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VALUE ADDED TAX AND

OTHER PERCENTAGE TAXES

Atty. Vic C. Mamalateo

August 2, 2013Univ of San Jose Recoletos, Cebu City

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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)

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OTHER PERCENTAGE TAXES

Sec. 1163% percentage taxon sale or lease of goods, properties or services ofnon-VAT registered persons whose annual gross sales or receipts do not exceedP1.5 M

Sec. 1173% common carriers tax on domestic common carriers by landontransport of passengers and keepers of garages

Sec. 1183% common carriers tax on international air and sea carriers

Sec. 1193% franchise tax on grantees of radio and/or TV broadcastingwhosegross receipts do not exceed P10 M and 2% franchise tax on grantee of gas andwater utilities

Sec. 12010% overseas communication tax on dispatch originating from the Phil

Sec. 121Gross receipts tax on banks

Sec. 122Gross receipts on finance companies

Sec. 1232% premium tax on life insurance companies per RA 10001 and RMC 22-2010, March 9, 2010

Sec. 125Amusement taxon proprietors, lessees or operators of cockpits,cabarets, night or day clubs (18%), boxing exhibitions (10%), professionalbasketball games (15%) and race tracks (30%)

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EXCISE TAXES

On alcoholproducts Wine, scotch, vodka, beer, etc.

On tobaccoproducts Cigarettes, tobacco, etc.

On petroleumproducts

Premium gas, diesel, bunker fuel, LPG, etc. On mineralproducts

Gold, silver, copper, etc.

On miscellaneousproducts Automobilesany 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.

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DUTIES OF VAT TAXPAYERS

1. Secure Taxpayer Identification Number (TIN)

2. Pay annual registration fee of P500 for every separate anddistinct 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 andget BIR Certificate of Registration (BIR Form 2303)

4. Apply for Authority To Print (ATP) as well as register and issueVAT 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

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CHARACTERISTICS OF VAT SYSTEM Tax on value addedof taxpayer

Transparent form of sales tax; R.A. 9337 requires that the VATcomponent should be separately indicated in the VAT invoice orreceipt

Broad-based tax on consumptionof goods, properties and services inthe 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 taxin VAT system (tax is not again subject to tax)

Tax-inclusive method was discarded in favor of separate indicationof VAT system (RR 18-2011, Nov 21, 2011)

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TAXABLE PERSONS Seller of goods or properties

There is actual or deemed sale, barter or exchange of goods orpropertiesthat are consumed or for consumption in the Phil;

In the course of trade or business; and

Sale of goods or properties is notexempt 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

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SPECIAL TYPES OF PERSONS ENGAGED IN TAXABLE TRANSACTIONS

Husband and wife are separatetaxpayers; aggregation rule

Unincorporated joint venture undertaking construction activity issubject 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, andhomeowners associations)

Association dues and special assessments; guest fees and fees foruse of facilitiestaxable

Income from operating restaurant, boutique or shop or for leasingfacilities -- taxable

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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 thetransfer 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 notin the course of trade or business of

goods or properties originally intended for sale or for use in the courseof business. Withdrawal of goods in connection with the trade orbusiness of the taxpayer without any valuable consideration shall notbe treated as deemed sale.

Distribution or transfer to: (a) shareholders or investors as share in theprofits of the VAT-registered persons; or (b) creditors in payment ofdebt;

Consignment of goods, if actual sale is not made within sixty (60) daysfollowing the date such goods were consigned; and

Retirement from or cessation of business, with respect to inventoriesof taxable goods existing as of such retirement or cessation.

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Export sales of goods Actual shipment of goods to a foreign country

Sale and delivery of goods to a person located and doingbusiness 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 otherecozone laws and freeport zones under RA 7227 (BCDA law, asamended), which are treated as foreign territories by fiction of law(CIR v. Seagate Technology Phil, G.R. No. 153866, 2005; CIR v. ToshibaInformation Equipment, G.R. No. 150154, 2005).

The concept of foreign territory by fiction of law appliesonly for VAT purposes, because for income tax purposes,ecozones and freeport zones are treated as within thePhilippines.

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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, securitiesborrowing and lending done to support trading strategiesor settlement obligations, in exchange for a collateral andthe promise to return the equivalent shares or securities atthe end of the borrowing period not to exceed two yearspursuant to a Master Agreement, is exempt from VAT (RR10-2006, June 23, 2006).

If the requisites for taxation of sale of goods are present,

registration of seller and status of the buyer are notimportant for VAT purposes.

Sale of goods for the same price or at a price lower than itscost does not exempt such sale from VAT.

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The absence of profit in the performance of taxable services does notmake 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 Philippinesand consumed or destined for consumption in the Phil.

Special economic zones under RA 7916 (PEZA Law) and freeport zonesunder RA 7227 (BCDA Law) are treated as foreign territories by fictionof law. Hence, importation of goods by a special economic or freeportzone enterprise shall be exempt from VAT and customs duties and willbe subject to VAT and duties only upon their withdrawal from thecustoms 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

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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 anon-stock, non-profit private organization (irrespective of thedisposition 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 shallbe considered as being rendered in the course of trade orbusiness (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 issubject to VAT as the sale of its main finished products. Butrental income of a bank is subject to gross receipts tax, not VAT.

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Incidental means something else as primary;something necessary, appertaining to, ordepending upon another, which is termed theprincipal. Hence, an isolated transaction is not

necessarily disqualified from being madeincidentally in the course of trade or business.

Although the primary business of a taxpayer ismanufacturing of garments for sale abroad, the

sale of motor vehicle to its General Manager istransaction incidental to such business, subject toVAT (CS Garments v. CIR; RMC 15-2011, Mar 16, 2011).

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Non-taxable transactions Change of control of a corporation by the acquisition of

the controlling interest of such corporation by anotherstockholder or group of stockholders.

Transfer of assets for shares of stocks where the transferor gainscontrol of the corporation does not constitute a sale of properties.The transaction merely involves a change in the nature ofownership of property from unincorporated to incorporated entity.Ownership over the properties remains the same (Dolpher Trades Corpv. 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

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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 realproperty sold is used in his trade or business, said transaction issubject to VAT, being incidental to the main business of thetaxpayer, 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 thetransferor, for shares of stocks, whether resulting in corporatecontrol or not, is subject to VAT (RR 10-2011, July 1, 2011).

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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 forVAT purposes.

However, if initial payments exceed 25% of gross selling price, thesale is treated as a cash sale; hence, the entire selling price issubject to VAT in the period of sale. Collections in the succeedingyears are no longer subject to VAT.

Initial payments means the down payment plus all monthlyamortizations in the year of sale.

However, the rules on installment sales of appliances inincome tax are not adopted for VAT purposes.

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VALUE ADDED TAX

Tax base for sale of goods or property is Gross Selling Price (GSP) - thetotal amount of money or its equivalent, which the purchaser pays or isobligated to pay to the seller in consideration of the sale, barter orexchange of the goods or properties, excluding the VAT. If the GSP isunreasonably lower than the actual market value, the CIR is authorized todetermine 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 samegoods of the same quantity and quality sold in the immediate locality onor 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 thegross selling price is paid by the buyer at the time of sale (e.g., sale ofappliances on installments).

Excise tax, if any, shall form part of GSP.

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Sales discounts determined and granted at the time of sale, which areexpressly 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 eventor the fulfillment of certain condition. They must be recorded in the booksof accounts of the seller.

Senior citizens are entitled to 20% sales discounts and to exemption fromVAT 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 TotalInvoice 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)

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Sales of goods subject to 0% VAT Actual export sales

Deemed export sales

Internal or constructive export sales under BOI law (EO 226) and speciallaws (RA 7916 and RA 7227) are automatically zero-rated.

Ecozones and freeport zones are deemed foreign territories by fictionof law(CIR v. Seagate Technology (2005); CIR v. Toshiba Information Equipment (2005)

For as long as the goods remain within the zone, consumed ordestroyed 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 approvalfrom 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 ininternational shipping or international air transport operations

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ZERO-RATED SALE

Transaction is completely free ofVAT; rate charged by seller is zero

VAT-registered seller can reclaiminput taxes passed on to it by

sellers of goods or services fromBIR in form of refund or tax credit

Zero-rated sales are taxable salesfor purposes of registration asVAT taxpayer to determinethreshold

EXEMPT SALE

Exemption removes the VATat the exempt stage

Exempt taxpayer cannotreclaim VAT passed on to itby VAT-registered sellers

Exempt sales are not

taxable sales for VATpurposes

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VALUE ADDED TAX

PERSONS SELLING TAXABLE SERVICES Construction and service contractors

Health Maintenance Organization (HMO) acts like an independentcontractor taxed on entire gross receipts

Security agency (taxed only on its agency fee, provided that there isproper 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 invoicesare 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-registeredenterprise to a non-resident foreign corporation

Warehousing services

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PERSONS SELLING TAXABLE SERVICES Lessors or distributors of cinematographic films

Movie houses and theaters are exempt from VAT; they are subject to localamusement tax and based on past laws not subject to VAT, which tax shallbe 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, pensionhouses, inns and resorts

Hotel-operator of limousine services to hotel guests is subject to VAT (andnot to common carriers tax because it is not a common carrier)

Tolling charges collected by hotel for PLDT for overseas calls made byhotel guests are not part of taxable receipts of hotel

Proprietors or operators of restaurants and other similar establishments

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PERSONS SELLING TAXABLE SERVICES Dealers in securities

Securities borrowing and lending among dealers in securities covered by aMaster Agreement as well as judicial and foreclosure sales of securities areexempt from VAT

Lending investors (includes a person who lends six times or more during the year atinterest 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, transmissionand distribution companies is zero-rated

Services of franchise grantees, including operators of toll highways (Diaz & Timbolv. Secretary of Finance and CIR [2011]), except water and gas, and broadcaststations 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 theexercise or use of the physical or mental faculties

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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 andaccounted for in accordance with BSP rules and regulations

Services other than processing, manufacturing or repacking renderedto a person engaged in business conducted outside the Phil or to anon-resident person not engaged in business who is outside the Philwhen the services are performed, the consideration for which are paidfor in acceptable foreign currency and accounted for in accordancewith BSP rules and regulations (CIR v. BWSC Mindanao, GR 153205, Jan 22,2007)

Services rendered to persons or entities whose exemption underspecial laws or international agreements to which the Phil is asignatory effectively subjects the sale of services to 0% rate

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ZERO-RATED SALES OF SERVICES

Services rendered to persons engaged in international shipping orinternational air transport operations, including leases of property foruse thereof

Services rendered by local shipping agents and by local shipping

lines to international carriers are zero-rated only if they pertain tooutbound trips; on inbound trips, they are subject to 12% VAT.

Services provided by hotels to their clients engaged ininternational air transport operations pertaining to roomaccommodations and food and beverage services subject to

subject to 12% VAT. To qualify for zero-rating, the service mustpertain to or must be attributable to transport of goods andpassengers 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).

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The docking charges (tuggage entrance or tuggage departure) computedon US dollars and converted in its equivalent Phil pesos rendered toforeign vessels is zero-rated, even if the company did not bill directly theforeign principal but billed only its local husbanding agent, and that thepayments 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 salesexceeds 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 emergingsources)

Sale of service by ROHQ is not zero-rated; it is an administrativearm of the head office; hence, it is considered as one and the sameentity for tax purpose (Institutional Shareholder Services Phil ROHQ v. CIR, CTA7662, June 3, 2010).

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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 inacceptable 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 2ndparagraph of Sec.102(b), this is clearly provided in the 1stparagraph of Sec 102(b) where thelisted services must be for other persons doing business outside the Phil.

The above phrase not only refers to services enumerated in the firstparagraph, but also pertains to the general term services appearing in thesecond 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 remittedby 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 ofregular VAT dependent on the generosity of the taxpayer.

A tax is a mandatory exaction, not a voluntary contribution.

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Significantly, the amended Section 108(b) [previously Sec 102(b)] of thepresent Tax Code clarifies this legislative intent. For zero-rating of services,it must be rendered to a person engaged in business conducted outsidethe Phil.

The payer-recipient of respondents services is the Consortium which is ajoint venture doing business in the Phil. While the Consortiums principal

members are non-resident foreign corps, the Consortium itself is doingbusiness in the Phil. This is shown in BIR Ruling 23-95, which states thatthe contract between Consortium and NPC is for a 15-year term.Considering the length of time, the Consortiums operation andmaintenance of NPCs power barges cannot be classified as a single orisolated transaction.

This BWSCM case is different from CIR v. American Express International,Inc. (Phil Branch), because in the latter case, the recipient of services isAEII (HK Branch) doing outside the Phil.

CIRs filing of its Answer before the CTA in the BWSCM case, challengingclaim for refund effectively serves as a revocation of VAT Ruling 03-99 andBIR Ruling 23-95. However, such revocation cannot be given retroactiveeffect since it will prejudice respondent.

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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 forhuman consumption; and breeding stock

Original state simple processes of preparation or preservationfor the market. Process is no longer simple, if it involves physicalor chemical process that alters the exterior texture or form orinner substance of the product as to prepare it for a special use.

Rice, corn grits, raw sugar, molasses, ordinary salt and copra areproducts in their original state

B. Sale or importation of fertilizers; seeds, seedlings and fingerlings;fish, prawn, livestock and poultry feeds (except specialty feeds for racehorses, fighting cocks and other pets)

C. Importation of personal and household effects belonging toresidents of the Phil returning from abroad and non-resident citizenscoming to resettle in the Phil

D. Importation of professional instruments and implements, andpersonal effects (except vehicle, vessel, aircraft, machinery for use inmanufacture) belonging to persons coming to settle in the Phil

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VAT EXEMPT TRANSACTIONS E. Services subject to percentage tax under Title V, such as 3%

percentage tax, common carriers tax on land transportation andinternational carriers, gross receipts tax on banks and financecompanies, premium tax on life insurance companies, franchise tax ongas and water grantees, etc.

F. Services by agricultural contract growers and milling for others ofpalay into rice, corn into grits, and sugar cane into raw sugar

Contract growing includes poultry, livestock and agricultural andmarine food products

G. Medical, dental, hospital and veterinary services, except thoserendered by professionals

Sales of medicines by hospitals to in-patients are exempt from VATas medical/hospital services.

H. Educational services rendered by private educational institutionsaccredited by DepEd, CHED, TESDA (Informatics Alabang Center v. CIR,CTA EB 593, Feb 28, 2011), and those rendered by governmenteducational institutions

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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 theCooperative Development Authority (CDA) to their members as well assale of their produce, whether in its original state or processed form,to non-members; their importation of direct farm inputs, machineriesand equipment, including spare parts thereof, to be used directly andexclusively 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 capitalcontribution of each member does not exceed P15,000

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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 (P1,919,500beginning 2012) or below, house and lot and other residential dwellingsvalued 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 rentalper month or unit, provided threshold of P1.5 M (P1,919,500beginning 2012) is exceeded, or the lessor registered as a VAT person.

This threshold on Sec 109(Q) is on a per residential unit per monthbasis.

R. Sale, importation, printing or publication of books (hard bound) andany newspaper or magazine which appear at regular intervals with fixedprices and is not devoted principally to publication of paid advertisements

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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 ininternational 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 servicesother than transactions mentioned above, the gross sales or receipts(for the preceding 12 months) do not exceed P1.5 M (P1,919,500beginning 2012)

If sale of goods pertains to agricultural or marine food products intheir original state or sale of books, or sale of service relates torental of residential unit not exceeding P12,800, transaction isexempt even if gross sales or receipts exceed P1.5 M (P1,919,500beginning 2012).

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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 VATexemption is Sec. 109(Q), he is

also exempt from 3% PT.

3% PERCENTAGE TAX

Registered as a non-VAT

person andthe 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 ofresidential units over P12,800

per month per unit and of

commercial properties.

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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 andthe reason for his VAT

exemption is that he did not

exceed the annual

threshold of P1.5 million

(P1,919,500 beginning2012).

In (b), he is liable to VAT.

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RMC 63-2010

VAT on operator of tollways.-- Tollway fees are not taxes.They are not assessed and collected by the BIR and do notgo to the general coffers of government. A tax is imposedunder the taxing power of the government principally forthe purpose of raising revenues to fund public

expenditures. Toll fees, on the other hand, are collected byprivate tollway operators as reimbursement for the costsand expenses incurred in the construction, maintenanceand operation of the tollways, as well as to assure them areasonable margin of income. Taxes may be imposed by

the government under its sovereign authority, while tollfees may be demanded by either the government or privatepersons as an attribute of ownership. Accordingly, VAT ontoll fees is not a tax on tax.

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RMC 63-2010

The CIR did not usurp legislative prerogative or expand the VATlaws coverage when she sought to impose VAT on tollwayoperations. Section 108(A) of the Code clearly states that servicesof all other franchise grantees are subject to VAT, except as may beprovided under Section 119 of the Code. Tollway operators are notamong the franchise grantees subject to franchise tax under thelatter provision. Neither are their services among the VAT-exempttransactions 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 forthe law to clearly say to. Tax exemptions must be justified by clear

statutory grant and based on language in the law too plain to bemistaken. But as the law is written, no such exemption obtains fortollway operators. The Court is thus duty-bound to simply applythe law as it is found.

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Sale of medicines by the hospital pharmacy to in-patients is exempt fromVAT, but sale to out-patients is subject to 12% VAT (St. Lukes MedicalCenter 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 itsclient is correct. It is not subject to the 3% common carriers 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 notincluded in the enumeration of taxable services in the VAT law. Our taxlaws, past and present, did not adopt more specific terms for sale orexchange 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. Tobe valid, repeal of special law should be express (CIR v. Acesite Hotel Corp,GR 147295, Feb 16, 2007).

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CATEGORIES OF INPUT TAXES

Input tax credit on importations of goods andcurrent local purchases of goods, properties andservices

Input tax on capital goods must be amortizedover certain period

Transitional input tax credit

Presumptive input tax credit Withholding input tax credit

Excess input tax credit

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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, beallowed input tax on his beginning inventory of goods, materials andsupplies equivalent to 2% of the value of such inventory (showingquantity, 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 ofgoods 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.

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Presumptive Input Tax Persons or firms engaged in the processing of sardines,

mackerel and milk, and in manufacturing refined sugar andcooking oil, and packed noodle-based instant meals areentitled to presumptive input tax equivalent to 4% of gross

value in money of their purchases of primary agriculturalproducts which are used as inputs to their production (Sec.111, NIRC)

Processing means pasteurization, canning and activitieswhich, through physical or chemical process, alter theexterior texture or form or inner substance of a product insuch a manner as to prepare it for special use to which itcould not have been put in its original form or condition.

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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 aresubject to depreciation.

If the aggregate acquisition cost (exclusive of VAT) in a calendar monthexceeds P1 million, and (a) the estimated useful life of the asset is 5years of more, the total input tax shall be amortized over a period of60 months, or (b) the estimated useful life is less than 5 years, thetotal input tax shall be amortized over the estimated useful life of theasset.

If the aggregate acquisition cost (exclusive of VAT) in a calendar monthdoes 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 ofservice; hence, not covered by the rules on capital goods.

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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) totalinput tax; (b) monthly input tax claimed per VAT declaration orreturn; (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 amortizedover the life of the asset or the remaining life of the projectagreement, or five (5) years, whichever is shortest (RMC 61-2005).

Remedy of filing claim for refund or tax credit on unusedinput tax arising from purchase of capital goods wasdeleted in R.A. 9337.

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Input tax will be disallowed for refund or taxcredit, 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 orreceipts; 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).

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Allocation of input taxes

Input taxes directly attributable to transactions subject toVAT 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 asfollows:

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 notcreditable against output tax from sales to non-govt offices

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Allocation of input taxes

Input taxes directly attributable to zero-rated sales may beclaimed as refund or tax credit or credited against outputtax 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-ratedand/or taxable sales shall be allocated as follows:

Input tax attributable to zero-rated sales = Zero-rated sales/Totalsales

Input tax attributable to taxable sales = Zero-rated sales/Total sales

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Tax reliefs of VAT taxpayers on their excess inputtaxes (EIT) attributable to zero-rated and effectivelyzero-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 thequarterly VAT return)

For non-zero-rated sales, remedy available is only tocarry over EIT to the next quarter(s), or to dissolve

the corporation or cease operation of businesssubject to VAT within 2 years from date of dissolutionor cessation of business

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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 bedetermined upon the filing of the quarterly VAT return (AtlasConsolidated Mining & Dev Corp v. CIR, G.R. No. 141104, June 8, 2007).

From the close of the taxable quarter when the relevant saleswere made pertaining to the input VAT, regardless of whethersaid tax was paid or not. The phrase within two years refersto the application for refund or TCC filed with the CIR, and notto 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 acase of erroneous payment or illegal collection of taxes (CIR v.Mirant Pagbilao Corp, G.R. No. 172129, Sept 12, 2008).

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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 applyfor the issuance of a tax credit certificate or refund refersto 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 togrant or deny the claim. In case of full or partial denial, orthe failure of CIR to act on the application within the

required period, taxpayer may, within 30 days from receiptof the decision denying the claim or after the expiration ofthe 120 day period, appeal the decision or the unactedclaim with the CTA.

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In this case, administrative and judicial claims weresimultaneously filed on Sept 30, 2004. Taxpayer shouldhave waited for the decision of the CIR or the lapse of the120-day period. Sec 112(A) applies to administrativeclaims, while Sec 112(D) applies to judicial claims. Thus, SCfound the judicial claim with the CTA premature.

The 120-30 day period under Sec. 112(D) is crucial in filingan appeal to the CTA. Sec. 229 does not apply torefunds/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).

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MAJORITY OPINION REFUND/TCC CASES PENDING BEFORE THE CTA EN BANC, WHICH

WERE PREVIOUSLY APPROVED BY CTA DIVISION, WERE SUBSEQUENTLYDENIED BY CTA EN BANC BASED ON MIRANT RULING.

IN EFFECT, RETROACTIVE APPLICATION OF SC DECISION WAS MADE TOSUCH PENDING CASES, WHICH IMPAIRED VESTED RIGHTS.

DISSENTING OPINION

TAXPAYERS AND LITIGANTS RELIED IN GOOD FAITH ON THE AFORE-QUOTED JURISPRUDENCE (ATLAS), AND IT WOULD BE THE HEIGHT OFINJUSTICE TO APPLY A DOCTRINE TO A PENDING CASE, INVOLVING A

PARTY WHO ALREADY INVOKED A CONTRARY VIEW AND WHO ACTEDIN GOOD FAITH THEREON PRIOR TO THE ISSUANCE OF SAID DOCTRINE(CIR v. Taganito Mining Corp, CTA EB Case No. 559, Apr 18, 2011).

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A multi-purpose cooperativefiled a claim for refund ofalleged erroneously paid advance VAT on the withdrawal ofits refined sugar produced. The cooperative assailed thevalidity of RR 13-2008, which provides for instances wherewithdrawal of sugar from refinery is exempt from advance

VAT. The CTA did not rule on the validity of the regulationfor lack of jurisdiction, but nonetheless allowed the partialrefund of the advance VAT.

The CTA held that the coops sale of sugar to its membersand non-members is exempt from VAT. Both the

administrative and judicial claims were filed within 2 yearspursuant to Secs. 204 and 229, NIRC (United Cadiz Sugar Farmers

Asso Multi-Purpose Coop v. CIR, CTA Case No. 7995, Aug 16, 2011).

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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

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OPTIONAL VAT REGISTRATION FOR EXEMPTPERSON: ANY PERSON WHO IS NOT REQUIRED TO REGISTER FOR

VAT UNDER SUBSEC. (G) MAY ELECT TO REGISTER FOR VATPURPOSES.

ELECTION IS IRREVOCABLE FOR 3 YEARS FROM QUARTERELECTION 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, INRELATION TO SEC. 4.109-2, ELECT TO BE VAT-REGISTERED.ONCE VAT-REGISTERED, HE CANNOT CANCELL HISREGISTRATION FOR THE NEXT 3 YEARS (Sec. 109-2, RR 14-05)

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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 himfrom VAT output tax liability on his taxable sales of goods,properties or services, where his gross sales or receipts forthe 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 theperson liable to VAT.

The buyer of exempt goods or service who is in possessionof VAT invoice or receipt is entitled to input tax.

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REQUIRED INFORMATION IN INVOICE OR RECEIPT NAME AND ADDRESS OF SELLER

STATEMENT THAT SELLER IS VAT-REGISTERED PERSON + TIN

DATE, QTY, UNIT COST, AND DESCRIPTION OF GOODS OR NATURE OFSERVICE

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-REGIS-TERED BUYER OR

CUSTOMER, IF AMOUNT IS P1,000 OR MORE (Sec. 113(B), RA 9337)

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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, businessstyle, 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 excusefor not knowing the status of its customer (whetherVAT 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, theywould not be entitled to input taxes (RMC 29-2005, June 29,2005)

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Separate invoices or receipts for VAT and non-VATtransactions may be issued, provided that the term VATEXEMPT or VAT ZERO-RATED shall be written or printedprominently 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 betweentaxable, exempt and zero-rated sales and calculation of the VATon each portion of the sale is shown on the invoice/receipt.

For this purpose, the printed invoice/receipt must reflect thetaxable, exempt and zero-rated sales, either in separate columnsor separate rows(RMC 29-2005 and RMC 62-2005).

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The invoicing requirement set forth in Sec. 4.108-1 ofRR 7-95, particularly the printing of the word zero-rated on invoices/receipts, though not expresslyprovided in law, was recognized as reasonable and in

accord with the efficient collection of VAT. When RA9337 took effect on Nov 1, 2005, it included theinvoicing requirement under RR 7-95.

The conversion from regulation to law did not diminish

the binding force of such regulation with respect toacts committed prior to the enactment of that law(Panasonic Communication Imaging Corp of the Phil v. CIR, G.R. No. 178090, Feb 8,2010).

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The absence of the word zero-rated on theinvoices/receipts is fatal to a claim for refundor credit of input tax.

The period involved in this refund refers to thetaxable 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 forrefund (Hitachi Global Storage Technologies Phil Corp v. CIR, G.R. No.174212, Oct 20, 2010)

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The SC denied taxpayers claim for refund forfailure to comply with the substantiationrequirements under RR 7-95, particularly theimprinting of the word TIN-VAT in the invoicesand receipts.

SC reiterated that Sec. 4.108-1 of RR 7-95 neitherexpanded nor supplanted the Tax Code, but

merely supplemented what the Tax Code alreadydefined and discussed (Kepco Phil v. CIR, G.R. No. 181858, Nov 24,2010).

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Sales invoice vs. official receipt Petitioner offered in evidence VAT invoices to substantiate its zero-

rated sales. CTA en banc denied petitioners claim, stating that since itis engaged in sale of services, VAT receipts should have beenpresented.

Sec. 113 of the Tax Code does not create a distinction between a sales

invoice and an official receipt. Sales invoices are recognizedcommercial documents to facilitate transactions. They are proofs thatbusiness transactions have been concluded. Thus, an invoice wouldsuffice, provided substantiation requirements are met (AT&T CommunicationsServices 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 asreferring to one and the same thing. Certainly, neither does the lawintend the two to be used alternatively (Kepco Phil Corp v. CIR, G.R. No. 181858, Nov24, 2010).

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RMC 4-96 allows the input taxes to be credited from outputtaxes where advertising agency issues VAT receipt toadvertiser for the entire amount received, even if theagency recognizes only 15% share in the total amountbilled.

Relevant supporting documents are documentsnecessary to support the legal basis in disputing a taxassessment as determined by the taxpayer. Otherwise, ataxpayer will be at the mercy of the BIR, which may requireproduction 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 ExpressPawnshop Co, G.R. No. 172045, June 16, 2009).

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VAT returns When claiming tax refund/credit, the VAT-

registered taxpayer must be able to establish thatit does have refundable or creditable input VAT,and the same has not been applied against itsoutput VATthe information that supposed to bereflected in taxpayers VAT returns. Thus, anapplication must be accompanied by copies of the

taxpayers VAT return(s) for the quarter(s)concerned (Atlas Consolidated Mining & Dev Corp v. CIR, G.R. No.159471, Jan 26, 2011).

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Final Withholding Tax on Payments to Non-ResidentPerson

Party required to withhold VAT is the payor, regardless ofwhether 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 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 documentarysubstantiation for the input tax

Withholding tax shall be remitted within 10 days followingthe end of the month withholding was made

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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. RA9337 neither expressly nor impliedly repealed PD 972.

A special law cannot be repealed, amended or alteredby 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 itsadministrative and judicial claims for refund (SemiraraMining Corp v. CIR, CTA Case No. 7727, Feb 10, 2011).

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REV REGS NO. 12-2011, July 25, 2011

Reportorial requirements for establishments leasingspaces for commercial activities It shall be the responsibility of all owners or sub-lessors of

commercial establishments/buildings/ spaces to ensurethat 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 orrenting out such commercial space to any person doingbusiness 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 wasextended to Nov 2, 2011.

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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 submitSummary 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 ofPurchases.

RULES IN SUBMISSION Quarterly SLS/SLP shall be submitted thru compact-disk-

recordable (CDR) medium following the format provided insubsection g hereof. The magnetic form (3.5-inch floppydiskettes) in RR 16-2005shall henceforth refer to CDR.

RR 1-2012 shall take effect on Jan 1, 2012

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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 localcontractors; 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 ataxable corporation.

Tax-exempt JV shall not include those who are meresuppliers of goods, services or capital to a constructionproject.

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END OF PRESENTATION

Atty. Vic C. Mamalateo

Mobile: 0939-9209175; 0917-5280445

Email: vicmamalateo@yahoo.com

vic.mamalateo@vcmlaw.com.ph

mailto:vicmamalateo@yahoo.commailto:vicmamalateo@yahoo.com