TRANSFER TAXES, VALUE ADDED

TAX AND OTHER PERCENTAGE

TAXES
Atty. Vic C. Mamalateo
August 8-13, 2013
Ateneo College of Law, Makati City
• Title III:
• TRANSFER TAXES
 ESTATE TAX
• Estate Tax is a tax levied on the transmission of properties from a decedent to his
heirs. It is not a tax on property nor on the transferor or transferee. It is an excise
tax and its object is to tax the shifting of economic benefits.

• Donation mortis causa

– In consideration of death, without the donor’s intention to lose the thing
conveyed or its free disposal in case of survival
– Being testamentary in nature, it is embodied in a last will and testament; it is
not a contract but a legacy
– Transfer conveys no title or ownership to the transferee before death of
transferor, or the transferor retains ownership, full or naked, of the property
conveyed
– Transfer is revocable before the transferor’s death and revocability may be
provided indirectly by means of the reserved power in the donor to dispose of
the property conveyed
– Transfer would be void, if transferor survived the transferee, or if legacy is not
embodied in a valid will
– Being in the form of a will, donation mortis causa is not accepted by the
donee during the donor’s lifetime.
 ESTATE TAX
• Death is the generating source of the power to tax (Lorenzo v. Posadas). No
manual or physical transfer of the property is required for the estate tax to
accrue.
• “Residence” refers to the permanent home, the place to which whenever
absent, for business or pleasure, one intends to return, and depends on
facts and circumstances, in the sense that disclose intent (Corre v. Tan Corre).
It is not necessarily the actual place of residence at the time of death.
• The law in force at the time of death of the decedent governs.
• All properties and interests in properties of the decedent at the time of his
death shall be included in his gross estate. However, properties
transferred or interests relinquished by the decedent before his death are
generally excluded from his gross estate.
• The estate shall be appraised at its fair market value at the time of death.
– Real property: fair market value as determined by the CIR
– Shares of stocks: fair market value as shown in the audited financial
statements closest to the date of death of the decedent
 ESTATE TAX
• Gross estate: Conjugal Exclusive Total
– Real property
– Personal property
• Less: Deductions:
– Funeral expenses (5% x gross estate, not to exceed P200,000 or actual exp)
– Judicial expenses of testate or intestate proceedings
– Claims against the estate – debt instrument was notarized; statement showing
disposition of proceeds of loan, if contracted within 3years from date of death
– Unpaid taxes and mortgages
– Medical expenses (incurred within 1 year prior to his death, substantiated with
receipts, and not exceeding P500,000)
– Family home (not to exceed P1 M) + barangay clearance
– Standard deduction (P1 M)
– Properties previously taxed (vanishing deduction)
– Transfers for public use
– Amount received by heirs under RA 4917, provided such amount is included in gross
estate of decedent
– Share of the surviving spouse (50% of net conjugal estate)
• Net Taxable Estate
• Estate tax (First P200,000 is exempt; 5% from P200,001; and 20% on over P10 M)
 ESTATE TAX
• WHO IS THE DECEDENT AND WHAT PROPERTIES FORM PART OF HIS GROSS
ESTATE?
– Resident decedent: Citizen or resident alien
• Include in his gross estate all properties, real or personal, tangible or
intangible, regardless of location (within or without the Philippines)
• Reciprocal exemption as to intangible personal property
– When foreign country does not impose transfer tax on intangible
– When foreign country imposes transfer tax but grants similar exemption from
tax in respect of intangible property
– Non-resident decedent: Non-resident alien
• Include in his gross estate all properties located in the Philippines
• For intangible properties, use the principle mobilia sequuntur personam –
Taxation of intangibles follows the residence or domicile of the owner,
except for certain intangible properties mentioned in Sec. 104, NIRC.
 ESTATE TAX
• INTANGIBLE PROPERTIES THAT HAVE SITUS IN THE PHILIPPINES (Sec. 104,
:
NIRC)

– Franchise which is exercised in the Phil

– Shares, obligations or bonds issued by any corporation
organized in the Phil
– Shares, obligations or bonds issued by any foreign
corporation, 85% of the business of which is located in the
Phil or if such properties have acquired business situs in
the Phil (Wells Fargo case)
– Shares or rights in partnership, business or industry
established in the Philippines
 ESTATE TAX
• DECEDENT’S GROSS ESTATE (Sec. 85, NIRC)
– Decedent’s interest (in property owned or possessed; the law
contemplates any interest or right in the nature of property, but less
than title having value or capable of being valued, transferred by the
decedent at his death; e.g., dividend before death but paid after death;
partnership profits)
– Transfers in contemplation of death
– Revocable transfers
– Property passing under a general power of appointment
– Proceeds of life insurance
– Transfers for insufficient consideration
– Capital of the surviving spouse
 ESTATE TAX
• TRANSFER IN CONTEMPLATION OF DEATH
• Transfer by decedent of property or interest therein, by trust or otherwise, in
contemplation or to take effect in possession or enjoyment at or after death, or
under which he retained for his life or for any period which does not in fact end
before his death (1) the possession or enjoyment of, or the right to the income
from the property, or (2) the right to designate the person who shall possess or
enjoy or the income therefrom. It does not cover bona-fide sale for an adequate
and full consideration in money or money’s worth.
• “Transfers in contemplation of death” refers to the thought of death, as a
controlling motive, which induces the disposition of the property for the
purpose of avoiding the tax.
• Circumstances taken into account
– Age and health of decedent at time of gift
– Length of time between date of gift and date of death
 ESTATE TAX
• REVOCABLE TRANSERS (transfer with retention or
reservation of certain rights)
• “Revocable transfers” covers transfers, by trust or otherwise,
where the enjoyment was subject at the date of his death to
any change thru the exercise of a power to alter, amend,
revoke or terminate, or where such power is relinquished in
contemplation of death.
– Deceased declared her conveyance was a donation mortis causa and
forbade the registration of the deed until after her death (Puig v.
Penaflorida).
– It does not cover bona-fide sale of property for an adequate and full
consideration in money or money’s worth.
 ESTATE TAX
• Transfer of property under a general power of appointment
– By will, or by deed executed in contemplation of death, or by deed
where he retains for his life or any period not ascertainable without
reference to his death, which in fact does not end before his death
– Possession or enjoyment of, or the right to the income from, the
property, or the right to designate the persons who shall possess or
enjoy the property or the income thereof
– Except in case of bona-fide sale for an adequate and full consideration
in money or money’s worth.

• Power of appointment is “general” when it gives to the donee the power

to appoint any person he pleases, thus having as full dominion over the
property as though he owned it. It is “special” when the donee can
appoint only among a restricted or designated class of persons other than
himself.
 ESTATE TAX
• Proceeds of life insurance
• Taxable:
– Beneficiary is the estate of the deceased, his executor or
administrator, irrespective of whether or not the insured retained the
power of revocation
– Beneficiary is other than the decedent’s estate, executor or
administrator, when the designation of beneficiary is not expressly
made irrevocable. [NOTE: Under the Insurance Code, insurance
policies are presumed revocable.]
• Not Taxable:
– Accident insurance proceeds (not life insurance)
– Proceeds of group insurance policies (not taken out on the life of the
decedent)
– Beneficiary (NOT decedent’s estate, executor or administrator) is
designated irrevocably
– GSIS, SSS, and AFP RSBS
 ESTATE TAX
• REQUISITES OF PROPERTY PREVIOUSLY TAXED (VANISHING
DEDUCTION)
– Death
– Identity of the property
– Inclusion of the property (in gross estate or gross gift)
– Previous taxation of the property (estate tax or gift tax on
previous inheritance or gift was paid)
– No previous vanishing deduction on the same property (to
preclude application of vanishing deduction on same property more
than once).
– Percentage of deduction decreases over a period of 5
years (or 20% reduction every year)
 ESTATE TAX
• FORMULA OF VANISHING DEDUCTION

• Value taken of property previously taxed (as declared in prior decedent’s gross
estate)
• Less: Mortgage debt paid (1st deduction)
• Initial basis
• Initial basis divided by the value of gross estate of present decedent = __%
• Multiplied by expenses, indebtedness, etc and transfers for public
purposes
• Equals 2nd deduction
• Initial basis less 2nd deduction = Final basis multiplied by applicable rate of
vanishing deduction =
• Amount of vanishing deduction deductible from the estate of second
decedent
 ESTATE TAX
• Notice of death (2 months from death) required:
– Transfers subject to estate tax, or
– Exempt transfers, but gross estate exceeds P20,000
• If gross estate exceeds P2 million, attach to estate tax return a certified
statement of assets and itemized deductions.
• File estate tax return and pay tax within six months from date of death. If
payment would impose undue hardship, payment date may be extended
for not more than 5 years (if judicially settled), or 2 years (if settled extra-
judicially).
• Tax clearance is required before any transfer of shares may be made in the
name of new owners. Banks shall not allow any withdrawal from bank
account of decedent, unless estate tax has been paid, but it may allow
withdrawal not to exceed P20,000 without such certification from the CIR.
 DONOR’S TAX
• Donor’s Tax is a tax on the privilege to transfer property from a living
person to another living person.
– It is an excise tax, and not a property tax.
– It is imposed on the donor of property.
– Donee’s tax was already abolished and incorporated into donor’s tax.
• Purposes of donor’s tax
– To supplement estate tax
– To prevent avoidance of income tax thru the device of splitting income
• Donation of property must be accepted by the donee. Where donation took
effect immediately upon acceptance and it was subject to a resolutory condition
that donation would be revoked if donee did not fulfill certain conditions,
donation is inter vivos (Bonsato v. CA).
• Sale or exchange of property for less than adequate and full consideration
is subject to donor’s tax, except where the property is capital gains tax,
such as real property located in the Phil.
• Donated property must be valued at fair market value at the time of the
donation.
 DONOR’S TAX
• Transfer of property may be in trust or otherwise, direct or
indirect. Transfer becomes complete and taxable only when
the donor has divested himself of all beneficial interest in
himself or his estate.
• Donor’s tax rates
– Donee is member of the family
• First P100,000 of net gift is exempt
• 2% on P100,001 to P200,000
• 15% on amount over P10 M
– Donee is a stranger – 30% of net gift
• “Stranger” is a person who is not a (a) brother, sister (whether
by whole or half-blood), spouse, ancestor, and lineal
descendant; or (b) relative by consanguinity in the collateral
line within the fourth degree of relationship.
 DONOR’S TAX
• Donor
– Individual
• Citizen and resident alien -- Taxable
• Non-resident alien – Taxable on property located in the Phil
– Corporation
• Domestic corporation and resident foreign corporation -- Taxable
• Non-resident foreign corporation – Taxable on property located in
the Phil
• Donation of conjugal
– Made by both spouses – TWO donations
– Made only by one spouse (Tang Ho v. Board of Tax Appeals [now CTA]) –
ONE donation
 DONOR’S TAX
• Cumulative computation of donor’s tax is required for all
donations by the same donor to members of the family during
the same calendar year.
• Exempt donations
– Dowries or donations propter nuptias before its celebration or within
one year thereafter by parents to each of their legitimate, recognized
natural or adopted children – P10,000
– To Phil government for scientific, engineering, etc purposes
– To social welfare, cultural, and charitable organizations, not more than
30% shall be used for administration purposes
– To IRRI and Ramon Magsaysay Awards Foundation
– To National Museum and National Library
– To Intramuros Administration
BUSINESS TAXES
• VAT (Title IV, NIRC)
• Taxable transactions
– Sale or lease of goods or
properties; excise tax forms
part of GSP
– Sale or exchange of services
– Importation of goods
• Formula
– Output Tax
– Less: Input Tax
– VAT Payable/(Excess Input
Tax)
• NON-VAT/EXEMPT FROM
VAT
• Transaction is subject to
Other Percentage Tax (Title V,
NIRC)
– Tax is imposed on Gross
Receipts or Gross Income
• VAT is imposed in addition
to Excise Tax on transaction
(Title VI, NIRC)
• No VAT or OPT is imposed
on transaction (Sec 109, NIRC)
 OTHER PERCENTAGE TAXES
• Sec. 116 – 3% percentage tax on sale or lease of goods, properties or services of
non-VAT registered persons whose annual gross sales or receipts do not exceed
P1.5 M
• Sec. 117 – 3% common carriers tax on domestic common carriers by land on
transport of passengers and keepers of garages
• Sec. 118 – 3% common carriers tax on international air and sea carriers
• Sec. 119 – 3% franchise tax on grantees of radio and/or TV broadcasting whose
gross receipts do not exceed P10 M and 2% franchise tax on grantee of gas and
water utilities
• Sec. 120 – 10% overseas communication tax on dispatch originating from the Phil
• Sec. 121 – Gross receipts tax on banks
• Sec. 122 – Gross receipts on finance companies
• Sec. 123 – 2% premium tax on life insurance companies per RA 10001 and RMC 22-
2010, March 9, 2010
• Sec. 125 – Amusement tax on proprietors, lessees or operators of cockpits,
cabarets, night or day clubs (18%), boxing exhibitions (10%), professional
basketball games (15%) and race tracks (30%)
EXCISE TAXES
• On alcohol products
– Wine, scotch, vodka, beer, etc.
• On tobacco products
– Cigarettes, tobacco, etc.
• On petroleum products
– Premium gas, diesel, bunker fuel, LPG, etc.
• On mineral products
– Gold, silver, copper, etc.
• On miscellaneous products
– Automobiles – any 4 or more wheeled motor vehicle, regardless of seating
capacity, which is propelled by gasoline, diesel, electricity or any other motive
power, except buses, trucks, cargo vans, jeeps/jeepneys, single cab chassis,
and special purpose vehicles (e.g., funeral cars).
– Non-essential goods (jewelry; pearls, precious and semi-precious stones;
perfumes and toilet waters; yachts and other vessels for pleasure or sports.
DUTIES OF VAT TAXPAYERS
• 1. Secure Taxpayer Identification Number (TIN)
• 2. Pay annual registration fee of P500 for every separate and
distinct establishment
– Rev Regs No. 7-2012, Apr 2, 2012 (primary and secondary registration)
– Rev Regs No. 10-2012, June 1, 2012 (JV undertaking construction)
• 3. Register with BIR proper office as VAT or Non-VAT taxpayer and
get BIR Certificate of Registration (BIR Form 2303)
• 4. Apply for Authority To Print (ATP) as well as register and issue
VAT and/or Non-VAT sales invoices or receipts
• 5. Keep registered VAT books of accounts (computerized or manual)
• 6. File VAT returns/declarations and pay VAT
• 7. Withhold and remit Final Withholding VAT, when appropriate
• 8. Submit SLS/SLP
– Rev Regs No. 1-2012, Feb 20, 2012
VALUE ADDED TAX
• CHARACTERISTICS OF VAT SYSTEM
– Tax on value added of taxpayer
– Transparent form of sales tax; R.A. 9337 requires that the VAT
component should be separately indicated in the VAT invoice or
receipt
– Broad-based tax on consumption of goods, properties and services in
the Phil
– Indirect tax
• Tax exemption of rural bank (RA 7353) extends only to taxes to which it is
directly liable to pay, not to VAT, which is an indirect tax.
– Tax is collected thru the tax credit or invoice method
• Output tax on sales less input tax on purchases
– No cascading of tax in VAT system (tax is not again subject to tax)
– “Tax-inclusive method” was discarded in favor of “separate indication
of VAT” system (RR 18-2011, Nov 21, 2011)
VALUE ADDED TAX
• TAXABLE PERSONS
– Seller of goods or properties
• There is actual or deemed sale, barter or exchange of goods or
properties that are consumed or for consumption in the Phil;
• In the course of trade or business; and
• Sale of goods or properties is not exempt from VAT
– Seller of services
• Listed services are performed or to be performed in the Phil
• In the course of trade or business
• For a valuable consideration
• Services are not exempt from VAT
– Importer of goods
• Whether done in the course of his trade or business or for
personal consumption
VALUE ADDED TAX
• SPECIAL TYPES OF PERSONS ENGAGED IN TAXABLE TRANSACTIONS
– Husband and wife are separate taxpayers; aggregation rule
– Unincorporated joint venture undertaking construction activity is
subject to VAT, although exempt from income tax (RR 10-2012)
– Government
• Governmental function: Exempt from VAT
• Proprietary function: Subject to VAT
– Non-stock, non-profit association (e.g., social clubs, condo corps, and
homeowners associations)
• Association dues and special assessments; guest fees and fees for
use of facilities – taxable
• Income from operating restaurant, boutique or shop or for leasing
facilities -- taxable
VALUE ADDED TAX
• 1(a) Sale, barter or exchange (actual or deemed sale)
– Sale, barter or exchange has the same tax consequence
– There must be valuable consideration. However, if the property
transferred is one for sale, lease or use in the course of business and the
transfer constitutes a completed gift, it is also subject to VAT.
– Deemed sale is subject to VAT (output tax) in order to recoup previous VAT
(input tax) allowed
• Transfer, use or consumption not in the course of trade or business of
goods or properties originally intended for sale or for use in the course
of business. Withdrawal of goods in connection with the trade or
business of the taxpayer without any valuable consideration shall not
be treated as deemed sale.
• 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;
• Consignment of goods, if actual sale is not made within sixty (60) days
following the date such goods were consigned; and
• Retirement from or cessation of business, with respect to inventories
of taxable goods existing as of such retirement or cessation.
VALUE ADDED TAX
• Export sales of goods
– Actual shipment of goods to a foreign country
– Sale and delivery of goods to a person located and doing
business in special economic zones and freeport zones in
the Philippines.
• “Customs territory” is any territory located in the Philippines,
except special economic zones under RA 7916 (PEZA) and other
ecozone laws and freeport zones under RA 7227 (BCDA law, as
amended), which are treated as foreign territories by fiction of law
(CIR v. Seagate Technology Phil, G.R. No. 153866, 2005; CIR v. Toshiba
Information Equipment, G.R. No. 150154, 2005).
– The concept of “foreign territory by fiction of law” applies
only for VAT purposes, because for income tax purposes,
ecozones and freeport zones are treated as within the
Philippines.
VALUE ADDED TAX
• Sale, barter or exchange of goods (ordinary or capital)
– The sale, barter or exchange of goods must be one that is
contemplated under the Tax Code. Thus, securities
borrowing and lending done to support trading strategies
or settlement obligations, in exchange for a collateral and
the promise to return the equivalent shares or securities at
the end of the borrowing period not to exceed two years
pursuant to a Master Agreement, is exempt from VAT (RR
10-2006, June 23, 2006).
– If the requisites for taxation of sale of goods are present,
registration of seller and status of the buyer are not
important for VAT purposes.
– Sale of goods for the same price or at a price lower than its
cost does not exempt such sale from VAT.
VALUE ADDED TAX
– The absence of profit in the performance of taxable services does not
make such activity for a fee exempt from VAT (CIR v. COMASERCO, GR 125355, Mar 30, 2000).
• 1(b) Goods or properties must be located in the Philippines
and consumed or destined for consumption in the Phil.
– Special economic zones under RA 7916 (PEZA Law) and freeport zones
under RA 7227 (BCDA Law) are treated as foreign territories by fiction
of law. Hence, importation of goods by a special economic or freeport
zone enterprise shall be exempt from VAT and customs duties and will
be subject to VAT and duties only upon their withdrawal from the
customs custody.
– Destination Principle (sometime referred to “cross boarder doctrine”):
• Export sales of goods are zero-rated (0% VAT), provided seller is VAT-
registered person
• Import of goods into the Phil is taxable at 12% VAT
VALUE ADDED TAX
• 2. In the course of trade or business
– The regular conduct or pursuit of a commercial or an economic
activity, including transactions deemed incidental thereto,
regardless of whether or not the person engaged therein is a
non-stock, non-profit private organization (irrespective of the
disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity.
– The rule of regularity to the contrary notwithstanding, services
rendered in the Philippines by nonresident foreign persons shall
be considered as being rendered in the course of trade or
business (Sec 105, NIRC).
– Isolated transactions are not subject to VAT.
– Incidental income follows taxation of the principal activity.
Thus, sale of scrap materials by a VAT-registered person is
subject to VAT as the sale of its main finished products. But
rental income of a bank is subject to gross receipts tax, not VAT.
VALUE ADDED TAX
• “Incidental” means something else as primary;
something necessary, appertaining to, or depending
upon another, which is termed the principal. Hence,
an isolated transaction is not necessarily disqualified
from being made incidentally in the course of trade or
business.

• Although the primary business of a taxpayer is

manufacturing of garments for sale abroad, the sale of
motor vehicle to its General Manager is transaction
incidental to such business, subject to VAT (CS Garments v. CIR;
RMC 15-2011, Mar 16, 2011).
VALUE ADDED TAX
• Non-taxable transactions
– Change of control of a corporation by the acquisition of
the controlling interest of such corporation by another
stockholder or group of stockholders.
• Transfer of assets for shares of stocks where the transferor gains
control of the corporation does not constitute a sale of properties.
The transaction merely involves a change in the nature of
ownership of property from unincorporated to incorporated entity.
Ownership over the properties remains the same (Dolpher Trades Corp
v. IAC, 157 SCRA 349).
• However, exchange of real property for shares of stocks of a REIT
Corporation is subject to VAT.
– Merger or consolidation
– Change in the trade or corporate name of the business
VALUE ADDED TAX
• Seller of real properties is subject to VAT
– Seller executes a document of sale (DAS or CTS)
– Real property is located in the Phil
– Seller is engaged in real estate business either as dealer,
developer or lessor
– Real property is held primarily for sale or for lease in the
ordinary course of trade or business
– Sale is not exempt from VAT
• However, Rev. Regs. No. 4-2007 (Feb 2007) provides that “if the real
property sold is used in his trade or business, said transaction is
subject to VAT, being incidental to the main business” of the
taxpayer, who is a VAT-registered taxpayer engaged in other types
of business.
• The exchange of goods or properties, including the real estate
properties used in business or held for sale or lease by the
transferor, for shares of stocks, whether resulting in corporate
control or not, is subject to VAT (RR 10-2011, July 1, 2011).
VALUE ADDED TAX
• Installment sales of real property
– Rules on installment sales of real property in income tax
law are adopted for VAT purposes in VAT regulations.
• Sales with initial payments of 25% or less of GSP in the year of sale
shall be reported only in period of sales. Collections in the second
and succeeding years shall be reported in the year of collection for
VAT purposes.
• However, if initial payments exceed 25% of gross selling price, the
sale is treated as a cash sale; hence, the entire selling price is
subject to VAT in the period of sale. Collections in the succeeding
years are no longer subject to VAT.
• “Initial payments” means the down payment plus all monthly
amortizations in the year of sale.
– However, the rules on installment sales of appliances in
income tax are not adopted for VAT purposes.
VALUE ADDED TAX
• Tax base for sale of goods or property is “Gross Selling Price” (GSP) - the
total amount of money or its equivalent, which the purchaser pays or is
obligated to pay to the seller in consideration of the sale, barter or
exchange of the goods or properties, excluding the VAT. If the GSP is
unreasonably lower than the actual market value, the CIR is authorized to
determine and prescribe the actual market value to be used as tax base.
The GSP is considered unreasonably lower than the actual market value,
if it is lower by more than 30% of the actual market value of the same
goods of the same quantity and quality sold in the immediate locality on
or nearest the date of sale.

• As a rule, output tax accrues on sale of goods or properties (other than a

real property sold with initial payments of 25% or less) at the time of sale,
when the VAT sales invoice is issued, although none or only a part of the
gross selling price is paid by the buyer at the time of sale (e.g., sale of
appliances on installments).
• Excise tax, if any, shall form part of GSP.
VALUE ADDED TAX
• Sales discounts determined and granted at the time of sale, which are
expressly indicated in the sales invoice do not form part of the tax base.
Grant of discount must not depend upon the happening of a future event
or the fulfillment of certain condition. They must be recorded in the books
of accounts of the seller.
• Senior citizens are entitled to 20% sales discounts and to exemption from
VAT under the Expanded Senior Citizens Law.

• GSP shall separately indicate the VAT component.

• When VAT is not separately indicated in the invoice or receipt, to
determine Gross Selling Price or Gross Receipts (100%), divide Total
Invoice Amount (112%) by 1.12. If Total Invoice Amount includes EWT,
determine first the Gross Selling Price, and then apply the VAT rate on GSP.

• Tax rates
– 12% beginning Feb 1, 2006 (RA 9337)
– 0% VAT on zero-rated sales (automatic or effectively zero-rated)
VALUE ADDED TAX
• Sales of goods subject to 0% VAT
– Actual export sales
– Deemed export sales
• Internal or constructive export sales under BOI law (EO 226) and special
laws (RA 7916 and RA 7227) are automatically zero-rated.
– Ecozones and freeport zones are deemed foreign territories by fiction
of law (CIR v. Seagate Technology (2005); CIR v. Toshiba Information Equipment (2005)
– For as long as the goods remain within the zone, consumed or
destroyed there, they will be duty-free and tax-free (Coconut Oil Refiners
Asso v. Torres (2005)
• Effectively zero-rated sales (sales to ADB, embassies, etc) need approval
from BIR before sale; otherwise, sale is exempt.
– Sales of gold to BSP, but sales of silver is subject to 12% VAT.
– Foreign currency denominated sales (balikbayan program)
– Sales of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations
VALUE ADDED TAX
• ZERO-RATED SALE
• Transaction is completely free of
VAT; rate charged by seller is zero
• VAT-registered seller can reclaim
input taxes passed on to it by
sellers of goods or services from
BIR in form of refund or tax credit
• Zero-rated sales are taxable sales
for purposes of registration as
VAT taxpayer to determine
threshold
• EXEMPT SALE
• Exemption removes the VAT
at the exempt stage
• Exempt taxpayer cannot
reclaim VAT passed on to it
by VAT-registered sellers
• Exempt sales are not
taxable sales for VAT
purposes
VALUE ADDED TAX
• PERSONS SELLING TAXABLE SERVICES
– Construction and service contractors
• Health Maintenance Organization (HMO) acts like an independent
contractor taxed on entire gross receipts
• Security agency (taxed only on its agency fee, provided that there is
proper segregation between the fee and salary of security guards);
employment and janitorial agencies (taxed on its entire gross receipts)
• Travel agency: Hotel room charges for foreign tourists and travel agencies
are not part of its gross receipts
– Brokers
• Reimbursement of expenses are not subject to VAT if receipts or invoices
are issued in the name of principal
– Lessors of property, real or personal
• Royalties are not subject to VAT if paid by a PEZA- or SBMA-registered
enterprise to a non-resident foreign corporation
– Warehousing services
VALUE ADDED TAX
• PERSONS SELLING TAXABLE SERVICES
– Lessors or distributors of cinematographic films
• Movie houses and theaters are exempt from VAT; they are subject to local
amusement tax and based on past laws not subject to VAT, which tax shall
be paid by local payor
– Persons engaged in milling, processing, manufacturing or repacking goods for
others
• Miller of palay into rice, corn into grits, and sugar cane into raw sugar is
exempt from VAT
• Miller of refined sugar or cassava is subject to VAT
– Proprietors or operators or keepers of hotels, motels, resthouses, pension
houses, inns and resorts
• Hotel-operator of limousine services to hotel guests is subject to VAT (and
not to common carrier’s tax because it is not a common carrier)
• Tolling charges collected by hotel for PLDT for overseas calls made by
hotel guests are not part of taxable receipts of hotel
– Proprietors or operators of restaurants and other similar establishments
VALUE ADDED TAX
• PERSONS SELLING TAXABLE SERVICES
– Dealers in securities
• Securities borrowing and lending among dealers in securities covered by a
Master Agreement as well as judicial and foreclosure sales of securities are
exempt from VAT
– Lending investors (includes a person who lends six times or more during the year
at interest to another). However, pawnshops are not lending investors; they are
subject to GRT.
– Transportation contractors on their transport of goods or cargoes
– Domestic common carriers by air and sea between points in the Philippines
– Sales of electricity
• Sale of power thru renewable sources of energy by generation, transmission
and distribution companies is zero-rated
– Services of franchise grantees, including operators of toll highways (Diaz & Timbol
v. Secretary of Finance and CIR [2011]), except water and gas, and broadcast
stations whose gross receipts do not exceed P10 Million
– Non-life insurance companies, except crop insurance
• Accident and health insurance are deemed life insurance
– Similar services, regardless of whether or not the performance thereof calls for the
exercise or use of the physical or mental faculties
VALUE ADDED TAX
• “Gross receipts” means the total amount of money or its equivalent,
representing the contract price, compensation, service fee, rental or
royalty, including the amount charged for materials supplied with the
services and deposits and advance payments actually or constructively
received during the taxable quarter for the services performed or to be
performed for another person, excluding the VAT, except those amounts
earmarked for payment to unrelated third party or received as
reimbursement for advance payment on behalf of another, which do not
redound to the benefit of the payor.

• For sale of services, the test is not whether services have been performed
or not, but whether amount of compensation or fee is received, actually
or constructively. The rule is: NO RECEIPT OF PAYMENT, NO VAT
LIABILITY.
• A contractor that agrees to provide the materials and labor for a
construction project is a seller of services for the entire amount of
consideration.
VALUE ADDED TAX
• ZERO-RATED SALES OF SERVICES
– Processing, manufacturing or repacking goods for other persons doing
business outside the Phil, which goods are subsequently exported,
where the services are paid for in acceptable foreign currency and
accounted for in accordance with BSP rules and regulations
– Services other than processing, manufacturing or repacking rendered
to a person engaged in business conducted outside the Phil or to a
non-resident person not engaged in business who is outside the Phil
when the services are performed, the consideration for which are paid
for in acceptable foreign currency and accounted for in accordance
with BSP rules and regulations (CIR v. BWSC Mindanao, GR 153205, Jan 22,
2007)
– Services rendered to persons or entities whose exemption under
special laws or international agreements to which the Phil is a
signatory effectively subjects the sale of services to 0% rate
VALUE ADDED TAX
• ZERO-RATED SALES OF SERVICES
– Services rendered to persons engaged in international shipping or
international air transport operations, including leases of property for
use thereof
• Services rendered by local shipping agents and by local shipping
lines to international carriers are zero-rated only if they pertain to
outbound trips; on inbound trips, they are subject to 12% VAT.
• Services provided by hotels to their clients engaged in
international air transport operations pertaining to room
accommodations and food and beverage services are subject to
subject to 12% VAT. To qualify for zero-rating, the service must
pertain to or must be attributable to transport of goods and
passengers from a port in the Philippines directly to a foreign port,
without docking or stopping at any port in the Philippines (RMC 31-
2011, Aug 4, 2011; RR 4-2007).
VALUE ADDED TAX
– The docking charges (tuggage entrance or tuggage departure) computed
on US dollars and converted in its equivalent Phil pesos rendered to
foreign vessels is zero-rated, even if the company did not bill directly the
foreign principal but billed only its local husbanding agent, and that the
payments were not received in foreign currency (Phil Sinter Corp v. CIR, CTA 4447,
Jan 26, 1995).
• Services performed by subcontractors and/or contractors in
processing, converting or manufacturing goods for an enterprise
whose export sales exceeds 70% of total annual production
• Transport of passengers and cargo by domestic air or sea carriers
from the Phil to a foreign country
• Sale of power or fuel generated thru renewable sources of energy
(biomass, solar, wind, hydropower, geothermal and other emerging
sources)
– Sale of service by ROHQ is not zero-rated; it is an administrative arm of the
head office; hence, it is considered as one and the same entity for tax
purpose (Institutional Shareholder Services – Phil ROHQ v. CIR, CTA 7662, June 3, 2010).
 VALUE ADDED TAX
• CIR v. BWSC Mindanao, Inc., GR153205, Jan 22, 2007

• Tax Code not only requires that the services other than “processing, manufac-
turing or repacking of goods” and that payment for such services be in
acceptable foreign currency accounted for in accordance with BSP rules.
Another essential condition for qualification to zero-rating under Sec 102(b)(2)
is that the recipient of such services is doing business outside the Phil.
• While this requirement is not expressly stated in the 2nd paragraph of Sec.
102(b), this is clearly provided in the 1st paragraph of Sec 102(b) where the
listed services must be “for other persons doing business outside the Phil.”
• The above phrase not only refers to services enumerated in the first
paragraph, but also pertains to the general term “services” appearing in the
second paragraph.
• Otherwise, those subject to the regular VAT under Sec 102(a) can avoid paying
the VAT by simply stipulating payment in foreign currency inwardly remitted
by the recipient of services. To interpret Sec. 102(b)(2) shall apply to a payer-
recipient of services doing business in the Phil is to make the payment of
regular VAT dependent on the generosity of the taxpayer.
• A tax is a mandatory exaction, not a voluntary contribution.
VALUE ADDED TAX
• Significantly, the amended Section 108(b) [previously Sec 102(b)] of the
present Tax Code clarifies this legislative intent. For zero-rating of services,
it must be rendered to a person engaged in business conducted outside
the Phil.
• The payer-recipient of respondent’s services is the Consortium which is a
joint venture doing business in the Phil. While the Consortium’s principal
members are non-resident foreign corps, the Consortium itself is doing
business in the Phil. This is shown in BIR Ruling 23-95, which states that
the contract between Consortium and NPC is for a 15-year term.
Considering the length of time, the Consortium’s operation and
maintenance of NPC’s power barges cannot be classified as a single or
isolated transaction.
• This BWSCM case is different from CIR v. American Express International,
Inc. (Phil Branch), because in the latter case, the recipient of services is
AEII (HK Branch) doing outside the Phil.
• CIR’s filing of its Answer before the CTA in the BWSCM case, challenging
claim for refund effectively serves as a revocation of VAT Ruling 03-99 and
BIR Ruling 23-95. However, such revocation cannot be given retroactive
effect since it will prejudice respondent.
VALUE ADDED TAX
• VAT-EXEMPT TRANSACTIONS
– A. Sale or importation of agricultural and marine food products in
their original state; livestock and poultry generally producing food for
human consumption; and breeding stock
• “Original state” – simple processes of preparation or preservation
for the market. Process is no longer simple, if it involves physical
or chemical process that alters the exterior texture or form or
inner substance of the product as to prepare it for a special use.
• Rice, corn grits, raw sugar, molasses, ordinary salt and copra are
products in their original state
– B. Sale or importation of fertilizers; seeds, seedlings and fingerlings;
fish, prawn, livestock and poultry feeds (except specialty feeds for race
horses, fighting cocks and other pets)
– C. Importation of personal and household effects belonging to
residents of the Phil returning from abroad and non-resident citizens
coming to resettle in the Phil
– D. Importation of professional instruments and implements, and
personal effects (except vehicle, vessel, aircraft, machinery for use in
manufacture) belonging to persons coming to settle in the Phil
VALUE ADDED TAX
• VAT EXEMPT TRANSACTIONS
– E. Services subject to percentage tax under Title V, such as 3%
percentage tax, common carrier’s tax on land transportation and
international carriers, gross receipts tax on banks and finance
companies, premium tax on life insurance companies, franchise tax on
gas and water grantees, etc.
– F. Services by agricultural contract growers and milling for others of
palay into rice, corn into grits, and sugar cane into raw sugar
• Contract growing includes poultry, livestock and agricultural and
marine food products
– G. Medical, dental, hospital and veterinary services, except those
rendered by professionals
• Sales of medicines by hospitals to in-patients are exempt from VAT
as medical/hospital services.
– H. Educational services rendered by private educational institutions
accredited by DepEd, CHED, TESDA (Informatics Alabang Center v. CIR,
CTA EB 593, Feb 28, 2011), and those rendered by government
educational institutions
VALUE ADDED TAX
• VAT-EXEMPT TRANSACTIONS
– I. Services rendered by individuals pursuant to an employer-employee
relationship
– J. Services by a regional or area headquarters (RHQ)
– K. Transactions exempt under international agreements to which the
Phil is a signatory and special laws
– K. Sales by agricultural cooperatives duly registered with the
Cooperative Development Authority (CDA) to their members as well as
sale of their produce, whether in its original state or processed form,
to non-members; their importation of direct farm inputs, machineries
and equipment, including spare parts thereof, to be used directly and
exclusively in the production and/or processing of their produce
– M. Gross receipts from lending activities by credit or multi-purpose
cooperatives duly registered with the CDA
– N. Sales by non-agricultural, non-electric and non-credit cooperatives
duly registered with the CDA, provided that the share capital
contribution of each member does not exceed P15,000
VALUE ADDED TAX
• VAT-EXEMPT TRANSACTIONS
– O. Export sales by persons who are not VAT-registered
– P. Sale of real property not primarily held for sale to customers or for
lease in the ordinary course of trade or business, or real property for low-
cost and socialized housing, residential lot valued at P1.5 M (P1,919,500
beginning 2012) or below, house and lot and other residential dwellings
valued at P2.5 M (P3,199,200 beginning 2012 [RR 16-2011, Oct 27, 2011])
or below
• This threshold on Sec 109(P) is on a per transaction basis.
– Q. Lease of a residential unit with a monthly rental not exceeding
P10,000 (P12,800 beginning 2012):
• Lease of commercial buildings are subject to VAT, regardless of rental
per month or unit, provided threshold of P1.5 M (P1,919,500
beginning 2012) is exceeded, or the lessor registered as a VAT person.
• This threshold on Sec 109(Q) is on a per residential unit per month
basis.
– R. Sale, importation, printing or publication of books (hard bound) and
any newspaper or magazine which appear at regular intervals with fixed
prices and is not devoted principally to publication of paid advertisements
VALUE ADDED TAX
• VAT EXEMPT TRANSACTIONS
– S. Sale, importation or lease of passenger or cargo vessels and
aircrafts and their parts for domestic or international transport
– T. Importation of fuel, goods and supplies by persons engaged in
international shipping or air transport operations
– U. Services of banks, non-bank financial institutions performing quasi-
banking functions, and other financial intermediaries
– V. Sale or lease of goods or property or the performance of services
other than transactions mentioned above, the gross sales or receipts
(for the preceding 12 months) do not exceed P1.5 M (P1,919,500
beginning 2012)
• If sale of goods pertains to agricultural or marine food products in
their original state or sale of books, or sale of service relates to
rental of residential unit not exceeding P12,800, transaction is
exempt even if gross sales or receipts exceed P1.5 M (P1,919,500
beginning 2012).
VAT OR 3% PT
VAT
• If lessor receives rental income
for residential houses per unit
per month of P12,800 or less,
he is exempt from VAT even if
his gross annual rental is more
or less than P1.5 million
(P1,919,500 beginning 2012).
• Since the reason for VAT
exemption is Sec. 109(Q), he is
also exempt from 3% PT.
3% PERCENTAGE TAX
• Registered as a non-VAT
person and the reason for his
exemption from VAT is that his
gross sales or receipts for the
preceding 12 months do not
exceed P1.5 million
(P1,919,500 beginning 2012).
• 3% OPT applies to lessors of
residential units over P12,800
per month per unit and of
commercial properties.
VAT OR 3% PT
VAT
• If the lessor has commercial
stalls for lease and the amount
of gross rental for the year is
P1.5 M (P1,919,500 beginning
2012) or less, he is (a) exempt
from VAT if he did not register
as a VAT person, or (b) subject
to VAT if he registered as a VAT
person, or he issued a VAT
receipt for the rental income
to the lessee.
3% PERCENTAGE TAX
• In (a), he is liable to the 3%
percentage tax because he
derives rental income and
the reason for his VAT
exemption is that he did not
exceed the annual
threshold of P1.5 million
(P1,919,500 beginning
2012).
• In (b), he is liable to VAT.
RMC 63-2010
• VAT on operator of tollways.-- Tollway fees are not taxes.
They are not assessed and collected by the BIR and do not
go to the general coffers of government. A tax is imposed
under the taxing power of the government principally for
the purpose of raising revenues to fund public
expenditures. Toll fees, on the other hand, are collected by
private tollway operators as reimbursement for the costs
and expenses incurred in the construction, maintenance
and operation of the tollways, as well as to assure them a
reasonable margin of income. Taxes may be imposed by
the government under its sovereign authority, while toll
fees may be demanded by either the government or private
persons as an attribute of ownership. Accordingly, VAT on
toll fees is not a tax on tax.
RMC 63-2010
• The CIR did not usurp legislative prerogative or expand the VAT
law’s coverage when she sought to impose VAT on tollway
operations. Section 108(A) of the Code clearly states that services
of all other franchise grantees are subject to VAT, except as may be
provided under Section 119 of the Code. Tollway operators are not
among the franchise grantees subject to franchise tax under the
latter provision. Neither are their services among the VAT-exempt
transactions under Section 109 of the Code.
• If the legislative intent was to exempt tollway operations from VAT,
as petitioners so strongly allege, then it would have been well for
the law to clearly say to. Tax exemptions must be justified by clear
statutory grant and based on language in the law too plain to be
mistaken. But as the law is written, no such exemption obtains for
tollway operators. The Court is thus duty-bound to simply apply
the law as it is found.
VALUE ADDED TAX
• Sale of medicines by the hospital pharmacy to in-patients is exempt from
VAT, but sale to out-patients is subject to 12% VAT (St. Luke’s Medical
Center v. CTA and CIR, 1998).
• Tolling fees received by a hotel for PLDT is not part of its gross receipts
• Payment of VAT by the hotel on fees for providing limousine service to its
client is correct. It is not subject to the 3% common carrier’s tax. Claim
for tax credit is denied (Manila Mandarin Hotel v. CIR)
• Gross receipts of theatre owner or operator from sales of tickets to
moviegoers are exempt from VAT. Theatres and movie houses are not
included in the enumeration of taxable services in the VAT law. Our tax
laws, past and present, did not adopt more specific terms for “sale or
exchange of services” to include showing of films in public (CIR v. SM
Prime Holdings, GR 183505, Feb 26, 2010).
• PAGCOR is exempt from VAT pursuant to its charter, PD 1869. Being a
special law, PD 1869 prevails over RA 7716, a subsequent general law. To
be valid, repeal of special law should be express (CIR v. Acesite Hotel Corp,
GR 147295, Feb 16, 2007).
VALUE ADDED TAX
• CATEGORIES OF INPUT TAXES
– Input tax credit on importations of goods and current
local purchases of goods, properties and services
• Input tax on capital goods where total acquisition
cost for the month exceeds P1 M must be
amortized over certain period
– Transitional input tax credit
– Presumptive input tax credit
– Withholding input tax credit on sales to government
– Excess input tax credit
VALUE ADDED TAX
• Transitional Input Tax (TIT)
– A person who becomes liable to VAT or any person who elects to be a
VAT-registered person shall, subject to the filing of an Inventory, be
allowed input tax on his beginning inventory of goods, materials and
supplies equivalent to 2% of the value of such inventory (showing
quantity, description, and amount) or the actual VAT paid on such
goods, materials and supplies, whichever is higher.
– Goods that are exempt from VAT, forming part of inventory, are
excluded. Taxpayer is not allowed to claim 2% TIT on inventory of
goods without VAT components (RMC 61-2005, Oct 27, 2005).
– Capital goods do not form part of inventory.
– Transitional input tax is allowed not only on land improvements but
also on land itself (CIR v. Fort Bonifacio Dev Corp, 2009)
– Journal entry removing the input tax on inventory account shall be
made and recorded in the books.
VALUE ADDED TAX
• Presumptive Input Tax
– Persons or firms engaged in the processing of sardines,
mackerel and milk, and in manufacturing refined sugar
and cooking oil, and packed noodle-based instant meals
are entitled to presumptive input tax equivalent to 4% of
gross value in money of their purchases of primary
agricultural products which are used as inputs to their
production (Sec. 111, NIRC)
– “Processing” means pasteurization, canning and activities
which, through physical or chemical process, alter the
exterior texture or form or inner substance of a product in
such a manner as to prepare it for special use to which it
could not have been put in its original form or condition.
VALUE ADDED TAX
• Input tax on capital goods
– “Capital goods” are fixed assets with estimated useful lives of more
than one year used in the trade or business of the taxpayer and are
subject to depreciation.
– If the aggregate acquisition cost (exclusive of VAT) in a calendar month
exceeds P1 million, and (a) the estimated useful life of the asset is 5
years of more, the total input tax shall be amortized over a period of
60 months, or (b) the estimated useful life is less than 5 years, the
total input tax shall be amortized over the estimated useful life of the
asset.
– If the aggregate acquisition cost (exclusive of VAT) in a calendar month
does not exceed P1 million, the total input tax will be allowed as credit
against the output tax in the month of purchase.
– “Construction in Progress” refers to cost of construction work that is
not yet completed. It is not a capital asset, but is treated as a sale of
service; hence, not covered by the rules on capital goods.
VALUE ADDED TAX
• Subsidiary records for capital goods
– A subsidiary record in ledger form should be maintained for the
acquisition or importation of capital goods, such as (a) total
input tax; (b) monthly input tax claimed per VAT declaration or
return; (c ) purchase amount; (d) date of purchase; (e)
description of goods (RR 16-2005; RMC 62-2005, Oct 18, 2005).
– For capital goods covered by BOT scheme (e.g., IPP with limited
duration), the excess input tax shall be allowed to be amortized
over the life of the asset or the remaining life of the project
agreement, or five (5) years, whichever is shortest (RMC 61-2005).
• Remedy of filing claim for refund or tax credit on unused
input tax arising from purchase of capital goods was
deleted in R.A. 9337.
VALUE ADDED TAX
• Input tax will be disallowed for refund or tax
credit, if:
– The invoice is not under the name of the petitioner;
– The invoice or receipt cannot be presented;
– The input tax is evidenced only by provisional receipts
and statement of accounts;
– The input tax is supported by non-VAT invoices or
receipts; or
– The invoices or receipts were printed before July 31,
1991 with only TAN and VAT number, without TIN-
V/VAT (Placer Dome Technical Services v. CIR, CTA 5685, Mar 19, 2002).
VALUE ADDED TAX
• Allocation of input taxes
– Input taxes directly attributable to transactions subject to
VAT are creditable against output tax;
– Input taxes attributable to exempt transactions become
part of the cost or expense;
– Input taxes that are not directly attributable to VATable
and/or VAT-exempt transactions shall be allocated as
follows:
• Input tax attributable to exempt sales = Exempt sales/Total sales
• Input tax attributable to taxable sales = Taxable sales/Total sales
– Input taxes attributable to sales to government are not
creditable against output tax from sales to non-govt offices
VALUE ADDED TAX
• Allocation of input taxes
– Input taxes directly attributable to zero-rated sales may be
claimed as refund or tax credit or credited against output
tax for the period;
– Input taxes directly attributable to taxable sales (not zero-
rated) are creditable against output tax for the period;
– Input taxes that are not directly attributable to zero-rated
and/or taxable sales shall be allocated as follows:
• Input tax attributable to zero-rated sales = Zero-rated sales/Total
sales
• Input tax attributable to taxable sales = Zero-rated sales/Total sales
VALUE ADDED TAX
• Tax reliefs or remedies of VAT taxpayers on their excess
input taxes (EIT) attributable to zero-rated and effectively
zero-rated sales
– Carry over the excess input tax to the next quarter, until excess is utilized
– File a claim for refund
– File a claim for tax credit, within two years after the close of taxable
quarter where the sales were made, (NOT from the filing of the quarterly
VAT return)
– NOTE: Excess input tax cannot be claimed as bad deduction from gross
income!
• For non-zero-rated sales, remedy available is only to
carry over EIT to the next quarter(s), or to dissolve the
corporation or cease operation of business subject to VAT
and file claim for refund or tax credit within 2 years from
date of dissolution or cessation of business
VALUE ADDED TAX
• Reckoning of two-year prescriptive period
– From the date of the filing of the VAT return and payment of the
tax. After all, VAT liability or refundability can only be
determined upon the filing of the quarterly VAT return (Atlas
Consolidated Mining & Dev Corp v. CIR, G.R. No. 141104, June 8, 2007).
– From the close of the taxable quarter when the relevant sales
were made pertaining to the input VAT, regardless of whether
said tax was paid or not. The phrase “within two years” refers
to the application for refund or TCC filed with the CIR, and not
to filing of appeal to CTA.
– Secs. 204© and 229, NIRC cannot apply in a claim for refund of
excess input VAT on zero-rated sales, considering that it is not a
case of erroneous payment or illegal collection of taxes (CIR v.
Mirant Pagbilao Corp, G.R. No. 172129, Sept 12, 2008).
VALUE ADDED TAX
• Reckoning of two-year prescriptive period
– From the close of the taxable quarter when the sales were
made. Sec.112(A) which states “within two years … apply
for the issuance of a tax credit certificate or refund” refers
to applications for tax refund/credit filed with the CIR and
not to appeals made to the CTA.
– Sec. 112(D), NIRC provides that CIR has 120 days from date
of submission of complete documents within which to
grant or deny the claim. In case of full or partial denial, or
the failure of CIR to act on the application within the
required period, taxpayer may, within 30 days from receipt
of the decision denying the claim or after the expiration of
the 120 day period, appeal the decision or the unacted
claim with the CTA.
VALUE ADDED TAX
– In this case, administrative and judicial claims were
simultaneously filed on Sept 30, 2004. Taxpayer should have
waited for the decision of the CIR or the lapse of the 120-day
period. Sec 112(A) applies to administrative claims (i.e., within
2 years after the close of the taxable quarter when the sales
were made), while Sec 112(D) applies to judicial claims (i.e.,
within 120 days from the date of submission of complete
documents to BIR). Thus, SC found the judicial claim with the
CTA premature.
– The 120-30 day period under Sec. 112(D) is crucial in filing an
appeal to the CTA. Sec. 229 does not apply to refunds/credits
of unutilized input VAT arising from zero-rated sales.
– In computing legal periods, the Administrative Code of 1987
prevails over the Civil Code (CIR v. Aichi Forging Co. of Asia, G.R. No. 184823, Oct
6, 2010).
VALUE ADDED TAX
• San Roque v. CIR (Feb 2013)
• Mar 28, 2003 – San Roque filed amended administrative
claim with BIR
• Apr 10, 2003 – It filed petition for review with CTA (i.e.,
after 13 days)

• SC RULING
• 1. San Roque must comply with the 120-day waiting period.
This is mandatory and jurisdictional. Failure to comply
violates the doctrine of exhaustion of administrative
remedies and renders the petition PREMATURE and
without a cause of action; hence, the court cannot acquire
jurisdiction.
VALUE ADDED TAX
• 2. CTA charter: CTA can review on appeal decisions of
CIR involving claims for refunds, or in case of inaction,
which is deemed a denial. In this case, there is no CIR
decision to be reviewed by the CTA.
• 3. Art. 5, NCC: Acts executed against mandatory or
prohibited laws shall be void, except when the law
itself authorizes its validity. Here, there is no such law.
• 4. A person committing a void act contrary to the
mandatory provision of law cannot claim or acquire
any right from his void act. This doctrine is repeated in
Art. 2254, NCC.
VALUE ADDED TAX
• PHILEX MINING v. CIR (2013)
• Oct 21, 2005 – Philex filed original VAT return for Q3
2005
• Mar 20, 2006 – It filed administrative claim with BIR
• Oct 17, 2007 – It filed petition for review with CTA

• SC RULING
• 1. Philex timely filed its administrative claim. Even if
the 2-year prescriptive period is computed from the
date of payment of the output tax under Sec 229, it
filed its claim on time.
VALUE ADDED TAX
VA
• 2. CIR had until July 17, 2006, the last day of the
120-day period, to decide Philex’s claim
• 3. Since CIR did not act on the claim on or before
July 17, 2006, Philex had until Aug 17, 2006, the
last day of the 30-day period, to file its judicial
claim.
• 4. However, Philex filed its judicial claim only on
Oct 17, 2007, or 426 days after the last day of
filing; hence, the case is dismissed for LATE
FILING.
VALUE ADDED TAX
• A multi-purpose cooperative filed a claim for refund of
alleged erroneously paid advance VAT on the
withdrawal of its refined sugar produced. The
cooperative assailed the validity of RR 13-2008, which
provides for instances where withdrawal of sugar from
refinery is exempt from advance VAT.
– The CTA did not rule on the validity of the regulation for
lack of jurisdiction, but nonetheless allowed the partial
refund of the advance VAT.
– The CTA held that the coop’s sale of sugar to its members
and non-members is exempt from VAT. Both the
administrative and judicial claims were filed within 2 years
pursuant to Secs. 204 and 229, NIRC (United Cadiz Sugar Farmers Asso
Multi-Purpose Coop v. CIR, CTA Case No. 7995, Aug 16, 2011).
VALUE ADDED TAX
• ADMINISTRATIVE REQUIREMENTS
– REGISTRATION
– INVOICING
– BOOKKEEPING
– FILING OF TAX RETURN AND PAYMENT OF TAX
– WITHHOLDING OF TAX
– INVENTORY OF:
• GOODS, MATERIALS AND SUPPLIES
• UNUSED NON-VAT INVOICES OR RECEIPTS
VALUE ADDED TAX
• OPTIONAL VAT REGISTRATION FOR EXEMPT
PERSON:
– ANY PERSON WHO IS NOT REQUIRED TO REGISTER FOR
VAT UNDER SUBSEC. (G) MAY ELECT TO REGISTER FOR VAT
PURPOSES.
– ELECTION IS IRREVOCABLE FOR 3 YEARS FROM QUARTER
ELECTION WAS MADE (Sec. 236(H), RA 9337)
– ANY PERSON WHO IS VAT-EXEMPT UNDER SEC. 4.109-
1(B)(1)(V), NOT REQUIRED TO REGISTER FOR VAT MAY, IN
RELATION TO SEC. 4.109-2, ELECT TO BE VAT-REGISTERED.
ONCE VAT-REGISTERED, HE CANNOT CANCELL HIS
REGISTRATION FOR THE NEXT 3 YEARS (Sec. 109-2, RR 14-05)
VALUE ADDED TAX
• Significance of VAT registration
– Only VAT-registered persons are entitled to credit input
taxes against their output tax.
– Non-registration as a VAT taxpayer does not exempt him
from VAT output tax liability on his taxable sales of goods,
properties or services, where his gross sales or receipts for
the preceding 12 months exceeded P1.5 million.
– Erroneous registration as a VAT person and consequently,
the issuance by him of VAT invoice or receipt makes the
person liable to VAT.
– The buyer of exempt goods or service who is in possession
of VAT invoice or receipt is entitled to input tax.
VALUE ADDED TAX
• REGISTER AS VAT PERSON
– VENUE
• LARGE TAXPAYER (LTS)
• NON-LARGE TAXPAYER (RDO where principal place of business is
located)
– BIR FORM 2303 (Certificate of Registration)
• CANCELL NON-VAT REGISTRATION
– SURRENDER ORIGINAL CERT. OF REGISTRATION
• PENALTY FOR NON-REGISTRATION (if gross sales or
gross receipts exceed P1,919,500)
– 12% OUTPUT TAX LIABILITY
– NO INPUT TAX CREDIT
• ANNUAL REGITRATION FEE – P500 for every separate or
distinct establishment
VALUE ADDED TAX
• REQUIRED INFORMATION IN INVOICE OR RECEIPT
– NAME AND ADDRESS OF SELLER
– STATEMENT THAT SELLER IS VAT-REGISTERED PERSON + TIN (or TIN:
VAT)
– DATE, QTY, UNIT COST, AND DESCRIPTION OF GOODS OR NATURE OF
SERVICE
– TOTAL AMOUNT
• SEPARATE INDICATION OF VAT (prev. Sec. 106(D) & 108©, NIRC)
• VAT-EXEMPT SALE
• ZERO-RATED SALE
– NAME, BUS. STYLE, ADDRESS AND TIN OF VAT-REGISTERED BUYER OR
CUSTOMER, IF AMOUNT IS P1,000 OR MORE (Sec. 113(B), RA 9337)
– VAT sales invoice or official receipt and other supplemental
records shall bear the statement that “it is valid only for a
period of five years from date of ATP.” (RMC 2013)
VALUE ADDED TAX
• SEPARATE INVOICE OR RECEIPT
– SUBJECT TO VAT
• 10% or 12%, beginning Feb 1, 2006 (REGULAR SALE, INCL. SALE TO
GOVERNMENT), OR 0% (“ZERO-RATED SALE”)
– EXEMPT FROM VAT: EXEMPTION MAY REFER TO A TRANSACTION OR
PERSON
• AMOUNT RECEIVED IS NOT ITS INCOME OR FEE BUT FOR ANOTHER
ENTITY
• FOR REIMBURSEMENT OF ADVANCES
• “VAT-EXEMPT SALE”
– If VAT invoice or receipt is issued by a seller for a VAT-exempt
transaction, he is liable to VAT output tax as a penalty, but the buyer is
entitled to claim VAT input tax.
• COMBINED/MIXED VAT AND NON-VAT INVOICE OR RECEIPT
– BREAKDOWN OF SALES PRICE
– CALCULATION OF VAT ON TAXABLE PORTION
VALUE ADDED TAX
• VAT sales invoice or receipt
– In case of sales of P1,000 or more, where the sale is
made to a VAT-registered person, the name, business
style, address and TIN of the purchaser shall be
indicated.
– If the purchaser will not voluntarily disclose the above
information, the gasoline dealer has no valid excuse
for not knowing the status of its regular customer
(whether VAT or non-VAT person); hence, it shall be
liable for any omission of the information in the
invoice/receipt. However, for sales to non-regular
customers, they would not be entitled to input taxes
(RMC 29-2005, June 29, 2005)
VALUE ADDED TAX
• Separate invoices or receipts for VAT and non-VAT
transactions may be issued, provided that the term “VAT
EXEMPT” or “VAT ZERO-RATED” shall be written or printed
prominently on the invoice or receipt.
• Use of single invoice/receipt involving VAT and non-VAT
transactions
– The seller has the option to use a single invoice/ receipt,
provided that the breakdown of the sales price between
taxable, exempt and zero-rated sales and calculation of the VAT
on each portion of the sale is shown on the invoice/receipt.
– For this purpose, the printed invoice/receipt must reflect the
taxable, exempt and zero-rated sales, either in separate columns
or separate rows (RMC 29-2005 and RMC 62-2005).
VALUE ADDED TAX
• Use of CRM/POS
– Taxpayer-users who have been issued permits to use
sales machines are required to re-configure their
machines in conformity with RA 9337. The program
shall reflect and show separately the 12% output tax
(RMC 8-2006, Jan 31, 2006).
– They are not required to apply for re-accreditation but
they have the responsibility to re-configure the
machines. However, the BIR reserves the right to
check randomly their compliance, and if found non-
compliant, the BIR shall withdraw their accreditation
plus penalties (RMC 62-2005, Oct 18, 2005).
VALUE ADDED TAX
• The invoicing requirement set forth in Sec. 4.108-1 of RR 7-95,
particularly the printing of the word “zero-rated” on
invoices/receipts, though not expressly provided in law, was
recognized as reasonable and in accord with the efficient
collection of VAT. When RA 9337 took effect on Nov 1, 2005,
it included the invoicing requirement under RR 7-95.
• The conversion from regulation to law did not diminish the
binding force of such regulation with respect to acts
committed prior to the enactment of that law (Panasonic
Communication Imaging Corp of the Phil v. CIR, G.R. No. 178090, Feb 8, 2010).

• Thus, the claim for refund or tax credit without the word
“zero-rated sale” in the VAT sales invoices was denied.
VALUE ADDED TAX
• The absence of the word “zero-rated” on the
invoices/receipts is fatal to a claim for refund
or credit of input tax.
• The period involved in this refund refers to the
taxable quarters of 2000 (JRA Philippines v. CIR, G.R. No.
177127, Oct 11, 2010)

• Non-compliance with the requirements under

Sec. 4.108-1 of RR 7-95 is fatal to the claim for
refund (Hitachi Global Storage Technologies Phil Corp v. CIR, G.R. No.
174212, Oct 20, 2010)
VALUE ADDED TAX
• The SC denied taxpayer’s claim for refund for
failure to comply with the substantiation
requirements under RR 7-95, particularly the
imprinting of the word “TIN-VAT” in the invoices
and receipts.
• SC reiterated that Sec. 4.108-1 of RR 7-95 neither
expanded nor supplanted the Tax Code, but
merely supplemented what the Tax Code already
defined and discussed (Kepco Phil v. CIR, G.R. No. 181858, Nov 24,
2010).
VALUE ADDED TAX
• A VAT-registered taxpayer is required to comply with all the VAT
invoicing requirements to be able to file a claim for input taxes on
domestic purchases for goods or services attributable to zero-rated
sales. A “VAT invoice” is an invoice that meets the requirements of
Sec. 4.108-1 of RR 7-95. “All purchases covered by invoices other
than a VAT invoice shall not give rise to any input tax.”
• Microsoft’s invoice, lacking the word “zero-rated” is not a “VAT
invoice” and thus cannot give rise to any input tax (Microsoft Phil v. CIR,
G.R. No. 180173, Apr 6, 2011).

• Failure to indicate in the sales invoices or receipts the Authority To

Print is not fatal to the claim. What is important is that ATP has
been secured by taxpayer and invoices or receipts are registered
(Silicon Phil v. CIR, G.R. No. 172378, Jan 17, 2011).
VALUE ADDED TAX
• Sales invoice vs. official receipt
– Petitioner offered in evidence VAT invoices to substantiate its zero-
rated sales. CTA en banc denied petitioner’s claim, stating that since it
is engaged in sale of services, VAT receipts should have been
presented.
– Sec. 113 of the Tax Code does not create a distinction between a sales
invoice and an official receipt. Sales invoices are recognized
commercial documents to facilitate transactions. They are proofs that
business transactions have been concluded. Thus, an invoice would
suffice, provided substantiation requirements are met (AT&T Communications
Services Phil v. CIR, G.R. No. 182364, Aug 3, 2010).

– There is a fine distinction between a VAT invoice and a VAT official

receipt. “VAT invoice and VAT receipt should not be confused as
referring to one and the same thing. Certainly, neither does the law
intend the two to be used alternatively (Kepco Phil Corp v. CIR, G.R. No. 181858, Nov
24, 2010).
VALUE ADDED TAX
• RMC 4-96 allows the input taxes to be credited from output
taxes where advertising agency issues VAT receipt to
advertiser for the entire amount received, even if the
agency recognizes only 15% share in the total amount
billed.

• “Relevant supporting documents” are documents

necessary to support the legal basis in disputing a tax
assessment as determined by the taxpayer. Otherwise, a
taxpayer will be at the mercy of the BIR, which may require
production of documents that taxpayer cannot submit. RR
7-95 does not require original to be submitted to the BIR
(CIR v. Jimenez Basic Advertising, CTA EB 509, Feb 9, 2010, citing CIR v. First Express
Pawnshop Co, G.R. No. 172045, June 16, 2009).
VALUE ADDED TAX
• VAT returns
– When claiming tax refund/credit, the VAT-
registered taxpayer must be able to establish that
(a) it does have refundable or creditable input VAT,
and (b) the same has not been applied against its
output VAT – the information that supposed to be
reflected in taxpayer’s VAT returns. Thus, an
application must be accompanied by copies of the
taxpayer’s VAT return(s) for the quarter(s)
concerned (Atlas Consolidated Mining & Dev Corp v. CIR, G.R. No.
159471, Jan 26, 2011).
VALUE ADDED TAX
• Final Withholding Tax on Payments to Non-Resident
Person
– Party required to withhold VAT is the payor, regardless of
whether or not he is VAT-registered. If it is a non-VAT
person, VAT becomes part of cost of asset or expense
– VAT is passed on to the buyer-resident withholding agent
– Payor shall claim input tax upon filing of its VAT return,
subject to allocation of input tax
– Duly filed BIR Form 1600 is the proof or documentary
substantiation for the input tax
– Withholding tax shall be remitted within 10 days following
the end of the month withholding was made
VALUE ADDED TAX
• Final Withholding Tax on sales to government
– Sale of coal to NPC by a holder of Coal Operating
Contract is exempt from final withholding VAT. RA
9337 neither expressly nor impliedly repealed PD 972.
A special law cannot be repealed, amended or altered
by a subsequent general law by mere implication.
– The applicable provisions are Secs. 204© and 229,
NIRC, which gives the taxpayer a period of two years
from date of payment within which to file both its
administrative and judicial claims for refund (Semirara
Mining Corp v. CIR, CTA Case No. 7727, Feb 10, 2011).
REV REGS NO. 12-2011, July 25, 2011
• Reportorial requirements for establishments leasing
spaces for commercial activities
– It shall be the responsibility of all owners or sub-lessors of
commercial establishments/buildings/ spaces to ensure
that lessee is a BIR-registered taxpayer (TIN, COR, and
registered invoices/ receipts).
– Every Jan 31st, all owners or sub-lessors of commercial
establishments/buildings/spaces who are leasing or
renting out such commercial space to any person doing
business therein are required to submit to BIR RDO (a)
building/space layout; (b) copy of lease contract; and ©
lessee information statement.
– First filing of tenants profile was Sept 1, 2011. This was
extended to Nov 2, 2011.
REV REGS NO. 1-2012, Feb 20, 2012
• PERSONS REQUIRED TO SUBMIT SLS
– All persons liable for VAT, such as manufacturers, wholesalers,
service-providers, among others, are required to submit
Summary List of Sales.
• PERSONS REQUIRED TO SUBMIT SLP
– All persons liable for VAT, such as manufacturers, service-
providers, among others, are required to file Summary List of
Purchases.
• RULES IN SUBMISSION
– Quarterly SLS/SLP shall be submitted thru compact-disk-
recordable (CDR) medium following the format provided in
subsection “g” hereof. The magnetic form (3.5-inch floppy
diskettes) in RR 16-2005 shall henceforth refer to CDR.
– RR 1-2012 shall take effect on Jan 1, 2012
REV REGS NO. 3-2012, Feb 20, 2012
• RR 16-2011, Oct 27, 2011
– NIRC Section Old Amount New Amount
– Sec. 109(P) P1,500,000 P1,919,500 Res Lot
– Sec. 109(P) 2,500,000 3,199,200 Res H&L
– Sec. 109(Q) 10,000 12,800 Res unit
– Sec. 109(V) 1,500,000 1,919,500 Annual
• EFFECTIVITY OF ADJUSTED THRESHOLD AMOUNT
– If instrument of sale is executed and notarized on or after Jan 1,
2012, apply 12% VAT on new threshold amount.
– If instrument of sale is executed and notarized on or after Nov 1,
2005 but prior to Jan 1, 2012, threshold amount is old amount,
and VAT rate is 10% up to Jan 31, 2006 or 12% beginning Feb 1,
2006.
REV REGS NO. 10-2012, June 1, 2012
• JV NOT TAXABLE AS CORPORATION
– JV or consortium is formed for the purpose of undertaking
construction projects;
– It involves joining or pooling of resources by licensed local
contractors; i.e., licensed as a general contractor by the Phil
Contractors Accreditation Board (PCAB) of the DTI;
– Local contractors are engaged in construction business; and
– JV itself is likewise licensed as such by PCAB.
• If any requirement above is absent, JV or consortium is a
taxable corporation.
• Tax-exempt JV shall not include those who are mere
suppliers of goods, services or capital to a construction
project.
REV REGS NO. 10-2012, June 1, 2012
• JV involving foreign contractors may be treated as non-taxable
corporation only if:
– Member foreign contractor is covered by a special license as
contractor by PCAB; and
– Construction project is certified by the appropriate Tendering Agency
(government office) that the project is a foreign-
financed/internationally-funded project and that international bidding
is allowed under the Bilateral Agreement entered into by and between
the Phil government and the foreign/international financing
institution, pursuant to the rules and regulations of RA 4566
(Contractor’s License Law).
• Each member of JV not taxable as corporation shall report and pay
taxes on their respective shares to the JV profit.
• All licensed local contractors must enroll to BIR’s EFPS at the RDO
where local contractors are registered as taxpayers.
• END OF PRESENTATION

• Atty. Vic C. Mamalateo

• Mobile: 0939-9209175; 0917-5280445
• Email: vicmamalateo@yahoo.com
• vic.mamalateo@vcmlaw.com.ph