Art. 780.

Mixed succession is that effected partly by will and partly

I. ESTATE TAX by operation of law. (n)

I. Basic Concepts B. Decedent

A. Succession
Art. 775. In this Title, "decedent" is the general term applied to the
Art. 774. Succession is a mode of acquisition by virtue of which the person whose property is transmitted through succession, whether
property, rights and obligations to the extent of the value of the or not he left a will. If he left a will, he is also called the testator. (n)
inheritance, of a person are transmitted through his death to another
or others either by his will or by operation of law. (n)
C. Estate

Art. 776. The inheritance includes all the property, rights and
Recap on Succession Law:
obligations of a person which are not extinguished by his death.
● Succession - mode of transferring the property of the (659)
decedent to another person
● Estate - property left by the decedent
● Decedent - person who died D. Heir, Devisees and Legatees

Art. 782. An heir is a person called to the succession either by the

Question: ​If in year 2001 - 1M, and in year 2005 - 1.2M, what should provision of a will or by operation of law.
be the coverage of the estate tax?
Answer: ​1M. Estate tax accrues at the time of death and is measured Devisees and legatees are persons to whom gifts of real and
by the value of the property at time of death. The 200,000 is counted personal property are respectively given by virtue of a will. (n)
as income tax.
Recap on Succession Law:
● Heir - either compulsory heir or regular heir;
● Devisee - recipient receives real property
Estate in Succession Law Estate in Taxation Law
● Legatee - recipient receives personal property
Property left by the decedent Estate in itself is an income
taxpayer when the decedent II. Applicable Law
dies
See:
A. Sections 84-97, NIRC
Modes of Succession: B. BIR Revenue Regulations No.
1. Testamentary - by will
- Note: Decedent is the testator III. Persons Subject to Estate Tax
Art. 779. Testamentary succession is that which results from the A. Resident decedents (whether citizens or aliens)
designation of an heir, made in a will executed in the form See: Section 85, NIRC → effective until Jan 1, 2018.
prescribed by law. (n)

B. Non-resident alien decedents → only for

2. Intestate - by law
- When person dies without a will
- When person does not institute an heir
- When heir instituted is incapable of
succeeding
Art. 960.​ Legal or intestate succession takes place:
(1) If a person dies without a will, or with a void will, or one which
has subsequently lost its validity;
properties here in the Philippines
SEC. 85. ​Gross Estate. - the value of the gross estate of the
decedent shall be determined by including the value at the time of
his death of all property, real or personal, tangible or intangible,
wherever situated: Provided, however, that in the case of a
nonresident decedent who at the time of his death was not a citizen
of the Philippines, only that part of the entire gross estate which is
situated in the Philippines shall be included in his taxable estate.

(2) When the will does not institute an heir to, or dispose of all the Class Notes:
property belonging to the testator. In such case, legal succession ● For resident decedents
shall take place only with respect to the property of which the ○ Taxable under estate tax, whether or not citizen or
testator has not disposed; alien
○ For Resident Alien: within/without
(3) If the suspensive condition attached to the institution of heir does
● Non-resident decedents
not happen or is not fulfilled, or if the heir dies before the testator, or
repudiates the inheritance, there being no substitution, and no right ○ Taxable only as to their extent of the property in
of accretion takes place; the Philippines
○ For Non-resident Alien: within
(4) When the heir instituted is incapable of succeeding, except in ● Parts of the estate
cases provided in this Code. (912a) ○ GR: anything situated in the Philippines are
taxable in the Philippines
3. Mixed ○ See Art 104 NIRC re: 85% of the business of a
foreign corporation

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SEC. 104.
IV. Gross Estate Subject to Tax
A. Composition of Gross Estate of a resident
decedent and a non-resident decedent
(A) Decedent's Interest. - To the extent of the interest therein of the
decedent at the time of his death;
B. Decedent’s Interest
(A) Decedent's Interest. - To the extent of the interest therein of the
decedent at the time of his death;
C. Transfers in contemplation of death
(B) Transfer in Contemplation of Death. - To the extent of any
interest therein of which the decedent has at any time made a
transfer, by trust or otherwise, in contemplation of or intended to
take effect in possession or enjoyment at or after death, or of which
he has at any time made a transfer, by trust or otherwise, under
which he has retained for his life or for any period which does not in
fact end before his death (1) the possession or enjoyment of, or the
right to the income from the property, or (2) the right, either alone or
in conjunction with any person, to designate the person who shall
possess or enjoy the property or the income therefrom; except in
case of a bonafide sale for an adequate and full consideration in
money or money's worth.
Vidal de Roces v Posadas
● Gifts inter vivos​, the transmission of which is NOT made in
contemplation of the donor's death are NOT within the said
legal provision for the reason that it would amount to
imposing a direct tax on property and not on the
transmission thereof.
● The expression ​"all gifts" refers to gifts inter vivos inasmuch
as the law considers them as advances on inheritance, in the
sense that they are gifts inter vivos made in contemplation or
in consideration of death.
Dizon v Posadas
● F.
Class Notes:
● “Transfer in contemplation of death” → transfer motivated by
death
● How to determine: No hard and fast rule. Look at the
circumstances
○ Age
○ State of Health
○ Time gap
Class Notes:
D. Revocable Transfers
(C) Revocable Transfer. -
(1) To the extent of any interest therein, of which the decedent has
at any time made a transfer (except in case of a bona fide sale for
an adequate and full consideration in money or money's worth) by
trust or otherwise, where the enjoyment thereof was subject at the
date of his death to any change through the exercise of a power (in
BPI V Posadas
whatever capacity exercisable) by the decedent alone or by the
decedent in conjunction with any other person (without regard to
when or from what source the decedent acquired such power), to
alter, amend, revoke, or terminate, or where any such power is
relinquished in contemplation of the decedent's death.
(2) For the purpose of this Subsection, the power to alter, amend or
revoke shall be considered to exist on the date of the decedent's
death even though the exercise of the power is subject to a
precedent giving of notice or even though the alteration,
amendment or revocation takes effect only on the expiration of a
stated period after the exercise of the power, whether or not on or
before the date of the decedent's death notice has been given or the
power has been exercised. In such cases, proper adjustment shall
be made representing the interests which would have been
excluded from the power if the decedent had lived, and for such
purpose if the notice has not been given or the power has not been
exercised on or before the date of his death, such notice shall be
considered to have been given, or the power exercised, on the date
of death.
● Revocable - transferred, but can be returned to the estate
● Irrevocable - the transfer cannot be revoked to the estate
○ This transfer is NOT included as part of the gross
estate
E. Property Passing Under General Power of
Appointment
(D) Property Passing Under General Power of Appointment. - To
the extent of any property passing under a general power of
appointment exercised by the decedent: (1) by will, or (2) by deed
executed in contemplation of, or intended to take effect in
possession or enjoyment at, or after his death, or (3) by deed under
which he has retained for his life or any period not ascertainable
without reference to his death or for any period which does not in
fact end 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 persons who shall
possess or enjoy the property or the income therefrom; except in
case of a bona fide sale for an adequate and full consideration in
money or money's worth.
● General power of appointment - authority exercised can be
changed, because decedent still has link over the property
○ Transfers can revert back to the estate
● Limited power of appointment - authority exercised is final
○ Transfers can’t revert back to the estate
Proceeds of Life Insurance
(E) Proceeds of Life Insurance. - To the extent of the amount
receivable by the estate of the deceased, his executor, or
administrator, as insurance under policies taken out by the
decedent upon his own life, irrespective of whether or not the
insured retained the power of revocation, or to the extent of the
amount receivable by any beneficiary designated in the policy of
insurance, except when it is expressly stipulated that the
designation of the beneficiary is irrevocable.
● GR: Not part of the gross estate
● EXC: Unless the recipient is the decedent himself, or a
beneficiary, and the latter is irrevocably named
○ If beneficiary is revocable, it will fall under
Revocable Transfer, and thus, it is not part of the
gross estate
● If the premiums are paid with the exclusive property of
husband or wife, the policy belongs to the owner; if with
2
 conjugal property, or if the money cannot be proved as
coming from one or the other of the spouses, the policy is
community property.
○ ½ share refers to the share/capital of the surviving
spouse, and such half is not subject to the
inheritance tax
G. Prior Interest
(F) Prior Interests. - Except as otherwise specifically provided
therein, Subsections (B), (C) and (E) of this Section shall apply to
the transfers, trusts, estates, interests, rights, powers and
relinquishment of powers, as severally enumerated and described
therein, whether made, created, arising, existing, exercised or
relinquished before or after the effectivity of this Code.
H. Transfers for Insufficient Considerations
(G) Transfers for Insufficient Consideration. - If any one of the
transfers, trusts, interests, rights or powers enumerated and
described in Subsections (B), (C) and (D) of this Section is made,
created, exercised or relinquished for a consideration in money or
money's worth, but is not a bona fide sale for an adequate and full
consideration in money or money's worth, there shall be included in
the gross estate only the excess of the fair market value, at the time
of death, of the property otherwise to be included on account of
such transaction, over the value of the consideration received
therefor by the decedent.
● Marriage Settlement/ PreNuptial Agreement -
● Unions without Marriage
○ Capacitated to marry - Art. 147 FC
○ Not capacitated to marry - Art 148 FC
● Ex. Annotation in the TCT:
○ “A married to B”, and property is acquired during
marriage → can be argued that property ​may be
paraphernal, because annotation was merely an
inscription of marital status
○ “Spouses A and B” → conjugal property (½ share
may be deducted)
Collector v. Fisher
● The ½ share of the conjugal property of the surviving spouse
is not included in the deceased’s gross estate
V. Deductions
A. Citizen or Resident
Standard Deduction​ → P5M (TRAIN Law; effective Jan 1, 2018)
RR 12-2018: ​Standard deduction. – A deduction in the amount of
Five Million Pesos (P5,000,000) shall be allowed without need of
substantiation. The full amount of P5,000,000 shall be allowed as
deduction for the benefit of the decedent. The presentation of such
deduction in the computation of the net taxable estate of the
decedent is properly illustrated in these Regulations.

1. Claims against the estate → ​payables

I. Capital of the Surviving Spouse by the decedent
(H) Capital of the Surviving Spouse. - The capital of the surviving
spouse of a decedent shall not, for the purpose of this Chapter, be Class Notes:
deemed a part of his or her gross estate. ● RR 12-2018 ​provides for substantiations of the claims in
order to be deductible.
● Claims against estate should be accounted for. (Where did
Art. 91. Unless otherwise provided in this Chapter or in the marriage you use what you borrowed?) SAM FEEL FREE TO EDIT
settlements, the community property shall consist of all the property suri
owned by the spouses at the time of the celebration of the marriage ○
or acquired thereafter. (197a)
2. Claims of deceased against insolvent
Art. 92. The following shall be excluded from the community persons → ​receivables (asset) by the
property: decedent

(1) Property acquired during the marriage by gratuitous title by Class Notes:
either spouse, and the fruits as well as the income thereof, if any, ● Part of the asset, but is an allowable deduction because
unless it is expressly provided by the donor, testator or grantor that
heirs won’t benefit anyway
they shall form part of the community property;
(2) Property for personal and exclusive use of either spouse.
However, jewelry shall form part of the community property; Dizon v CTA
● Date-of-death valuation rule
(3) Property acquired before the marriage by either spouse who has
legitimate descendants by a former marriage, and the fruits as well 3. Unpaid mortgages, taxes, casualty
as the income, if any, of such property. (201a) losses
Art. 93. Property acquired during the marriage is presumed to
belong to the community, unless it is proved that it is one of those Class Notes:
excluded therefrom. ● UNPAID MORTGAGE
○ Nature of indebtedness → GR: if liability attached
to the asset, ​???
● Property regime is necessary in computing for the gross
● TAXES
estate because it dictates the capital of the surviving spouse
○ Not deductible​:
● REVIEW:
■ Income tax on income received AFTER
○ Paraphernal property - belonging exclusively to
death
one spouse
● Date-of-death valuation is
○ Community property - belonging to both spouses
applied
● CPG: Closest to ½ share each spouse
■ Property taxes NOT accrued before
● ACP
death
● Complete Separation of Property
3
 ■ Estate tax ● Children (can be legitimately
● Tax on right to transmit, not adopted children, depending
tax on the estate itself on them for support)
○ Deductible​: ■ Helper NOT included
■ Property tax accrued before death ○
■ Income tax from earnings BEFORE ● Conditions that may limit deductibility:
decedent’s death ○ ______
○ Amilyar = local government tax, attaches to the ○ Spouse is still alive
property itself; 2 papers (for lot and improvement) ■ Check property regime first
● CASUALTY LOSSES
7. Amount Received by Heirs Under RA
4. Property Previously Taxed (Vanishing 4917
Deduction) B. Non-resident

Class Notes:
● Rationale: it has previously taxed (estate/donor’s tax), so
there’s no need to tax it anymore 1. Standard Deduction
● Scenario: 2. Claims proportionate to Philippine
○ current decedent has properties in his assets that property
he must have gotten from another estate/donated 3. Property Previously Taxed (Vanishing
from another Deductions) → same rule ONLY _____
○ the happening of such inheritance/giving of gift is 4. Transfers for Public Use
within 5 years
C. Share in the Conjugal Partnership

Within a year prior to death of 100%

the decedent

Class notes:
Within 1 - 2 years 80
● Dictated by property regimes
Within 2 - 3 years 60
D. Tax Credit for Estate Taxes Paid to Foreign
Within 3 - 4 years 40 Country

Within 4 -5 years 20

● ^value adjusted based on the last paragraph of the section

● % of of the value of property using the ___ valuation of ___
decedent

Conditions:
● Taxes paid
● Within ___ years
● NOT donor’s tax paid by previous donor

Estate of Fidel Reyes v CIR

● Overstatement of vanishing deductions
● This case takes consideration of everything as conjugal,
which led to the erroneous computation of vanishing
deduction

5. Transfer for Public Use

6. Family Home → ​P10M
Class Notes:
● Family home definition based on the Family Code
○ A family home has to be constituted as such by
husband/wife/unmarried head of a family
○ Doesn’t necessarily have to have a family (with
spouse/children)
■ Can be a single person living with either:
● parents
● Siblings

4

Computation for the net estate
Lorenzo v Posadas (1937)
VI. Valuation
SEC. 88. Determination of the Value of the Estate. -
(A) Usufruct. - To determine the value of the right of usufruct, use or
habitation, as well as that of annuity, there shall be taken into
account the probable life of the beneficiary in accordance with the
latest Basic Standard Mortality Table, to be approved by the
Secretary of Finance, upon recommendation of the Insurance
Commissioner. cralaw
(B) Properties. - The estate shall be appraised at its fair market
value as of the time of death.
However, the appraised value of real property as of the time of
death shall be, whichever is higher of:
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of values fixed
by the Provincial and City Assessors.
● See RR 12-2018, Sec. 5
● The properties comprising the gross estate shall be valued
based on the​ FMV as of the time of death.
● In case of ​real property​, the FMV shall be:
○ 1. The FMV as determined by the ​Commissioner
(zonal valuation)​ or
○ 2. The FMV as shown in the schedule of values
fixed by the​ Provincial and City Assessors
○ Whichever is HIGHER
● In case of ​personal property ​recently acquired by the
decedent, the purchase price may indicate the FMV
● In case of ​personal property ​NOT recently acquired, t​ here
should be some evidence of the FMV
● For ​shares of stock​, the FMV shall depend on whether the
shares are listed or unlisted in the stock exchange
○ If unlisted
■ Common shares -- based on their ​book
value
■ Preferred shares -- based on their par
value
○ If listed
■ The mean between the highest and
lowest quotation on the date of death
■ If none, then the date nearest the death
○ RR ​16-2013: ​All transfers of shares of stock has to
be valued based on market value of all underlying
assets, especially real property
● For use of usufruct, there be taken into account the probable
life of the beneficiary in accordance with the latest basic
standard mortality table, to be approved by the Secretary of
Finance
● Basic equation to determine net taxable estate: [Gross
estate - Deductions = x]
● Note: Complication arises when decedent is married at time
of death
● With reference to valuation: date-of-death valuation rule
(also when transfer of ownership accrues)
○ Different from time of payment
VII. Exemption of Certain Acquisitions and Transmissions
SEC. 87. Exemption of Certain Acquisitions and Transmissions. -
The following shall not be taxed: (A) The merger of usufruct in the
owner of the naked title;(B) The transmission or delivery of the
inheritance or legacy by the fiduciary heir or legatee to the
fideicommissary;(C) The transmission from the first heir, legatee or
donee in favor of another beneficiary, in accordance with the desire
of the predecessor; and(D) All bequests, devises, legacies or
transfers to social welfare, cultural and charitable institutions, no
part of the net income of which insures to the benefit of any
individual: Provided, however, That not more than thirty percent
(30%) of the said bequests, devises, legacies or transfers shall be
used by such institutions for administration purposes.
5

Exempt from estate tax:
1. Merger of usufruct in the owner of the naked title
2. Transmission or delivery of the inheritance or legacy by the
fiduciary heir or legatee to the fideicommissary
3. Transmission from the 1st heir, legatee, donee in favor of
another beneficiary in accordance with the desire of the
predecessor
4. All bequests, devises, legacies or transfers to social welfare,
cultural and charitable institutions, no part of the net come
inures to the benefit of any individual, provided that not more
than 30% of the said bequests, devises, legacies or transfers
shall be used by sich institutions for administration purposes
● Class Notes: ​Rationale for exemption:
○ #1: A transferring to B and C, but later on B and C
merged into one
○ #2: A transferring to B, with the condition that B
will later on transfer it to C
○ #3: Almost the same as #2, but B and C are on the
same level
○ #4:
■ 30% condition first seen in Sec. 30 and
34(h), donation comes from one of the
businesses, as discussed in RR 13-98.
○ See also Sec. 104 (reciprocity clause on intangible
property)
VIII. Administrative Requirements
A. Computation of Tax
See table:
B. Filing of Estate Tax Return
SEC. 90. Estate Tax Returns. -
(A) Requirements. - In all cases of transfers subject to the tax
imposed herein, or where, though exempt from tax, the gross value
of the estate exceeds Two hundred thousand pesos (P200,000), or
regardless of the gross value of the estate, where the said estate
consists of registered or registrable property such as real property,
motor vehicle, shares of stock or other similar property for which a
clearance from the Bureau of Internal Revenue is required as a
condition precedent for the transfer of ownership thereof in the
name of the transferee, the executor, or the administrator, or any of
the legal heirs, as the case may be, shall file a return under oath in
duplicate, setting forth: (1) The value of the gross estate of the
decedent at the time of his death, or in case of a nonresident, not a
citizen of the Philippines, of that part of his gross estate situated in
the Philippines;(2) The deductions allowed from gross estate in
determining the estate as defined in Section 86; and(3) Such part of
such information as may at the time be ascertainable and such
supplemental data as may be necessary to establish the correct
taxes. Provided, however, That estate tax returns showing a gross
value exceeding Two million pesos (P2,000,000) shall be supported
with a statement duly certified to by a Certified Public Accountant
containing the following: (a) Itemized assets of the decedent with
their corresponding gross value at the time of his death, or in the
case of a nonresident, not a citizen of the Philippines, of that part of
his gross estate situated in the Philippines; (b) Itemized deductions
from gross estate allowed in Section 86; and (c) The amount of tax
due whether paid or still due and outstanding.
(B) Time for Filing. - For the purpose of determining the estate tax
provided for in Section 84 of this Code, the estate tax return
required under the preceding Subsection (A) shall be filed within six
(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 thirty (30) after the promulgation of such order.
(C) Extension of Time. - The Commissioner shall have authority to
grant, in meritorious cases, a reasonable extension not exceeding
thirty (30) days for filing the return.
(D) Place of Filing. - Except in cases where the Commissioner
otherwise permits, the return required under Subsection (A) shall be
filed with an authorized agent bank, or Revenue District Officer,
Collection Officer, or 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.
● The estate tax return is the form DAW SABI NG TATAY Q
● An estate tax return is required to be filed when the estate is:
1. Subject to estate tax
2. Exempt from estate tax, but the gross estate exceeds P200K
3. Regardless of the amount of the gross estate, where it
consists of
● registered/registerable property,
● motor vehicle
● shares of stock, or
● other similar property for which
clearance from the BIR is required as a
condition precedent from the transfer of
ownership
● The return shall be under oath and shall include the
following:
1. Value of the gross estate at the time of the decedent (for
non-resident aliens, the value of the gross estate here in the
Philippines)
2. Deductions allowed from the estate
3. Whatever’s necessary to establish the correct estate tax
● IF the estate tax return shows that the gross estate exceeds
P2M, it should be accompanied by a statement certified by a
CPA.
● A return need not be complete in all particulars. It is sufficient
if it complies substantially with the law. I.e.:
○ The return is made in good faith and is not
false/fraudulent
○ It covers the entire period involved
○ It contains information as to the various items of
income, deductions and credits with such
definiteness as to permit the computation and
assessment of the tax (CIR v Gonzales)
■ Where return was made on the wrong
form, it was held that the filing thereof
did not start the running of the period of
limitations, and where return was very
deficient, there was no return at all
1. BIR FORM NO. 1801
6

2. Time of Filing and Payment
SEC. 90. Estate Tax Returns. -
(A) Requirements. - In all cases of transfers subject to the tax
imposed herein, or where, though exempt from tax, the gross value
of the estate exceeds Two hundred thousand pesos (P200,000), or
regardless of the gross value of the estate, where the said estate
consists of registered or registrable property such as real property,
motor vehicle, shares of stock or other similar property for which a
clearance from the Bureau of Internal Revenue is required as a
condition precedent for the transfer of ownership thereof in the
name of the transferee, the executor, or the administrator, or any of
the legal heirs, as the case may be, shall file a return under oath in
duplicate, setting forth:
(1) The value of the gross estate of the decedent at the time of his
death, or in case of a nonresident, not a citizen of the Philippines, of
that part of his gross estate situated in the Philippines;
(2) The deductions allowed from gross estate in determining the
estate as defined in Section 86; and
(3) Such part of such information as may at the time be
ascertainable and such supplemental data as may be necessary to
establish the correct taxes.
Provided, however, That estate tax returns showing a gross value
exceeding Two million pesos (P2, 000,000) shall be supported with
a statement duly certified to by a Certified Public Accountant
containing the following:
(a) Itemized assets of the decedent with their corresponding gross
value at the time of his death, or in the case of a nonresident, not a
citizen of the Philippines, of that part of his gross estate situated in
the Philippines;
(b) Itemized deductions from gross estate allowed in Section 86;
and
(c) The amount of tax due whether paid or still due and outstanding.
● FILING OF ETR: Should be within 1 year after decedent’s
death.
○ If more than P5M, needs statement certified by a
CPA, itemizing the assets, deductions, and
amount of tax due.
○ Extension of 30 DAYS allowed
● PAYMENT​: At the time the return is filed by the executor,
administrator, or heirs
○ Extension of 2 years/5 years depending on the
settlement note
■ Counted 1 year after filing or 1 year after
the 30 days extension
3. Extension of Time for Filing and
Payment
90 (C) Extension of Time. - The Commissioner shall have authority
to grant, in meritorious cases, a reasonable extension not
exceeding thirty (30) days for filing the return.
91 (B) Extension of Time. - When the Commissioner finds that the
payment on the due date of the estate tax or of any part thereof
would impose undue hardship upon the estate or any of the heirs,
he may extend the time for payment of such tax or any part thereof
not to exceed five (5) years, in case the estate is settled through the
courts, or two (2) years in case the estate is settled extrajudicially.
In such case, the amount in respect of which the extension is
granted shall be paid on or before the date of the expiration of the
period of the extension, and the running of the Statute of Limitations
for assessment as provided in Section 203 of this Code shall be
suspended for the period of any such extension.
Where the taxes are assessed by reason of negligence, intentional
disregard of rules and regulations, or fraud on the part of the
taxpayer, no extension will be granted by the Commissioner. cralaw
If an extension is granted, the Commissioner may require the
executor, or administrator, or beneficiary, as the case may be, to
furnish a bond in such amount, not exceeding double the amount of
the tax and with such sureties as the Commissioner deems
necessary, conditioned upon the payment of the said tax in
accordance with the terms of the extension.
● FILING EXTENSION:
○ BIR can grant, but not more than 30 days
● PAYMENT EXTENSION:
○ Settle thru courts: 5 yrs
○ Settle extrajudicially: 2 yrs
○ If assessed because of negligence, intentional
disregard of rules, fraud: no extension
○ NOTE: If extension is granted, CIR may require
E/A/B to furnish bond (of amount, cannot be more
than 2x of the amount) and with such sureties
4. Payment by Installment
(C) Extension of Time. - The Commissioner shall have authority to
grant, in meritorious cases, a reasonable extension ​not exceeding
thirty (30) days​ for filing the return.
5. Place of Filing
(D) Place of Filing. - Except in cases where the Commissioner
otherwise permits, the return required under Subsection (A) shall be
filed with an authorized agent bank, or Revenue District Officer,
Collection Officer, or 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.
● GR: Return in [A] is filed with either
○ authorized agent bank
○ Revenue District Officer
○ Duly authorized Treasurer of the city/municipality
in which the decedent was domiciled at time of
death
○ Office of Commissioner, if no legal residence in
PH
● Class Notes: ​Important that the address is indicated in the
Death Certificate to determine where to file return.
○ Basis: 90(D) -- where the decedent was domiciled
(intent to return)
● Address in the Death certificate v. declarations of the family
v. where he is domiciled
C. Liability for Payment of Tax
(C) Liability for Payment.- The estate tax imposed by Section 84
shall be paid by the executor or administrator before delivery to any
beneficiary of his distributive share of the estate.
7

Such beneficiary shall to the extent of his distributive share of the
estate, be subsidiarily liable for the payment of such portion of the
estate tax as his distributive share bears to the value of the total net
estate. cralaw
For the purpose of this Chapter, the term "executor" or
"administrator" means the executor or administrator of the
decedent, or if there is no executor or administrator appointed,
qualified, and acting within the Philippines, then any person in
actual or constructive possession of any property of the decedent.
● LIABLE: Executor/Administrator
○ Before delivery to any beneficiary
● SUBSIDIARILY LIABLE: Beneficiary
○ Only to the extent of his share, as it bears to the
value of the total net estate
● Executor/administrator -- E/A of decedent or if none, then
any person in actual or constructive possession of any
property of the decedent
CIR v Gonzales(1966)
Respondent alleges the higher assessment of the CIR had prescribed
as it made __ years after the filing of the return.
The court held that as a general rule, prescription ;ilies when there is a
valid return. In this case however, there was no valid return. There was
no substantial compliance as respondents left out __ parcels of land.
Commissioner v Pineda (1967)
Pineda says as he is only a co-heir, he cannot be liable for more than
the extent of his share. The court held that he is liable for the
assessment as an heir and as a holder-transferee of property of the
estate.
deliver a distributive share to any party interested in the estate
unless a certification from the Commissioner that the estate tax has
been paid​ is shown.
SEC. 95. Duties of Certain Officers and Debtors. - ​Registers of
Deeds shall not register in the Registry of Property any document
transferring real property or real rights therein or any chattel
mortgage, by way of gifts inter vivos or mortis causa, legacy or
inheritance, unless a certification from the Commissioner that the
tax fixed in this Title and actually due thereon had been paid is
show, and they shall immediately notify the Commissioner, Regional
Director, Revenue District Officer, or Revenue Collection Officer or
Treasurer of the city or municipality where their offices are located,
of the non payment of the tax discovered by them.
Any lawyer, notary public, or any government officer who, by
reason of his official duties, intervenes in the preparation or
acknowledgment of documents regarding partition or disposal of
donation inter vivos or mortis causa, legacy or inheritance, shall
have the ​duty of furnishing the Commissioner, Regional Director,
Revenue District Officer or Revenue Collection Officer of the place
where he may have his principal office, ​with copies of such
documents and any information whatsoever which may facilitate the
collection​ of the aforementioned tax.
Neither shall a ​debtor of the deceased pay his debts to the heirs,
legatee, executor or administrator of his creditor​, ​unless the
certification of the Commissioner that the tax fixed in this Chapter
had been paid is shown;​ ​but he ​may pay the executor or judicial
administrator without said certification ​if the credit is included in the
inventory of the estate of the deceased.​
SEC. 96. Restitution of Tax Upon Satisfaction of Outstanding
Obligations. - If after the payment of the estate tax, new obligations
of the decedent shall appear, and the persons interested shall have
satisfied them by order of the court, they shall have a right to the
restitution of the proportional part of the tax paid.

The government has 2 ways of collecting the tax.
1. Go after all the heirs and collect from each of them an
amount proportionate to the inheritance received
2. Subject said property of the estate which is in the hands of
an heir or transferee to the payment of the tax due, the
estate
Gonzales v CA and CIR (1980)
IX. Inhibitions, Responsibilities, Obligations in
Enforcement of Estate Tax
A.
SEC. 92. Discharge of Executor or Administrator from Personal
Liability. - If the executor or administrator makes a written
application to the Commissioner for determination of the amount of
the estate tax and discharge from personal liability therefore, the
Commissioner (as soon as possible, and in any event ​within one
(1) year after the making of such application, or if the application is
made before the return is filed, then within one (1) year after the
return is filed​, ​but not after the expiration of the period prescribed for
the assessment of the tax in Section 203 shall not notify the
executor or administrator of the amount of the tax.
The ​executor or administrator​, ​upon payment of the amount of
which he is notified, ​shall be discharged from personal liability ​for
any deficiency in the tax thereafter found to be due and shall be
entitled to a receipt or writing showing such​ discharge.
SEC. 94. Payment Before Delivery by Executor or Administrator. -
No ​judge shall authorize the executor or judicial administrator to
SEC. 97. Payment of Tax Antecedent to the Transfer of Shares,
Bonds or Rights.- There shall not be transferred to any new owner
in the books of any corporation, sociedad anonima, partnership,
business, or industry organized or established in the Philippines any
share, obligation, bond or right by way of gift inter vivos or mortis
causa, legacy or inheritance, unless a certification from the
Commissioner that the taxes fixed in this Title and due thereon have
been paid is shownIf a bank has knowledge of the death of a
person, who maintained a bank deposit account alone, or jointly
with another, it shall not allow any withdrawal from the said deposit
account, unless the Commissioner has certified that the taxes
the
imposed thereon by this Title have been paid: Provided, however,
That the administrator of the estate or any one (1) of the heirs of the
decedent may, upon authorization by the Commissioner, withdraw
an amount not exceeding Twenty thousand pesos (P20,000) without
the said certification.
For this purpose, all withdrawal slips shall contain a statement to the
effect that all of the joint depositors are still living at the time of
withdrawal by any one of the joint depositors and such statement
shall be under oath by the said depositors.
SEC 92
→ E/A makes written application to CIR
→ CIR within 1 yr after the application
→
TINAMAD NA AQ
B. Final Withholding Estate Tax
SEC. 97. Payment of Tax Antecedent to the Transfer of Shares,
Bonds or Rights.- There shall not be transferred to any new owner
in the books of any corporation, sociedad anonima, partnership,

8

business, or industry organized or established in the Philippines any
share, obligation, bond or right by way of gift inter vivos or mortis
causa, legacy or inheritance, unless a certification from the
Commissioner that the taxes fixed in this Title and due thereon have
been paid is shownIf a bank has knowledge of the death of a
person, who maintained a bank deposit account alone, or jointly
with another, it shall not allow any withdrawal from the said deposit
account, unless the Commissioner has certified that the taxes
imposed thereon by this Title have been paid: Provided, however,
That the administrator of the estate or any one (1) of the heirs of the
decedent may, upon authorization by the Commissioner, withdraw
an amount not exceeding Twenty thousand pesos (P20,000) without
the said certification.
For this purpose, all withdrawal slips shall contain a statement to the
effect that all of the joint depositors are still living at the time of
withdrawal by any one of the joint depositors and such statement
shall be under oath by the said depositors.
Pastor v CTA
● Class Notes: ​eCAR = list of all assets of decedents that will
be transferred
Polido v CTA and Gasat
● This is a Pre-TRAIN law case, but still good law, because we
follow the estate tax rule at the time of death.
II. Donor’s Tax
I. Basic Concepts
A. Donation
Art. 725. ​Donation is an ​act of liberality whereby a person disposes
gratuitously of a thing or right in favor of another, who accepts it​.
(618a)
1. Donation ​Mortis Causa
Art. 728. Donations which are to t​ake effect upon the death of the
donor partake of the nature of testamentary provisions, and shall be
governed by the rules established in the Title on Succession. (620)
2. Donation ​Inter Vivos
Art. 729. When the ​donor intends that the donation shall take effect
during the lifetime of the donor​, ​though the property shall not be
delivered till after the donor's death​, this shall be a donation inter
vivos. The fruits of the property from the time of the acceptance of
the donation, shall pertain to the donee, unless the donor provides
otherwise. (n)
Art. 730. The fixing of an event or the imposition of a ​suspensive
condition​, which may take place beyond the natural expectation of
life of the donor, ​does not destroy the nature of the act as a
donation inter vivo​s, ​unless a contrary intention appears. (n)
Art. 731. When a ​person donates something, subject to the
resolutory condition of the donor's survival​, there is a donation inter
vivos. (n)
II. Applicable Law
A.
98- 104 NIRC
III. Persons Liable
A.
SEC. 98. Imposition of Tax. - (A) There shall be levied, assessed,
collected and paid upon the transfer by any person, resident or
nonresident, of the property by gift, a tax, computed as provided in
Section 99.
(B) The tax shall apply whether the transfer is in trust or otherwise,
whether the gift is direct or indirect, and whether the property is real
or personal, tangible or intangible.
● Gifts and donor’s tax will be levied, assessed, collected and
paid upon the transfer by ​any person, resident or
nonresident, of property by gift
○ Property can be real/personal, tangible/intangible
○ The transfer can be in trust or otherwise
○ The gift can be direct/indirect
● The donor’s tax shall not apply unless and until there is a
completed gift. The transfer of property by gift is
○ perfected from the moment the donor knows of the
acceptance by the donee;
○ completed by the delivery
B. Tax Payable
SEC. 99. Rates of Tax Payable by Donor. -
(A) In General. - The tax for each calendar year shall be computed
on the basis of the total net gifts made during the calendar year in
accordance with the following schedule: If the net gift is:
(B) Tax Payable by Donor if Donee is a Stranger. - When the donee
or beneficiary is stranger, the tax payable by the donor shall be
thirty percent (30%) of the net gifts.
***For the purpose of this tax, a "stranger", is a person who is not a:
(1) Brother, sister (whether by whole or half-blood), spouse,
ancestor and lineal descendant; or (2) Relative by consanguinity in
the collateral line within the fourth degree of relationship.
(C) Any ​contribution in cash or in kind to any candidate, political
party or coalition of parties for campaign purpose​s ​shall be
governed by the Election Code, as amended.
● TRAIN adjustments:
○ Increased threshold for exempt gifts during the
calendar year to P250K (from P100K)
○ Flat rate of 6% of total gifts ​in excess​ of P250K
○ Removed the distinction between strangers and
non-strangers
● Note: The 250K counts as a deduction from total gifts
because the 6% is imposed on the total gifts in excess of
P250K
C. Election Campaign Contributions
99 (B) Tax Payable by Donor if Donee is a Stranger. - When the
donee or beneficiary is stranger, the tax payable by the donor shall
be thirty percent (30%) of the net gifts.
9

For the purpose of this tax, a "stranger", is a person who is not a:
(1) Brother, sister (whether by whole or half-blood), spouse,
ancestor and lineal descendant; or (2) Relative by consanguinity in
the collateral line within the fourth degree of relationship.
● NOTE: Campaign period triggers election
○ All such donations not made during the campaign
period should be subject to donor’s tax
● Excess campaign funds are subject to income tax
IV. Taxable Gifts
A. Definition
SEC. 104. Definitions. - For purposes of this Title, the terms "gross
estate" and "gifts" include real and personal property, whether
tangible or intangible, or mixed, wherever situated: Provided,
however, That where the decedent or donor was a nonresident alien
at the time of his death or donation, as the case may be, his real
and personal property so transferred but which are situated outside
the Philippines shall not be included as part of his "gross estate" or
"gross gift": Provided, further, That franchise which must be
exercised in the Philippines; shares, obligations or bonds issued by
any corporation or sociedad anonima organized or constituted in the
Philippines in accordance with its laws; shares, obligations or bonds
by any foreign corporation eighty-five percent (85%) of the business
of which is located in the Philippines; shares, obligations or bonds
issued by any foreign corporation if such shares, obligations or
bonds have acquired a business situs in the Philippines; shares or
rights in any partnership, business or industry established in the
Philippines, shall be considered as situated in the Philippines:
Provided, still further, that no tax shall be collected under this Title in
respect of intangible personal property: (a) if the decedent at the
time of his death or the donor at the time of the donation was a
citizen and resident of a foreign country which at the time of his
death or donation did not impose a transfer tax of any character, in
respect of intangible personal property of citizens of the Philippines
not residing in that foreign country, or (b) if the laws of the foreign
country of which the decedent or donor was a citizen and resident at
the time of his death or donation allows a similar exemption from
transfer or death taxes of every character or description in respect
of intangible personal property owned by citizens of the Philippines
not residing in that foreign country.
The term "deficiency" means: (a) the amount by which tax imposed
by this Chapter exceeds the amount shown as the tax by the donor
upon his return; but the amount so shown on the return shall first be
increased by the amount previously assessed (or collected without
assessment) as a deficiency, and decreased by the amounts
previously abated, refunded or otherwise repaid in respect of such
tax, or (b) if no amount is shown as the tax by the donor, then the
amount by which the tax exceeds the amounts previously assessed,
(or collected without assessment) as a deficiency, but such amounts
previously assessed, or collected without assessment, shall first be
decreased by the amount previously abated, refunded or otherwise
repaid in respect of such tax.
● 2 Kinds of Donors
1. Resident or citizen of the PH
● If so, gross gifts would consist of:
1. Real estate, regardless of location
2. Tangible personal property, regardless of location
3. Intangible personal property, regardless of location
2. Non-resident, not citizen of the PH
● If so, gross gifts would consist of:
1. Real estate located in the PH
2. Tangible personal property in the PH
3. Intangible personal property located in the PH,
subject to the “reciprocity clause” (like in the rules
for estate tax
a. If donor at time of donation was citizen
and resident of a foreign country which
at the time of the donation did not
impose a transfer tax of any character in
respect of intangible personal property
of Fili
B. Valuation
SEC. 102. Valuation of Gifts Made in Property. - If the gift is made in
property, the fair market value thereof at the time of the gift shall be
considered the amount of the gift.
In case of real property, the provisions of Section 88(B) shall apply
to the valuation thereof.
V. Transfer for Inadequate Consideration
A.
SEC. 100. Transfer for Less Than Adequate and Full Consideration.
- Where property, other than real property referred to in Section
24(D), is transferred for less than an adequate and full consideration
in money or money's worth, then the amount by which the fair
market value of the property exceeded the value of the
consideration shall, for the purpose of the tax imposed by this
Chapter, be deemed a gift, and shall be included in computing the
amount of gifts made during the calendar year.
● When property is transferred for less than full consideration,
and is thus deemed a gift
○ [FMV] - [Inadequate Consideration] = X
○ X = excess amount which should be subject to
donor’s tax
● ???? when does it not apply kahit not full considertation????
Sabi ni maam
B. New paragraph on bona fide transaction
C. CIR v BF Goodrich
D. Sales of Shares of Stock for Inadequate
Consideration
SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK
NOT TRADED THROUGH A LOCAL STOCK EXCHANGE
PURSUANT TO SECS. 24(C), 25(A)(3), 25(B), 27(D)(2),
28(A)(7)(c), 28(B)(5)(c) OF THE TAX CODE, AS AMENDED. —
(c) Determination of Amount and Recognition of Gain or Loss. —
(c.1) Determination of Selling Price. — In determining the selling
price, the following rules shall apply:
(c.1.4) In case the fair market value of the shares of stock sold,
bartered, or exchanged is greater than the amount of money and/or
fair market value of the property received, the ​excess of the fair
market value of the shares of stock sold, bartered or
exchanged over the amount of money and the fair market value
of the property​, if any, received as consideration shall be ​deemed
a gift subject to the donor’s tax under Sec. 100 of the Tax Code, as
amended.
E. Metro Pacific Corporation
VI. Exemption of Certain Gifts
A. In case of Residents
10

B. In case of Non-residents
101 (B) In the Case of Gifts Made by a Nonresident Not a Citizen of
the Philippines. -
(1) Gifts made ​to or for the use of the National Government ​or
any entity created by any of its agencies which is not conducted for
profit, or to any political subdivision of the said Government.
(2) Gifts ​in favor of an educational and/or charitable, religious,
cultural or social welfare corporation, institution, foundation,
trust or philanthropic organization or research institution or
organization​: Provided, however, That not more than thirty percent
(30%) of said gifts shall be used by such donee for administration
purposes.
VII. Repudiation of Inheritance; Tax Consequence
A. Right of Accretion
Art. 1015. ​Accretion is a right by virtue of which, when two or more
persons are called to the same inheritance, devise or legacy, ​the
part assigned to the one who renounces or cannot receive his
share, or who died before the testator, is added or incorporated to
that of his co-heirs, co-devisees, or co-legatees​. (n)
Art. 1016. In order that the right of accretion may take place in a
testamentary succession, it shall be necessary:
(1) That ​two or more persons be called to the ​same inheritance, or
to the same portion​ thereof, ​pro indiviso​; and
(2) That ​one of the persons thus called ​die before the testator, or
renounce​ the inheritance, or ​be incapacitated to receive​ it. (928a)
● “Ayaw kong imana kasi ayaw ko sa magulang ko” → not
subject to donor’s tax
● “Ayaw kong imana kasi kawawa naman si bunso, sa kanya
na lang” → subject to donor’s tax
B. BIR Ruling 455-93 (Nov 19, 1993)
https://www.scribd.com/document/185960993/BIR-Ruling-No-455-9
3-Digest
(eto lang mahanap ko na BIR ruling ahaha digest pa :((
VIII. Filing of Returns and Payment of Tax
A. Imposition of Tax
SEC. 98. Imposition of Tax. -
(A) There shall be levied, assessed, collected and paid upon the
transfer by any person, resident or nonresident, of the property by
gift, a tax, computed as provided in Section 99.
(B) The tax shall apply whether the transfer is in trust or otherwise,
whether the gift is direct or indirect, and whether the property is real
or personal, tangible or intangible.
B. Tax Rate
SEC. 99. Rates of Tax Payable by Donor. -
(A) In General. - The tax for each calendar year shall be computed
on the basis of the total net gifts made during the calendar year in
accordance with the following schedule: If the net gift is:

Art. 1017. The words ​"one-half for each" or "in equal shares" or
any others which, though designating an aliquot part, do not
identify it by such description as shall make each heir the exclusive
owner of determinate property, shall not exclude the right of
accretion.
In case of money or fungible goods, if the share of each heir is not
earmarked, there shall be a right of accretion. (983a)

Art. 1018. In legal succession the share of the person who

repudiates the inheritance shall always accrue to his co-heirs. (981)
(B) Tax Payable by Donor if Donee is a Stranger. - When the donee
Art. 1019. The heirs to whom the portion goes by the right of or beneficiary is stranger, the tax payable by the donor shall be
accretion take it in the same proportion that they inherit. (n) thirty percent (30%) of the net gifts.

Art. 1020. The heirs to whom the inheritance accrues shall succeed
to all the rights and obligations which the heir who renounced or
could not receive it would have had. (984)
Art. 1021. Among the compulsory heirs the right of accretion shall
take place only when the free portion is left to two or more of them,
or to any one of them and to a stranger.
Should the part repudiated be the legitime, the other co-heirs shall
succeed to it in their own right, and not by the right of accretion.
(985)
Art. 1022. In testamentary succession, when the right of accretion
does not take place, the vacant portion of the instituted heirs, if no
substitute has been designated, shall pass to the legal heirs of the
testator, who shall receive it with the same charges and obligations.
(986)
Art. 1023. Accretion shall also take place among devisees, legatees
and usufructuaries under the same conditions established for heirs.
(987a)
Class Notes:
For the purpose of this tax, a "stranger", is a person who is not a:
(1) Brother, sister (whether by whole or half-blood), spouse,
ancestor and lineal descendant; or (2) Relative by consanguinity in
the collateral line within the fourth degree of relationship.
(C) Any contribution in cash or in kind to any candidate, political
party or coalition of parties for campaign purposes shall be
governed by the Election Code, as amended.
C. Tax Credit for Donor’s Tax Paid to a Foreign
Country
SEC. 101. Exemption of Certain Gifts. - The following gifts or
donations shall be exempt from the tax provided for in this Chapter:
(C) Tax Credit for Donor's Taxes Paid to a Foreign Country. - (1) In
General. - The tax imposed by this Title upon a donor who was a
citizen or a resident at the time of donation shall be credited with the
amount of any donor's tax of any character and description imposed
by the authority of a foreign country.
D. Filing and Payment
SEC. 103. Filing of Return and Payment of Tax. -

11

(A) Requirements.- any individual who makes any transfer by gift
(except those which, under Section 101, are exempt from the tax
provided for in this Chapter) shall, for the purpose of the said tax,
make a return under oath in duplicate.
● Low income earners are more burdened by VAT (Tax base
is the same -- 12% -- WON rich or poor)
● Having a progressive tax rate does not mean you have a
progressive system

The return shall se forth: Abakada Guro Partylist v Ermita (2005)

(1) Each gift made during the calendar year which is to be included Petitioners assail the constitutionality of some sections of RA 9337,
in computing net gifts;
which amended the NIRC. Accordingly, the sections impose a 10%
(2) The deductions claimed and allowable;
(3) Any previous net gifts made during the same calendar year; VAT on certain transactions, and contain a uniform proviso (stand-by
(4) The name of the donee; and authority of the President) authorizing the President to raise the rate to
(5) Such further information as may be required by rules and 12% if any of the listed conditions are satisfied. Petitioners argue that
regulations made pursuant to law. the law constitutes abandonment by Congress of its exclusive authority
to fix the rate of taxes under Article 6, Sec 28(2) of the Constitution.
E. BIR Form 1800 Donor’s Tax Return The Court upheld the validity of RA 9337.

Doctrine​: The VAT is a tax on spending or consumption. It is levied on

the sale, barter, exchange or lease of goods or properties and
services.
Being an indirect tax on expenditure, the seller of goods or services
may pass on the amount of tax paid to the buyer, with the seller acting
merely as a tax collector. The burden of VAT is intended to fall on the
immediate buyers and ultimately, the end-consumers.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on
III. VALUE-ADDED TAX the transaction or business it engages in, without transferring the
I. APPLICABLE LAWS burden to someone else. Examples are individual and corporate
A. S105-115, NIRC income taxes, transfer taxes, and residence taxes.
B. EO No. 273 -- Original VAT Law (1988)
C. RA 7643 (1992) III. PERSONS LIABLE
D. RA 7716 - Expanded VAT Law (1996) A. Who are liable?
E. RA 8241 - Improved VAT Law (1997) SEC. 105. Persons Liable​. - Any person who, ​in the course of
F. RA 8424 - Tax Reform Act (1998) trade or business, sells barters, exchanges, leases goods or
G. properties, renders services, and any person who imports goods
II. NATURE, CHARACTERISTIC AND PURPOSE OF VAT shall be subject to the value-added tax (VAT) imposed in Sections
106 to 108 of this Code.
Tolentino v Sec. of Finance (1995)
The ​value-added tax is an indirect tax and the amount of tax may
Petitioners assail the constitutionality of RA 7716 or the Expanded VAT
be shifted or passed on to the buyer, transferee or lessee of the
Law. Among others, the petitioners claim that, in removing the goods, properties or services. This rule shall likewise apply to
exemption of the press from the VAT, the law discriminates against the existing contracts of sale or lease of goods, properties or services at
press. The court upheld RA 7716, saying that to subject the press to the time of the effectivity of Republic Act No. 7716.
the tax is to subject it to general regulation, and not to violate its
freedom under the constitution. 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
Doctrine​: The VAT is not a license tax. It is not a tax on the exercise of of whether or not the person engaged therein is a non-stock,
a privilege, much less a constitutional right. It is imposed on the sale, nonprofit private organization (irrespective of the disposition of its
barter, lease, or exchange of goods or properties purely for revenue net income and whether or not it sells exclusively to members or
purposes. their guests), or government entity.

Class Notes: The rule of regularity, to the contrary notwithstanding, services as

defined in this Code rendered in the Philippines by nonresident
● Tax burden v. Tax incidence
foreign persons shall be considered as being rendered in the course
● Ability to pay is NOT a factor of VAT / consumption-based of trade or business.
taxation
○ Progressive system of taxation → exposure to ● Persons liable:
liability is anchored on one’s ability to pay ○ Any person, in the course or trade or business
○ VAT is NOT dependent on income, so ability to ■ Sells, barters, exchanges, leases goods
pay is not a factor → REGRESSIVE or properties, (S106)
● Evolve, not mandatorily adapt a progressive system of ■ renders services (S108)
taxation ○ Imports goods (S107)
● Direct Taxation = tax burden and tax incidence pertain to the ● “Value added tax”
same person ○ Indirect tax
● Indirect Taxation = tax burden and tax incidence may be ○ Amount of tax ​may be shifted or passed on to the
different persons buyer, transferee/lessee of goods/services
● “In the course of trade/business”

12
 ○ Regular conduct or pursuit of a
commercial/economic activity
■ Includes incidental transactions
● By any person regardless of whether or nto the person
engaged therein is a
■ Non-stock
■ Non profit private organization
○ Irrespective of the disposition of its net income
○ Whether or not it sells exclusively to members
○ Or government entity!
● For services by non-resident foreign persons:
○ rule of regularity shall be considered
B. “In the course of trade of business” v.
“isolated transaction” v. “incidental to the
main line of business”
CIR v Magsaysay Lines
= ISOLATED CASE → Not “in the course of business” → Not
subject to VAT
NDC sold its shares in NMC and 5 of its ships to private enterprise The
NMC shares and vessels were offered for public bidding. It was
stipulated that the winning bidder would pay a VAT of 10% on the
vessels’ value. Respondents bid to buy was approved. A formal
request for a ruling in whether or not the sale was subject to VAT( was
filed with BIR. The parties thus agreed it BIR did not rule favorably,
NDC would be authorized to draw on a letter of credit upon written
demand for the value of the VAT. It was ruled that the vessels were
subject to 10% VAT,citing that NDC was a VAT-registered enterprise.
CTA held that it was not subject to VAT as it was an “isolated
transaction” and not done in the ordinary course of NDC’s business.
SC: The sale of the vessels is not subject to VAT.
ITC, the sale of the vessels was an isolated transaction. It was
involuntary and made pursuant to a declared policy of privatization,
which transaction could not be repeated or carried on with regularity.
Mindanao II Geothermal Partnership v CIR
= INCIDENTAL → “in the course of business” → subject to VAT
Petitioners sold its fully depreciated Nissan Patrol. CIR said that the
sale is subject to VAT. Petitioner asserts that it is not subject to tax as
the sale is not an incidental transaction in the course of its business.
Petitioner argues that the sale is an isolated transaction which should
not have been subject to VAT.
The court held that the sale is subject to VAT. J​ust because a
transaction is considered isolated, it does not automatically mean that
it cannot be an incidental transaction​. ITC, petitioner’s business is to
convert the steam supplied to it into electricity and to deliver the same
to NPC. In the course of business, petitioners bought and eventually
sold a Nissan Patrol. Prior to the sale, the Nissan Patrol was part of
petitioner’s property, plant and equipment. Thus, the sale of the Nissan
Patrol is an incidental transaction made in the course of business
which should be liable for VAT.
C. OUTPUT TAX ON SALE OF GOODS OR
PROPERTIES
1. Tax Rate and Tax Base
SEC. 106​. Value-Added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. - There shall be levied, assessed and
collected on every sale, barter or exchange of goods or properties,
value-added tax equivalent to ten percent (10%) 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: Provided, That the President, upon the recommendation
of the Secretary of Finance, shall, effective January 1, 2006, raise
the rate of value-added tax to twelve percent(12%), after any of the
following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%); or
(ii) National Government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%). [45]
(1) "Goods or Properties." 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.
(2) The following sales by VAT-registered persons shall be subject
to zero percent (0%) rate:
(a) Export Sales. - The term "export sales" means:
(1) The sale and actual shipment of goods from the Philippines to a
foreign country, irrespective of any shipping arrangement that may
be agreed upon which may influence or determine the transfer of
ownership of the goods so exported and paid for in acceptable
foreign currency or its equivalent in goods or services, and
accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
(2) Sale of raw materials or packaging materials to a nonresident
buyer for delivery to a resident local export-oriented enterprise to be
used in manufacturing, processing, packing or repacking in the
Philippines of the said buyer's goods and paid for in acceptable
foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) Sale of raw materials or packaging materials to export-oriented
enterprise whose export sales exceed seventy percent (70%) of
total annual production;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
(5) Those considered export sales under Executive Order NO. 226,
otherwise known as the "Omnibus Investment Code of 1987", and
other special laws; and
13
(6) The sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air transport
operations. [46]
Class Notes:
(b) Foreign Currency Denominated Sale. - The phrase "foreign
currency denominated sale" means sale to a nonresident of goods,
except those mentioned in Sections 149 and 150, 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 Bangko
Sentral ng Pilipinas (BSP).
(c) Sales to persons or entities whose exemption under special laws
or international agreements to which the Philippines is a signatory
effectively subjects such sales to zero rate.
2. Definition of Gross Selling Price
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.
3. Meaning of Goods or Properties
SEC. 106. Value-Added Tax on Sale of Goods or Properties. -
(A) Rate and Base of Tax. - There shall be levied, assessed and
collected on every sale, barter or exchange of goods or properties,
value-added tax equivalent to ten percent (10%) [44] 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: Provided, That the President, upon the recommendation
of the Secretary of Finance, shall, effective January 1, 2006, raise
the rate of value-added tax to twelve percent(12%), after any of the
following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%); or
(ii) National Government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%). [45]
(1) "Goods or Properties." 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;
Class Notes:
(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.
● Even a non-resident may be exposed to VAT under Sec.
106(A)(1)(b) referring to intangible properties (i.e. design or
model, ex. Uniqlo)
○ That non-resident may NOT be exposed to income
taxation, but exposed to BUSINESS taxation
4. Special Rules on Sale of Real
Property
SEC. 106. Value-Added Tax on Sale of Goods or Properties. -
(A) Rate and Base of Tax. - There shall be levied, assessed and
collected on every sale, barter or exchange of goods or properties,
value-added tax equivalent to ten percent (10%) [44] 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: Provided, That the President, upon the recommendation
of the Secretary of Finance, shall, effective January 1, 2006, raise
the rate of value-added tax to twelve percent(12%), after any of the
following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%); or
(ii) National Government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%). [45]
(1) "Goods or Properties." 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.
● Capital Asset = not used in the regular course of business =
NOT subject to VAT
● Ordinary Asset = used in the regular course of business =
SUBJECT TO VAT
● See RR 16-05 Sec. 4.106-3 for definition of “real estate
dealer”, “installment”, “initial payment”
● GR: 12% based on gross selling price
● EXC (only in real estate): If GSP is smaller than FMV, the
12% will apply in FMV (the one higher)
14

5. Zero rated sale of goods
properties
SEC 106
(A)
(2) The following sales by VAT-registered persons shall be subject
to zero percent (0%) rate:
(a) Export Sales. - The term "export sales" means:
(1) The sale and actual shipment of goods from the Philippines to a
foreign country, irrespective of any shipping arrangement that may
be agreed upon which may influence or determine the transfer of
ownership of the goods so exported and paid for in acceptable
foreign currency or its equivalent in goods or services, and
accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
(2) Sale of raw materials or packaging materials to a nonresident
buyer for delivery to a resident local export-oriented enterprise to be
used in manufacturing, processing, packing or repacking in the
Philippines of the said buyer's goods and paid for in acceptable
foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) Sale of raw materials or packaging materials to export-oriented
enterprise whose export sales exceed seventy percent (70%) of
total annual production;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
(5) Those considered export sales under Executive Order NO. 226,
otherwise known as the "Omnibus Investment Code of 1987", and
other special laws; and
(6) The sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air transport
operations. [46]
(b) Foreign Currency Denominated Sale. - The phrase "foreign
currency denominated sale" means sale to a nonresident of goods,
except those mentioned in Sections 149 and 150, 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 Bangko
Sentral ng Pilipinas (BSP).
(c) Sales to persons or entities whose exemption under special laws
or international agreements to which the Philippines is a signatory
effectively subjects such sales to zero rate.
● Rationale for zero-rated tax:
● Direct exportation = person in PH exports products
● Indirect exportation = sent in customs
● Sec. 106 A (2)(a)(2) VETOED by the President
○ 0% only to direct exporters, NOT to indirect
exporters
● Current Status: Indirect exportation is subject to 12% VAT.
Customs territory export subject to zero-rated tax.
● To be effectively zero-rated → Declare: eto transactions ko
and eto katransact ko
● EO 226 -- export transaction definition
6. Transactions Deemed Sales
(B) Transactions Deemed Sale. - The following transactions shall be
deemed sale:
(1) Transfer, use or consumption not in the course of business of
or
goods or properties originally intended for sale or for use in the
course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the
VAT-registered persons; or
(b) Creditors in payment of debt;
(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.
7. Changes in or Cessation of Status of
a VAT-registered Person
(C) Changes in or Cessation of Status of a VAT-registered Person. -
The tax imposed in Subsection (A) of this Section shall also apply to
goods disposed of or existing as of a certain date if under
circumstances to be prescribed in rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of
the Commissioner, the status of a person as a VAT-registered
person changes or is terminated.
8. Sales Return, Allowances and Sales
Discounts
(D) Sales Returns, Allowances and Sales Discounts​. - The value of
goods or properties sold and subsequently returned or for which
allowances were granted by a VAT-registered person may be
deducted from the gross sales or receipts for the quarter in which a
refund is made or a credit memorandum or refund is issued. Sales
discount granted and indicated in the invoice at the time of sale and
the grant of which does not depend upon the happening of a future
event may be excluded from the gross sales within the same
quarter it was given.
9. Authority of CIR to Determine
Appropriate Tax Base
(E) Authority of the Commissioner to Determine the Appropriate Tax
Base. ​- The Commissioner shall, by rules and regulations
prescribed by the Secretary of Finance, determine the appropriate
tax base in cases where a transaction is deemed a sale, barter or
exchange of goods or properties under Subsection (B) hereof, or
where the gross selling price is unreasonably lower than the actual
market value.
D. VAT ON IMPORTATION
1. In General
SEC. 107. Value-Added Tax on Importation of Goods. -
(A) In General​. - There shall be levied, assessed and collected on
every importation of goods a value-added tax equivalent to ten
percent (10%) [47] 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
15
Provided, further, That the President, upon the recommendation of
the Secretary of Finance, shall, effective January 1, 2006, raise the
rate of the value-added tax to twelve percent (12%), after any of the
following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 ½ %). [48]
2. Transfer by VAT exempt persons
(B) Transfer of Goods by Tax-exempt Persons. - In the case of
tax-free importation of goods into the Philippines by persons,
entities or agencies exempt from tax where such goods are
subsequently sold, transferred or exchanged in the Philippines to
non-exempt persons or entities, the purchasers, transferees or
recipients shall be considered the importers thereof, who shall be
liable for any internal revenue tax on such importation. The tax due
on such importation shall constitute a lien on the goods superior to
all charges or liens on the goods, irrespective of the possessor
thereof
E. OUTPUT TAX ON SALE OF SERVICES
1. Tax Rate and Tax Base
SEC. 108. Value-added Tax on Sale of Services and Use or
Lease of Properties. -
(A) Rate and Base of Tax​. - There shall be levied, assessed and
collected, a value-added tax equivalent to ten percent (10%) 10 of
gross receipts derived from the sale or exchange of services,
including the use or lease of properties: Provided, That the
President, upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006,raise the value-added tax to twelve
percent (12%), after any of the following conditions has been
satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%). [49]
The phrase "sale or exchange of services" means the performance
of all kinds of services in the Philippines for others for a fee,
remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of property,
whether personal or real; warehousing services; lessors or
distributors of cinematographic films; persons engaged in milling
processing, manufacturing or repacking goods for others;
proprietors, operators or keepers of hotels, motels, rest houses,
pension houses, inns, resorts; proprietors or operators of
restaurants, refreshment parlors, cafes and other eating places,
including clubs and caterers; dealers in securities; lending investors;
transportation contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for hire another
domestic common carriers by land relative to their transport of
goods or cargoes; 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; sales of electricity by
generation companies, transmission, and distribution companies;
services of franchise grantees of electric utilities. [50] telephone and
telegraph, radio and television broadcasting and all other franchise
grantees except those under section 119 of this Code, and non-life
insurance companies (except their crop insurances), including
surety, fidelity, indemnity, and bonding companies; and 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 of the use of, or the right to use of 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) or any such knowledge or information as is
mentioned in subparagraph (3);
(5) The supply of services by a nonresident 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.
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.
The term "gross receipts" means the total amount of money or its
equivalent representing the contract price, compensation, service
fee, rental or royalty, including the amount charged for materials
supplied with the services and deposits and 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.
2. Definition of Gross Receipts
The term "gross receipts" means the total amount of money or its
equivalent representing the contract price, compensation, service
fee, rental or royalty, including the amount charged for materials
supplied with the services and deposits and 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.
Class Notes:
● Difference between “gross selling price” and “gross receipts”
○ Gross receipt: includes constructive receipt
○ 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.
● Deposit v. Advance Rental payment
16
 ○ Deposits: Not VAT-able receipt because they are
reimbursements
● Example:
○ I sold goods for P1M and had rentals on January.
The goods were paid on February. The rentals
were paid in March. WHen are we supposed to
report the VAT?
■ Goods = January (anchored on
transaction)
■ Rentals = March (anchored on receipt)
○ VAT attaches on date/month of transaction. So if
may advance payment, naadvance din yung VAT
remittance.
● Documenting sale of goods v. Documenting sale of service
○ Sale of goods: always represented by Sales
Invoice/Commercial/Credit invoice
■ Official receipt in sale of goods is proof
of payment of transaction but NOT
source of input tax
○ Sale of service: represented by Official Receipt
3. Meaning of “sale or Exchange of
Services”
SEC. 108. Value-added Tax on Sale of Services and Use or
Lease of Properties. -
(A) Rate and Base of Tax​. - There shall be levied, assessed and
collected, a value-added tax equivalent to ten percent (10%) 10 of
gross receipts derived from the sale or exchange of services,
including the use or lease of properties: Provided, That the
President, upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006,raise the value-added tax to twelve
percent (12%), after any of the following conditions has been
satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%). [49]
The phrase "sale or exchange of services" means the performance
of all kinds of services in the Philippines for others for a fee,
remuneration or consideration, including those performed or
rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of property,
whether personal or real; warehousing services; lessors or
distributors of cinematographic films; persons engaged in milling
processing, manufacturing or repacking goods for others;
proprietors, operators or keepers of hotels, motels, rest houses,
pension houses, inns, resorts; proprietors or operators of
restaurants, refreshment parlors, cafes and other eating places,
including clubs and caterers; dealers in securities; lending investors;
transportation contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for hire another
domestic common carriers by land relative to their transport of
goods or cargoes; 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; sales of electricity by
generation companies, transmission, and distribution companies;
services of franchise grantees of electric utilities. [50] telephone and
telegraph, radio and television broadcasting and all other franchise
grantees except those under section 119 of this Code, and non-life
insurance companies (except their crop insurances), including
surety, fidelity, indemnity, and bonding companies; and 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 of the use of, or the right to use of 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) or any such knowledge or information as is
mentioned in subparagraph (3);
(5) The supply of services by a nonresident 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.
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.
The term "gross receipts" means the total amount of money or its
equivalent representing the contract price, compensation, service
fee, rental or royalty, including the amount charged for materials
supplied with the services and deposits and 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.
See RR 16-2005 p. 12
● Millers ​are subject to VAT on sale of services
○ EXC: ​palay into rice, corn into corn gifts, and
sugarcane into raw sugar
○ It’s the person who is VAT-able, not the
product.
○ Millers are exempt from VAT and from percentage
tax
● Sale of electricity
○ GR: Generation (non-renewable), Transmission,
and Distribution (private companies or electric
cooperatives) subject to 12% VAT
○ EXC: if renewable generator, 0% VAT (biomass,
solar, wind, geothermal, ocean energy,
hydropower)
● Franchise grantees
○ TELCO = 12/% VAT
○ Radio/TV = 12% VAT
■ If annual gross receipt does not exceed
P10M, VAT-exempt, but subject to 3%
franchise tax
17
 ○ Toll = 12% VAT
○ Gas = 2% franchise tax
(6) Transport of passengers and cargo by air or sea vessels from
○ Water = 2% franchise tax the Philippines to a foreign country; and
● Common Carrier
○ Land (person - domestic) = 3% percentage tax (7) Sale of power or fuel generated through renewable sources of
○ Land (cargo) = energy such as, but not limited to, biomass, solar, wind,
○ Air and Sea (passenger) hydropower, geothermal, ocean energy, and other emerging energy
sources using technologies such as fuel cells and hydrogen fuels.
■ Domestic Carrier/Flight = 12% VAT
[53]
■ Domestic Carrier/International Flight) =
0% VAT (Sec. 108(B)(4))
■ International Carrier = EXEMPT (subject F. EXEMPT TRANSACTIONS
to 3% percentage tax) 1. Meaning of Exempt Sales
○ Air and Sea (cargo/goods)
■ Domestic Carrier/Flight = 12% VAT EXEMPT SALES = sale of goods/property/services and use/lease of
(Sec. 108) properties NOT subject to VAT (output tax) and seller is not allowed
■ Domestic Carrier/International Flight any tax credit of VAT (input) on purchases (Sec. 109)
(LBC) = 0% VAT (Sec. 108(B)(4)) ● Purchases of an exempt taxpayer is passed as COST
■ International Carrier = EXEMPT (subject ● 2 classifications: subject to percentage tax and exempt from
to 3% percentage tax) business taxes
● Medical Industry
○ Insurance Company = 12% VAT Sales Tax = ​negative cascading effect of taxes (Manufacturer -
○ Non-life = Non-vat, but with 3% percentage tax wholesaler - retailer - end-user are ALL taxed)
○ HMOs = 12% VAT VAT = ​only the end-user is taxed
○ Medical, dental, hospital, veterinary services =
VAT-exempts (EXC: professionals aka doctors) ○
● Educational Services = ​EXEMPT
○ Note: educational service is different from 2. Exempt vs. Zero Rated Sales
educational purpose
■ Service is exempt, NOT the person CIR v Cebu Toyo Corporation
● Real Property
○ GR: 12% VAT Toshiba Information Equipment v CIR
○ EXC: not subject to business = EXEMPT, also not
subject to percentage tax 3. Exempt Transactions

SEC. 109. Exempt Transactions​. [ANG HABA]

4. Zero-rated sale of services

(B) Transactions Subject to Zero Percent (0%) Rate - The following a. Sale or importation of
services performed in the Philippines by VAT- registered persons
agricultural and marine food
shall be subject to zero percent (0%) rate.
products in their original
(1) Processing, manufacturing or repacking goods for other persons state
doing business outside the Philippines which goods are Misamis Oriental Coco Traders v Sec of Finance
subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance with b. Sale or importation of
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); fertilizers, seeds, seedlings,
and fingerlings
(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, [51] 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. [52]
c. Importation of personal and
(5) Services performed by subcontractors and/or contractors in household effects
processing, converting, of manufacturing goods for an enterprise
whose export sales exceed seventy percent (70%) of total annual
production.

18
 d.
Importation of professional u. Importation of fuel, goods
instruments and and supplies by persons
implements engaged in international
e. Services subject to shipping or air transport
percentage tax under Title V operations
f. Agricultural contract v. Services of bank and
growers and milling for finance companies
others of palay into rice, w. Senior citizens and PWD
corn, into grits and sugar x. S40 ( C ) (2)
cane intro raw sugar
SEC. 40. Determination of Amount and Recognition of Gain or
g. Medical, dental, hospital
Loss. -
and veterinary services (C) Exchange of Property. -
Hermano San Miguel Febres Cordero Medical Education Foundation v
CIR (1) General Rule. - Except as herein provided, upon the sale or
exchange or property, the entire amount of the gain or loss, as the
CIR v Philippine Health Care Providers Inc case may be, shall be recognized.

(2) Exception. - No gain or loss shall be recognized if in pursuance

h. Educational services of a plan of merger or consolidation -
i. Services rendered by
individuals pursuant to (a) A corporation, which is a party to a merger or consolidation,
employer-employee exchanges property solely for stock in a corporation, which is a
relationship party to the merger or consolidation; or
j. Services rendered by
(b) A shareholder exchanges stock in a corporation, which is a party
regional or area
to the merger or consolidation, solely for the stock of another
headquarters corporation also a party to the merger or consolidation; or
k. Transactions that are
exempt under international (c) A security holder of a corporation, which is a party to the merger
agreements or special law or consolidation, exchanges his securities in such corporation,
l. Sale by agricultural solely for stock or securities in such corporation, a party to the
merger or consolidation.
cooperatives
m. Gross receipts from lending No gain or loss shall also be recognized if property is transferred to
activities by credit or a corporation by a person in exchange for stock or unit of
multipurpose cooperative participation in such a corporation of which as a result of such
n. Sales by non-agricultural, exchange said person, alone or together with others, not exceeding
non-electric and non-credit four (4) persons, gains control of said corporation: Provided, That
cooperatives stocks issued for services shall not be considered as issued in
return for property.
o. Export sales by persons
who are not VAT-registered
p. Real properties not y. Association dues,
primarily held for sale or membership fees, and other
lease, socialized housing assessments and charges
q. Lease of residential units collected by homeowners
with a monthly rental associations and
income not exceeding P15K condominium corporations
Class notes: z. Sale of gold to the BSP
● IF NOT residential leasing → ALWAYS VATABLE aa. Sale of drugs and
● IF residential leasing, less than 15K monthly BUT medicines prescribed for
AGGREGATE ANNUAL GROSS RECEIPTS EXCEEDS 3M diabetes, high cholesterol
→ VATABLE and hypertension beginning
● IF MIXED January 1, 2019
r. Sale, importation, printing
RR 25-2018
or publication of books, Exemption from VAT shall apply to the sale by manufacturers,
newspapers and magazines distributors, wholesalers and retailers of the said drugs and
s. Transport of passengers by medicines starting Jan 1, 2019. The importation of the said drugs
international carriers and medicines shall be subject to VAT under Section 107 of the Tax
t. Sale, importation or lease of Code, as amended.
passenger vessels of cargo
RMC 4-2019
vessels and aircrafts
Publishes full text of the letter from FDA containing “List of VAT
including engine, Exempt Diabetes, High Cholesterol and Hypertension Drugs”
equipment and spare parts provided under RA 8424, as amended by TRAIN Law.
thereof for domestic or
international transport
operations
19
 bb. Sale or lease of goods,
properties or services other
than the transactions
mentioned in the preceding
paragraphs, the gross sales
or receipts do not exceed
P3M
G. INPUT TAXES ON PURCHASES OF GOODS OR
SERVICES AND IMPORTATION
1. Credits for Input Tax
SEC. 110. Tax Credits. -
A. Creditable Input Tax. -
(1) Any input tax evidenced by a VAT invoice or official receipt
issued in accordance with Section 113 hereof on the following
transactions shall be creditable against the output tax:
(a) Purchase or importation of goods:
(i) For sale; or
(ii) For conversion into or intended to form part of a finished product
for sale including packaging materials; or
(iii) For use as supplies in the course of business; or
(iv) For use as materials supplied in the sale of service; or
(v) For use in trade or business for which deduction for depreciation
or amortization is allowed under this Code. [65]
(b) Purchase of services on which a value-added tax has been
actually paid.
(2) The input tax on domestic purchase or importation of goods or
properties by a VAT-registered person [66] shall be creditable:
(a) To the purchaser upon consummation of sale and on
importation of goods or properties; and
(b) To the importer upon payment of the value-added tax prior to
the release of the goods from the custody of the Bureau of
Customs.
Provided, that the input tax on goods purchased or imported in a
calendar month for use in trade or business for which deduction for
depreciation is allowed under this Code shall be spread evenly over
the a month of acquisition and the fifty-nine (59) succeeding months
if the aggregate acquisition cost for such goods, excluding the VAT
component thereof, exceeds One million pesos (P 1, 000, 000):
Provided, however, That if the estimated useful life of the capital
goodis less than five (5) years, as used for depreciation purposes,
then the input VAT shall be spread over such a shorter period:
[67]Provided, finally, that in the case of purchase of services, lease
or use of properties, the input tax shall be creditable to the
purchaser, lessee or license upon payment of the compensation,
rental, royalty or free.
(3) A VAT-registered person who is also engaged in transactions
not subject to the value-added tax shall be allowed tax credit as
follows:
(a) Total input tax which can be directly attributed to transactions
subject to value-added tax; and [68]
(b) A ratable portion of any input tax which cannot be directly
attributed to either activity.
The term "input tax" means the value-added tax due from or paid by
a VAT-registered person in the course of his trade or business on
importation of goods or local purchase of goods or services,
including lease or use of property, from a VAT-registered person. It
shall also include the transitional input tax determined in
accordance with Section 111 of this Code.
The term "output tax" means the value-added tax due on the sale or
lease of taxable goods or properties or services by any person
registered or required to register under Section 236 of this Code.
I. Purchase of importation of goods
SEC. 110. Tax Credits. -
A. Creditable Input Tax. -
(1) Any input tax evidenced by a VAT invoice or official receipt
issued in accordance with Section 113 hereof on the following
transactions shall be creditable against the output tax:
(a) Purchase or importation of goods:
Ii. Purchase of capital equipment
(2) The input tax on domestic purchase or importation of goods or
properties by a VAT-registered person [66] shall be creditable:
(a) To the purchaser upon consummation of sale and on
importation of goods or properties; and
(b) To the importer upon payment of the value-added tax prior to
the release of the goods from the custody of the Bureau of
Customs.
Provided, that the input tax on goods purchased or imported in a
calendar month for use in trade or business for which deduction for
depreciation is allowed under this Code shall be spread evenly over
the a month of acquisition and the fifty-nine (59) succeeding months
if the aggregate acquisition cost for such goods, excluding the VAT
component thereof, exceeds One million pesos (P 1, 000, 000):
Provided, however, That if the estimated useful life of the capital
goodis less than five (5) years, as used for depreciation purposes,
then the input VAT shall be spread over such a shorter period:
[67]Provided, finally, that in the case of purchase of services, lease
or use of properties, the input tax shall be creditable to the
purchaser, lessee or license upon payment of the compensation,
rental, royalty or free.
Iii. Purchase of services
(1) Any input tax evidenced by a VAT invoice or official receipt
issued in accordance with Section 113 hereof on the following
transactions shall be creditable against the output tax:
(b) Purchase of services on which a value-added tax has been
actually paid.
Iv. VAT Taxpayer with Mixed
Transactions
(3) A VAT-registered person who is also engaged in transactions
not subject to the value-added tax shall be allowed tax credit as
follows:
(a) Total input tax which can be directly attributed to transactions
subject to value-added tax; and [68]
(b) A ratable portion of any input tax which cannot be directly
attributed to either activity.
20
 The term "input tax" means the value-added tax due from or paid by
a VAT-registered person in the course of his trade or business on
importation of goods or local purchase of goods or services,
including lease or use of property, from a VAT-registered person. It
shall also include the transitional input tax determined in
accordance with Section 111 of this Code.
The term "output tax" means the value-added tax due on the sale or
lease of taxable goods or properties or services by any person
registered or required to register under Section 236 of this Code.
2. Transitional Input Tax
SEC. 111. Transitional/Presumptive Input Tax Credits. -
(A) Transitional Input Tax Credits​. - A person who becomes liable to
value-added tax or any person who elects to be a VAT-registered
person shall, subject to the filing of an inventory according to rules
and regulations prescribed by the Secretary of finance, upon
recommendation of the Commissioner, be allowed input tax on his
beginning inventory of goods, materials and supplies equivalent to
two percent (2%) [70] of the value of such inventory or the actual
value-added tax paid on such goods, materials and supplies,
whichever is higher, which shall be creditable against the output tax.
Fort Bonifacio Development Corp v CIR
3. Presumptive Input Tax
(B) Presumptive Input Tax Credits​. - Persons or firms engaged in
the processing of sardines, mackerel and milk, and in manufacturing
refined sugar and cooking oil, shall be allowed a presumptive input
tax, creditable against the output tax, equivalent to 4% [71] 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 Subsection, 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.
● Processing -- pasteurization, canning and activites which
through physical or chemical process alter the exterior
texture/form/inner substance of a product in
4. Withholding of VAT
I. Creditable Withholding VAT on
non-resident lessors of properties or
property rights
Ii. Final Withholding VAT by
governments
SEC. 114. Return and Payment of Value-Added Tax.
(C) Withholding of Value-added Tax​. - The Government or any of its
political subdivisions, instrumentalities or agencies, including
government-owned or -controlled corporations (GOCCs) shall,
before making payment on account of each purchase of goods and
services which are f are subject to the value-added tax imposed in
Sections 106 and 108 of this Code, deduct and withhold the
value-added tax imposed in Sections 106 and 108 of this Code,
deduct and withhold a final value-added tax at the rate of five
percent (5%) of the gross payment thereof: Provided, That the
payment for lease or use of properties or property rights to
nonresident owners shall be subject to ten percent (10%) [78]
withholding tax at the time of payment. For purposes of this Section,
the payor or person in control of the payment shall be considered as
the withholding agent. [79]
The value-added tax withheld under this Section shall be remitted
within ten (10) days following the end of the month the withholding
was made.
H. Computation of VAT Payable
1. Excess Output or Input Tax
SEC. 110. Tax Credits. -
(B) Excess Output or Input Tax. [69] - 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. If the input tax exceeds the
output tax, the excess 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 credited against other internal revenue
taxes, subject to the provisions of Section 112.
I. Refunds or Tax Credit of Input Tax
Class Notes:
● Claim for Refund = within ​2 years ​after the close of the
taxable quarter when the sales were made (if
Zero-rated/Effectively zero-rated Sales 112 A) or ​from the
date of cancellation (if Cancellation of VAT Registration 112
B)
● Re: counting of quarters → following their reporting of
accounting
● Re: Compliance requirements → ​persons starting a
business with more than P3M
● Re: return → Before: ​Monthly and Quarterly; ​Now:
Quarterly (total of 4 returns annually)
● Creditable v. Final
CIR v. Aichi Forging
● 112A is for refund of unutilized input tax.
● 229 is for erroneous payment of erroneous payment or illegal
collection of internal revenue taxes.
CIR v. San Roque
● CIR has 120 days to act on an admin claim.
● The judicial claim can be filed only (1) within 30 days after
CIR’s denial of the claim, or (2) within 30 days from expiry of
120-day period.
○ 90-day rule applies only to VAT payments (?)
J. Compliance Requirements
1. Registration
i.Persons Commencing Business
SEC. 236. Registration Requirements. -
(G) Persons Required to Register for Value-Added Tax. -
(1) Any person who, in the course of trade or business, sells,
barters or exchanges goods or properties, or engages in the sale or
exchange of services, shall be liable to register for value-added tax
if:
(a) His gross sales or receipts for the past twelve (12) months,
other than those that are exempt under Section 109(A) to (V), have
exceeded One million five hundred thousand pesos (P1,500,000);
or
(b) There are reasonable grounds to believe that his gross sales or
receipts for the next twelve (12) months, other than those that are
exempt under Section 109(A) to (V), will exceed One million five
hundred thousand pesos (P1,500,000); or
21
 ii.Failure to Register
SEC. 236 9G) (2)
Every person who becomes liable to be registered under paragraph
(1) of this Subsection shall register with the Revenue District Office
which has jurisdiction over the head office or branch of that person,
and shall pay the annual registration fee prescribed in Subsection
(B) hereof. If he fails to register, he shall be liable to pay the tax
under Title IV 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.
iii.Optional Registration
SEC. 236
(H) Optional Registration for Value-Added Tax of Exempt Person. -
(1) Any person who is not required to register for value-added tax
under Subsection (G) hereof may elect to register for value-added
tax by registering with the Revenue District Office that has a
jurisdiction over the head office of that person, and paying the
annual registration fee in Subsection (B) hereof.
(2) Any person who elects to register under this Subsection shall not
be entitled to cancel his registration under Subsection (F) (2) for the
next three (3) years.
For purposes of Title IV of this code, any person who has registered
value-added tax as a tax type in accordance with the provisions of
Subsection (C) hereof shall be referred to as a "VAT-registered
person" who shall be assigned only one Taxpayer Identification
Number (TIN).
SEC. 109. Exempt Transactions.
(2) A VAT-registered person may elect that Subsection (1) not apply
to its sale of goods or properties or services: Provided, that an
election made under this subsection shall be irrevocable for a period
of three (3) years from the quarter the election was made
iv.Cancellation of Registration
(F) Cancellation of Registration. -
(1) General Rule. - The registration of any person who ceases to be
liable to a tax type shall be cancelled upon filing with the Revenue
District Office where he is registered an application for registration
information update in a form prescribed therefor.
(2) Cancellation of Value-Added Tax Registration. - A VAT-
registered person may cancel his registration fo VAT if:
(a) He makes written application and can demonstrate to the
Commissioner's satisfaction the his gross sales or receipts for the
following twelve(12) months, other than those that are exempt under
Section 109 (A) to (U) (sic), will not exceed One million five hundred
thousand pesos (P1,500,000) or
(b) He has ceased to carry on his trade of business, and does not
expect to recommence any trade or business within the next (12)
months.
The cancellation of registration will be effective from the first day of
the following month.
2. Invoicing and Accounting
Requirements
i.In General
SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. -
All persons subject to an internal revenue tax shall, for each sale or
transfer of merchandise or for services rendered valued at
Twenty-five pesos (P25.00) or more, issue duly registered receipts
or sales or commercial invoices, prepared at least in duplicate,
showing the date of transaction, quantity, unit cost and description
of merchandise or nature of service: Provided, however, That where
the receipt is issued to cover payment made as rentals,
commissions, compensations, fees, receipts or invoices shall be
issued which shall show the name, business style, if any, and
address of the purchaser, customer or client: Provided, further, That
where the purchaser is a VAT-registered person, in addition to the
information herein required, the invoice or receipt shall further show
the Taxpayer Identification Number (TIN) of the purchaser.
The original of each receipt or invoice shall be issued to the
purchaser, customer or client at the time the transaction is effected,
who, if engaged in business or in the exercise of profession, shall
keep and preserve the same in his place of business for a period of
three (3) years from the close of the taxable year in which such
invoice or receipt was issued, while the duplicate shall be kept and
preserved by the issuer, also in his place of business, for a like
period.
The Commissioner may, in meritorious cases, exempt any person
subject to internal revenue tax from compliance with the provisions
of this Section
ii.VAT Invoicing Requirements for
Goods and Services
SEC. 113. Invoicing and Accounting Requirements for
VAT-Registered Persons. -
(A) 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.
iii.Information in the VAT Invoice of
Official Receipt
SEC. 113
(B) 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); and
(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 known 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 involved 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 break-down 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 known 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.
22

(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) 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
nonresident owners shall be subject to ten percent (10%) [78]
withholding tax at the time of payment. For purposes of this Section,
the payor or person in control of the payment shall be considered as
the withholding agent. [79]
The value-added tax withheld under this Section shall be remitted
within ten (10) days following the end of the month the withholding
was made.

ii.Government Money Payments

iii.ODA funded projects
Panasonic Communications Imaging Corp v CIR iv.BIR Form 1600 Monthly Remittance
Microsoft Philippines Inc v CIR Return of VAT and Other Percentage
Western Mindanao Power Corporation v CIR Taxes Withheld
3. Accounting Requirements v.BIR Form 2306 Certificate of Final
Tax Withheld at Source
SEC. 113
C) Accounting Requirements. - Notwithstanding the provisions of 7. Summary List of Sales and
Section 233, all persons subject to the value-added tax under Purchases
Sections 106 and 108 shall, in addition to the regular accounting K. Power of the Commissioner to Suspend
records required, maintain a subsidiary sales journal and subsidiary Business Operations
purchase journal on which the daily sales and purchases are
recorded. The subsidiary journals shall contain such information as SEC. 115. Power of the Commissioner to Suspend the Business
may be required by the Secretary of Finance. Operations of a Taxpayer. - The Commissioner or his authorized
representative is hereby empowered to suspend the business
operations and temporarily close the business establishment of any
4. Issuance of Erroneous VAT Invoice person for any of the following violations:
or Official Receipt
(a) In the case of a VAT-registered Person. -
SEC. 113 (1) Failure to issue receipts or invoices;
(D) Consequence of Issuing Erroneous VAT Invoice or VAT Official (2) Failure to file a value-added tax return as required under Section
Receipt. - 114; or
(1) If a person who is not a VAT-registered persons issues an (3) Understatement of taxable sales or receipts by thirty percent
invoice or receipt showing his Taxpayer Identification Number (TIN), (30%) or more of his correct taxable sales or receipts for the taxable
followed by the word "VAT"; quarter.
(a) The issuer shall, in addition to any liability to other percentage
taxes, be liable to: (b) Failure of any Person to Register as Required under Section
(i) The tax imposed in Section 106 or 108 without the benefit of any 236.
input tax credit; and
(ii) A 50% surcharge under Section 248(B) of this Code; [76] The temporary closure of the establishment shall be for the duration
(b) The VAT shall, if the other requisite information required under of not less than five (5) days and shall be lifted only upon
Subsection (B) hereof is shown on the invoice or receipt, be compliance with whatever requirements prescribed by the
recognized as an input tax credit to the purchaser under Section Commissioner in the closure order.
110 of this Code.
(2) 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 section
106 or 108 as if Section 109 did not appl

5. Return and Payment of VAT

i.BIR Form 2550M Monthly VAT
Declaration
ii.BIR Form 2550Q Quarterly VAT
Return
6. Withholding VAT
i.Creditable and Final

SEC. 114. Return and Payment of Value-Added Tax. -

(C) Withholding of Value-added Tax. - The Government or any of its
political subdivisions, instrumentalities or agencies, including
government-owned or -controlled corporations (GOCCs) shall,
before making payment on account of each purchase of goods and
services which are f are subject to the value-added tax imposed in
Sections 106 and 108 of this Code, deduct and withhold the
value-added tax imposed in Sections 106 and 108 of this Code,
deduct and withhold a final value-added tax at the rate of five
percent (5%) of the gross payment thereof: Provided, That the
payment for lease or use of properties or property rights to

23