX
264 . Taxation Law

The following shall be VAT-exempt even if gross

or units thereof used solely as dwelling
places (e.g. , dormitories, rooms · and bed
spaces) except motels, motel rooms, hotels
and hotel rooms, lodging houses, inns and
pension houses (R.R. No. 13-2018, Sec. 2) .
Unit .
An apartment unit in the case of apartments,
house in the case of residential houses; per
person in the ·case of dormitories, boarding
houses and bed spaces; and per room in
case of rooms for rent (R.R. No. 13-2018,
Sec. 2).
2. Gross receipts from ,bending activities by credit
or multi-purpose cooperatives duly registered
and in good standing with the CDA (R.R. No. 16-
2005, Sec. 4.109-1);
3. Transactions which are exempt under
International agreements to which the Philippin~ _
is a signatory or under special laws, except those , 1
sales or receipts exceed ~3,000,000:
a. Sale of goods ·pertaining to agricultural or
marine food products in their original state;
b. Sale of books; or
c. Sale of service relating to rental of residential
unit not exceeding ~15,000. (MAMALA TEO,.
• Reviewer, supra at 584)
NOTE: Any person whose sales or receipts
do not exceed threshold amount and who js
not a VAT-registered person are exempt_
from VAT but shall pay 3% percentage tax of
his quarterly sales or receipts (NIRC, Sec.
116, as amended by TRAIN Law).
NOTE: A VAT registered person may elect
that the above exempt transactions shall not
apply to his sales of goods or-properties or
services. Once the election is made, it shall
, • be irrevocable for a period of 3 years counted

under P.O. No. 529 (Petroleum,,, Exploration , ) r ; ; from the quarter when the election was made
Concessionaires under the Petroleum 'Act of-'----·'...... _
1
f
except for franchise grantees of radio and
1949); ~, , ✓ ' _,,,_..
1
TV' broadcasting whose annual gross
4. Iransport of passengers by1jnter ti ·onai carriers recei~ts for the preceding year do not exceed
doing business in the Philippioes (R.R. No. 15- - , ... ft10,000,000 where the . option becomes
2013, Sec. 6); and / ' >• / · _:~--
perpetw;illy irrevocable (R.R. No. 4-2_ 007,
, Sec. 15) .r n
~OTE: The transport qt 'cargo by internatlon--a1-· • V .,
carriers doing business ,n., the Philippines 'is · · VATexempt personsunderSec. 109whodid
like'-:,'ise VAT-~XEM~T as it is ·_!Ubject' to . . .._- ~ p~
opt to,b&} egistered as VAT jaxpayers
Common earner's Tax (P~rcen\'3g~~ Tax orf · · .- Hj@~ register , as non-VAT taxpayers
lntemation~I Carrier) (R.R. o. 15-2(1J3, Sec. 6):- . --./ Oti.GLES ;Reviewer supra at 365 1
I ) <.\.. - I • • • , ' \ • ' '/ ·

5. Transfer of property pur~ant to a ~ ~rgef o; I·· ' '.✓

:;,.:~~·;,

consolidation according to Sec. 40 (C)(2) of-the 1 . P-v~'!,./""~ -~-------------

NIRC; i . -:-
6. Association dues, membership fees, and ottier.. L~ ~../
>: '.. ·
tlNPUT·T~
.
ANDOUTPUT
.
assessments and charges _ callee '3d by ~ TAX ·
homeowners' associations and co'rf8¢rrlinium -~
corporations established under R.A. No. 9904. Lv' ,
l' !.~'""!!!'"-~--------------_.
I'
(Magna Carta for Homeowners and
Homeowners' Association) and R.A. No. 4726 INPUT TAX
\~; ~~.n~~~i~~~m Act), respectively (R.R. No.
0 -:;!:;:-h-:-e-;--;V:-::-AT;-;d-ue--f-;-ro-m-or_p...:a_id_b_y_a_V_A_T_r_e-gi-st-e-re_d_p_er_s_on
in the course of his trade or business on importation

N?TE: The collection must be on a purely

of goods or local purchase of goods or services,
reimbursement basis (R.R. No. 13-2018, Sec. 2). incl_ uding lease or use of property, from a· VAT-
registered person (NIRC, Sec. 110 (A){3) as
7. ~elf-employed individuals and professionals amended by TRAIN Law).
avail_ing of the 8% tax on gross sales and/or
receipts and other non-operating income, under Input tax is _ what is passed on to the
Secs. 24 (A)(2)(b) and 24 (A)(2)(c)(2)(a) of the purchase~/~axpayer by the seller. If the purchaser is a
NIRC (R.R. No. 13-2018, ·Sec. 2): and VAT-Re~rstered person, then he can use the input
8. Qther than the transactions mentioned in the tax credit to the output taxes he is liable to remit 10
th e BIR (INGLES, Reviewer, supra at 348) .
preceding paragraphs (VAT-Exempt
Transactions), the gross annual sales and/or
receipts do not exceed the · amount of
193,000,000.
 \ I

MEM:Q~y AID
Sen Bede IJnMnily Colege d Law - ROCT Bs ()peiatjons Center ·
265

SOURCES OF INPUT TAX The input tax that ·can be claimed by the buyer
1. Purchase or importation of goods: shall be the corrected amount of VAT (R.R. No.
a. For sale; or 16-2005, Sec. 4.110-6).
b. For conversion into or intended to form part
of a finished product for sale, including VAT PAYABLE/EXCESS INPUT TAX:
packaging materials; or · · Output tax less input tax is VAT Payable or Excess
c. For use as supplies in the course of Input Credits, whichever is the ca~e. on a m?nthly
business; or · VAT declaration and quarterly VAT returns, subJect to
d. For use as raw materials supplied in the sale limitations prescribed by the regulations· (R.R. No. 16-

.
of services; or 20Q5, Sec. 4. 110-6).
e. For use in trade or business for which ·
deduction for depreci~tion or amortization is -
allowed unde'r the Tax Code;
' Output tax
· o ·utput tax exceeds '
Less: Input
2. Purchase of real properties for which a VAT tias -input tax at the erid :~
actually been paid; : . ·.: of any taxabl~ ·· ..
tax
3. Purchase of services in which a VAT has actually VAT
quarter ;.-
been paid; Payable .
4. Transactions deemed saJe under. Sec. 106(8) of Output tax
: · lriput tax inclusive '.:
the Tax Code;
" of input tax ·carried .·; Less: Input -
5. Transitional Input Tax; ,. ';-. ·ovedrom the<,(· tax
6. Presumptive Input Tax; }-;::previous quarter :;:: Excess .
7. Transitional Input Tax Credits allowed under the /,:•t-,exceeds output t~)( · Input Tax
transitory and other provisions (R.R. No. t~- . _. -~ :. .-.. , r ,~·;_,t:. ·.:;•:: .,., .. :,;; -•' ,...;,_.

. 2005, Sec. 4.110-1). 1 , .,,

,- , , · NOTES:
· 1. If t tbe end of any taxable quarter, VAT is a
OUTPUT TAX ,. ii··· ;, f positive ~mount (the output tax exceeds the input
The VAT due on the sale or lease of taxable goods or : tax; such amount is called excess output tax),
properties or services by any person register~d or then it is ttie AT payable by the VAT-registered
required to register under VAT (~ /RC;
(A)(3) as amended by TRAIN L~~) : .• r
110 ~e~:. persor:i. Vi T payable in case of importation is
already th1 am~unt d_ue on such impo_rtatio·n; and

NOTE: The output tax of the seller is.'inP,t1,{tax to -~~e
purchaser {INGLES, supra at 346). __ _~-; . ,
· ··
DETERMINATION OF OUTPUT ,TA?f-AND
VAT PAYABLE AND THE COMPUTATION ~ ·
OF VAT PAYABLE OR EXCESStpJC: ~
• • -- I
1. For sale of goods or properties: · ·
Gross selling price x VAT rate (12% or 0%) =
_Output tax
. 2. If the input tax, inclusive of input ~ax. carried over ·
' from the previous quarter,· exceeds the output
- tax, the excess input tax shal) be carried over to
·,. ~lfttie.succeeding quarter or quarters as tax credit
-:..:.:(R.R-. 'No: 16-2005, Sec. 4. 110-7).
SUMMARY OF DIFFERENT
TREATMENTS ON VAT*

2. For sale of services: • 12% 12 10 2 0

Gross receipts x VAT r~te (12.% or 0%) = Output Payable

tax 10 12 0 2 Tax Credit

3. Where the basis for computing output tax 0% 0 12 0 12 Refundable/

is either the gross selling price or gro~s ~
Creditable
receipts, but the· amo~nt _of . VAT IS Exempi 0 12 0 12 Wnrecoverable
erroneously billed in the •~voice
The total invoice amount · is presumed . to *All amounts are assumed for illustration purposes. .
comprise · the gross selling price/gross receipts
plus the correct VAT. Using 12% as th ~ VAT rate'
the formula to compute the output tax is: .

Total invoice amount x (12%/11 2%) = Output tax

 .VALUE ADDED TAX
Taxation Law

DETERMINATION OF CREDITABLE Corp. v. Commissioner of Internal Revenue, G.R.

No. 179356, December 14, 2009).
INPUT TAX
The amount of input taxes creditable d_uring a month
PROPERTY IS . CONSIDERED
or quarter shall be determined by: ·.
1. Adding all creditable input taxes during the DEPRECIABLE IF:
month or quarter and any amount of input tax 1. It is used in trade or business or held for the
carried-over from the preceding month or production of income; and
quarter; and 2. It is subject to exhaustion within a determinable
period of time (it has a limited useful life)
2. Reduced by the amount of claim for VAT refund (MAMALATEO, Reviewer, supra at601).
or tax credit certificate (whether filed with BIR,
with Department of Finance, Board of AGGREGATE ACQUISITION COST.
Investments or the BOC) ·and other adjustments,
Refers to the total price, excluding VAT, agreed upon
such as purchase returns or allowances, input tax
attributable to exempt sales and input tax for one or more assets acquired and not on the
attributable to sales · subject to final VAT payments actually made during the calendar month
withholding (R.R. No. 1~-2005, Sec. 4.110-5). (R.R. No. 13-2018, Sec. 2).

INPUT TAX ON MIXED TRANSACTIONS: INPUT TAX ON DEPRECIABLE GOODS

1. All the input taxes that can be directly attributed-,· ~,, Whe~e a VAT registered person purchases or imports
to transactions subject to . VA.,T ,_may be .: capital gqods, which are depreciable assets for
recognized for input tax credit· ,,, : ,. ~ " 1 . ,1 incdm~e t~x"·purposes, the aggregate acquisition
' : . J).,.., _,. cos.t..,o fw!}ich (exclusive of VAT) in a calendar month
2. If_any input tax cannot be dirtctfy,atttibuted- to-- ~,?C~eeds P1 ,OJ~• 000 regardless of the ·acquisition
either a VAT taxable or VAf,.e~~mj?t transactior::i, c~st of ~~aeh cap!~I 9,oo_d: .
the input tax shall be proriited tQry;e v h- taxa~I~ .,,. . ;; Estimated useful life 1s 5 years or more
and VAT-exempt trans~tions and ·oply to the .:. ': , lnpu ta_x .~b ~ b) spread evenly over the month
ratable portion pertaining tojransactioj,s subjec ac~ uisition1,~nd tile 59 succeeding months.
. to VAT may be recognized-(or input tax credit. . .: . , ~ 'r--' •
The allocation of input taxes shall \be do.ne ·2, ·. Est11pated useful ife is less than 5 years
proportionately to each ~ategory ot tra~ action; · lnp~t.,tax s~~ll!5e, spread evenly. on a monthly
..--.-, ,_ - as1~ by d1v1dmg .t~e input tax by the actual
3. The input tax attributabll to tAT-e\ru]i~ ales ._ '. . numb,~ .of ;J on Ji~i comprising the estimated
shall not be -allowed as credit agains~~tpu ta·x · _us~ful life .. Such .i claim_ for inP,ut tax shall

and . ( , •1 -- ; -
7
but should be treated as pqrt of cost or exRen_:se: : ., · -~mm nce in th; calendar month the capital
---:-.-!· g~od is/acquir~__(NIRC, Sec. 110 (A)(2), as
,, _. }_ \ . ~amen ed by TRAIN Law; R.R. No. 16-2005, Sec.
4- For persons engaged in both zerQ-rated sales - 4· 1.0-3. · ~ · ·
and non zero-rated sales, the aggregaje' 'nput / I • \ \ . \ , - :..
taxes shall be allocated ratably between the ,' , ; i'- NO I ES:
zero-rated sale and non 'zero-rated sale (R.R. a. The amortization of the input VAT shall only
No. 16-2005, Sec. 4.110-4). · be allowed until December 31, 2021 after
which taxpayers with unutilized iii put VAT on
capital goods purchased or imported shall be
allowed to apply the same as scheduled until
INPUTTAXON fully utilized (R.R. No. 13-2018, Sec. 2).
DEPRECIABLE GOODS b. Fo·r P~rc~ases made in Jal')uary 2022, no
amortization shall be made and the input
VAT shall be claimed on the 'month of
.purchase or January 2022 (R.R. No. 13•
CAPITAL GOODS OR PROPERTIES 2018, Sec. 2). -
Refer to goods or properties:
1. With an estimated useful life greater than one (1) Formula:
year; Input Tax
2. Which are treated as depreciable assets under Useful Life in Months*
Sec. 34(F) of the NIRC; and *Actual useful life or maximum of 60 month5
3. Used directly or indirectly in the production or if estimated useful life is 5 years or more
sale of taxable goods or services (KEPCO Phil.
 \ I

MEM:\/~Y AID
s., Bed& lJrMnlty College af Law - RGCT Bar ()pqtloos C4otar

EFFECT IF THE AGGREGATE ACQUISITION
COST (EXCLUSIVE OF VAT) DOES NOT EXCEED
P1 ;oo0,000: The total amount of input taxes will be
allowable as credit against output tax in the month of
acquisition (R.R. No. 16-2005, Sec. 4.110-3).
EFFECT OF SALE OR TRANSFER OF
DEPRECIABLE GOOD WITHIN A PERIOD OF 5
YEARS OR PRIOR TO THE EXHAUSTION OF THE
AMORTIZABLE INPUT TAX: The entire
unamortized input tax on the capital goods sold or
transferred can be claimed as input tax credit during
the month or quarter when sale or transfer was made
(R.R. No. 16-2005, Sec. 4: 110-3) .
ILLUST~TION N0.1:
In December 2016, a VAT-registered person reported
the following acquisitions of equipment for its
business use:
E1: t-1,500,000 (estimated useful life 6 years)
E2: t-625,000 (estimated useful life 2 years)
E3: t-750,000 (estimated useful life 3 years)
The Creditable Input VAT1' per month shall be:
E1: t-3,000 (t-180,000/60 months max.
amortization period) ·
E2: t-3, 125 (t-75,000/24 months)
E3: t-2,500 (t-90,000/36 months)
*Acquisition Cost (excluding VAT) x 12%
The t-1,000,000 threshold is based on the aggregate
acquisition cost regardless of the acqui:>ition cost of
each capital good (R.R No. 16-2005, Sec. 4.•110-3).-
ILLUSTRATION NO. 2: . .
ABC Corp., a VAT-registered_ person purc~ased
capital goods on different occasions a~ follows.
- ., -,--"'"'-'
,·- ...•. ·,t ..,,,,~<-:;--·-~
,.•• ·. ·-, .• "''
l"°~-,.-r ·'"
· . _.. ·· ·. -
Month of Amount . ' l}seful
purchase
·(000,000) _ Life -~ amo~!~~t-~
2. For purchase - made in February 2018, .the
amortization shall be for. a period of 4 years only
or up to January 2022 since the useful life of the
asset is shorter than 5 _years.
3. For purchase made in December 2021, the
amortization shall be for the period of 5 years or
up to November 2026.
4. For purchases made in January 2022, no
amortization shall be made and the input VAT
shall be claimed on the month of purchase or
January 2022 (R.R. No. 13-2018, Sec. 2).
ASSET ACQUIRED IN .INSTALLMENT
An asset acquired in installment for an acquisition.
cost of more than 191,000, 000, excluding VAT, wi!I
be subject to amortization·of input tax despite the fact
that the monthly payments or i_nstalments may not
exceed 191, 000, 000 (R.R. No. 16-2005, Sec. 4. 110-
3) .
ILLUSTRATION:
. NJ Corp. acquired an asset for P1, 500, 000 payable
:in 3 monthly installments. The input tax of 19180, 000
-wJil be s·ubject to amortization despite the fact that the
monthly paymJnt/installment is 19500, 000 (less than
.
•, fD1 I 000, 000): ••
.
(
., ;
AMORTIZATIQN OF ·INPUT VAT ON.
,,
.· IMPORTEDi
.. .. CAPITAL GOODS
'. APPLICABLE TO - BOTH ZERO-RATED
r. AND 12%NAT TRANSACTIONS
' Sec. 11 O (A)(2) of the NIRC which requires
~ amortization of input tax ori capital goods purchased
· or imported with-acquisition cost of 191, 000, 000 and
·treated as depreciable asset appli~s to all input taxes
,..• ,.. th on capital goods available as tax credits against the
~ Las mon
of .·, ~it.'$ taxpayer's VATable transactions, be it VAT zero-
rated or subject to 12% VAT.

DECEMBER Both t~xable sales and zero-rated sales are

JANUARY 8.5 6YRS
. 2022 considered transactions subject to output VAT. The
2018 difference lies only on the VAT rate used.
4YRS JANUARY Considering that the output tax due is 0% in the case
FEBRUARY 8.5
2022 of zero-rated sales transactions , the creditable input
2018 tax attributable thereto in a taxable quarter becomes
5YRS NOVEMBER unutilized or excess input tax -which may be the
DECEMBER 10
2026 subject of a claim for refund or tax credit certificate
2021
under ·Secs, 110 (B) and 112 (A) of the NIRC, as
5YRS OUTRIGHT amended by TRAIN Law.
JANUARY 10
CLAIM
2022 JANUARY
, On the argument that the amortization of input VAT
2022 on capital goods runs counter to the provisions of
Sec. 112 (A) of the NIRC as the claim for refund can
de in January 2018, the be filed effectively beyond the two years from the
1. For purchases ma th horter period of 5 close of the taxable quarter when the sales were
amortization shall be for bet2022 although the made, the CT A maintained that the amortization of
years only or up to oecem e input VAT merely delays the crediting of the input
useful life is 6 years.
 ~ --

VALUE ADDED~TAX
· · Taxation Law

tax and not the filing of the claim . Hence, it held 1

that VAT-registered taxpayers are not deprived of TRANSITiONAL AND

their privilege to credit their input tax as long as they
file their claim within 2 years from the close of the
PRESUMPTIVE INPUT
taxable quarter when the sales were ma~~-. TAX
(Commissioner of Internal Revenue v. Northwmd
Power Development Corp., CTA EB Nos. 1037 and
1042 re CTA Case No. 8119, December 16, 2014;
Taganito Mining Corp. v. Commissioner of Internal TRANSITIONAL INPUT.TAX (NIRC, SE~.
Revenue, CTA EB No. 935 and 936 re .CTA Case No. 111 (A)) .
8090, December 16, 2014). ·
Transitional input tax on the inventory on hand as of
the effectivity of the VAT registration of taxpayers
INPUT TAX ON CONSTRUCTION IN
who:
PROGRESS . 1: Became VAT-registered persons upon
Construction In- ~rogress . (CIP): It is the cost of . exceeding the minimum turnover of ~3,000,000
mnstruction work, which is not yet complet_ ed (R.R. in any 12-month period (NIRC, Sec. 126-(G)); .
No. 4-2007, Sec. 16). 2. Voluntarily registers as a VAT paye( even .1f
turnover does not exceed- ~3,000,000 (except
NOTES: franchise grantees of radio and/ or television
1. CIP .is considered, for purposes of claiming i11pot :;- - oadcasting whose .threshold is ~10,000,000)
tax, as a purchase of service, the vaJue~ . which ; 1 : ,ZNtRQ, Sec. 126 (H)); -and · .
shall be determined based on the Pt091JlSS s.1If lie is already a v_AT-registered person an~ al~o
billings; J . deals.in g9ods or properties, the sale of wh1c~ Is
~-
1
/ / · ~xempt, -but it ecomes a -taxable transaction
2. , Input tax credit can be re~og_nize in t~ o~t~ : . ._. ,, under a ne~ o~ a_mendatory law (MAMALA TEO,
the payment was made. Provided , thatf n offimal , : /. Reviewer, su(fra at 598). - .
receipt of payment has been issuEld baf ed on the . ~ ., ✓•• • • . ( J .
progress billings; and ,-:;,- · .--:---. - ~ -Pl:IRPO~E: It is appasent that the transitio{l~I input
~ •,· · - -tax credit operates· to benefit newly VAT-registered
3. Once the input' tax . has. alr~ad~ bee cta1T_~d · .. _ ~ P.~isons, hether 9[..Clqt they previously paid taxes in
whU~. the ~nstruct1on 1s till m 1P~~ress, M ~ · ·the acq~~~I ·r:fl o their beginning. inventory of goods,
add1tion~I mput tax _ can e cl.~~~ -Upo~7 - T)'lateripl~. : ~nd supplies. During that period of
comple~1on of the ass~t nen . it /i'a
beer , ! 1 • trarnJit\Of1 ...1from non-VAT to . VAT status, . the
reclassified as a deprecta le capital , sse 1.and ._ transitional in ut tax credit serves to alleviate the
deprecia,ted (R.R. No: 4-2007, Sec. 16)':</'-. • ! ,.,.im~a~ -Of the- VAT OJI the taxpayer (Fort Bonifacio
"\.. , ,:--- --;. ~:/- qeve{opm~ht Corq: · v. Commissioner of Internal
CONTRACT FOR THE SAlE _OF ~E~Vml;_1;_ _'Revenue, G.R. No. 170680, October 2, 2009) .
WHERE ONLY LABOR Wll.;1-·, BE ",~ ('..- .
SUPPLIED BY THE CONTRACTOR/ AND r . ~I~ g"Fransltional Input Tax Credit:
1
THE MATE RIALS WILL BE PURCHASED ... .. h1chever is higherletween: , ; .
BY THE CONTRACTEE FROM OTHER · 1. :wo
percent (21/o) of the value of the beginning
inventory.on hand; or
SUPPLIERS 2. Actual VAT paid on such goods, materials· and
1. Input tax credit on the labor contracted shall still supplies. ·
be recognized on the month the payment was
made based on progress bjllings; ·
The amount is creditable aga.inst the output tax of a
2. Input tax on the purchase of materials shall be
VAT-registered person- (R.R. No. 16-2005, Sec.
recognized at the time the materials were 4.111-1).
purchased (R.R. No. 4-2007, Sec. 16).
Prior Payment of Taxes NOT · Necessary for
A~ailment .of Transitional Input Tax •
Pnor payment of taxes is not necessary before 8
taxpayer could avail of the 8% transitional input tax
credit. All that is required under Sec. 111 of the Nl~_G
is for the taxpayer to file a beginning Inventory w, th
the BIR (Fort Bonifacio Development Corp. v.
Corr,missioner of Internal Revenue, G.R. Nos.
175707, 180035 & 181092, November 19, 2014) . ·
 \ I

MEM:QllY AID .
. San Bed& l.kW9nllty COlege Of Lew • RGCT Bar Ope,at1ona Center
269

NOTE: For transaction~ on real properties, the value

of th~ latter, t~gether with the improvements thereon
REQUIRED SUPPORTING DOCUMENTS:
are included · .-:-T~an~aclion · .- ·. · Required Documents :· ·
. dm the beginning
. inventory of goods, . .~ ' . , ' . . ' ... - .
, ~

mate~~ 1s a~ supplies based on which the Input taxes on VAT invoice

trans1t1onal input tax credit is to be comput d domestic purchases of
(MAMALA TEO, Reviewer, supra at 598-599) . e goods or properties
. . . ~- .. -.\"-.-p ·::,..--fl,. __ . . . . . •rs-·•'), -- - • ... " .... -

PRESUMPTIVE INPUT TAX 1N/RC

11 SEC '
·:/. Input Tax
I , • • • .. !!.
on ·Purchases of Real Property:'·
•• \-. ~H , _ _' >- • •• - ~• •
·~· ,
111 (B)) ' • Cash/Deferred basis Public lnstrument·(i.e.1 deed
Persons or ~rms engaged in the: (PM) of absolute sale, deed of
1. frocessmg of mackerel, milk and sugar (MMS)· conditional sale, contract/
and ' agreement to sell, etc.)
together with the VAT invoice
2. Manufacturing fooking oil, Qacked noodle-based
for the entire selling price and
instant meals and refined sugar (CPR).
non-VAT ORs for the initial
and succeeding payments
Processing pasteurization , canning , and
activities which through physical or chemical Installment basis Public instrument and VAT
process alter the exterior texture or form or inner OR for every payment
substance of a product in such a manner as to Input tax on domestic VAT OR
prepare it for special use to which it could not have purchases of services
been put in its original form or condition (R.R. No. ,
16-2005, Sec. 4.111-1) . Input tax on Import entry or other
importation of goods equivalent document
. ' showing actual payment of
Detennination of Input Tax: The presumptive input
VAT on the imported goods
tax shall be 4% of the gross value in money of their
purchases of primary agricultural products whicti'are . , Transitional input tax ~ Inventory of goods as shown
used as inputs to their production (R.R. No. 16-2005, ' in a detailed list to be
Sec. 4.111-1). submitted to the BIR.
Input tax Ofl "deemed Required invoices
The amount is creditable against th~.9utput-w x of a sale" transactions '
VAT-registered person (R.R. No. 16-2005, Sec.
4.111-1)." : Input tax input lax from Monthly Remittance Return
payments made to- of Value Added Tax Withheld
non-residents (.such (BIR Farin 1600) filed by the
as for services, resident payor in behalf of the
" rentals, or royalties) non-residen~ evidencing
SUBSTANTIATI remittance of VAT due which
was withheld by the payor
INPUTVAT
Advance VAT on Payment order showing
sugar payment of the advance VAT
. (R.R. No. 16-2005, Sec. 4.110-8)
WHO CAN CLAIM INPUT VAT
The input tax credit on domes!ic purchase or All purchases covered by invoices other ·than ·a VAT
importation of goods . or properties by a VAT- invoice shall not !:>e entitled to a refund of input VAT
registered person shall be creditable: (Atlas Consolidated Mining and Development
1. To the purchaser upon consummati~n ?f sale Corporation . v. Commissioner of Internal Revenue,
and on importation of goods or properties, G.R. No. 145526, March 16, 2007). ·
2. To the importer upon payment of the valufe-ad~~d
tax prior to the release of the goods rom e The company's failure to substantiate its zero-rated
custody of the Bureau of Cu st0ms; · . of sales wi~h duly r~gi_stered VAT official receipts
3. To the purchaser, lessee or licensee, m cas~ resulted m the denial of the application for refund.
purchase of services, lease or use 0~ properties, VAT invoice and official receipts must · be duly
upon payment of the compensation, rental, registered with the BIR; the proper authority to print
royalty or fee. (ATP) was secured by the taxpayer for the VAT
4 .. To the purchaser of real property un?er: invoice and official receipts (Eme,:son Electric (Asia)
a. Cash/Deferred Payment Basis - upon Ltd. ROHQ v. Commissioner of Internal Revenue
consummation of sale. CTA Case N9. 8470, Octoper 1, 2014) . '
Installment Basis - every installment
b. payment (NIRC, Sec. 110 (A)(2) ; as
amended by TRAIN Law).
 VALUE .ADDED TAX
Taxation Law

Strict compliance with substantiation ·and invoicing
requirements is necessary considering VAT's nature
and VAT system's tax credit method, where tax
payments are based on output and input taxes and
where the seller's output tax becomes the buyer's
input tax that is available as tax credit or refund in the
same transaction . It ensures the proper collection of
taxes at all stages of distribution, facilitates
computation of tax credits, and provides accurate
audit trail or evidence for BIR monitoring purposes
(Team Energy Corporation v. Commissioner of
Internal Reve,.nue, G.R. No. 197663, March 14,
201~. .
REFUND OR TAX CREDIT ·
OF EXCESS INPUT VAT
_ ·- ~t"'
' ,
9. The claim is filed within two years after the
close of the taxable·quarter when such sales
were made (in contrast with the period of filing
an action to recover taxes ·already paid which is
reckoned from the date of payment); and
10. Duly supported by VAT invoices or receipts in
accordance with Sec. 4.104-5 of R.R. No. 7-95 in
relation to Secs. 113 and 237 of the NIRC (R.R.
No.16-2005, Sec. 4.112-1).
RULES ON PRESCRIPTION. OF VAT
REFUND/ TAX CREDIT
1. Administrative Claim (with the BIR)
The administrative claim is filed within two (2)
· years after the close of the taxable quarter when
the zero-rated or effectively zero-rated sales
were made. The CIR has 90 days from the date
of submission of the official re~ipts or invoices
. and other documents in support of the application
• i
;·=7· .•
~ ,
l aw 1.
(NIRC, Sec. 112 (C), as amended by TRAIN

INSTANCES WHERE CLAIP-,s FQFf" \lAT . .-,,1 .· ..-:. ./ i ; .

REFUND/TAX CREDIT MAY►'eE ~VAILED
1

·_ Nb1t;,·s~o ld ttie Commissioner find that the

•

OF 7 i. / . .-,,,._......-- -,J1rai'1 of ref.u'h :s not proper, the Commissioner

1. Zero-R~ted and Effectively ~ ·0 Rat~dr·SaleS;(;~-' · ,,: ._\,. m□~ s ~ e i ~ in~ the legal and factual basis
2. Cessation of business; and Y/ , .. . ·. for ~t\e 9et11aJ. . _
3. Cessation of VAT status
:Z / ---
.
__ ·--·- • , n\ . . .
- - -The • o-ye~_r--prescnptive penod referred to in
.
NOTE: Transitional input tax cann t be clatme~{as'~ - . , <_Sec._' .112 . {A) ~eptle~ only to the- filing - of
refund or credit (INGLES, Re ·t1we , SU,Puf at 357j.' ,.:. _ -.: '_. a~m!, 1strat 1~, ~l~g, with the CIR and not to~the
\ , • · · · . : · filing 1!?0f JUd1c1al claims with · the CTA
ZERO-RATED AND E Ftgt;rtVEt.Y'ZERO- ~-: ~-(eprfi.r5;/ sion~ t Internal Revenue · v. San
RATED SALES ~ OF GOODS, ; . ·· ~ fi~;,.,~r~
r Corp:,, G.R. No. 187485, February
PRO~ERTIES OR SERVICESt . ·. ~-:.; ''·~: ,,,-(;-.~ ·,/ ,I I '
T? claim refu~d or ~x .credit, claimant mu~t complyr T ,--:_ - · .R_:M. S,:No. 54-?014 requires the taxpayer to file
~•th i~: :nowmg ?ntena: . · ·- - ..!. 1 - ' _i _· :..-- h1s_.cla1,ru. wit~ 'complete supporting documents
2: The ~ayer is YAT reg1stere~; I !.,l '-, ·- . .,.. •' ~n~ to ~tt~st that he will no longer submit any
effecti tayer is engaged m zero-rated or /• otp!f .ctbcament to prove his claim FCJrther 'the
3·
The invp~r~exro-ratedd sales; • 'l r ,ta~payer is barred from submitti~g additional
es are ue or paid· "documents ft h h · · · ·
4. The input taxes are not tr 't' ' . . a er e as filed his admm1strat1ve
5. The • t ta ansi 1onal input taxes· claim.
i~pu xes h~ve not been applied agai~st
ou tpu taxes during and in the succe d' T~e reckoning of the 120-day period · has been
quarters; e mg
wi th dra'."'n f~om the taxpayer by R.M.C. No. 54-
6. The input taxes claimed are attributable t ,
rated or effectively zero-rated sales· o zero- . 20 ~4 , since it requires him, at the time he files his
claim, to complete his supporting documents and
7. For zero-rated sales under Secs. 106 (A) 2
and (2); 106 (~); and 108 (8)(1) and (2t )t~l
' ~ttest that he will no longer submit ·any other
ocument_ to prove his claim. Further, the
acceptable foreign currency exchange proceeds
~axpayer is barred from · submitting additional
have been duly accounted for In accordance with
BSP rules and regulations; ~~uments after he has filed his administrative
c aim. The foregoing Issuance cannot be
8. Where there are both zero-rated or effectively :~rille~ retroactively since It Imposes new
zero-rat~ sales and taxable or exempt sales
th gations _upon taxpayers In order to perfect_
an~ the rnput taxes cannot be directly and entirely
eir administrative claim (Pilipinas Total Gas,
attnbutable to any of these sales, the input taxes /
Nnc· v· Com missioner
· · of Internal Revenue, G.R·
shall be pr~portionately allocated on the basis of . o. 207112, DecemberB, 2015) .
sales volume; _
 \ I
MEM:Q~y AID
Slf1 Bede IJnMnlty Colege of law - RGCT Bar Operations Center
EFFECT OF BIR'S FAILURE TO ACT UPON
TH_E CLAIM WITHIN 90-DAYS: Any official,
agent, or employee of the BIR to act on the
application within the ninety (90)-day period shall
be punishable under Sec. 269 of the NIRC, as
amended (NIRC, Sec. 112 (C), as amended by
TRAIN Law). . .
2. Judicial Claim
GENERAL RULE: In case of full or partial denial
of the claim for tax refund, the taxpayer affected
may, within 30 days from the receipt of the
decision denying the claim, appeal the decision
with the Court of Tax Appeals (NIRC, Sec. 112
- (CJ, as amended by TRAIN Law).
NOTE: The observance of the 120+30-day
period is mandatory and jurisdictional
(Commissioner of Internal Revenue v. Toledo
Power Co., G.R. No. 195175, August 10, 2015).
The 30-day period to file a judicial claim with the
CTA need not necessarily fall within the 2-year
prescriptive period, as long as the administrative .
claim is filed within the 2-year period
(MAMALATEO, Reviewer, supra at 613) .
The taxpayer can file its administrative•claim for
refund or credit of VAT at any time within the two-
year prescriptive period . If it files it~ claim on the
last day of said period, it is still filed on time. The
CIR will have 120 days (Now; 90 days) from such
filing to decide the claim . If the CIR -decides tbe
claim on the 120th (Now: 90th ) day 1 or does not
decide it on . that day, the taxpayer stil( has 30
days to file its judicial claim ytit~ the CTA;
otherwise, the judicial claim would be~; prop~rly
speaking, dismissed for being file~ out of. !•me
and not, as the CTA En Banc puts 1t, prescnbed
(Commissioner of lntem~I _Revenue v.
Bunneister and Wain Scandmav,an Con(ractor
Mindanao, Inc., G.R. No:- 19002 1; October 22:
2014).
NOTE: Prior to the effectivity of TRAI~ L~~· th e
Supreme Court, in the case of Commissioner of
Internal Revenue v. Mindanao Geo~~ermal 11
Partnership ruled that in case of denial -of th e
claim for ' VAT · refund or failure _of th e
Commissioner to act on the said claim, t~e
taxpayer affected may a~peal th e unact!3d claim
with the Court of Tax Appeals.
However pursuant to TRAIN Law, the inaction odf
the Com~issioner on the application for refun
within ·the prescribed pe_riod was re~~v:fRa~a:
ground to appeal the claim. F~rther, rt of
clarified in its issuance that failure_0 ~ th e P~
the BIR to act on the application w1thm the ninety
(90)-day period shall be punishable under Sec.
269 of the Tax Code. In the event that the 90-day
period has lapsed without BIR's decision, the
VAT refund claim may still continue to be
-processed administratively (R.R. 13-18, Sec.
4.112-1, as amended by R.R. 26~18, Sec. 2).
There seems to be two schools of thought on the
jurisdiction of the CT A in the refund of excess
creditable input taxes. First, the inaction of the
Commissioner to act on the claim for refund
witt,in the 90-day period will be deemed a denial
and hence, the taxpayer may file a judicial claim
(i.e. appeal to the CTA within 30 days therefrom).
Second, the inaction by the Commissioner to act
on the claim for refund within the 90-day period
will not be considered a denial of the claim for
. refund . The taxpayer has to wait for the decision
of the Commissioner·before he can file an appeal
with the CTA within 30 days from the receipt of
the decision denying the claim.
The Supreme Court has not yet rendered a
decision which ·addressed-the apparent conflict
brought about by the ameodmenl by the TRAIN
· Law to Sec. 112 of the NIRC. It is believed that
the former rul'e still applies (i.e., inaction of the
Commissioner to act on the claim for refund
within the· 90-day period will be deemed a denial
and hence~the taxpayer may file a judicial claim).
This position is supported by Sec. 7(a)(2) of RA.
No . 1125,as amended, by R.A. Nos. 3457, 9282
and 9503 ...
. '
Prior to the expiration of the 90-day (now 120- .
day) period, the CTA has no competence, with all
due respect, to entertain the appeal (Mindanao II
Geothermal Partnership v. Commissioner of
Internal Revenue, CTA EB No. 956 re: CTA Case
No. ·8247, September 16, 2013) .
The failure of a taxpayer to wait for the decision
of the Commissioner of lnterna~ Revenue or the
lapse of the 120-day period will render .the filing
of the judicial claim with the Court of Tax Appeals
premature (Nippon Express PHL Corp. v.
Commissioner of Internal Revenue, . G.R. No.
196907, March 13, 2013). ·
EXCEPTION: If the taxpayer relied on BIR Ruling
No. DA-489-03 which expressly declared that the
"taxpayer-claimant need not wait for the lapse of
· the 120-day period before it could seek judicial
relief with the CT A by way of Petition for Review.
0

VALUE ADDED TAX

272 Taxation Law

Hence, from December 10, 2003 to October 6, i. The BIR Permit to Prin.t;
ii. The TIN-V of the purchaser; ~nd
2010 which refers to the interregnum when BIR
Ruling No. DA-489-03 was issued, taxpayer- iii. The word "zero-rated" imprint_
ed thereon.
claimants need not observe the stringent 120-
day period; but before· and after said window In this relation , failure to comply.with t~e said
period, the mandatory and jurisdictional nature of invoicing requirements provides sufficient
the 120-day period remained (CE Luzon ground to deny a claim for tax refund or tax
Geothermal Power Co., Inc. v. Commissioner of credit. ·
lntemal Revenue, G.R. Nos. 200841-42, August .... .

26, 2015) . Secs. 204 and 229 of the NIRC pertain to the
refund of erroneously or illegally collected
In Taganito Mining Corporation v. CIR, the Court taxes, while Sec. 112 is the appropriate
held that reconciling the pro(louncements in the provision of ·1aw for claims for exc:;es·s input
Aichi and San Roque cases, the rule must .Vf:,.T (Commissioner of Internal Revenue v.
therefore be that during the period December.10, Dash Eng'ineering PHL, lnc. 1 G.R. No.
2003 (when BIR Ruling No. DA-489-03 was 184145, December 11, 2013).
issued) to October 6, 2010 (when the Aichi case
was promulgated), taxpayers-claimants need not . ·1nput VAT attributable to zero-rated sales
observe the 120-day period before it could -file a incurred by _a taxpayer prior. to its VAT
judicial claim for refund _of excess input VA ,..................... registration may not be the );ubject of refund.
before the CTA. Before and after th ~ : .,.., Under Sec. 112 of ·the NIRC, one of the
aforementioned period (i.e., December 10, 003 u j'C6hQitions for entitlement to refund or tax .
to October 6, 2010), the observan·~ ;t~e 2,Qz........... ,_ c(edits of-excess unutilized input tax from .
day period is mandatory and juJisdictjpn,.al othe zefo-rate sal~s is that the taxpayer-should
filing of such a claim (CBK P cf'1er. 'Company A'r
be a V ;registered taxpayer: Thus, !o be
Limited v. Commissioner ot Inter al Revenue, ·". .\ .,. entitle ~j3f nd of input VAT, the taxpayer
·G.R. No. 198928, December , :2014). i · ~:.:, !l< .!l!!,, refuncJ.:cla1mal'l.t must prove that it was a·
. , ·f . ·.,. V, T-registerecf taxpayer during the period it
NOTES: . . ·1 · r---~ ,,. Incurred, its un tilized input VAT (JP Morgan ·
a. Failure to print the ord "zero-rat d" O':\ the~, :· . -:,., i·· Chase 'n , ,V,.A. - PH Custome; care ,
invoices _or receipts is atal to a claim: for: . :·_ .. 11 Center v. Gomlnissioner oflnternal Revenue,
.credit or refund of in · V>AT ~n,.}, _ro-rated: _,_ -~: ____ /lT l)) EB Cas Nos. 7650, 7681 and 7722, ·
sales (J.R.A. PHL, Inc . .v. ComrrJJ~'£ner o .,. I . .., : ~~1 h ·18,i...2().,12). ·
Internal Revenue, G.R. Nd. 177t 27~ ctober · \ >,: _; / /.r:_ 1
11, 2010J . . . • <r I
: ~ - '-~~(6il~ T10N ~F VAT
1 ~ ,1/REGISTRATION
b
•
If · · i
engaged m transport of pas~nge_r 'ana- - · ;: . · . ·
. . · ·
cargo b~ air or sea vessels from Philip ·:>ln~J.t. :... ~ _YAl;.reg~stere~. person may ap_ply f~r the 1ssu~n~
to a foreign country, inpu~ ta es are-,located~- - .,~ laX"tred1t,cert1f1cate for _a_ny unus_ed m_put tax w1th1n
ratably between. zero-rated and--no _ 1ero- 1 ~y~ 1 f ~ the cancell~t1on of re~1stratton. Such tax

withholding VAT and VAT-exempt sales)

1
ra_ted s~le (subJect to regular rate , final 1v pr~gJ c~~I 1cates may be used m the p_ayment of
othe internal revenue taxes:·The taxpaye_r shall be
(R.R. No. 16-2005, Sec. 4.112-1). entitled to a refund if he has no internal revenue tax
· liabilities against which the tax ~redit certificate may
c. In a claim for tax refund or tax credit the be utilized (NIRC, Sec. 112 (B) as amenaed by
applica~t must prove not only entitlem~nt to TRAIN Law; R.R. No. 16-2005, Sec. 4.112-1) .
the claim but also compliance with all the
documentary and evidentiary requirements Cancellation of Registration ~ay be
due to:
therefore (J.R.A. Philippines Inc. v . 1.· Retirement from or cessation of J:>usiness; or
Commissioner oflntemal Reven~e, G.R. No: 2 · Change in' or cessation of status (R.R. No. 16-
171307, August 28, 2013). 2005, Sec. 4.112-1 (b)). .

NOTES:
d. Sec. 110 (A)(1) of the NIRC provides that
1- In the case ~f clai.ms for refund of unutilized VAi
creditable input taxes must be evidenced by .
a VAT invoice or official receipt, which must, on account of cessation of business the two-ye~r
in tum, comply with Sec. 113 of the same period shall commence from · the d~te of
law, as well as Sec. 4.108.1 of R.R. No. 7- cancellation of registration of the taxpayer, and
1995. The foregoing provisions require, inter not from the close of the taxable quarter when thB
alia, that an invoice must reflect, as required sales were made (Associated Swedish 5teel5
PHL., Inc. v. Commissioner of Internal Revenue,
bylaw:
CTA Case No .. 7850, August 23, 2012). .
 \ I

MEM:Q~y AID
S.. Seda l.Wwnlty Colege d ~ - RGCT Bar ()peratjona Center
- 273

2. Sec._ 236 (2)(b) of the NIRg, as amended, The person legally liable to pay the input VAT can
provides _that the cancellation of registration will claim -a refund or credit" for such "excessively"
be effective from the first day of the follo . collected tax, and thus there will · no longer be any
month. wing
"excess" · input VAT (Commissioner of Internal
Revenue v. San Roque Power Corporation, G.R. No.
WHERE ·TO FILE THE CLAIM FOR 187485, February 12, 2013).
REFUND/TAX CREDIT CERTIFICATE
C~aims for refund~tax credit certificate shall be filed EXCESS INPUT VAT VS: EXCESSIVELY
with . the appropnate BIR ~ffice-Large Taxpayers COLLECTED TAX
S~rvI_ce (LTS) or RDO h~vmg jurisdiction over the
pnnc1pal place of business of the taxpayer (R R N0
16-2005, Sec. 4.112-1 (c)) . _· · ·

MANNER OF GIVING REFUND

Refun~s ~hall be made upon warrants drawn by the NIRC, Sec. 110(6) NIRC, Sec. 229
Comm1ssIoner or by his duly authoriz d
represen~ative without the necessity of bei~g
countersigned by the Chairman of the Commission of
Audit (NIRC, Sec. 112 (D)) .
Input VAT available as credit Input VAT is
QUANTUM OF EVIDENCE TO PROVE CLAIM FOR exce_eds the output VAT collected more
REFUND OR CREDIT: Preponderance of Evidence than what is legally
(AT&T Communications Services PHL.: Inc. v. due
Commissioner of Internal Revenue, G.R. No.
172129, September 12, 2008) . · .
" ."~
""... ...... -·~ .,. ~ '
Not "excessj¥ely" collected Involves·
EXCESS IN~UT VAT VS. EXCESSIVELY because e time of erroneously,
COLLECTED TAX . payment oft put VAT the illegally; .
amount pai the correct excessively or in
Excess input VAT means that the VAT payments
and propJr amoun t any manner
made by the taxpayer is greater than the VAT he . ' f
r S wrongfully -
added to the price of products (9uu,ut VAT) he later .,, collected tax .
on sold. It is not an excessive, ·megal or- wrongfully
collected tax. Whereas, an excessively collected·
tax is illegal or wrongfully collected tax because it is
mar~ than the tax due from the person legally, liable
to pay the tax (including input VAT): (BOADO,. . :~ ·, 'Cann9t claim for refund or Can claim for
Compact Reviewer in Taxation (2018), p. 254 credit of input VAT as refund or credit.
[hereinafter BOADOJ) . • ·. ~ ,_-. "excessively" collected.

Under the VAT system, .a taxpayer can apply his input

VAT only against his output VAT. The only exception
Administrative Claim:'2 years 2 years from tlie
is when the taxpayer is expressly "zero-rated or
from the close of the taxable date of payment of
effectively zero-rated (Sec 110 (B))." If such "excess"
quarter when the sale was the -tax
input VAT is an "excessively" collected tax, the
made by the person iegally erroneously.
taxpayer should be able to seek a refund or credit for
liable to pay the output VAT. illegally,
such "excess" input VAT whether or not he has output
I VAT (Commissioner of Infernal Revenu~ v. San excessively or in
I Judicial Claim: within ·30 any manner
Roque Power Corpora_tion, G.R. No. 113~485, days from the receipt of the wrongfully
February 12, _2013). Such is considered an ordinary
decision of the collected.
refund or credit outside of the VAT System.
1
1
Commissioner denying fully
or partially the claim for tax Reckc;med from the
Under the VAT System, there is no claim or issue that refund.
1 the "excess" input VAT is •~xcessively • or in any d~te the person
~anner wrongfully collected." In fact, if the "excess" liable for the tax
NOTE: In case of inaction by pays the tax
input VAT is an "excessively" collected tax under
the Commissioner of Internal
Section 229 then the taxpayer claiming to apply such
Revenue in cases involving NOTE: , Both the
"excessively" collected input VAT to offset his ou~put
VAT may have no legal basis to make such offsetting. disputed assessments claim for refund
I
,274
VALUE ADDED TAX
Taxation Law

refunds of internal revenue and the appeal ·to

I REGISTRATION ]
taxes ; fees or other charges , the CTA must be
·penalties in relations thereto, done· within the REGISTRATION AS A VAT PERSON
or other matters arising two-year period (N/RC, SECS. 236 (G) AND 236 (H)) ·
under the National Internal (INGLES, 1. Mandatory
Revenue Code or other laws Reviewer, supra Any person, who in the course of trade or
administered by the Bureau at 4.69). business, sells, barters, or exchanges goods or
of Internal Revenue, where properties, or engages in the sale or exchange of
the National Internal services, is required to register if:
Revenue Code provides a a. His gross sales or receipts for the past 12 .
specific period of action, the months, other than those exempt under Sec.
inaction shall be deemed a 109 (A) to (AA), have exc~eded ~3,000,000;
denial (Sec.' 7(a)(2), R.A. No.
or
1125, as ame(lded by R.A. b. There are reasonable grounds to believe that
Nos. 3457, 9282 and 9503) . his gross sales or receipts for the next 12
months, other than those exempt under Sec.
NOTE: The judicial claim
109 (A) to (AA), will exceed ~3,000,000.
need not fall within the two-
year prescriptive period (CIR
r
v. Mindanao Geothermal II 2. Option~
Any YAT-exerppt person m·ay elect·to register as
Partnership, G.R. . No.
191498, January 15, 2014). ~
. a VAT°p,ersdn by paying the annual registration
fee. \ ~ ·}' ·
.. . . : .,. . . . . -.., . ' ,,:\. ~:= '"'-\f..J:!.
Person Claiming Refun~ ·. ·... :·'".'°•:'tl,1
·= . : Hes·~ - all no/ ~e en ·tied to cancel his regist~ation·
I \ > •
The person claiming the Ihe taxpayer whcr · · --· - as· a · AT person for the next 3 years from the
refund or cr~dit of the input• is. legally liable and ·. quarter when the election was made.
VAT is not the person w o ~ ho is deemed t9 •. · : ' ~ ·
legally paid the input VAT. • have l,egal~ paid , ·. _· ·' EX<;E~TJO~: Fra ise grantees of radio and
fo~the 1np_ut VAT. : ---1 - --ry
~r~ dca~l iog wh~se annual gross receipts for
· 1 .• the precedi,ng year do not exceed ~10,000,000
I ·whose option is pefPetually irrevocable (R.R. No.
. ' ✓ , •t:2007,,Sec. 15),,
Refund or credit in the VAT ·Prdinary refurtd o r • -~ --~# ' i,I"
.'
system credit outsid.,e of .
• . '. • R~gistration is' an indispensable requirement
1
the VAT s·ysiem
. ·_up der ou VAT law (Commissioner of Internal
Remedy of the Taxpayer · ··::~-~~
.. ,
•Revenue v. Seagate Technology PHL, G.R. No.
1~53866, February 11, 2005). In other words, non-
1. Input Tax 1. Claim for - ,-...,,.,...,.....~~•,.registration as a VAT person does not exempt the
Carried over to the Refund seller from value a·dded tax (output tax) liability.
succeeding quarter(s) 2. Claim for Based on existing law and regulations, the seller
2. Any input tax attributable Credit who did not register as a VAT person cannot
to zero-rated sales by a (NIRC, Sec. 229) claim any input tax passed on to him as a penalty
VAT-registered person, for non-regist_ration (MAMALA TEO, Reviewer,
may at his option: supra at 627). ·
a. Refunded; or . .

b. Credited against The registration of income tax as a tax type does

other internal not automatically carry with it the registration of
revenue taxes VAT and/or percentage tax as a
(NIRC, Sec. 110(8)) covered/registered tax type (R.R. No. 7-2012,
Sec. 9).
(BOADO, supra at 251-255)
Any person who maintains a head or main office·
and branches in different places shall regiSter
with the RDO which has jurisdiction over th e
place wherein the main or head office or branc~
is located. A separate and distinc
 w \ /
MEt4Q~y AID
Sen Bed& I.JrMfllty College of Law - RGCT Ber Ope,auone Centar
establishment shall n_,ean any branch or facility
wh~re sale transactions occur. E~ch VAT-
registered person shall be assigned onl
Taxpayer Identification Number (TIN) (R ~ ~e 0 not collect. If the claim .for refund/tax credit
16-2005, Sec. 9.236-1). - · · · certificate is based on the existen_ce of zero-
Ev~ry person who becomes liable to be
reg1ster~d shall register with the appropriate
~e~en_u~ offi~ (LTS or RDO) which has
JunsdIct1on over the head office qr_branch of that
perso~ a nd shall pay the annual registration fee
prescnbed (MAMALA TEO Reviewer. supra at
629) . ' '
I
.___RE
INVOICING .
_ Q_UI
_ RE
_ M_E_NT
...;...S_....J .
A VAT-REGISTERED PERSON SHALt '
ISSUE:
1. VAT Invoice-for every sale, barter or exchange
of goods or properties. · ·
2. VAT Official Receipt (VAT OR) - for every i~ase
of goods or properties and for every ~ale, barter
or exchange of ~ervices (NIRC, Sec.'_113 (A)). _ •
Only VAT registered persons _are required to.print
their Tax Identification Num~er (TIN) followed by
the word "VAT" in their invoice•or offig alreceipt,
which shall be considered the "V'1T invoice" or,
"VAT OR". All purchases covered by
invoices/receipts other than the VAT invoiceNAT
official receipt shall not give rise to any.input tax
(R.R. No.-16-2005, Sec. 4.113-1 (A)) .
INFORMATION CONTAINED
INVOICE OR VAT OR: ·
1. Statement that the seller is a VAT-registered
person followed by his TIN;
2. The total amount which the purchaser pays or is
obligated to pay to the seller with the indication
that such amount includes VAT;
a. Amount of tax must be shown separately on
the invoice or receipt;'
b. If the sale is exempt from VAT, the term
"VAT-Exempt Sale" shall be w~itten . or ·
printed prominently on the invoice or receipt;
c. If the sale is subject to 0% VAT, the term
"Zero-Rated Sale" shall be written or printed
prominently on the invoice or receipt;
The appearance of the word "zero-rated" on·
the face of invoices covering zero-rated sales
prevents buyers from falsely claiming input
VAT from their purchases when no VAT was
actually paid. If, absent such word, a
successful claim for input VAT- is made, the
government would be refunding money it did
rated sales by the taxpayer but it fails to
comply -.yith the invoicing requirements in the
issuance of sales invoices (e.g., failure to
indicate the TIN), · its claim for . tax
credit/refund of VAT on its purchases shall
be denied considering that the invoice it is
issuing to its customers does not depict its
being a VAT-registered taxpayer whose
sales are classified as zero~rated . sales.
I Nonetheless, this treatment is without
prejudice to the right of the taxpayer to
charge the input taxes- to the appropriate
expense account or asset account subject to
depreciation, whichever is applicable
(Panasonic Comm. Imaging Corp.' of the Phil.
v. Commissioner of Internal Revenue, G.R.
No. 178090, February 8,.2010}.
,
d. If the sale involves goods, properties or
services _some which are subject to VAT and
some re. VAT zero-rated or VAT- exempt,
the breakdown of the sale price between
taxable, exempt, and zero-rated
components, and the calcuiation of the VAT
on ach portion of the sale shall be ·shown on
. \..
the invoice or receipt. A VAT-registered
person may issue a sii:,gle invoice or receipt
for . YAT-taxable and VAT-exempt
transactio s provided that the invoice· shall
clearly indicate the breakdown of the sales.
" 3. ·Date of the transaction·, quantity, unit cost and
description of goods or p_roperties or nature of the
service; and ..
4. In case of sales in the amount of ~1.000 or more
IN. VAT and the sale or ~ransfer is made to a VAT-
registered person, the · name, business style,
address and TIN of the purchaser, customer or
client (NIRC, Sec. 113 (B); R.R. No. 16-2005
Sec. 4.113-1 (B)) . '
CONSEQUENCES . OF ISSUING
ERRONEOUS VAT INVOICE OR RECEIPT
!f a . person w~o is no~ VAT -registered issues an
m~o1~ or ~eceIpt showing his TIN, followed .by the
word VAT, the erroneous issuance shall result to
the following:
1. The issuer shall be liable to:
a. The pe:centage taxes applicable to his
transactions; .
b. The twelve percent (12%) VAT without the
benefit of any input tax credit; and
c. A fifty percent (50%) surcharge.
 - .

VALUE ADDED TAX

Taxation Law

2. The VAT shall be recognized as an input tax

credit to the purchaser, if the other requisite FILING OF RETURNS AND
information is shown on the receipt or invoice as PAYMENT OF VAT
provided in Sec. 113 (B) of the NIRC. .. .·
3. 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 WHO ARE REQUIRED TO FILE A VAT
invoice or receipt the term "VAT-exempt sale" the
issuer shall be liable to account for-the twelve RETURN
percent (12%) VAT as if the transaction is not an Every person liable to pay VAT_ shall file a q~arterly
exempt transaction. The purchaser shaU be return of his gross sales or receipts (N/RC, Sec. -114
entitled to claim an input · tax credit on his (A)) .
purchase (NIRC, Sec. 113 (D); R.R. No. 16-2005,
Sec. 4_113-4). · TIME FOR FILING A RETURN
Every person liable_to pay VAT shall file a-: . ·
INVOICING AND RECORDING DEEMED 1. Monthly return for VAT-registered persons, who
SALE TRANSACTIONS: . shall pay the VAT on a monthly basis;
1. Transfer, use or consumption not in the 2. Quarterly return of the amount of his quarterly
. course of business of goods or
properties gross sales or receipts within 25 day~ following
originally_ intended for ~ale or use ,in · the~ . · the close of the taxable quarter (N/RC, Sec. 114
course of business - a memorandum•·entry in i l ,, ,(A)). · _
the subsidiary sales joum~I to refOrd wit 'dl'i,lwa~. -· :,,.... f.. • / 1 -:.. • . • •
of goods for personal use Is re~uirea. : ·. --~ NOTE:..-Begln_r.ing January 1, 2023, the fihng and
/ (,
1
; / _ _. _ "-•- paymj:!n A'~quired shall be done within 25 days
2. Distribution or transfer to shareholders or ·:. allowing, the.; c ose of each taxable quarter
investors share in. the/ pfQ.f]~ / bf (he VAT- '-' ~-.: · (NIR(J, S~p. ""t-44 (A)) . . · .. ·
registered persons, or to credl tors in' payment . · -· · . \ •. · . , . ,
of debt or obligation an consighmenL .oL.:·:...-::-Taxable lquarter-- shalt. mean the quarter that is
1
goods if actual. sale Is ot made y.,ithLn._ 60 synchron zed to; ,the i~come tax quarter of the
· days folli:>wing the date -:---1 uch go~ds w~r~ : t_axpayeri (i.e., c~lendar-pr fiscal quarter) (R.R. No.
con~i~ned - ~n invoi'r: wti~ch inplu9~ .,s ~ll"t~e · ~- · ,,.16-2005 riSJ~- 4.JJ 4-1 . ~ . _
lnvo1~mg. requirements.i T_ hE;. data -~Pe.ea~mg- m ---- ------ ;::_·_.; , .
the _m~o1ce shal~ be <fyly; recor~~ <'" !
th~: : 1 • A_
1
m.o_y9~ reflec~ed I~ the _monthly VAT declara!10ns
~ubs1d1ary sa~es Jouma!. 'The t?,tal a~?u~! of I .!o~-!~~-fi~~t tw~ "(~) months bf the quarter shall still be
deemed sale shall be I luded m the cet~-'!1i to ~ 1 ) rfc~u~~~ tn t!Je quarte~y .VAT return that reflects the
be filed_for the month or qt.tarter. , .- ~ . ~ "'. _quqiulat1ve figures for the taxable quarter. Payments
. · : ·~-:.~_Jj_:_ · ~ i~Jh~:pi~h~hly WfF declarations shall, however, be
3. R~tirem~nt from _or ces~atl n oJ ibJlsmess~ .. ., •.<:fed1te,d-_tnUie quarterly VAT return to arrive at the
~•th respect to inventories , OJl,.. h~_nlt ; an 1 b
~et,V 1: pai able or excess inputtax/over-payment as
inventory shal,I b~ ~re~a~ed and -subm_ 1tte to th~ I·/ i pfthe endiOf a quarter (R.R. No. 16-2005, Sec. 4.114-
R~o. who has Juns~1ct1on over the taxpayer's ,:. ~ 1)."'"'-· ·
pnncIpa~ place of business not later than 30 days
after retiremeni or cessation form business.

NOTE: An invoice shall also be prepared for the ·

entire inventory, which shall be the basis of the
entry into the subsidiary sales journal: T.he
invoice need not enumerate the specific items
appearing in the inventory, but it must show the
total amount. It is sufficient to just make . a
reference to the inventory, regarding the
description of the goods (R.R. No. 16-2005, Sec.
4.113-2/
.CANCELLATION·OF VAT
REGISTRATION
.
'.he registration of any person who ceas~s lo ~e
hable to a tax type shall be cancelled upon filing wit~
the _RD<? w~ere he is registered, an applicatio~ for
reg1strat1on information ·update in a form prescnbed
therefor (NIRC, Sec. 23? (F)(1)). ·
 \ I

MEM:Q~Y-AI D -
Sen lledll lkMIWity Colege ~ Law - RGCT B a r ~ Center

A VAT-REGISTERED PERSON MAY STANDARD INPUT TAX .

CANCEL HIS _REGISTRATION FOR VAT
·IF:
1. He mak~s written application and can
demonstrate to the CIR's satisfaction ·thaf his
gross sales or receipts for the following twelve
- (12) months, other than those that are exempt
transactions, _will not exceed ~1.500,000 (now
193,000,000); o_r _ . -.
2. He has cease·~ to carry on his trade or business,
and does not expect to recommence any trade or
business within the next twelve ( 12) months
(NIRC, Sec. 236 (F)(2); R.R. No. 16-2005, Sec.
9.236-6; R.M.C. No. 03-201~) -
Input taxes that can be directly attributable•to VAT
taxable ' sales of goods and services to the
Government or any of its political subdivisions,
instrumentalities or ag~ricies including GOCCs shall
not be credited against output taxes arising from
sales to non-Government entities (R.R: .No. 04-2007,
Sec. 4.110-4).
The Govemmeht or any of its political subdivisions,
instrumentalities or agencies including GOCCs shall
deduct and withhold a final VAT due at the rate of 5% .
of the gross payment (NIRC, Sec. .114 . (C), as
amended by TRAIN Law).

The qancellation of registration will be· effective fr~m The remaining 7% effectively ac90unts for the
the first day of the ~ollqwing month (NIRC, Sec. 236 standard input vat for sales of goods or services to
. (F)(2)). government · or any of its _political -subdivisions,
instrumentalities or agencies including GOCCs in lieu
of the actual input vat directly attributable or ratably
apportioned to such sales (R.R. No. 4-2007, Sec. 22).
WITHHO_L DING OF ' •' ,-,
Cutout VAT 12%
FINAL VAT ON SALES TO> , "? I Less: Standard Input VAT 7%
I GOVERNMENT A} . ' .: . , ,
>\
Final Withholding VAT
... 5%

. .;:, ... If actual inp_ut -VAT attributable to sale to · the

:
"1, _,;; government exceeds 7% of gross payments, the
excess ma~f./form part of the sellers' expense or cost
TYPES OF WITHHOLDING VATr _~-- -✓ (R.R. No. f-20 7, Sec. 22) .
1. On payments by Governmeri_t (final w~thholding . I .\.
VAT); and Ir ,.- : · " . •
, If · ~ctual input VfrvT attributable to sale to the
2. On payments to Nonreside,:its (finar withholdi~g · government is less than 7% 1of gross payments, the
VAT) (R.R. No. 16-2005, Sec. 4.11# 2)~{_ '"/ ' difference must· be closed (deducted) to expense or
. . -"':. ., -,r~ :1:... :
,_ cost (R.R. No. 4-2007, Sec. 22) .
FINAL WITHHOLDING Vfi,..T -~-~ ON .
PAYMENTS BY GOVERNMEN°(, .- ;;.· ,_ -, : .".° ILLUSTRATION: _
Selling Price (inclusive of VAT): ~112.00
Sale of goods and services to the government,·~s
VAT withheld by the government: · ~ 5.00
subject to 12% VAT. However, the Gov~rr:ifllent is Standard Input V~T (SIV): _ ~ 7.00
required to deduct and withhold a final VAT o( 5% !or
its purchases (R.R. No. 16-2005, Sec. 4.114-2). _ · SITUATION A: ·· ·
Actual cost of goods of seller is ~89.60 (~_80 + ~9.60
_
N OTE: Beginning . January 1, 202_1, the , VA_T IV): .
withholding system under this subsection shall shift
from final to a creditable system (NIRC, Sec. 114 . Standard Input VAT t-7.00
(C) as amended by TRAIN _Law). Less: Actual Input VAT 9.60 .
Exc~ss Actual Input VAT* P2.60
CREDITABLE WITHHOLDING OF VAT ON
PAYMENTS TO NON-RESIDENTS ~Since the taxpayer cannot credit as input tax the
The Government or any of its political subdivisions, amount of~2.60, 1t is considered as· part of additional
instrumentalities or agencies, including GOCCs, as · . exp~nse of the seller.
well as private corporations individuals, eSt ates and
trusts, whether large or n~n-large taxpayers, shall , SITUATION B: _
Actual cost of.goods of Seller is ~50.40 (~45 + t-5.40
withhold 12% VAT, with respect to: rty r"ghts
1. Lease or use of properties or prope 1
.
LV): ,
Standard Input VAT t-7.00
owned by non-residents; a~d Phili ines by Less: Actual Input VAT
2.. Other services rendered in th e S
2
, . Pj Excess Standard Input VAT*
5.40
P 1.40
non-r~sidents (R.R. No. 04- 2007• ec. . I ·
 278 .
VALUE ADDED TAX
Taxation Law

. .
*Since he can credit as input tax '97.00 instead of the OTHER PERCENTAGE
actual IV of '95.40, he gained from the transaction
hence, '91 .40 is recognized as deduction to the
TAX
seller's expenses or costs. .

It refers specifically to.the business taxes covered by

ADMINISTRATIVE AND Title Vofthe NIRC of 1997, as amended, payable by
any person or entity whose sale of goods or services
PENAL SANCTIONS is not covered by the VAT system (2 CASASOLA,
National Internal Revenue Code, (2013), p. 935
hereinafter 2 CASASOLA]) .
SUSPENSION OF BUSINESS
OPERATIONS. . TRANSACTIONS COVERED BY OPT
The Commissioner or his authorized representative (NE3M-DoGlnFO-BOLA2WS)
is hereby empowered to suspend the business 1. Sale of goods or services of persons who are
operations and· temporarily close the business exempt from VAT under Sec. 109 (1 )(BB) of the
establishment of any person (NIRC, Sec. 115). Tax Code and who is not a VAT-registered
_, ....... ~ eerson and whose gross annual sales or receipts
Grounds .,,.,.. · · ~- 1 :po Mot gxceed ft3 1000 1000 1 except cooperatives
In addition to other administrative'. and :--penal t. _ ! l· v which shall be exem~t from percentage tax
sanctions provided for in the rra/ Code and .... (NIR<S,,,,Seo. 116, as amended by TRAIN Law); ,
implementing regulations , the Commissi ner of ahd . 1>" , . • .

Internal Revenue or . hi ~ d'u1' y-~ aythorized~ -- 2. 0 er kiqsJs ot business subject to the other
represenlative may order suspension or cl ·sure of'..a ,., '"' ,, percenta ~ tii~e under Title V of tlie NIRC, as
business establishment for any of the following L;.,. ame ded, egar~ess of whether or not the gross
violations {IF-UR): . . _ a~~ual rec ip_,!,s .exceed '93,000,000, such as:
1. Failure to Issue receipts a . invoices. •. ····-~ _ , · . ,, (r;>oGlnFO-BOLA2WS)
2. Failure to file VAT return ~s quired imder..the . · · ,. _a._ Do~ esti _ca!,riers by land and keepers of
1
provisions of Sec. 114 of.thJ-"Trx Cp d~- _· :..:-~ -''' ..:: § ~~ges Nltfff, Sec. 117);
3. ,Ynderstatement of taxable sa~ s o_r receipts by -· - · b. 1n~e_r,nati nal ca rriers {NIRC, Sec. 118);
1
30%_or more of his coi:rec ~ xabl~) _ales oi · ~ -1/..'f r~richi es ( fR_C, Sec. 119);
re~1pts for the taxable quarter. _ ,(~'. , .!.:..,d.:
1.t ~-~erseas _ dispatch, messc1_ge · or ,
4. Failure of any person to fieg1ster as '{ eqR•~o ,..-'/ ., _· conve. at1on originating from the Philippines
under the provisions of Se 236 of~ Ta~ C,Qde__ ~---:,:.' / (N~pc , Secj 20);
(NIRC, Sec. 115; R.R. No. 6-2005, Sep. 4:1.!_ 5 ~- . \ , ~ ~e: §anks and non-bank financial intermediaries
P~rtPr.ming quasi-banking functions (NIRC,
1).
1r,) ·· , ··- ;:_•_ - - •· Se
. __,,()·;..,. 121);
Duration Ofh · · · ·
Th t " , - er non-bank financial intermediaries
e empo~ry closure of the establishment shall be .(NIRC Sec. 122)·
°~ f
1
5 81 dbeura,iftedtion of NOT less than five (5) days and - • ~~ g. ,bife in~urance bu~iness {NIRC Sec 123 1•
only upon co r · h h A · · ' · ':
requirements pres -b mp iance wit whatever · _gents of foreign insurance companies
th
closure order (NIR~ ;d by e Commissioner in the (NIRC, Sec. 124); ·
115
' ec. , par.2). · i. Proprietor, lessee or operator of Amusement
places (NIRC, Sec. 125); . -
SURCHARGE, INTEREST. AND OTHER
PENALTIES j. Winnings (NIRC, Sec. 126); and
k. Sale, barter or exchange of Shares of stock
The interest
. . on unpaid . •amounts of tax , civil Pena it·1es listed and traded through the local stock
and cnmma 1penalties imposed in Title XI of the T exchange or through initial public offerings
Code shall also apply to violations of the provisi ax (NIRC, Sec. 127) (2 CASASOLA, supra at
of Title IV of the Tax Code (R.R. No. 16-2005 sons 936) . .
4.115-1) . , ec.
NATURE OF OPT
The na~ure of OPT is essentially a tax onthe
:ansaction an? not on the articles sold, bartered or
xchanged. It is an indirect tax which can be passed
~n to_~he_ buyer (Philippine Acetylene Co., Inc. v.
omm,s5 ,oner of Internal Re venue G.R- No. L·
19707, August 17, 1967). '
 \ I

ME~Q~Y AID
Sir! Beda ~ College of Law - RGCT B e r ~ Center

TAX RA TE FOR TRANSACTIONS

b. More than 5 years
SUBJECT TO OPT 1%; .
Any person whose sales or receipts are exe!'Tlpt from
the payment of value-added t~x ,and who is not a 2. Dividends and Equity
VAT-registered person shall pay a tax equivalent to _ shares and net income of
three percent (3%) of his gross quarterly sales or subsidiaries - 0%;
receipts: Provided, That ·cooper atives shall be 3. Royalties·, rentat of property
exempt from the three percent (3%) gross receipts tax (real/personal); profits· from
herein imposed (NIRC, Sec. 116, as amended by exchange ~nd all other
TRAIN Law) . - items under Sec. 32 of the
NIRC-7%; _
OTHER KINDS OF BUSINESS SUBJECT 4. Net Trading Gains within
TO THE OPT taxable year on foreign
cu rreincy, debt securities·,
derivatives and . ott.,er
similar instruments - 7%.

Domestic carriers 3% of quarterly gross receipts NOTE: Provided, however,

by - land • and in· case of pre-termination,
keepers of the maturity period shall be
garages (NIRC, reckoned to end as of the
Sec. 117) ., (.~· pre-termination ·date.
1----------- - -- - - - -.-~
-.,, _c1
International 3% of quarterly gross receipts · , .Other non- 5% _on , the gross • receipts
carriers (NIRC, • ·j >. : " bankingfinancial derived - · - from interest,
Sec. 118) .J· --- intermediaries commissions, discounts and all

Franchises - 3% of the gross .,.. rt:rceipts ,

1/
.~
YNiRt; ~ec. 122) other items t~eated as gmss -
income
Radio
television
broadcasting
and/or derived from the~- business
covered · by the laW:. 9tanti_
franchise • ·
,:ig. F
.,i::.:.
1

1 NOTE: Interest, commissions

and discounts from lending
companies whose . - ~- . ,~..., activities and in'com~ frol'!l
annual gross NOTE: They.have ttie_option.to ~ .financial leasing shall be taxed
receipts of the register as · VAT""'r a_~payer: at (based on maturity period):
preceding _year do o'nce option is ,exercised, said• 1. 5 years or less - 5%
not exceed option shall be irrevocable: 2. · More than 5_years -1%.
~10,000,000 .I {' - '
7
C•

(NIRC, Sec.' 119) :: Provided, however, in case of

pre termination, the maturity
Franchises - Gas 2% of the gros~ rec~lpts period shall be reckoned to end
and Water derived from the t:iu.sinp ss as of the pre-termination 'date.
Utilities (NIRC, covered by the law granting
Sec. 119) . franchise Life · . insurance 2% on the total premium
business (NIRC, collected, . whether paid in
Overseas 1Oo/o on the amount paid .for Sec. 123) money, notes, credits_ · or any
dispatch, such service substitute for money
message or
conversation NOTE: The following are NOTE: The following _are not
originating from exempt from the 10% OPT: included in · the - taxable
the Philippines 1. Government; receipts:·
(NIRC, Sec. 120) 2. Diplomatic Services; . 1. F?remiums refunded within 6
3 _ Public . International months after payment on
Organization; and -account of rejection of risk
4. News Services. ·or other reason;
2. Reinsuraoce (where in tax
Banks and non- 1. Interest, commissionl_s d~~dg has already been paid);
bank financial discounts from en 1
3. Premiums collected by any
· intermediaries activities and income from
branch of domestic
Performing quasi- financial leasing (based on
corporation, firm or
banking functions maturity period): •
0 association doing business
JNIRC, Sec. 121) a. 5 years or less - 51/o,
 .VALUE ADDED TAX
---
. . Taxation Law

outside the Philippines on · they charged admi,ssion or

account of any life , not)- 30%
insurance of a non-resident NOTE: % based on gros~
Insured (if tax has already receipts
been imposed by foreign
Winnings (N!RG_, 10% on the actual amount paid
country); and Sec. ·126) · to him for every winning ticket
4. Pqrtion · of premiums after deducting the cost of the
collected on · variable ticket ·
contracts in excess of
amounts necessary to NOTE: In case winnings came
insure the lives of the
from double,
variable contract workers.
forecast/quinella and trlfecta
Agents of foreign Twice the tax imposed in Sec. bets, tax shall be 4%; and in
insurance 123 of the NIRC case of owners of winning
companies racehorses, it is 10% of the
. (NIRC, Sec. 124) NOTE: In all cases where prizes.
owners of property obtain
insurance directly with foreign Sale, barter or 'i. Traded.through Local Stock
exchange of Exchange - 6/10 of 1% of , ,.
companies, it shall be the duty
of said owners to report- to the shares of stock gross selling price/ gross
Insurance Commissione and ;list~d aAq traded value in money of shares of
to the Commission r o n e al thr,bugh the ,local stock; .
Revenue each, case whe're· stock · eicflange 2. Exchanged through Initial
1
insurance has ,. ,been so or throJgh ) ' itlal Public Offering (of stocks in
effected, and tt: ay 5% tax on public offerings closely -- 11eld
.
premiums pa d)
,i.

1
• ' ·,
'fJYIRC, Sec. 127) corporations) (based on
gross selling price/ gross ·
Proprietors, 1. Cockpits-18% · '. •' _ _ _ value in money of shares of ·
lessee or operator 2. Cabarets, ight or day lubs - t· ~ock)
of · amusement -18% - ·-·. :· ·
places . (NIRC, 3. Boxing exhibitions,..,. 10% ·. . • · · , ~
' ' a. Up to 25% - 4%;
Over 25% but not over
Sec. 125) /'' - - 331/3% - 2%·
NOTE· , . :r ~id~d, · ~- : , , Over 33 1/3%, - 1%
however, that bqxu:ig , •/ / /.::?-·-·
exhib(tions whereifo World · /'.'-~ NOTE: % based on
or Or i$il ~'s-~ total outstanding
C_h~f!1Pi~nships in --aAf IF>-. shares after listing
d1v1s1on Is at stake sp an be -.:...-
exempt from amusement , y
· tax, if at le~st of the
contenders Is a Filipioo 1\,
lt1 '
~ \ · NOTE: Tax shall be
paid by . issuing
corporation in primary
citizen and said
offering or by the seller
exhibitions are promoted
in secondary offering.
by citizen/s or by a
corporation or association Closely held corporation
at least 60% of the capital means any corporation at le1:1st
of which is Filipino-ownea. 50% in value of outstanding
capital stock or at least 50% of
4 . Professional Basketball
total combined voting power of .
_Games (under P.O. No. all classes .of stock entitled to
871)- 15%
vote is owned directly or
indirectly by or for not more
~01:E: Tax herein shall be
in heu of all OPT of than 20 individuals.
whatever nature.
NOTE: Sec. 6 of RA. No.
11494, otherwise known as the
5. Jai Alal and racetracks
"Bayanihan to Recover As one
(irrespective of whether
Act" effective on September
15, 2020 repealed Sec. 127 (B)
 \ I
MEM,Q~YAIO
s., Bede lkw9lity Colege r:A iaN ~ RGCT Bar ()peratjona Center
of the NIRC referring to the Tax
on Shares of Stock Sold or
Exchanged through Initial ,
Public . Offering (NOTE: R.A.
No. 11494 is not yet covered in
the 2021 Bar Exam).
RETURNS AND PAYMENT OF OPT
Person Liable
Every person subject to the percentage taxes shall
file a quarterly return and pay the tax due thereon
within twenty-five (25) days after,the end of each
taxable quarter. In the case of a person whose VAT
registration is cancelled and who becomes liable to
the tax imposed in Sec. '116 of the· NIRC, the tax shall
accrue from the date of cancellation (NIRC, Sec. 128
(A)(1)) .
PERSON RETIRING FROM Bl:ISINESS
Any person retiring from · a business subject to
percentage tax shall notify the nearest internal
revenue officer, file his return and pay the tax due
thereon within twenty (20) days after closing his
business (NIRC, Sec. 128 (A)(2)).
.--------------,-'!,". -----.
CREATE ACT PROVISIONS
AFFECTING VAT AND'OPT
NOTE: The 2020/2021 Bar Examination Taxatiory
Law Syllabus does not include Corpq~aie Recovery
and Tax Incentives for Enterprises (CREATE) Act
which took effect on April 11, 2021 (15 <!_,ays afte~ i!s-.
publication on March 27,2021), but for purpose~ of
discussion CREA TE Act was included in the mr:Jking
' ~ .J.-
.of the Memory Aid.
VALUE-ADDED TAX
Amended and added transactions exempt from
VAT to wit:
. 1. Item (P) of the. amended Sec. 109 of the NIRC
has been vetoed by the President. However,
pursuant to latest revenue regulations, VAT-
exempt sales of house and lot and other
residential dwellings were adjusted from
~.000,000 to t-3, 199,200 beginning January 1,
2021 (R.R. No. 8-21, Sec. 2 (1)) . · . .
2. (R) Sale, importation, printing or p~bh~t1on of
books, and any newspaper, mag~ine, 1our~al,
review bulletin, or any such educational reading
material covered by the UNESCO Awee~ent on
the Importation of Educational, Sc1en_t1~c and
Cultural Materials, including the d1g1tal or
electronic format thereat Provided, That the
materials enumerated herein are not devoted
principally to the publication of . paid
advertisements (R.R. No. 4-21, Sec. 2); .
3. (AA) Sale of or importation of prescription drugs
· and medicines for:
. a. Diabetes, high .cholesterol, and hypertension
beginning January 1, 2020; and
b. Cancer, mental illness, tuberculosis, and
kidney diseases beginning January 1, 2021
(Id.) ;
4: . (BB) Sale or importation of the · following
beginning January 1, 2021 to December 31,
2023, subject to post-audit by the BIR and BOC:
a. Capital equipment, its spare parts and raw
materials, necessary ·for the production of
personal protective equipment components
for COVID-19 protection (i.e., coveralls,
gown, surgical cap, surgical mask, N- 95
. mask, scrub suits, goggles and face shield,
double or surgical gloves, dedicated shoes,
and shoe covers);
b. All drugs, vaccines and medical devices
specifically prescribed and directly used for
·,,~ ., the treatment of COVID-19; .
~ ~ ~ {J'.)'"...
·
.
. ·;--". ·_;, ·•"'K~ The Department· of Health (DOH)
shall ,,.-update the list within sixty (60) days
fro"}•tfl~ effectivity of the CREATE Act, and
every three (3) months thereafter.
. 11
r -
c. Drugs for th~ treatment of COVID-19
apP,roved . by the ·Food and . Drug
J Administration (FDA) for use in clinical trials
including raw materials directly necessary fo~
the production of such drugs Provided, That
the Department of Trade and Industry (DTI)
shall certify that such equipment, spare parts
or r~w materi_als for i_mpo~ation are not locally
available or insufficient in quantity, or not in •
·accordance with the quality or specification
. required ·(Id.).
5. (CC) Sale or lease of goods or properties·or the
performance of services oth~r than · the •
transactions mentioned " in the · preceding
. .
paragraphs, the gross annual sales and/or
receipts do not exceed the amount of Three
million -pesos (P3,000,000.00) (R.A. No. 11534
otherwise k~own as the Corporate Tax Recovery
and Incentives for Enterprises (CREA TE) Act,
Se~ 1~. .
.NOTE: Sec. ·109 (BB) of the ·NIRC was only
ame~ded as Sec. 199 (CC). The VAT threshold .
remains at 193,000,000.
OTHER PERCENTAGE TAX (OPT)
Any person whose sales or receipts are exempt d
Section 1Q9(CC) of this Code from the paym~~t ~;
 l
282
VALUE ADDED TAX
Taxation Law

· value-added tax and who is .n9t a VAT-registered . KINDS OF EXCISE TAX

person shall pay a tax equivalent to three per~nt 1. Specific tax - . : ·
(3%) of his gross quarterly sales ~r receipts: It refers to the excis-e tax imposed w~ich is based
Provided, That cooperatives, shall be exempt from on weight or volume capacity or any other physical
the three percent (3%) gross receipts tax . herein unit of measurement: and
imposed: Provided, further, That effective July 1,
. 2020 until June 30, 2023, the rate shall be one
2. Ad valorem tax
percent(1%) (CREATE Act, Sec. 13).
It refers to the excise tax which is based on selling
price or other specified valt1e of the goods or
Excess percentage tax payments as a result of the
services performed (NIRC, Sec. 129 as amended
decrease of tax rate from 3% to 1% from July 1, 2020
until the effectivity of RR No.: 4-21 may be carried by TRAIN Law).
over to succeeding taxable quarters. This carry-over
portion is intended for Percentage Taxpayers who are EXCISE TAXES IMPOSED ON CERTAIN
regularly filing the returns and are expected to have ARTICLES (ATPMi 2) (NIRC, SECS. 141 TO
overpaid taxes as a result of the retroactive 151, AS AMENDED BY TRAIN LAW)
application of the CREATE (R.R. No. 8-21, Sec. 2(3)).

NATURE OF EXCISE TAX

Excise taxe~ may be considered taxes on production
as they are collected only from manufacturers and
·producers. Basically an indirect tax, it is directly levied
upon manufacturer or importer upon removal of the 4. Miscellaneous Products ·
taxable goods from its place of production or from the a. Automobiles ·
customs custody. These taxes, however, may be b. Non-essential goods .
actually passed on to the end consl!mer a,s part of the i. Jewelry, peart.s, precious and sem~
transfer value or selling price of goods sold, bartered precious stones and imitations thereod
or exchanged (Silkair Pte. Ltd. v. Commissioner of goods ·made, ornamented, frtted, fitte
/ntemal Revenue, G.R. No. 184398, February 25, with the same .
2010). ~~: Perfumes_an~ toilet waters . for
111 • Yachts and other ves·sels intended
pleasure or sports
c. Non-essential services - refer to invasiv~
 \ I

ME-M:Q~y Al D \
. 6-1 Bede lkwnity College of Law - RQCT Bar Oper.uon. Center

cosmetic procedures, surgeries, and body

enhancements directed solely towards
MODE OF COMPUTING CONTENTS OF ,.
improving, · altering, or enhancing the CASK OR PACKAGE
patient's appearance and do not Every fractional part of a proof liter equal to or greater
meaningfully promote the proper function of than a half-liter in a cask or package containing more
the body or prevent or treat illness or disease than one liter shall be taxed as a liter, and any smaller
d. Sweetened beverages fractional part shall be exempt; but any package of
spirits, the total contents of which are less than a
5. Mineral Products proof liter, shall be taxed . as one liter (NIRC, Sec.
a. Coal and coke 132).
b. Non-metallic minerals and quarry resources
c. Metallic minerals
d. Indigenous petroleum

PERSONS LIABLE TO PAY EXCISE

·1 DOCUME~~y STAMP I
TAXES ON IMPORTED ARTICLES (Ol~P)
1. Owner or !mporter; or
2. Person who is found in Possession of articles
which are exempt from excise taxes other than It · is a tax on · documents, instruments, loan
those legally entitled to exem"t>tion (NIRC, Sec. agreements, and papers evidencing the acceptance,
131). ,,, assignment, sale or transfer of an obligation, right or
property incident thereto (2 CASASOLA, supra at
TIME OF PAYMENT: Before the release of such ·, 1077) .
articles from the customs house (NIRC, Sec. 131). ~ .w
.
1.," ·-'I
I

. NATURE OF _ DOCUMENTARY STAMP

NOTE: In the case of tax-free articles br01;1ght or . : _T_A)(--=i(B_S_T:-)'..;____--=-------:--:----:----~
imported into the Philippines by persons_,.entities, or 1 , A DST is in the nature of an excise tax ·-because it is
agencies exempt from tax which· are s1,1bsequently,_. ··· imposed upoh. the privilege, opportunity or facility
sold, transferred or exchanged in the Philigpines to · offered at ;-exchanges for the transaction of the ·
non-exempt persons or entities, t~~.purctfasers or · business. DSll is a tax on documents, instruments,
recipients shall be corisidered th~, 1mport_ers thereof,, ~ · loan agreem nts, and papers evidencing the
and shaU be liable. for the duty:~i:id· in~e.rn~l.rev~r ue . accepta_nc~{ .a.~signment, or transfer of an obligation,
tax due on such importation (NIRC, Sec._pt). -~.:- right or property ·ncident thereto. DST is thus
. , ' imposed on'lhe exercise of these privileges t~rough
PERSONS LIABLE TO PAY· · EKCISE the execution of specific instruments, independently
TAXES ON DOMESTIC PRODUCTS"' . · bf the -legal status of the transactions giving rise
· thereto · (Commissioner of Internal Revenue v.
Every person liable to pay excise tai' shall Qle•, a .,.. Pilipinas Shell Petroleum Corp., G.R. No. 192398,
separate return for each place of praduct(op- S~buld September 29, 2014).
domestic products be ·removed from the ·1;>!a~ of
production without the payment of the tax, the o~ner
or person having possession thereof shall be liable Hence, in imposing DST, the Court considers not only
for the tax due thereon (NIRC, Sec. 130 (A)(1)). the document but also the nature and character of the
transaction (Philippine Banking Corp. v."
Commissioner of Internal Revenue,. G.R. No.
NOTE: In the case of indigeno.us petr~leum,
170574, January 30, 2009). '
natural gas or liquefied natural gas, the excise tax
shall be paid by the first buyer, purchas_er or
transferee for local sale, barter or transfer, wh1I~ the Under See: 196 of the NIRC, a documentary stamp
excise tax on exported products shall be paid by tax shall be collected on conveyances, deeds,
· instruments, or writings whereby any land, tenement,
the owner, lessee, concessionaire or operator of th e
or other realty sold shall be conveyed to the
mining claim (NIRC, Sec. 130 (A)(1)). .
purchaser or purchasers. . Hence, transfer of
Time of Payment: Before removal of domestic • properties by means of merger is not subject to
products from place of production (NIRC, Sec. 130 documentary stamp tax (Commissioner of Internal
(A}(2)). . Revenue v. La Tondena Distillers, Inc. (L-TDi), · G.R.
No. 175188, Ju~y 15, 2015).
 VALUE.ADDED TAX
Taxation Law

2. Involving Qebts Instruments: (BaD-BiF) .

BASIC FEATURES OF DST a. Bank Checks, Drafts, Certificates of Deposit
1. It is generally a tax on document; _ · not ·searing Interest, and Other Instruments
2. It is due indepe'ndently of the legal status of the . (NIRC, Sec. 178); . , .
tr~nsaction giving rise to the document ·or b. All Debt Instruments (NIRC, Sec. 179);
instrument; c. All Bills' of Exchange or Drafts and Upon its .
3. It is due where,the obligation or right arises from Acceptance (N/RC, Secs. 180 and,181);
the Philippines or the property is located within d. Foreign Bills of Exchange and Letters of
the Philippines; an·d .- Credit (NIRC, Sec. 182). ·
4. It is only payable by persons and on transactions
specifically mentioned in the law (RECALDE, A 3. Involving !nsurance, Pre-need, and Bonds:-(LiP-
Treatise on Tax Principles and Remedies (2014), FIPre-ln) - - ·
pp. 705-706 {hereinafter RECALDE]). a. Life Insurance Po!icies (NIRC, S~q. 183);
b. Policies of Insurance Upon froperty (NIRC,
DOCUMENTS SUBJECT TO DST sec. 184); . ,
Upon documents, instruments, loan agreements and c. Fidelity Bonds and Other lns~rance__Policies
papers, and upon- ·acceptances, assignments, sales (NIRC, Sec. 185); ·
and transfers of the obligation, right or property d. Policies I of Annuities and Pre-need Plans
incident thereto, there shall be levied, collected and (NlRC, Sec. 186);
paid for, and in respect of the transaction so had 2!.-~ ,_ e. Indemnity Bonds (NIRC, Sec. 187).
accomplished, the ' corresponding docup:ientary. ~ • ,._ ·. ·
stamp taxes ·prescr\bed in the followfng.Sections on j 4'., Tlnvolvtng_~hipping: (WaBiC)
this Title, by the person making, sigh ing,. i~s if!g, _~;_ ' a/ Wareheuse Receipts (NIRC, Sec. 189); -
accepting, or transferrinQ_ the s~me ~ e(;yer,.·tne ---.. .b;. Sills of~~~ing or Receipts (NIRC, Sec. 191);
·• document is made, sigred: i su~~ ,.ac~ep~.,i:1 o_r-~·~:-:- --.c Q~rfer' Pa,:ties and Similar Instruments
transferred when the obhgatio.rf .o ng r arJs'eS frp,JTl · 0
r _ · (NIRC, .Sec. 197) .
Philippine sources or the prqperty .· ; situaf ed in tHe . Y<: ~-~- · .' / . :-
Philippi~es, and the ~ame tvne sue act \s done or . . . 5. Involving Per~o6°~1or Real froperty: (leMD)
transaction had: Provided, Thatw eneverpne-party· .- ·-· --a. --:Lleases nd' Other Hiring Agreements-(N/RC;
to the taxable document njo.Y,.S exemption.from -.-,, S~c. 194j~-
the tax herein imposed, ttie other party who is not b. Mortgages . dges and Deeds ·· of Trust
exempt shall be·the one direq ly' ia~1e-~O( the tax · . · (~IR9, Se~. '195);
(NIRC, Sec. 1-73). (J, \;;,:: - · -,_. ·( -·:- ·.c.7·.Q~ecls of Sale, Conveyances and Donation
J - 1 \ ( ) - . _b. .- .
It ·1s app11ca
- bl
e OIJ . a
II d
ocuments not \ p_
., ,::pf;~eat·Property ·(NIRC, Sec: 196); - =
1 e~e -, 1 . •. •• ~ . , ,':,/ - ~ t · . .
expressly exempted,. notwithstanding the 'f c, ' tfia l /c,>:"')Not;e'\ 8 · f th -, · t t· , .'f bSTiin a
they are in electronic form (2 GASASOh!\, .supr. · t- -...v""_... . . . ? . · asi~ or e co~pu a ion °
1077). Under the, Electronic Commer~e~ ct [~-iDf,;.-) s~~~.transaf3t1on of pre~1ous!y mortgaged re~I _
electronic documents are . considerect/~sl :written ' J:> rty Sliould_be the. .
documents. Their issuance is tanta ount' Jo/
the ,. ·""c1' ·\G - ~ 8 1l" . · . . - .
issuance of written documents that are ·subject to
DST (RECALDE supra at p 705)
IV1 , \ •~\
~
oss -~ mg Pn~ pr the ~onside~aijo0
co~tract~d to be p~1d f~r,such re_alty; and,
' · · e. Fair Market Value determined in accordance
The following are.co~ered by DST: (C-DISPO) with Sec. 6 (E) of the.NIRC;(R.M.C. No. 19-
1. Involving Associations, Companies, or 2018 dated March 19, 2018) : .
£orporations: (ShaSbo-CP)
a. Original ·Issue of Shares of Stock ·(NIRC, 6. Qthers: (CJaPA) · ..
Sec. 174); · . a. £ertificates. (e.g., certificate J of damage)
. . (NIRC, Sec. 188); . _..
b. ~ales, Agreements to Sell, Memoranda of
Sales, Deliveries or Transfer of Shares or b. Jai-.alai, H9rse Rae~ Tickets, Lotto' or Other
Ce_rtificates of Stock (NIRC, Sec. 175)~ · · Authorized Numbers Garnes (NIRC, sec.
c. Bonds, Debentures, Certificates of Stock or 190); ,
Indebtedness Issued in Foreign Countries c. fowers of Attorney (NIRC, Sec. 193); .
(N/RC, Sec. 176); d. !ssignment and Renewals of Certain
d. Qertificates of Profits or Interest in Property Instruments (N/RC, Sec.' 198).
or Accumulations (NIRC, Sec. 177);
e. froxies (N/RC, Sec. 192).
 \ I
MEM:Q~y AID
sw, B e d e ~ Col8ge Of Law • RGCT Ber ()peratjons Center
INSTRUCTIONAL LETTERS, JOURNAL
ENTRIES, OR CASH VOUCHERS
INVOLVING ADVANCES ARE
CONSIDERED DOCUMENTS WHICH ARE
SUBJECT TO DST
In cases where no formal agreements or promissory
notes have been ~xecuted to cover credit facilities,
the documentary stamp tax shall be based ·on the 1
amount of drawings or availment of the facilities
which may be evidenced by credit/debit memo:
advice or drawings by any form or withdrawal slip
(Commissioner of Internal Revenue v. .Fi/invest
DeveJopment Corporation, G.R. No. 163653, July 19,
2011).
DOCUMENTS NOT SUBJECT TO DST
Those items enumerated (a-n) in Sec. 199 of the
NIRC, as a_mended are documents not subject to
DST.
REMITTANCES OF OVERSEAS FILIPINO
WORKERS NOT SUBJECT TO DST
-The remittances of all overseas Filipino workers,
upon showing of the same proof of entitlement by th~
OFW's beneficiary or recipient, shall be ex~mpt from
the payment of documentary stamp tax- (R.A. No.
8042, Sec. 35 as amended by R.A. No. 10022) .
ELECTRONIC
. BANK . TRANSFER NOT
SUBJECT TO DST .
Subject to the physical impossibility on the pa~ of_J~e
payor to be present and prepa~ an~ ~'.gn an
instrument purporting to pay a certain obhga~on_, an
automatic bank transfer of local funds from a savings
account to a checking account maintaine~ by_ a
depositor in one bank shall not be subJ~ct to
documentary stamp tax. likewi~~• :the receipt ~f
funds from another bank in the Philippines for deposit
to the payee's account and th erea~er upon
instruction of the non-resident deposi_tor-pa~~~
through an electronic message, th e depo~it?ry b
to debit his account and pay a named recipient shall
not be subject to documentary stamp tax (HSBC v.
Commissioner of Internal Revenue, G.R. No.
166018, June 4, 2014) .
ACCRUAL OF DST LIABILITY
Documentary stamp taxes are levied ind e~~ nd e~tly
of the legal status of the transactions giving nse
thereto. They must be paid upon the issu~n';e~f ~~=
said instruments, without regard to w e . "ble
contracts which give rise to them are resci;si t'
void, voidable or unenforceable (Jaka lnve; ;e; s
0
Corp. v. Commissioner of Internal Revenue, · · · document (Azarraga v. Rodriguez, G.R. No. L-3833,
147629, July 28, 2010) .
285
DST Payment and DST _Declaration
Return Filing upon Loading/Reloading of
DS Metering Machine Not Considered as
-"Date of Payment" when the Prescriptive
Period to File a Claim for a Refund/Credit
Must Commence
For OS metering machine users, the payment of the
DST upon loading/reloading is merely an advance
payment for future application. The liability for the
payment of the DST fa[ls du_e only upon the
occurrence of a taxable transaction. It is only then
that payment may be considered for the purpose of
filing a claim for a refund or tax credit. Since actual
payment was already made upon lo..~ding/reloading
of the DS metering machine and the filing of the DST
Declaration Return, the date of Imprinting the
documentary stamp on the taxable document
must be considered as the date of payment
contemplated · under Sec. 229 of the NIRC
{Philippine Bank of Communications v.
I
Commissioner of Internal Revenue, G.R. . No.
'!• 194065, June 20, 2016) .
'•)°IME OF f lLING AND PAYMENT OF DST
· ·-0srretum shall be filed within ten (10) days after
the clo'se of the month when the taxable
". document was mad~, signed, issued; accepted,
. or transfer~d. ' nd the tax thereon shall be paid at
the same time tlie aforesaid return is filed (NIRC,
~
" .l
~ Sec. 200 (8))
. .. PERSON LIABLE
-·; The DST is a tax on certain transactions. It is imposed
_-:" against "the person making, signing, issuing ,
:'..a'cd!pting, or transferring" the document or facility
· evideneing the transaction. Thus, in general, it may
be imposed on the transaction itself or upon the
document underlying such act (R.R. No. 9-2000, Sec.
2) .
However, whenever one party to the taxable
document enjoys exemption from the imposition of
DST, the other party thereto who is not exempt shall
be the one dir~ctly liable for.the tax.(NIRC, Sec. 173).
CONSEQUEN.CES OF NON-PAYMENT OF
DST
Document is inadmissible before the courts'; and
notary public or other officer authorized to administer
oaths shall not add his jurat or acknowledgm·ent to
any document subject to DST (NIRC, Sec: 201).
NOTE: The lack of the documentary stamp on a
document of indebtedness does not invalidate such a
January 18, 1908). These contract remains binding to
all parties in the contract even without documentary
 VALUE ADDED TAX
Taxation Law

stamp affixed to it (VALENCIA & ROXAS, supra at

504-505).

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