January 8, 1979 REVENUE REGULATIONS NO.

01-79 SUBJECT : Regulations Governing the Taxation of Non-resident Citizens TO : All Internal Revenue Officers and Others Concerned Pursuant to the provision of Section 326 in relation to Section 4 of the National Internal Revenue Code of 1977, as amended, the following regulations revising Revenue Regulations No. 9-73 to implement the latest amendments to Section 20 of the same Code by P.D. No. 1457 are hereby promulgated. SECTION 1. Scope. These amended regulations shall govern the manner of taxation of non-resident citizens as provided for under Section 21 of the Tax Code, as amended, and shall be known as Revenue Regulations No. 179. SECTION 2. Who are considered as nonresident citizens. The term "non-resident citizen" means one who establishes to the satisfaction of the Commissioner of Internal Revenue the fact of his physical presence abroad with the definite intention to reside therein and shall include any Filipino who leaves the country during the taxable year as: (a) Immigrant one who leaves the Philippines to reside abroad as an immigrant for which a foreign visa as such has been secured. (b) Permanent employee one who leaves the Philippines to reside abroad for employment on a more or less permanent basis. (c) Contract worker one who leaves the Philippines on account of a contract of employment which is renewed from time to time within or during the taxable year under such circumstances as to require him to be physically present abroad most of the time during the taxable year. To be considered physically present abroad most of the time during the taxable year, a contract worker must have been outside the Philippines for not less than 183 days during such taxable year. Any such Filipino shall be considered a non-resident citizen for such taxable year with respect to the income he derived from foreign sources from the date he actually departed from the Philippines. A Filipino citizen who has been previously considered as a non-resident citizen and who arrives in the Philippines at any time during the taxable year to reside therein permanently shall also be considered a non-resident citizen for the taxable year in which he arrived in the Philippines with respect to his income derived from sources abroad until the date of his arrival. SECTION 3. Proof of intention. A Filipino citizen who leaves the Philippines to reside abroad either as an immigrant or for permanent employment or a contract worker, shall submit to the Commissioner of Internal Revenue proof of his intention of leaving the Philippines to reside permanently abroad. A returning non-resident citizen, on the other hand, must present proof of his intention to return to and reside permanently in the Philippines. Such proof of intention shall be attached to his income tax return (BIR Form No. 1701C) and may consist of the following: (a) In the case of an immigrant, photostat or xerox copy of his foreign visa. (b) In the case of one leaving for permanent employment abroad, a certificate from his employer showing the nature and duration of his employment. (c) In the case of a contract worker (1) Certificate of the employer; or (2) Copy of the contract of employment; or (3) Other documentary evidence. (d) In the case of a returning non-resident citizen (1) Xerox copy of his passport bearing the stamp of Philippine immigration authorities showing that he is a returning resident as distinguished from a mere Balikbayan. (2) Other documentary evidence. SECTION 4. Manner of filing returns. Every non-resident citizen must file an income tax return covering all his income earned abroad on BIR Form No. 1701C. When husband and wife are both non-resident citizens, only one return containing their consolidated income is required to be filed on BIR Form No. 1701C. If aside from the foreign income, the non-resident citizen also derives income from Philippine sources, two separate returns should be filed, one on BIR Form No. 1701C covering the income derived from foreign sources and the other on BIR Form No. 1701 or 1701A, as the case may be, covering the income from sources within the Philippines. However, if the Philippine income is derived solely from salaries, wages, remunerations or other similar compensation for services rendered and such gross income does not exceed P2,000, if the taxpayer is single, or P3,333.33, if married or a head of the family, the non-resident citizen is exempt from filing an income tax return with respect to such income. The income tax return of non-resident citizen covering his taxable income earned abroad shall be accompanied by a copy of the income tax return filed with the national government of the foreign country of his residence as well as the evidences of tax payment. SECTION 5. Computation of income and tax. A. On income derived from all sources outside the Philippines. 1. What to include as gross income. The gross income of a non-resident citizen derived from sources outside the Philippines includes all income enumerated under Section 29 of the National Internal Revenue Code, whether or not such income is exempted from income tax in the foreign country where it was derived. If the income is in foreign currency other than US dollars, it shall first be converted into US dollars at the average annual rate of exchange of the foreign currency and the US dollar for the year in which the income was earned.

Rate of tax. Beginning with the taxable year 1978, there shall be imposed on the adjusted gross income of non-resident citizen a tax computed as follows: On the amount not exceeding $6,000 1% On the amount exceeding $6,000 but not exceeding $20,000 $60.00 plus 2% of excess over $6,000. On the amount exceeding $20,000 $340.00 plus 3% of excess over $20,000. 3. Computation of Adjusted Gross Income. The adjusted gross income is arrived at by deducting from the gross income the following: a. Personal exemption of $2,000 if the non-resident citizen is single or a married person legally separated from his or her spouse, or $4,000 if married or head of a family; b. The total amount of the national income tax actually paid to the national government of the foreign country of his residence. 4. Head of Family. The term "head of family" is defined as "an unmarried man or woman with one or both parents, or one or more brothers or sisters, or one or more legitimate, recognized natural, or adopted children living with and dependent upon him or her for their chief support where such brothers, sisters, or children are not more than twenty-one years of age, unmarried and not gainfully employed or where such children are incapable of self-support because they are mentally or physically defective. 5. Computation of tax. The computation of the tax due from a non-resident citizen on income derived abroad is illustrated as follows: Mr. Juan de la Cruz, 35 years old, Filipino, married to Maria, with a dependent son, Jose and a resident of Los Angeles, California. For U.S. Federal Income Tax purposes, he filed a joint return containing the following data and claimed the optional standard deductions and used the optional tax tablets: Income: Wage, Salaries, Tips, Others $7,814.65 Dividends received from qualified U.S. domestic corporation $482.50 less exclusion $200.00 282.50 Interest Income on savings deposit 110.17 Income other than wages (Wife's prize in photo contest) 200.00 TOTAL GROSS INCOME $8,407.32 LESS: Adjustment to income (moving expenses) 60.00 Adjusted Gross Income $8,347.32 TAX DUE PER IRS TABLES $ 325.00 Tax payments and credits Total Federal income tax withheld $484.30 Other payments (gasoline tax, etc.) 32.67 Total payments and credits $516.97 AMOUNT REFUNDABLE (191.97) ====== For Philippine income tax purposes, his income shall be computed as follows: Gross Income $8,407.32 ADD: Excluded dividend income taxable under Philippine Income Tax Law 200.00 Total Gross Income $8,607.32 LESS: (a) Personal Exemption as married$4,000 (b) Foreign National Income Tax paid (Attach copy of Federal Income Tax Return and evidence of payment) 325 Total Deductions [add (a) & (b)] 4,325.00 ADJUSTED GROSS INCOME SUBJECT TO TAX $4,282.32

2.

======= Tax Due: Adjusted Gross Income $4,282.32 At 1% rate (not over $6,000.00) x .01 Amount payable $42.82 B. On income derived from sources within the Philippines. The tax due on income derived by a non-resident citizen from sources within the Philippines shall be computed in the same manner as the income tax payable by resident citizens and resident aliens. SECTION 6. When and where to file. The return must be filed, and the tax due, if any, must be paid on or before April 15 following the year for which the return is being filed with the Philippine Embassy or Office of the Consulate General nearest to the taxpayer's place of residence or direct to the Commissioner of Internal Revenue, BIR Bldg., Diliman, Quezon City, Philippines. If the return and payment, if any, are sent by mail, the same should be mailed on such a date as to reach the Philippine Embassy, Philippine Consulate General or the Commissioner of Internal Revenue on or before April 15. The payment should be made in the form of an international money order, bank draft or manager's check payable to the Commissioner of Internal Revenue. If the return is filed and payment of the tax made in the Philippines by or for the non-resident citizen, the tax may be paid in Philippine currency, the dollar amount of the tax to be converted into pesos at the rate of exchange prescribed by Revenue Memorandum Circular No. 21-78 for internal revenue tax purposes. When the tax due is in excess of two hundred dollars (U.S.$200.00), the non-resident citizen may elect to pay the tax in two equal installments in which case, the first installment shall be paid at the time the return is filed and the second installment, on or before the fifteenth day of July following the close of the calendar year. If any installment is not paid on or before the date fixed for its payment, the whole amount of the tax unpaid becomes due and payable together with the delinquency penalties. SECTION 7. Repealing Clause. These regulations supersede Revenue Regulations No. 9-73 dated November 26, 1973. All existing rules, regulations, administrative orders and general circulars or portion thereof, which are inconsistent herewith are hereby repealed, amended or modified accordingly. SECTION 8. Effectivity. These regulations shall take effect immediately and shall apply to income earned beginning January 1, 1978. ANNEX "A" REPUBLIC OF THE PHILIPPINES MINISTRY OF FINANCE Manila January 15, 1979 RULES AND REGULATIONS IMPLEMENTING P.D. 1469 SUBJECT : REGISTRATION OF EXPORT PRODUCERS AND TRADERS WITH THE PHILIPPINE EXPORT COUNCIL AND AVAILMENT OF TAX BENEFITS FOR INDIRECT EXPORTS UNDER PRESIDENTIAL DECREE NO. 1469. Pursuant to the provisions of Section 6 of Presidential Decree No. 1469 in relation to Sections 4 and 326 of the National Internal Revenue Code of 1977, as amended, these regulations are hereby promulgated. SECTION 1. Scope. These regulations shall govern the registration of export producers and traders with the Philippine Export Council and the availment of tax benefits for indirect exports under Presidential Decree No. 1469. SECTION 2. Definition of Terms. For purposes of these regulations, the following definitions of terms are hereby adopted: (a) "Registered Export Producer" shall have the same meaning as defined under Section 187(y) of the National Internal Revenue Code, as amended by P.D. 1469. (b) "Registered Export Trader" shall be understood as defined under Section 187(z) of the National Internal Revenue Code, as amended by P.D. 1469. (c) "Export Sales" shall have the same meaning as defined under Section 187(aa) of the National Internal Revenue Code, as amended by P.D. 1469. (d) For purposes of registration, "Philippine-made products" shall mean articles or products for export, manufactured, produced or processed by registered export producers. (e) "Tax Exemption Certificate" shall mean the certificate issued by the Bureau of Internal Revenue that a registered export producer is entitled to exemption from the payment of percentage tax on its export sales. (f) "Tax Credit Certificate" shall mean the certificate issued by the Bureau of Internal Revenue evidencing credits against internal revenue taxes extended to registered export producers under Presidential Decree No. 1469. A tax credit certificate shall be non-transferable and it may be used by the registered export producer against all internal revenue tax liabilities but in no case may it be used so as to result, in effect, in a refund. SECTION 3. Qualification for Registration. Any person, corporation, partnership or other entity doing business in the Philippines shall, before registration, satisfy the Philippine Export Council that: (a) He or it is actually engaged in the manufacture, production or processing of articles or products in commercial quantity for export which meet the quality standards set by the Bureau of Standards for such articles or products. (b) He or it is engaged or will engage in buying Philippine-made products from a registered export producer and subsequently exporting the same.

SECTION 4. Application for Registration. (a) Processing and Evaluation. In processing of applications for registration, the Council may, in its sound discretion, designate any competent government agency to evaluate the applications, make factual determinations in relation thereto and submit its recommendations to the Council. This is without prejudice to the automatic registration prescribed in P.D. 1584. (b) Filing. Applications for registration shall be filed with the Philippine Export Council or its delegate. (c) All applications shall be in the prescribed form and shall be subject to the payment of filing fees. (d) Supporting documents. The documents to be submitted by the applicant in support of its application are: 1. In the case of juridical entities Articles of Incorporation or Partnership or any other document evidencing the legal existence of the applicant. 2. Resolution of the Board of Directors authorizing the filing of the application, in case of corporation, or by the Managing Partners in case of a partnership. 3. Audited financial statements of the applicant, viz: profit and loss statements and balance sheets for the two immediately preceding years if applicant has been in operation for such period; otherwise only such financial statements during the period it has been in operation. 4. Export market projections showing expected revenues, selling and other administrative costs. 5. Other papers as may reasonably be required by the Philippine Export Council and/or its delegate. The foregoing documents shall be certified true copies of the original documents. (e) Incomplete Papers. Upon filing of the application, the Philippine Export Council and/or its delegate shall require the applicant to submit all required papers not filed with the application within a period to be prescribed by the Philippine Export Council or its delegate. Failure to comply within said period shall be construed as abandonment of the application. SECTION 5. Certificate of Registration. The Certificate of Registration shall be issued by the Philippine Export Council. Copies of the Certificate shall be furnished the delegate of the Philippine Export Council and the Bureau of Internal Revenue. SECTION 6. All conditions and requirements for registration prescribed by the Council and/or its delegate shall be taken into account by the Bureau of Internal Revenue in the determination of tax benefits for indirect exports. SECTION 7. Availment of Tax Benefits. The tax benefits for indirect exports provided in Section 3 of P.D. 1469 shall be available to registered export producers who are registered with the Council. (a) Tax Exemption The Bureau of Internal Revenue shall issue a Certificate of Tax Exemption covering the sales of registered export producers to: 1. other registered export producers, or cdtai 2. registered exports traders, or 3. foreign tourists and travelers; provided the articles or products sold were actually exported on or before the 20th day of the month following the calendar quarter when the sale took place. In order to substantiate the claim for tax exemption, the registered export producer must submit to the Bureau of Internal Revenue the following documents: 1. A photostatic copy of the certificate of registration issued by the Philippine Export Council; and 2. Copies of invoices, bills of lading, inward letters of credit, landing certificates, and other commercial documents evidencing the actual exportation of products and/or articles sold. (b) Tax Credit The Bureau of Internal Revenue shall issue appropriate tax credit certificates only to export producers registered with the Council. A registered export producer can avail of the tax credit in the following situations: A. Sale by a registered export producer to another registered export producer: 1) Where the tax is billed as a separate item in the sales invoice, the purchaser (2nd registered export producer) can claim tax credit for the taxes paid on raw materials, parts or components purchased and utilized in the manufacture or production of its export articles; 2) Where the tax is not billed as a separate item in the sales invoice, the seller (1st registered export producer) is the one entitled to claim the tax credit for taxes paid on raw materials, parts or components utilized in the manufacture or production of finished articles and/or products together with sales taxes paid on said articles or products sold to another registered export producer. B. Sale by registered export producer to a registered export trader and/or foreign tourists and travelers: Whether or not the sales tax is billed as a separate item in the sales invoice, only the registered export producer can claim the tax credit for taxes paid on raw materials, parts or components utilized in the manufacture or production of finished articles and/or products sold to a registered export trader and/or foreign tourists and travelers. In order to avail of the tax credit benefit pursuant to Section 202(f), second paragraph of the Tax Code, the following documents shall be submitted to the Bureau of Internal Revenue: 1. A written application for said tax credit, which must be filed within one (1) year from date of the actual exportation of the product and/or article, together with the copies of shipping or other documents evidencing actual exportation; and 2. Sales invoices or other documents from suppliers or sellers of raw materials, part, accessory or other article forming part of the finished product exported. Illustrative examples on the manner of availment of incentives are shown in Illustration Nos. 1, 2, 3 and 4 of Annex "A". SECTION 8. Cancellation of Registration. Any Certificate of Registration issued under this Decree may be revoked/cancelled by the Philippine Export Council on its own initiative or upon recommendation of its designated government agency on the following grounds:

(a) (b) (c)

Violation of the provisions of Presidential Decree 1469 or of these rules and regulations; or Violation of any law relating to taxation, currency, immigration national security and economy; or Failure to meet the standards set by the Bureau of Standards on their products for export.

SECTION 9. Applicability to Existing Enterprises. Registered export producers and export traders with the Board of Investments shall be automatically registered with the Council: Provided, however, that an export producer registered under this Decree, which is entitled to benefits under other laws, shall not concurrently avail of the tax benefits accruing to its registered activity under this Decree and other laws. SECTION 10. Repealing Clause. All rules and regulations inconsistent herewith shall be deemed revoked or amended accordingly. SECTION 11. Publication and Effectivity. These rules and regulations shall take effect fifteen (15) days after its publication in a newspaper of general circulation. ANNEX "B" ILLUSTRATIVE EXAMPLES SITUATION NO. 1. SALE BY REGISTERED EXPORT PRODUCER TO ANOTHER REGISTERED EXPORT PRODUCER. Illustration No. 1. Where the tax is Billed as a Separate Item in the Sales Invoice. (A) Sale by a Registered Export Producer to Another Registered Export Producer Considered "Export Sales" During the Quarter When the Sale was Consummated. FACTS: On February 5, 1979, "B", a registered export producer, purchased from "A", a domestic manufacturer, P88,000.00 worth of raw materials of which the sales tax in the amount of P8,000.00 was separately billed in the sales invoice. "B" utilized these raw materials in the manufacture of his finished articles which he thereafter sold to "C", another registered export producer, for P110,000.00 wherein the P10,000.00 sales tax was billed as a separate item in the sales invoice. "C" also utilized these finished articles he purchased from "B" as raw materials or input in the manufacture of his finished articles which he exported on March 20, 1979. (1) Manner of Invoicing: (a) Invoicing by "A" to "B": Selling Price P80,000.00 10% Sales Tax 8,000.00 Total P88,000.00 ========= (b) Invoicing by "B" to "C": Selling Price P100,000.00 10% Sales Tax 10,000.00 Total P110,000.00 ========= (2) Recommended Accounting Entries: IN THE BOOKS OF "B" Purchases P80,000.00 Deferred Tax Credit 8,000.00 Cash/Accts. Payable P88,000.00 To record purchase of raw materials from "A". # Cash/Accounts Receivable P110,000.00 Sales P100,000.00 Sales Tax Payable 10,000.00 To record sales of manufactured articles to "C". IN THE BOOKS OF "C " Purchases P100,000.00 Deferred Tax Credit 10,000.00 Cash/Accts. Payable P110,000.00 To record purchase of raw materials from "B". # (3) Determination of Sales Tax Liability: The sale made by "B" to "C" is not subject to sales tax. The sale between them and the subsequent actual exportation by "C" of his manufactured products both occurred within the quarter when the sale took place. Since the sales tax was billed as a separate item in the sales invoice issued by "B" to "C", the following are the recommended accounting entries: IN THE BOOKS OF "B" Sales Tax Payable P10,000.00 Miscellaneous Income P2,000.00 Deferred Tax Credit P8,000.00 To take up recognition of income and to offset sales tax payable against deferred tax credit as a result of exemption from sales tax. # IN THE BOOKS OF "C" Purchases P2,000.00

Tax Credit Receivable 8,000.00 Deferred Tax Credit P10,000.00 To set up tax credit receivable from BIR and to charge purchases for the unrecovered amount paid on the raw materials used in the finished products sold. # or the following alternative entries: IN THE BOOKS OF "B" Sales Tax Payable P10,000.00 Accts. Payable, C P2,000.00 Deferred Tax Credit 8,000.00 To offset sales tax payable against deferred tax credit and to set up account payable to "C" representing excess amount collected from "C" as a result of exemption from sales tax. IN THE BOOKS OF "C" Accts. Receivable, "B" P2,000.00 Tax Credit Receivable 8,000.00 Deferred Tax Credit P10,000.00 To set up tax credit receivable from BIR and accounts receivable from "B" for tax previously paid on raw materials used. The sales tax billed separately by "B" to "C" was not remitted to the Bureau of Internal Revenue for the sale was exempt from sales tax. The sales tax liability of "B" was extinguished by actual exportation of the finished articles by "C" before the due date for the payment of the sales tax by "B" (on or before April 20, 1979). In this particular situation, "B" can no longer claim tax credit for P8,000.00 taxes previously paid on raw materials because he has, in effect, been reimbursed by "C" for the P8,000.00 plus the additional P2,000.00 which he should recognize as miscellaneous income or as a liability to "C". On the other hand, "C" can claim only P8,000.00 tax credit representing the actual amount collected by the government from "A", and "C" can charge the P2,000.00 collected from him by "B" to purchases or set up accounts receivable from "B". (B) Sale by a Registered Export Producer to Another Registered Export Producer Considered "Domestic Sales" During the Quarter When the Sale was Consummated. FACTS: Similar Facts as in Illustration No. 1(A) except that the sale made by "B" to "C" occurred on February 5, 1979 while the actual exportation of the finished articles by "C" happened on May 5, 1979. The sale between "B" and "C" will be considered as "Domestic sales" for the quarter ending March 31, 1979 and "export sales" only for the quarter ending June 30, 1979. In this situation, "B" can no longer claim tax credit for he has already been reimbursed by "C". The sales tax liability by "B" for the quarter ending March 31, 1979 is computed, as follows: Selling Price P100,000.00 ========= Sales Tax Due P10,000.00 Less: Tax Credit 8,000.00 Net Sales Tax Due & Payable P2,000.00 ========= In the books of accounts of "B" and "C", the following are the recommended accounting entries: IN THE BOOKS OF "B" Sales Tax Payable P10,000.00 Cash P2,000.00 Deferred Tax Credit 8,000.00 To take up remittance of final sales tax and application of tax credit. # IN THE BOOKS OF "C" Tax Credit Receivable BIR P10,000.00 Deferred Tax Credit P10,000.00 To take up availment of Tax Credit in the quarter when the sales was considered as export sales. ILLUSTRATION NO 2. Where the tax is not billed as a separate item in the sales invoice. (A) Similar facts as in Illustration No. 1(A) but the tax is not billed as a separate item in the sales invoice made by "B" to "C". IN THE BOOKS OF "B" Cash/Accounts Receivable P110,000.00 Sales P110,000.00 To take up sales of manufactured articles to "C". # IN THE BOOKS OF "C" Purchases P110,000.00 Cash/Accounts Payable P110,000.00 To record purchases from "B". The following are the recommended accounting entries: IN THE BOOKS OF "B" Tax Credit Receivable BIR P8,000.00 Deferred Tax Credit P8,000.00 To set up receivable from BIR for the availment of tax credit. # IN THE BOOKS OF "C" NONE

When the tax is not billed separately and the transaction is considered exempt during the quarter, only "B" can claim P8,000.00 taxes paid on raw materials which he can apply against all other internal revenue tax liabilities. (B) Similar facts as in Illustration No. 2(A) except that actual exportation by "C" was made after the 20th day of the month following the calendar quarter when the sale took place between "B" and "C". Determination of sales tax liability by "B" and the accounting entries that should be made in the books of "B" and "C". Selling Price P110,000.00 ========= Tax Due P11,000.00 LESS: Tax Credit 8,000.00 Net Sales Tax Due and Payable P3,000.00 ========= # IN THE BOOKS OF "B" Deferred Tax Credit P3,000.00 Cash P3,000.00 To payment of final sales tax during the quarter when sale was considered domestic sale. Tax Credit Receivable P11,000.00 Deferred Tax Credit P11,000.00 To set up availment of tax credit when sale was considered as export sale. # OR THE FOLLOWING ALTERNATIVE ENTRIES: Sales Tax Expense P11,000.00 Deferred Tax Credit P8,000.00 Cash 3,000.00 To take up payment of the final sales tax during the quarter when sale was considered domestic sale. # Tax Credit Receivable P11,000.00 Miscellaneous Income P11,000.00 To record availment of tax credit in the quarter when the sale was considered export sales. # IN THE BOOKS OF "C" NONE SITUATION NO. 2 SALE BY REGISTERED EXPORT PRODUCER TO A REGISTERED EXPORT TRADER. ILLUSTRATION NO. 3. Where the tax is billed as a separate item in the sales invoice. (A) FACTS: X, a registered export producer, purchased P88,000.00 worth of raw materials of which P8,000.00 tax was billed as a separate item in the sales invoice which he utilized in the manufacture or production of his finished articles he sold to "Z", a registered export trader, on February 5, 1979 and who subsequently exported the same on March 20, 1979. The manner of invoicing the sale by "X" was as follows: Selling Price P100,000.00 10% Sales Tax 10,000.00 TOTAL P110,000.00 ========= The sale of "X" to "Z" and the subsequent actual exportation by "Z" occurred within the same quarter and the sales tax was billed as a separate item in the sales invoice of "X". Recommended Accounting Entries: IN THE BOOKS OF "X" Purchases P80,000.00 Deferred Tax Credit 8,000.00 Cash/Accounts Payable P88,000.00 To take up purchases of raw materials. # Accts. Receivable/Cash P110,000.00 Sales P100,000.00 Sales Tax Payable 10,000.00 To take up sales made. # IN THE BOOKS OF "Z" Purchases P110,000.00 Cash/Accounts Payable P110,000.00 Purchase of raw materials from "X". Determination of the sales tax liability of "X": Selling Price P100,000.00 ========= Sales Tax Due EXEMPT Recommended Accounting Entries: Sales Tax Payable P10,000.00 Deferred Tax Credit P8,000.00 Misc. Income 2,000.00 To take up recognition of income and to offset sales tax payable against deferred tax credit as a result of exemption from sales tax.

IN THE BOOKS OF "Z" NONE (B) Similar facts as in Illustration No. 3(A) except that the exportation was made after the 20th day of the month following the close of the calendar quarter when the sale between "X" and "Z" took place. Since the sales tax was billed as a separate item in the invoice and that the actual exportation by "Z" took place after the 20th day of the month following the close of the preceding calendar quarter, the sale of "X" to "Z" shall be considered "domestic sale" during the said quarter. Determination of Sales Tax Liability of "X": Selling Price P100,000.00 ========= Sales Tax Due P10,000.00 LESS: Tax Credit 8,000.00 Net Sales Tax Due and Payable P2,000.00 ========= Recommended Accounting Entries: IN THE BOOKS OF "X" Sales Tax Payable P10,000.00 Deferred Tax Credit P8,000.00 Cash 2,000.00 To take up payment of final sales tax during the quarter when the sale was considered. Tax Credit Receivable P10,000.00 Miscellaneous Income P10,000.00 To set up availment of tax credit in the quarter when the sale was considered export sales. IN THE BOOKS OF "Z" NONE ILLUSTRATION NO. 4 Where the tax is not billed as a separate item in the sales invoice. (A) Similar facts as in Illustration No. 3(A) except that the sales tax was not billed as a separate item in the invoice and the sale of "X" to "Z", and the actual exportation of the finished articles by "Z" occurred within the same quarter: Selling Price P110,000.00 ========= Accounting Entries: IN THE BOOKS OF "X" Cash/Accounts Receivable P110,000.00 Sales P110,000.00 To record sales of manufactured products to "Z". Tax Credit Receivable P8,000.00 Deferred Tax Credit P8,000.00 To set up availment of tax credit (when sales was considered as domestic sale.) # IN THE BOOKS OF "Z" NONE (B) Similar facts as in Illustration No. 3(A) except that the sales tax was not billed as a separate item in the sales invoice and the sale of "X" to "Z" and actual exportation by "Z" was made after the 20th day of the month following the preceding calendar quarter when the sale between "X" and ''Z" took place and therefore considered as "domestic sale". Determination of sales tax liability of "X": Selling Price P110,000.00 ========= Sales Tax Due P11,000.00 LESS: Tax Credit 8,000.00 NET SALES TAX DUE AND PAYABLE P3,000.00 ========= Recommended Accounting Entries: IN THE BOOKS OF "X" Deferred Tax Credit P3,000.00 Cash P3,000.00 To take up remittance of final sales tax in the quarter when sale was considered as domestic sale. # Tax Credit Receivable P11,000.00 Deferred Tax Credit P11,000.00 To set up availment of tax credit in the quarter when the sale was considered as export sale. # IN THE BOOKS OF "Z" NONE OR THE FOLLOWING ALTERNATIVE ENTRIES : Sales Tax Expense P11,000.00 Deferred Tax Credit P8,000.00 Cash 3,000.00 To take up payment of final tax during the quarter when the sale was considered export sales. #

Tax Credit Receivable P11,000.00 Miscellaneous Income P11,000.00 To take up availment of tax credit in the quarter when the sale was considered export sales.