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TAXATION

PRE-BAR LECTURE

► Atty. Rubina P. Bundoc-Aquino


► Partner, SyCip Gorres Velayo & Co.
Concept of VAT

► VAT is a percentage tax on transactions, imposed at every


stage of the distribution process on the sale, barter, exchange
of goods or property, and on the performance of services.

► The taxpayer/seller determines his VAT liability by computing


the VAT on the gross selling price or gross receipts (output tax),
and subtracting from this amount the VAT on his purchase or
importation of goods or purchase of service (input tax).

► VAT is an indirect tax, meaning, it may be shifted or passed on


to the buyer, transferee or lessee of the goods, properties or
services.
Characteristics of VAT
► VAT is a tax on consumption levied on the sale, barter,
exchange or lease of goods or properties and services in
the Philippines and on importation of goods into the
Philippines.

► The seller is the one statutorily liable for the payment of


the tax but the amount of the tax may be shifted or passed
on to the buyer, transferee or lessee of the goods,
properties or services.

► In the case of importation, the importer is the one liable for


the VAT.
Impact and Incidence of Tax

► Impact of Taxation
(or who bears the burden of taxation)
► FINAL CONSUMER

► Incidence of Taxation
(or who is statutorily liable to pay the tax)
► SELLER UPON WHOM THE TAX HAS BEEN IMPOSED
Tax Credit Method

► The manner by which the VAT liability of the taxpayer is


computed.

► The input tax evidenced by a VAT invoice or Official


Receipt (on purchase or import of goods and on purchase
of services) shall be creditable against the output tax.
Destination Principle

► “As a general rule, the VAT system uses the destination


principle as a basis for the jurisdictional reach of the tax.
Goods and services are taxed only in the country where
they are consumed.” (CIR v. American Express International, Inc. (Philippine
Branch), G.R. No. 152609, 29 June 2005)

► “(E)xports are zero-rated whereas imports are taxed.” (CIR v.


American Express International, Inc. (Philippine Branch), G.R. No. 152609, 29 June 2005)
Persons Liable

► “Any person who, in the course of his trade or business,


sells, barters, exchanges or leases goods or properties, or
renders services, and any person who imports goods,
shall be liable to VAT...” (Section 4.105-1, RR No. 16-2005; Section 105 , NIRC)
Persons Liable
► The phrase "in the course of trade or business" means:
► regular conduct or pursuit of a commercial or an economic activity,
► including transactions incidental thereto,
► by any person regardless of whether or not the person engaged
therein is:
► a nonstock, nonprofit private organization (irrespective of the
disposition of its net income and whether or not it sells exclusively to
members or their guests), or
► government entity. (Section 105, NIRC)
Persons Liable - Exception
► A non-VAT registered person, on his sale or lease of
goods or properties or on performance of services where
the gross annual sales and/or receipts do not exceed
P1,919,500.
Persons Liable
► Non-resident persons who render services in the
Philippines are considered as rendering service in the
course of trade or business, even if the performance of
services is not regular. (Section 105, NIRC)
VAT on Sale of Goods and Properties

► RATE: 12%

► BASIS: Gross Selling Price or gross value in money of


the goods or properties sold, bartered or exchanged.

► Gross Selling Price


“(T)he 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.” (Section 106 (A), NIRC)
VAT on Sale of Goods and Properties

► “Goods or Properties”
► 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, films, tapes
and discs; and
e) Radio, television, satellite transmission and cable television
time. (Section 106 (A)(1), NIRC)
VAT on Sale of Goods and Properties

► Requisites of Taxability
1. There is an actual or deemed sale of goods or properties for a
valuable consideration;
2. It was undertaken in the course of trade or business
3. It was for use or consumption in the Philippines;
4. It is not exempt from VAT under the Tax Code, special law, or
international agreement
(Mamalateo, Reviewer on Taxation, 2nd. Ed. 2008)
Real Property

► General Rule:
► Sale of real properties held primarily for sale to customers or held
for lease in the ordinary course of trade or business of the seller -
subject to VAT. (Section 4.106-3, RR 16-2005, as amended by RR 04-07)
Real Property

Requisites of Taxability
(1) The seller executes a deed of sale, barter or exchange,
assignment or conveyance, or contract to sell of real property;
(2) The real property is located within the Philippines;
(3) The seller or transferor is engaged in real estate business either
as a real estate dealer, developer or lessor;
(4) The real property is held primarily for sale or for lease in the
course of his trade or his business;
(5) The sale is not exempt from VAT under the Tax Code, special law
or international agreement. (Mamalateo, Reviewer on Taxation, 2nd Edition)
Real Property
A. Sale of Real property on B. Sale of Real Property on
Installment Deferred Payment
Instance of Taxability Definition

Initial payments in year of Initial payments in year of sale


sale do not exceed 25% of exceed 25% of gross selling
gross selling price. price.

Subject to VAT on installment


payments, including interest Treated as cash sale, which
and penalties, actually and/or makes entire selling price
constructively received by taxable in month of sale.
seller.

Section 4.106-3, RR 16-2005, as amended by RR 04-07


Real Property
► Initial payments
► Payment or payments which seller receives before or upon execution
of the instrument of sale and payments which he expects or is
scheduled to receive in cash or property (other than evidence of
indebtedness of the purchaser) during the year when the sale or
disposition of the real property was made. It covers any down
payment made and includes all payments actually or constructively
received during the year of sale, the aggregate of which determines
the limit set by law.

► Initial payments do not include the amount of mortgage on the real


property sold except when such mortgage exceeds the cost or other
basis of the property to the seller, in which case, the excess shall be
considered part of the initial payments.

► Also excluded from initial payments are notes or other evidence of


indebtedness issued by the purchaser to the seller at the time of the
sale. (Section 4.106-3, RR 16-2005, as amended by RR 04-07)
Real Property
C. Pre-selling of real estate properties by real estate dealers
► Subject to VAT using prescribed rules above.

D. Transmission of property to a Trustee


► Subject to VAT: If property transferred is one for sale, lease or use
in the ordinary course of trade or business and transfer constitutes
a completed gift*, the transfer is subject to VAT as a deemed sale
transaction.
* completed gift - if transferor divests himself absolutely of control
over the property.
► Not subject to VAT: If property transmitted is to be merely held in
trust for trustor and/or beneficiary.
(RR 16-2005, as amended by RR 04-07)
Real Property
► Sale of:
► residential lot with gross selling price exceeding P1,919,500.00,
► residential house and lot OR other residential dwellings with gross
selling price exceeding P3,199,200.00,

Note: The threshold on the sale of residential lot was adjusted from P1,500,000 to P1,919,500.00 while the sale of
residential house and lot increased from P2,500,00.00 to PhP3,199,200.00 (RR 16-11)
Zero-rated Sale of Goods or Properties

► Zero-rated sale of goods or properties (by a VAT-


registered person):
► is a taxable transaction for VAT purposes;
► shall not result in any output tax;
► input tax on purchases of goods, properties or services, related to
such zero-rated sale, may be available as tax credit or refund
(upon filing and approval of claim).
Zero-rated Sale of Goods or Properties

A. Export Sales (Section 106 (A)(2)(a), NIRC)

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 BSP;
Export Sale

A. Export Sales (Cont.) (Section 106 (A)(2)(a), NIRC)

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 BSP;

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.
Zero-rated Sale of Goods or Properties

B. Foreign Currency Denominated Sale


(Section 106 (A)(2)(b), NIRC)

► The phrase 'foreign currency denominated sale' means sale to a


nonresident of goods, except those mentioned in Sections 149
(automobiles) and 150 (non-essential goods), assembled or
manufactured in the Philippines for delivery to a resident in the
Philippines, paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the BSP.

► Sales of locally manufactured or assembled goods for household and


personal use to Filipinos abroad and other non-residents of the
Philippines as well as returning Overseas Filipinos under the Internal
Export Program of the government paid for in convertible foreign
currency and accounted for in accordance with the rules and
regulations of the BSP shall also be considered export sales.
Zero-rated Sale of Goods or Properties

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.* (Section 106 (A)(2)(c), NIRC)

* This is the so-called 'effectively zero-rated sale of goods and


properties.' - refers to local sale of goods and properties by a VAT-
registered person to a person or entity who was granted indirect tax
exemption under special laws or international agreement.
(Section 4.106-6, RR 16-05 as amended by RR 4-2007)
Transaction Deemed Sale (Section 106(B))

1. Transfer, use or consumption not in the course of business of


goods or properties originally intended for sale or for use in the
course of business;
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.
Change or cessation of status as VAT-
registered person

► VAT shall apply to goods or properties originally intended for


sale or use in business, and capital goods which are existing as
of the occurrence of the following:

1. Change of business activity from VAT taxable status to VAT-


exempt status.
2. Approval of a request for cancellation of registration due to
reversion to exempt status.
3. Approval of a request for cancellation of registration due to
a desire to revert to exempt status after the lapse of three
(3) consecutive years from the time of registration by a
person who voluntarily registered despite being exempt
under Sec. 109 (2) of the Tax Code. (Section 4.106.-8(a), RR 16-05)
Change or cessation of status as VAT-
registered person

► Continued…

4. Approval of a request for cancellation of registration of one


who commenced business with the expectation of gross sales
or receipts exceeding P1,919,500.00, but who failed to exceed
this amount during the first twelve months of operation.
Change or cessation of status as VAT-
registered person
VAT shall not apply to goods or properties which are originally
intended for sale or for use in the course of business existing as of
the occurrence of the following:
1. Change of control of a corporation by acquisition of the controlling
interest of such corporation by another stockholder (individual or
corporate) or group of stockholders. The goods or properties used
in business (including those held for lease) or those comprising the
stock in trade of the corporation having a change in corporate
control will not be considered sold, bartered, or exchanged despite
the change in the ownership interest in the said corporation.

However, the exchange of goods or properties including the real


estate properties used in business or held for sale or for lease by
the transferor, for shares of stocks, whether resulting in corporate
control or not, is subject to VAT (RR 010-11)
Change or cessation of status as VAT-
registered person

VAT shall not apply to goods or properties which are originally


intended for sale or for use in the course of business existing as of
the occurrence of the following (Cont.):

2. Change in the trade or corporate name of the business;

3. Merger or consolidation of corporations. The unused input tax of


the dissolved corporation, as of the date of merger or
consolidation, shall be absorbed by the surviving new corporation.
(Section 4.106-8(b), RR 16-05, as amended by RR 10-11)
VAT on Importation of Goods

► 12% VAT is based on total value used by the Bureau of


Customs in determining tariff and customs duties, plus
customs duties, excise taxes, if any, and other charges.

► VAT is to be paid by the importer prior to the release of


such goods from customs custody.

► 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. (Section 107(A), NIRC)
VAT on Importation of Goods

► 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." (Section 107(B), NIRC)
VAT on Sale of Service and Use of Lease of
Properties

► A VAT of 12% is imposed on gross receipts derived from


the sale or exchange of services, including the use or
lease of properties.
VAT on Sale of Service and Use of Lease of
Properties

► 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 xxx
regardless of whether or not the performance thereof calls
for the exercise or use of the physical or mental faculties.
(Section 108, NIRC)
VAT on Sale of Service and Use of Lease of
Properties (Section 108, NIRC)

► “The phrase 'sale or exchange of services' shall likewise include:

1. The lease or the use of or the right or privilege to use any


copyright, patent, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property
or right;

2. The lease or the use of, or the right to use of any industrial,
commercial or scientific equipment;

3. The supply of scientific, technical, industrial or commercial


knowledge or information;
VAT on Sale of Service and Use of Lease of
Properties (Section 108, NIRC)

► The phrase 'sale or exchange of services' shall likewise include


(Cont.):

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;
VAT on Sale of Service and Use of Lease of
Properties

► The phrase 'sale or exchange of services' shall


likewise include (Cont.):

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.”
VAT on Sale of Service and Use of Lease of
Properties

► Lease of properties shall be subject to VAT irrespective of


the place where the contract of lease or licensing
agreement was executed if the property is leased or used
in the Philippines. (Section 108 (A), NIRC)

► Gross Receipts
► “(M)eans 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.” (Section 108(A), NIRC)
Zero-rated Sale of Services

► Zero-rated sale of service (by a VAT-registered person):


► is a taxable transaction for VAT purposes;
► shall not result in any output tax;
► input tax on purchases of goods, properties or services, related to
such zero-rated sale, may be available as tax credit or refund
(upon filing and approval of claim).
VAT on Sale of Service

► List of Zero-Rated Sale of Services


(performed in the Philippines by VAT-registered persons):

1. Processing, manufacturing or repacking goods for other persons doing


business outside the Philippines which goods are subsequently exported,
where the services are paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the BSP;

1. Services other than those mentioned in the preceding paragraph rendered


to a person engaged in business conducted outside the Philippines or to a
nonresident person not engaged in business who is outside the
Philippines when the services are performed, the consideration for which
is paid for in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the BSP;
VAT on Sale of Service

► List of Zero-Rated Sale of Services


(performed in the Philippines by VAT-registered persons):

3. Services rendered to persons or entities whose exemption under special


laws or international agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero percent (0%) rate;*

4. Services rendered to persons engaged in international shipping or


international air transport operations, including leases of property for use
thereof;*

5. Services performed by subcontractors and/or contractors in processing,


converting, or manufacturing goods for an enterprise whose export sales
exceed seventy percent (70%) of total annual production;*

*Effectively zero-rated sales


VAT on Sale of Service

► List of Zero-Rated Sale of Services


(performed in the Philippines by VAT-registered persons):

6. Transport of passengers and cargo by air or sea vessels from the


Philippines to a foreign country; and

7. Sale of power or fuel generated through renewable sources of energy


such as, but not limited to, biomass, solar, wind, hydropower, geothermal,
ocean energy, and other emerging energy sources using technologies
such as fuel cells and hydrogen fuels.“ (Section 208(B), NIRC)
Effectively Zero-Rated Sale of Services

► Refers to the local sale of services by a VAT-registered


person to a person or entity who was granted indirect tax
exemption under special laws or international agreement.
VAT Exempt Transactions

► where:
► sale of goods/properties and/or services and the use or lease of
properties that is not subject to VAT (output tax);
► seller is not allowed any tax credit of VAT (input tax) on purchases. (Sec.
4.109-1, RR 16-05)

► Person making the exempt sale shall not bill any output tax to
his customers because the transaction is not subject to VAT.
(Sec. 4.109-1, RR 16-05)

► A VAT-registered person may elect that the exemption shall not


apply to his sales. Once made, the election shall be irrevocable
for 3 years counted from the quarter when the election was
made. (Sec. 109(2), 1997 NIRC)
VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions:

1. Sale or importation of agricultural and marine food products in their original


state, livestock and poultry of a kind generally used as, or yielding or
producing foods for human consumption; and breeding stock and genetic
materials therefor;
 Products classified under this paragraph shall be considered in their
original state even if they have undergone the simple processes of
preparation or preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking or stripping.
 Polished and/or husked rice, corn grits, raw sugar or raw cane sugar and
molasses, ordinary salt, and copra shall be considered in their original
state; (as amended by RA 10864 dated June 10, 2016)
 Livestock or poultry does not include fighting cocks, race horses, zoo
animals and other animals generally considered as pets. (Sec. 4-109-1(B),
RR 16-2005)
VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

2. Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish,


prawn, livestock and poultry feeds, including ingredients, whether locally
produced or imported, used in the manufacture of finished feeds (except
specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals
and other animals generally considered as pets);

3. Importation of personal and household effects belonging to the residents of


the Philippines returning from abroad and nonresident citizens coming to
resettle in the Philippines: Provided, That such goods are exempt from
customs duties under the Tariff and Customs Code of the Philippines;
VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

4. Importation of professional instruments and implements, wearing


apparel, domestic animals, and personal household effects (except any
vehicle, vessel, aircraft, machinery, other goods for use in the
manufacture and merchandise of any kind in commercial quantity)
belonging to persons coming to settle in the Philippines, for their own
use and not for sale, barter or exchange, accompanying such persons,
or arriving within ninety (90) days before or after their arrival, upon the
production of evidence satisfactory to the Commissioner, that such
persons are actually coming to settle in the Philippines and that the
change of residence is bona fide;

5. Services subject to percentage tax under Title V;


VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

6. Services by agricultural contract growers and milling for others of palay into
rice, corn into grits and sugar cane into raw sugar or raw cane sugar;
 “Agricultural contract growers” refers to those persons producing for
others poultry, livestock or other agricultural and marine food products
in their original state. (Sec. 4.109-1(B)(1)(f), RR 16-2005) (as amended by RA 10864
dated June 10, 2016)

7. Medical, dental, hospital and veterinary services except those rendered by


professionals;
 Laboratory services are exempted.
 If the hospital or clinic operates a pharmacy or drug store, the sale of
drugs and medicine is subject to VAT. (Sec. 4.109-1(B)(1)(g), RR 16-2005)
VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

8. Educational services rendered by private educational institutions, duly


accredited by the Department of Education (DepEd), the Commission on
Higher Education (CHED), the Technical Education and Skills Development
Authority (TESDA) and those rendered by government educational
institutions;
 “Educational services" shall refer to academic, technical or vocational
education provided by private educational institutions duly accredited
by the DepEd, the CHED and TESDA and those rendered by
government educational institutions
 It does not include seminars, in-service training, review classes and
other similar services rendered by persons who are not accredited by
the DepED, the CHED and/or the TESDA; (Sec. 4.109-1(B)(1)(h), RR 16-2005)
VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

9. Services rendered by individuals pursuant to an employer-employee


relationship;

10. Services rendered by regional or area headquarters established in the


Philippines by multinational corporations which act as supervisory,
communications and coordinating centers for their affiliates, subsidiaries or
branches in the Asia Pacific Region and do not earn or derive income from
the Philippines;

11. Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws except those granted under
PD No. 529 (Petroleum Exploration Concessionaires under the Petroleum
Act of 1949); and
VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

12. Sales by agricultural cooperatives duly registered and in good standing with
the Cooperative Development Authority (CDA) to their members, as well as
sale of their produce, whether in its original state or processed form, to non-
members; their importation of direct farm inputs, machineries and
equipment, including spare parts thereof, to be used directly and exclusively
in the production and/or processing of their produce;

13. Gross receipts from lending activities by credit or multi-purpose


cooperatives duly registered and in good standing with the CDA;
VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

14. Sales by non-agricultural, non-electric and non-credit cooperatives duly


registered with and in good standing with the CDA; Provided, That the share
capital contribution of each member does not exceed Fifteen Thousand
Pesos (P15,000.00) and regardless of the aggregate capital and net surplus
ratably distributed among the members.
► Importation by non-agricultural, non-electric and non-credit cooperatives
of machineries and equipment, including spare parts thereof, to be used
by them are subject to VAT.; (Sec. 4.109-1(B)(1)(n), RR 16-2005)

15. Export sales by persons who are not VAT-registered;


VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

16. Sale of real properties not primarily held for sale to customers or held for
lease in the ordinary course of trade or business, or real property utilized for
low-cost and socialized housing as defined by Republic Act No. 7279,
otherwise known as the Urban Development and Housing Act of 1992, and
other related laws, residential lot valued at P1,919,500 (previously
P1,500,000) and below, house and lot, and other residential dwellings
valued at P3,199,200 (previously P2,500,000) and below;
VAT Exempt Transactions

List of VAT-Exempt Transactions (Cont.):

a. Sale of real properties not primarily held for sale to customers or held for
lease in the ordinary course of trade or business.
However, even if the real property is not primarily held for sale to customers
or held for lease in the ordinary course of trade or business but the same is
used in the trade or business of the seller, the sale thereof shall be subject to
VAT being a transaction incidental to the taxpayer’s main business. (as
amended by RR 04-07)

b. Sale of real properties utilized for low-cost housing undertaken by the


Government or private developers, wherein the unit selling price is within the
selling price ceiling per unit of P750,000.00.
VAT Exempt Transactions

List of VAT-Exempt Transactions (Cont.):


c. Sale of real properties utilized for socialized housing wherein the price
ceiling per unit is P450,000.00 or as may from time to time be
determined by the HUDCC and the NEDA and other related laws; (ceiling
amended by RMC No. 36-2014)

d. Sale of residential lot valued at P1,919,500.00 and below, or house & lot
and other residential dwellings valued at P3,919,200.00 and below. (as
amended by RR 16-2011)
 If two or more adjacent residential lots are sold or disposed in favor
of one buyer, for the purpose of utilizing the lots as one residential
lot, the sale shall be exempt from VAT only if the aggregate value of
the lots do not exceed P1,919,500.00.
 Adjacent residential lots, although covered by separate titles and/or
separate tax declarations, when sold or disposed to one and the
same buyer, whether covered by one or separate Deed of
Conveyance, shall be presumed as a sale of one residential lot.
VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

► This however, does not include the sale of parking lot which may or may
not be included in the sale of condominium units. The sale of parking lots
in a condominium is a separate and distinct transaction and is not
covered by the rules on threshold amount not being a residential lot,
house & lot or a residential dwelling, thus, should be subject to VAT
regardless of amount of selling price.
VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

17. Lease of a residential unit with a monthly rental not exceeding P12,800
(previously P10,000):
 Where the monthly rental per unit exceeds P12,800.00 but the aggregate of
such rentals of the lessor during the year do not exceed P1,919,500.00, the
same shall likewise be exempt from VAT, however, the same shall be
subjected to 3% percentage tax.
VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

► In cases where a lessor has several residential units for lease, some are
leased out for a monthly rental per unit of not exceeding P12,800.00 while
others are leased out for more than P12,800.00 per unit, his tax liability will
be as follows:

1. The gross receipts from rentals not exceeding P12,800.00 per month per
unit shall be exempt from VAT regardless of the aggregate annual gross
receipts.
2. The gross receipts from rentals exceeding P12,800.00 per month per unit
shall be subject to VAT if the aggregate annual gross receipts from said
units only (not including the gross receipts from units leased for not more
than P12,800.00) exceeds P1,919,500.00. Otherwise, the gross receipts
will be subject to the 3% percentage tax.
VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

► The term 'residential units' shall refer to apartments and houses & lots used
for residential purposes, and buildings or parts or units thereof used solely
as dwelling places (e.g., dormitories, rooms and bed spaces) except motels,
motel rooms, hotels, hotel rooms, lodging houses, inns and pension houses.

► The term 'unit' shall mean an apartment unit in the case of apartments,
house in the case of residential houses; per person in the case of
dormitories, boarding houses and bed spaces; and per room in case of
rooms for rent. (Sec. 4.109-1(B)(1)(q), RR 16-2005, as amended by RR 16-11)
VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

18. Sale, importation, printing or publication of books and any newspaper,


magazine, review or bulletin which appears at regular intervals with fixed
prices for subscription and sale and which is not devoted principally to the
publication of paid advertisements;

19. Transport of passengers and cargo by international carriers doing business


in the Philippines;
► The transport of cargo is subject to Common Carrier’s Tax (Percentage Tax on
International Carriers) under Section 118 of the NIRC, as amended
VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

20. Sale, importation or lease of passenger or cargo vessels and aircraft,


including engine, equipment and spare parts thereof for domestic or
international transport operations;
► Provided, however, that the exemption from VAT on the importation and local
purchase of passenger and/or cargo vessels shall be subject to the
requirements on restriction on vessel importation and mandatory vessel
retirement program of MARINA. (RR 15-15)
VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

► Importation of life-saving equipment, safety and rescue equipment and


communication and navigational safety equipment, steel plates and other metal
plates including marine-grade aluminum plates, used for shipping transport
operations;
► Provided, that the exemption shall be subject to the provisions of Section 4 of Republic Act No. 9295,
otherwise known as 'The Domestic Shipping Development Act of 2004';
► Importation of capital equipment, machinery, spare parts, life-saving and
navigational equipment, steel plates and other metal plates including marine-
grade aluminum plates to be used in the construction, repair, renovation or
alteration of any merchant marine vessel operated or to be operated in the
domestic trade.
► Provided, that the exemption shall be subject to the provisions of Section 19 of Republic Act No. 9295,
otherwise known as 'The Domestic Shipping Development Act of 2004'; (RR 04-07)
VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

21. Importation of fuel, goods and supplies by persons engaged in international


shipping or air transport operations;
► The fuel, goods and supplies shall be used exclusively or shall pertain to the
transport of goods and/or passenger from a port in the Philippines directly to a
foreign port, or vice versa, without docking or stopping at any other port in the
Philippines unless the docking or stopping at any other Philippine port is for the
purpose of unloading passengers and/or cargoes that originated from abroad, or
to load passengers and/or cargoes bound for abroad; Provided, further, that if any
portion of such fuel, goods or supplies is used for purposes other than that
mentioned in this paragraph, such portion of fuel, goods and supplies shall be
subject to twelve percent (12%) VAT starting February 1, 2006;
VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

22. Services of bank, non-bank financial intermediaries performing quasi-


banking functions, and other non-bank financial intermediaries such as
money changers and pawnshops subject to percentage tax (under Sections
121 and 122 of the NIRC) (RR 15-15)
VAT Exempt Transactions (Section 109, NIRC)

List of VAT-Exempt Transactions (Cont.):

23. Sale or lease of goods or properties or the performance of services other


than the transactions mentioned in the preceding paragraphs, the gross
annual sales and/or receipts do not exceed the amount of P1,919,500.
Input Tax

► The VAT due on or paid by a VAT-registered person in the


course of his trade or business on:
► importation of goods or local purchases of goods or services,
including lease or use of property, from a VAT-registered person. (Sec.
110(A)(3), 1997 NIRC)

► It shall include the transitional input tax and the presumptive


input tax per Section 111 of the Tax Code. (Sec. 4.110-1, RR 16-2005)

► It includes input taxes which can be directly attributed to


transactions subject to the VAT plus a ratable portion of any
input tax which cannot be directly attributed to either the
taxable or exempt activity. (Sec. 4.110-1, RR 16-2005)
Output Tax

► 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 the Tax Code. (Sec. 110(A)(3), 1997
NIRC)
Sources of Input Tax

► Any input tax evidenced by a VAT invoice or official receipt 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.
Sources of Input Tax

(Sec. 4.110-1, RR 16-2005) (Cont.)

b) Purchase of services on which a value-added tax has


actually been paid. (Section 110(A)(1), NIRC)
c) Purchase of real properties in which a VAT has actually
been paid;
d) Transactions "deemed sale";
e) Transitional input tax;
f) Presumptive input tax;
Creditable Input Tax
When and to whom is Input Tax Creditable:

The input tax credit on domestic purchase or importation of goods


or properties by a VAT-registered person 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.

The input tax credit on purchase of services, lease or use of


properties shall be creditable:
► to the purchaser, lessee or licensee upon payment of the
compensation, rental, royalty or fee.
Creditable Input Tax

Input tax on capital goods* shall be spread evenly over 60 months


if the aggregate acquisition cost for such goods, excluding the
VAT exceeds P1,000,000;

However, if its estimated useful life is less than 5 years (for


purposes of depreciation), the input VAT shall be spread over
such shorter period.

* goods purchased or imported in a calendar month for use in trade or business


for which deduction for depreciation is allowed
Transitional Tax

► A person who becomes liable to VAT* or any person who elects


to be a VAT-registered person shall, subject to the filing of an
inventory, be allowed input tax on his beginning inventory of
goods, materials and supplies equivalent to 2% of the value of
such inventory or the actual VAT paid on such goods, materials
and supplies, whichever is higher, which shall be creditable
against the output tax. (Sec. 111(A), 1997 NIRC)

* Become liable to VAT upon exceeding the minimum turnover of P1,919,500.00 in any 12-month period, or
who voluntarily register even if their turnover does not exceed P1,919,500.00 (except franchise grantees of
radio and television broadcasting whose threshold is P10,000,000.00) (Sec. 4.111-1(a), RR 16-2005)
Presumptive Input Tax

► Persons or firms engaged in the processing* of sardines,


mackerel and milk, and in manufacturing refined sugar, cooking
oil and packed noodle-based instant meals, shall be allowed a
presumptive input tax, creditable against the output tax,
equivalent to 4% of the gross value in money of their purchases
of primary agricultural products which are used as inputs to
their production. (Sec. 111(B), 1997 NIRC)

* “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."
Determination of Output Tax

► For sale of goods or properties:


► Multiply the gross selling price by the regular VAT rate.

► For sale of services:


► Multiply the gross receipts by the regular VAT rate.
Determination of Creditable Input Tax

The sum of:


► excess input tax carried over from the preceding month or
quarter, and
► input tax creditable to a VAT-registered person during the
taxable month or quarter,
Less:
► the amount of claim for refund or tax credit* for VAT and

► other adjustments, such as purchase returns or allowances


and input tax attributable to exempt sale.

* The claim for tax credit shall include not only those filed with the Bureau of Internal Revenue but
also those filed with other government agencies, such as the Board of Investments and the Bureau of
Customs. (Sec. 110(C), 1997 NIRC)
Excess Output or Input Tax

If at the end of any taxable quarter:

► output tax exceeds input tax - excess shall be paid by the VAT-
registered person.

► input tax exceeds output tax - excess shall be carried over to


the succeeding quarter or quarters,
► however, 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
filing and approval of a claim for refund. (Sec. 110(B), 1997 NIRC)
Apportionment of Input Tax on Mixed
Transactions

► A VAT-registered person who is also engaged in transactions


not subject to VAT shall be allowed to tax credit as follows (Section
110(A)(3), NIRC):

a) Total input tax directly attributed to transactions subject to value-


added tax; and
 Provided, that input taxes that can be directly attributable to VAT taxable
sales of goods and services to the Government or any of its political
subdivisions, instrumentalities or agencies, including government-owned
or controlled corporations (GOCCs) shall not be credited against output
taxes arising from sales to non-Government entities; (RR 16-05, as amended
by RR 04-07)

b) A ratable portion of any input tax which cannot be directly


attributed to either activity.
Apportionment of Input Tax on Mixed
Transactions

Illustration:
ERA Corporation has the following sales during the month:

Sale to private entities subject to 12% P100,000.00


Sale to private entities subject to 0% 100,000.00
Sale of exempt goods 100,000.00
Sale to gov't. subjected to 5% Final VAT 100,000.00
------—————
Total sales for the month P400,000.00
============
Apportionment of Input Tax on Mixed
Transactions
Illustration: (Cont’d)

The following input taxes were passed on by its VAT suppliers:

Input tax on taxable goods (12%) P5,000.00


Input tax on zero-rated sales 3,000.00
Input tax on sale of exempt goods 2,000.00
Input tax on sale to government 4,000.00
Input tax on depreciable capital good
not attributable to any specific activity
(monthly amortization for 60 months) P20,000.00
Apportionment of Input Tax on Mixed
Transactions
Illustration: (Cont’d)

A. The input tax attributable to sales to private entities subject to 12% VAT, for the
month, shall be computed as follows:

Input tax directly attributable to sale subject to 12% P5,000.00

Ratable portion of the input tax not


directly attributable to any activity:

Taxable sales (12%)X Amount of


——————————— input tax
Total Sales not directly
attributable
P100,000.00
—————------- X P20,000.00 = 5,000.00
400,000.00
------------------------
Total creditable input tax for the month P10,000.00
Apportionment of Input Tax on Mixed
Transactions
Illustration: (Cont’d)

B. The input tax attributable to zero-rated sales for the month shall be computed as
follows:

Input tax directly attributable to zero-rated sales P3,000.00

Ratable portion of the input tax not


directly attributable to any activity:

Zero-rated sales (12%) X Amount of


——————————— input tax
Total Sales not directly
attributable
P100,000.00
—————------- X P20,000.00 = 5,000.00
400,000.00
------------------------
Total creditable input tax for the month P8,000.00
Apportionment of Input Tax on Mixed
Transactions
Illustration: (Cont’d)

C. The input tax attributable to VAT-exempt sales for the month shall be computed as
follows:

Input tax directly attributable to VAT-exempt sales P2,000.00

Ratable portion of the input tax not


directly attributable to any activity:

VAT-exempt sales X Amount of


——————— input tax
Total Sales not directly
attributable

P100,000.00 X P20,000.00 P5,000.00


—————
400,000.00
---------------------
Total input tax attributable to P7,000.00
VAT-exempt sales
Apportionment of Input Tax on Mixed
Transactions
Illustration: (Cont’d)

D. The input tax attributable to sales to government for the month shall be
computed as follows:

Input tax directly attributable to sale to gov't. P4,000.00

Ratable portion of the input tax not


directly attributable to any activity:

Taxable sales to government X Amount of


———————————--------- input tax
Total Sales not directly
attributable

P100,000.00 X P20,000.00 P5,000.00


------—————
400,000.00
---------------------
Total input tax attributable to sales P9,000.00
to government
Apportionment of Input Tax on Mixed
Transactions
The table below shows a summary of the foregoing transactions of ERA Corporation:

Excess
Total Creditable Input Input Unrecoverable
Output Net VAT
Input Input VAT for VAT for input
VAT Payable
VAT VAT carry- refund VAT
over/

Sale Subject to 12%


12,000 10,000 10,000 2,000 0 0 0
VAT

Sale Subject to 0%
0 8,000 8,000 0 8,000 OR 8,000 0
VAT

Sale of Exempt
0 7,000 0 0 0 0 7,000*
Goods

Sale to Government
subject to 5% Final 12,000 9,000 7,000** 5,000*** 0 0 2,000*
withholding VAT

* These amounts are not available for input tax credit but may be recognized as cost or expense.
** Standard input VAT of 7% on sales to Government as provided in SEC. 4.114-2(a)
*** Withheld by Government entity as Final Withholding VAT

The input tax attributable to VAT-exempt sales shall not be allowed as credit against the output tax but should be treated as part of
cost or expense.
Substantiation of Input Tax Credits

Source of Input Tax Substantiation


Importation of goods Import entry or other equivalent document showing actual
payment of VAT on the imported goods.
Domestic purchase of Invoice showing the information required under Sections
goods and properties 113 and 237 of the Tax Code.
Purchase of real property Public instrument i.e., deed of absolute sale, deed of
conditional sale, contract/agreement to sell, etc., together
with VAT invoice issued by the seller.
Purchase of services Official receipt showing the information required under
Sections 113 and 237 of the Tax Code
Substantiation of Input Tax Credits

► A cash register machine tape is valid proof of substantiation of tax credit only
if it shows the information required under the Tax Code.

(b) Transitional input tax shall be supported by an inventory of goods as shown


in a detailed list to be submitted to the BIR.
(c) Input tax on "deemed sale" transactions shall be substantiated with the
relevant document (See Invoicing and Recording of Deemed Sale
Transactions).
(d) Input tax from payments made to non-residents (such as for services,
rentals and royalties) shall be supported by a copy of the Monthly
Remittance Return of Value Added Tax Withheld (BIR Form 1600) filed by
the resident payor in behalf of the non-resident evidencing remittance of
VAT due which was withheld by the payor.
(e) Advance VAT on sugar shall be supported by the Payment Order showing
payment of the advance VAT.
Claim for Tax Refund or Credit of Input Tax

A. Zero-rated Sales of Goods, Properties or Services: (Sec. 112(A),


1997 NIRC)
► A VAT-registered person whose sales of goods, properties or services are
zero-rated or effectively zero-rated may apply for the issuance of a tax
credit certificate/refund of input tax attributable to such sales.
► The claim shall exclude the portion of input tax that has been applied
against the output tax.
► The application should be filed within two (2) years after the close of the
taxable quarter when such sales were made.
Claim for Tax Refund or Credit of Input Tax

A. Zero-rated Sales of Goods, Properties or Services: (Sec. 112(A),


1997 NIRC)

► Where taxpayer is engaged in both zero-rated or effectively zero-rated


sales and in taxable or exempt sales, and the amount of creditable input
tax cannot be directly and entirely attributed to any one of the
transactions, only the proportionate share of input taxes allocated to zero-
rated or effectively zero-rated sales can be claimed for refund or issuance
of a tax credit certificate.
Claim for Tax Refund or Credit of Input Tax

B. Cancellation of VAT Registration

► A person whose registration has been cancelled due to retirement from or


cessation of business, or due to changes in or cessation of status of a VAT-
registered person (under Section 106(C), NIRC) may, within two (2) years
from the date of cancellation, apply for the issuance of a tax credit certificate
for any unused input tax which may be used in payment of his other internal
revenue taxes. (Sec. 112(B), 1997 NIRC)

► The taxpayer shall be entitled to a refund if he has no internal revenue tax


liabilities against which the tax credit certificate may be utilized. (Sec. 4.112-1(b),
RR 16-2005)
When to file Application for Tax Refund or
Credit of Input Taxes
► In proper cases, the Commissioner shall grant a refund or issue the tax credit
certificate for creditable input taxes within 120 days from the date of
submission of complete documents in support of the application for refund of
input VAT.

► In case of full or partial denial of the claim for tax refund or tax credit, or the
failure on the part of the Commissioner to act on the application within the
120-day period prescribed, the taxpayer affected may, within 30 days from the
receipt of the decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the unacted claim with the
Court of Tax Appeals. (Sec. 112(C), 1997 NIRC)
Compliance of 120+30 day period in judicial claim for refund
of unutilized input VAT attributable to zero-rated sales

Mindanao II Geothermal Partnership vs. Commissioner of Internal


Revenue (G.R. No. 193301), and Mindanao I Geothermal
Partnership vs. CIR (G.R. No. 194637) Supreme Court (Second
Division) promulgated March 11, 2013

Facts:

► These are consolidated cases involving claims for refund of unutilized input
VAT separately filed by Mindanao II Geothermal Partnership (or Mindanao II)
and Mindanao I Geothermal Partnership (Mindanao I) with the BIR and the
CTA.

► Mindanao I and II, VAT-registered partnerships and Block Power Production


Facilities accredited by the Department of Energy, filed on various dates
claims for refund of input VAT attributable to their zero-rated sales with the
BIR and subsequently with the CTA, for the four quarters of calendar year
2003.
Compliance of 120+30 day period in judicial claim for refund
of unutilized input VAT attributable to zero-rated sales

Mindanao II Geothermal Partnership vs. CIR (Cont.)

Facts:

► The CTA denied Mindanao I’s claim for refund for all 4 quarters of 2003
because the judicial claims were filed prematurely in violation of Section112
(C) of the Tax Code and the decision of the Supreme Court in CIR vs. Aichi
Forging Company of Asia, Inc. (G.R. No. 184823 promulgated October 6,
2010).

► The CTA ruled that Mindanao II’s claims for the first and second quarters of
2003 were filed beyond the prescriptive period.
Compliance of 120+30 day period in judicial claim for refund
of unutilized input VAT attributable to zero-rated sales

Mindanao II Geothermal Partnership vs. CIR (Cont.)


Are Mindanao I and Mindanao II entitled to their claims for VAT refund?

Ruling

► Mindanao I and II are partially entitled to their respective claims for VAT
refund. Certain portions of their claims are denied for their failure to file the
administrative and/or judicial claims for refund within the prescribed periods.

Mindanao I and II’s first quarter claims filed with the BIR beyond the two-
year period:

► Under Section 112 of the Tax Code, a VAT-registered person may file a claim
for refund of unutilized input VAT attributable to its zero-rated sales within two
years from the close of the taxable quarter when the sales were made.
Compliance of 120+30 day period in judicial claim for refund
of unutilized input VAT attributable to zero-rated sales

Mindanao II Geothermal Partnership vs. CIR (Cont.)


► The two-year period to file a claim for refund applies only to the filing of the
administrative (BIR) claim, and not to both administrative and judicial (CTA)
claims. Since Mindanao I and II filed their first quarter claims with the BIR
beyond the two-year period, they are not entitled to their respective first
quarter claims.

Mindanao I and II’s second quarter claims filed before the lapse of the 120-
day period:

► Section112(C) of the Tax Code expressly states that the taxpayer may appeal
to the CTA within 30 days from receipt of the denial by the CIR of the claim for
refund or from the inaction of the CIR after the lapse of the 120-day period.
The 120-day waiting period is mandatory and jurisdictional. The filing of the
appeal with the CTA before the lapse of the 120-day period renders the
petition premature.
Compliance of 120+30 day period in judicial claim for refund
of unutilized input VAT attributable to zero-rated sales

Mindanao II Geothermal Partnership vs. CIR (Cont.)


► In the Aichi Forging case, the Court ruled that the observance of the 120-day
period given to the CIR to decide the claim for refund is mandatory. The
taxpayer can only appeal to the CTA if the CIR fails to act on the refund claim
within 120 days. Said appeal must be made within 30 days from the lapse of
the 120-day period.

► However, BIR Ruling No. DA-489-03 dated December 10, 2003, a general
interpretative ruling issued in response to a query made by the DOF’s One
Stop Shop Inter-Agency Tax Credit and Drawback Center, is an exception to
the rule in the Aichi Forging case and constitutes equitable estoppel in favor
of taxpayers. This ruling expressly states that the taxpayer-claimant need not
wait for the lapse of the 120-day period before it could seek judicial relief with
the CTA by way of petition for review.
Compliance of 120+30 day period in judicial claim for refund
of unutilized input VAT attributable to zero-rated sales

Mindanao II Geothermal Partnership vs. CIR (Cont.)


Mindanao II’s third and fourth quarter claims filed beyond the 120- and 30
day-periods:

► Mindanao II is not entitled to a refund of its excess input VAT for the third and
fourth quarters as its appeal to the CTA was filed late. Although Mindanao II
filed its claim with the BIR on time, it did not file its petition with the CTA within
30 days after the expiration of the 120-day period given to the CIR to decide
on its claim. For this reason, Mindanao II’s judicial claim will have to be
rejected because of late filing.
► Mindanao II cannot claim the benefit of BIR Ruling No. DA-489-03. Unlike its
claim for the second and third quarters, it did not file its judicial claim before
the lapse of the 120-day period. Instead, it filed its claim with the CTA after the
lapse of the 30-day period to appeal with the CTA from the expiration of the
120-day period given to the CIR to decide.
Compliance of 120+30 day period in judicial claim for refund
of unutilized input VAT attributable to zero-rated sales

Rules on determination of the prescriptive period for filing a claim for


refund of unutilized input VAT under Section 112 of the Tax Code:

a. An administrative claim must be filed with the CIR within two years after the
close of the taxable quarter when the zero-rated or effectively zero-rated
sales were made.

b. The CIR has 120 days from the date of submission of complete documents in
support of the administrative claim within which to decide whether to grant a
refund or issue a tax credit certificate. The 120-day period may extend
beyond the two-year period from the filing of the administrative claim if the
claim is filed in the later part of the two-year period. If the 120-day period
expires without any decision from the CIR, then the administrative claim may
be considered to be denied by inaction (RMC 054-14).

c. In case of denial of the claim or in case of inaction by the BIR within the 120
day period, the taxpayer must appeal to the CTA within thirty (30) days from
receipt of the denial or from lapse of the 120-day period.
The “deemed denied” provision under RMC 054-14
will not apply to claims for VAT Refund filed before
June 11, 2014
► Claims for refund filed before such date will continue to be processed
administratively by the BIR provided that the taxpayer submitted the complete
documents before the 2-year prescriptive period for filing a claim of VAT
refund under Section 112(A) of the Tax Code (RR 1-2017)

► The following claims filed and pending before the effectivity of RMC 54-2014
are not covered by this rule:

1. Claims filed beyond the 2-year statutory prescriptive period under 112(A)
of the Tax Code;
2. Claims denied in writing by the approving authority;
3. Claims approved or granted fully or partially by the approving authority;
4. Claims already appealed to and pending with the CTA unless there is
proof of withdrawal of the case filed with the CTA.
Manner of giving Refund

► Refunds shall be made upon warrants drawn by the


Commissioner or by his duly authorized representative without
the necessity of being countersigned by the Chairman,
Commission on Audit, the provisions of the Administrative Code
of 1987 to the contrary notwithstanding: Provided, That refunds
under this paragraph shall be subject to post audit by the
Commission on Audit. (Sec. 112(D), 1997 NIRC)
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. (Sec. 113(A), 1997 NIRC)

► Only VAT-registered persons are required to print their TIN followed by the
word "VAT" in their invoice or official receipts. Said documents shall be
considered as a "VAT Invoice" or VAT official receipt. All purchases covered
by invoices/receipts other than VAT Invoice/VAT Official Receipt shall not give
rise to any input tax.

► VAT invoice/official receipt shall be prepared at least in duplicate, the original


to be given to the buyer and the duplicate to be retained by the seller as part
of his accounting records.
Invoicing Requirements

► Information Contained in the VAT Invoice or VAT Official


Receipt (Sec. 113(B), 1997 NIRC):
(1) A statement that the seller is a VAT-registered person, followed by his TIN;
(2) The total amount which the purchaser pays or is obligated to pay to the
seller with the indication that such amount includes the VAT; Provided, That:
(a) The amount of tax shall be shown as a separate item in the invoice or
receipt;
(b) If the sale is exempt from VAT, 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%) VAT, the term "zero-rated
sale" shall be written or printed prominently on the invoice or receipt;
Invoicing Requirements

► Information Contained in the VAT Invoice or VAT Official


Receipt (Sec. 113(B), 1997 NIRC) (Cont.) :
(d) If the sale involves goods, properties or services some of which are
subject to and some of which are VAT zero-rated or VAT-exempt, the
invoice or receipt shall clearly indicate the break-down of the sale price
between its taxable, exempt and zero-rated components, and the
calculation of the VAT on each portion of the sale shall be shown on
the invoice or receipt. The seller has the option to issue separate
invoices or receipts for the taxable, exempt, and zero-rated
components of the sale.
(3) The date of transaction, quantity, unit cost and description of the goods or
properties or nature of the service; and
Invoicing Requirements

► Information Contained in the VAT Invoice or VAT Official


Receipt (Sec. 113(B), 1997 NIRC) (Cont.) :

(3) In the case of sales in the amount of one thousand pesos (P1,000.00) or
more where the sale or transfer is made to a VAT-registered person, the
name, business style, if any, address and TIN of the purchaser, customer or
client, shall be indicated in addition to the information required in (1) and (2)
of this Section.
Invoicing and Recording of deemed sales
transactions

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


properties originally intended for sale or for use in the course of business.
Transfer of goods or properties not in the course of business can take place
when VAT-registered person withdraws goods from his business for his
personal use;
► A memorandum entry in the subsidiary sales journal to
record withdrawal of goods for personal use is required.
Invoicing and Recording of deemed sales
transactions (Cont.)

2. Distribution or transfer to:


i. Shareholders or investors share in the profits of VAT-registered person;
ii. Creditors in payment of debt or obligation.
3. Consignment of goods if actual sale is not made within 60 days following the
date such goods were consigned. Consigned goods returned by the
consignee within the 60-day period are not deemed sold;
► An invoice shall be prepared at the time of the occurrence of the
transaction, which should include, all the information prescribed in
the Tax Code. The data appearing in the invoice shall be duly
recorded in the subsidiary sales journal. The total amount of
"deemed sale" shall be included in the return to be filed for the
month or quarter. Sec. 4.113-2, RR 16-2005
Invoicing and Recording of deemed sales
transactions (Cont.)
4. Retirement from or cessation of business with respect to all goods on hand,
whether capital goods, stock-in-trade, supplies or materials as of the date of
such retirement or cessation, whether or not the business is continued by
the new owner or successor. The following circumstances shall, among
others, give rise to transactions "deemed sale" for purposes of this Section;
i. Change of ownership of the business. There is a change in the ownership
of the business when a single proprietorship incorporates; or the proprietor
of a single proprietorship sells his entire business.
ii. Dissolution of a partnership and creation of a new partnership which takes
over the business

► An inventory shall be prepared and submitted to the RDO who has


jurisdiction over the taxpayer's principal place of business not later
than 30 days after retirement or cessation from business.
Consequence of Issuing Erroneous VAT
Invoice or VAT Official Receipt
(1) If a person who is not VAT-registered issues an invoice or receipt
showing his Taxpayer Identification Number (TIN), followed by the
word 'VAT':
(a) He shall, in addition to any liability to other percentage taxes, be
liable to:
i. VAT without the benefit of any input tax credit; and
ii. A 50% surcharge; Sec. 113(D), 1997 NIRC
(b) The VAT shall be recognized as an input tax credit to the
purchaser.

(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 for the VAT.
Sec. 113(D), 1997 NIRC
Filing of VAT Return and Payment

► Quarterly VAT return – shall be filed within 25 days following the


close of each taxable quarter; but VAT-registered persons shall
pay the VAT on a monthly basis. (Sec. 114, 1997 NIRC)

► The term "taxable quarter" shall mean the quarter that is


synchronized to the income tax quarter of the taxpayer (i.e.,
the calendar quarter or fiscal quarter). (Sec. 4.114-1(A), RR 16-2005)
Filing of VAT Return and Payment (Cont.)

► The monthly VAT Declarations (BIR Form 2550M) - shall be


filed and the VAT paid not later than the 20th day following
the end of each month. (Sec. 4.114-1(A), RR 16-2005)

► Any person, whose registration has been cancelled shall file a


VAT return and pay the tax due within 25 days from the date of
cancellation of registration: Provided, That only one
consolidated return shall be filed by the taxpayer for his
principal place of business or head office and all branches. (Sec.
114, 1997 NIRC)
Final Withholding VAT on Sales to
Government

► 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
subject to VAT shall deduct and withhold a final value-added tax
at the rate of 5% of the gross payment thereof. (Sec. 114(C), 1997 NIRC)

► The withholding VAT shall be 12% for the following payments:


(Sec. 4.114-2(b), RR 16-2005, as amended by RR 04-07)

1. Payments for Lease or use of properties or property rights


to non-residents; (Section 114(C), NIRC)
2. Other services rendered in the Philippines by non-residents.
Final Withholding VAT on Sales to
Government (Cont.)

► The VAT withheld shall be remitted within 10 days following the


end of the month the withholding was made. (Sec. 114(C), 1997 NIRC)

► The 5% final withholding VAT shall represent the net VAT


payable of the seller.

► The remaining 7% effectively accounts for the standard input


VAT for sales of goods or services to government or any of its
political subdivisions, instrumentalities or agencies including
GOCCs, in lieu of the actual input VAT directly attributable or
ratably apportioned to such sales.
Final Withholding VAT on Sales to
Government

► If actual input VAT attributable to sale to government exceed


7% of gross payments - the excess may form part of the sellers'
expense or cost.

► If actual input VAT attributable to sale to government is less


than 7% of gross payment, the difference must be closed to
expense or cost. (Sec. 4.114-2(b), RR 16-2005)
Questions?

Atty. Rubina P. Bundoc-Aquino


rubina.b.aquino@ph.ey.com