Cayle Nepomuceno

TAX02

C-120892

1. Explain the Destination principle under the VAT System. What is the exception to
the said principle?
The VAT system uses the destination principle as a basis for the jurisdictional
reach of the tax. Goods and services are taxed only in the country where they
are consumed. Thus, exports are zero-rated, while imports are taxed. There is,
however, an exemption to this rule: the zero-percent VAT imposed on services
performed in the Philippines, as enumerated in Section 108 (B)(1) and (2) of the
1997 Tax Code. The Supreme Court maintains that for these services to be zerorated, the recipient of these services must be a person doing business outside
the Philippines.

2. Under the Value Added Tax (VAT), the tax is imposed on sales, barter, or
exchange or goods and services. The VAT is also imposed on certain transactions
deemed sales, which include?

I. Transfer, use or consumption not in the course of business of goods or properties

originally intended for sale or for use in the course of business;
II. Distribution or transfer to: (a) Shareholders or investors as share in the profits of
the VAT-registered persons; or (b) Creditors in payment of debt;
III. Consignment of goods if actual sale is not made within sixty (60) days following
the date such goods were consigned; and
IV. Retirement from or cessation of business, with respect to inventories of taxable
goods existing as of such retirement or cessation.

3. What is the concept of VAT zero rating?

Zero-rated transactions refer to the export sale of goods and supply of services. The
seller of such transactions charges no output tax, but can claim a refund or a tax
credit certificate for the VAT previously charged by suppliers. This is for the benefit of
the seller.

4. Differentiate the following: VAT taxable transactions, Exempt Transactions and

Zero-Rated Transactions.

- VAT taxable transactions

It must be done in the ordinary course of trade or business , There must be a sale,
barter, and exchange, lease of goods or properties, or rendering of service in the
Philippines, It is not VAT-exempt or VAT zero-rated. If all three are present, then the
transaction is subject to the 12% VAT. Absence of one will not make the transaction
subject to VAT. But remember that importations are subject to VAT, whether or not in
the course of trade or business. As it is a tax on the transaction, there is no need
whatsoever for there to be a taxable gain, unlike in income tax. It is not required by
either law or jurisprudence.
-

Exempt transactions are transactions which are exempt from VAT. The VAT is nil.
Examples of these are sale or importation of agricultural and marine food product
in their original state or yielding or producing crop for human consumption,
fertilizers used in the manufacture of finished feeds, importation of personal and
household effects belonging to the residents of the Philippines returning from
abroad and non-resident coming to resettle in the Philippines.

Effectively zero-rated transactions refer to the sale of

goods or supply of services to persons or entities whose

exemption under special laws or international agreements
to which the Philippines is a signatory effectively subjects
such transactions to a zero rate. Such rate does not yield
any tax chargeable against the purchaser. This is for the
benefit of the purchaser.

5. ABC Corp 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 ABC Corp.'s claim meritorious? Explain.
ABC Corp claim is not meritorious since silver is not included in the list under zerorated transactions. Only sale of gold to BSP is allowed for zero-rated transactions.
Hence, ABC Corp will apply the 12% VAT rule.