PBBEV

Personal Properties
Tangible – Sec 416, NCC
Intangible – Sec 104, NIRC
TAX 2 REVIEWER
General Rule: Situs of Taxation of Intangible Personal
Property is at the domicile or residence of the owner.
TRANSFER TAXES
Preliminaries: EXPN: When the law provides otherwise. Example:
Sec. 104, NIRC:
Estate and Donor’s Taxes are Transfer Taxes which
refer to the burden used upon the right to gratuitously The following are considered Intangible Personal
transfer or transmit property, tangible or intangible properties situated in the Philippines: (Sec 104,
from one person to another. NIRC):
 Franchises which mus- be exercised in the
Estate Tax Donor’s Tax
Subject Right to Transfer Right to Transfer
Philippines;
Taxpayer Estate Donor  Shares, obligations, or bonds issued by any
Liability to Pay Administrator, Executor Donor corporation or Sociedad anonima organized
or Legal Heir
or constituted in the Philippines in
Effectivity Upon Death Lifetime of the
Donor accordance with its laws;
Tax Base Net Estate Net Gift  Shares, obligations or bonds by any foreign
Ceiling P200,000 P100,000
corporation 85% of the business of which is
(Exemption)
Filing Within six (6) months Within 30 days from located in the Philippines;
from date of death date of donation  Shares, obligations or bonds issued by any
Top Rates 20% 15% - Relative
foreign corporation if such shares,
30% - Stranger
obligations or bonds have acquired a
business situs in the Philippines; and
 Shares or rights in any partnership,
ESTATE TAX
business or industry established in the
Philippines.

1) BASIC PRINCIPLES AND THEORIES 4) RECIPROCITY CLAUSE

Estate Tax is a tax imposed on the privilege of

This applies when no estate is collected with
a person to transfer or transmit his property
respect to the Intangible Property by the country of a
gratuitously to the person called to his succession.
NRAD to Filipino Citizens in that country, thru the:
a) Absence of Transfer Tax Clause
B- direct
b) Presence of Exemption Clause
A- ad valorem
R- progressive
5) DETERMINATION OF GROSS ESTATE AND NET
O– excise
ESTATE:
P- general (revenue purposes)
S- national (NIRC)
Gross Estate is determined by including all the value
at the time of his death of all property, real or personal,
Theories and Principles:
tangible or intangible, wherever situated. Provided that,
a) Wealth Redistribution Theory
in case of NRAD, only that located in Philippines at the
b) Life-blood Doctrine
time of his death is included.
c) Benefit Received Theory – the peaceful
possession, and enjoyment of a right to
Net Estate is Gross Estate LESS deductions.
transmit property either by will or operation
of law is sanctioned by the State. Hence, in
Formula:
return, the government needs revenue to
Gross Estate
defray its expenses.
LESS Deductions
d) State Partnership Theory – The State is
Net Taxable Estate
a passive and silent partner of every
MULTIPLY Tax Rate
individual in its territory. In this view, the
Estate Tax Due
State, in giving protection and safeguarding
this wealth, has the right to collect in order
6) COMPOSITIONS OF GROSS ESTATE
to compensate the effort or service it may
render.
a) Decedent’s Interest:

2&3) CLASSIFICATIONS OF DECEDENT; SITUS

It is the extent of interest of the decedent at the time of
Real and Personal Intangible Personal
his death including those that were already earned but
Decedent (Tangible) Properties Properties were not yet received by the decedent at the time of his
Within Without Within Without
death.
RCD    
NRCD     b) Transfer in Contemplation of Death:
RAD    
NRAD The transfer in this case is made in the thought of death.
WITHOUT
Reciprocity
X X The consideration or go signal for the transfer is death.
Clause No death, no transfer. Includes:
NRAD
WITH
Reciprocity
X X X
1) By trust or otherwise, in contemplation of or
Clause
intended to take effect in possession or
Real Properties – Sec. 415, NCC
enjoyment at or after death.
 2) By trust or otherwise, under which he has
retained before his death:
a. The possession or enjoyment of, or the
right to the income from the property,
or
b. The right, either alone or in conjunction
with any person, to designate the
person who shall possess or enjoy the
property or the income therefrom.
Further, donation which is intended to take effect after
the donor’s death, is included here.
EXPN: In case of a bona fide sale for an adequate and
full consideration in money or money's worth.
Rule: (In case there is no bona fide sale)
1. Compare the FMV, at time of transfer and FMV
at time of death.
2. If FMV, at time of death is LESSER, get the
difference between FMV at time of death and the
consideration received.
3. The difference is the amount to be included in
the gross estate.
Q: what if amount at time of death is GREATER than
at time of transfer; do we have to get the difference
between FMV at time of transfer and consideration
received?

c) Revocable Transfer: h) Other items:

These are transfers made by decedent during his These items are actually deductions but for
lifetime but the use, enjoyment, and possession thereof them to be claimed as deductions, their value must first
is subject to his power to alter, amend, revoke or be included in the gross estate.
terminate at the time of his death.
1. Claims Against Insolvent Persons
Example: 2. Unpaid Mortgage
Alpha donated to Bravo a parcel of land worth P5M but
retained to himself the power to alter, amend, revoke or terminate the
3. Property Previously Tax
donation at the time of his (Alpha’s) death. 4. Family Home
Here, the property is deemed to be Alpha’s such that if Bravo 5. Amounts received under RA 4917
died before Alpha, such property will not be part of Bravo’s estate.
Likewise, if Alpha died first, such property is part of Alpha’s estate.
7) EXCLUSIONS FROM GROSS ESTATE
d) Property Passing Under General Power of
Appointment: a) Capital of the Surviving Spouse

Power of Appointment is a power conferred on a The “capital of the surviving spouse of a

donee (decedent) by will or succession to select and decedent” refers to the exclusive property of the
nominate one or more recipients of the donor’s estate surviving spouse and shall not, for estate tax
or income. Such property transferred is the one subject purposes, be deemed as part of his or her gross
to tax at the time of donee(decedent)’s death. It may estate, viz.:
either be general or special.
i. That which is brought to the marriage
 General – when it gives to the donee the power as his or her own;
to appoint any person he pleases, including ii. That which each acquires during the
himself thus having a full dominion over the marriage by lucrative title;
property as though he owned it. iii. That which is acquired by right of
 Special – when the donee can appoint only redemption or by exchange with other
among a restricted or designated persons other property belonging to only one of the
than himself. spouses;
iv. That which is purchase with exclusive
Note: it is that property subject to General Power of money of the surviving spouse;
Appointment that is taxable by Estate Tax. v. The sums collected by installments
during the marriage from credit payable
e) Proceeds of Life Insurance: in a certain number of years are
considered property of the spouses to
Beneficiary of Designation Gross Estate whom the credit belongs;
Policy vi. The right to an annuity, whether
1. Estate, Executor, Revocable or Included
perpetual or for life but pensions due
Administrator Irrevocable
2. Other than No. 1 Revocable Included during marriage belong to the
3. Other than No. 1 Irrevocable Excluded partnership;
vii. The right of usufruct, belonging to one
Hence, life insurance taken out by the decedent will be of the spouses, form part of his or her
EXCLUDED in his gross estate only if the beneficiary is separate property, but the fruits and
NOT the estate, executor or administrator AND the interest due during the marriage belong
designation is IRREVOCABLE. to the partnership.

f) Prior Interest Rule: In computing the estate tax of a married

decedent, include the conjugal/communal
g) Transfers for Insufficient Consideration property of the spouses and the exclusive
property of the decedent. EXCLUDE the
In case the transfers of property either in contemplation exclusive property of the surviving spouse,
of death, revocable transfer or property passing under abovementioned.
the general power of appointment is made for not for a
bona fide sale (insufficient consideration), the value to Conjugal/Communal
be included shall only be the excess between the FMV of Properties of Spouses xxx
the property at the time of death over the consideration ADD Exclusive Properties
received by the decedent. Of Decedent xxx
 Gross Estate xxx other evidences to show that they were
really incurred. (RR-2-2003)
Note: In so far as conjugal property is
concerned, the aliquot share of the surviving b. Judicial Deductions
spouse is allowed as a deduction to arrive at a These are expenses incurred in the:
taxable net estate.  inventory-taking of assets
comprising the gross estate;
b) Amounts received as compensation for  its administration
personal injuries and damages which lead  payment of debts of estate
to the death of a decedent.  distribution of the estate among the
heirs.
These amounts are not included in the gross
estate of the decedent as they are not Hence, it includes:
properties of the decedent existing at the time  Fees of executor or administrator
of his death.  Attorney’s Fees
 Court Fees
8) DEDUCTIONS FROM GROSS ESTATE  Accountant’s Fees
 Appraiser’s Fees
A. ORDINARY RCD, RAD, NRAD  Clerk hire
DEDUCTIONS NRCD
1. ELIT Yes Yes (Pro
 Costs of preserving and distributing
rated) the estate
2. PPT or Vanishing Deductions Yes Yes  Costs of storing or maintaining
3. Transfers for public use Yes Yes
property of the estate
B. SPECIAL RCD, RAD, NRAD
DEDUCTIONS NRCD  Brokerage Fees for selling property
4. The Family Home Yes No of the estate.
5. Standard Deductions Yes No
 Commissions for selling or disposing
6. Medical Expenses Yes No
7. Benefits under RA 4917 Yes No of the estate
C. OTHER DEDUCTIONS RCD, RAD NRAD
NRCD Note: Any unpaid amount for the
8. Share of the Surviving Spouse Yes Yes
aforementioned cost and expenses claimed
under “Judicial Expenses” should be supported
NOTA BENE:
by a sworn statement of account issued
In case of NRAD, NO DEDUCTIONS shall be
and signed by the creditor. (RR-2-2003)
allowed, unless his executors, administrator or anyone
of his heirs, INCLUDES in the return required to be
Judicial Expense of the testamentary or
filed, the value at the time of his death that part of the
intestate proceeding, to be deductible, must be
gross estate of the NRAD that is NOT SITUATED in the
those administration expenses essential to
Philippines.
the proper settlement of the estate; not for
the benefit of the heirs, devisees or legatees.
A. Ordinary Deductions
Hence, it does NOT include the
compensation paid to a trustee of the
1. Expenses, Loses, Indebtedness, Taxes, etc.
decedent’s estate when it appeared that such
(ELIT)
trustee was appointed for the purpose of
managing the decedent’s real estate for the
a. Funeral Expenses
benefit of testamentary heir. (Lorenzo vs
Actual funeral expenses or in an amount
Posadas)
equal to five percent (5%) of the gross
estate, whichever is lower, but in no case
Extrajudicial expenses essential for the
exceed P200,000.
proper settlement of estate is included in
deductions. But litigation expenses incurred by
the heirs incurred by the heirs in asserting their
Includes:
rights cannot be claimed as a deduction. (CIR vs
 Mourning apparel
CA & Pajonar)
 Wake expenses
 Publication charges for death notice
c. Claims Against the Estate
 Telecommunication expenses in
For these claims to be deductible, the following
informing relatives of said death
must concur:
 Cost of burial plot
 Interment or Cremation fees
1. At the time indebtedness was incurred the
 Fees of Rites and Ceremonies incidental
debt instrument was notarized;
to internment
2. If the loan was contracted within 3 years
before the death of the decedent, the
Not deductible funeral expenses:
administrator or executor shall submit a
 Expenses incurred AFTER internment.
statement showing dispositions of the proceeds
 Any portion of funeral or burial
of the loan.
expenses borne or defrayed by relatives
and friends of the deceased.
Claims against estate may arise from:
 Expenses in excess of P200,000.
 Contract
 Medical expenses of the last illness. This
 Tort
will form part on Medical Expenses
 Operation of Law
deduction under Special Deductions.

Requisites for Deductibility of Claims against

Note: The expenses must be duly
estate:
supported by receipts or invoices or
  Liability represents a personal
obligation of the decedent at the time
of his death, except: medical and
funeral expenses which were deductible
under separate categories.
 Liability was contracted in good faith
and for full consideration in money.
 The claims must be a debt or claim that
is valid in law and enforceable in
courts.
 The indebtedness must not have been
cordoned by the creditor or the
action to collect from the decedent must
not have prescribed.
Note: Applying date-of-death valuation
principle, the claims existing at the time
of death should be claimed as
deductions and that post death
compromise or development are
not material in determining the
amount of deductions. (Dizon vs
CTA)
Substantiation Requirements:
1. In case of Simple Loan:
 Notarized Debt Instrument
 Notarized Certification from
Creditor as to the unpaid balance of
death, including interest at the time
of death.
 Proof of Financial Capacity of
Creditor to lend the amount of
money.
 Undertaking reflecting dispositions
of the proceeds of the loan.
2. In case it arose from purchase of goods or
services
 Documents or Contracts
 Notarized Certification from
Creditor as to the unpaid balance
 Certified True Copy of the latest
audited balance sheet of the
creditor
3. If settlement was made through the Court in
a testate or intestate proceeding:
 Documents filed with Court
evidencing credit
 Court Order approving said claims
 Documents mentioned above.
d. Claims against Insolvent Persons:
For this to be deductible:
 the value of decedent’s interest therein
must be included in the gross estate so
as not to understate the taxable net
state.
 It must be shown that the debtors are
not incapable of paying their
indebtedness.
e. Unpaid mortgages, taxes and casualty
losses
i. Unpaid Mortgage – For it to be
deductible, the mortgaged property, to
the extent of the decedent’s interest
therein, should be included in the gross
estate.
ii. Losses – Requisites:
 Losses were incurred during the
settlement of estate;
 Losses arose from fires, storms,
shipwreck, or other casualties, or
from robbery theft or
embezzlement.
 They are not compensated for by
insurance or otherwise.
 They are not claimed as deduction
from gross income for Income Tax
purposes.
 Such losses were incurred NOT
LATER THAN the last day for the
payment of estate tax (i.e. within 6
months from date of death)
iii. Taxes – Requisites:
 Taxes accrued as of the time of
death of decedent
 Taxes were UNPAID as of the time
of death.
 It does NOT include:
o Income Tax upon income
received after death.
o Property Tax not accrued
before his death.
o Estate Tax due from
transmission of his estate.
Note: For RCD, RAD and NRCD, the ELIT is deductible in
full. But for NRAD, ELIT must be the proportion of such
deductions which value of such part bears to the value
of his entire gross estate wherever situated. Hence, it
must be pro-rated using the following formula:
Philippine GE
----------------- X ELIT
Entire GE
2. Property Previously Taxed (PPT) or
Vanishing Deductions (see discussion on the
next number)
3. Transfers for Public Use or TPP
The amount of all transfers for the use of the
Government or any of its political subdivision,
exclusively for public purposes.
The value of the property given is must be
included in the gross estate for it to be deductible.
TPP is an exclusive deduction UNLESS the
spouse made a written consent or is a party to the
transfer where it will be considered as a conjugal
deduction.
B. Special Deductions:
4. The Family Home – Requisites:
 The family home must be the actual
residential home of the decedent and his
family at the time of his death as certified
by the barangay captain of the locality
where the family home is situated;
 The total value of the family home must be
included as part of the gross estate of the
decedent; and
 Allowable deduction must be in an amount
equivalent to the current FMV of the family
home as declared or included in the Gross
estate or the extent of the decedent’s
interest (whether conjugal, community or
exclusive) whichever is lower, but not
exceeding P1,000,000.
 Note: any amount in excess of OR the donation of the said property to the
P1,000,000 is already subject to Estate present decedent.
Tax.  The estate or donor’s tax must have been paid
to the subject property.
 Such property can be identified as having been
5. Standard Deduction received by the present decedent from the
A deduction in the amount of P1,000,000 shall donor or from previous decedent; or that
be allowed as an additional deduction without need acquired in exchange of property so received.
of substantiation.
NRAD cannot avail of this deduction. Percentage of Vanishing Deduction. If the period of
interval is:
6. Medical Expenses – Requisites:
 All medical expenses (whether paid or More than But not more Percentage
than
unpaid) must be incurred within 1 year
0 1 year 100%
before death of the decedent.
1 year 2 years 80%
 It is duly substantiated with official receipts,
2 years 3 years 60%
invoices, statement of accounts duly
3 years 4 years 40%
certified by the hospital and other
4 years 5 years 20%
documents in support thereof.
5 years 0
 The total amount thereof does NOT EXCEED
P500,000. Any amount in excess is no Formula:
longer deductible.
Lower FMV of property xxx
7. Benefits received by heirs of decedent LESS Mortgage (if any) xxx
under RA 4917 – Requisites: Initial Basis xxx
 The decedent-employee has been employed Initial Basis
for at least 10 years; LESS ------------- X ELIT + TPP xxx
Gross Estate
 Not less than 50 years old at the time of his
retirement. Final Basis xxx
 Must have availed of the benefits only once. Percentage %
 The benefits granted must be in accordance Vanishing Deduction xxx
with a reasonable private benefit plan
maintained by the employer duly approved 10. EXEMPTIONS OF CERTAIN ACQUISITIONS
by the BIR. AND TRANSACTIONS

Note: The amount received by the heirs as The following shall not be taxed:
a consequence of death of decedent-
employee must be included in the gross A. The merger of usufruct in the owner of the
estate for it to be deductible. naked title;
B. The transmission or delivery of the inheritance
8. Share of Surviving Spouse or legacy by the fiduciary heir or legatee to the
After deducting the allowable deductions fideicommissary;
appertaining to the conjugal or community C. The transmission from the first heir, legatee, or
properties included in the gross estate, the share of donee in favor of another beneficiary, in
the surviving spouse (1/2) must be removed to accordance with the desire of the predecessor;
ensure that only the decedent’s interest in the and
estate is taxed. D. All bequests, devises, legacies or transfers to
social welfare, cultural, charitable institutions,
Formula: no part of the net income of which insures to the
benefit of any individual: Provided, however,
Conjugal Properties xxx that not more than 30% of the said bequests,
LESS Conjugal Deductions xxx devises, legacies or transfers shall be used by
Net Conjugal Estate xxx such institutions for administration purposes.
LESS Share of Surviving Spouse (Sec 87[A] to [D], NIRC)
In the Net Conjugal Estate E. Bequests to be used actually, directly and
(1/2) xxx exclusively for educational purposes under Art.
Decedent’s Interest in the XIV, Sec. 4(4) of the 1987 Constitution.
Net Conjugal Properties xxx F. Exemptions under Reciprocity Clause
G. Exemptions under Special Laws, such as:
9. VANISHING DEDUCTIONS or PROPERTY a. Capital of the surviving spouse under
PREVIOUSLY TAXED (PPT) Sec. 85(H) of NIRC.
b. If the net estate is P200,000 or below
The concept of Vanishing deduction is simply to under Sec. 84 NIRC
minimize the effect of taxing twice the same c. Benefits received from SSS and GSIS,
property within a period of 5 years. Hence, avoiding under PD 1161 and PD 1146,
or minimizing double taxation. respectively, as amended.
d. Benefits received from US Veterans
Requisites: Administration under RA 360 or War
 The property situated in the Philippines must be Benefits under RA 227.
included in the Gross Estate of the present H. Death of Individual not subject to Estate Tax.
decedent. Requisites:
 The present decedent must have died within 5 a. In case of decedent registered with the
years prior to the death of the prior decedent BIR who has no properties subject to
estate taxes, the heirs shall request for
 cancellation of the decedent’s TIN in a
proper form.
b. The documentary requirements shall be
submitted to the BIR district office
where the TIN of the decedent is
registered.
c. In addition to the above, an affidavit
shall be submitted by the heirs stating
that the decedent has no properties
subject to estate taxes.
d. The BIR district office shall notify the
heirs, administrators or executor
applying for cancellation of decedent’s
TIN of the status of the request within
10 days from complete submission of
the requirements. (RR-7-2012)
11. DATE-OF-DEATH VALUATION PRINCIPLE
The properties comprising the gross estate shall
be valued based on their FMV as of the time of death.
In case of real property, the FMV shall either be
that determined by the Commissioner or that fixed by
the provincial and city assessors, whichever is higher.
Any post-death developments like compromise or
condonation, etc., is immaterial in determining the net
value of the estate. (Dizon vs CTA citing Ithaca Trust
Co. case)
Note: In case of Shares of Stocks ….
In case of Right to Usufruct, use or habitation,
as well as that of annuity …
12. FILING OF NOTICE OF DEATH OR ESTATE TAX
RETURN
A. Filing of Notice of Death
Mandated in the following cases:
1. In all cases of transfers subject to tax,
or
2. When, though exempt from tax, the gross
value of estate exceeds P20,000.
Time of Filing:
The executor, administrator or any of the legal heirs,
as the case may be shall file a written notice of death:
1. Within two (2) months after the decedent’s
death, or
2. Within a like period after qualifying as such
executor or administrator.
B. Filing of Estate Tax Returns
Mandated in the following cases:
1. In all cases of transfers subject to the tax
imposed herein, or
2. Where, though exempt from tax, the gross
value of the estate exceeds P200,000, or
3. Regardless of the gross value of the estate,
where the said estate consists of registrable property
such as real property, motor vehicle, shares of stock or
other similar property for which a clearance from the
BIR is required as a condition precedent for the transfer
of ownership thereof in the name of the transferee.
The executor, administrator or any legal heir
shall file a return under oath in duplicate setting forth:
1. The value of the gross estate at the time of
decedents death, or in case of a NRAD, that part of his
gross estate situated in the Philippines.
2. The deductions allowed from gross estate.
3. Such part of such information as may at the
time be ascertainable and such supplemental data as
may be necessary to establish correct taxes.
Provided, however, that estate returns showing
a gross value exceeding P2,000,000 shall be supported
with a statement duly certified by the CPA containing
the following:
1. Itemized assets of decedent with its
corresponding gross value
2. Itemized deductions
3. Amount of tax due paid or not paid or
outstanding.
Time of Filing:
It shall be filed within 6 months from the
decedent’s death.
A certified copy of the schedule of partition and
the order of the court approving the same shall be
furnished the Commissioner within 30 days after the
promulgation of such order.
Extension of Time
Commissioner may grant a reasonable
extension not exceeding 30 days, in meritorious
cases.
Place of Filing:
1. An authorized agent bank, or
2. Revenue District Officer, Collection Officer, or
3. Duly authorized treasurer of the city or
municipality in which the decedent was domiciled at
the time of his death or if there be no legal residence
in the Philippines, with the Office of the
Commissioner.
13. PAYMENT OF ESTATE TAX
Time of Payment
At the same time the Return was filed by the
administrator, executor or heir or simply under the “pay
as you file system.”
Extension of Time
CIR has the Power to Extend. Requisites:
1) Payment of due date will impose undue hardship
upon the estate or any of the heirs,
2) May extend time but not to exceed:
1. Judicial Settlement – 5 years
2. Extrajudicial Settlement – 2 years
3) If extension is granted Bonds or Securities may be
required by the Commissioner not exceeding double the
amount of the tax.
Note:
1) Amount must be paid on or before the date of
expiration. Statute of Limitations for assessment as
provided under Sec. 230 shall be suspended for the
period of such extension.
2) No extension shall be granted if taxes are assessed
by reason of the taxpayer’s:
1. Fraud
2. Intentional Disregard of Rules and
Regulations, or
3. Negligence
14. TAX CREDIT FOR ESTATE TAXES PAID IN A
FOREIGN COUNTRY
For RCD, RAD, NRCD, the estate taxes imposed
or paid in a foreign country can be claimed as a tax
credit against the estate tax due in the Philippines. This
is to minimized the effects of indirect double taxation.

Limitations:
The amount of credit taken shall be subject to
the following limitations:
a. The amount of the credit in respect to the tax
paid to any country shall not exceed the same
proportion of the tax against which such credit is taken,
which the decedent’s net estate situated within the
country taxable under this title bears to his entire net
estate.
b. The total amount of the credit shall not
exceed the same proportion of the tax against which
such credit is taken, which the decedent’s net estate
situated outside the Philippines taxable under the Title
bears to his entire estate.
Formula:
Limit A:
Net Estate (per foreign country) Philippine
----------------------------------- X Estate = Limit
Entire Gross Estate Tax
Limit B:
Net Estate (all foreign countries) Philippine
----------------------------------- X Estate = Limit
Entire Gross Estate Tax
Note: thorough discussion on this topic can be seen
under Donor’s Tax
15. OBLIGATIONS OF THE EXECUTOR,
ADMINISTRATOR, HEIRS, OFFICERS, AND OTHER
PERSONS CONCERNED.
A. Executor, Administrator or any Legal Heir.
Executor or Administrator shall have the Primary
obligation to pay the estate tax before the delivery of
the distributive share in the inneritance to any heir or
beneficiary.
The Heir or Beneficiary has subsidiary liability for the
payment of that portion of the estate which his
distributive share bears to the value of the total net
share.
B. Register of Deeds
He shall not register in the Registry of Property unless a
Certification from the Commissioner that the eatate tax
had been paid.
C. Lawyer, Notary Public, or any government
officer
They have the duty of furnishing to the commissioner
and others with copies of such documents and any
information whatsoever which may facilitate the
collection of the aforementioned tax.
D. Debtor
He shall not pay his debts to the heirs unless
Certification from the Commissioner that the tax fixed
has been shown. But he may pay the executor or
administrator without said certification if the credit is
included in the inventory of the estate of the deceased.
CASES
1. FERDINAND R. MARCOS II
vs.
COURT OF APPEALS, THE COMMISSIONER OF THE
BUREAU OF INTERNAL REVENUE and HERMINIA D.
DE GUZMAN
G.R. No. 120880 June 5, 1997
Facts:
Ferdinand R. Marcos II assailed the decision of the Court
of Appeals declaring the deficiency income tax
assessments and estate tax assessments upon the
estate and properties of his late father despite the
pendency of the probate proceedings of the will of the
late President. On the other hand, the BIR argued that
the State’s authority to collect internal revenue taxes is
paramount.
Petitioner further argues that "the numerous pending
court cases questioning the late president's ownership
or interests in several properties (both real and
personal) make the total value of his estate, and the
consequent estate tax due, incapable of exact pecuniary
determination at this time. Thus, respondents'
assessment of the estate tax and their issuance of the
Notices of Levy and sale are premature and oppressive."
He points out the pendency of Sandiganbayan Civil Case
Nos. 0001-0034 and 0141, which were filed by the
government to question the ownership and interests of
the late President in real and personal properties located
within and outside the Philippines. Petitioner, however,
omits to allege whether the properties levied upon by
the BIR in the collection of estate taxes upon the
decedent's estate were among those involved in the said
cases pending in the Sandiganbayan. Indeed, the court
is at a loss as to how these cases are relevant to the
matter at issue. The mere fact that the decedent has
pending cases involving ill-gotten wealth does not affect
the enforcement of tax assessments over the properties
indubitably included in his estate.
Issue: W/N the BIR needs the approval of the probate
court for the collection of the estate taxes?
Held: No. The approval of the court, sitting in probate
or as a settlement tribunal over the deceased’s estate,
is not a mandatory requirement in the collection of
estate taxes.
There is nothing in the Tax Code, and in the pertinent
remedial laws that implies the necessity of the probate
or estate settlement court's approval of the state's claim
for estate taxes, before the same can be enforced and
collected.
The enforcement of tax laws and the collection of taxes
are of paramount importance for the sustenance of
government. Taxes are the lifeblood of government and
should be collected without unnecessary hindrance.
However, such collection should be made in accordance
with law as any arbitrariness will negate the existence
of government itself.
It is not the Department of Justice which is the
government agency tasked to determine the amount of
taxes due upon the subject estate, but the Bureau of
Internal Revenue whose determinations and
assessments are presumed correct and made in good
faith. The taxpayer has the duty of proving
otherwise. In the absence of proof of any irregularities
in the performance of official duties, an assessment will
not be disturbed. Even an assessment based on
estimates is prima facie valid and lawful where it does
not appear to have been arrived at arbitrarily or
capriciously. The burden of proof is upon the
complaining party to show clearly that the assessment
is erroneous. Failure to present proof of error in the
assessment will justify the judicial affirmance of said
assessment. In this instance, petitioner has not pointed
out one single provision in the Memorandum of the
Special Audit Team which gave rise to the questioned
assessment, which bears a trace of falsity. Indeed, the
petitioner's attack on the assessment bears mainly on
the alleged improbable and unconscionable amount of
the taxes charged. But mere rhetoric cannot supply the
basis for the charge of impropriety of the assessments
made.
2. COMMISSIONER OF INTERNAL REVENUE
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and
JOSEFINA P. PAJONAR, as Administratrix of the
Estate of Pedro P. Pajonar
G.R. No. 123206 March 22, 2000
Facts:
By reason of the Bataan Death March during World War
II, Pedro Pajonar became insane. Private respondent
Josefina Pajonar was the guardian of the person of
decedent Pedro Pajonar. The property of the decedent
was put by the RTC- Dumaguete, under the
guardianship of the Philippine National Bank via special
proceeding, wherein 50, 000 was spent therein for
payment of attorney's fees.
When the decedent died, instead of filing a estate tax
return, PNB advised Josefina to extra-judicially settle
the estate of his brother. The decedent's estate was
extra-judicially settled and the heirs paid an amount of
60, 753 for the notarization of the deed of extra-judicial
settlement of estate.
The private paid the estate tax, however, they were
subsequently assessed of deficiency taxes because the
amount paid in the special proceeding [50, 000] and the
notarization fee [60, 753] cannot be claimed as a
deduction to the decedent's estate. Private respondent
paid the said taxes under protest. While the case is
under review by the BIR, she filed a claim for refund in
the CTA which was granted.
Issue: W/N the extra-judicial fee’s in settling the estate
is deductable?
Held: Yes, the extra-judicial fee’s in settling the estate
is deductable.
Under the Tax Code, judicial expenses of the
testamentary or intestate proceedings" for purposes of
determining the value of the net estate can be
deductable from the estate. Judicial expenses are
expenses of administration. 19 Administration expenses,
as an allowable deduction from the gross estate of the
decedent for purposes of arriving at the value of the net
estate, have been construed by the federal and state
courts of the United States to include all expenses
"essential to the collection of the assets, payment of
debts or the distribution of the property to the persons
entitled to it." 20 In other words, the expenses must be
essential to the proper settlement of the estate
Coming to the case at bar, the notarial fee paid for the
extrajudicial settlement is clearly a deductible expense
since such settlement effected a distribution of Pedro
Pajonar's estate to his lawful heirs. Similarly, the
attorney's fees paid to PNB for acting as the guardian of
Pedro Pajonar's property during his lifetime should also
be considered as a deductible administration expense.
PNB provided a detailed accounting of decedent's
property and gave advice as to the proper settlement of
the latter's estate, acts which contributed towards the
collection of decedent's assets and the subsequent
settlement of the estate.
3. RAFAEL ARSENIO S. DIZON, in his capacity as
the Judicial Administrator of the Estate of the
deceased JOSE P. FERNANDEZ
vs.
COURT OF TAX APPEALS and COMMISSIONER OF
INTERNAL REVENUE
G.R. No. 140944 April 30, 2008
Facts:Jose P. Fernandez died in November 7,
1987. Thereafter, a petition for the probate of his will
was filed. The probate court appointed Atty. Rafael
Arsenio P. Dizon as administrator of the Estate of Jose
Fernandez.
An estate tax return was filed later on which showed
ZERO estate tax liability. BIR thereafter issued a
deficiency estate tax assessment, demanding payment
of Php 66.97 million as deficiency estate tax. This was
subsequently reduced by CTA to Php 37.42 million. The
CA affirmed the CTA’s ruling, hence, the instant petition.
The petitioner claims that in as much as the valid claims
of creditors against the Estate are in excess of the gross
estate, no estate tax was due. On the other hand,
respondents argue that since the claims of the Estate’s
creditors have been condoned, such claims may no
longer be deducted from the gross estate of the
decedent.
Issue: W/N the actual claims of creditors may be fully
allowed as deductions from the gross estate of Jose
despite the fact that the said claims were reduced or
condoned through compromise agreements entered into
by the Estate with its creditors?
Held: YES, such deduction is allowed.
Post-death developments are not material in
determining the amount of deduction. This is because
estate tax is a tax imposed on the act of transferring
property by will or intestacy and, because the act on
which the tax is levied occurs at a discrete time, i.e., the
instance of death, the net value of the property
transferred should be ascertained, as nearly as possible,
as of the that time. This is the date-of-death valuation
rule.
The Court, in adopting the date-of-death valuation
principle, explained that:
First. There is no law, nor do we discern any legislative
intent in our tax laws, which disregards the date-of-
death valuation principle and particularly provides that
post-death developments must be considered in
determining the net value of the estate. It bears
emphasis that tax burdens are not to be imposed, nor
presumed to be imposed, beyond what the statute
expressly and clearly imports, tax statutes being
construed strictissimi juris against the government.
Second. Such construction finds relevance and
consistency in our Rules on Special Proceedings wherein
the term "claims" required to be presented against a
decedent's estate is generally construed to mean debts
or demands of a pecuniary nature which could have
been enforced against the deceased in his lifetime, or
liability contracted by the deceased before his
death. Therefore, the claims existing at the time of
death are significant to, and should be made the basis
of, the determination of allowable deductions.
DONOR's TAX 7) DEDUCTIONS OR EXEMPTIONS FROM GROSS
GIFT

1) BASIC PRINCIPLES Dowry or Gifts:

Donor's Tax is that imposed on donation inter vivos.  Made on account of marriage,
 Before its celebration or within one year
B - Direct thereafter,
A - Ad Valorem  By parents,
R - Progressive  To their Legitimate or Adopted children,
O - Excise  Not exceeding P10,000.00.
P - General
S - National Note: This is applicable only to RC, NRC and RA. This
is the only exemption that the NRA cannot avail.
Donation is an act of liberality whereby a person, called
the do or, disposes gratuitously of a thing or right in Gifts made to or for the use of:
favor of another, who is called the donee, who accepts  National Government or any entity created by
it. any of its agencies which is not conducted for
profit; or
Donation inter vivos is deemed perfected from the  To any poltical subdivision of the said
moment the donor learned of the donee's acceptance of Government.
the donation. Donor's Tax is imputed at the time of the
said perfection. Gifts in favor of:
 Educational, charitable, religious, cultural, or
Donation by Both Spouses: social welfare corporations, instututions,
Donations made by both spouses involving conjugal accredited non-government organization or
properties are subject to donor's tax on each donation. trust or philatrophic organization or research
The spouses are considered two different donors for the organizations;
imposition of donor's tax.  Provided, not more than 30% of said gifts shall
be used by such donee for administration
Under Family Code, the consent of the other spouse is purposes; and
needed for a conjugal or absolute common property to  Incorporated as a nonstock entity, paying no
be donated. If for example there is no approval of the dividends, governed by trustees who received
wifes, this means that the only thing donated is the no compensation and devoting all its income,
share of the husband. The share of the wife in the whether students' fees or gifts, donation,
conjugal or common property is not prejudiced. subsidies or other forms of philantrophy to the
accomplishment and promotion of the purposes
2&3) CLASSIFICATION and SITUS OF DONOR enumerated in its Articles of
Incorporation.(Note: This 3rd reauisite will not
Real and Personal Intangible Personal
Decedent (Tangible) Properties Properties apply in case of nonresident alien donors)
Within Without Within Without
RCD     Mortgage assumed by the donee:
NRCD    
Here, the net gift is measured by deducting from the fair
RAD    
market value of the property the amount of the
NRAD mortgage assumed.
WITHOUT
Reciprocity
X X Diminutions specifically provided by the donor:
Clause
Example: If John donated P500,000 to Peter wih the
NRAD instruction that the lztter shall give P100,000.00 to
WITH X X X
Reciprocity Richard, the taxable net gift would be P400,000.00.
Clause
DC    
8) DONATION TO A STRANGER
FC X  X

A stranger is that which is NOT a:

Note: comments under Estate Tax re: Situs of Intangible 1) Brother, sister (whether whole or half blood), spouse,
Property also applies in Donor's Tax. ancestor and lineal descendant.
2) Relative by consanguinity by collateral line within the
4) RECIPROCITY RULE 4th degree of relationship.
same as Estate Tax.
Effects:
5&6) DETERMINATION OF GROSS GIFT AND NET 1) Donations to relatives shall be subject to the
GIFT; COMPOSITION OF GROSS GIFT schedular rate mentioned in Section 99 (A) of NIRC.
Formula: 2) Donations to stranger are subject to 30% Donor's
GROSS GIFT Tax.
LESS: ALLOWED DEDUCTIONS OR EXPENSES
TAXABLE NET GIFT 9) DONATION TO A QUALIFIED DONEE
DONOR'S TAX DUE INSTITUTION

Valuation of Donation:
 If cash: value or face amount of cash
 Personal property: FMV at time of donation
 Real Property: FMV fixed by the Provincial and
City Assessor or the FMV as determined by the
BIR Commissioner, whichever is higher.
In order to be exempt from donor's tax and claim full
deduction from gross income of the value given to
qualified donee institutions, the following conditions
must be complied with:
 Donee is registered under Philippine Council for
NGO Certification, Inc. (PCNC);
  Donor is engaged in business or engaged in the
practice of profession;
 Donor gives Notice of Donation on every
donation worth at least P50,000 to RDO having
jurisdiction over his place of business within 30
days after receiving donee's Certificate of
Donation.
 The Certificate of Donation shall be attached to
the Notice of Donation stating that Not more
than 30% of the said donation for the taxable
year is used by such qualified-donee in
administratio purposes.
10) TRANSFERS FOR LESS THAN ADEQUATE AND
FULL CONSIDERATION
This happens when the Fair Market Value of the property
exceeded the value of the consideration (selling price).
Element of donative intent is conclusively presumed in
these transfers for less than adequate consideration.
It does not apply on sale of Real Properties as capital
assets located in the Philippines.
Relate this topic on 5%/10% CGT on disposition of not
traded shares of stocks.
11) TRANSFERS WHICH MAY BE CONSTITUTED AS
DONATION
 Other information that the Commissioner may
require.
Time and Place of Filing:
Return shall be filed within 30 days after the date of the
gift was made.
Payment shall be at any of the following:
 Authorized Agent Bank
 Revenued District Officer
 Authorized Treasurer of city or municipality
where donor was domiciled at time of
transfer.
 If there be no legal residence in the Philippines,
at the Office of the Commissioner.
 In case of gifts made by NRA or NRC, payment
may be made with the Philippine Embassy or
Consulate in country where he is domiciled at
time of transfer or with the Office of the
Commissioner.
13) PAYMENT OF DONOR'S TAX
Pay as you file.
14) TAX CREDIT FOR DONOR'S TAXES PAID IN A
FOREIGN COUNTRY
Amount of tax credit is limited to the following
limitations, whichever is LOWER:
Limitation A:

Condonation or Remission of the Debt (RR No. 2): Net Gifts(per foreign country) x Philippine = limit
Total Net Gifts. Donor's Tax
1) If an individual performs services to the creditor, who
in consideration thereof cancels the debt, income to the
Limitations B:
amount is realized by the debtor as compensation for
services. Net Gifts(all foreign country) x Philippine = limit
2) If a creditor merely desires to benefit a debtor and Total Net Gifts. Donor's Tax
without any consideration therefor cancels the debt, the )
amount of the debt is a gift from the creditor to the The above formulas are only applicable if there are two
debtor and need not be included in the latter's gross or more foreign countries. In case there is only one,
income. apply only Limit A.
3) If a corporation to which a stockholder is indebted
forgives he debt, the transaction has the effect of Note: For illustration, see page 76, Tax 2 Revealed, Chavez,
payment of dividend. 2014 edition

Renunciation of Inheritance: 15) CUMULAIVE METHOD AND SPLITTING

1) Renunciation of surviving soouse of his or her share METHOD
in the conjugal partnership or absolute community after
the dissolution of the marriage in favor of the heirs of Cumulative Method - applied when there is a second
the deceased spouse or any otner person is subject to or subsequent donation wihin the same calendar year.
donor's tax. Formula:
2) General renunciation by an heir in the hereditary
Gross Gift
estate left by the decedent is not subject to donor's tax.
Less: Allowed deduction or exemption
EXPN: If specifically or categorically done in favor Net Gift
of identified heir/s to the exclusion or disadvantage of Add: Prior net gifts within the same calender year.
others in the hereditary estate, then it is now subject to Total Taxable Net gifts
donor's tax. Donor's Tax due on total net gifts
Less: Donor's tax due on prior gifts within same calendar year
Donor's tax due

Note: For illustration, see page 731, NIRC Volume 2,

Casasola, 2013 edition

12) FILING OF DONOR'S TAX RETURN

Requirements:
Accomplish under oath a donor's tax return in duplicate.
The return shall set forth:
 Each gift made during the claendar year;
 Deductions claimed and allowable;
 Previous net gifts made within same calendar
year, if there's any.
 Name of donee
 Relatiosnhip of donor and donee; and
Splitting Method: Splits the donations into different years to
relieve the donor of donor's tax.
Example: Instead of making donations of P60,000 in December
20 and another P60,000 donation in December 30 of same
year which would now exceed the P100,000 exempt threshold
of donation, the donor can split it. In this way, he may donate
on December 25, 2016 and another on January 4, 2017 so that
the amount of donations will not be cumulated, ensuring that
the donations are still within the P100,000 exemption limit.

16) TAX TREATMENT OF POLITICAL
CONSIDERATION
Any contribution in cash or kind to any candidate,
political party or coalition of pzrties for campaign
purposes, shall be governed by the Election Code, as
amended.
RR-7-2011: Such contributions are NOT subject to
Donor's Tax provided it is duly reported to the
COMELEC.
CASES
1. MANUEL G. ABELLO, JOSE C. CONCEPCION,
TEODORO D. REGALA, AVELINO V. CRUZ
vs.
COMMISSIONER OF INTERNAL REVENUE and
COURT OF APPEALS
G.R. No. 120721 February 23, 2005
(This case is not controlling anymore, but the
discussions on donative intent still prevails)
Facts:
During the 1987 national elections, petitioners, who are
partners in the Angara, Abello, Concepcion, Regala and
Cruz (ACCRA) law firm, contributed ₱882,661.31 each
to the campaign funds of Senator Edgardo Angara, then
running for the Senate. In letters dated April 21, 1988,
the Bureau of Internal Revenue (BIR) assessed each of
the petitioners ₱263,032.66 for their contributions. On
August 2, 1988, petitioners questioned the assessment
through a letter to the BIR. They claimed that political
or electoral contributions are not considered gifts under
the National Internal Revenue Code (NIRC), and that,
therefore, they are not liable for donor’s tax. The claim
for exemption was denied by the Commissioner.
Petitioners filed a petition for review with the CTA, which
was decided on in favor of the petitioners. On appeal,
the Court of Appeals reversed and set aside the CTA
decision
Petitioners argue that it is important to look into the
intention of the giver to determine if a political
contribution is a gift since animus donandi or the
intention to do an act of liberality is an essential element
of a donation.
Issue: W/N such transaction is considered as donation
thus subject to donors tax?
Held: Yes, such transaction is considered as donation
thus subject to donor’s tax.
First of all, donative intent is a creature of the mind. It
cannot be perceived except by the material and tangible
acts which manifest its presence. This being the case,
donative intent is presumed present when one gives a
part of ones patrimony to another without
consideration.
Second, donative intent is not negated when the person
donating has other intentions, motives or purposes
which do not contradict donative intent.
This Court is not convinced that since the purpose of
the contribution was to help elect a candidate, there was
no donative intent. Petitioners’ contribution of money
without any material consideration evinces animus
donandi. The fact that their purpose for donating was to
aid in the election of the donee does not negate the
presence of donative intent.
2. THE PHILIPPINE AMERICAN LIFE AND GENERAL
INSURANCE COMPANY
vs.
THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE
G.R. No. 210987 November 24, 2014
(This case has the same discussion with Metro Pacific
Corporation ,a CTA case, which is the tax implication on
difference between the book value of shares of stock
and selling prince)
Facts:
Petitioner The Philippine American Life and General
Insurance Company (Philamlife) used to own 498,590
Class A shares in Philam Care Health Systems, Inc.
(PhilamCare), representing 49.89% of the latter's
outstanding capital stock. In 2009, petitioner, in a bid
to divest itself of its interests in the health maintenance
organization industry, offered to sell its shareholdings in
PhilamCare through competitive bidding. Thus, on
September 24, 2009, petitioner's Class A shares were
sold for USD 2,190,000, or PhP 104,259,330 based on
the prevailing exchange rate at the time of the sale, to
STI Investments, Inc., who emerged as the highest
bidder.3
Philamlife filed an application for a certificate
authorizing registration/tax clearance with the Bureau
of Internal Revenue (BIR) Large Taxpayers Service
Division to facilitate the transfer of the shares. Months
later, petitioner was informed that it needed to secure a
BIR ruling in connection with its application due to
potential donor’s tax liability. , requested a ruling 4 to
confirm that the sale was not subject to donor’s tax,
pointing out, in its request, the following:
1. that the transaction cannot attract donor’s
tax liability since there was no donative
intent and,ergo, no taxable donation, citing
BIR Ruling [DA-(DT-065) 715-09] dated
November 27, 2009;5
2. that the shares were sold at their actual fair
market value and at arm’s length; that as
long as the transaction conducted is at
arm’s length––such that a bona fide
business arrangement of the dealings is
done inthe ordinary course of business––a
sale for less than an adequate consideration
is not subject to donor’s tax;
3. and that donor’s tax does not apply to sale
of shares sold in an open bidding process.
Respondent Commissioner on Internal Revenue
(Commissioner) denied Philamlife’s request through BIR
Ruling No. 015-12. As determined by the Commissioner,
the selling price of the shares thus sold was lower than
their book value based on the financial statements of
PhilamCare as of the end of 2008.6 As such, the
Commisioner held, donor’s tax became imposable on
the price difference pursuant to Sec. 100 of the National
Internal Revenue Code. In view of the foregoing, the
Commissioner ruled that the difference between the
book value and the selling price in the sales transaction
is taxable donation subject to a 30% donor’s tax under
Section 99(B) of the NIRC.
The petitioner requested respondent Secretary of
Finance but respondent Secretary affirmed the
Commissioner’s assailed ruling in its entirety.

Issue: W/N the deficiency between the book value and

selling prince on the sale shares of stock is subject to
DONOR’S TAX?

Held: Yes, the deficiency on the sale is subject to

donor’s tax.

The absence of donative intent, if that be the

case, does not exempt the sales of stock transaction
from donor's tax since Sec. 100 of the NIRC
categorically states that the amount by which the fair
market value of the property exceeded the value of the
consideration shall be deemed a gift. Thus, even if there
is no actual donation, the difference in price is
considered a donation by fiction of law.
VALUE ADDED TAX 3) Source of exemption 3) Source of exemption
is the Tax Code is the Tax Code, special
laws and international
1) CONCEPT agreements.

VAT is a tax on consumption levied on the sale, Hence, even if he is exempted as a seller from his direct
barter, exchange 6r lease of goods or properties and liability for payment of VAT, but he is not relieved as a
services in the Philippines and on importation of goods purchaser from is direct burden of VAT shifted to it by
into the Philippines. its VAT-registered suppliers, the purchase transaction is
not VAT exempt. (CIR vs Seagate)
Invoice Method aka Tax Credit Method: Under the
VAT method of taxation, an entity can credit against or Note: Philippines utilize EXEMPT TRANSACTION.
subtract from the VAT charged on its sales or outputs,
the VAT it paid on its purchases, inputs and imports. 2) CHARACTERISTICS OF THE PHILIPPINE VAT
SYSTEM
Note: In every taxable quarter:
B- Indirect
Invoices Passed (Output Tax) A– Ad Valorem
LESS Invoices Received (Input Tax) R- Regressive
Tax payable to BIR O– Excise
P- General
A. If result is negative, i.e. the invoices received S- National (NIRC)
exceeds the invoices passed, the excess shall be
carried over to the succeeding quarter or 3) IMPACT OF TAXATION vs INCIDENCE OF
quarters. (Added to Output Tax in the TAXATION
succeeding quarters).
While the liability on VAT is imposed on one person, the
B. If the input taxes result from zero-rated or burden may be passed to another.
effectively zero-rated transactions or when the
taxpayer would be cancelling his VAT- The Impact of taxation is on the seller because it is the
registration, any excess input taxes over the one who is statutorily liable for the payment of the tax.
output taxes may instead be refunded to the
taxpayer. Note: In the case of importation, the importer is
Hence, there is no tax cascading or the one liable for the VAT. (RR-16-2005)
pyramiding because what has been subjected to
VAT before may not be further subjected to VAT. However, the Incidence of the tax is on the final
consumer where the tax comes to rest. The law
VAT Rate: provides that the amount of the tax may be shifted or
 12% - Secs 106 (A); 107 (A),(B); and 108 (A) passed on to the buyer, transferee or lessee of the
of the NIRC goods, properties or services.
 0% - Secs. 106 (A)(2); and 108 (B) of NIRC
4) CROSS-BOARDER DOCTRINE AND
To be liable for VAT: DESTINATION PRINCIPLE
 Persons liable under Sec. 105;
 The amount of gross sales or receipts exceeds Cross-Boarder Doctrine: No VAT shall be imposed to
the threshold (P1,919,500.00); form part of the cost of goods destined for consumption
 It is not one of the exempt transactions under outside of the territorial boarder of the taxing authority.
sec. 109 par. (a) to (v);
 Regardless of annual gross sales or receipts if Destination Principle: Goods and Services are taxed
the taxpayer opted to be a VAT registered only in the country where these are consumed.
person; or
 An importer whether engaged in the course of Hence, actual export of goods and services from
business or trade. the Philippines to a foreign country must be free of VAT;
while, those destined for use or consumption within the
Note: Profit is not a requirement for imposition Philippines shall be imposed with 12% VAT.
of VAT.
Note: By virtue of Cross-Boarder Doctrine, PEZA-
EXEMPT TRANSACTION vs EXEMPT PARTY registered enterprise are VAT-exempt and no VAT can
be passed on to them since Section 8 of PEZA Law (RA
Exempt Transaction Exempt Party 7916) states that Ecozones are foreign territory.
1) Involves goods and 1) It is a person granted
services exempted from VAT exemption by virtue
VAT, regardless if the of which the party as
party to transaction is well as the transaction
VAT-exempt or not. becomes exempted from 5) RULE OF REGULARITY
tax.
2) Seller here is not 2) Party may be allowed VAT is imposed on a sale or transaction entered into by
allowed any tax refund a refund of or a credit for a person in the course of trade or business. A
of or credit for any input input taxes paid, transaction will be in the course of trade or business if
taxes paid. depending on its it is:
registration as a VAT or  Regularly conducted
non-VAT taxpayer.  Undertaken in pursuit of a commercial or
economic activity
EXPN:
1) Non-resident persons who perform services in the
Philippines are deemed to be making sales in the course
of trade or business, even if the performance of services
is not regular. (RR 16-2005).
BIR imposes an obligation on the part of the payor to
withold the corresponding vat.
Note:
1) An importer, whether or not engaged in the course of
trade or business, is subject to VAT. (Sec. 107, NIRC)
2) Even non—stock, non-profit, organization or
government entity, may be liable to pay VAT on sale on
goods, properties or services as long as the entity
provides service for a fee, remuneration or
consideration. (CIR vs CA & Comaserco, 2000)
3) Incidental transactions (see Mindanao Geothermal
case.)
6) TRANSACTIONS COVERED BY VAT
 VAT on sale of goods or properties (Sec. 106
[A][1])
 Sales of VAT-registered person subject to zero
percent (0%) rate:
o Export Sales (Secs 106[A][2][a])
o Foreign Currency Denominated Sale
(Sec. 106 [b])
o By special laws or international
agreements (Se 106 [c]);
o Transaction subject to zero percent
(0%) rate (Sec. 108 [B])
 Transaction deemed sale (Sec. 106 [B])
 VAT on Importation of goods (Sec. 107 [A])
 Transfer of goods by tax-exempt person (Sec.
107 [B])
 VAT on sale of services and use or lease of
properties (Sec. 108 [A])
 Franchise grantees under Sec.119
7. PERSONS LIABLE TO VAT – SEC. 105
1. Any person who, in the course of trade or
business, sells, barters, exchanges, leases
goods or properties (Sec.106), renders services
(Sec. 108)
“Person” refers to any individual, trust, estate,
partnership, corporation, joint venture,
cooperative or association.
“Taxable person” refers to any person liable
for the payment of VAT, whether registered or
registrable in accordance with Sec. 236 of the
Tax Code.
“VAT-registered person” refers to any person
who is registered as a VAT taxpayer under Sec.
236 of the Tax Code. His status as a VAT-
registered person shall continue until the
cancellation of such registration.
“Taxable sale” refers to the sale, barter,
exchange and/or lease of goods or properties,
including transactions “deemed sale” and the
performance of service for a consideration,
whether in cash or in kind, all of which are
subject to tax under Secs. 106 and 108 of the
Tax Code.
2. Any person who imports goods shall be subject
to VAT. (Sec. 107)
3. If a person who is not a VAT-registered person
issues an invoice or receipt showing his
Taxpayer Identification Number (TIN), followed
by the word “VAT” (Sec. 113 D-1)
4. If a VAT registered person issues a VAT invoice
or VAT official receipt for a VAT-exempt
transaction, but fails to display prominently on
the invoice or receipt the term “VAT-exempt
Sale”, the issuer shall be liable to account for
the tax imposed in Sec. 106 or 108 as if Sec 109
did not apply. (Sec. 113 D-2)
The value-added tax is an indirect tax and the
amount of tax may be shifted or passed on to
the buyer, transferee or lessee of the goods,
properties or services. This rule shall likewise
apply to existing contracts of sale or lease of
goods, properties or services at the time of the
effectivity of RA 7716.
In the course of trade or business
Regular conduct or pursuit of a commercial or
an economic activity, including transactions
incidental thereto, by any person regardless of
whether or not the person engaged therein is a
nonstock, nonprofit 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.
EXN: non-resident persons who perform services in the
Philippines are deemed to be making sales in the course
of trade or business, even if the performance of services
is not regular.
Nature and Characteristics of VAT
VAT is a tax on consumption levied on the sale, barter,
exchange or lease of goods or properties and services in
the Philippines and on importation of goods into the
Philippines. The seller is the one statutorily liable for the
payment of the tax but the amount of the tax may be
shifted or passed on to the buyer, transferee or lessee
of the goods, properties or services. This rule shall
likewise apply to existing contracts of sale or lease of
goods, properties or services at the time of the
effectivity of RA No. 9337. However, in the case of
importation, the importer is the one liable for the VAT.
8. VAT ON SALE OF GOODS OR PROPERTIES – SEC.
106(A)
There shall be levied, assessed and collected on every
sale, barter or exchange of goods or properties or
transaction “deemed sales”, value-added tax
equivalent to 12% of the gross selling price or
gross value in money of the goods or properties
sold, bartered or exchanged, such tax to be paid by the
seller or transferor.
The term "goods" or "properties" shall mean all
tangible and intangible objects which are capable of
pecuniary estimation and shall include:
a. Real properties held primarily for sale to
customers or held for lease in the ordinary
course of trade or business;
b. The right or the privilege to use patent,
copyright, design or model, plan, secret formula
or process, goodwill, trademark, trade brand or
other like property or right;
c. The right or the privilege to use in the
Philippines of any industrial, commercial or
scientific equipment;
d. The right or the privilege to use motion
picture films, tapes and discs; and
e. Radio, television, satellite transmission and
cable television time.
The term "gross selling price" means 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 value-added tax. The excise
tax, if any, on such goods or properties shall form part
of the gross selling price. (Sec. 106[A])
GROSS SELLING PRICE = total amount of
money or its equivalent which the purchaser
pays to the seller, EXCLUDING the Value-Added
Tax.
The term “gross selling price” also means 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 VAT. The excise tax, if any, on
such goods or properties shall form part of the gross
selling price.
In the case of sale, barter or exchange of real property
subject to VAT, gross selling price shall mean the
consideration stated in the sales document or the fair
market value whichever is higher. If the VAT is not billed
separately in the document of sale, the selling price or
the consideration stated therein shall be deemed to be
inclusive of VAT.
The term “fair market value” shall mean whichever is
the higher of:
1) the fair market value as determined by the
Commissioner (zonal value), or
2) the fair market value as shown in schedule of values
of the Provincial and City Assessors (real property tax
declaration). However, in the absence of zonal value,
gross selling price refers to the market value shown in
the latest real property tax declaration or the
consideration, whichever is higher. If the gross selling
price is based on the zonal value or market value of the
property, the zonal or market value shall be deemed
exclusive of VAT. Thus, the zonal value/market value,
net of the output VAT, should still be higher than the
consideration in the document of sale, exclusive of the
VAT.
If the sale of real property is on installment plan where
the zonal value/fair market value is higher than the
consideration/selling price, exclusive of the VAT, the
VAT shall be based on the ratio of actual collection of
the consideration, exclusive of the VAT, against the
agreed consideration, exclusive of the VAT, appearing in
the Contract to Sell/Contract of Sale applied to the zonal
value/fair market value of the property at the time of
the execution of the Contract to Sell/Contract of Sale at
the inception of the contract. Thus, since the output VAT
is based on the market value of the property which is
higher than the consideration/selling price in the sales
document, exclusive of the VAT, the input VAT that can
be claimed by the buyer shall be the separately-billed
output VAT in the sales document issued by the seller.
Therefore, the output VAT which is based on the market
value must be billed separately by the seller in the sales
document with specific mention that the VAT billed
separately is based on the market value of the property.
Selling price is the amount of consideration in a contract
of sale between the buyer and seller or the total price of
the sale which may include cash or property and
evidence of indebtedness issued by the buyer, excluding
the VAT.
Allowable Deductions from Gross Selling Price – In
computing the taxable base during the month or
quarter, the following shall be allowed as deductions
from gross selling price:
(a) Discounts determined and granted at the time of
sale, which are expressly indicated in the invoice, the
amount thereof forming part of the gross sales duly
recorded in the books of accounts.
Sales discount indicated in the invoice at the time of
sale, the grant of which is not dependent upon the
happening of a future event, may be excluded from the
gross sales within the same month/quarter it was given.
(b) Sales returns and allowances for which a proper
credit or refund was made during the month or quarter
to the buyer for sales previously recorded as taxable
sales.
Sale of real properties
Sale of real properties held primarily for sale to
customers or held for lease in the ordinary
course of trade or business of the seller shall be
subject to VAT.
In the case of sale of real properties on the
installment plan, the real estate dealer shall be
subject to VAT on the installment payments,
including interest and penalties, actually and/or
constructively received by the seller.
Sale of residential lot exceeding P1,
919,500.00, residential house and lot or other
residential dwellings exceeding P3, 199,200.00,
where the instrument of sale shall be subject to
12% VAT.
Installment sale of residential house and lot or
other residential dwellings exceeding P1,
919,500.00, where the instrument of sale shall
be subject to 12% VAT.
“Sale of real property on installment plan”
means sale of real property by a real estate
dealer, the initial payments of which in the year
of sale do not exceed twenty-five percent (25%)
of the gross selling price.
In case of installment sale, the seller shall be
subject to output VAT on the installment
payments received, including the interests and
penalties for late payment, actually and/or
constructively received, subject to the
provisions of Sec.4.106-4 hereof.
Correspondingly, the buyer of the property can
claim the input tax in the same period as the
seller recognized the output tax. Installment
payments, including interests and penalties,
actually and/or constructively received starting
February 1, 2006 shall be subject to twelve
percent (12%) output VAT.
However, in the case of sale of real properties
on the deferred-payment basis, not on the
installment plan, the transaction shall be
treated as cash sale which makes the entire
selling price taxable in month of sale.
“Sale of real property by a real estate dealer on
a deferred payment basis, not on the
installment plan” means sale of real property,
the initial payments of which in the year of sale
exceed twenty-five percent (25%) of the gross
selling price.
“Initial payments” means payment or
payments which the seller receives before or
upon execution of the instrument of sale and
payments which he expects or is scheduled to
receive in cash or property (other than evidence
of indebtedness of the purchaser) during the
year when the sale or disposition of the real
property was made. It covers any down
payment made and includes all payments
actually or constructively received during the
year of sale, the aggregate of which determines
the limit set by law.
Initial payments do not include the amount of
mortgage on the real property sold except when
such mortgage exceeds the cost or other basis
of the property to the seller, in which case, the
excess shall be considered part of the initial
payments.
 Also excluded from initial payments are notes or shall be available as tax credit or refund in accordance
other evidence of indebtedness issued by the with these Regulations.
purchaser to the seller at the time of the sale. The following sales by VAT-registered persons shall be
In the case of sale of real properties on a subject to zero percent (0%) rate:
deferred-payment basis not on the installment (a) Export sales – “Export Sales” shall mean:
plan, the transaction shall be treated as cash (1) The sale and actual shipment of goods from the
sale which makes the entire selling price taxable Philippines to a foreign country, irrespective of any
in the month of sale. Output tax shall be shipping arrangement that may be agreed upon which
recognized by the seller and input tax shall may influence or determine the transfer of ownership of
accrue to the buyer at the time of the execution the goods so exported, paid for in acceptable foreign
of the instrument of sale. currency or its equivalent in goods or services, and
accounted for in accordance with the rules and
Payments subsequent to “initial payments” shall regulations of the Bangko Sentral ng Pilipinas (BSP);
no longer be subject to output VAT, in the case (2) The sale of raw materials or packaging materials to
of sale on a deferred payment basis. a non-resident buyer for delivery to a resident local
Pre-selling of real estate properties by real export-oriented enterprise to be used in manufacturing,
estate dealers shall be subject to VAT in processing, packing or repacking in the Philippines of
accordance with rules prescribed above. the said buyer’s goods, paid for in acceptable foreign
“Real estate dealer” includes any person currency, and accounted for in accordance with the rules
engaged in the business of buying, developing, and regulations of the BSP;
selling, exchanging real properties as principal (3) The sale of raw materials or packaging materials to
and holding himself out as a full or part-time an export-oriented enterprise whose export sales
dealer in real estate. exceed seventy percent (70%) of total annual
Transmission of property to a trustee shall not production;
be subject to VAT if the property is to be merely Any enterprise whose export sales exceed 70% of the
held in trust for the trustor and/or beneficiary. total annual production of the preceding taxable year
However, if the property transferred is one for shall be considered an export-oriented enterprise.
sale, lease or use in the ordinary course of trade (4) Sale of gold to the BSP; and
or business and the transfer constitutes a (5) Transactions considered export sales under
completed gift, the transfer is subject to VAT as Executive Order No. 226, otherwise known as the
a deemed sale transaction pursuant to Sec. Omnibus Investments Code of 1987, and other special
4.106-7(a)(1) of these Regulations. The laws.
transfer is a completed gift if the transferor “Considered export sales under Executive Order No.
divests himself absolutely of control over the 226” shall mean the Philippine port F.O.B. value
property, i.e., irrevocable transfer of corpus determined from invoices, bills of lading, inward letters
and/or irrevocable designation of beneficiary. of credit, landing certificates, and other commercial
documents, of export products exported directly by a
registered export producer, or the net selling price of
9. ZERO-RATED SALE OF GOODS OR PROPERTIES, export products sold by a registered export producer to
AND EFFECTIVELY ZERO-RATED SALES OF GOODS another export producer, or to an export trader that
OR PROPERTIES – SEC. 106 subsequently exports the same; Provided, That sales of
export products to another producer or to an export
trader shall only be deemed export sales when actually
Zero-rated sale of Effectively zero-rated
exported by the latter, as evidenced by landing
goods or properties transactions
certificates or similar commercial documents; Provided,
export sale of goods Local sale of goods or further, That pursuant to EO 226 and other special laws,
even without actual exportation, the following shall be
and supply of services supply of services by a
considered constructively exported:
VAT-registered person to
(1) sales to bonded manufacturing warehouses of
a person or entity who
export-oriented manufacturers; (2) sales to export
was granted indirect tax processing zones pursuant to Republic Act (RA) Nos.
exemption under special 7916, as amended, 7903, 7922 and other similar export
laws or international processing zones; (3) sale to enterprises duly registered
agreement. and accredited with the Subic Bay Metropolitan
Authority pursuant to RA 7227); (4) sales to diplomatic
tax rate is zero tax rate is zero missions and other agencies and/or instrumentalities
granted tax immunities, of locally manufactured,
when applied to tax when applied to tax base:
assembled or repacked products whether paid for in
base: such rate results such rate does NOT yield
foreign currency or not.
in NO tax chargeable any tax chargeable For purposes of zero-rating, the export sales of
against the purchaser against the purchaser registered export traders shall include commission
income. The exportation of goods on consignment shall
seller of such seller of such transactions
not be deemed export sales until the export products
transactions charges charges output tax consigned are in fact sold by the consignee; and
NO output tax Provided, finally, that sales of goods, properties or
seller can claim a seller can claim a refund services made by a VAT-registered supplier to a BOI-
refund of or tax credit of or tax credit certificate registered manufacturer/producer whose products are
certificate for the VAT for the VAT previously 100% exported are considered export sales. A
previously charged by charged by suppliers certification to this effect must be issued by the Board
suppliers of Investment (BOI) which shall be good for one year
unless subsequently re-issued by the BOI.
(6) The sale of goods, supplies, equipment and fuel to
A zero-rated sale of goods or properties (by a VAT- persons engaged in international shipping or
registered person) is a taxable transaction for VAT international air transport operations; Provided, That
purposes, but shall not result in any output tax. the same is limited to goods, supplies, equipment and
However, the input tax on purchases of goods, fuel pertaining to or attributable to the transport of
properties or services, related to such zero-rated sale, goods and passengers from a port in the Philippines
directly to a foreign port or vice versa, without docking
or stopping at any other port in the Philippines unless
the docking or stopping at any other Philippine port is
for the purpose of unloading passengers and/or cargoes
that originated from abroad, or to load passengers
and/or cargoes bound for abroad; Provided, further,
that if any portion of such fuel, goods or supplies is used
for purposes other than that mentioned in this
paragraph, such portion of fuel goods and supplies shall
be subject to twelve percent (12%) output VAT.
(b) “Foreign Currency Denominated Sale”. – “Foreign
Currency Denominated Sale” means the sale to a non-
resident of goods, except those mentioned in Secs. 149
and 150 of the Tax Code, assembled or manufactured
in the Philippines for delivery to a resident in the
Philippines, paid for in acceptable foreign currency and
accounted for in accordance with the rules and
regulations of the BSP.
Sales of locally manufactured or assembled goods for
household and personal use to Filipinos abroad and
other non-residents of the Philippines as well as
returning Overseas Filipinos under the Internal Export
Program of the government paid for in convertible
foreign currency and accounted for in accordance with
the rules and regulations of the BSP shall also be
considered export sales.
(c) “Sales to Persons or Entities Deemed Tax-exempt
under Special Law or International Agreement”. - Sales
of goods or property to persons or entities who are tax-
exempt under special laws, e.g. sales to enterprises duly
registered and accredited with the Subic Bay
Metropolitan Authority (SBMA) pursuant to R.A. No.
7227, sales to enterprises duly registered and
accredited with the Philippine Economic Zone Authority
(PEZA) or international agreements to which the
Philippines is signatory, such as, Asian Development
Bank (ADB), International Rice Research Institute
(IRRI), etc., shall be effectively subject to VAT at zero-
rate.
NOTE: any input tax attributable to zero-rated sales by
a VAT-registered person may at his option be
refunded or credited against other internal
revenue taxes within two (2) years after the close
of the taxable quarter when the sales were made.
The input tax attributable to zero-rated sales simply
refers on the seller's purchases of goods, properties or
services related to such export or zero-rated sale.
In “effectively zero-rated sale of goods and properties”
transactions which, although not involving actual
export, are considered as “constructive export” shall
be entitled to the benefit of zero-rating, such as local
sales of goods and properties to persons or entities
covered under pars. (a) no. (3) - (sale to export-
oriented enterprises), (a) no. (6) - (sale of goods,
supplies, equipment and fuel to persons engaged in
international shipping or international air transport
operations), (b) (Foreign Currency Denominated Sale)
and (c) (Sales to Tax-Exempt Persons or Entities) of the
preceding section. Except for Export Sale under Sec.
4.106-5(a) and Foreign Currency Denominated Sale
under Sec. 4.106-5(b), other cases of zero-rated sales
shall require prior application with the appropriate BIR
office for effective zero-rating. Without an approved
application for effective zero-rating, the transaction
otherwise entitled to zero-rating shall be considered
exempt. The foregoing rule notwithstanding, the
Commissioner may prescribe such rules to effectively
implement the processing of applications for effective
zero-rating.
10. TRANSACTIONS DEEMED SALE – SEC. 106(B)
The following transactions shall be deemed sale:
1. Transfer, use or consumption not in the course of
business of goods or properties originally intended for
sale or for use in the course of business, e.g., pull out
of goods for personal use;
2. Distribution or transfer to:
a. Shareholders or investors as share in the
profits of VAT-registered persons; or
b. Creditors in payment of debt;
3. Consignment of goods if actual sale is not made
within sixty (60) days following the date such goods
were consigned; and
4. Retirement from or cessation of business, with
respect to inventories of taxable goods existing as of
such retirement or cessation. (Sec. 106[B])
The following circumstances shall, among
others, give rise to transactions “deemed sale”
for purposes of this Section;
i. Change of ownership of the business. There is
a change in the ownership of the business when
a single proprietorship incorporates; or the
proprietor of a single proprietorship sells his
entire business.
ii. Dissolution of a partnership and creation of a
new partnership which takes over the business.
The Commissioner of Internal Revenue shall determine
the appropriate tax base in cases where a transaction is
deemed a sale, barter or exchange of goods or
properties under Sec. 4.106-7 paragraph (a) hereof, or
where the gross selling price is unreasonably lower than
the actual market value. The gross selling price is
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.
Nonetheless, if one of the parties in the transaction is
the government as defined and contemplated under the
Administrative Code, the output VAT on the transaction
shall be based on the actual selling price.
For transactions deemed sale, the output tax shall be
based on the market value of the goods deemed sold as
of the time of the occurrence of the transactions.
However, in the case of retirement or cessation of
business, the tax base shall be the acquisition cost or
the current market price of the goods or properties,
whichever is lower.
In case of a sale where the gross selling price is
unreasonably lower than the fair market value (FMV),
the AMV shall be the tax base.
RR 4-2007 – VAT is imposed and collected on every sale,
barter or exchange or transactions “deemed sale” of
taxable goods or properties at the rate of 12% of the
gross selling price or gross value in money of the
goods or properties sold, bartered, or exchanges, or
deemed sold in the Philippines.
Change or Cessation of Status as VAT-registered
Person
(a) Subject to output tax
The VAT provided for in Sec. 106 of the Tax Code shall
apply to goods or properties originally intended for sale
or use in business, and capital goods which are existing
as of the occurrence of the following:
(1) Change of business activity from VAT taxable status
to VAT-exempt status. An example is a VAT-registered
person engaged in a taxable activity like wholesaler or
retailer who decides to discontinue such activity and
engages instead in life insurance business or in any
other business not subject to VAT;
(2) Approval of a request for cancellation of registration
due to reversion to exempt status.
(3) Approval of a request for cancellation of registration
due to a desire to revert to exempt status after the lapse
of three (3) consecutive years from the time of
registration by a person who voluntarily registered
despite being exempt under Sec. 109 (2) of the Tax
Code.
(4) Approval of a request for cancellation of registration
of one who commenced business with the expectation
of gross sales or receipts exceeding P1,919,500.00, but
who failed to exceed this amount during the first twelve
months of operation.
(b) Not subject to output tax
The VAT shall not apply to goods or properties existing
as of the occurrence of the following:
(1) Change of control of a corporation by the acquisition
of the controlling interest of such corporation by another
stockholder or group of stockholders. The goods or
properties used in business or those comprising the
stock-in-trade of the corporation, having a change in
corporate control, will not be considered sold, bartered
or exchanged despite the change in the ownership
interest in the said corporation.
(2) Change in the trade or corporate name of the
business;
(3) Merger or consolidation of corporations. The unused
input tax of the dissolved corporation, as of the date of
merger or consolidation, shall be absorbed by the
surviving or new corporation.
11. VAT ON IMPORTATION OF GOODS – SEC. 107
There shall be levied, assessed and collected on every
importation of goods a value-added tax equivalent to
twelve percent (12%) based on the total value
used by the Bureau of Customs in determining tariff and
customs duties plus customs duties, excise taxes, if any,
and other charges, such tax to be paid by the importer
prior to the release of such goods from customs
custody: Provided, That where the customs duties are
determined on the basis of the quantity or volume of the
goods, the value-added tax shall be based on the landed
cost plus excise taxes, if any. (Sec. 107[A])
VAT is imposed on goods brought into the Philippines,
whether for use in business or not, except those
mentioned in Sec. 109(1) of the Code.
The VAT on importation shall be paid by the importer
prior to the release of such goods from customs custody.
"Importer" refers to any person who brings goods into
the Philippines, whether or not made in the course of his
trade or business. It includes non-exempt persons or
entities who acquire tax-free imported goods from
exempt persons, entities or agencies. (Sec. 4.107-1, RR
16-2005)
(a) In general. – VAT is imposed on goods brought into
the Philippines, whether for use in business or not. The
tax shall be based on the total value used by the BOC in
determining tariff and customs duties, plus customs
duties, excise tax, if any, and other charges, such as
postage, commission, and similar charges, prior to the
release of the goods from customs custody.
In case the valuation used by the BOC in computing
customs duties is based on volume or quantity of the
imported goods, the landed cost shall be the basis for
computing VAT.
Landed cost consists of the invoice amount, customs
duties, freight, insurance and other charges. If the
goods imported are subject to excise tax, the excise tax
shall form part of the tax base.
The same rule applies to technical importation of goods
sold by a person located in a Special Economic Zone to
a customer located in a customs territory.
No VAT shall be collected on importation of goods which
are specifically exempted under Sec. 109 (1) of the Tax
Code.
(b) Applicability and payment. – The rates prescribed
under Sec. 107 (A) of the Tax Code shall be applicable
to all importations withdrawn from customs custody.
The VAT on importation shall be paid by the importer
prior to the release of such goods from customs custody.
(c) Sale, transfer or exchange of imported goods by tax-
exempt persons. – In the case of goods imported into
the Philippines by VAT-exempt persons, entities or
agencies which are subsequently sold, transferred or
exchanged in the Philippines to non-exempt persons or
entities, the latter shall be considered the importers
thereof and shall be liable for VAT due on such
importation. The tax due on such importation shall
constitute a lien on the goods, superior to all charges/or
liens, irrespective of the possessor of said goods.
12. VAT ON SALE OF SERVICES AND USE OR LEASE
OF PROPERTY – SEC. 108
There shall be levied, assessed and collected, a value-
added tax equivalent to twelve percent (12%) of gross
receipts derived from the sale or exchange of services,
including the use or lease of properties.
Lease of properties shall be subject to the tax herein
imposed irrespective of the place where the contract of
lease or licensing agreement was executed if the
property is leased or used in the Philippines.
Gross receipts
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
advanced payments actually or constructively received
during the taxable quarter for the services performed or
to be performed for another person, excluding value-
added tax. (Sec. 108[A]) except those amounts
earmarked for payment to unrelated third (3rd ) party
or received as reimbursement for advance payment on
behalf of another which do not redound to the benefit of
the payor. A payment is a payment to a third (3rd) party
if the same is made to settle an obligation of another
person, e.g., customer or client, to the said third party,
which obligation is evidenced by the sales
invoice/official receipt issued by said third party to the
obligor/debtor (e.g., customer or client of the payor of
the obligation).
An advance payment is an advance payment on behalf
of another if the same is paid to a third (3rd) party for
a present or future obligation of said another party
which obligation is evidenced by a sales invoice/official
receipt issued by the obligee/creditor to the
obligor/debtor (i.e., the aforementioned “another
party”) for the sale of goods or services by the former
to the latter.
For this purpose ‘unrelated party’ shall not include
taxpayer’s employees, partners, affiliates (parent,
subsidiary and other related companies), relatives by
consanguinity or affinity within the fourth (4th) civil
degree, and trust fund where the taxpayer is the trustor,
trustee or beneficiary, even if covered by an agreement
to the contrary.
“Constructive receipt” occurs when the money
consideration or its equivalent is placed at the control of
the person who rendered the service without restrictions
by the payor. The following are examples of constructive
receipts:
(1) deposit in banks which are made available to the
seller of services without restrictions;
(2) issuance by the debtor of a notice to offset any debt
or obligation and acceptance thereof by the seller as
payment for services rendered; and
(3) transfer of the amounts retained by the payor to the
account of the contractor.
Meaning of “Sale or Exchange of Services” – The
term “sale or exchange of services” means the
performance of all kind of services in the Philippines for
others for a fee, remuneration or consideration, whether
in kind or in cash, including those performed or rendered
by the following:
(1) construction and service contractors;
(2) stock, real estate, commercial, customs and
immigration brokers;
(3) lessors of property, whether personal or real;
(4) persons engaged in warehousing services;
(5) lessors or distributors of cinematographic films;
(6) persons engaged in milling, processing,
manufacturing or repacking goods for others;
(7) proprietors, operators, or keepers of hotels, motels,
rest houses, pension houses, inns, resorts, theaters,
and movie houses;
(8) proprietors or operators of restaurants, refreshment
parlors, cafes and other eating places, including clubs
and caterers;
(9) dealers in securities;
(10) lending investors;
(11) transportation contractors on their transport of
goods or cargoes, including persons who transport
goods or cargoes for hire and other domestic common
carriers by land relative to their transport of goods or
cargoes;
(12) common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one
place in the Philippines to another place in the
Philippines;
(13) sales of electricity by generation, transmission,
and/or distribution companies;
(14) franchise grantees of electric utilities, telephone
and telegraph, radio and/or television broadcasting and
all other franchise grantees, except franchise grantees
of radio and/or television broadcasting whose annual
gross receipts of the preceding year do not exceed Ten
Million Pesos (P10,000,000.00), and franchise grantees
of gas and water utilities;
(15) non-life insurance companies (except their crop
insurances), including surety, fidelity, indemnity and
bonding companies; and
(16) similar services regardless of whether or not the
performance thereof calls for the exercise or use of the
physical or mental faculties.
The phrase “sale or exchange of services” shall likewise
include:
(1) The lease or the use of or the right or privilege to
use any copyright, patent, design or model, plan, secret
formula or process, goodwill, trademark, trade brand or
other like property or right;
(2) The lease or the use of, or the right to use any
industrial, commercial or scientific equipment;
(3) The supply of scientific, technical industrial or
commercial knowledge or information;
(4) The supply of any assistance that is ancillary and
subsidiary to and is furnished as a means of enabling
the application or enjoyment of any such property, or
right as is mentioned in subparagraph (2) hereof or any
such knowledge or information as is mentioned in
subparagraph (3) hereof;
(5) The supply of services by a non-resident person or
his employee in connection with the use of property or
rights belonging to, or the installation or operation of
any brand, machinery or other apparatus purchased
from such nonresident person;
(6) The supply of technical advice, assistance or
services rendered in connection with technical
management or administration of any scientific,
industrial or commercial undertaking, venture, project
or scheme;
(7) The lease of motion picture films, films, tapes, and
discs; and
(8) The lease or the use of, or the right to use, radio,
television, satellite transmission and cable television
time.
Definitions and Specific Rules on Selected
Services –
a. Lessors of Property. – All forms of property for lease,
whether real or personal, are liable to VAT subject to the
provisions of Sec. 4.109-1(B)(1)(v) of these
Regulations.
“Real estate lessor” includes any person engaged in
the business of leasing or subleasing real property.
Lease of property shall be subject to VAT regardless of
the place where the contract of lease or licensing
agreement was executed if the property leased or used
is located in the Philippines.
VAT on rental and/or royalties payable to non-resident
foreign corporations or owners for the sale of services
and use or lease of properties in the Philippines shall be
based on the contract price agreed upon by the licensor
and the licensee. The licensee shall be responsible for
the payment of VAT on such rentals and/or royalties in
behalf of the non-resident foreign corporation or owner
in the manner prescribed in Sec. 4.114-2(b) hereof.
“Non-resident lessor/owner” refers to any person,
natural or juridical, an alien, or a citizen who establishes
to the satisfaction of the Commissioner of Internal
Revenue the fact of his physical presence abroad with a
definite intention to reside therein, and who
owns/leases properties, real or personal, whether
tangible or intangible, located in the Philippines.
In a lease contract, the advance payment by the lessee
may be:
(i) a loan to the lessor from the lessee, or
(ii) an option money for the property, or
(iii) a security deposit to insure the faithful performance
of certain obligations of the lessee to the lessor, or
(iv) pre-paid rental.
If the advance payment is actually a loan to the lessor,
or an option money for the property, or a security
deposit for the faithful performance of certain
obligations of the lessee, such advance payment is not
subject to VAT. However, a security deposit that is
applied to rental shall be subject to VAT at the time of
its application.
If the advance payment constitutes a pre-paid rental,
then such payment is taxable to the lessor in the month
when received, irrespective of the accounting method
employed by the lessor.
(b) “Warehousing service” means rendering personal
services of a warehouseman such as:
(1) engaging in the business of receiving and storing
goods of others for compensation or profit;
(2) receiving goods and merchandise to be stored in his
warehouse for hire; or
(3) keeping and storing goods for others, as a business
and for use.
(c) A miller, who is a person engaged in milling for
others (except palay into rice, corn into corn grits, and
sugarcane into raw sugar), is subject to VAT on sale of
services. If the miller is paid in cash for his services, VAT
shall be based on his gross receipts for the month or
quarter. If he receives a share of the milled products
instead of cash, VAT shall be based on the actual market
value of his share in the milled products. Sale by the
owner or the miller of his share of the milled product
(except rice, corn grits and raw sugar) shall be subject
to VAT.
(d) All receipts from service, hire, or operating lease of
transportation equipment not subject to the percentage
tax on domestic common carriers and keepers of
garages imposed under Sec. 117 of the Tax Code shall
be subject to VAT.
“Common carrier” refers to persons, corporations,
firms or associations engaged in the business of carrying
or transporting passengers or goods or both, by land,
water, or air, for compensation, offering their services
to the public and shall include transportation
contractors.
Common carriers by land with respect to their gross
receipts from the transport of passengers including
operators of taxicabs, utility cars for rent or hire driven
by the lessees (rent-a-car companies), and tourist
buses used for the transport of passengers shall be
subject to the percentage tax imposed under Sec. 117
of the Tax Code, but shall not be liable for VAT.
(e) Domestic common carriers by air and sea are subject
to 12% VAT on their gross receipts from their transport
of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines.
(f) Sale of electricity by generation, transmission, and
distribution companies shall be subject to 12% VAT on
their gross receipts; Provided, That sale of power or fuel
generated through renewable sources of energy such
as, but not limited to, biomass, solar, wind, hydropower,
geothermal, ocean energy, and other emerging energy
sources using technologies such as fuel cells and
hydrogen fuels shall be subject to 0% VAT.
“Generation companies” refers to persons or entities
authorized by the Energy Regulatory Commission (ERC)
to operate facilities used in the generation of electricity.
For this purpose, generation of electricity refers to the
production of electricity by a generation company or a
co-generation facility pursuant to the provisions of the
RA No. 9136 (EPIRA).
They shall include all Independent Power Producers
(IPPs) and NPC/Power Sector Assets and Liabilities
Management Corporation (PSALM)-owned generation
facilities. “Transmission companies” refers to any
person or entity that owns and conveys electricity
through the high voltage backbone system and/or sub-
transmission assets, e.g. NPC or TRANSCO.
‘Subtransmission assets’ shall refer to the facilities
related to the power delivery service below the
transmission voltages and based on the functional
assignment of asset including, but not limited to step-
down transformers used solely by load customers,
associated switchyard/substation, control and
protective equipment, reactive compensation
equipment to improve power factor, overhead lines, and
the land where such facilities/equipments are located.
These include NPC assets linking the transmission
system and the distribution system which are neither
classified as generation or transmission.
“Distribution companies” refer to persons or entities
which operate a distribution system in accordance with
the provisions of the EPIRA. They shall include any
distribution utility such as an electric cooperative
organized pursuant to Presidential Decree No. 269, as
amended, and/or under RA No. 6938, or as otherwise
provided in the EPIRA, a private corporation, or a
government-owned utility or existing local government
unit which has an exclusive franchise to operate a
distribution system in accordance with the EPIRA.
For this purpose, a distribution system refers to the
system of wires and associated facilities belonging to a
franchised distribution utility extending between the
delivery points on the transmission or subtransmission
system or generator connection and the point of
connection to the premises of the end-users. “Gross
Receipts” under this Subsection (f) shall refer to the
following:
(a) Total amount charged by generation companies for
the sale of electricity and related ancillary services;
and/or
(b) Total amount charged by transmission companies
for transmission of electricity and related ancillary
services; and/or
(c) Total amount charged by distribution companies and
electric cooperatives for distribution and supply of
electricity, and related electric service. The universal
charge passed on and collected by distribution
companies and electric cooperatives shall be excluded
from the computation of the Gross Receipts.
(g) Dealers in securities and lending investors shall be
subject to VAT on the basis of their gross receipts.
However, for Dealer in Securities, the term “gross
receipts” means gross selling price less cost of the
securities sold..
“Dealer in securities” means a merchant of stock or
securities, whether an individual partnership or
corporation, with an established place of business,
regularly engaged in the purchase of securities and their
resale to customers, that is, one who as a merchant
buys securities and sells them to customers with a view
to the gains and profits that may be derived therefrom.
Lending investor” includes all persons other than banks,
non-bank financial intermediaries, finance companies
and other financial intermediaries not performing
quasibanking functions who make a practice of lending
money for themselves or others at interest.
(h) Services of franchise grantees of telephone and
telegraph, radio and/or television broadcasting, toll road
operations and all other franchise grantees, except gas
and water utilities, shall be subject to VAT in lieu of
franchise tax, pursuant to Sec. 20 of RA No.7716, as
amended. However, franchise grantees of radio and/or
television broadcasting whose annual gross receipts of
the preceding year do not exceed Ten Million Pesos
(P10,000,000.00) shall not be subject to VAT, but to the
three percent (3%) franchise tax imposed under Sec.
119 of the Tax Code, subject to the optional registration
provisions under Sec. 9.236-1(c) hereof.
Likewise, franchise grantees of gas and water utilities
shall be subject to two percent (2%) franchise tax on
their gross receipts derived from the business covered
by the law granting the franchise pursuant to Sec. 119
of the Tax Code.
Gross receipts of all other franchisees, other than those
covered by Sec. 119 of the Tax Code, regardless of how
their franchises may have been granted, shall be subject
to the 12% VAT imposed under Sec. 108 of the Tax
Code. This includes among others, the Philippine and
Amusement Gaming Corporation (PAGCOR), and its
licensees or franchisees.
Franchise grantees of telephone and telegraph shall be
subject to VAT on their gross receipts derived from their
telephone, telegraph, telewriter exchange, wireless and
other communication equipment services. However,
amounts received for overseas dispatch, message, or
conversation originating from the Philippines are subject
to the percentage tax under Sec. 120 of the Tax Code
and hence exempt from VAT.
(i) Non-life insurance companies including surety,
fidelity, indemnity and bonding companies are subject
to VAT. They are not liable to the payment of the
premium tax under Sec. 123 of the Tax Code.
“Non-life insurance companies” including surety,
fidelity, indemnity and bonding companies, shall include
all individuals, partnerships, associations, or
corporations, including professional reinsurers defined
in Sec. 280 of PD 612, otherwise known as The
Insurance Code of the Philippines, mutual benefit
associations and government-owned or controlled
corporations, engaging in the business of property
insurance, as distinguished from insurance on human
lives, health, accident and insurance appertaining
thereto or connected therewith which shall be subject to
the percentage tax under Sec. 123 of the Tax Code.
The gross receipts from non-life insurance shall mean
total premiums collected, whether paid in money, notes,
credits or any substitute for money.
Non-life insurance premiums are subject to VAT
whereas non-life reinsurance premiums are not subject
to VAT, the latter being already subjected to VAT upon
receipt of the insurance premiums. Insurance and
reinsurance commissions, whether life of non-life, are
subject to VAT.
VAT due from the foreign reinsurance company is to be
withheld by the local insurance company and to be
remitted to the BIR in accordance with Sec. 4.114-
2(b)(2) hereof by filing the Monthly Remittance Return
of Value-Added Tax Withheld (BIR Form 1600).
(j) Pre-need Companies are corporations registered with
the Securities and Exchange Commission and
authorized/licensed to sell or offer for sale pre-need
plans, whether a single plan or multi-plan. They are
engaged in business as seller of services providing
services to plan holders by managing the funds provided
by them and making payments at the time of need or
maturity of the contract.
As service providers, the compensation for their services
is the premiums or payments received from the plan
holders.
(k) Health Maintenance Organizations (HMOs) are
entities, organized in accordance with the provisions of
the Corporation Code of the Philippines and licensed by
the appropriate government agency, which arranges for
coverage or designated managed care services needed
by plan holders/members for fixed prepaid membership
fees and for a specified period of time.
HMO’s gross receipts shall be the total amount of money
or its equivalent representing the service fee actually or
constructively received during the taxable period for the
services performed or to be performed for another
person, excluding the value-added tax.
The compensation for their services representing their
service fee, is presumed to be the total amount received
as enrollment fee from their members plus other
charges received.
13. ZERO-RATED SALE OF SERVICES – SEC. 108(B)
The following services performed in the Philippines
by VAT- registered persons shall be subject to 0%
rate:
1. Processing, manufacturing or repacking goods for
other persons doing business outside the Philippines
which goods are subsequently exported, where the
services are paid for in acceptable foreign currency and
accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
2. Services other than those mentioned in the preceding
paragraph rendered to a person engaged in business
conducted outside the Philippines or to a nonresident
person not engaged in business who is outside the
Philippines when the services are performed, the
consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas
(BSP);
3. Services rendered to persons or entities whose
exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero
percent (0%) rate;
4. Services rendered to persons engaged in
international shipping or international air transport
operations, including leases of property for use thereof;
5. Services performed by subcontractors and/or con
tractors in processing, converting, of manufacturing
goods for an enterprise whose export sales exceed
seventy percent (70%) of total annual production;
6. Transport of passengers and cargo by air or sea
vessels from the Philippines to a foreign country. Gross
receipts of international air carriers doing business in
the Philippines and international sea carriers doing
business in the Philippines are still liable to a percentage
tax of three percent (3%) based on their gross receipts
as provided for in Sec. 118 of the Tax Code but shall not
to be liable to VAT; and
7. Sale of power or fuel generated through renewable
sources such as, but not limited to, biomass, solar,
wind, hydropower, geothermal, ocean energy, and other
emerging energy sources using technologies such as
fuel cells and hydrogen fuels. Provided, however, that
zero-rating shall apply strictly to the sale of power or
fuel generated through renewable sources of energy,
and shall not extend to the sale of services related to
the maintenance or operation of plants generating said
power.
The recipient of such services must be doing business
outside the Philippines.
Destination Principle
Exports are zero-rated whereas imports are taxed.
EXN: 0% VAT on services enumerated under
Sec. 108(b)
Requisites:
The services must be (a) performed in the Philippines;
(b) for a person doing business outside the Philippines;
and (c) paid in acceptable foreign currency accounted
for in accordance with BSP rules.
14. VAT-EXEMPT TRANSACTIONS
In addition to the express provision of Sec. 109(A) to
(W), the following are VAT exempt persons:
1. Secs. 109(A) to (V), as amended by RA 10378 dated
7 March 2013
2. Sec. (W), gross annual sales or receipts do not
exceed P1,919,500.
3. Any business principally for subsistence or livelihood
provided that the aggregate gross sales or receipt
during the 12-month period shall not exceed
P100,000.00. (RMO 4-98)
4. VAT exempt under special laws or treaty.
Transactions under Sec. 109 are also not subject to
other percentage tax of 3%, and are likewise not
entitled to the benefit of claiming input tax credit or
refund.
In Sec. 109, it provides that: [With excerpts from RR
16-2005]
(1) Subject to the provisions of Subsection (2) hereof,
the following transactions shall be exempt from the
value-added tax:
a. Sale or importation of agricultural and marine food
products in their original state, livestock and poultry of
a kind generally used as, or yielding or producing foods
for human consumption; and breeding stock and genetic
materials therefor.
Livestock shall include cows, bulls and calves, pigs,
sheep, goats and rabbits. Poultry shall include fowls,
ducks, geese and turkey. Livestock or poultry does not
include fighting cocks, race horses, zoo animals and
other animals generally considered as pets.
Marine food products shall include fish and crustaceans,
such as, but not limited to, eels, trout, lobster, shrimps,
prawns, oysters, mussels and clams.
Meat, fruit, fish, vegetables and other agricultural and
marine food products classified under this paragraph
shall be considered in their original date even if they
have undergone the simple processes of preparation or
preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking or stripping,
including those using advanced technological means of
packaging, such as shrink wrapping in plastics, vacuum
packing, tetra-pack, and other similar packaging
methods.
Polished and/or husked rice, corn grits, raw cane sugar
and molasses, ordinary salt and copra shall be
considered as agricultural food products in their original
state.
Sugar whose content of sucrose by weight, in the dry
state, has a polarimeter reading of 99.5 o and above are
presumed to be refined sugar.
Cane sugar produced from the following shall be
presumed, for internal revenue purposes, to be refined
sugar:
(1) product of a refining process,
(2) products of a sugar refinery, or
(3) product of a production line of a sugar mill
accredited by the BIR to be producing and/or capable of
producing sugar with polarimeter reading of 99.5o and
above, and for which the quedan issued therefor, and
verified by the Sugar Regulatory Administration,
identifies the same to be of a polarimeter reading of
99.5o and above.
Bagasse is not included in the exemption provided for
under this section.
b. Sale or importation of fertilizers, seeds, seedlings and
fingerlings, fish, prawn, livestock and poultry feeds,
including ingredients, whether locally produced or
imported, used in the manufacture of finished feeds
(except specialty feeds for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally
considered as pets);
“Specialty feeds” refers to non-agricultural feeds or
food for race horses, fighting cocks, aquarium fish, zoo
animals and other animals generally considered as pets.
c. Importation of personal and household effects
belonging to residents of the Philippines returning from
abroad and non-resident citizens coming to resettle in
the Philippines; Provided, that such goods are exempt
from customs duties under the Tariff and Customs Code
of the Philippines;
d. Importation of professional instruments and
implements, wearing apparel, domestic animals, and
personal household effects (except any vehicle, vessel,
aircraft, machinery and other goods for use in the
manufacture and merchandise of any kind in
commercial quantity) belonging to persons coming to
settle in the Philippines, for their own use and not for
sale, barter or exchange, accompanying such persons,
or arriving within ninety (90) days before or after their
arrival, upon the production of evidence satisfactory to
the Commissioner of Internal Revenue, that such
persons are actually coming to settle in the Philippines
and that the change of residence is bonafide;
e. Services subject to percentage tax under Title V of
the Tax Code, as enumerated below:
(1) Sale or lease of goods or properties or the
performance of services of non-VATregistered persons,
other than the transactions mentioned in paragraphs
(A) to (U) of Sec. 109(1) of the Tax Code, the gross
annual sales and/or receipts of which does not exceed
the amount of P1,919,500.00; Provided, That not later
than January 31, 2009 and every three (3) years
thereafter, the amount herein stated shall be adjusted
to its present value using the Consumer Price Index, as
published by the National Statistics Office (NSO) (Sec.
116 of the Tax Code);
(2) Services rendered by domestic common carriers by
land, for the transport of passengers and keepers of
garages (Sec. 117);
(3) Services rendered by international air / shipping
carriers (Sec. 118);
(4) Services rendered by franchise grantees of radio
and/or television broadcasting whose annual gross
receipts of the preceding year do not exceed Ten Million
Pesos (P10,000,000.00), and by franchise grantees of
gas and water utilities (Sec. 119);
(5) Service rendered for overseas dispatch, message or
conversation originating from the Philippines (Sec.
120);
(6) Services rendered by any person, company or
corporation (except purely cooperative companies or
associations) doing life insurance business of any sort in
the Philippines (Sec. 123);
(7) Services rendered by fire, marine or miscellaneous
insurance agents of foreign insurance companies (Sec.
124);
(8) Services of proprietors, lessees or operators of
cockpits, cabarets, night or day clubs, boxing
exhibitions, professional basketball games, Jai-Alai and
race tracks (Sec. 125); and
(9) Receipts on sale, barter or exchange of shares of
stock listed and traded through the local stock exchange
or through initial public offering (Sec. 127).
f. Services by agricultural contract growers and milling
for others of palay into rice, corn into grits, and sugar
cane into raw sugar;
“Agricultural contract growers” refers to those persons
producing for others poultry, livestock or other
agricultural and marine food products in their original
state.
g. Medical, dental, hospital and veterinary services
Medical, dental, hospital and veterinary services
except those rendered by professionals.
Laboratory services (to in and out patients) are
exempt from VAT.
Hospital or clinic operates a pharmacy or drug store,
the sale of drugs and medicine (to OUT
patients) is subject to VAT; but the sale of drugs
and medicine (to IN patients) is VAT-
exempt.
h. Educational services rendered by private educational
institutions duly accredited by the Department of
Education (DepED), the Commission on Higher
Education (CHED) and the Technical Education and
Skills Development Authority (TESDA) and those
rendered by government educational institutions;
“Educational services” shall refer to academic,
technical or vocational education provided by private
educational institutions duly accredited by the DepED,
the CHED and TESDA and those rendered by
government educational institutions and it does not
include seminars, in-service training, review classes and
other similar services rendered by persons who are not
accredited by the DepED, the CHED and/or the TESDA;
i. Services under employer-employee relationship
j. Services rendered by regional or area headquarters
established in the Philippines by multinational
corporations which act as supervisory, communications
and coordinating centers for their affiliates, subsidiaries
or branches in the Asia Pacific Region and do not earn
or derive income from the Philippines;
k. Transactions which are exempt under international
agreements to which the Philippines is a signatory or
under special laws except those granted under PD No.
529 — Petroleum Exploration Concessionaires under the
Petroleum Act of 1949; and
l. Sales by agricultural cooperatives duly registered and
in good standing 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.
Sale by agricultural cooperatives to non-members can
only be exempted from VAT if the producer of the
agricultural products sold is the cooperative itself. If the
cooperative is not the producer (e.g., trader), then only
those sales to its members shall be exempted from VAT;
It is to be reiterated however, that sale or importation
of agricultural food products in their original state is
exempt from VAT irrespective of the seller and buyer
thereof, pursuant to Subsection (a) hereof;
m. Gross receipts from lending activities by credit or
multi-purpose cooperatives duly registered and in good
standing with the Cooperative Development Authority;
n. Sales by non-agricultural, non-electric and non-credit
cooperatives duly registered with and in good standing
with the CDA; Provided, That the share capital
contribution of each member does not exceed Fifteen
Thousand Pesos (P15,000.00) and regardless of the
aggregate capital and net surplus ratably distributed
among the members.
Importation by non-agricultural, non-electric and non-
credit cooperatives of machineries and equipment,
including spare parts thereof, to be used by them are
subject to VAT.
o. Export sales by persons who are not VAT-registered;
p. The following sales of real properties are exempt from
VAT, namely:
(1) Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of
trade or business.
However, even if the real property is not primarily held
for sale to customers or held for lease in the ordinary
course of trade or business but the same is used in the
trade or business of the seller, the sale thereof shall be
subject to VAT being a transaction incidental to the
taxpayer’s main business.
(2) Sale of real properties utilized for low-cost housing
as defined by RA No. 7279, otherwise known as the
“Urban Development and Housing Act of 1992” and
other related laws, such as RA No. 7835 and RA No.
8763.
“Low-cost housing” refers to housing projects intended
for homeless low-income family beneficiaries,
undertaken by the Government or private developers,
which may either be a subdivision or a condominium
registered and licensed by the Housing and Land Use
Regulatory Board/Housing (HLURB) under BP Blg. 220,
PD No. 957 or any other similar law, wherein the unit
selling price is within the selling price ceiling per unit of
P750,000.00 under RA No. 7279, otherwise known as
the “Urban Development and Housing Act of 1992” and
other laws, such as RA No. 7835 and RA No. 8763.
(3) Sale of real properties utilized for socialized housing
as defined under RA No. 7279, and other related laws,
such as RA No. 7835 and RA No. 8763, wherein the price
ceiling per unit is P450,000.00 or as may from time to
time be determined by the HUDCC and the NEDA and
other related laws.
“Socialized housing” refers to housing programs and
projects covering houses and lots or home lots only
undertaken by the Government or the private sector for
the underprivileged and homeless citizens which shall
include sites and services development, long-term
financing, liberated terms on interest payments, and
such other benefits in accordance with the provisions of
RA No. 7279, otherwise known as the “Urban
Development and Housing Act of 1992” and
RA No. 7835 and RA No. 8763. “Socialized housing” shall
also refer to projects intended for the underprivileged
and homeless wherein the housing package selling price
is within the lowest interest rates under the Unified
Home Lending Program (UHLP) or any equivalent
housing program of the Government, the private sector
or non-government organizations.
(4) Sale of residential lot valued at P1, 919, 500.00 and
below, or house & lot and other residential dwellings
valued at P3, 199, 200 and below; Provided, That not
later than January 31, 2009 and every three (3) years
thereafter, the amounts stated herein shall be adjusted
to its present value using the Consumer Price Index, as
published by the National Statistics Office (NSO);
Provided, further, that such adjustment shall be
published through revenue regulations to be issued not
later than March 31 of each year;
If two or more adjacent residential lots are sold or
disposed in favor of one buyer, for the purpose of
utilizing the lots as one residential lot, the sale shall be
exempt from VAT only if the aggregate value of the lots
do not exceed P1, 919,500.00. Adjacent residential lots,
although covered by separate titles and/or separate tax
declarations, when sold or disposed to one and the same
buyer, whether covered by one or separate Deed of
Conveyance, shall be presumed as a sale of one
residential lot.
q. Lease of residential units
Monthly rent must not exceed P12,800 regardless of
the annual aggregate income.
4 cases:
MONTHLY ANNUAL TAX
INCOME AGGREGATE IMPLICATION
INCOME
Does not Does not exceed EXEMPT
exceed P1,919,500
P12,800
Does not Exceeds EXEMPT
exceed P1,919,500
P12,800
Exceeds Does not exceed Subject to 3%
P12,800 P1,919,500 Percentage Tax
Exceeds Exceeds Subject to 12%
P12,800 P1,919,500 VAT
The term ‘residential units’ shall refer to apartments
and houses & lots used for residential purposes, and
buildings or parts or units thereof used solely as
dwelling places (e.g., dormitories, rooms and bed
spaces) except motels, motel rooms, hotels and hotel
rooms, lodging houses, inns and pension houses.
The term ‘unit’ shall mean an apartment unit in the case
of apartments, house in the case of residential houses;
per person in the case of dormitories, boarding houses
and bed spaces; and per room in case of rooms for rent.
r. Sale, importation, printing or publication of books and
any newspaper, magazine, review, or bulletin which
appears at regular intervals with fixed prices for
subscription and sale and which is not devoted
principally to the publication of paid advertisements;
Covers only printed materials. Online publications are
subject to VAT
s. Sale, importation or lease of passenger or cargo
vessels and aircraft, including engine, equipment and
spare parts thereof for domestic or international
transport operations;
Provided, that the exemption from VAT on the
importation and local purchase of passenger and/or
cargo vessels shall be limited to those of one hundred
fifty (150) tons and above, including engine and spare
parts of said vessels; Provided, further, that the vessels
to be imported shall comply with the age limit
requirement, at the time of acquisition counted from the
date of the vessel’s original commissioning, as follows:
(i) for passenger and/or cargo vessels, the age limit is
fifteen (15) years old, (ii) for tankers, the age limit is
ten (10) years old, and (iii) For high-speed passenger
crafts, the age limit is five (5) years old; Provided,
finally, that exemption shall be subject to the provisions
of Section 4 of Republic Act No. 9295, otherwise known
as “The Domestic Shipping Development Act of 2004”;
PASSENGERS
GOODS
Internation
Internation
Domestic Domestic al
al
12% 12% 0% VAT
Aerial 0% VAT
VAT VAT
12% 12%
Sea 0% VAT 0% VAT
VAT VAT
Land 12% VAT 3% CCT
t. Importation of life-saving equipment, safety and
rescue equipment and communication and navigational
safety equipment, steel plates and other metal plates
including marine-grade aluminum plates, used for
shipping transport operations; Provided, that the
exemption shall be subject to the provisions of Section
4 of Republic Act. No. 9295, otherwise known as ‘The
Domestic Shipping Development Act of 2004’;
u. Importation of capital equipment, machinery, spare
parts, lifesaving and navigational equipment, steel
plates and other metal plates including marine-grade
aluminum plates to be used in the construction, repair,
renovation or alteration of any merchant marine vessel
operated or to be operated in the domestic trade.
Provided, that the exemption shall be subject to the
provisions of Section 19 of Republic Act. No. 9295,
otherwise known as ‘The Domestic Shipping
Development Act of 2004’;
v. Importation of fuel, goods and supplies by persons
engaged in international shipping or air transport
operations; Provided, that the said fuel, goods and
supplies shall be used exclusively or shall pertain to the
transport of goods and/or passenger from a port in the
Philippines directly to a foreign port without stopping at
any other port in the Philippines or vice versa, without
docking or stopping at any other port in the Philippines
unless the docking or stopping at any other Philippine
port is for the purpose of unloading passengers and/or
cargoes that originated from abroad, or to load
passengers and/or cargoes bound for abroad;
Provided, further, that if any portion of such fuel, goods
or supplies is used for purposes other than that
mentioned in this paragraph, such portion of fuel, goods
and supplies shall be subject to 12% VAT;
w. Services of banks, non-bank financial intermediaries
performing quasi-banking functions, and other non-
bank financial intermediaries, such as money changers
and pawnshops subject to percentage tax under Secs.
121 and 122 of the Tax Code, such as money changers
and pawnshops; and
x. Sale or lease of goods or properties or the
performance of services other than the transactions
mentioned in the preceding paragraphs, the gross
annual sales and/or receipts do not exceed the amount
of P1, 919,500.00;
For purposes of the threshold of P1, 919,500.00, the
husband and the wife shall be considered separate
taxpayers. However, the aggregation rule for each
taxpayer shall apply.
For instance, if a professional, aside from the practice of
his profession, also derives revenue from other lines of
business which are otherwise subject to VAT, the same
shall be combined for purposes of determining whether
the threshold has been exceeded. Thus, the VAT-
exempt sales shall not be included in determining the
threshold.
A VAT-registered person may, in relation to Sec. 9.236-
1(c) of these Regulations, elect that the exemption in
Subsection (1) hereof shall not apply to his sales of
goods or properties or services. Once the election is
made, it shall be irrevocable for a period of three (3)
years counted from the quarter when the election was
made except for franchise grantees of radio and TV
broadcasting whose annual gross receipts for the
preceding year do not exceed ten million pesos
(P10,000,000.00) where the option becomes
perpetually irrevocable .
15. DETERMINATION OF OUTPUT TAX, INPUT TAX,
VAT PAYABLE, AND EXCESS INPUT TAX CREDITS
Output Tax
The VAT due on the sale or lease of goods, properties or
services by any person registered or required to be
registered under Sec. 236(g) of the Code.
Input Tax
The VAT due from or paid by a VAT-registered person in
the course of his trade or business:
1. On importation of goods;
2. Local purchase of goods or services;
3. Including lease or use of property from a
VAT-registered person.
4. It shall also include the transitional input tax
and the presumptive input tax determined in
accordance with Sec. 111 of the Code.
It also includes input taxes which can be directly
attributed to transactions subject to the VAT plus a
ratable portion of any input tax which cannot be directly
attributed to either the taxable or exempt activity.
Any input tax on the following transactions evidenced
by a VAT invoice or official receipt issued by a VAT-
registered person in accordance with Secs. 113 and 237
of the Tax Code shall be creditable against the output
tax:
(a) Purchase or importation of goods
(1) For sale; or
(2) For conversion into or intended to form part of a
finished product for sale, including packaging materials;
or
(3) For use as supplies in the course of business; or
(4) For use as raw materials supplied in the sale of
services; or
(5) For use in trade or business for which deduction for
depreciation or amortization is allowed under the Tax
Code,
(b) Purchase of real properties for which a VAT has
actually been paid;
(c) Purchase of services in which a VAT has actually
been paid;
(d) Transactions “deemed sale” under Sec. 106 (B) of
the Tax Code;
(e) Transitional input tax allowed under Sec. 4.111 (a)
of these Regulations;
(f) Presumptive input tax allowed under Sec. 4.111 (b)
of these Regulations;
(g) Transitional input tax credits allowed under the
transitory and other provisions of these Regulations.
Persons Who Can Avail of the Input Tax Credit. --
The input tax credit on importation of goods or local
purchases of goods, properties or services by a
VATregistered person shall be creditable:
(a) To the importer upon payment of VAT prior to the
release of goods from customs custody;
(b) To the purchaser of the domestic goods or properties
upon consummation of the sale; or
(c) To the purchaser of services or the lessee or licensee
upon payment of the compensation, rental, royalty or
fee.
Claim for Input Tax on Depreciable Goods. -- Where
a VATregistered person purchases or imports capital
goods, which are depreciable assets for income tax
purposes, the aggregate acquisition cost of which
(exclusive of VAT) in a calendar month exceeds One
Million pesos (P1,000,000.00), regardless of the
acquisition cost of each capital good, shall be claimed as
credit against output tax in the following manner:
(a) If the estimated useful life of a capital good is five
(5) years or more – The input tax shall be spread evenly
over a period of sixty (60) months and the claim for
input tax credit will commence in the calendar month
when the capital good is acquired. The total input taxes
on purchases or importations of this type of capital
goods shall be divided by 60 and the quotient will be the
amount to be claimed monthly.
(b) If the estimated useful life of a capital good is less
than five (5) years – The input tax shall be spread
evenly on a monthly basis by dividing the input tax by
the actual number of months comprising the estimated
useful life of the capital good. The claim for input tax
credit shall commence in the calendar month that the
capital goods were acquired.
Where the aggregate acquisition cost (exclusive of VAT)
of the existing or finished depreciable capital goods
purchased or imported during any calendar month does
not exceed One million pesos (P 1,000,000.00), the
total input taxes will be allowable as credit against
output tax in the month of acquisition; Provided,
however, that the total amount of input taxes (input tax
on depreciable capital goods plus other allowable input
taxes) allowed to be claimed against the output tax in
the quarterly VAT Returns shall be subject to the
limitation prescribed under Sec. 4.110-7(Vat Payable/
Excess Input) of these Regulations.
Capital goods or properties refers to goods or properties
with estimated useful life greater than one (1) year and
which are treated as depreciable assets under Sec.
34(F) of the Tax Code, used directly or indirectly in the
production or sale of taxable goods or services. The
aggregate acquisition cost of depreciable assets in any
calendar month refers to the total price, excluding the
VAT, agreed upon for one or more assets acquired and
not on the payments actually made during the calendar
month. Thus, an asset acquired on installment for an
acquisition cost of more than P1,000,000.00, excluding
the VAT, will be subject to the amortization of input tax
despite the fact that the monthly payments/installments
may not exceed P1,000,000.00.
Construction in progress (CIP) is the cost of construction
work which is not yet completed. CIP is not depreciated
until the asset is placed in service. Normally, upon
completion, a CIP item is reclassified and the reclassified
asset is capitalized and depreciated. CIP is considered,
for purposes of claiming input tax, as a purchase of
service, the value of which shall be determined based
on the progress billings. Until such time the construction
has been completed, it will not qualify as capital goods
as herein defined, in which case, input tax credit on such
transaction can be recognized in the month the payment
was made; Provided, that an official receipt of payment
has been issued based on the progress billings.
In case of contract for the sale of service where only the
labor will be supplied by the contractor and the
materials will be purchased by the contractee from other
suppliers, input tax credit on the labor contracted shall
still be recognized on the month the payment was made
based on a progress billings while input tax on the
purchase of materials shall be recognized at the time
the materials were purchased. Once the input tax has
already been claimed while the construction is still in
progress, no additional input tax can be claimed upon
completion of the asset when it has been reclassified as
a depreciable capital asset and depreciated.”
If the depreciable capital good is sold/transferred within
a period of five (5) years or prior to the exhaustion of
the amortizable input tax thereon, the entire
unamortized input tax on the capital goods
sold/transferred can be claimed as input tax credit
during the month/quarter when the sale or transfer was
made but subject to the limitation prescribed under Sec.
4.110-7(Vat Payable/ Excess Input) of these
Regulations.
Apportionment of Input Tax on Mixed
Transactions. -- A VAT-registered person who is also
engaged in transactions not subject to VAT shall be
allowed to recognize input tax credit on transactions
subject to VAT as follows:
1. All the input taxes that can be directly attributed to
transactions subject to VAT may be recognized for input
tax credit; Provided, that input taxes that can be directly
attributable to VAT taxable sales of goods and services
to the Government or any of its political subdivisions,
instrumentalities or agencies, including government-
owned or controlled corporations (GOCCs) shall not be
credited against output taxes arising from sales to non-
Government entities
Claims for VAT refund/Tax Credit Certificate (TCC) with
the Bureau of Internal Revenue, Board of Investment,
and One-Stop-Shop and Duty Drawback Center of the
Dept. of Finance should be deducted from the allowable
input tax that are attributable to zero-rated sales.
2. If any input tax cannot be directly attributed to either
a VAT taxable or VATexempt transaction, the input tax
shall be pro-rated to the VAT taxable and VAT-exempt
transactions and only the ratable portion pertaining to
transactions subject to VAT may be recognized for input
tax credit.
The input tax attributable to VAT-exempt sales shall not
be allowed as credit against the output tax but should
be treated as part of cost or expense.
Notwithstanding the foregoing provisions, for persons
engaged in both zero-rated sales under Sec. 108(B)(6)
of the Tax Code and non-zero rated sales, the aggregate
input taxes shall be allocated ratably between the zero-
rated sale and non-zero-rated sale.
VAT Payable (Excess output)
If at the end of any taxable quarter the output tax
exceeds the input tax, the excess shall be paid by the
VAT-registered person. (Sec. 4110-7, RR 16-2005)
Excess Input Tax
If the input tax inclusive of input carried over from the
previous quarter exceeds the output tax, the excess
input tax shall be carried over to the succeeding quarter
or quarters; Provided, however, that any input tax
attributable to zero-rated sales by a VAT-registered
person may at his option be refunded or applied for a
tax credit certificate which may be used in the payment
of internal revenue taxes, subject to the limitations as
may be provided for by law, as well as, other
implementing rules. (RR No. 2-2007)
16. SUBSTANTIATION OF INPUT TAX CREDITS

a. Input taxes for the importation of goods or the
domestic purchase of goods, properties or services is
made in the course of trade or business, whether such
input taxes shall be credited against zero-rated sale,
non-zero-rated sales, or subjected to the 5% Final
Withholding VAT, must be substantiated and supported
by the following documents, and must be reported in
the information returns required to be submitted to the
Bureau:
1. For the importation of goods — import entry or
other equivalent document showing actual
payment of VAT on the imported goods.
2. For the domestic purchase of goods and
properties invoice showing the information
required under Sections 113 and 237 of the Tax
Code.
3. For the purchase of real property — public
instrument i.e., deed of absolute sale, deed of
conditional sale, contract/agreement to sell, etc.,
together with VAT invoice issued by the seller.
4. For the purchase of services — official receipt
showing the information required under Sections
113 and 237 of the Tax Code. (Refer to topic 19 for
this)
A cash register machine tape issued to a registered
buyer shall constitute valid proof of substantiation of tax
credit only if it shows the information required under
Sections 113 and 237 of the Tax Code.
b. Transitional input tax shall be supported by an
inventory of goods as shown in a detailed list to be
submitted to the BIR.
c. Input tax on "deemed sale" transactions shall be
substantiated with the invoice required under Sec.
4.113-2 of these Regulations.
d. Input tax from payments made to non-residents
(such as for services, rentals and royalties) shall be
supported by a copy of the Monthly Remittance Return
of Value Added Tax Withheld (BIR Form 1600) filed by
the resident payor in behalf of the non-resident
evidencing remittance of VAT due which was withheld
by the payor.
e. Advance VAT on sugar shall be supported by the
Payment Order showing payment of the advance VAT.
(Sec. 4.110-8 RR 16-2005)
*Under RA 7361, effective on the 4th quarter of the
taxable year 2006 the 70% limit on creditable input tax
is no longer applicable.
17. TRANSITIONAL INPUT TAX AND
PRESUMPTIVE TAX – SEC. 111(a)
(a) Transitional Input Tax Credits on Beginning
Inventories Taxpayers who became VAT-registered
persons upon exceeding the minimum turnover of P1,
919,500.00 in any 12-month period, or who voluntarily
register even if their turnover does not exceed P1,
919,500.00 (except franchise grantees of radio and
television broadcasting whose threshold is
P10,000,000.00) shall be entitled to a transitional input
tax on the inventory on hand as of the effectivity of their
VAT registration, on the following:
(1) goods purchased for resale in their present
condition;
(2) materials purchased for further processing, but
which have not yet undergone processing;
(3) goods which have been manufactured by the
taxpayer;
(4) goods in process for sale; or
(5) goods and supplies for use in the course of the
taxpayer’s trade or business as a VAT-registered
person.
The transitional input tax shall be two percent (2%)
of the value of the beginning inventory on hand or
actual VAT paid on such, goods, materials and
supplies, whichever is higher, which amount shall be
creditable against the output tax of VAT-registered
person.
The value allowed for income tax purposes on
inventories shall be the basis for the computation of the
2% transitional input tax, excluding goods that are
exempt from VAT under Sec. 109 of the Tax Code.
Fort Bonifacio Dev’t. Corp. v. CIR – GR. No. 173425
Prior payment of taxes is not required to avail of the
transitional input tax credit because it is not a tax refund
per se but a tax credit. All that is required is for the
taxpayer to file the beginning inventory with the BIR.
(b) Presumptive Input Tax Credits
Persons or firms engaged in the processing of sardines,
mackerel, and milk, and in manufacturing refined sugar,
cooking oil and packed noodle-based instant meals,
shall be allowed a presumptive input tax, creditable
against the output tax, equivalent to four percent (4%)
of the gross value in money of their purchases of
primary agricultural products which are used as inputs
to their production.
As used in this paragraph, the term processing shall
mean pasteurization, canning and activities which
through physical or chemical process alter the exterior
texture or form or inner substance of a product in such
manner as to prepare it for special use to which it could
not have been put in its original form or condition.
18. REFUND OR TAX CREDIT OF EXCESS INPUT
TAX – SEC. 112
Zero-rated or effectively zero-rated sales
Apply for the issuance of a tax credit certificate or refund
of creditable input tax due or paid attributable to such
sales (except transitional input tax, to the extent that
such input tax has not been applied against output tax)
within two (2) years after the close of the taxable
quarter when the sales were made.
Provided that in case of:
1. sale and actual shipment of goods from the
Philippines to a foreign country; 2. sale of raw
materials or packaging materials to a nonresident
buyer for delivery to a resident local export-oriented
enterprise; and
3. foreign currency denominated sale;
4. processing, manufacturing or repacking goods for
other persons doing business outside the Philippines
which goods are subsequently exported
(transactions subject to zero percent rate)
5. services other than those mentioned in the
preceding paragraph rendered to a person engaged
in business conducted outside the Philippines or to
a nonresident person not engaged in business who
is outside the Philippines when the services are
performed;..the acceptable foreign currency
exchange proceeds thereof had been duly
accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas.
In case of zero-rated sales under Secs. 106(A)(2)(a)(1)
and (2), and Sec. 106(A)(2)(b) and Sec. 108(B)(1) and
(2) of the Tax Code, the payments for the sales must
have been made in acceptable foreign currency duly
accounted for in accordance with the BSP rules and
regulations.
Where the taxpayer is engaged in both zero-rated or
effectively zero-rated sales and in taxable (including
sales subject to final withholding VAT) or exempt sales
of goods, properties or services, and the amount of
creditable input tax due or paid cannot be directly and
entirely attributed to any one of the transactions, only
the proportionate share of input taxes allocated to zero-
rated or effectively zero-rated sales can be claimed for
refund or issuance of a tax credit certificate.
In the case of a person engaged in the transport of
passenger and cargo by air or sea vessels from the
Philippines to a foreign country, the input taxes shall be
allocated ratably between his zero-rated sales and non-
zero-rated sales (sales subject to regular rate, subject
to final VAT withholding and VAT-exempt sales).
In proper cases, the Commissioner shall grant a refund
or issue the tax credit certificate for creditable input
taxes within one hundred twenty (120) days from the
date of submission of complete documents in support of
the application filed in accordance with Subsection (A)
hereof.
In case of full or partial denial of the claim for tax credit
certificate/refund as decided by the Commissioner of
Internal Revenue, the taxpayer may appeal to the Court
of Tax Appeals (CTA) within thirty (30) days from the
receipt of said denial, otherwise the decision shall
become final. However, if no action on the claim for tax
credit certificate/refund has been taken by the
Commissioner of Internal Revenue after the one
hundred twenty (120) day period from the date of
submission of the application with complete documents,
the taxpayer may appeal to the CTA within 30 days from
the lapse of the 120-day period.
Refunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized representative
without the necessity of being countersigned by the
Chairman, Commission on Audit, the provisions of the
Administrative Code of 1987 to the contrary
notwithstanding: Provided, That refunds under this
paragraph shall be subject to post audit by the
Commission on Audit.
19. INVOICING REQUIREMENTS
A VAT-registered person shall issue:
1. A VAT invoice for every sale, barter or exchange
of goods or properties; and
2. A VAT official receipt for every lease of goods or
properties, and for every sale, barter or exchange
of services.
Only VAT-registered persons are required to print their
TIN followed by the word “VAT” in their invoice or official
receipts. Said documents shall be considered as a “VAT
Invoice”
or VAT official receipt. All purchases covered by
invoices/receipts other than VAT Invoice/VAT Official
Receipt shall not give rise to any input tax.
Information Contained in the VAT Invoice or VAT
Official Receipt
The following information shall be indicated in the VAT
invoice or VAT official receipt:
1. A statement that the seller is a VAT-registered
person, followed by his Taxpayer's Identification
Number (TIN);
2. The total amount which the purchaser pays or is
obligated to pay to the seller with the indication that
such amount includes the value-added tax: Provided,
That:
a. The amount of the tax shall be shown as a
separate item in the invoice or receipt;
b. If the sale is exempt from value-added tax, the
term "VAT-exempt sale" shall be written or printed
prominently on the invoice or receipt;
c. If the sale is subject to zero percent (0%) value-
added tax, the term "zero-rated sale" shall be written
or printed prominently on the invoice or receipt;
d. If the sale involves goods, properties or services
some of which are subject to and some of which are
VAT zero-rated or VAT-exempt, the invoice or receipt
shall clearly indicate the breakdown of the sale price
between its taxable, exempt and zero-rated
components, and the calculation of the value-added
tax on each portion of the sale shall be shown on the
invoice or receipt: Provided, That the seller may issue
separate invoices or receipts for the taxable, exempt,
and zero-rated components of the sale.
3. The date of transaction, quantity, unit cost and
description of the goods or properties or nature of the
service; and
4. In the case of sales in the amount of one thousand
pesos (P1,000.00) or more where the sale or transfer is
made to a VAT-registered person, the name, business
style, if any, address and Taxpayer Identification
Number (TIN) of the purchaser, customer or client.
Accounting Requirements
Notwithstanding the provisions of Sec. 233, all persons
subject to the value-added tax under Sees. 106 and
108 shall, in addition to the regular accounting records
required, maintain a subsidiary sales journal and
subsidiary purchase journal on which the daily sales
and purchases are recorded. The subsidiary journals
shall contain such information as may be required by
the Secretary of Finance.
20-21. FILING OF MONTHLY AND QUARTERLY VAT
RETURNS; PAYMENT OF VAT; RETURNA AND
PAYMENT OF VAT -
Every person liable to pay the value-added tax imposed
under this Title shall file a quarterly return of the
amount of his gross sales or receipts within 25 days
following the close of each taxable quarter prescribed
for each taxpayer: Provided, however, That VAT-
registered persons shall pay the value-added tax on a
monthly basis.
Any person, whose registration has been cancelled in
accordance with Section 236, shall file a return and pay
the tax due thereon within twenty-five (25) days from
the date of cancellation of registration: Provided, That
only one consolidated return shall be filed by the
taxpayer for his principal place of business or head office
and all branches. (Sec 114[A])
Where to File the Return and Pay the Tax
Except as the Commissioner otherwise permits, the
return shall be filed with and the tax paid to:
1. An authorized agent bank,
2. Revenue Collection Officer or
3. Duly authorized city or municipal
Treasurer in the Philippines located within
the revenue district where the taxpayer is
registered or required to register. (Sec. 114 [B])
22. WITHHOLDING OF FINAL VAT ON SALES TO
GOVERNMENT
The following are mandated to deduct and withhold a
final VAT before making payment on account of each
purchase of goods and services which are subject to VAT
imposed in Secs. 106 and 108 of the Code:
1. The Government;
2. Any of its political subdivisions,
instrumentalities or agencies;
3. Including GOCCs;
A. Deduct and withhold a final VAT at the rate of 5% of
the gross payment thereof.
B. The payment for lease or ruse of properties or
property rights to non- residents owners shall be
subject to 10% withholding tax at the time of payment.
The payor or person in control of the payment shall
be considered as the withholding agent. (Sec. 114 [C])
The VAT withheld under this Section shall be remitted
within 10 days following the end of the month the
withholding was made.
23. BIR “OPLAN KANDADO” PROGRAM
Under this program, business operations of non-
compliant taxpayers will be suspended and their
establishments will be temporarily closed if they
will be found to have violated certain tax laws.
“Oplan Kandado” aims to intensify the Bureau’s
enforcement operations through strict imposition of
prescribed administrative sanctions for noncompliance
with the basic tax requirements.
Grounds:
1. failure to issue receipts or invoices by a VAT-
registered or registrable taxpayer;
2. failure to file a VAT return;
3. understatement of taxable sales or receipts by 30%
or more of the correct amount thereof in the case of a
VAT-registered or registrable taxpayer;
4. failure to register
NOTE: The closure of a business establishment shall
last for a period of not less than five (5) days, and
shall be in force until the violation is rectified by
the concerned taxpayer.
The suspension and temporary closure of business shall
not preclude the BIR from filing the appropriate
charges under the Run After Tax Evaders (RATE)
Program of the Bureau, if evidence so warrants,
against the taxpayer concerned or responsible officers
of the corporations (in case of corporate taxpayers).
The Closure Order shall only be lifted by the BIR
when there has been:
a) subsequent filing or amendment of returns
with the payment of the tax inclusive of statutory
penalties;
b) subsequent registration with the payment
of the corresponding compromise
penalties;
c) payment of deficiency taxes inclusive of
penalties corresponding to the sales where no
invoices/receipts have been issued; and
d) payment of deficiency taxes inclusive of
penalties corresponding to the
understatement of taxable sales or receipts.
NOTE: The lifting of the Closure Order shall not
release the taxpayer from the compliance
requirements and from the penalties prescribed by
the Tax Code for the violation, which shall be dealt with
by criminal prosecution or by compromise settlement.
CASES
1. COMMISSIONER OF INTERNAL REVENUE
vs.
SEAGATE TECHNOLOGY
G.R. No. 153866 February 11, 2005
Applicable doctrines, principle or requisites:
Zero-Rated vs Effectively Zero-Rated Transactions
-Zero-rated transactions generally refer to the export
sale of goods and supply of services. Whereas,
Effectively zero-rated transactions, however, refer to
the sale of goods50 or supply of services51 to persons or
entities whose exemption under special laws or
international agreements to which the Philippines is a
signatory effectively subjects such transactions to a zero
rate.
-In both transaction, results in no tax chargeable
against the purchaser. The seller of such transactions
charges no output tax,49 but can claim a refund of or a
tax credit certificate for the VAT previously charged by
suppliers.
Exempt Transaction vs Exempt Party
-exempt transaction involves goods or services which,
by their nature, are specifically listed in and expressly
exempted from the VAT under the Tax Code, without
regard to the tax status -- VAT-exempt or not -- of the
party to the transaction. Whereas, exempt party, on the
other hand, is a person or entity granted VAT exemption
under the Tax Code, a special law or an international
agreement to which the Philippines is a signatory, and
by virtue of which its taxable transactions become
exempt from the VAT
-In an exempt transaction is not subject to the VAT, but
the seller is not allowed any tax refund of or credit for
any input taxes paid. Whereas an exempt party is also
not subject to the VAT, but may be allowed a tax refund
of or credit for input taxes paid, depending on its
registration as a VAT or non-VAT taxpayer.
Note: Applying this principle to the case at bar, the
purchase transactions entered into by respondent are
not VAT-exempt.
Cross-border Principles- No VAT shall be imposed to
form part of the cost of goods destined for consumption
outside of the territorial border of the taxing authority.
VAT refund requirement:
1. Respondent is a VAT-registered entity;
2. The input taxes paid on the capital goods of
respondent are duly supported by VAT invoices and
have not been offset against any output taxes; and
3. No question as to either the filing of such claims
within the prescriptive period or the validity of the VAT
returns has been raised.

Facts:
SEAGATE TECHNOLOGY is a resident foreign
corporation duly registered with the Securities and
Exchange Commission to do business in the Philippines,
with principal office address at the new Cebu Township
One, Special Economic Zone, Barangay Cantao-an,
Naga, Cebu. Respondent, is registered with the
Philippine Export Zone Authority (PEZA) and has been
issued PEZA Certificate pursuant to Presidential Decree
No. 66, as amended, to engage in the manufacture of
recording components primarily used in computers for
export. It is VAT (Value Added Tax)-registered entity as
evidenced by VAT Registration Certification. VAT returns
for the period 1 April 1998 to 30 June 1999 have been
filed by respondent. An administrative claim for refund
of VAT input taxes in the amount of P28,369,226.38
with supporting documents (inclusive of
the P12,267,981.04 VAT input taxes subject of this
Petition for Review), was filed on 4 October 1999 with
Revenue District Office No. 83, Talisay Cebu. The
administrative claim for refund by the respondent on
October 4, 1999 was not acted upon by the
Commissioner, petitioner, prompting the respondent to
elevate the case to the CTA.
Petitioner raised a Special and Affirmative Defenses, to
wit:
Granting, without admitting, that respondent is a PEZA
registered Ecozone Enterprise, then its business is not
subject to VAT pursuant to Section 24 of RA 7916 in
relation to Section 103 of the Tax Code, as amended. As
respondent’s business is not subject to VAT, the capital
goods and services it alleged to have purchased are
considered not used in VAT taxable business. As such,
respondent is not entitled to refund of input taxes on
such capital goods pursuant to Section 4.106.1 of RR7-
95, and of input taxes on services pursuant to Section
4.103 of said regulations.
On July 19, 2001, the Tax Court rendered a decision
granting the claim for refund. CA affirmed the Decision
of the CTA.
Issue: W/N the respondent is entitled for a tax refund
for input VAT paid on capital goods purchased, for
business not subject to VAT?
Held:
Yes, respondent is entitled for a tax refund for
unutilized input VAT paid on capital goods purchased.
An exempt party is a person or entity granted VAT
exemption under the Tax Code, a special law or an
international agreement to which the Philippines is a
signatory, and by virtue of which its taxable transactions
become exempt from the VAT. Such party is also not
subject to the VAT, but may be allowed a tax refund of
or credit for input taxes paid, depending on its
registration as a VAT or non-VAT taxpayer. In relation,
Under PD 66, a PEZA-registered enterprise within a
special economic zone shall not be subject to internal
revenue laws and regulations for raw materials,
supplies, articles, equipment, machineries, spare parts
and wares, except those prohibited by law, brought into
the zone to be stored, broken up, repacked, assembled,
installed, sorted, cleaned, graded or otherwise
processed, manipulated, manufactured, mixed or used
directly or indirectly in such activities.
In the case at bar, respondent is entitled to the fiscal
incentives and benefitsprovided for in either PD 66or EO
226 for being a PEZA-registered enterprise within a
special economic zone. The VAT on capital goods is an
internal revenue tax from which the respondent as an
entity is exempt. Although the transactions involving
such tax are not exempt, respondent as a VAT-
registered person, however, is entitled to their credits.
Alternative Answer:
Yes, respondent is entitled for a tax refund unutilized
input VAT paid on capital goods purchased.
Effectively zero-rated transactions are the sale of goods
or supply of services to persons or entities whose
exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects such transactions to a zero rate.
Which results in no tax chargeable against the
purchaser. The seller of such transactions charges no
output tax, but can claim a refund of or a tax credit
certificate for the VAT previously charged by suppliers.
In the case at bar, respondent is entitled to the fiscal
incentives and benefits provided for in either PD 66 or
EO 226 for being a PEZA-registered enterprise within a
special economic zone. Since the purchases of
respondent are not exempt from the VAT, the rate to be
applied is zero. Its exemption under both PD 66 and RA
7916 effectively subjects such transactions to a zero
rate, because the ecozone within which it is registered
is managed and operated by the PEZA as a separate
customs territory.
2. MINDANAO II GEOTHERMAL PARTNERSHIP,
vs.
COMMISSIONER OF INTERNAL REVENUE
G.R. No. 193301 March 11, 2013
Applicable doctrines, principle or requisites:
Facts:
Mindanao Geothermal Partnership sold its fully
depreciated Nissan Patrol. It asserts that is not an
incidental transaction in the course of its business;
hence, it is an isolated transaction that should not
have been subject to 10% VAT. Mindanao II relies on
Commissioner of Internal Revenue v. Magsaysay Lines,
Inc. (Magsaysay)55 and Imperial v. Collector of Internal
Revenue (Imperial)56 to justify its position. In those
cases the vessels are sold out of Government’s policy
for privatization which ruled by the Court that such
transactions are not subject to VAT.
Issue: W/N the isolated transactions are subject to
VAT?
Held: Yes, isolated transactions are subject to VAT.
Mindanao II’s sale of the Nissan Patrol is said to be an
isolated transaction. However, it does not follow that an
isolated transaction cannot be an incidental transaction
for purposes of VAT liability. Indeed, a reading of
Section 105 of the 1997 Tax Code would show that a
transaction "in the course of trade or business" includes
"transactions incidental thereto."
In the cases relied by the petitioner, Commissioner of
Internal Revenue v. Magsaysay Lines, Inc.
(Magsaysay)55 and Imperial v. Collector of Internal
Revenue (Imperial)56 decided under the NIRC of 1986,
involved the sale of vessels of the National Development
Company (NDC) to Magsaysay Lines, Inc. the Court
ruled that the sale of vessels was not in the course of
NDC’s trade or business as it was involuntary and made
pursuant to the Government’s policy for privatization.
In the course of its business, Mindanao II bought and
eventually sold a Nissan Patrol. Prior to the sale, the
Nissan Patrol was part of Mindanao II’s property, plant,
and equipment. Therefore, the sale of the Nissan Patrol
is an incidental transaction made in the course of
Mindanao II’s business which should be liable for VAT.
3. COMMISSIONER OF INTERNAL REVENUE
vs.
COURT OF APPEALS and COMMONWEALTH
MANAGEMENT AND SERVICES CORPORATION
G.R. No. 125355 March 30, 2000
Facts:
Commonwealth Management and Services
Corporation (COMASERCO, for brevity), is a corporation
duly organized and existing under the laws of the
Philippines. It is an affiliate of Philippine American Life
Insurance Co. (Philamlife), organized by the letter to
perform collection, consultative and other technical
services, including functioning as an internal auditor, of
Philamlife and its other affiliates. On January 24, 1992,
the Bureau of Internal Revenue (BIR) issued an
assessment to private respondent COMASERCO for
deficiency value-added tax (VAT) amounting to
P351,851.01, for taxable year 1988
COMASERCO stressed that it was not profit-motivated
"only on reimbursement-of-cost basis.", thus not
engaged in business. In fact, it did not generate profit
but suffered a net loss in taxable year 1988.
COMASERCO averred that since it was not engaged in
business, it was not liable to pay VAT.
CTA rendered decision in favor of the Commissioner of
Internal Revenue and CA rendered decision reversing
that of the CTA. The Court of Appeals, in that case,
reasoned that COMASERCO was not engaged in
business of providing services to Philamlife and its
affiliates. In the same manner, the Court of Appeals held
that COMASERCO was not liable to pay VAT for it was
not engaged in the business of selling services.
Commissioner of Internal Revenue filed with this Court
a petition for review on certiorari assailing the decision
of the Court of Appeals
Issue: W/N COMASERCO was engaged in the sale of
services, and thus liable to pay VAT?
Held: Yes, COMASERCO was engaged in the sale of
services, and thus liable to pay VAT
Under the Tax Code, the phrase "in the course of trade
or business" means the regular conduct or pursuit of a
commercial or an economic activity, including
transactions incidental thereto, by any person
regardless of whether or not the person engaged therein
is a nonstock, nonprofit organization (irrespective of the
disposition of its net income and whether or not it sells
exclusively to members of their guests), or government
entity.
VAT is a tax on transactions, imposed at every stage of
the distribution process on the sale, barter, exchange of
goods or property, and on the performance of services,
even in the absence of profit attributable thereto. The
term "in the course of trade or business" requires the
regular conduct or pursuit of a commercial or an
economic activity regardless of whether or not the entity
is profit-oriented. It is immaterial whether the primary
purpose of a corporation indicates that it receives
payments for services rendered to its affiliates on a
reimbursement-on-cost basis only, without realizing
profit, for purposes of determining liability for VAT on
services rendered. As long as the entity provides service
for a fee, remuneration or consideration, (in this case
the " reimbursement-of-cost basis"), then the service
rendered is subject to VAT.
4. RENATO V. DIAZ and AURORA MA. F. TIMBOL vs.
THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE
G.R. No. 193007 July 19, 2011
Facts:
Upon President Benigno C. Aquino III’s assumption of
office in 2010, the BIR revived the idea and would
impose the challenged tax on toll fees beginning August
16, 2010 unless judicially enjoined. Petitioners hold the
view that Congress did not, when it enacted the NIRC,
intend to include toll fees within the meaning of "sale of
services" that are subject to VAT; that a toll fee is a
"user’s tax," not a sale of services; that to impose VAT
on toll fees would amount to a tax on public service.
Issue:
1. W/N toll fees are within the meaning of "sale or
exchange of services" that are subject to VAT?
2. W/N tax on toll fees amount to a tax on a tax?
Held:
1. Yes, toll fees are included in the phrase "sale or
exchange of services" which are subject to VAT.
Under the Tax Code Section 108 , defines "sale
or exchange of services" which means the performance
of all kinds of services in the Philippines for others for a
fee, remuneration or consideration. The law imposes
VAT on "all kinds of services" rendered in the Philippines
for a fee, including those specified in the list. The
enumeration of affected services is not exclusive.11 By
qualifying "services" with the words "all kinds,"
Congress has given the term "services" an all-
encompassing meaning. Every activity that can be
imagined as a form of "service" rendered for a fee
should be deemed included unless some provision of law
especially excludes it.
In the case at bar, tollway operator is no
different from the following service providers under
Section 108 who allow others to use their properties or
facilities for a fee (example: Lessors of property,
whether personal or real; Warehousing service
operators; Lessors or distributors of cinematographic
films; Proprietors, operators or keepers of hotels,
motels, resthouses, pension houses, inns, resorts;
Lending investors (for use of money); Transportation
contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for
hire and other domestic common carriers by land
relative to their transport of goods or cargoes; and
Common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one
place in the Philippines to another place in the
Philippines). In addition, tollway operators are franchise
grantees and they do not belong to exceptions (the low-
income radio and/or television broadcasting companies
with gross annual incomes of less than P10 million and
gas and water utilities) that Section 11913 spares from
the payment of VAT.
2. No, tax on a toll fees does not amount to a tax
on a tax.
Fees paid by the public to tollway operators for use of
the tollways, are not taxes in any sense. 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. Although
toll fees are charged for the use of public facilities,
therefore, they are not government exactions that can
be properly treated as a tax. Taxes may be imposed only
by the government under its sovereign authority, toll
fees may be demanded by either the government or
private individuals or entities, as an attribute of
ownership.
Moreover, VAT on tollway operations cannot be deemed
a tax on tax due to the nature of VAT as an indirect tax.
In indirect taxation, a distinction is made between the
liability for the tax and burden of the tax. The seller who
is liable for the VAT may shift or pass on the amount of
VAT it paid on goods, properties or services to the
buyer.
(Note: relate this case to the SM case where the Court
lax its coverage on the phrase "sale or exchange of
services")
5. COMMISSIONER OF INTERNAL REVENUE
vs.
SM PRIME HOLDINGS, INC. and FIRST ASIA
REALTY DEVELOPMENT CORPORATION
G.R. No. 183505 February 26, 2010
Applicable doctrines, principle or requisites:
-When the intent of the law is not apparent as worded,
or when the application of the law would lead to
absurdity or injustice, legislative history is all important.
In such cases, courts may take judicial notice of the
origin and history of the law, the deliberations during
the enactment, as well as prior laws on the same
subject matter to ascertain the true intent or spirit of
the law.
Facts: Respondents SM Prime Holdings, Inc. (SM) and
First Asia Realty Development Corporation (First Asia)
are domestic corporations duly organized and existing
under the laws of the Republic of the Philippines. Both
are engaged in the business of operating cinema
houses, among others.
The Bureau of Internal Revenue (BIR) sent SM Prime
and First Asia a Preliminary Assessment Notice (PAN)
for value added tax (VAT) deficiency on cinema ticket
sales. In response, respondents filed a letter-protest.
The BIR denied the protest filed by respondents and
ordered it to pay the VAT deficiency.
Respondents filed a Petition for Review before the CTA,
which rendered judgment in favor of the respondents.
It ruled that the activity of showing cinematographic
films is not a service covered by VAT under the National
Internal Revenue Code (NIRC) of 1997, as amended,
but an activity subject to amusement tax under RA 7160
(LGC). Likewise , CTA En Banc affirmed CTA’s
judgment. CIR filed an appeal to the SC, arguing that
cinema operators/proprietors are not exempt from law
(NIRC).
Issue: W/N ticket sales from operators or proprietors of
cinema/theater houses are subject to VAT?
Held: No, ticket sales from operators or proprietors of
cinema/theater houses are not subject to VAT.
The legislature never intended operators or proprietors
of cinema/theater houses to be covered by VAT. Several
amendments were made to expand the coverage of
VAT. However, none pertain to cinema/theater
operators or proprietors. At present, only lessors or
distributors of cinematographic films are subject to VAT.
However, is not the same as the showing or exhibition
of motion pictures or films of which, basing on CTA En
Banc ruling, Exhibition is to show or display, To produce
anything in public so that it may be taken into
possession. While, lease" is defined as "a contract by
which one owning such property grants to another the
right to possess, use and enjoy it on specified period of
time in exchange for periodic payment of a stipulated
price, referred to as rent. On the other hand, the local
government continued to impose amusement tax on
admission tickets from theaters, cinematographs,
concert halls, circuses and other places of amusements.
Moreover, contrary to the view of petitioner,
respondents need not prove their entitlement to an
exemption from the coverage of VAT. The rule that tax
exemptions should be construed strictly against the
taxpayer presupposes that the taxpayer is clearly
subject to the tax being levied against him. The reason
is obvious: it is both illogical and impractical to
determine who are exempted without first determining
who are covered by the provision. Thus, unless a statute
imposes a tax clearly, expressly and unambiguously,
what applies is the equally well-settled rule that the
imposition of a tax cannot be presumed. In fact, in case
of doubt, tax laws must be construed strictly against the
government and in favor of the taxpayer.
(note: in the discussion, this paragraph was emphasized
by sir: why is it in the case of Diaz, toll fees, the Court
made a more broader coverage on the phrase "sale or
exchange of services" which he (sir) did not explain but
I think ,as stated in the case:
To impose an unreasonable burden on cinema/theater
houses operators or proprietors, who would be paying
an additional 10%55 VAT on top of the 30% amusement
tax imposed by Section 140 of the LGC of 1991, or a
total of 40% tax.
The power of taxation is sometimes called also the
power to destroy. Therefore, it should be exercised with
caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the "hen that lays
the golden egg." And, in order to maintain the general
public's trust and confidence in the Government this
power must be used justly and not treacherously.)
6. TAMBUNTING PAWNSHOP, INC.
vs.
COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 179085 January 21, 2010
Facts:
Petitioner protested the assessment of tax
including VAT, it argued that Pawnshops are not
included in the enumeration under sec 108 of the NIRC.
Issue: W/N Pawnshops are subject to VAT?
Held: No, Pawnshops are not subject to VAT.
Under R.A. No. 9238, pawnshops are classified as Other
Non-bank Financial Intermediaries. Furthermore, under
Sec. 109 par V of NIRC, Exempt transaction, Other Non-
bank Financial Intermediaries are exempted from VAT.
In the case at bar, petitioner being classified as
other non-bank financial intermediaries, are not subject
to VAT.
Note: the digest is short since this case focuses on the
status of a pawnshop in relation to VAT imposition. The
case merely discuss the chronological imposition of VAT
on pawnshop since there are some years that
pawnshops are subject to VAT prior to the effectively of
RA 9238(2004). But as of 2004 pawnshops are exempt
from VAT.
7. COMMISSIONER OF INTERNAL REVENUE
vs.
PHILIPPINE HEALTH CARE PROVIDERS, INC.
G.R. No. 168129 April 24, 2007
(This case has the same discussion with the Medicard
Philippine case (case # 11) ,a CTA case, which discuss
the tax implication on this kind of health provider
scheme)
Facts:
The Philippine Health Care Providers, Inc.
(PHILHEALTH), herein respondent, is a corporation
organized and existing under the laws of the Republic of
the Philippines. Pursuant to its Articles of
Incorporation,2 its primary purpose is "To establish,
maintain, conduct and operate a prepaid group practice
health care delivery system or a health maintenance
organization to take care of the sick and disabled
persons enrolled in the health care plan and to provide
for the administrative, legal, and financial
responsibilities of the organization." (you may go
directly to the issue)
CIR, through the VAT Review Committee of the Bureau
of Internal Revenue (BIR), issued VAT Ruling No. 231-
88 stating that respondent, as a provider of medical
services, is exempt from the VAT coverage.
Meanwhile, on January 1, 1996 R.A. No. 7716
(Expanded VAT or E-VAT Law) took effect, amending
further the National Internal Revenue Code of 1977. In
1999, BIR sent respondent a Preliminary Assessment
Notice for deficiency in its payment of the VAT and
documentary stamp taxes (DST) for taxable years 1996
and 1997. Respondent filed a protest but CIR did not
take any action, which lead for the respondent to file a
Petition to Review before the CTA.
CTA ordered the respondent to pay the deficiency VAT,
which respondent filed a Motion for Reconsideration.
CTA granted respondent's motion, which held that
petitioner is a service contractor subject to VAT since it
does not actually render medical service but merely acts
as a conduit between the members and petitioner's
accredited and recognized hospitals and clinics.
However, petitioner is entitled to the benefit of non-
retroactivity of rulings guaranteed under Section 246 of
the Tax Code, in the absence of showing of bad faith on
its part. Since petitioner relied on VAT Ruling No. 231-
88
Petitioner seasonably filed with the CA a petition for
review, but CA affirmed the CTA.
Issue: W/N PHILHEALTH is subject to VAT?
Held: Yes, PHILHEALTH is subject to VAT.
Under the Tax Code, medical, dental, hospital and
veterinary services except those rendered by
professionals are exempt from VAT. However,
PHILHEALTH is not actually rendering medical service
but merely acting as a conduit between the members
and their accredited and recognized hospitals and
clinics. It merely provides and arranges for the provision
of pre-need health care services to its members for a
fixed prepaid fee for a specified period of time, its
services are not VAT-exempt
The Court made its ruling base on the following
conclusions:
a) Respondent "is not actually rendering medical service
but merely acting as a conduit between the members
and their accredited and recognized hospitals and
clinics."
b) It merely "provides and arranges for the provision of
pre-need health care services to its members for a fixed
prepaid fee for a specified period of time."
c) It then "contracts the services of physicians, medical
and dental practitioners, clinics and hospitals to perform
such services to its enrolled members;" and
d) Respondent "also enters into contract with clinics,
hospitals, medical professionals and then negotiates
with them regarding payment schemes, financing and
other procedures in the delivery of health services."
8. PHILIPPINE AMUSEMENT AND GAMING
CORPORATION (PAGCOR),
vs.
THE BUREAU OF INTERNAL REVENUE (BIR)
G.R. No. 172087 March 15, 2011
Facts:
PAGCOR was created pursuant to Presidential Decree
(P.D.) No. 1067-A on January 1, 1977. Simultaneous to
its creation, P.D. No. 1067-B (supplementing P.D. No.
1067-A) was issued exempting PAGCOR from the
payment of any type of tax, except a franchise tax of
five percent (5%) of the gross revenue. Thereafter, on
June 2, 1978, P.D. No. 1399 was issued expanding the
scope of PAGCOR's exemption.
National Internal Revenue Code of 1997, took effect.
Section 27 (c) of R.A. No. 8424 provides that
government-owned and controlled corporations
(GOCCs) shall pay corporate income tax, except
petitioner PAGCOR. On May 24, 2005, certain sections
of the National Internal Revenue Code of 1997 were
amended (RA 9337) excluding PAGCOR from the
enumeration of GOCCs that are exempt from payment
of corporate income tax of which the Court upheld its
constitutionality.
Subsequently, BIR issued RR No. 16-2005, specifically
identifying PAGCOR as one of the franchisees subject to
10% VAT
Issue: W/N PAGCOR can be subject to VAT?
Held: No, PAGCOT cannot be subject to VAT
Under P.D. 1869, the charter creating PAGCOR, grants
the latter an exemption from the payment of taxes.
Section 13 expressly provides that no tax of any kind or
form, except Franchise Tax of five (5%) percent of the
gross revenue or earnings derived by the Corporation
from its operation under this Franchise. In the above
provisos clearly gives PAGCOR a blanket exemption to
taxes with no distinction on whether the taxes are direct
or indirect. Furthermore, under the Tax Code,
transactions which are exempt under international
agreements to which the Philippines is a signatory
or under special laws are exempt from tax.
The BIR exceeded its authority in subjecting PAGCOR to
10% VAT under RR No. 16-2005; hence, the said
regulatory provision is hereby nullified.
Question: if PAGCOR will rent/lease an office or
building, will PAGCOR be liable for the VAT passed
on by its owner/lessor?
No, Services rendered to persons or entities whose
exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero
(0%) rate (emphasis supplied).
The rationale for the exemption from indirect taxes
provided for in P.D. 1869 and the extension of such
exemption to entities or individuals dealing with
PAGCOR in casino operations are best elucidated from
the 1987 case of Commissioner of Internal
Revenue v. John Gotamco & Sons, Inc., where the
absolute tax exemption of the World Health
Organization (WHO) upon an international agreement
was upheld. We held in said case that the exemption of
contractee WHO should be implemented to mean that
the entity or person exempt is the contractor itself who
constructed the building owned by contractee WHO, and
such does not violate the rule that tax exemptions are
personal because the manifest intention of the
agreement is to exempt the contractor so that no
contractor's tax may be shifted to the contractee WHO.
Thus, the proviso in P.D. 1869, extending the exemption
to entities or individuals dealing with PAGCOR in casino
operations, is clearly to proscribe any indirect tax, like
VAT, that may be shifted to PAGCOR.
9. SILICON PHILIPPINES, INC., (Formerly INTEL
PHILIPPINES MANUFACTURING, INC.)
vs.
COMMISSIONER OF INTERNAL REVENUE,
G.R. No. 172378 January 17, 2011
Applicable doctrines, principle or requisites:
Credit/refund of input VAT on zero-rated sales:
1) the taxpayer must be VAT-registered;
2) the taxpayer must be engaged in sales which are
zero-rated or effectively zero-rated;
3) the claim must be filed within two years after the
close of the taxable quarter when such sales were
made; and
4) the creditable input tax due or paid must be
attributable to such sales, except the transitional input
tax, to the extent that such input tax has not been
applied against the output tax.
Credit/refund of input VAT on capital goods:
1. the claimant must be a VAT registered person;
2. the input taxes claimed must have been paid on
capital goods;
3. the input taxes must not have been applied against
any output tax liability; and
4. the administrative claim for refund must have been
filed within two (2) years after the close of the taxable
quarter when the importation or purchase was made.
Capital goods or properties - refer to goods or properties
with estimated useful life greater that one year and
which are treated as depreciable assets under Section
29 (f),57 used directly or indirectly in the production or
sale of taxable goods or services.
Facts:
Petitioner Silicon Philippines, Inc., a corporation duly
organized and existing under and by virtue of the laws
of the Republic of the Philippines, is engaged in the
business of designing, developing, manufacturing and
exporting advance and large-scale integrated circuit
components or "IC’s." Petitioner is registered with the
Bureau of Internal Revenue (BIR) as a Value Added Tax
(VAT) taxpayer and with the Board of Investments
(BOI) as a preferred pioneer enterprise.
May 21, 1999, petitioner filed with the respondent
Commissioner of Internal Revenue (CIR) an application
for credit/refund of unutilized input VAT for the period
October 1, 1998 to December 31, 1998 in the amount
of ₱31,902,507.50. Due to the inaction of the
respondent, petitioner filed a Petition for Review with
the CTA Division
Division rendered a Decision partially granting
petitioner’s claim for refund of unutilized input VAT on
capital goods. Out of the amount of ₱15,170,082.00,
only ₱9,898,867.00 was allowed to be refunded because
training materials, office supplies, posters, banners, T-
shirts, books, and other similar items purchased by
petitioner were not considered capital goods. With
regard to petitioner’s claim for credit/refund of input
VAT attributable to its zero-rated export sales, the CTA
Division denied the same because petitioner failed to
present an Authority to Print (ATP) from the
BIR; neither did it print on its export sales invoices the
ATP and the word "zero-rated.
Petitioner filed a Motion for Reconsideration contention
that it is not required to show its BIR permit number on
the sales invoices runs counter to the requirements
under the said "Permit." This court also wonders why
petitioner was issuing computer generated sales
invoices during the period involved (October 1998 to
December 1998) when it did not have an authority or
permit. Therefore, we are convinced that such
documents lack probative value and should be treated
as inadmissible, incompetent and immaterial to prove
petitioner’s export sales transaction.
Ruling of the CTA En Banc
The CTA En Banc issued the assailed Decision denying
the petition for lack of merit. This Court reiterates that,
the requirement of [printing] the BIR permit to print on
the face of the sales invoices and official receipts is a
control mechanism adopted by the Bureau of Internal
Revenue to safeguard the interest of the government.
This requirement is clearly mandated under Section
238:
SEC. 238. Printing of Receipts or Sales or Commercial
Invoice. – All persons who are engaged in business shall
secure from the Bureau of Internal Revenue an
authority to print receipts or sales or commercial
invoices before a printer can print the same.
It is not enough that petitioner prove[s] that it is entitled
to its claim for refund by way of substantial evidence.
Issue: W/N petitioner is required to show that it
secured an ATP from the BIR and to indicate the same
in its export sales invoices and to print the word "zero-
rated" in its export sales invoices to claim for refund?
Held: Yes, petitioner is required to show that it secured
an ATP from the BIR and to indicate the same in its
export sales invoices and to print the word "zero-rated"
in its export sales invoices to claim for refund
The ruling is divided in to two: 1)One is a credit/refund
of input VAT attributable to zero-rated sales under
Section 112 and 2) the other is a credit/refund of input
VAT on capital goods pursuant to Section 112 (B) of the
same Code.
1. Credit/refund of input VAT on zero-rated sales
a. Printing the ATP on the invoices or receipts is not
required what is required if proof of ATP from BIR.
It has been settled in Intel Technology Philippines, Inc.
v. Commissioner of Internal Revenue that the ATP need
not be reflected or indicated in the invoices or receipts
because there is no law or regulation requiring it. In the
absence of such law or regulation, failure to print the
ATP on the invoices or receipts should not result in the
outright denial of a claim or the invalidation of the
invoices or receipts for purposes of claiming a refund.
However, while there is no law requiring the ATP to be
printed on the invoices or receipts, Section 238 of the
NIRC expressly requires persons engaged in business to
secure an ATP from the BIR prior to printing invoices or
receipts. Claimant for unutilized input VAT on zero-rated
sales is required to present proof that it has secured an
ATP from the BIR prior to the printing of its invoices or
receipts. Since the ATP is not indicated in the invoices
or receipts, the only way to verify whether the invoices
or receipts are duly registered is by requiring the
claimant to present its ATP from the BIR. Without this
proof, the invoices or receipts would have no probative
value for the purpose of refund.
b. Failure to print the word "zero-rated" on the sales
invoices is fatal to a claim for refund of input VAT.
In Panasonic Communications Imaging Corporation of
the Philippines (formerly Matsushita Business Machine
Corporation of the Philippines) v. Commissioner of
Internal Revenue, we upheld the denial of Panasonic’s
claim for tax credit/refund due to the absence of the
word "zero-rated" in its invoices. We explained that
compliance with Section 4.108-1 of RR 7-95, requiring
the printing of the word "zero rated" on the invoice
covering zero-rated sales, is essential as this regulation
proceeds from the rule-making authority of the
Secretary of Finance under Section 244 of the NIRC.
All told, the non-presentation of the ATP and the failure
to indicate the word "zero-rated" in the invoices or
receipts are fatal to a claim for credit/refund of input
VAT on zero-rated sales. The failure to indicate the ATP
in the sales invoices or receipts, on the other hand, is
not. In this case, petitioner failed to present its ATP and
to print the word "zero-rated" on its export sales
invoices.
2. Credit/refund of input VAT on capital goods pursuant
to Section 112 (B) of the same Code.
We find no reason to deviate from the findings of the
CTA that training materials, office supplies, posters,
banners, T-shirts, books, and the other similar items
reflected in petitioner’s Summary of Importation of
Goods are not capital goods
Petition is denied
10. FORT BONIFACIO DEVELOPMENT
CORPORATION,
vs.
COMMISSIONER OF INTERNAL REVENUE and
REVENUE DISTRICT OFFICER, REVENUE DISTRICT
NO. 44, TAGUIG and PATEROS, BUREAU OF
INTERNAL REVENUE,
G.R. No. 173425 September 4, 2012
Facts:
In 1995, Fort Bonifacio Development Corporation
purchased from the national government a portion of
the Fort Bonifacio reservation. On January 1, 1996, the
enactment of RA 7716 extended the coverage of VAT to
real properties held primarily for sale to customers or
held for lease in the ordinary course of trade or
business. Thus, FBDC sought to register by submitting
to BIR an inventory of all its real properties, the book
value of which aggregated to about P71 B.
In October 1996, FBDC started selling Global City lots to
interested buyers. For the first quarter of 1997, it paid
the output VAT by making cash payments to the BIR
and credited its unutilized input tax credit on purchases
of goods and services. Realizing that its 8% transitional
input tax credit was not applied in computing its output
VAT for the first quarter of 1997, FBDC filed with the
BIR a claim for refund of the amount erroneously paid
as output VAT for the said period.
The CTA denied refund on the ground that “the benefit
of transitional input tax credit comes with the condition
that business taxes should have been paid first.” It
contends that since FBDC acquired the Global City
property under a VAT-free sale transaction, it cannot
avail of the transitional input tax credit. The CTA
likewise pointed out that under RR 7-95, implementing
Section 105 of the old NIRC, the 8% transitional input
tax credit should be based on the value of
the improvements on land such as buildings, roads,
drainage system and other similar structures,
constructed on or after January 1, 1998, and not on
the book value of the real property.
Issue 1: W/N prior payment of taxes is required in
availing of the transitional input tax credit
No. First, nothing in Sec 105 of the NIRC indicates that
prior payment of taxes is necessary to avail of the
transitional input tax credit. Clearly, all it requires is for
the taxpayer to file a beginning inventory with the BIR.
Courts cannot limit the application or coverage of a law
nor can it impose conditions not provided therein
because to do so constitutes judicial legislation.
Second, prior payment of taxes is not required to avail
of the transitional input tax credit because it is not a tax
refund per se but a tax credit. Tax credit is not
synonymous to tax refund. Tax refund is defined as the
money that a taxpayer overpaid and is thus returned by
the taxing authority. Tax credit, on the other hand, is
an amount subtracted directly from one’s total tax
liability. It is any amount given to a taxpayer as a
subsidy, a refund, or an incentive to encourage
investment. Thus, unlike a tax refund, prior payment of
taxes is not a prerequisite to avail of a tax credit.
Lastly, the fact that FBDC acquired the Global City
property under a tax-free transaction makes no
difference as prior payment of taxes is not a pre-
requisite.
Issue 2: W/N the transitional input tax credit applies
only to the value of improvements
No. Section 4.105-1 of RR 7-95, insofar as it limits the
transitional input tax credit to the value of
the improvement of the real properties, is a nullity. The
8% transitional input tax credit should not be limited to
the value of the improvements on the real properties
but should include the value of the real properties as
well.
Hence, since FBDC is entitled to the 8% transitional
input tax credit which is more than sufficient to cover its
output tax for the first taxable quarter, the amount of
VAT output taxes erroneously paid must be refunded.
Issue 3: W/N the Tax Code allows either a cash refund
or a tax credit for input VAT
Yes. First, a careful reading of Section 112 of the Tax
Code shows that it does not prohibit cash refund or tax
credit of transitional input tax in the case of zero-rated
or effectively zero-rated VAT registered taxpayers, who
do not have any output VAT.
The phrase “except transitional input tax” in Section 112
of the Tax Code was inserted to distinguish creditable
input tax from transitional input tax credit. Transitional
input tax credits are input taxes on a taxpayer’s
beginning inventory of goods, materials, and supplies
equivalent to 8% (then 2%) or the actual VAT paid on
such goods, materials and supplies, whichever is higher.
It may only be availed of once by first-time VAT
taxpayers. Creditable input taxes, on the other hand,
are input taxes of VAT taxpayers in the course of their
trade or business, which should be applied within two
years after the close of the taxable quarter when the
sales were made.
As regards Section 110, while the law only provides for
a tax credit, a taxpayer who erroneously or excessively
pays his output taxis still entitled to recover the
payments he made either as a tax credit or a tax refund.
Here, since FBDC still has available transitional input tax
credit, it filed a claim for refund to recover the output
VAT it erroneously or excessively paid for the 1st
quarter of 1997. Thus, there is no reason for denying its
claim for tax refund/credit.
PERTINENT RRs, RMCs, Rulings
RMC 39-2007
Only the agency fee in the Security agency is subject to
VAT.
RMC 34-2008, RMC 77-2008
The compensation, honoraria, allowances and alike of
the director who is not an employee is not subject to
VAT since it does not fall within the meaning of in the
course of trade or business.
RMC 6-2009
HMOs are subject to VAT and the basis for computing
the VAT shall be the membership fees received from the
members undiminished by any amount paid or payable
to owners/operators of hospitals, clinics and medical
and dental practitioners.
RR 16-2013
The obligations to the BIR of exhibitor or
organizer are the following:
a. Obligation to post in a conspicuous place the
Certificate of Registration of the organizer issued by the
BIR
b. Obligation to deduct and withhold Expanded
Withholding Tax on lease payments to the lessor of real
property
c. Obligation to provide the Revenue District Office
(RDO) with the list of names, residence addresses, stall,
slot or unit number in the privilege store outlet, location
site of the privilege store outlet, individual Taxpayer
Identification Number (TIN) of persons/entities
participating in the event or exhibit and the specific
dates and duration when such operations shall be
conducted
d. Obligation to ensure compliance of lessees/tenants to
the following: presentation of
TIN and Official Receipts/Sales or Commercial Invoice;
submission of Information Statement on Privilege Store
Activities indicating the duration (total number of days)
of business operations and presentation of proof of
payment of actual withholding tax due on its income
payment
e. Obligation to keep Books of Accounts and issue
receipts
f. Obligation to provide Cash Register Machines/Point-
of-Sale (CRM/POS) Machines for each privilege store
operator, or centralized CRM/POS/Payment Centers, or
allow the use of its own manual Official Receipts/Sales
or Commercial Invoices for the exclusive use by its
Privilege Store Operators to monitor the sales of the
latter
g. Obligation to ensure the submission of List of Sales
within 5 days after the privilege store operation
h. Obligation to report to the BIR non-compliance by the
privilege store operators/lessees with their obligations
and responsibilities
The obligations to the BIR of privilege store
operators are the following:
a. Obligation to deduct and withhold the Expanded
Withholding Tax on rental payments to
exhibitor/organizer for sub-leased spaces or
lessor/owner of leased property
b. Obligation to file Income Tax returns
c. Obligation to submit Information Statement on
Privilege Store Activities
d. Obligation to keep Books of Accounts and issue
receipts/sales or commercial invoices
e. Obligation to submit List of Sales on Privilege Store
Activities to the exhibitor/organizer
The obligations to the BIR of lessees/tenants not
classified as “Privilege Store Operators” (regular
taxpayers) are the following:
a. Obligation to deduct and withhold the Expanded
Withholding Tax on rental payments to
exhibitor/organizer for sub-leased spaces or
lessor/owner of leased property
b. Obligation to keep Books of Accounts and issue
receipts/sales or commercial invoices
c. Obligation to file Income, Withholding, Business
(Percentage or Value- Added) and other tax returns, and
pay the correct amount of taxes
d. Obligation to file other information returns
A privilege store operator whose business operation/s is
more than 15 days ceases to be as such and shall
thenceforth be governed by existing revenue laws and
regulations applicable to regular taxpayers.
The RDOs shall be primarily responsible in monitoring
compliance by the organizer/exhibitor of his/its
obligations imposed herein and the activities of any
privilege store operating within their respective
jurisdictions, as well as in validating the list furnished
by the exhibitor/organizer with respect to such
information regarding the identity of the participants,
the number of participants and the duration of the
exhibit. The validation of the participants, as reported
by the exhibitor/organizer, shall be made through the
BIR’s existing registration system.
Based on the list provided by the exhibitor/organizer,
the RDO shall recommend the issuance by the Regional
Director of Mission Order/s directing the deployment of
Revenue Officers (ROs) who shall be in-charged of
physically checking compliance by the
exhibitor/organizer, privilege store operators and
regular taxpayers with their obligations as enumerated
above, particularly the filing of tax returns (i.e. Income
Tax returns, Percentage or Value-Added Tax returns,
etc.).
RMC. 55-2014
Sec.4.109-1- VAT Exempt Transactions.-
xxxxxx
(B) Exempt transactions. –
(1) Subject to the provisions of Sec. 4.109-2 hereof, the
following transactions shall be exempt from VAT:
xxxx
(b) Sale or importation of fertilizers, seeds, seedlings
and fingerlings, fish, prawn, livestock and poultry feeds,
including ingredients, whether locally produced or
imported, used in the manufacture of finished feeds
(except specialty feeds for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally
considered as pets)
“Specialty feeds” refers to non-agricultural feeds or
food for race horses, fighting cocks, aquarium fish, zoo
animals and other animals generally considered as pets
The above provision exempts from VAT the sale or
importation of livestock and poultry feeds or ingredients
used in the manufacture of finished feeds. It has been
noted, however, that some ingredients of finished feeds
may also be used for the production of food for human
consumption.
B. REQUIREMENT FOR EXEMPTION
To give effect to the legislative intent that only livestock
and poultry feeds or ingredients used in the
manufacture of finished feeds are exempted from VAT,
it is hereby clarified that the sale or importation of
ingredients which may also be used for the production
of food for human consumption shall be subject to VAT.
Thus, for the sale or importation of livestock and poultry
feeds or ingredients used in the manufacture of finished
feeds to be exempt from VAT, there must be a showing
that the same is unfit for human consumption or that
the ingredient cannot be used for the production of food
for human consumption as certified by the Food and
Drug Administration (FDA).
RMC 7-2014
Marginal Income Earner is an individual not deriving
compensation as an employee under an employer-
employee relationship but who is self-employed and
deriving gross sales or receipts not exceeding P 100,000
in any 12-month period. Moreover, the activities of MIE
should be principally for subsistence or livelihood.
The MIE shall include but not limited to agricultural
growers/producers (farmers/fishermen) selling directly
to ultimate consumers, small sari-sari stores, small
carinderias or “turo-turos”, drivers/operators of a single
unit tricycle, and such, but shall not include licensed
professionals, consultants, artists, sales agents, brokers
and others similarly situated, including all others whose
income have been subjected to withholding tax.
The incidence of being a MIE, as required under RR No.
7-2012, covers the following privileges and minimum
registration and tax compliance requirements:
a. Registration with the BIR using BIR Form 1901 with
the following minimal documentary requirements:
i. Sworn Statement of Income for the year; and
ii. National Statistics Office Certified or Local Civil
Registry Birth Certificate;
b. Exemption from the payment of Annual Registration
Fee;
c. Registration of Books of Accounts (e.g. two-column
journal or other simplified books for daily expenses and
revenues);
d. Issuance of registered principal receipts/sales
invoices as prescribed under Revenue Memorandum
Order No. 12-2013;
e. Filing and payment of Annual Income Tax Return
using BIR Form 1701 similar to any other self-employed
individuals; and
f. Exemption from payment of business taxes (i.e.
Value-Added Tax or any Percentage Tax).
The BIR District Office, upon evaluation of application
for registration, shall issue the Certificate of Registration
and shall likewise ensure compliance with the
registration of books of accounts and issuance of
Authority To Print for their Principal Receipts/Sales
Invoices.
RMC 55-2013
The most common types of online business transactions
in the Philippines are the following:
a. Online Shopping or Online Retailing
b. Online Intermediary Service
c. Online Advertisement/Classified Ads
d. Online Auction
Like any other business establishments, persons who
conduct business through online transactions and its
permutations have the following obligations:
a) Register the business at the Revenue District
Office (RDO) having jurisdiction over the
principal place of business/head office (or
residence in case of individuals) by
accomplishing BIR Form 1901 (for individuals)
or 1903 (for corporations or partnerships) and
paying the registration fee to any Authorized
Agent Bank (AAB) located within the RDO.
b) Secure Authority to Print (ATP)
invoices/receipts and register books of accounts
for use in business, which may either be: a)
manual books of accounts, booklets of
invoices/receipts, accounting records or loose-
leaf of such; or b) Computerized
Accounting System and/or its components
including e-Invoicing System.
c) Issue registered invoice or receipt, either
manually or electronically, for every sale,
barter, exchange or lease of goods and
properties, as well as for every sale, barter, or
exchange of service, following the information
requirements prescribed under existing revenue
issuances.
d) Withhold required creditable/expanded
withholding tax, final tax, tax on compensation
of employees and other withholding taxes and
remit the same to the BIR at the time or times
required, and issue to the concerned payees the
necessary Certificate of Tax Withheld.
e) File applicable tax returns on or before the due
dates, pay correct internal revenue taxes and
submit information returns and other tax
compliance reports such as the Summary List of
Sales/Purchases, Annual Alpha List of Payees,
etc., at the time or times required by existing
 rules and regulations; and
f) Keep books of accounts and other
business/accounting records within the time
prescribed by law, which should be made
available anytime for inspection and verification
by duly authorized Revenue Officer/s for the
purpose of ascertaining compliance with tax
rules and regulations.
The existing tax laws and revenue issuances on the tax
treatment of purchases (local or imported) and sale
(local or international) of goods (tangible or intangible)
or services shall be equally applied with no distinction
on whether or not the marketing channel is the
internet/digital media or the typical and customary
physical medium.
The specific obligations and duties/basic compliance of
parties to different types of online transactions (whether
payment is thru credit card companies, thru banks, or
cash on delivery or in the office of merchant) are
specified in the Circular.
Any person engaged in internet commerce who fails to
comply with applicable tax laws, rules and regulations
shall be subject to the imposition of penalties provided
for under the existing laws, rules and regulations, in
addition to the imposition of penalties pursuant to the
applicable Section/s under Chapters II and IV, Title X of
the National Internal Revenue Code of 1997, as
amended.
RMC 75-2012
In order to be exempted from VAT, a newspaper,
magazine, review or bulletin must be:
(i) printed or published at regular intervals; (ii) available
for subscription and sale at fixed prices;
and (iii) are not principally devoted to the publication of
paid advertisements.
The terms “book”, “newspaper”, “magazine”, “review”
and ”bulletin”, as used in the said provision, refer to
printed materials in hard copies. They do not include
those in digital or electronic format or computerized
versions, including but not limited to e-books, e-
journals, electronic copies, online library sources, CDs
and software.
RMC 65-2012
For tax purposes, the association dues, membership
fees and other assessment/charges collected by a
condominium corporation constitute income payments
or compensation for the beneficial services it provides
to its members and tenants.
Accordingly, the gross receipts of condominium
corporations including association dues, membership
fees and other assessments/charges are subject to VAT
and Income Tax, and income payments made to it are
subject to applicable withholding taxes under existing
regulations.
RMC 64-2012
Apart from applicable Income Taxes and Withholding
Taxes, a professional is liable to Value-Added Tax (VAT)
at the rate of 12% if his gross receipts/professional fees
for the past 12 months is more than P1,919,500.00. A
professional is likewise liable to register as a VAT-
taxpayer if there are reasonable grounds to believe that
his gross receipts/professional fees for the next 12
months will exceed P1,919,500.00. If he fails to
register, he shall be liable to pay the 12% output tax
under Section 108 of the 1997 Tax Code, as amended,
as if he were a VAT-registered person, but without the
benefit of input tax credits for the period in which he
was not properly registered.
A professional is liable to Percentage Tax at the rate of
3% if his gross receipts/professional fees for the past 12
months is equal to or is below P1,919,500.00 and he is
not a VAT-registered person.
If the professional registers as a VAT-person, he shall
be liable to VAT upon registration as VAT taxpayer and
not to Percentage Tax, irrespective of the amount of his
gross receipts/professional fees. A professional who is
not required to register for VAT may elect to be VAT-
registered but he shall not be allowed to cancel such
registration for the next 3 years counted from the
quarter when the election was made.
RR 13-2012
"Section 4.106-3 Sale of Real Properties. - Sale of real
properties held primarily for sale to customers or held
for lease in the ordinary course of trade or business of
the seller shall be subject to VAT.
xxxxxxxxx
This includes sale, transfer or disposal within a 12-
month period of two or more adjacent residential lots,
house and lots or other residential dwellings in favor of
one buyer from the same seller, for the purpose of
utilizing the lots, house and lots or other residential
dwellings as one residential area wherein the aggregate
value of the adjacent properties exceeds P
1,919,500.00, for residential lots and P 3,199,200.00
for residential house and lots or other residential
dwellings. Adjacent residential lots, house and lots or
other residential dwellings although covered by
separate titles and/or separate tax declarations, when
sold or disposed to one and the same buyer, whether
covered by one or separate Deed/s of Conveyance, shall
be presumed as a sale of one residential lot, house and
lot or residential dwelling.
This however, does not include the sale of parking lot
which may or may not be included in the sale of
condominium units. The sale of parking lots in a
condominium is a separate and distinct transaction and
is not covered by the rules on threshold amount not
being a residential lot, house & lot or a residential
dwelling, thus, should be subject to VAT regardless of
amount of selling price.”
RMC 35-2012
The income of recreational clubs from whatever source,
including but not limited to membership fees,
assessment dues, rental income and service fees are
subject to Income Tax.
Any person regardless of whether or not the person
engaged therein is a non-stock, nonprofit private
organization or government entity” is liable to pay
Value-Added Tax (VAT) on the sale of goods or services.
The gross receipts of recreational clubs including but not
limited to membership fees, assessment dues, rental
income, and service fees are subject to VAT
RR 7-2012
issued on April 2, 2012 amends the consolidated
Revenue Regulations on primary registration, updates
and cancellation, particularly on the following:
a. Registration, updates and cancellation procedures;
b. Venue, Forms & Documentary Requirements;
c. Annual Registration Fee;
d. Certification Fee; and
e. Penalties for registration-related violations.
The venue, forms and documentary requirements for
the registration of each type of applicant-taxpayer are
listed in Annex “A” of the Regulations. Application for
Taxpayer Identification Number (TIN) with incomplete
documentary requirements shall not be processed.
The TIN, once assigned to a particular taxpayer, is non-
transferable and there shall be no instance where two
or several taxpayers are holders of the same TIN. Only
one TIN shall be assigned to the taxpayer, regardless of
variety of transactions e.g. employee who is at the same
time engaged in business. Once assigned with a TIN, a
taxpayer is precluded from applying for another TIN,
except for banks with both Regular Banking Unit and
with Foreign Currency Deposit Unit where each unit is
assigned with different TINs. Any person who shall
secure more than one TIN shall be subject to the penalty
prescribed under Section 15 of the Regulations.
The estate of a deceased person or a trust under an
irrevocable trust agreement shall be issued a TIN
separate and distinct from the TIN of the deceased
person and/or trustee.
Minors who are earning and/or who are under the
circumstances prescribed under Executive Order (EO)
No. 98, series of 1998 shall be supplied with TIN.
Non-Resident Aliens Not Engaged in Trade or Business
(NRANETB) or Non-Resident Foreign Corporations
(NRFC) shall be issued TINs for purposes of withholding
taxes on their income from sources within the
Philippines. The withholding agent shall apply for the
TIN in behalf of the NRANETB or NRFC prior to or at the
time of the filing of their monthly Withholding Tax
Return as applicant under EO 98, Series of 1998.
Branches of identified Large Taxpayer shall be
registered at the Large Taxpayers Service (LTS) where
the Head Office (HO) is registered. All incorporators of
corporations/associations (stock and non-stock),
partners of partnerships and members of cooperatives
must have TINs.
While the application and issuance of TIN is generally
made through the concerned BIR district office, the
same, upon certain circumstances provided for by
existing rules and regulations, may be obtained either
through the e-REG facility in the BIR website, or through
the Security and Exchange Commission or through other
facilities/agencies as may be made available in the
future.
Applicants whose TINs have been secured through the
e-REG facility shall complete their registration with the
BIR district office (e.g. persons to engage in
business/practice of profession), but shall no longer be
required to fill out the forms for “Application for
Registration”. Instead, a printout of the “System
Confirmation Page” and the filled out on-line “BIR Form
1901”, which is the proof of e-TIN registration, shall be
submitted to the concerned BIR district office, together
with the prescribed documentary requirements.
In the case of corporations/partnerships (including
GOCCs), which upon registration with the SEC has
already been assigned with a TIN, the “Application for
Registration” (BIR Form 1903) shall be completed and
submitted to the BIR district office which has jurisdiction
over its principal place of business. The articles of
incorporation, together with the SEC Registration
Certificate where the TIN is indicated, as well as proof
of authority given to its representative must be
submitted to the concerned BIR district office during the
completion of registration of its business. The
submission of a Mayor’s Permit prior to registration is
mandatory. Provided, however, that if it is still in
process with the concerned Local Government Unit
(LGU), a duly stamped “Received” application for
Mayor’s Permit will temporarily suffice to qualify him/
her/ it for registration, provided, further that a duly
approved permit shall be submitted within 30 calendar
days from date of registration. Failure to submit the
same shall subject the taxpayer to Tax Compliance
Verification Drive/ocular inspection to be conducted by
the BIR district office.
Consequently, if upon validation it can be determined
that the business is non-existent and fails to file
regularly the tax returns/declarations for his/her/its
registered tax types, the BIR district officeshall observe
the procedures on tagging of the taxpayer’s status as
“Inactive”.
Business taxpayers and those required to issue receipts,
shall submit the following requirements to complete
their registration:
a. Application for Authority to Print (ATP)
Receipts/Invoices;
b. Registration of Manual Books of Accounts; or
c. Application for Permit to use Computerized
Accounting System (CAS) or components thereof, if
applicable;
d. Application for Permit to use Loose Leaf Accounting
Records, if applicable;
e. Application for Permit to use Cash Register Machine
(CRM)/Point of Sales (POS)
Machines, and the like, if applicable;
f. Permit to Operate for taxpayers engaged in
activities/transactions involving products subject to
excise taxes.
As a general rule, it shall be mandatory for the BIR
district office to process and issue simultaneously the
Certificate of Registration (COR), ATP and register the
books of accounts of business taxpayers immediately
after registration and upon complete submission of the
requirements within the period prescribed under the
existing process provided by the BIR Citizen’s Charter.
The BIR district office must ensure that taxpayers will
be issued their registration certificates/permits (COR,
ATP, Books of Accounts) upon commencement of their
business.
Issuance of TIN Card for the first time shall be free of
charge subject to the provisions of Section 15 of the
Regulations. The same must be processed and released
to the applicant within the same day upon submission
to the BIR district office of complete documentary
requirements after the cut-off period of 1:00 p.m. TIN
Cards shall be automatically issued to registered
taxpayers except those TINs issued under EO 98, series
of 1998/ONETT wherein issuance of the TIN card is
optional and only upon request to the BIR district office
where the taxpayer is registered.
For eREG applicants who are employees or those
registered under EO 98 whose TIN are generated by
Employers/Authorized Users, the “System Confirmation
Page” and filled out online BIR Form 1902/BIR Form
1904T shall be presented to the concerned BIR district
office for the issuance of the TIN card. The concerned
BIR district office shall only issue the TIN card upon
submission of the documents prescribed in Annex "A" of
the Regulations
The cost of processing of the initial TIN Card shall not
be charged and collected from the applicant.
Subsequent requests for the issuance of TIN Card due
to loss or damage shall be charged with a fee amounting
to P100.00, subject to change upon evaluation and
approval of the Commissioner of Internal Revenue
(CIR), to cover cost of reprinting. Applications for TIN
Card of registered taxpayers can be made at any
computerized BIR district office regardless of registered
address of applicant.
Individuals engaged in business or practice of profession
and juridical entities, unless otherwise exempted, shall:
a. Pay Annual Registration Fee (ARF), if applicable;
b. Secure COR;
c. Proceed to Secondary Registration;
d. Get “Ask for Receipt” notice, if applicable; and
e. Attend the taxpayer’s initial briefing to be conducted
by the BIR district office for new registrants in order to
apprise them of their rights and duties/responsibilities.
In lieu of the briefing, the BIR district office may
distribute information materials on registration to its
new applicants in CD format to be developed by the
Taxpayer Assistance Service.
Every person subject to any internal revenue tax to be
filed/paid periodically shall complete its registration with
the BIR as follows:
a. For self-employed individuals, estates and trusts,
corporations and their branches, if any
– on or before the commencement of business
b. For corporations (Taxable or Non-taxable)/ONETT –
before payment of any tax due
c. For partnerships, associations, cooperatives,
Government Agencies and Instrumentalities
(GAIs) – before or upon filing of any applicable tax
return, statement or declaration as
required by the Code, as amended
d. For employees or individuals who are registering with
the BIR for the first time by
reason of employment – within 10 days from date of
employment
e. For individuals required to secure TIN for their
transactions with government agencies (applications
under EO 98, series of 1998) – they shall apply for their
TIN from any BIR district office (thru the eREG System)
at any time before they complete their transaction with
the government agency
The COR shall only be issued to individuals engaged in
business or practice of profession and to juridical
persons (whether taxable or exempt) by the BIR district
office concerned (i.e., BIR district office of
HO/Branch/Facility) upon compliance with the
requirements for registration. Issuance of COR, whether
upon registration or upon update of taxpayer’s
information, is not subject to payment of Certification
Fee unless the taxpayer requested for a certified copy
of said COR, in which case, the same shall be subject to
the payment of Certification Fee.
Employees, ONETT taxpayers, and/or persons who have
secured a TIN under EO 98, series of 1998 with the BIR
shall not be issued a COR. On the other hand, each HO
and/or branch shall be issued with a COR within the
period/time prescribed under the existing “BIR Citizens
Charter”.Persons issued with COR shall post or exhibit
his/its original COR and duly validated ARF Return at
his/its principal place of business and at each branch
and/or facility in a way that is clearly and easily visible
to the public.
An ARF in the amount of P 500.00 for every HO and/or
branch shall be paid upon registration and every year
thereafter on or before January 31. However, the
following shall be exempt from the imposition of ARF:
a. Cooperatives duly registered with the Cooperative
Development Authority;
b. Individual residents earning purely compensation
income
c. OCWs/OFWs;
d. Marginal Income Earners;
e. GAIs, in the discharge of their governmental
functions;
f. LGUs, in the discharge of their governmental
functions;
g. Tax exempt corporations such as those enumerated
under Section 30 of the Code, as amended, in pursuance
of tax-exempt activities;
h. Non-stock/non-profit organizations not engaged in
business;
i. Persons subject to tax under one-time transactions;
j. Persons registered under EO 98, series of 1998; and
k. Facility/ies where no sales transactions occur.
Any profit-oriented activity pursued by GAIs, LGUs
and/or tax-exempt entity, which partakes the nature of
an activity similar to those undertaken by those
engaged in business shall be treated as an activity in
pursuance of a business for which the payment of ARF
must be imposed.
The ARF shall likewise be paid in cases where parts of
the activities or undertakings conducted in a facility of
the business involve sales transactions regardless of the
frequency of the occurrence thereof.
The ARF shall be paid, in full amount, to an Authorized
Agent Bank (AAB) located within the BIR district office
or to the Revenue Collection Officer (RCO) or duly
authorized Treasurer of the City or Municipality where
each place of business or branch is registered, or thru
the BIR accredited payment facilities such as Electronic
Filing and Payment System (EFPS) and G-Cash.
Payment of ARF shall be made thru EFPS for taxpayers
mandated to use EFPS such as Large
Taxpayer, Top 20,000 Corporations, Top 5,000
Individuals, etc. for their respective HO and Branches.
Registration occurring during the interim period of the
initial year shall be imposed with the same full amount
of P 500.00 as ARF.
When any individual who has paid the ARF dies, and the
same business is continued by the person or persons
interested in his estate, those continuing the business
should register as a separate entity reflecting in said
registration that it is pursuing the business enterprise
as heirs of the estate of the decedent. Accordingly, the
person or persons interested in the estate should, within
30 days from the death of the decedent, submit to the
concerned BIR district office inventories of goods or
stocks at the time of death of the registered individual
upon registration and the ARF should be paid. This
requirement shall also be applicable in the case of
transfer of ownership or change of name of the business
establishment.
Every person, who is required to register with the BIR
under Section 4 of the Regulations, shall register each
type of internal revenue tax for which he/it is obligated
to file a return or pay taxes due thereon. Such person
shall update the BIR for any changes in his/its
registration information.
Generally, registration of tax types by a business entity
consists of but not limited to the following internal
revenue taxes/fees:
a. Income tax;
b. Value-Added Tax (VAT) and/or Percentage Tax;
c. Withholding tax on compensation;
d. Creditable Withholding Tax at source on certain
income payments;
e. Final Withholding Tax on certain income payments;
f. Documentary Stamp Tax;
g. Excise tax; and
h. Annual Registration Fee.
The nature of the business to which the taxpayer
belongs shall be taken into consideration in determining
the type of taxes that must be registered.
In order to avoid the generation of invalid “stop-filer”
cases in the BIR’s database, only those tax types, which
the taxpayer is expected to regularly/periodically file the
return and/or pay the tax shall be registered. In case a
taxpayer fails to update his tax types prior to
filing/payment of a tax return, the duly authorized BIR
personnel must register the corresponding tax type for
the Tax Return to be filed/paid except for VAT and/or
Percentage Taxes, which must be applied for by the
taxpayer. The BIR personnel initiating the update in
behalf of the taxpayer must inform him of such update,
in writing, to give due notice on his obligation to
subsequently file the return on a regular basis on or
before the prescribed deadline for filing.
The registration of Income Tax as a tax type does not
automatically carry with it the registration of VAT and/or
Percentage Tax as a covered/registered tax type. For
marginal income earners, the activities of such
individuals are considered principally for subsistence or
livelihood.
Moreover, they are not required to pay any ARF
although they are required to register as taxpayers for
being potential Income and Withholding Tax filers. For
purposes of registration, they will be registered for the
tax type Income Tax and Form Type 1701.
Notwithstanding their exemption from business taxes
and ARF, they are liable to pay Income Taxes similar to
any other individual engaged in business or practice of
profession, after applying the allowable deductions
against their Gross Income/Sales/Receipts and
personal/additional exemptions granted under the Tax
Code.
For those enjoying Income Tax holidays, or exemption
from other taxes for a limited time, as granted pursuant
to special laws, the type of taxes the taxpayer is exempt
from paying on the account thereof, the effectivity and
expiry date shall be indicated. However, upon expiration
thereof, it shall be the duty of the taxpayer to update
his/its registration and/or the BIR district office must be
duly informed in writing.
The rules in determining the proper tax type of a
taxpayer (i.e., whether VAT or other Percentage Taxes)
are specified in the Regulations.
In case a registered person transfers his registered
address to a new location, it shall be his duty to inform
the BIR district office where he is registered of such fact
by filing the prescribed
BIR Form specifying therein the complete address where
he intends to transfer. The guidelines relative to transfer
of registration of non-business individuals, local
employees and taxpayers engaged in business or
practice of profession (individual/non-individual) are
specified in the Regulations.
The new BIR district office of the transferred taxpayer
shall issue the COR immediately after the transfer of the
taxpayer’s registration by the old BIR district office. The
COR, Sales Invoice/Official Receipt (SI/OR) used in the
old business location can still be used in the new
business location without penalty, until a new COR and
ATP is issued by the new BIR district office; provided
that the taxpayer can show a copy of duly received
update form filed with the old BIR district office;
provided further that the taxpayer shall stamp the new
address on the old SI/OR when the same is to be issued
in the new business address. In cases all the SI/OR are
consumed prior to the online transfer of its records in
the BIR’s ITS database, the taxpayer shall still apply
with the old BIR district office for an ATP for the new
sets of receipts/invoices. The filing of tax returns and
payment of taxes to the new BIR district office shall
commence following the issuance of the new COR. The
new BIR district office shall be responsible for notifying
the taxpayer concerned that the transfer of registration
has already been completed.
Any person registered in accordance with Section 4(2)
of the Regulations shall, whenever applicable, update
his registration information with the BIR district office
where he is registered using BIR Form/s prescribed by
the BIR. The instances when a taxpayer must update his
registration information include (but are not limited to)
the following:
a. A change in the nature of the business from sale of
taxable goods and/or services to being VAT-exempt;
b. A person whose transactions are exempt from VAT
but voluntarily registered under the VAT system, and
after the lapse of 3 years after his registration applies
for cancellation of his VAT registration. However, the
optional registration as a VAT taxpayer of a franchise
grantee of radio and/or television broadcasting whose
gross receipts for the preceding year did not exceed P
10,000,000.00 shall be irrevocable;
c. A VAT-registered person whose gross sales or receipts
for 3 consecutive years did not exceed the amount of P
1,919,500.00; Provided, That every 3 years thereafter,
the amount therein stated shall be adjusted to its
present value using the Consumer Price Index, as
published by the National Statistics Office (NSO);
Provided further, that such adjustment shall be
published through Revenue Regulations to be issued not
later than March 31 of each year. Upon updating his
registration, the taxpayer shall become liable to the
Percentage Tax imposed under Section 116 of the Code,
as amended. A short period return for the remaining
period that he was VAT-registered shall be filed within
25 days from the date of cancellation of his VAT
registration as a tax type and at the same time register
for Percentage Tax as his new tax type; and
d. Any other changes/updates in registration
information previously supplied, including cancellation
or change in any tax types.
The cancellation of business registration of an individual
shall not automatically cancel his TIN. The TIN shall
remain active subject to subsequent updates on his
registration. In this case, the BIR district office shall end
date the particular registered form/tax type of such
taxpayer in the ITS database upon complete submission
of the requirements for cancellation of business
registration. If subsequently, such taxpayer engages in
a taxable activity (e.g. employment or establishment of
a new business), the concerned BIR district office shall
make the necessary updates on the registration records
of such taxpayer corresponding to his new activity.
In the case of juridical entities, the BIR district office
shall prepare a monthly list of nonindividual taxpayers
filing for cancellation of business registration for
submission to the Assistant Commissioner – Information
Systems Operations Service, through the Revenue Data
Centers (RDC), for purposes of tagging said taxpayers
as “Inactive”. Once tagged as “Inactive”, such taxpayer
shall no longer be included in the roster of active
taxpayers under the concerned BIR district office.
In the case of TIN issued to an estate of a decedent
under ONETT, upon full payment of the Estate Tax by
the heirs, administrator or executor, the issued TIN of
the estate shall be tagged as “Inactive”. The tagging of
said taxpayer as inactive shall be coursed through the
RDC of concerned BIR district office. However, in case
of additional properties discovered after payment of the
Estate Tax, the TIN previously issued for such estate
shall be updated to “Active” status in order to facilitate
the filing of the amended Estate Tax Return and shall be
cancelled upon full settlement of the tax liabilities of the
estate.
Registered taxpayers who failed to file any tax return
for 2 consecutive years or more shall be tagged as
“Inactive” and an investigation shall be initiated. As
such, upon classification as Inactive, all CRM/POS
Permits issued to them as well as any unused Official
Receipts/Invoices for which a valid ATP has been
previously granted, shall be deemed
cancelled/invalidated as of date of tagging.
Provided that the Inactive self-employed individual is
not likewise employed, non-filing of tax return shall
qualify him for tagging as Inactive. Where such taxpayer
is also registered as an employee, he or she will not be
tagged as Inactive but any unused Official
Receipts/Invoices, for which a valid ATP has been
previously granted for his or her business, shall be
deemed cancelled/invalidated upon “end-dating” of its
registered business tax types.
The cancellation of registration may either pertain to
cancellation of business registration and/or the assigned
TIN. Application for TIN/Registration cancellation shall
take place upon
a. Death of individual;
b. Full settlement of the tax liabilities of the estate;
c. Discovery of a taxpayer having multiple TINs; and
d. Dissolution, merger or consolidation of juridical
person.
Any request for certification that may be requested by a
taxpayer from the BIR district office where he is
registered on matters relating to his registration shall
be charged with a fee in an amount not exceeding P
100.00, in addition to the Documentary Stamp Tax
imposed under Section 188 of the Code, as amended,
subject to change upon approval of the CIR thru a
subsequent issuance. The Certification Fee shall be
collected on each set of documents regardless of the
number of pages of such document.
The following violations related to primary registration
shall be penalized as follows:
a. Failure to register (those who are found unregistered
during TCVD – subject to the penalties under prevailing
revenue issuances
b. Late Registration (those who are voluntary
registering, but beyond the prescribed period as
indicated in these Regulations) – compromise penalty of
P 1,000.00, in addition to the unpaid ARF and penalties
due thereon for every year that the business is in
operation. This provision shall not apply to application
for TIN of employees
c. Late payment of ARF – subject to 25% surcharge and
20% interest per annum and P 200.00 penalty
d. Failure to register a branch or facility – subject to
penalty of P 1,000.00 per unregistered branch or facility
e. Acquisition of Multiple TINs – aside from the criminal
liability that may be imposed, P 1,000.00 for every TIN
acquired in excess of one
f. Failure to and/or erroneous supply of information – P
1,000.00 for every error/omission, but not to exceed P
25,000.00
g. Any violation of the provisions of these Regulations
shall be subject to penalties provided under Sections
254 and 275, and other pertinent provisions of the
Code, as amended.
Portions of the Regulations, which can be implemented
immediately given the present capabilities of the BIR
Registration System shall strictly be complied with upon
the effectivity of the Regulations. Nevertheless, for
provisions hereof, which can only be implemented as
the enhancements are put in place in the registration
database, transitory procedures shall be provided in a
separate Revenue Memorandum Order to be issued for
the purpose. Pending the issuance of transitory
procedures, existing rules and procedures (status quo)
shall be observed in the meantime.
RR 10-2011
Based on the amendment to Section 4.106-8 of RR No.
16-2005, the VAT shall not apply to goods or properties
which are originally intended for sale or for use in the
course of business existing as of the occurrence of the
following:
a. Change of control of a corporation by acquisition of
the controlling interest of such corporation by another
stockholder (individual or corporate) or group of
stockholders.
The goods or properties used in business (including
those held for lease) or those comprising the stock in
trade of the corporation having a change in corporate
control will not be considered sold, bartered, or
exchanged despite the change in the ownership interest
in the said corporation.
However, the exchange of goods or properties including
the real estate properties used in business or held for
sale or for lease by the transferor, for shares of stocks,
whether resulting in corporate control or not, is subject
to VAT.
b. Change in the trade or corporate name of the
business;
c. Merger or consolidation of corporations. The unused
input tax of the dissolved corporation, as of the date of
merger or consolidation, shall be absorbed by the
surviving new corporation.
RR 8-2010
issued on September 3, 2010 amends Revenue
Regulations No. 7-2010 implementing the tax privileges
provisions of Republic Act No. 9994, otherwise known
as the “Expanded Senior Citizens Act of 2010”, by
excluding the special discounts on electric and water
consumption of senior citizens from exemption from the
ValueAdded Tax (VAT).
RR 7-2010
Qualified Senior Citizens deriving returnable income
during the taxable year, whether from compensation or
otherwise, are required to file their Income Tax Returns
(ITR) and pay the tax as they file the return. However,
if the returnable income of a Senior Citizen is in the
nature of compensation income but he qualifies as a
minimum wage earner under RA No. 9504, he shall be
exempt from Income Tax (IT) on the said compensation
income subject to the rules applicable to minimum wage
earners.
Likewise, if the aggregate amount of gross income
earned by the Senior Citizen during the taxable year
does not exceed the amount of his personal exemptions
(basic and additional), he shall be exempt from IT and
shall not be required to file an ITR upon compliance with
the following requirements:
a. A Senior Citizen must first be qualified as such by the
Commissioner of Internal Revenue or his duly
authorized representative (i.e., the Revenue District
Officer (RDO) having jurisdiction over the place where
the Senior Citizen resides), by submitting a certified true
copy of his Senior Citizen Identification Card (OSCA ID)
issued by the OSCA of the city or municipality where he
resides;
b. He must file a Sworn Statement on or before January
31 of every year that his annual taxable income for the
previous year does not exceed the poverty level as
determined by the National Economic and Development
Authority (NEDA) thru the National Statistical
Coordination Board (NSCB); and
c. If qualified, his name shall be recorded by the RDO in
the Master List of Tax-Exempt Senior Citizens for that
particular year, which the RDO is mandatorily required
to keep.
However, a Senior Citizen who is a compensation
income earner deriving from only one employer an
annual taxable income exceeding the poverty level or
the amount determined by the NEDA thru the NSCB on
a particular year, but whose income had been subjected
to the Withholding Tax on compensation, shall, although
not exempt from IT, be entitled to the substituted filing
of ITR.
The exemption of Senior Citizens from IT will not
extend to the following taxes:
a. The 20% Final Withholding Tax (FWT) on interest
income from any currency bank deposit, yield and other
monetary benefit from deposit substitutes, trust fund
and similar arrangements; royalties (except on books,
as well as other literary works and musical
compositions, which shall be imposed a FWT of 10%);
prizes (except prizes amounting to P 10,000 or less
which shall be subject to IT at the rates prescribed
under Sec. 24(A) of the Tax Code), and other winnings
(except Philippine Charity Sweepstakes and Lotto
winnings);
b. The 7.5% FWT on interest income from a depository
bank under the expanded foreign By management
accounts and other investments evidenced by
certificates in such form prescribed by the Bangko
Sentral ng Pilipinas before the fifth year, he shall be
subject to the FWT imposed on the entire income
depending on the following holding period of the deposit
or investment. If held for a period of:
• Four years to less than five years — 5%
• Three years to less than four years — 12%; and
• Less than three years — 20%
d. The 10% FWT –
i. On cash and/or property dividends actually or
constructively received from a domestic corporation or
from a joint stock company, insurance or mutual fund
company and a regional operating headquarters of a
multinational company; or
ii. On the share of an individual in the distributable net
income after tax of a partnership (except a general
professional partnership) of which he is a partner; or
iii. On the share of an individual in the net income after
tax of an association, a joint account, or a joint venture
or consortium taxable as a corporation of which he is a
member or a co-venturer.
e. Capital Gains Tax from sales of shares of stock not
traded in the stock exchange; and
f. The 6% FWT on presumed capital gains from sale of
real property, classified as capital asset, except capital
gains presumed to have been realized from the sale or
disposition of principal residence.
A Senior Citizen shall also be subject to the following
internal revenue taxes, among others, imposed under
the Tax Code:
a. Value-Added Tax (VAT) or other Percentage Tax, as
the case may be – If he is self-employed or engaged in
business or practice of profession, and his gross annual
sales and/or receipts exceeds P1,919,500 or such
amount to which this may be adjusted pursuant to Sec.
109(1)(V) of the Tax Code, he shall be subject to VAT.
Otherwise, he shall be subject to the 3% Percentage
Tax;
b. Donor's Tax – All donations made by a Senior Citizen
during any calendar year, unless exempt under a
specific provision of law, shall be subject to the Donor’s
Tax Imposed under Title III of the Tax Code;
c. Estate Tax – In the event of death, the estate of the
Senior Citizen may also be subject to the Estate Tax
following the rules enunciated under Title III of the Tax
Code and its implementing Regulations;
d. Excise Tax on certain goods; and
e. Documentary Stamp Tax.
All establishments, supplying any of the following goods
and services to Senior Citizen for their exclusive use and
enjoyment or availment, shall give a discount of 20%:
a. Medicines, including influenza and pneumococcal
vaccines, and such other essential medical supplies,
accessories and equipment to be determined by the
Department of Health (DOH). On all drug stores,
hospital pharmacies, medical and optical clinics and
similar establishments dispensing medicines, the
discount for sales of drugs/medicines shall be subject to
the guidelines to be issued by the Bureau of Food and
Drugs (BFAD), DOH, in coordination with the Philippine
Health Insurance Corporation (PhilHealth).
b. On the professional fees of attending physician/s in
all private hospitals, medical facilities, outpatient clinics
and home health care services, where the discount shall
be based on the compensation for services charged from
the Senior Citizen.
c. On professional fees of licensed professional health
workers providing home health care services as
endorsed by private hospitals or employed through
home health care employment agencies, where the
discount shall be based on the fees charged from the
Senior Citizen.
d. On medical and dental services, diagnostic and
laboratory fees in all private hospitals, medical facilities,
outpatient clinics and home health care services, in
accordance with the rules and regulations to be issued
by the DOH, in coordination with the PhilHealth.
e. In actual fare for land transportation travel in Public
Utility Buses, Public Utility Jeepneys, taxis, Asian Utility
Vehicles, shuttle services and public railways, including
Light Rail Transit, Mass Rail Transit and Philippine
National Railways.
f. On actual transportation fare for domestic air
transport services and sea shipping vessels and the like,
based on the actual fare and advanced booking.
g. On the utilization of services in hotels and similar
lodging establishments, restaurants and recreation
centers.
h. On admission fees charged by theaters, cinema
houses and concert halls, circuses, carnivals and other
similar places of culture, leisure and amusement, where
the discount shall be on the admission fees charged by
the said establishments;
i. On funeral and burial services for the death of Senior
Citizens. The beneficiary or any person who shall
shoulder the funeral and burial expenses of the
deceased Senior Citizen shall claim the discount, such
as casket, embalmment, cremation cost and other
related services for the Senior Citizen upon payment
and presentation of his death certificate;
The monthly utilization of water and electricity by the
Senior Citizen supplied by public utilities will be subject
to a 5% discount upon concurrence of the following:
a. The individual meters for the said utilities are
registered in the name of the Senior Citizen residing
therein;
b. The monthly consumption does not exceed 100kwh
of electricity and 30 m3 of water; and
c. The privilege is granted per household regardless of
the number of Senior Citizens residing therein.
For the consumption of water, electricity and telephone,
there shall be granted by public utilities a discount of at
least 50% on the consumption by a Senior Citizens
Center and residential care/group homes that are run
by the Government or by a non-stock, non-profit
domestic corporation organized and operated primarily
for the purpose of promoting the well-being of
abandoned, neglected, unattached, or homeless Senior
Citizens, subject to the guidelines formulated by the
Department of Social Welfare and Development.
All establishments supplying any of the said goods and
services may claim the discounts granted as a tax
deduction based on the cost of the goods sold or
services rendered to Senior Citizens. The discounts
granted to Senior Citizens by the seller of qualified
goods and services shallbe treated as an ordinary and
necessary expenses deductible from the gross income
of the seller falling under the category of itemized
deductions, and can only be claimed if the seller does
not opt for the Optional Standard Deduction during the
taxable quarter/year. The claim of the discount granted
under the Act, as an additional item of deduction from
the gross income of the seller, is subject to the following
conditions:
a. Only that portion of the gross sales exclusively used,
consumed or enjoyed by the Senior Citizen shall be
eligible for the deductible sales discount.
b. The gross selling price and the sales discount must
be separately indicated in the official receipt or sales
invoice issued by the establishment for the sale of goods
or services to the Senior Citizen.
c. Only the actual amount of the discount granted or a
sales discount not less than the statutory rate (20%,
5% or 50% when applicable), whichever is higher,
based on the gross selling price can be deducted from
the gross income, net of VAT, if applicable, for Income
Tax purposes, and from gross sales or gross receipts of
the business enterprise concerned, for VAT or other
Percentage Tax (PT) purposes.
d. The seller must record its sales inclusive of the
discount granted.
e. The discount can only be allowed as a deduction from
gross income for the same taxable year that the
discount is granted.
f. The business establishment giving sales discounts to
qualified Senior Citizens is required to keep a separate
and accurate record of sales, which shall include the
name of the Senior Citizen, OSCA ID, gross
sales/receipts, sales discount granted, dates of
transactions and invoice numbers for every sale
transaction to Senior Citizen.
g. Only business establishments selling any of the
qualified goods and services to Senior Citizens where an
actual discount was granted may claim the deduction.
h. The seller must not claim the Optional Standard
Deduction during the taxable year. The sellers are
precluded from billing any VAT to the Senior Citizen to
ensure the full entitlement to the discount prescribed in
the Act. If the seller uses a Point of Sale Machine or a
Cash Register Machine in lieu of the regular sales
invoice, the machine tape must properly segregate the
exempt sales from the taxable sales. The input tax
attributable to the exempt sale shallnot be allowed as
an input tax credit and must be closed to cost or
expense account by the seller.
The exemption herein granted will not cover other
indirect taxes that may be passed on by the seller to a
Senior Citizen buyer, such as Percentage Tax, Excise
Tax, etc. In such a case, the discount must be on the
total cost of the goods or services charged by the seller
exclusive of the tax.
A benefactor of a Senior Citizen shall be entitled to
claim the basic personal exemption of P 50,000.00,
which is the amount of basic personal exemption
allowed under RA No. 9504 for all taxpayers required to
file ITRs. A Senior Citizen who is not gainfully employed,
living with and dependent upon his benefactor for chief
support, although treated as dependent under the Act,
will not entitle the benefactor to claim the additional
personal exemption of P 25,000.00. The entitlement to
claim the additional personal exemption per dependent
(not exceeding four) is allowable only to individual
taxpayers with a qualified dependent child or children,
subject to the conditions set forth under Section 35(B)
of the Tax Code, as amended. If required to file an ITR,
the benefactor shall state therein the name, birthday
and OSCA ID number of the dependent Senior Citizen.
Private establishments employing Senior Citizens shall
be entitled to additional deduction from their gross
income equivalent to 15% of the total amount paid as
salaries and wages to Senior Citizens, subject to the
provision of Section 34 of the Tax Code and its
implementing rules and regulations, provided the
following conditions are met:
a. The employment shall have to continue for a period
of at least six (6) months;
b. The annual taxable income of the Senior Citizen does
not exceed the poverty level as may be determined by
the NEDA thru the NSCB. For this purpose, the Senior
Citizen shall submit to his employer a sworn certification
that his annual taxable income does not exceed the
poverty level.
Any person who violates any provision of the
Regulations shall suffer the penalties provided in the Tax
Code. Furthermore, any person who violates any
provision of the Implementing Rules and Regulations
(IRR) of the Act shall be imposed the following
penalties:
a. For the first violation, a fine of not less than P
50,000.00 but not exceeding P 100,000.00 and
imprisonment of not less than two (2) years but not
more than six (6) years; and
b. For any subsequent violation, a fine of not less than
P 100,000.00 but not exceeding P 200,000.00 and
imprisonment for not less than two (2) years but not
less than six (6) years.
Any person who abuses the privileges granted herein
shall be punished with a fine of not less than P
50,000.00, but not more than P 100,000.00, and
imprisonment of not less than six (6) months. If the
offender is an alien or a foreigner, he shall be deported
immediately after service of sentence without further
deportation proceedings. If the offender is a
corporation, organization or any similar entity, the
official/s thereof directly involved shall be liable
therefore.
Upon filing an appropriate complaint and after due
notice and hearing, the proper authorities may also
cause the cancellation or revocation of the business
permit, permit to operate, franchise and other similar
privileges granted to any business entity that fails to
abide by the provisions of the Act and its IRR and the
Regulations.
RMC-38-2012
Please the PDF File
RMC 45-2010 issued on June 2, 2010 circularizes
Section 4 and 5 of Republic Act (RA) No. 9994 relative
to the grant of additional benefits and privileges to
Senior Citizens, further amending Republic Act No.
7432, as amended, otherwise known as “An Act to
Maximize the Contribution of Senior Citizens to Nation
Building, Grant Benefits and Special Privileges and for
Other Purposes”.
Among the privileges granted to Senior Citizens are:
a. Grant of 20% discount and exemption from the
Value-Added Tax (VAT), if applicable, on the sale of the
following goods and services from all establishments,
for the exclusive use and enjoyment or availment of the
Senior Citizen:
i. on the purchase of medicines;
ii. on the professional fees of attending physician/s in all
private hospitals, medical facilities, outpatient clinics
and home health care services;
iii. on the professional fees of licensed professional
health providing home health care services as endorsed
by private hospitals or employed through home health
care employment agencies;
iv. on medical and dental services, diagnostic and
laboratory fees in all private hospitals, medical facilities,
outpatient clinics, and home health care services;
v. in actual fare for land transportation travel, domestic
air transport services and sea shipping vessels and the
like;
vi. on the utilization of services in hotels and similar
lodging establishments, restaurants and recreation
centers;
vii. on admission fees charged by theaters, cinema
houses and concert halls, circuses, leisure and
amusement; and
viii. on funeral and burial services for the death of Senior
Citizens.
b. Exemption from the payment of individual Income
Taxes of Senior Citizens who are considered to be
minimum wage earners
c. Grant of a minimum of 5% discount relative to the
monthly utilization of water and electricity supplied by
the public utilities
RR 74-99
SECTION 1. Scope. — This Circular is being issued to
consolidate and harmonize all the pertinent tax laws and
their corresponding implementing rules and regulations
in respect of sales of goods, property and services to
and from the ECOZONES, in relation to the provisions of
R.A. No. 7916, as amended by R.A. No. 8748, entitled
"The Special Economic Zone Act of 1995" which created
the Philippine Economic Zone Authority (PEZA).
SECTION 2. Background. — In general, enterprises
registered and operating under the said Act, otherwise
known as ECOZONE or PEZA registered enterprises,
shall only be imposed with a 5% special tax, based on
"gross income earned" in lieu of all taxes, except the
real property tax. However, this tax incentive only
applies in respect of the registered enterprise's
operations within the ECOZONE. The ECOZONES "are
selected areas with highly developed or which have the
potential to be developed into agro-industrial, industrial
tourist/recreational, commercial, banking, investment
and financial centers. An ECOZONE may contain any or
all of the following: industrial estates, export processing
zones, free trade zones, and tourist/recreational
centers." (SEC. 4 (a), R.A. No. 7916).
The ECOZONE "shall be managed and operated by the
PEZA as a separate customs territory." (SEC. 8,id.) The
term "Customs Territory" means "the national
territory of the Philippines outside of the proclaimed
boundaries of the ECOZONES except those areas
specifically declared by other laws and/or presidential
proclamations to have the status of special economic
zones and/or free ports." (Sec. 1 (g),PEZA Rules and
Regulations). Generally, products manufactured or
produced within the ECOZONE are destined for export
to foreign countries. While such products, under certain
conditions, may also be sold to buyers in the Customs
Territory, i.e., outside the ECOZONE, such sales are
technically considered as importation by such buyer
from the Customs Territory. Since the ECOZONE is
technically treated as another separate Customs
Territory, the buyer is treated as an importer and is
imposed with the corresponding import taxes and
customs duties on his purchase of products from within
the ECOZONE. While all ECOZONE enterprises are not
necessarily manufacturer-exporters of products
considering that there are also service enterprises
registered as ECOZONE enterprises, however, taken as
a whole, all their integrated activities eventually
translate into manufactured products which are either
actually exported to foreign countries, in which case, no
VAT must form part of its export price; or actually sold
to buyers from the Customs Territory, in which case,
10% VAT shall be paid thereon by such buyers,
consistent with the "Cross Border Doctrine" of the VAT
system. The Philippines' Value Added Tax (VAT) law
adheres to the "Cross Border Doctrine" of the VAT
System, which basically means that no VAT shall be
imposed to form part of the cost of goods destined for
consumption outside of the territorial border of the
taxing authority. Hence, actual export of goods and
services from the Philippines to a foreign country must
be free of the VAT. Conversely, those destined for use
or consumption within the Philippines shall be imposed
with the 12% VAT. Accordingly, interpretation of the
provisions of the VAT law has been harmonized with the
"Cross Border Doctrine".
SECTION 3. Tax Treatment Of Sales Made By A VAT
Registered Supplier From The Customs Territory,
To A PEZA Registered Enterprise. —
(1) If the Buyer is a PEZA registered enterprise which
is subject to the 5% special tax regime, in lieu of all
taxes, except real property tax, pursuant to R.A. No.
7916, as amended:
(a) Sale of goods (i.e., merchandise). — This shall be
treated as indirect export hence, considered subject to
zero percent (0%) VAT, pursuant to Sec.
106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916, in
relation to ART. 77(2) of the Omnibus Investments
Code. (b) Sale of service. — This shall be treated subject
to zero percent (0%) VAT under the "cross border
doctrine" of the VAT System, pursuant to VAT Ruling No.
032-98 dated Nov. 5, 1998. (2) If Buyer is a PEZA
registered enterprise which is not embraced by the 5%
special tax regime, hence, subject to taxes under the
NIRC, e.g., Service Establishments which are subject to
taxes under the NIRC rather than the 5% special tax
regime: (a) Sale of goods (i.e., merchandise). — This
shall be treated as indirect export hence, considered
subject to zero percent (0%) VAT, pursuant to Sec.
106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916 in
relation to ART. 77(2) of the Omnibus Investments
Code.
(b) Sale of Service. — This shall be treated subject to
zero percent (0%) VAT under the "cross border
doctrine" of the VAT System, pursuant to VAT Ruling No.
032-98 dated Nov. 5, 1998. 3. In the final analysis, any
sale of goods, property or services made by a VAT
registered supplier from the Customs Territory to any
registered enterprise operating in the ecozone,
regardless of the class or type of the latter's PEZA
registration, is actually qualified and thus legally entitled
to the zero percent (0%) VAT. Accordingly, all sales of
goods or property to such enterprise made by a VAT
registered supplier from the Customs Territory shall be
treated subject to 0% VAT, pursuant to Sec.
106(A)(2)(a)(5), NIRC, in relation to ART. 77(2) of the
Omnibus Investments Code, while all sales of services
to the said enterprises, made by VAT registered
suppliers from the Customs Territory, shall be treated
effectively subject to the 0% VAT, pursuant to Section
108(B)(3), NIRC, in relation to the provisions of R.A.
7916 and the "Cross Border Doctrine" of the VAT
system. Cdpr This Circular shall serve as a sufficient
basis to entitle such supplier of goods, property or
services to the benefit of the zero percent (0%) VAT for
sales made to the aforementioned ECOZONE enterprises
and shall serve as sufficient compliance to the CD
Technologies Asia, Inc. © 2016 cdasiaonline.com
requirement for prior approval of zero-rating imposed
by Revenue Regulations No. 7-95 effective as of the
date of the issuance of this Circular.
SECTION 4. Tax Treatment Of Sales Made By A
VAT-Exempt Supplier From The Customs Territory,
To A PEZA Registered Enterprise. — Sale of goods,
property and services by VAT-Exempt Supplier from the
Customs Territory, to a PEZA-registered enterprise shall
be treated exempt from VAT, pursuant to Sec. 109, in
relation to Sec. 236, NIRC, regardless of whether or not
the PEZA registered buyer is subject to taxes under the
NIRC, or enjoying the 5% special tax regime, or a
registered manufacturer-exporter the "Cross Border
Doctrine" of the VAT System to the contrary
notwithstanding.
SECTION 5. Tax Treatment Of Sales Made By A
PEZA Registered Enterprise. —
(1) Sale of goods (i.e., merchandise), by a PEZA-
registered enterprise, to a buyer from the Customs
Territory (i.e., domestic sales). — This case shall be
treated as a technical importation made by the Buyer.
Such Buyer shall be treated as an importer thereof and
shall be imposed with the corresponding import tax/es
(i.e., VAT or VAT plus excise tax, as the case may be),
pursuant to Sec. 107, Title IV and Title VI, NIRC, in
relation to Sec. 26, R.A. No. 7916, as implemented by
Sec. 2, Rule VIII, PART V of the PEZA rules and
regulations entitled "Rules and Regulations to
Implement Republic Act No. 7916." The registered
enterprise's "gross income earned" therefrom shall be
subject to the 5% special tax pursuant to Sec. 24 of R.A.
No. 7916: Provided, however, that its sales in the
Customs Territory do not exceed the threshold allowed
or permitted for such sales, pursuant to the pertinent
provisions of the PEZA rules and regulations: Provided,
further, that for income tax purposes, if such sales
should exceed the aforesaid threshold, its income
derived from such excess sales shall be imposed with
the normal income tax pursuant to the provisions of Title
II, NIRC: Provided, further, that in computing for the
income tax due on such excess sales, its net income
from such excess sales shall be determined in
accordance with the method of general apportionment
pursuant to the provisions of Sec. 50, NIRC, (i.e.,
compute its total net income from total sales, then,
compute its net income from such excess sales by
general apportionment, as follows: Excess sales divided
by total sales times total net income from total sales
equals net income from excess sales).
(2) Sale of Services by a PEZA Registered Enterprise to
a Buyer from the Customs Territory. — This type of
transaction is not embraced by the 5% special tax
regime governing PEZA-registered enterprises pursuant
to R.A. No. 7916, as implemented by the PEZA rules and
regulations hence, such seller shall be subject to the
12% VAT, pursuant to Section 108 or to the percentage
tax, pursuant to Title V, whichever is applicable, and to
the normal income tax on income derived therefrom,
pursuant to Title II, NIRC. Such income tax shall be
computed in accordance with the method of general
apportionment provided in the immediately preceding
paragraph.
(3) Sale of Goods, by a PEZA Registered Enterprise, to
Another PEZA (i.e., Intra ECOZONE Sales of Goods). —
Its sale of goods or property to another zone enterprise
shall be exempt from VAT, pursuant to Sec. 109(q),
NIRC, in relation to Sec. 24, R.A. 7916, as implemented
by Sec. 1, Rule VIII, PART V, of the PEZA implementing
rules and regulations.
(4) Sale of Service by ECOZONE Enterprise, to Another
ECOZONE Enterprise (Intra ECOZONE Enterprise Sale of
Service):
(a) If PEZA-Registered Seller is Subject to the 5%
Special Tax Regime. — Exempt from VAT or any
percentage tax, pursuant to Sec. 24, R.A. 7916. (b) If
PEZA-Registered Seller is Subject to Taxes Under the
NIRC . — Subject to zero percent (0%) VAT pursuant to
the "Cross Border Doctrine" of the VAT system,
regardless of the type or class of PEZA registration of
the PEZA enterprise. Buyer, since the use for or benefit
from such purchase of service shall eventually be
translated to actual export of goods (i.e., shipment of
goods to a foreign country, which is subject to zero
percent (0%) VAT, or translated into technical export of
goods (i.e., sale of goods to a buyer from the Customs
Territory, which is treated as importation by such buyer,
hence, subject to 12% VAT against the said buyer).
SECTION 6. Repealing Clause. — Any BIR Ruling, if
inconsistent herewith, is hereby considered amended,
modified or revoked accordingly.
IRR of RA 10754
Section 5. Definition of Terms – For purposes of
these Rules and Regulations, these terms are defined as
follows:
5.1 Persons with Disability – are those who have
long-term physical, mental, intellectual or sensory
impairments which in interaction with various barriers
may hinder their full and effective participation in
society on an equal basis with others. For purposes of
these Rules and Regulations, persons with disability
shall be classified by the Department of Health (DOH)
through an issuance.
5.2 Basic Necessities – are goods vital to the needs
of consumers for their sustenance and existence such
as, but not limited to, rice; corn; root crops; bread;
fresh, dried or canned fish and other marine products;
fresh pork, beef and poultry meat; fresh eggs, potable
water in bottles and containers; fresh and processed
milk; fresh vegetables and fruits; locally manufactured
instant noodles; coffee; coffee creamer; sugar; cooking
oil; salt; laundry soap and detergents; firewood;
charcoal; household liquefied petroleum gas (LPG) and
kerosene; candles; drugs classified as essential by the
Department of Health and such other goods as may be
classified by the Department of Trade and Industry and
Department of Agriculture.
5.3 Dental Services – refers to oral examination,
cleaning, permanent and temporary filling, extractions
and gum treatments, restoration, replacement or
repositioning of teeth, or alteration of the alveolar or
periodontium process of the maxilla and the mandible
that are necessary for the diagnosis and/or treatment of
a dental illness or injury.
5.4 Diagnostic and Laboratory Tests – any
procedure conducted for diagnostic purposes. It shall
include such procedures as x-rays, CT-scans, MRI scans,
PET scans, blood chemistry exams, histopathology and
immunopathology, hematology, urine analysis,
parasitology and bacteriology tests, serology, blood
banking and all other diagnostic radiology, clinical
laboratory and other diagnostic examinations that are
necessary for the diagnosis of the disability or medical
condition of a person with disability. It shall also
include clinical psychological tests, assessment of
speech conditions, test for hearing acuity, visual acuity,
learning impairment, and related psychosocial
conditions like drug testing.
5.5 Drug / Medicine – refers to any chemical
compound or biological substance, other than food,
intended for use in the treatment, prevention or
diagnosis of disease in humans or animals, including but
not limited to:
5.5.1 Any article recognized in the official United States
Pharmacopoeia – National Formulary (USP-NF), official
Homeopathic Pharmacopoeia of the United States,
Philippine Pharmacopoeia, Philippine National Drug
Formulary, British Pharmacopoeia, European
Pharmacopoeia, Japanese Pharmacopoeia, Indian
Pharmacopoeia, any national compendium or any
supplement to any of them
5.5.2 Any article intended for use in the diagnosis, cure,
mitigation, treatment or prevention of disease in
humans or animals
5.5.3 Any article other than food intended to affect the
structure or any function of the human body or animals
5.5.4 Any article intended for use as a component of any
articles specified in items 5.5.1 to 5.5.3 not including
devices or their components, parts or accessories
5.5.5 Herbal and/or traditional drugs which are articles
of plant or animal origin used in folk medicine which are:
 Recognized in the Philippine National Drug Formulary
 Intended for use in the treatment or cure or
mitigation of disease symptoms, injury or body
effects in humans
 Other than food, intended to affect the structure or
any function of the human body
 In finished or ready-to-use dosage form
 Intended for use as a component of any of the
articles specified in bullets 1 to 4.
These may also include vitamins and minerals provided
that these are in accordance with the Food and Drug
Administration’s prevailing cut-off on vitamins and
minerals classified as drug / medicine i.e product
containing more than 150% of water-soluble vitamins
and more than 102% of fat soluble vitamins. For herbs
to be classified under this definition, levels and amounts
as well as registration status is required when indicated
for therapeutic use.
5.6 Essential Drug / Medicine – refers to drugs /
medicines that satisfy the priority health care needs of
the population and which are selected based on the
evidence of their efficacy, safety and comparative cost
effectiveness.
5.7 Essential Drug List or National Drug
Formulary – Refers to a list of drugs prepared and
periodically updated by the Department of Health on the
basis of health conditions obtaining in the Philippines as
well as on internationally accepted criteria.
5.8 Foods for Special Medical Purposes – refers to
category of foods for special dietary uses which are
specially processed or formulated and presented for the
dietary management of patients and may be used only
under medical supervision. They are intended for the
exclusive or partial feeding of patients with limited or
impaired capacity to take, digest, absorb or metabolize
ordinary foodstuffs or certain nutrients contained
therein, or who have other special medically-determined
nutrient requirements, whose dietary management
cannot be achieved only by modification of the normal
diet, by other foods for special dietary uses, or by a
combination of the two.
5.9 Lodging Establishment – refers to public and
private establishments that charge daily, weekly,
monthly rates or fees which include but not limited to
the following:
5.9.1 Apartel refers to building or edifice containing
several independent and furnished or semi-furnished
apartments, regularly leased to tourists and travelers
for dwelling on a more or less long-term basis and
offering basic services to its tenants, similar to hotels.
5.9.2 Dormitory refers to any permanent structure
with private rooms where persons, students in
particular, may be regularly accepted as boarders and
provided with lodging and/or meals.
5.9.3 Motorist Hotel refers to any structure with
several separate units, primarily located along the
highway, with individual or common parking space, at
which motorists may obtain lodging and in some
instances, meals.
5.9.4 Pension House refers to a private or family-
operated tourist boarding house, tourist guest house or
tourist lodging house, regularly catering to tourist,
and/or traveler, containing several independent table
rooms, providing common facilities such as toilets,
bathrooms/showers, living and dining rooms and/or
kitchen and where a combination of board and lodging
may be provided.
5.9.5 Tourist Inn refers to lodging establishment
catering to transients, which does not meet the
minimum requirement of an economy hotel.
The term lodging establishment shall include lodging
houses, which shall mean such establishments are
regularly engaged in the hotel business, but which,
nevertheless, are not registered, classified and licensed
as hotels by reason of inadequate essential facilities and
services. It also includes resort, which shall refer to any
place or places with pleasant environment and
atmosphere conducive to comfort, healthful relaxation
and rest, offering food, sleeping accommodation and
recreational facilities to the public for a fee or
remuneration.
The term, however, excludes homestay or an alternative
tourism where tourists will stay with the host’s family in
the same house and will experience the everyday life of
the family and the local community.
5.10 Medical Services – refers to health services
which include but not limited to prevention of disability
through immunization, nutrition, environmental
protection and preservation; genetic counseling; early
detection of disability and timely intervention to arrest
disabling condition and medical treatment and
rehabilitation including mobility assistive devices.
5.11 Prime Commodities – are goods not considered
as basic necessities but are essential to consumers such
as, but not limited to flour; dried, processed or canned
pork, beef and poultry meat; dairy products not falling
under basic necessities; onions; garlic; vinegar; patis;
soy sauce; toilet soap; fertilizer; pesticides and
herbicides; poultry, livestock and fishery feeds and
veterinary products; paper; school supplies; nipa
shingles; sawali; cement; clinker; GI sheets, hollow
blocks; plywood; plyboard; construction nails;
batteries; electrical supplies; lightbulbs; steel wire; all
drugs not classified as essential drugs by the
Department of Health and other commodities that may
be classified by the Department of Trade and Industry
and the Department of Agriculture.
5.12 Recreation Centers – refers to any
establishment offering recreation services with facilities
that include but not limited to internet cafes, video
games, other similar amusement facilities, theaters,
cinema houses, concert halls, circuses, carnivals and
other places of culture and leisure. This definition
excludes establishments with gambling facilities.
5.13 Restaurant – refers to any establishment duly
licensed by the government selling to the public, regular
and special meals or menu. This may include but not
limited to food, drinks, beverages, desserts and other
consumable items served by the establishment
including value meals and other similar food counters,
fast food, cooked food and short orders including take-
outs.
Section 6. Twenty Percent (20%) Discount and
Value Added Tax (VAT) Exemption – Persons with
disability shall be entitled to the grant of 20% discount
and VAT-exemption on the purchase of certain goods
and services from all establishments for their exclusive
use, enjoyment or availment; Provided, however, that
the purchase of such goods and services from sellers
that are not subject to Value Added Tax (VAT) shall be
subject to the applicable percentage tax.
For this purpose, subsequent purchases by persons with
disability on the same day from the same
establishments shall still be subjected to 20% discount
and VAT-exemption.
All establishments shall place signages in conspicuous
areas within their premises to inform persons with
disabilities that they are entitled to the 20% discount
and VAT-exemption.
The Department of Finance thru the Bureau of Internal
Revenue shall issue the corresponding Revenue
Regulations and/or Revenue Memorandum Circulars
related to the grant of the 20% discount and VAT-
exemption for persons with disability.
The Department of the Interior and Local Government
shall also ensure that all local government units are
informed about the law for the smooth implementation
of the 20% discount and VAT-exemption for persons
with disability in their areas of jurisdiction.
Section 6.1 Lodging Establishments – This shall
apply to room accommodation and other amenities
offered by the establishment such as but not limited to
massage parlor, sauna bath, food, drinks and other
services offered. The said discount and exemption will
only apply to persons with disability.
The Department of Tourism shall issue the
corresponding guidelines, circulars or directives related
to this section for its accredited lodging establishments
and disseminate such information to all concerned.
The concerned academic institutions shall also ensure
that dormitories under their jurisdiction grant the 20%
discount and VAT-exemption to students with
disabilities.
Section 6.2 Restaurants – This shall apply to the
purchase of food, drinks, beverages, dessert and other
consumable items served by the establishments
including value meals and other similar food counters,
fast food, cooked food and short orders including take
outs. To safeguard the establishments from abuse of
this privilege, the orders should be limited only to the
consumption of the concerned person with disability.
Section 6.3 Recreation Centers – This shall apply to
admission fees of persons with disability charged by
theaters, cinema houses, concert halls, circuses,
carnivals and other places of culture and leisure. The
said discount and exemption shall also apply to charges
in the utilization of services including rentals of facilities
and equipment and other accessories and gadgets to be
used, enjoyed or availed by persons with disability in
these centers.
The Department of Tourism shall issue the
corresponding guidelines, circulars or directives related
to Sections 6.2 and 6.3 for its accredited restaurants ensure that mortuaries under their jurisdiction are
and recreation centers and disseminate such compliant to the law by including the grant of 20%
information to all concerned. discount and VAT-exemption to persons with disability
The Local Government Units concerned, in coordination as part of the terms and conditions in the issuance of
with the Leagues of Cities and Municipalities, shall also business permits to the aforementioned establishments.
ensure that restaurants and recreation centers under
their jurisdiction are compliant to the law by including
the grant of 20% discount and VAT-exemption to
persons with disability as part of the terms and
conditions in the issuance of business permits to the
aforementioned establishments.
Section 6.4 Purchase of Medicines and Foods for
Special Medical Purposes – This shall apply to the
purchase of prescribed generic and branded drugs /
medicines as well as foods for special medical purposes
in all drugstores for the exclusive use or availment of
persons with disability.
The Department of Health, in coordination with the
Philippine Health Insurance Corporation and Food and
Drug Administration, shall issue the corresponding
guidelines, circulars or directives related to this section
and disseminate such information to all concerned.
Section 6.5 Medical and Dental Services,
Diagnostic and Laboratory Fees and Professional
Fees of Attending Doctors – This shall apply to the
availment of medical and dental services including
diagnostic and laboratory fees by persons with disability
in government facilities or private hospitals and medical
facilities. The said discount and exemption shall also
apply to the professional fees of attending doctors in
such facilities.
The Department of Health, in coordination with the
Philippine Health Insurance Corporation, shall issue the
corresponding guidelines, circulars or directives related
to this section and disseminate such information to all
concerned.
Section 6.6 Domestic Air and Sea Travel – This shall
cover the actual fare for domestic air and sea travel. For
promotional fares, the Section on No Double Discounts
should apply.
Section 6.7 Land Transportation Travel – This shall
apply to actual fare for land transportation travel such
as, but not limited to, public utility buses or jeepneys,
taxis, Asian Utility Vehicles (AUVs), shuttle services,
public railways including Light Rail Transit, Metro Rail
Transit and Philippine National Railways and
Transportation Network Vehicle Services (TNVS) such as
Grab, Uber and the like.
The Department of Transportation including those
agencies attached and under its administrative
supervision and control shall issue the corresponding
guidelines, circulars or directives related to domestic air,
sea and land transportation travel and disseminate such
information to all concerned.
The Local Government Units concerned, in coordination
with the Leagues of Cities and Municipalities, shall also
ensure the passage of local ordinance to enjoin
transport groups to grant this benefit/privilege.
Further, land transport groups shall place signages
within public utility vehicles, shuttle services and public
railways to inform persons with disability that they are
entitled to the benefit/privilege.
Section 6.8 Funeral and Burial Services for the
Death of a Person with Disability – The beneficiary
or any person who shall shoulder the funeral and burial
expenses of the deceased person with disability, shall
claim the discount under this rule for the deceased
person with disability upon presentation of the death
certificate and person with disability identification card
(ID) or in its absence, the original or certified true copy
of the proof of registration from the issuing local
government unit. Such expenses shall cover the
purchase of casket, urn, embalming, hospital morgue,
transport of the body to intended burial site in the place
of origin, but shall exclude obituary publication and the
cost of the memorial lot.
The Local Government Units concerned, in coordination
with the Leagues of Cities and Municipalities, shall
PERCENTAGE TAX k) Sale, barter or exchange of shares of
stock listed and traded through the local
Percentage tax is a business tax imposed on persons or stock exchange or through initial public
entities/transactions: offering

1) Who sell or lease goods, properties or Coverage Basis Tax

services in the course of trade or business Rate
and are exempt from value-added tax (VAT)
under Section 109 (w) of the National Persons exempt from VAT Gross Sales or 3%
Internal Revenue Code, as amended, whose under Sec. 116 Receipts
gross annual sales and/or receipts do not
exceed Php 1,919,500 and who are not Domestic carriers and Gross Receipts 3%
VAT-registered; and keepers of garages

2) Engaged in the following industries/

International
transactions:
Carriers:
a) Cars for rent or hire driven by the
lessee, transportation contractors,
including persons who transport International air/shipping Gross Receipts 3%
carriers doing business in
passengers for hire, and other domestic
the Philippines
carriers of passengers by land (except
owners of animal-drawn two-wheeled
Franchise Grantees:
vehicle) and keepers of garages

b) International air/shipping carriers doing Electric , gas and water Gross Receipts 2%
business in the Philippines on their utilities
gross receipts derived from transport of
cargo from the Philippines to another Radio and television Gross Receipts 3%
country broadcasting companies
whose annual gross receipts
c) Franchise grantees of – of the preceding year do not
exceed P 10,000,000 and did
i) radio and/or television not opt to register asVAT
broadcasting whose gross taxpayer
annual receipts for the
preceding year do not exceed Banks and non-bank Interest,
Php 10,000,000.00 and did not financing intermediaries commissions and
opt to register as VAT taxpayers discounts from
lending activities as
ii) gas and water utilities well as income from
leasing on the basis
d) Overseas dispatch, message or of remaining
conversation transmitted from the maturities of
Philippines, except those transmitted by instruments:
the Philippine government, any
embassy and consular offices of a • Short term 5%
foreign government, public maturity (not over 2
international organizations enjoying years)
exemptions pursuant to an international
agreement and news messages to a • Medium term 3%
maturity (over 2
bona fide correspondent furnishing
years but not over 4
general news service
years)
e) Banks and non-bank financial
intermediaries performing quasi- • Long term
banking functions maturity

f) Other non-bank financial intermediaries ο Over 4 years but 1%

(including pawnshops) not over 7 years

g) Person, company or corporation (except

ο Over 7 years 0%
purely cooperative companies or
associations) doing life insurance
On Dividends 0%
business

h) Fire, marine or miscellaneous agents of On royalties, rentals 5%

foreign insurance companies of properties, real or
personal, profits
i) Proprietor, lessee or operator of from exchange and
cockpits, cabarets, night or day clubs, all other items
boxing exhibitions, professional treated as gross
income under Sec.
basketball games, Jai-Alai and
32 of the Code
racetracks, including videoke bars,
karaoke bars, karaoke televisions,
Finance Companies On interest, 5%
karaoke boxes and music lounges
discounts and other
items of gross
j) Winnings in horse races
 income paid to A corporate issuer/stock Gross selling price or
finance companies broker, whether domestic of gross value of in
and other financial foreign, engaged in the sale, money of shares of
intermediaries not barter, exchange or other stocks sold,
performing quasi disposition through Initial bartered, exchanged
banking functions Public Offering or otherwise
(IPO)/secondary public disposed in
Interest, offering of shares of stock in accordance with the
commissions and closely held corporations proportion of stocks
discounts paid from sold, bartered or
their loan exchanged or after
transactions from listing in the stock
finance companies exchange
as well as income
from financial • Up to 25 % 4%
leasing shall be
taxed based on the • Over 25% but not 2%
remaining maturities over 33 1/3%
of instruments:

• Over 33 1/3 % 1%
• Short term 5%
maturity (not over 2
years)

• Medium term 3%
(over 2 years but not
CASES
over 4 years)
PHILIPPINE BASKETBALL ASSOCIATION
• Long Term vs.
Maturity COURT OF APPEALS, COURT OF TAX APPEALS, AND
COMMISSIONER OF INTERNAL REVENUE
ο Over 4 years but 1%
not over 7 years G.R. No. 119122 August 8, 2000

Facts:
ο Over 7 years 0%

The petitioner received an assessment letter from the

Life Insurance Companies Total premiums 5%
Commissioner of Internal Revenue (respondent
(except purely cooperative collected
companies or associations)
Commissioner) for the payment of deficiency
amusement tax of P5,864,260.84. Petitioner contested
the assessment by filing a protest with respondent
Agents of foreign insurance
companies: (except
Commissioner who denied the same. Respondent CTA
reinsurance premium) dismissed petitioner's petition and CA affirmed such
dismissal
Total premium 10%
Petitioner argued the jurisdiction to collect amusement
collected
taxes of PBA games is vested in the local governments
to the exclusion of the national government under the
Total premium 5%
Local Tax Code.
collected
Issue: W/N PBA games are subject to National
Proprietors, lessee or Amusement Tax?
operator of the following:
Held: Yes, PBA games are subject to National
Cockpits Gross receipts 18% Amusement Tax and not under the LTC.

Under the LTC, Sec. 13 states that “The province shall

Cabarets, Night or Day Clubs Gross receipts 18%
impose a tax on admission to be collected from the
proprietors, lessees, or operators of theaters,
Boxing exhibitions Gross receipts 10% cinematographs, concert halls, circuses and other places
of amusement..” The authority to tax professional
Professional basketball Gross receipts 15% basketball games is not therein included.
games
In relation, as the same is expressly embraced in PD
Jai-alai and race track Gross receipts 30% 1959 (NIRC), sec. 268 (now sec. 125), “amusement tax
(operators shall withheld tax shall be collected from the proprietor, lessee or operator
on winnings) of cockpits, cabarets, night or day clubs, boxing
exhibitions, professional basketball games, Jai-Alai,
Every stock broker who Gross selling price or ½ of 1% race tracks and bowling alleys” professional basketball
effected a sale, barter, gross value in games" is required to pay an amusement tax which
exchange or other money of shares of payment is a national tax.
disposition of shares of stock stocks sold,
listed and traded through bartered, exchanged Question from sir: does the amusement tax collection
the Local Stock Exchange or otherwise limited to gross ticket/admission sale only?
(LSE) other than the sale by disposed
a dealer in securities No, the law qualifies the scope of gross
receipts/sale (sec.125 next to par “e”). Income derived
from sponsorship banners are subject to amusement
tax.