Name: Tomilap, Bhenz Bryle Nino M.

UNIVERSITY OF SAN JOSE-RECOLETOS

SCHOOL OF LAW

TAXATION LAW 2
02 March 2021

INSTRUCTIONS. Using this paper, answer each question concisely and in complete sentence(s). Submit
this paper together with your answers typed/encoded on the spaces provided on or before 11:59pm
tonight. Your work will serve as your attendance. Prepare for oral exam on Thursday, 4 March 2021 after
we discuss the answers to the Prelim essay questions. Secure also hard copy of BIR Forms 2550M and
2550Q.

1. Give at least two distinctions between a VAT-registered business and a Non-VAT registered
business.
ANSWER:
A VAT-registered business refers to a business owned by a person who sells, barters, exchanges,
or leases goods or properties, or who renders services in the course of trade or business, whose annual
gross sales/receipts exceed P 3,000,000.
On the other hand, a Non-VAT registered business refers to a business owned by the same person
engaged in the same transactions mentioned above but whose annual gross sales do not exceed P
3,000,000

2. What are the five (5) characteristics of Value Added Tax? Explain each briefly.
ANSWER:
a.) Percentage Tax – it is a tax imposed by law on the act itself and not on the thing or service; it
taxes, for instance, the sale, barter, exchange, lease, or service which transpired
b.) Ad Valorem Tax – the gross selling price/gross value in money/gross receipts derived from
the transaction is the basis of the amount/rate of tax
c.) Indirect Tax – the seller is statutorily liable for the payment of tax, but the amount of the tax
may be shifted to the buyer, transferee, or lessee of goods/services
d.) Excise Tax – a tax on the privilege of engaging in the business of selling goods/services
e.) Regressive Tax – the VAT paid by the consumer/business for every goods bought/services
enjoyed is uniform regardless of income

3. Give at least two distinctions between Zero-Rating and Exemption.

ANSWER:
In tax exemptions, when they are granted, they are strictly construed against the taxpayer. In tax
exemptions, its relinquishment is never presumed and any reduction/diminution thereof must be strictly
construed and must be in clear and unmistakable terms.
In zero-rating, it is the place where service is rendered which determines the jurisdiction which
shall impose the VAT. In zero-rating, it can only be applied if the service is performed in the Philippines
4. An alien employee of the Asian Development Bank (ADB) who is retiring soon has offered to
sell his car to you, which he imported tax-free for his personal use. The privilege of exemption
 from tax is granted to qualified personal use under the ADB Charter, which is recognized by the
tax authorities. If you decide to purchase the car is the sale subject to tax? Explain.
ANSWER:
No, the sale is not subject to tax/value added tax, it being a transaction covered under Sec.
108(B), which is exempt from VAT.
Par. (3) of Sec. 108(B) are among those services subject to 0% rate. It reads to wit: “Services
rendered to persons/entities whose exemption are covered under international agreements/special laws to
which the Philippines is a signatory.
There was a mention of an ADB Charter which has the effect of granting privilege of
exemption from tax, covering the said transaction. Such charter was duly recognized by the tax
authorities.
Hence, the sale is subject to a 0% rate of VAT.

5. Royal Mining is a VAT-registered domestic mining entity. One of its products is silver being sold
to the Bangko Sentral ng Pilipinas. It filed a claim with the BIR for tax refund on the ground that
under Section 106 of the Tax Code, sales of precious metals to the Bangko Sentral are considered
export sales subject to zero-rated VAT. Is Royal Mining’s claim meritorious? Explain.
ANSWER:
No, as what is involved herein although a transaction involving precious metals, and not gold,
which cannot be considered as export sales.
Under the NIRC, only transactions of gold to the BSP are tax exempt for VAT purposes. Export
sales are defined as “sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence or determine the
transfer of ownership of the goods so exported and paid for in acceptable foreign currency.”
What is involved herein is a domestic sale of precious metals between a domestic entity and the
BSP, and not a cross-border transaction involving different countries. Hence, Royal Mining cannot claim
a tax refund under Section 106 of NIRC.
6. Distinguish:
a. Cross Border Doctrine from Destination Principle;
ANSWER:
The Destination Principle is the prevailing VAT system used as basis for the jurisdictional reach
of tax. It provides that goods and services are taxed only in the country where they are consumed. Hence,
exports are zero-rated, while imports are taxed.
The Cross-Border Doctrine, on the other hand, is the exception to the Destination Principle. There
are services classified as “zero-rated” as enumerated in Section 108(b)(1) and (2) of the National Internal
Revenue Code. This provides for services performed in the Philippines by VAT-registered persons who
shall be subject to 0% tax rates. It provides for the export of goods in the Philippines/rendering of services
in favor of non-residents/non-Filipino citizens which, despite originating from the Philippines, is not
taxed.
b. Impact of Taxation from Incidence of Taxation;
ANSWER:
Impact of taxation refers to the point where tax is originally imposed or the persons on whom the
tax is formally assessed. It is the taxpayer subject to tax who must pay the tax to the government.
On the other hand, incidence of taxation refers to the point on whom the tax burden finally rests.
It takes place when shifting has been effected from the statutory taxpayer to another person.
 c. Automatically zero-rated transactions from Effectively zero-rated transactions;
ANSWER:
Automatically zero-rated transactions are those initiated by a VAT-registered person and are
taxable transactions for purposes of VAT but shall not result to any output tax. However, the input tax
related to such zero-rated sale shall be available as tax credit.
On the other hand, effectively zero-rated transactions are those transactions by a VAT-registered
person to a person or entity granted direct and indirect tax exemption under special laws/international
agreements.
d. Gross selling price from Gross Receipts;
ANSWER:
Under Sec. 106 of the NIRC, gross selling price (GSP) is the total amount of money or its
equivalent which a purchaser Is obligated to pay to the seller in consideration of the sale/barter/exchange,
excluding VAT. The excise tax on such goods or properties shall form part of the gross selling price.
On the other hand, gross receipts refers to the total amount of money/its equivalent representing
the contract, price, compensation, rental, service fee including the amount charged for the materials
supplied, services, deposits and advanced payments actually/constructively received during the taxable
quarter for the services performed/to be performed for another person, excluding VAT.
e. VAT-Exempt Transaction from VAT-Exempt Party/Entity;
ANSWER:
VAT-exempt transactions refer to sale of goods/properties/services and the lease of properties
that are not subject to VAT and the seller is not allowed to have any tax credit of VAT (input tax) on
purchases. These transactions are enumerated under Sec. 109 of the NIRC.
On the other hand, VAT-exempt party/entity refers to the person, natural or juridical, who enjoys
a tax exemption privilege granted by law.
f. Transitional Input Tax from Presumptive Input Tax;

ANSWER:
As provided under Sec. 111(A) of the NIRC, transitional input tax is a tax credit granted to
persons liable to VAT/elects to be a VAT-registered person. They shall be allowed input tax on their
beginning inventory of goods/materials/supplies equivalent to 2% of the value of such inventory/VAT
paid on such goods, whichever is higher. It shall be creditable against the output tax.
On the other hand, presumptive input tax, is another tax credit under Sec. 111(B) of NIRC,
granted to persons/firms engaged in the processing of sardines/mackerel/milk /sugar/cooking oil. They are
allowed a tax credit creditable against the output tax, which shall be equivalent to 4% of the gross value
of their purchases of inputs to production.
g. 12%-VAT Transactions from Zero Rated Transactions and VAT-Exempt Transactions.
ANSWER:
12% VAT transactions from Zero Rated Transactions are the following, provided that the
successful establishment and implementation of an enhanced VAT refund system that grants refunds of
creditable input tax within 90 days from the filing of the VAT refund application with the Bureau, and
that all pending VAT claims be paid in cash:
(1) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local
export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the
Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP;
(2) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed
70% of total annual production;
(3) Those considered export sales under Executive the “Omnibus Investment Code of 1987”, and other
special laws
On the other hand, VAT-exempt transactions are those transactions enumerated under Sec. 109.
These transactions are not subject to output tax. These include export sales of persons who are not VAT-
registered, transport of passengers by international carriers, sale, import, or lease of cargo and passenger
vessels, sale of gold to the BSP, services rendered by individuals pursuant to an employer-employee
relationship among others.

7. In order that the sale of goods or properties may be subject to the 12% VAT, what are the
requisites to be complied with?
ANSWER:

The following must concur in order for a sale to be subject to 12% VAT:
a. There is an actual or deemed sale of goods or properties for a valuable consideration;
b. It must be undertaken in the course of trade or business
c. It must be for use or consumption in the Philippines (regardless of the payment
arrangements)
d. It must not be exempt from VAT under Sec. 109 of the NIRC, special law, or international agreement

8. Is the threshold for the sale of real properties the same with the sale of other goods and
properties? Is the sale of parking lot covered by the rules on VAT threshold amount imposed on
the sale of condominium units? Explain.
ANSWER:
No. Sales of real properties have a specific threshold under law. Under R.R. 16-2005, as
amended, sales of residential lots with a gross selling price that exceeds P 1,919,500 and residential
dwellings with a gross selling price exceeding P 3,199,200 with instruments of sale executed on or after
July 1, 2012 are subject to 12% VAT.
On the other hand, sales of parking lots in condo units covered by the VAT threshold amount are
not covered by the rules on threshold amount. This is so because parking lots are not residential lots,
house and lot, or residential dwelling. Hence, it must be subject to VAT irrespective of the amount of
selling price.

-God bless-