TRANSFER TAXES AND

VALUE ADDED TAX

Atty. Vic C. Mamalateo
July, 2011
Ateneo Law School

 Title III:
TRANSFER TAXES

ESTATE TAX

Estate Tax is a tax levied on the transmission of properties from a decedent to his
heirs. It is not a tax on property nor on the transferor or transferee. It is an excise
tax and its object is to tax the shifting of economic benefits.

Donation mortis causa

In consideration of death, without the donors intention to lose the thing
conveyed or its free disposal in case of survival
Being testamentary in nature, it is embodied in a last will and testament; it is
not a contract but a legacy
Transfer conveys no title or ownership to the transferee before death of
transferor, or transferor retains ownership, full or naked, of the property
conveyed
Transfer is revocable before the transferors death and revocability may be
provided indirectly by means of the reserved power in the donor to dispose of
the property conveyed
Transfer would be void, if transferor survived the transferee, or if legacy is not
embodied in a valid will
Being in the form of a will, donation mortis causa is not accepted by the
donee during the donors lifetime.

ESTATE TAX
Death is the generating source of the power to tax (Lorenzo v. Posadas). No
manual or physical transfer of the property is required for the estate tax
to accrue.
The law in force at the time of death of the decedent governs.
Residence refers to the permanent home, the place to which whenever
absent, for business or pleasure, one intends to return, and depends on
facts and circumstances, in the sense that disclose intent (Corre v. Tan
Corre). It is not necessarily the actual place of residence at the time of
death.
All properties and interests in properties of the decedent at the time of his
death shall be included in his gross estate. However, properties
transferred or interests relinquished by the decedent before his death are
generally excluded from his gross estate.
The estate shall be appraised at its fair market value at the time of death.
Real property: fair market value as determined by the CIR
Shares of stocks: fair market value as shown in the audited financial
statements closest to the date of death of the decedent

ESTATE TAX

Gross estate:

Conjugal

Exclusive

Total

Real property
Personal property

Less: Deductions:
Funeral expenses (5% x gross estate, not to exceed P200,000 or actual exp)
Judicial expenses of testate or intestate proceedings
Claims against the estate debt instrument was notarized; statement showing
disposition of proceeds of loan, if contracted within 3years from date of death
Unpaid taxes and mortgages
Medical expenses (incurred within 1 year prior to his death, substantiated with receipts,
and not exceeding P500,000)
Family home (not to exceed P1 M) + barangay clearance
Standard deduction (P1 M)
Properties previously taxed (vanishing deduction)
Transfers for public use
Amount received by heirs under RA 4917, provided such amount is included in gross
estate of decedent
Share of the surviving spouse (50% of net conjugal estate)

Net Taxable Estate

Estate tax (First P200,000 is exempt; 5% from P200,001; and 20% on over P10 M)

ESTATE TAX

WHO IS THE DECEDENT AND WHAT PROPERTIES FORM PART OF

HIS GROSS ESTATE?
Resident decedent: Citizen or resident alien
Include in his gross estate all properties, real or personal, tangible
or intangible, regardless of location (within or without the
Philippines)
Reciprocal exemption as to intangible personal property
When foreign country does not impose transfer tax on intangible
When foreign country imposes transfer tax but grants similar exemption
from tax in respect of intangible property

Non-resident decedent: Non-resident alien

Include in his gross estate all properties located in the Philippines
For intangible properties, use the principle mobilia sequuntur
personam Taxation of intangibles follows the residence or domicile
of the owner, except for certain intangible properties mentioned in
Sec. 104, NIRC.

ESTATE TAX

INTANGIBLE PROPERTIES THAT HAVE SITUS IN THE

PHILIPPINES

(Sec. 104, NIRC)

Franchise which is exercised in the Phil

Shares, obligations or bonds issued by any
corporation organized in the Phil
Shares, obligations or bonds issued by any foreign
corporation, 85% of the business of which is located
in the Phil or if such properties have acquired
business situs in the Phil (Wells Fargo case)
Shares or rights in partnership, business or industry
established in the Philippines

ESTATE TAX
DECEDENTS GROSS ESTATE

(Sec. 85, NIRC)

Decedents interest (in property owned or possessed; the law

contemplates any interest or right in the nature of property, but
less than title having value or capable of being valued,
transferred by the decedent at his death; e.g., dividend before death
but paid after death; partnership profits)
Transfers in contemplation of death
Revocable transfers
Property passing under a general power of appointment
Proceeds of life insurance
Transfers for insufficient consideration
Capital of the surviving spouse

ESTATE TAX

TRANSFER IN CONTEMPLATION OF DEATH

Transfer by decedent of property or interest therein, by trust or otherwise, in

contemplation or to take effect in possession or enjoyment at or after death,
or under which he retained for his life or for any period which does not in
fact end before his death (1) the possession or enjoyment of, or the right to
the income from the property, or (2) the right to designate the person who
shall possess or enjoy or the income therefrom. It does not cover bona-fide
sale for an adequate and full consideration in money or moneys worth.

Transfers in contemplation of death refers to the thought of death,

as a controlling motive, which induces the disposition of the property
for the purpose of avoiding the tax.
Circumstances taken into account

Age and health of decedent at time of gift

Length of time between date of gift and date of death

ESTATE TAX
REVOCABLE TRANSERS (transfer with retention or
reservation of certain rights)
Revocable transfers covers transfers, by trust or
otherwise, where the enjoyment was subject at the date
of his death to any change thru the exercise of a power
to alter, amend, revoke or terminate, or where such
power is relinquished in contemplation of death.
Deceased declared her conveyance was a donation mortis
causa and forbade the registration of the deed until after her
death (Puig v. Penaflorida).
It does not cover bona-fide sale of property for an adequate and
full consideration in money or moneys worth.

ESTATE TAX

Transfer of property under a general power of appointment

By will, or by deed executed in contemplation of death, or by
deed where he retains for his life or any period not ascertainable
without reference to his death, which in fact does not end before
his death
Possession or enjoyment of, or the right to the income from, the
property, or the right to designate the persons who shall possess
or enjoy the property or the income thereof
Except in case of bona-fide sale for an adequate and full
consideration in money or moneys worth.
Power of appointment is general when it gives to the donee the
power to appoint any person he pleases, thus having as full
dominion over the property as though he owned it. It is special
when the donee can appoint only among a restricted or designated
class of persons other than himself.

ESTATE TAX
Proceeds of life insurance
Taxable:
Beneficiary is the estate of the deceased, his executor or
administrator, irrespective of whether or not the insured retained the
power of revocation
Beneficiary is other than the decedents estate, executor or
administrator, when the designation of beneficiary is not expressly
made irrevocable. [NOTE: Under the Insurance Code, insurance
policies are presumed revocable.]

Not Taxable:
Accident insurance proceeds (not life insurance)
Proceeds of group insurance policies (not taken out on the life of the
decedent)
Beneficiary (NOT decedents estate, executor or administrator) is
designated irrevocably
GSIS, SSS, and AFP RSBS

ESTATE TAX
REQUISITES OF PROPERTY PREVIOUSLY TAXED
(VANISHING DEDUCTION)
Death
Identity of the property
Inclusion of the property (in gross estate or gross gift)
Previous taxation of the property (estate tax or gift tax on
previous inheritance or gift was paid)

No previous vanishing deduction on the same

property (to preclude application of vanishing deduction on
same property more than once).
Percentage of deduction decreases over a period of 5
years (or 20% reduction every year)

ESTATE TAX

FORMULA OF VANISHING DEDUCTION

Value taken of property previously taxed (as declared in prior

Less: Mortgage debt paid (1st deduction)

Initial basis
Initial basis divided by the value of gross estate of present
decedent = __%
Multiplied by expenses, indebtedness, etc and transfers for public
purposes
Equals 2nd deduction
Initial basis less 2nd deduction = Final basis multiplied by
applicable rate of vanishing deduction =
Amount of vanishing deduction deductible from the estate of second
decedent

decedents gross estate)

ESTATE TAX
Notice of death (2 months from death) required:
Transfers subject to estate tax, or
Exempt transfers, but gross estate exceeds P20,000
If gross estate exceeds P2 million, attach to estate tax return a
certified statement of assets and itemized deductions.
File estate tax return and pay tax within six months from date of death.
If payment would impose undue hardship, payment date may be
extended for not more than 5 years (if judicially settled), or 2 years (if
settled extra-judicially).
Tax clearance is required before any transfer of shares may be made
in the name of new owners. Banks shall not allow any withdrawal from
bank account of decedent, unless estate tax has been paid, but it may
allow withdrawal not to exceed P20,000 without such certification from
the CIR.

DONORS TAX
Donors Tax is a tax on the privilege to transfer property from a living
person to another living person.
It is an excise tax, and not a property tax.
It is imposed on the donor of property.
Donees tax was already abolished and incorporated into donors tax.

Purposes of donors tax

To supplement estate tax

To prevent avoidance of income tax thru the device of splitting income
Donation of property must be accepted by the donee. Where donation took
effect immediately upon acceptance and it was subject to a resolutory condition that
donation would be revoked if donee did not fulfill certain conditions, donation is inter
vivos (Bonsato v. CA).

Sale or exchange of property for less than adequate and full consideration
is subject to donors tax, except where the property is capital gains tax,
such as real property located in the Phil and shares of stock of a domestic
corporation.
Donated property must be valued at fair market value at the time of the
donation.

DONORS TAX
Transfer of property may be in trust or otherwise, direct
or indirect. Transfer becomes complete and taxable only
when the donor has divested himself of all beneficial
interest in himself or his estate.
Donors tax rates
Donee is member of the family
First P100,000 of net gift is exempt
2% on P100,001 to P200,000
15% on amount over P10 M

Donee is a stranger 30% of net gift

Stranger is a person who is not a (a) brother, sister

(whether by whole or half-blood), spouse, ancestor, and
lineal descendant; or (b) relative by consanguinity in the
collateral line within the fourth degree of relationship.

DONORS TAX
Donor
Individual
Citizen and resident alien -- Taxable
Non-resident alien Taxable on property located in the Phil

Corporation
Domestic corporation and resident foreign corporation -Taxable
Non-resident foreign corporation Taxable on property
located in the Phil

Donation of conjugal
Made by both spouses TWO donations
Made only by one spouse (Tang Ho v. Board of Tax Appeals [now
CTA]) ONE donation

DONORS TAX
Cumulative computation of donors tax is required for all
donations by the same donor to members of the family
during the same calendar year.
Exempt donations
Dowries or donations propter nuptias before its celebration or
within one year thereafter by parents to each of their legitimate,
recognized natural or adopted children P10,000
To Phil government for scientific, engineering, etc purposes
To social welfare, cultural, and charitable organizations, not
more than 30% shall be used for administration purposes
To IRRI and Ramon Magsaysay Awards Foundation
To National Museum and National Library
To Intramuros Administration

 TITLE IV: VALUE ADDED TAX

TITLE V: OTHER PERCENTAGE TAXES
TITLE VI: EXCISE TAXES

BUSINESS TAXES
VAT (Title IV, NIRC)
Taxable transactions
Sale or lease of goods or
properties
Sale of services
Importation of goods

Formula
Output Tax
Less: Input Tax
VAT Payable/(Excess Input
Tax)

NON-VAT/EXEMPT
FROM VAT
Transaction is subject to
Other Percentage Tax (Title
V, NIRC)

Tax is imposed on Gross

Receipts or Gross Income

VAT is imposed in
addition to Excise Tax (Title
VI, NIRC)

No VAT or OPT is
imposed (Sec 109, NIRC)

VALUE ADDED TAX

CHARACTERISTICS OF VAT
Tax on value added of taxpayer
Transparent form of sales tax
Broad-based tax on consumption of goods, properties
and services in the Phil
Indirect tax
Tax is collected thru the tax credit method
Output tax on sales less input tax on purchases

No cascading of tax in VAT system

Tax-inclusive method is adopted by the Phil

VALUE ADDED TAX

TAXABLE PERSONS
Seller of goods or properties
Sale, barter or exchange of goods or properties that are
consumed or for consumption in the Phil
In the course of trade or business
Sale of goods or properties is not exempt from VAT

Seller of services

Listed services are performed or to be performed in the Phil

In the course of trade or business
For a valuable consideration
Services are not exempt from VAT

Importer of goods
Whether done in the course of his trade or business or for
personal consumption

VALUE ADDED TAX

SPECIAL TYPES OF PERSONS ENGAGED IN TAXABLE

TRANSACTIONS
Husband and wife are separate taxpayers
Unincorporated joint venture undertaking construction activity is
subject to VAT, although exempt from income tax
Government
Governmental function: Exempt from VAT
Proprietary function: Subject to VAT
Non-stock, non-profit association
Association dues and special assessments; guest fees and
fees for use of facilities exempt from VAT
Income from operating restaurant, boutique or shop or for
leasing facilities -- taxable

VALUE ADDED TAX

Seller of real properties is subject to VAT
Seller executes a document of sale (DAS or CTS)
Real property is located in the Phil
Seller is engaged in real estate business either as dealer,
developer or lessor
Real property is held primarily for sale or for lease in the ordinary
course of trade or business
Sale is not exempt from VAT
However, Rev. Regs. No. 4-2007 (Feb 2007) provides that if the real
property sold is used in his trade or business, said transaction is
subject to VAT, being incidental to the main business of the taxpayer,
who is a VAT-registered taxpayer engaged in other types of business.
Rules on installment sales of real property in income tax law are
adopted for VAT purposes. Thus, sales with initial payments of 25%
or less of GSP shall be reported only in period of sales.

VALUE ADDED TAX

Sale, barter or exchange

Sale, barter or exchange has the same tax consequence
There must be valuable consideration; hence, donation is exempt from
VAT
Deemed sale is subject to VAT (output tax) in order to recoup previous
VAT (input tax) allowed
Excise tax, if any, interest, and delivery charges form part of gross
selling price

In the course of trade or business

The regular conduct or pursuit of a commercial or an economic activity,
including transactions deemed incidental thereto, regardless of whether
or not the person engaged therein is a non-stock, non-profit private
organization (irrespective of the disposition of its net income and
whether or not it sells exclusively to members or their guests), or
government entity.
Isolated transactions are not subject to VAT.
Incidental income follows taxation of the principal activity.

VALUE ADDED TAX

The absence of profit in the performance of taxable services
does not make such activity for a fee exempt from VAT (CIR v.
COMASERCO, GR 125355, Mar 30, 2000).

Goods or properties must be located in the Philippines

and consumed or destined for consumption in the Phil.
Special economic zones under RA 7916 (PEZA Law) and
freeport zones under RA 7227 (BCDA Law) are treated as
foreign territories by fiction of law. Hence, importation of goods
by a special economic or freeport zone enterprise shall be
exempt from VAT and customs duties and will be subject to VAT
and duties only upon their withdrawal from the customs custody.
Destination Principle:
Export sales of goods are zero-rated (0% VAT), provided seller is
VAT-registered person
Import of goods into the Phil is taxable at 12% VAT

VALUE ADDED TAX

Tax base for sale of goods or property is Gross Selling Price (GSP) - the
total amount of money or its equivalent, which the purchaser pays or is
obligated to pay to the seller in consideration of the sale, barter or exchange
of the goods or properties, excluding the VAT.
As a rule, output tax accrues on sale of goods or properties (other than a
real property sold with initial payments of 25% or less) at the time of sale,
when the VAT sales invoice is issued, although none or only a part of the
gross selling price is paid by the buyer at the time of sale.
Excise tax, if any, shall form part of GSP.
Sales discounts determined and granted at the time of sale, which are
expressly indicated in the sales invoice do not form part of the tax base.
Grant of discount must not depend upon the happening of a future event or
the fulfillment of certain condition. They must be recorded in the books of
accounts of the seller.
20% sales discounts to senior citizens under RA 9257 (Amended Senior
Citizens Law) shall be deducted from gross sales before applying the VAT
rate.

VALUE ADDED TAX

When VAT is not separately indicated in the invoice or receipt, to

determine Gross Selling Price or Gross Receipts (100%), divide
Total Invoice Amount (112%) by 1.12.
If Total Invoice Amount includes EWT, determine first the Gross
Selling Price, and then apply the VAT rate on GSP.
Tax base for installment sales of real property
If initial payments (consisting of down payment and all monthly
amortizations in the year of sale) exceeds 25% of the gross selling
price, the tax base is the entire gross selling price as shown in the
document of sale, even though only a part of it has been received
during the period
If initial payments during the year of sale do not exceed 25% of gross
selling price, the tax base during the period is only the amount received

Tax rates
12% beginning Feb 1, 2006 (RA 9337)
0% VAT on zero-rated sales (automatic or effectively zero-rated)

VALUE ADDED TAX

Sales of goods subject to 0% VAT

Actual export sales
Deemed export sales
Internal or constructive export sales under BOI law (EO 226) and
special laws (RA 7916 and RA 7227) are automatically zero-rated.
Ecozones and freeport zones are deemed foreign territories by
fiction of law (CIR v. Seagate Technology (2005); CIR v. Toshiba Information
Equipment (2005)

For as long as the goods remain within the zone, consumed or

destroyed there, they will be duty-free and tax-free (Coconut Oil
Refiners Asso v. Torres (2005)

Effectively zero-rated sales (sales to ADB, embassies, etc) need

approval from BIR before sale; otherwise, sale is exempt.
Sales of gold to BSP, but sales of silver is subject to 12% VAT.
Foreign currency denominated sales
Sales of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations

VALUE ADDED TAX

ZERO-RATED SALE
Transaction is completely free
of VAT; rate charged by seller
is zero
VAT-registered seller can
reclaim input taxes passed on
to it by sellers of goods or
services from BIR in form of
refund or tax credit
Zero-rated sales are taxable
sales for purposes of
registration as VAT taxpayer to
determine threshold

EXEMPT SALE
Exemption removes the
VAT at the exempt stage
Exempt taxpayer cannot
reclaim VAT passed on to
it by VAT-registered
sellers
Exempt sales are not
taxable sales for VAT
purposes

VALUE ADDED TAX

PERSONS SELLING TAXABLE SERVICES

Construction and service contractors

Brokers
Lessors of property, real or personal
Warehousing services
Lessors or distributors of cinematographic films
Persons engaged in milling, processing,
manufacturing or repacking goods for others
Proprietors or operators or keepers of hotels, motels,
resthouses, pension houses, inns and resorts
Proprietors or operators of restaurants and other
similar establishments

VALUE ADDED TAX

PERSONS SELLING TAXABLE SERVICES
Dealers in securities
Lending investors
Transportation contractors on their transport of goods
or cargoes
Domestic common carriers by air and sea between
points in the Philippines
Sales of electricity
Services of franchise grantees, except water and gas
Non-life insurance companies, except crop insurance
Similar services, regardless of whether or not the
performance thereof calls for the exercise or use of the
physical or mental faculties

VALUE ADDED TAX

Gross receipts means the total amount of money or its equivalent,

representing the contract price, compensation, service fee, rental or
royalty, including the amount charged for materials supplied with the
services and deposits and advance payments actually or
constructively received during the taxable quarter for the services
performed or to be performed for another person, excluding the VAT,
except those amounts earmarked for payment to unrelated third
party or received as reimbursement for advance payment on behalf
of another, which do not redound to the benefit of the payor.
For sale of services, the test is not whether services have been
performed or not, but whether amount of compensation or fee is
received, actually or constructively. The rule is: NO RECEIPT OF
PAYMENT, NO VAT LIABILITY.
A contractor that agrees to provide the materials and labor for a
construction project is a seller of services for the entire amount of
consideration.

VALUE ADDED TAX

ZERO-RATED SALES OF SERVICES
Processing, manufacturing or repacking goods for other persons
doing business outside the Phil, which goods are subsequently
exported, where the services are paid for in acceptable foreign
currency and accounted for in accordance with BSP rules and
regulations
Services other than processing, manufacturing or repacking
rendered to a person engaged in business conducted outside
the Phil or to a non-resident person not engaged in business
who is outside the Phil when the services are performed, the
consideration for which are paid for in acceptable foreign
currency and accounted for in accordance with BSP rules and
regulations (CIR v. BWSC Mindanao, GR 153205, Jan 22, 2007)
Services rendered to persons or entities whose exemption under
special laws or international agreements to which the Phil is a
signatory effectively subjects the sale of services to 0% rate

VALUE ADDED TAX

ZERO-RATED SALES OF SERVICES
Services rendered to persons engaged in international shipping
or international air transport operations, including leases of
property for use thereof
Services rendered by local shipping agents and by local shipping
lines to international carriers are zero-rated only if they pertain to
outbound trips; on inbound trips, they are subject to 12% VAT.

Services performed by subcontractors and/or contractors in

processing, converting or manufacturing goods for an enterprise
whose export sales exceeds 70% of total annual production
Transport of passengers and cargo by domestic air or sea
carriers from the Phil to a foreign country
Sale of power or fuel generated thru renewable sources of
energy (biomass, solar, wind, hydropower, geothermal and other
emerging sources)

VALUE ADDED TAX

Tax Code not only requires that the services other than processing,
manufacturing or repacking of goods and that payment for such services be
in acceptable foreign currency accounted for in accordance with BSP rules.
Another essential condition for qualification to zero-rating under Sec 102(b)
(2) is that the recipient of such services is doing business outside the Phil.
While this requirement is not expressly stated in the 2nd paragraph of Sec.
102(b), this is clearly provided in the 1st paragraph of Sec 102(b) where the
listed services must be for other persons doing business outside the Phil.
The above phrase not only refers to services enumerated in the first
paragraph, but also pertains to the general term services appearing in the
second paragraph.
Otherwise, those subject to the regular VAT under Sec 102(a) can avoid
paying the VAT by simply stipulating payment in foreign currency inwardly
remitted by the recipient of services. To interpret Sec. 102(b)(2) shall apply
to a payer-recipient of services doing business in the Phil is to make the
payment of regular VAT dependent on the generosity of the taxpayer.
A tax is a mandatory exaction, not a voluntary contribution.

VALUE ADDED TAX

Significantly, the amended Section 108(b) [previously Sec 102(b)] of the

present Tax Code clarifies this legislative intent. For zero-rating of services,
it must be rendered to a person engaged in business conducted outside the
Phil.
The payer-recipient of respondents services is the Consortium which is a
joint venture doing business in the Phil. While the Consortiums principal
members are non-resident foreign corps, the Consortium itself is doing
business in the Phil. This is shown in BIR Ruling 23-95, which states that
the contract between Consortium and NPC is for a 15-year term.
Considering the length of time, the Consortiums operation and maintenance
of NPCs power barges cannot be classified as a single or isolated
transaction.
This case is different from CIR v. American Express International, Inc. (Phil
Branch), because in the latter case, the recipient of services is AEII (HK
Branch) doing outside the Phil (CIR v. BWSC Mindanao, Inc., GR153205, Jan 22, 2007) .
CIRs filing of its Answer before the CTA challenging claim for refund
effectively serves as a revocation of VAT Ruling 03-99 and BIR Ruling 2395. However, such revocation cannot be given retroactive effect since it will
prejudice respondent.

VALUE ADDED TAX

VAT-EXEMPT TRANSACTIONS
A. Sale or importation of agricultural and marine food products in their
original state; livestock and poultry generally producing food for human
consumption; and breeding stock
B. Sale or importation of fertilizers; seeds, seedlings and fingerlings;
fish, prawn, livestock and poultry feeds (except specialty feeds for race
horses, fighting cocks and other pets)
C. Importation of personal and household effects belonging to residents
of the Phil returning from abroad and non-resident citizens coming to
resettle in the Phil
D. Importation of professional instruments and implements, and
personal effects (except vehicle, vessel, aircraft, machinery for use in
manufacture) belonging to persons coming to settle in the Phil
E. Services subject to percentage tax under Title V, such as 3%
percentage tax, common carriers tax on land transportation and
international carriers, gross receipts tax on banks and finance
companies, premium tax on life insurance companies, franchise tax on
gas and water grantees, etc.

VALUE ADDED TAX

VAT-EXEMPT TRANSACTIONS
G. Medical, dental, hospital and veterinary services, except those
rendered by professionals
Sales of medicines by hospitals to in-patients are exempt from VAT as
medical/hospital services.

H. Educational services rendered by private educ institutions accredited

by DepEd, CHED, TESDA, and those rendered by government
educational institutions
Review schools and training institutes are not accredited by govt; hence,
subject to VAT

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

relationship
O. Export sales by persons who are not VAT-registered
P. Sale of real property not primarily held for sale to customers or for
lease in the ordinary course of trade or business, or real property for
low-cost and socialized housing, residential lot valued at P1.5 M or
below, house and lot and other residential dwellings valued at P2.5 M or
below

VALUE ADDED TAX

VAT-EXEMPT TRANSACTIONS
Q. Lease of a residential unit with a monthly rental not
exceeding P10,000
Lease of commercial buildings are subject to VAT, regardless of
rental per month or unit, provided threshold of P1.5 M is exceeded.

R. Sale, importation, printing or publication of books and any

newspaper or magazine which appear at regular intervals with
fixed prices and is not devoted principally to publication of paid
advertisements
V. Sale or lease of goods or property or the performance of
services other than transactions mentioned above, the gross
sales or receipts do not exceed P1.5 M
If sale of goods pertains to agricultural or marine food products in
their original state or sale of books, or sale of service relates to
rental of residential unit not exceeding P10,000, transaction is
exempt even if gross sales or receipts exceed P1.5 M.

VALUE ADDED TAX

Sale of medicines by the hospital pharmacy to in-patients is exempt from

VAT, but sale to out-patients is subject to 12% VAT (St. Lukes Medical Center
v. CTA and CIR, 1998).
Tolling fees received by a hotel for PLDT is not part of its gross receipts
Payment of VAT by the hotel on fees for providing limousine service to its
client is correct. It is not subject to the 3% common carriers tax. Claim for
tax credit is denied (Manila Mandarin Hotel v. CIR)
Gross receipts of theatre owner or operator from sales of tickets to
moviegoers are exempt from VAT. Theatres and movie houses are not
included in the enumeration of taxable services in the VAT law. Our tax
laws, past and present, did not adopt more specific terms for sale or
exchange of services to include showing of films in public (SM Prime Holdings v.
CIR, CTA Case 7079, 2006).
PAGCOR is exempt from VAT pursuant to its charter, PD 1869. Being a
special law, PD 1869 prevails over RA 7716, a subsequent general law. To
be valid, repeal of special law should be express (CIR v. Acesite Hotel Corp, GR
147295, Feb 16, 2007).

VALUE ADDED TAX

CATEGORIES OF INPUT TAXES
Input tax credit on importations of goods and current local
purchases of goods, properties and services
Input tax on capital goods must be amortized over certain period

Transitional input tax credit

Presumptive input tax credit
Withholding input tax credit
Excess input tax credit

Only VAT-registered persons are entitled to credit input

taxes against their output tax.
Non-registration as a VAT taxpayer does not exempt him
from VAT output tax liability on his taxable sales of
goods, properties or services.

VALUE ADDED TAX

For sale of services, the rule is: NO PAYMENT OF FEE
BY BUYER AND ISSUANCE OF VAT RECEIPT BY
SELLER, NO INPUT TAX FOR BUYER!
Transitional Input Tax
2% of value of inventory or actual VAT paid on such goods,
materials and supplies, whichever is higher
Transitional input tax is allowed not only on land improvements
but also on land itself (CIR v. Fort Bonifacio Dev Corp, 2009)

Presumptive Input Tax

Persons or firms engaged in the processing of sardines,

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

VALUE ADDED TAX

Tax reliefs of VAT taxpayers on their excess input taxes
(EIT) attributable to zero-rated and effectively zero-rated
sales
Carry over the excess input tax to the next quarter, until excess
is utilized
File a claim for refund
File a claim for tax credit, within two years after the close of
taxable quarter where the sales were made, (NOT from the filing
of the quarterly VAT return)

For non-zero-rated sales, remedy available is only to

carry over EIT to the next quarter(s), or to dissolve the
corporation or cease operation of business subject to
VAT within 2 years from date of dissolution or cessation
of business

VALUE ADDED TAX

Prescriptive period commences from the close of the taxable quarter

when the sales were made and not from the time the input VAT was
paid nor from the time the official receipt was issued. Thus, when a
zero-rated VAT taxpayer pays its input VAT a year after the pertinent
transaction, said taxpayer only has a year to file a claim for refund
or tax credit of the unutilized creditable input VAT. The reckoning
frame would always be the end of the quarter when the pertinent
sales or transaction was made, regardless when the input VAT was
paid (CIR v. Mirant Pagbilao Corp, 2008).
NOTE: It appears that the SC strictly interprets the provision of Sec.
112 of the Tax Code, even with respect to sale of services. In other
words, where the law does not qualify, it is not for the court nor the
BIR to so qualify.

VALUE ADDED TAX

ADMINISTRATIVE REQUIREMENTS

REGISTRATION
INVOICING
BOOKKEEPING
FILING OF TAX RETURN AND PAYMENT OF TAX
WITHHOLDING OF TAX
INVENTORY OF:
GOODS, MATERIALS AND SUPPLIES
UNUSED NON-VAT INVOICES OR RECEIPTS

VALUE ADDED TAX

OPTIONAL VAT REGISTRATION FOR
EXEMPT PERSON:
ANY PERSON WHO IS NOT REQUIRED TO
REGISTER FOR VAT UNDER SUBSEC. (G) MAY
ELECT TO REGISTER FOR VAT PURPOSES.
ELECTION IS IRREVOCABLE FOR 3 YEARS FROM
QUARTER ELECTION WAS MADE (Sec. 236(H), RA 9337)
ANY PERSON WHO IS VAT-EXEMPT UNDER SEC.
4.109-1(B)(1)(V), NOT REQUIRED TO REGISTER
FOR VAT MAY, IN RELATION TO SEC. 4.109-2,
ELECT TO BE VAT-REGISTERED. ONCE VATREGISTERED, HE CANNOT CANCELL HIS
REGISTRATION FOR THE NEXT 3 YEARS (Sec. 109-2, RR
14-05)

VALUE ADDED TAX

REGISTER AS VAT PERSON
VENUE
LARGE TAXPAYER
NON-LARGE TAXPAYER

BIR FORM

CANCELL NON-VAT REGISTRATION

SURRENDER CERT. OF REGISTRATION

PENALTY FOR NON-REGISTRATION

10% OUTPUT TAX
NO INPUT TAX CREDIT

ANNUAL REGITRATION FEE

VALUE ADDED TAX

REQUIRED INFORMATION IN INVOICE OR RECEIPT
NAME AND ADDRESS OF SELLER
STATEMENT THAT SELLER IS VAT-REGISTERED PERSON +
TIN
DATE, QTY, UNIT COST, AND DESCRIPTION OF GOODS OR
NATURE OF SERVICE
TOTAL AMOUNT
SEPARATE INDICATION OF VAT (prev. Sec. 106(D) & 108, NIRC)
VAT-EXEMPT SALE
ZERO-RATED SALE

NAME, BUS. STYLE, ADDRESS AND TIN OF VAT-REGISTERED BUYER OR CUSTOMER, IF AMOUNT IS P1,000 OR
MORE (Sec. 113(B), RA 9337)

VALUE ADDED TAX

SEPARATE INVOICE OR RECEIPT
SUBJECT TO VAT
10% or 12%, beginning Feb 1, 2006 (REGULAR SALE, INCL. SALE
TO GOVERNMENT), OR 0% (ZERO-RATED SALE)

EXEMPT FROM VAT: EXEMPTION MAY REFER TO A

TRANSACTION OR PERSON
AMOUNT RECEIVED IS NOT ITS INCOME OR FEE BUT FOR
ANOTHER ENTITY
FOR REIMBURSEMENT OF ADVANCES
VAT-EXEMPT SALE

If VAT invoice or receipt is issued by a seller for a VAT-exempt

transaction, he is liable to VAT output tax as a penalty, but the
buyer is entitled to claim VAT input tax.

COMBINED VAT AND NON-VAT INVOICE OR RECEIPT

BREAKDOWN OF SALES PRICE
CALCULATION OF VAT ON TAXABLE PORTION

OTHER PERCENTAGE TAXES

Sec. 116 3% percentage tax on sale or lease of goods, properties or

services of non-VAT registered persons whose annual gross sales or
receipts do not exceed P1.5 M
Sec. 117 3% common carriers tax on domestic common carriers by land
on transport of passengers and keepers of garages
Sec. 118 3% common carriers tax on international air and sea carriers
Sec. 119 3% franchise tax on grantees of radio and/or TV broadcasting
whose gross receipts do not exceed P10 M and 2% franchise tax on grantee
of gas and water utilities
Sec. 120 10% overseas communication tax on dispatch originating from
the Phil
Sec. 121 Gross receipts tax on banks
Sec. 122 Gross receipts on finance companies
Sec. 123 5% premium tax on life insurance companies
Sec. 125 Amusement tax on proprietors, lessees or operators of cockpits,
cabarets, night or day clubs (18%), boxing exhibitions (10
%), professional basketball games (15%) and race tracks (30%)

Agencia Exquisite of Bohol v. CIR

FACTS
Mar 11, 1991 - CIR issued RMO 15-91 classifying pawnshop
business as akin to lending investors business activity, which is
broad enough to encompass the business of lending money at
interest by any person, and imposing the 5% lending investors tax
based on gross income, pursuant to Sec. 116 of (1977) Tax Code.
The RMO was later clarified by RMC 43-91 dated May 27, 1991. It
revoked BIR Ruling No. 6-90 and VAT Ruling No. 22-90 and 67-90.
In order to avoid unfairness if they are required to pay the tax on past
transactions, pawnshop owners shall become liable to the lending
investors tax beginning Jan 1, 1991. Since the deadline for filing
OPT return and payment of tax for Q1 1991 has already lapsed,
taxpayers were given until June 30, 1991 to pay the tax without
penalty.
For 1995, AEBI was issued FAN and assessed for def. lending
investors tax of 5% on gross income.

Agencia Exquisite of Bohol v. CIR

June 28, 1998 AEBI filed administrative protest which
BIR Director denied on Feb 3, 1999.

AEBI filed petition for review with CTA.

June 7, 2000 CTA rendered decision in favor of AEBI and
cancelled assessment.
BIR appealed to CA. On Mar 23, 2001, CA rendered decision
reversing and setting aside decision of CTA.
AEBI filed MR but was denied; hence, it filed this petition for review
on certiorari.
In a resolution, 3 cases were consolidated.

ISSUE
Whether or not pawnshops are liable for 5% lending
investors tax.

Agencia Exquisite of Bohol v. CIR

SC RULING
The Court agrees with the contention of AEBI
and EPJI, the issue herein not being a novel
one.
In CIR v. Michel J. Lhuillier Pawnshop, this Court
held that pawnshops are not included in the term
lending investors for the purpose of imposing the
5% percentage tax under Sec. 116, as amended
by EO 273.

Agencia Exquisite of Bohol v. CIR

In CIR v. Trustworthy Pawnshop, this Court reiterated its
ruling Lhuillier for the following reasons:
Sec. 192 of Tax Code, prior to its amendment by EO 273,
pawnshops and lending investors were subjected to different tax
treatments.
Congress never intended pawnshops to be treated in the same
way as lending investors. The definition of lending investors
found in Sec 157(u) of 1986 NIRC is not found in 1977 NIRC, as
amended by EO 273.
Sec. 116 of 1977 NIRC, as amended by EO 273, subjects to
percentage tax dealers in securities and lending investors only.
There is no mention of pawnshops. The mention of one thing
implies the exclusion of another thing not mentioned.
BIR had ruled several times prior to issuance of RMO 15-91 and
RMC 43-91 that pawnshops were not subject to 5% percentage
tax imposed in Sec. 116, as amended by EO 273.

Agencia Exquisite of Bohol v. CIR

RA 7716 (EVAT Law) repealed Sec. 116 of 1977 NIRC,
as amended, which was the basis of RMO 15-91 and
RMC 43-91. Since Sec. 116, which breathed life on the
questioned administrative issuances, had been repealed,
RMO 15-91 and RMC 43-91, which depended upon it,
are deemed automatically repealed.
Absence of publication of RMO and RMC makes them
invalid. CIR may not disregard legal requirements or
applicable principles in the exercise of quasi-legislative
powers.
Once a case has been decided one way, any other case
involving exactly the same point at issue should be
decided in the same manner under the doctrine of stare
decisis et not quieta movere.

 END OF PRESENTATION
Atty. Vic C. Mamalateo
Mobile: 0918-9037436
Email: vic.mamalateo@vcmlaw.com.ph;
vicmamalateo@yahoo.com