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FINAL VAT

:
Under Section 4.114-2 of RR No. 16-05, the government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs shall, before making payment on account of
each purchase of goods and/or of services taxed at 12% VAT pursuant to Sections 106 and 108
of the Tax Code, deduct and withhold a final VAT due at the rate of five percent (5%) of the
gross payment thereof.
The five percent (5%) final VAT withholding rate shall represent the net VAT payable of the
seller. The remaining five percent (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. Should actual input VAT exceed five percent (7%) of gross payments,
the excess may form part of the sellers’ expense or cost. On the other hand, if actual input VAT
is less than (7%) of gross payment, the difference must be closed to expense or cost (or
recognized as income).

5% is based on the entire amount of the transaction and that includes the 12% shifted.
It is called final vat because the moment it is witheld, it extinguishes the tax liability of
the supplier. Thus, the amount will no longer be reflected as gross sales to be subjected
to vat because once the 5 % final vat was witheld, it already extinguished the tax
liability.

COMPLIANCE REQUIREMENTS
1

VAT is paid on monthly and quarterly basis. There is monthly return for VAT and
quarterly return for VAT. Quarterly return reflects gross sales which are reported in a
cumulative basis. Thus, quarterly VAT return for the second quarter reflects those
amount included in the first quarter because it is cumulative.

2

For monthly VAT returns, they are filed within 20 days from the end of month and for
quarterly VAT returns, within 25 days following the end of the taxable quarter. Thus, if
the VAT return pertains to the month of January, it should be filed in February 20. If
VAT return pertains to the month of February, the it should be filed on March 20. If the
return pertains to the month of March, it should be filed on April 25 because it is
already the end of the taxable quarter.

3

Summary list of sales and purchases should also be filed

TAX ADMINISTRATION
General concept: There are 3 stages in the administration of taxes:
1 Levy:
2 Assessment
3 collection

fees. SPECIFIC FUNCTIONS OF CIR A INTERPRET TAX LAWS AND DECIDE CASES SECTION 246. The oversight commitee exercised the power of supervision in derogation of the separation of powers. In British American Tobacco. It cannot be delegated to other brances except for instances provided in the constitution.Any revocation.   Levy is essentially legislative. penalties. consider if the classification freeze provision is constitutional and whether the delegation was proper. it was declared unconstitutional. Legislative veto should be limited to powers of scrutiny and inquiry but not supervision. modification or reversal of any of the rules and regulations promulgated in accordance with the preceding Sections or any of the . penalties imposed in relation therewith and other matters 2 Interpret the tax code NOTE: Memorize powers of CIR. In ABAKADA. THE BUREAU OF INTERNAL REVENUE COMPOSITION AND FUNCTIONS: 1 Commissioner 4 Deputies GENERAL FUNCTIONS BIR 1 Incharge on collection and assessment of national internal revenue taxes and not to collect custom duties and income taxes 2 Enforcement of all forfeitures. Legislature encroached other brances prerogative. refunds of taxes. BIR : agency tasked to collect and assess taxes BOC: can collect and assess taxes also QUESTION: (ABAKADA CASE) Congress power to tax administration: Is legislative veto constitutional? LEGISLATIVE VETO: Genral rule: It is constitutional becasue of the check and balances and separation of powers. NON-RETROACTIVITY OF RULINGS. Assesment: Can it be performed by the executive branch? Yes Collection: Can it be performed by the executive branch? Yes. . or charges. and fines connected therewith 3 Execution of judgments in all cases decided in its favor by the CTA and ordinary courts GENERAL DUTIES OF CIR 1 Decide disputed assessments.

CIR vs LEAL CIR has the power to: 1 Make opinions or rulings regarding revenue rules and regulaitons ( interprete tax laws). Taganito Mining Corporation vs CIR. "Any revocation. NOTE: However. 4. Hence. penalties imposed in relation therewith and other matters. CIR has power to decide disputed assessments. In interpretative rule. except in the following cases: (a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the Bureau of Internal Revenue. the revocation will apply retroactively even to the prejudice of PBCom. they give details to the law thus adding or increasing burden of a taxpayer. If it issued a ruling with respect to the propriety of a refund but not really addresing the case with respect to a refund? What is the proper appellate body? SEC. the Supreme Court stated that section 246 is not limited to a reversal only by the Commissioner because this Section expressly states. and Philex Mining Corporation vs CIR. Therefore. then LEAL cannot question the ruling before the RTC but only before CTA. 2013. In legislative rule. What is the proper appellate body? CTA. Because if CIR exercises functions under 1 and 2. a reversal by this Court is covered under Section 246. they merely interpret the law or provide guidelines as to such. notice and hearing. refunds of taxes.legislative rule and interpretative rule. Since what was questioned by LEAL is a ruling issued by the CIR. in the consolidated cases of CIR vs San Roque Power Corporation. modification or reversal stated in section 246 must be done by the CIR and not by the COURTS. This does not require prior notice and hearing. Thus in the above case. or (c) Where the taxpayer acted in bad faith. the the proper appellate body is CTA. (b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based. PBCOM vs CIR CASE (1999) Remember that the revocation.rulings or circulars promulgated by the Commissioner shall not be given retroactive application if the revocation.   If CIR exercised functions in deciding claim for refund. modification or reversal" without specifying who made the revocation. This requires publication. PBCom cannot argue that the revocation of the RMC should not be applied retroactively for it is prejudicial to their right to claim refund because the revocation was not done by the CIR but by the court. CIR VS CA AND FORTUNE: There are two types of administrative issuances. or charges. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. . modification or reversal will be prejudicial to the taxpayers. modification or reversal. fees. 2 Also. dated Februray 12.

then LOA must be issued by the national office. WHO ISSUES: Issued by CIR. NOTES: Leal disputed the validity of RMC. If not. Thus.) Jeopardy Assessment: an assessment where BIR would immediately issue assessment without audit whether partial or in its entirety because of the possibility of prescription. If a taxpayer is listed before the national office audit. If instead CIR issued RMC and another wants to attack the validity of the RMC. (If there is something wrong in the LOA. no inspection should be conducted. Unless BIR issues a jeopardy assessment. If LOA is served beyond 30 days from date of issue. Without such LOA. B EXAMINATION OF BOOKS OF ACCOUNTS: it is intended for BIR to obtain information in the assessment of tax liability. CTA has appellate jurisdicton because it no longer involves interpretation of tax laws but it involves the decision of the CIR with respect to the case filed by Leal attacking the validity or legality of the RMC. The power to decide disputed assessments. deputy CIR or regional director   An LOA must be served within 30 days from the date of issue (not receipt). subject to review by the Secretary of Finance. CIR decided against Leal. or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner. the remedy of BIR is to issue a new LOA. fees or other charges. is it still considered as an interpretation of tax laws? No. it is void. When CIR decided agaisnt Leal. Therefore. If not. the taxpayer may refuse to comply. It falls under number 2 namely other matters. who has jurisdiciton of the attack? It is the Secretary of Finance before going to courts as part of the principle of exhaustion of administrative remedies. the taxpayer may refuse to comply. It can obtain information from taxpayer and persons transacting with the taxpayer. NOTE: Prescriptive period (3 years from date of filing return to assess tax)-to be discussed in tax remedies proper. if something is wrong again in the new LOA. LETTERS OF AUTHORITY  Authorizes revenue officer to scrutinize taxpayers books of accounts in order to perform his assessment functions. The advantage here is that. If taxpayer is listed before the regional office audit then LOA must be issued by the regional office.The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner. it may result to prescription and thus taxpayer has a defense then. refunds of internal revenue taxes. CIR vs SONY PHILIPPINES . penalties imposed in relation thereto. subject to the exclusive appellate jurisdiction of the Court of Tax Appeals. another LOA must be issued.

THIRD PARTY VERIFICATION RULE: cross reference maybe had to other parties transacting with taxapayer or their books or the government or other entities. If the LOA indicates that it covers 2011. 1405 or under other general or special laws. it would defeat the purpose of the law to assess and collect proper taxes. take testimony: bureau or will be made by the BIR. before submitting an estate tax return. Here. In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial position demonstrates a clear inability to pay the tax assessed. and such waiver shall constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer. a bank certificate to such effect should be attached to the estate tax return 2 any taxpayer who has filed an application for compromise of his tax liability by reason of financial incapacity to pay his tax liability. Moreover.LOA is invalid if it indicates more than 1 taxable period without specifying all the taxable periods covered. Inquiry into Bank Deposits: Geneeral rule: BIR cannot look into the bank deposits or accounts of a taxpayer. C POWER TO ASSESS AND PRESCRIBE REQUIREMENTS FOR TAX ADMINISTRATION . Also. evidence is obtained not from the taxpayer but from persons transacting with the taxpayer or persons having information about the income of a taxpayer or knowlegde of financial data of taxpayer. the revenue officer cannot go beyond what is provided for in the LOA. the Commissioner is hereby authorized to inquire into the bank deposits of: 1  A decedent to determine his gross estate In fact. his application shall not be considered unless and until he waives in writing his privilege under Republic Act No. the affidavit of the informant was considered as evidence in the assessment because he has personal knowledge of the events. assessment is not a criminal case thus the right to cross examination does not attach. 1405 and other general or special laws. This is to corroborate the assessment made by the FITNESS BY DESIGN vs CIR The law alows the BIR to access all the documents and records of a taxpayer without his consent otherwise. and 2013. In assessment hearsay evidence can be used as long as additional evidence are presented. Also. it is valid because it specifically indicates the taxable period. Sec 6(F) Authority of the Commissioner to inquire into Bank Deposit Accounts. Notwithstanding any contrary provision of Republic Act No.  3 A foreign tax authority can obtain information of bank records or deposits if there is an international treaty to such effect (RA 10021) NOTE: see RA 10021 Summon persons. 2012.

the non filing of return will not preclude the CIR to make an examination. It becomes public record 2. 3. 2. The amendments can encompass all items that are indicated in the return BUT shall not include those that are considered irrevocable.1. But. This is because the option that has been made is irrevocable.  Example: In the return sought to be amended. Upon recommendation of the Commissioner. the taxpayer can no longer amend the tax return. o The recourse of a taxpayer who has indicated an erroneous entry in his return is to amend the same within 3 years from date of filing of the such return and not to withdraw the same because it is prohibited under the tax code. C. The order of the president under the rules and regulations promulgated by the secretary of finance. The return must be filed within 3 years from the date of filing the tax return sought to be amended. Power to Examination of Returns (Sec 6(A)): Made after the filing of return. the taxpayer indicated that it will be availing of standard deduction for its expenses. But is still confidential It can only be inspected upon: 1.C. AND 2. if the taxable period is already subject of a notice of investigation or audit. 270 of NIRC – UNLAWFUL DIVULGENCE OF TRADE SECRETS Except as provided in Section 71 . NATURE OF TAX RETURNS (SECTION 71) Once filed: 1.1. o However. There is no tax audit or investigation of such return has been actually served to the taxpayer. SEC.1 Amendment of Returns Requisites/ conditions: 1. in the amendment the taxpayer cannot change the same to avail of the itemized deduction.

or confidential information regarding the business of any taxpayer. 4. On the argument of the taxpayer that the document contains trade secret is untenable because the same does not contain trade secrets. or suffer imprisonment of not less than two (2) years but not more than five (5) years. 10021 "Exchange of Information on Tax Matters Act of 2009". 71 and 270 do not apply because this document is not in the nature of tax return.  Thus. 71 and Sec. and 2. a janitor. thus. Who divulges to any person or makes known in any other manner than may be provided by law information. the secrets. Information regarding the business. or both. 270 do not apply. 2. will not be liable under this code because the information were not obtained in the discharge of his duties/functions. Original case docket does not contain trade secrets. still Sec.000) but not more than One hundred thousand pesos (P100. or apparatus of any manufacturer or producer.1.000). However. EXCEPT: as provided in Sec 6 of NIRC as amended by RA 10021 . income or estate of any taxpayer. operation. GENERAL RULE: Bank deposits can only be inquired by the depositor and its duely authorized representative. 3. Principles to remember: 1. the ombudsman is not precluded from inspecting and requiring the production of the same. Any officer or employee of the Bureau of Internal Revenue. 71 and 270 do not apply in cases of original case dockets. SALIENT FEATURES OF REPUBLIC ACT NO. Sec. assuming that the document or the original case docket contains trade secrets. thus. who obtains the abovementioned information. BIR vs. the ombudsman is not prohibited to inspect and require the production of such document. be punished by a fine of not less than Fifty thousand pesos (P50. PENALTY: Upon conviction for each act or omission. Sec. Knowledge of which was acquired by him in the discharge of his official duties. Ombudsman What documents are produced before the ombudsman?  Original case dockets regarding the grant of tax refunds o These are public record o BUT the president’s order is not required in order to inspect the same because these are not tax returns. and even if it does. style or work.

The identity of the person under examination or investigation. Grounds for believing that the information requested is held in the Philippines or is in the possession or control of a person within the jurisdiction of the Philippines. the name and address of any person believed to be in possession of the requested information. o Conditions: 1. A statement of the information being sought including its nature and the form in which the said foreign tax authority prefers to receive the information from the Commissioner. 4.5.6. The information obtained from the banks and other financial institutions may be used by the Bureau of Internal Revenue for tax assessment. 3. Notice must be given to the taxpayer. To the extent known. 4. There is an international convention or agreement on tax matters to which the Philippines is a signatory or a party of.3. verification. such that if the requested information was within the jurisdiction of the said foreign . 4. 4. 4. audit and enforcement purposes. A Statement that the request is in conformity with the law and administrative practices of the said foreign tax authority. (2) Any taxpayer who has filed an application for compromise of his tax liability for the reason of financial incapacity to pay his tax liability provided that he waives in writing his privilege under the Foreign Currency Deposit Act of the Philippines or under other general or special laws (3) Upon the request of a foreign tax authority.1. The tax purpose for which the information is being sought. 2. 4.4. If the foreign tax authority provides for the following information: 4.2.The Commissioner is hereby authorized to inquire into the bank deposits and other related information held by financial institutions of: (1) A decedent to determine his gross estate.

or both. If the Commissioner is unable to obtain and provide the information within ninety (90) days from the receipt of the request. The Commissioner shall confirm receipt of a request in writing to the requesting tax authority and shall notify the latter of deficiencies in the request.000) but not more than One hundred thousand pesos (P100. the enforcement or prosecution in respect of.When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report . including courts and administrative bodies. refuses to supply the required information shall be punished by a fine of not less than Fifty thousand pesos (50. within sixty (60) days from the receipt of the request. Obligation to Maintain Confidentiality of Information Received.Any officer. C. (B) Failure to Submit Required Returns. A statement that the requesting foreign tax authority has exhausted all means available in its own territory to obtain the information. due to obstacles encountered in furnishing the information or when the bank or financial institution refuses to furnish the information. director or officer-in -charge of any bank or financial institution who.000) .7. 6. Reports and other Documents . . Power to Make Return (Sec 6(B)) Sec. .2. being required in writing by the Commissioner.tax authority then it would be able to obtain the information under its law or in the normal course of administrative practice and that it is conformity with a convention or international agreement. owner." Willful Refusal to Supply Information. willfully. Statements. if any. and 4. explaining the nature of the obstacles encountered or the reasons of refusal.Any information received by a foreign tax authority from the Bureau of Internal Revenue pursuant to an International convention or agreement on tax matters shall be treated by the authority as absolutely confidential in nature in the same manner as information obtained by the latter under its laws and shall be disclosed only to persons or authorities. the taxes covered by such conventions of agreements. manager. or the determination of appeals in relation to. or suffer imprisonment of not less than two (2) years but not more than five (5) years. he shall immediately inform the requesting tax authority of the same. involves in the assessment or collection of. agent. except those that would give rise to disproportionate difficulties.

if the BIR prepared a return based on the documents submitted by the jeepney operator. BEOR may be obtained by: 1. who failed to file his return for the taxable year. In case a person fails to file a required return or other document at the time prescribed by law. or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax. the assessment is valid and presumed to be correct. No tax return has been filed by the taxpayer. Issuing summons to the person liable for tax or required to file a return. which shall be prima facie correct and sufficient for all legal purposes. then this will fall under best evidence obtainable rule. if the BIR prepared a return for a jeepney operator. Hantex  Best Evidence Obtainable Rule: Manner or method on how the BIR will obtain best evidence to support its tax assessment liability through its functions under NIRC. paper. thus.is false. this is not proper because this is base merely on speculation or presumption. BUT. 2. or any person having possession. incomplete or erroneous. CIR vs. custody. or any officer or employee of such person. or willfully or otherwise files a false or fraudulent return or other document. 2. the Commissioner shall assess the proper tax on the best evidence obtainable. There is reason to believe that any such report is false. incomplete or erroneous Any return prepared by the Commissioner is prima facie correct and the amount assessed is based on Best Evidence Obtainable Rule and NOT merely on speculations. or any . on the presumption that it earns P2. Third Party Verification Rule 3. The examination of any book. When: 1.000 daily times 5 days a week times 4 weeks in a month times 12 months in a year with a total of P480. record or other data which may be relevant or material to such inquiry.000. Thus. the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise.

rather. She later on discovered that it is true. With regards to the information obtained prior to her employment (taxable year before 2012) – it MAY be used.other person. told the latter that the corporation has been under declaring its gross income in order to lessen its tax liabilities. as may be relevant or material to such inquiry. thus. the corporation’s CPA prior to the employment of Pathiel. there is no first-hand or personal knowledge about the information. Hearsay evidence are those obtained by the informant thru other persons. since Pathiel has personal knowledge regarding the under declaration of the corporation. CIR vs. May the above information be used by the BIR in assessing the tax liabilities of Eave Corporation? Answer: 1 With regards to the information obtained during her employment (2012 – 2014) – it can be used because the same is not hearsay. a certified public accountant. Embroidery and Garment Industries  Hearsay evidence may be used for assessing tax liabilities of a taxpayer provided that it is supported by other documents. . 4. Question: Pathiel.  Admissibility of Hearsay Evidence: o Best evidence obtainable may consist of hearsay evidence. Ammielle. it must be based on actual facts. was employed by Eave Corporation on January 2012. Hearsay evidence cannot by itself be sufficient to support an assessment by the BIR. such as the testimony of third parties or accounts or other records of other taxpayers similarly circumstanced as the taxpayer subject of the investigation. In this case. under oath. otherwise. Otherwise. provided that it is supported by other evidence or documents. to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books. This is because assessment cannot be based merely on speculations and presumptions. the assessment is invalid. and to give testimony. On January 2015. or other data. records. the information cannot be used by the BIR in assessing the tax liabilities of the taxpayer. inadmissible in a regular proceeding in the regular courts. hence. Testimony of the person concerned. papers. the information she obtained and divulged to the BIR is not 2 considered as hearsay. Pathiel divulged this information to the BIR.

Termination of Tax Period (Sec 6(D)) GROUNDS TO TERMINATE A TAX PERIOD 1. The taxpayer failed to issue receipts or invoices. removes his properties in the Philippines. Surveillance. invoices. 2.  Informer’s reward is subject to tax because there is a gain (flow of wealth). retires from business and the business is subject to tax. 2. intends to leave the Philippines. the informer will be rewarded 10% of what was actually collected.4. If If If If If the the the the the taxpayer taxpayer taxpayer taxpayer taxpayer hides or conceals his properties.Naked Assessments – assessments not based on actual facts and not supported by competent evidence or documents (i. thus. it was realized. shall be considered as a doubtful assessment and must be invalidated. Thus. C. obstructs the proceedings for collection. 3. and it is not excluded by the law. Power to Conduct Inventory Taking. 4. The books of account do not reflect the correct amount of gross sales or receipt of the taxpayer. and to Issue Presumptive Gross Sales/ Receipts (Sec 6(C))  Issue Presumptive Gross Sales/ receipts: the CIR would presume a certain amount of gross sales or receipts in behalf of the taxpayer if: 1. What is a taxable/accounting period?  For an individual: Calendar Year – January to December  For a Corporate taxpayer: a Calendar Year – January to December b Fiscal Year – starting at any month other that January and ending at any month other than December Effect of termination of Taxable period: . Informer/ Informant – persons who divulge information to the BIR  Benefit: if the BIR successfully collected the tax due against an individual. other financial documents). it is taxable.e.3. C. 5.

she plans to terminate her business and fly to Canada to migrate there. Example: Pepa is engage in retail business. BIR computed for her tax liabilities for the taxable year of 2015. The fixing of the value of the properties shall be made in consultation with competent appraisers. CIR vs. The value prescribed by the city/provincial assessors or assessed value. both from the public and private sector.  Predominant Use of Property: all real properties regardless of actual use. considering that taxable year 2015 has not actually been terminated?  Yes. C.  What is the importance of computing the tax liability of an individual after the taxable period? It is important in order for the taxpayer to deduct correctly his expenses and compute properly his tax liability. the dominant use of these properties shall be considered. Fixing of Real Property Values (Sec 6(E)) Market value shall be defined as: 1 2 The value prescribed by the BIR or the zonal value. . BUT lawyers need not be accredited by the BIR. even if the other properties are being used as residential and vice versa. The BIR can immediately compute for the tax liability of such payer even if the taxable year has not actually ended. most of the properties are used commercially. On June 2015. C. Inc. Is the assessment proper. All other properties located therein shall be considered as ‘commercial’ for the purposes of zonal valuation.6. all he needs to do is to indicate his roll of attorney number.  For Example: in a particular barangay zone. Accredit Tax Agents (Sec 6(G))  Before an individual or a tax practitioner could transact with the BIR such should first be accredited by the bureau. located in a street/barangay zone. This is because the BIR can terminate a taxable period if any of the abovementioned grounds is present in the case. Aquafresh Seafoods. The termination of taxable year will enable the BIR to compute for the tax liability of the payer even if the taxable year has not actually ended. Upon learning of the same. for purposes of zonal valuation.5.

the employee need not file its income tax return. The Commissioner has the power to delegate ALL his powers EXCEPT: 1. e. Substituted Filing – if there exist an employer-employee relationship. The taxpayer must have one employer only. C. she had no net worth because of her numerous debts.  Net worth: difference of assets and liabilities  Example: Napoles. d.7. Recommend the promulgation of rules and regulations  Only the Secretary of Finance who promulgates Rules and Regulations 2. E-filing or Electronic Filing 2.C. Power to Delegate G. c. the employer will file the income tax return of his employee  Requisites: a. The difference shall be considered as the under declared gross sale/receipts.  This is used in case of fraud or when there is no record to support the computation of tax. Thus. Net Worth Method  Beginning net worth – ending net worth = Result will be compared to the taxable income that was reported by the taxpayer. The difference of her ending net worth and her starting net worth is her under declared gross receipts or sales.  If all the above enumerations are present.8. Issuance of Rulings of first impression .R. Say on January she has no net worth but upon reaching December she had P100M. The income earner must be purely compensation income earner. Before she was involved with scams. The employer must furnish BIR Form 2316 to the employee. she is now subjected to pay deficiency tax. The employer should file the 1604 CM. 3. b. Power to Prescribe Procedural/Documentary Requirements  Requirements: 1. The annual income tax due must be equal to the annual income tax paid.

3.  This is for the purpose of avoiding corruption  Internal revenue officers/employees can be designated in a certain company for a period NOT exceeding two (2) years. Power to compromise and abate 4. Assign and re-assign internal revenue officers designated at establishments where articles subject to excise tax are produced or kept. .