VALUE ADDED TAXATION

Other matters:
NATURE OF VALUE-ADDED TAX
 It does not unduly discriminate against customs brokers.
Definition:
A tax assessed, levied, and collected on every importation of goods, whether or not in the course of The phrase "except customs brokers" is not meant to discriminate against customs brokers. It
trade or business, or imposed on each sale, barter, exchange or lease of goods or properties or on was inserted in Sec. 103(r) to complement the provisions of Sec. 102 of the Code, which makes
each rendition of services in the course of trade or business as they pass along the production and the services of customs brokers subject to the payment of the VAT and to distinguish customs
distribution chain, the tax being limited only to the value added to such goods, properties or brokers from other professionals who are subject to the payment of an occupation tax
services by the seller, transferor or lessor. under the Local Tax Code.

Described as: The distinction of the customs brokers from the other professionals who are subject to
 a privilege tax: a tax on the privilege of engaging in the business of selling goods or occupation tax under the Local Tax Code is based upon material differences, in that the
services or in the importation of goods activities of customs brokers (like those of stock, real estate and immigration brokers)
 cumulative: imposed on all stages from manufacturing, wholesale up to retail partake more of a business, rather than a profession and were thus subjected to the
 ad valorem tax: based on the value of the property being sold percentage tax under Sec. 174 of the National Internal Revenue Code prior to its amendment
 indirect tax: the burden of paying the tax liability can be passed on to the consumer, by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If the petitioner
Association did not protest the classification of customs brokers then, the Court sees no reason
Types of Business taxes: why it should protest now.
1. VAT
2. Other percentage tax Tolentino v. Secretary of Finance (1994 and 1995)
 3% based on gross receipts
3. Sin tax 1994
 Tax on sin products: cigarettes, alcoholic beverages
The Constitution does not really prohibit the imposition of indirect taxes which,
VAT and other percentage tax like the VAT, are regressive.
 Same subject matter: privilege of doing business.
 A taxpayer cannot be subjected to both tax. What it simply provides is that Congress shall "evolve a progressive system of taxation." The
 If both are imposed on the same income, same transaction and same privilege, it constitutional provision has been interpreted to mean simply that "direct taxes are to be
would constitute double taxation since both are in the nature of a business tax preferred and as much as possible, indirect taxes should be minimized."

Resort to indirect taxes should be minimized but not avoided entirely because it is
Kapatiran v. Tan difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers'
ability to pay.
Purpose of VAT
The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and The law minimizes the regressive effects of VAT
producers, advance sales tax, and compensating tax on importations. It is principally aimed to
rationalize the system of taxing goods and services; simplify tax administration; and make the tax The law provides for zero rating of certain transactions while granting exemptions to other
system more equitable, to enable the country to attain economic recovery. transactions

 Uniformity The transactions which are subject to the VAT are those which involve goods and
services which are used or availed of mainly by higher income groups. These include real
VAT is considered uniform: properties held primarily for sale to customers or for lease in the ordinary course of trade or
o It operates with the same force and effect in every place where the subject may be business, the right or privilege to use patent, copyright, and other similar property or right,
found. the right or privilege to use industrial, commercial or scientific equipment, motion picture
o It shall apply equally to all persons, firms and corporations placed in similar films, tapes and discs, radio, television, satellite transmission and cable television time, hotels,
situation. restaurants and similar places, securities, lending investments, taxicabs, utility cars for rent,
tourist buses, and other common carriers, services of franchise grantees of telephone and
 Equitable telegraph

It is imposed only on sales of goods or services by persons engage in business with an On the other hand, small business establishments, with annual gross sales of less than
aggregate gross annual sales exceeding the amount set by law. P500,000, are exempted. This, according to respondents, removes from the coverage of the law
some 30,000 business establishments.
Small corner sari-sari stores are consequently exempt from its application. Likewise exempt
from the tax are sales of farm and marine products, spared as they are from the incidence of
the VAT, are expected to be relatively lower and within the reach of the general public.

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1995
Equality and uniformity of taxation means that all taxable articles or kinds of property of the The distinction between statutory privileges and vested rights must be borne in mind for
same class be taxed at the same rate. The taxing power has the authority to make reasonable and persons have no vested rights in statutory privileges. The state may change or take away rights,
natural classifications for purposes of taxation. To satisfy this requirement it is enough that the which were created by the law of the state, although it may not take away property, which was
statute or ordinance applies equally to all persons, forms and corporations placed in similar vested by virtue of such rights.
situation.
Uniformity and Equitability of Taxation
The following transactions involving basic and essential goods and services are exempted
from the VAT: Uniformity in taxation means that all taxable articles or kinds of property of the same class shall
be taxed at the same rate. Different articles may be taxed at different amounts provided that the
(a) Goods for consumption or use which are in their original state (agricultural, marine and rate is uniform on the same class everywhere with all people at all times. 86
forest products, cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish,
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all
prawn livestock and poultry feeds) and goods or services to enhance agriculture (milling of
goods and services. Sections 4, 5 and 6 of R.A. No. 9337 provide for a rate of 10% (or 12%) on
palay, corn sugar cane and raw sugar, livestock, poultry feeds, fertilizer, ingredients used for the
sale of goods and properties, importation of goods, and sale of services and use or lease of
manufacture of feeds).
properties. These same sections also provide for a 0% rate on certain sales and transaction.
(b) Goods used for personal consumption or use (household and personal effects of citizens
returning to the Philippines) and or professional use, like professional instruments and
Neither does the law make any distinction as to the type of industry or trade that will bear the
implements, by persons coming to the Philippines to settle here.
70% limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of
(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of
capital goods or the 5% final withholding tax by the government. It must be stressed that the rule
petroleum products subject to excise tax and services subject to percentage tax.
of uniform taxation does not deprive Congress of the power to classify subjects of taxation, and
(d) Educational services, medical, dental, hospital and veterinary services, and services rendered
only demands uniformity within the particular class.
under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself. R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of
(f) Transactions exempted under special laws, or international agreements. 0% or 10% (or 12%) does not apply to sales of goods or services with gross annual sales or
(g) Export-sales by persons not VAT-registered. receipts not exceeding P1,500,000.00. Also, basic marine and agricultural food products in
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00. their original state are still not subject to the tax thus ensuring that prices at the grassroots
level will remain accessible.
ABAKADA v. Ermita
Creditable Withholding Tax and Final Withholding Tax
Under RA 9337, the President upon the recommendation of the Secretary of Finance shall raise
the rate of value-added tax to twelve percent (12%), after any of the following conditions has (A) Final Withholding Tax. – Under the final withholding tax system the amount of
been satisfied: income tax withheld by the withholding agent is constituted as full and final
payment of the income tax due from the payee on the said income. The liability for
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous payment of the tax rests primarily on the payor as a withholding agent. Thus, in case
year exceeds two and four-fifth percent (2 4/5%) or of his failure to withhold the tax or in case of underwithholding, the deficiency tax
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and shall be collected from the payor/withholding agent. …
one-half percent (1 ½%).
(B) Creditable Withholding Tax. – Under the creditable withholding tax system, taxes
Philosophy behind these alternative conditions: withheld on certain income payments are intended to equal or at least approximate
the tax due of the payee on said income. … Taxes withheld on income payments
1. VAT/GDP Ratio > 2.8% covered by the expanded withholding tax and compensation income (are creditable in
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is nature.
less than 2.8%, it means that government has weak or no capability of implementing the VAT or
that VAT is not effective in the function of the tax collection. Therefore, there is no value to Input Tax and Output Tax; Three Scenarios
increase it to 12% because such action will also be ineffectual.
The Input tax is the tax paid by a person, passed on to him by the seller, when he buys goods.
2. Nat’l Gov’t Deficit/GDP >1.5% Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition payable, three possible scenarios may arise:
of government has reached a relatively sound position or is towards the direction of a balanced
budget position. Therefore, there is no need to increase the VAT rate since the fiscal house is in a First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the
relatively healthy position. Otherwise stated, if the ratio is more than 1.5%, there is indeed a input taxes that he paid and passed on by the suppliers, then no payment is required;
need to increase the VAT rate
Second, when the output taxes exceed the input taxes, the person shall be liable for the
 VAT is not confiscatory excess, which has to be paid to the Bureau of Internal Revenue (BIR); 69 and
The input tax is not a property or a property right within the constitutional purview of the due
process clause. A VAT-registered person’s entitlement to the creditable input tax is a mere
statutory privilege.

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it is intended or desired. The sale which was involuntary 2. should pay it. any excess over the output taxes shall instead be refunded to the of business. then membership dues are not part of it. 1. These two agencies are exempt from indirect tax. If we would use the logic behind that ruling. at the taxpayer’s option The condo corporation: alleges that activity being conducted was not for business. If the seller can pass on the VAT. in the course of trade or business. taxpayer or credited against other internal revenue taxes. Sale.  But if a sole proprietorship transferred property to a corporate taxpayer. the  Yes. NO.  No. These transactions outside the The burden of tax is passed to the consumer notwithstanding the absence of any stipulation or course of trade or business may invariably contribute to the production chain. Is the collection of association dues in condominiums subject to VAT? NO. Philippine Acetylene made sales to National Power Corporation (NPC). business.  Another point to consider: the transaction must be subject to VAT in order to be classified as a transaction deemed sale. but they do so contractual stipulation between the two parties: seller and purchaser. etc. They would collect homeowners association dues for this maintenance. The issue there is whether gross receipts are subject to local business tax. Third. barter. only as a matter of accident or incident. in this case the Supreme Court held that it is not a transaction deemed sale. Condominium homeowners association would own the deeds and would maintain the common FACTS: areas. or services as part of the purchase price in the absence of any showing that the transferee. Seller remains to be the statutory taxpayer. The business of NDC is the leasing of personal property. CIR vs. 2. It is only for the maintenance of the common area. there was a change of ownership so it may be considered as a transaction deemed sale. is exempt from indirect tax The VAT is levied only on the sale. Distinction between direct and indirect taxes In the case of Yamane v. It should be emphasized that the normal VAT-  If the coverage is importation. providers of such goods or services would hardly. Page | 17 . 1.  Except: IF the importation is exempt under the law. if at all. by stipulation. barter or exchange of goods or services by persons who engage in such activities. and to the Voice of America (VOA) an agency of the United States Government. The collection is not made in the ordinary course of business. In this case. Other lecture notes:  Importation of personal goods exempt from custom duties is likewise exempt Will a change of ownership be classified as a cessation of business? from VAT  Yes. if the input taxes exceed the output taxes. In the instant case. Tax imposed on the seller/lessor/importer/service provider Indirect tax: It may be shifted or passed on to the buyer. Should the input taxes result from zero-rated or effectively The argument of BIR: it is subject to VAT because it concerns lease of service in the ordinary course zero-rated transactions. which continued its operation Analyze: Is the collection made in the course of business? even after the sale. Direct tax: The tax burden is upon the income recipient upon whom the tax is imposed. transferee. will the tax liability remain to be with the seller? As the sales of goods or services do not occur within the course of trade or business. What is only passed is the burden. it does not matter whether it has been made in the registered activity of NDC is leasing personal property ordinary course of business. The burden of paying the tax is not passed on to the consumer or to another individual Special Characteristics of an Indirect Tax But can it be passed on?  Yes. the court held that condominium corporations are not engaged in business. change of ownership so it is a transaction deemed sale  If the costs cover the use of facilities. the sale was an isolated transaction. Magsaysay Lines properties. the excess shall be carried over to the Bar Question similar to the above: succeeding quarter or quarters. there is  Membership dues are not subject to VAT unless it is in the ordinary course of business. This is the main argument of BIR Are the dues collected by sports organization subject to VAT?  However. It shall only include the use of facilities and allowances of the trainers. VAT AS AN INDIRECT TAX Answer: The association dues are not subject to VAT. exchange or lease of goods or services made in the ordinary course of The “course of business" or "doing business" connotes regularity of activity. it is obvious that gross receipts are also not subject to VAT because collection of association dues are not made in the course of business. or lessee of the goods. Importation of goods and made pursuant to the declared policy of Government for privatization could no longer be repeated or carried on with regularity. an agency of the Philippine Government. Not a tax on the buyer/lessee/service availer Under Property Law: Philippine Acetylene v CIR There are condominium units specifically owned and there are common areas. have the opportunity to appropriately credit any VAT liability as against their own accumulated VAT collections since the accumulation Coverage of VAT system: of output VAT arises in the first place only through the ordinary course of trade or business. It is a tax demanded from the very person who. CA. Change of ownership in this case did not lead to the cessation of the business.

or stripping. ordinary salt and copra shall be considered in their original decision to absorb the burden of the tax is largely a matter of economics. in specifically exempting the WHO from "indirect taxes. Hence it CIR vs. The certification issued by the WHO. The Host Agreement. Claim of American Rubber: the sale of rubber material is exempt from VAT because it is a sale of agricultural products in its original state Gotamco must also be exempt from contractor’s tax  The seller is the proper party to ask for the refund because he remains to be the Gotamco must be exempt from contractor’s tax. Under an international agreement. such as freezing. roasting. Gotamco. processes of preparation or preservation for the market. Others: After effectivity of RA 9337. only agricultural food products are exempt from VAT. form part of the This has been promulgated before RA 9337. A raw cane sugar and molasses. In addition to this. then the seller cannot capitalize on such exemption of such purchaser because what had been passed on Under Section 109 of the Tax Code to the purchaser is merely the burden of tax and not the tax liability. the consumer forms part of the purchase price. agricultural products in original state are exempt from VAT whether food or nonfood. The tax burden may not even be shifted to the purchaser at all if the seller does not want to. Products are still considered in their original state even if they have undergone simple  The act of passing the burden to the purchaser is just a matter of economics. WHO is exempted from tax because there is a statutory taxpayer. specified in a Circular) the taxpayer shall be mandated to pay VAT. JOHN GOTAMCO & SONS. The 3% contractor's tax would be within this category and should be viewed as a Bar Question: form of an "indirect tax" On the Organization. It is an agricultural product sold Difference between Philippine Acetylene and Gotamco in original state Philippine Acetylene Gotamco  If decided after the effectivity of RA 9337. smoking. corn grits. Polished and/or husked rice. The VAT passed on to as defined in section one hundred ninety-four (x) of this Code. the international agreement also provides that “any person or entity that contracted with WHO on In the event that refund is successful will hold it in trust for the consumer who shouldered the the construction of WHO building shall likewise be exempt from tax”. be contended that a sales tax is a tax on the purchaser We therefore hold that the tax imposed by section 186 of the National Internal Revenue Code is a CIR vs. Therefore it has personality to claim for refund. The charter and the agreement between the The international agreement contains Philippines and USA do not contain provisions provisions that individuals and corporations Notes: that any individual or entity transacting with transacting with WHO in the construction of NPC and VOA is likewise exempted WHO building shall likewise be exempt from  Under RA 9337. If the purchaser is exempt from vat. The term “agricultural products" as used by the fisherman or fishing herein shall not  VAT liability remains to be with the seller include cultured operator. price would have meant an increase in the construction cost of the building. salting. if the annual gross receipts or gross sales exceeds 1.  Agricultural food products are exempt both from VAT and Other Percentage Tax Page | 18 . The law effective at that time provides that price paid or to be paid by it. Is it subject to VAT?  If decided prior to the effectivity of RA 9339. it is subject to VAT since it is non-food. from any taxes in connection with the construction of the WHO office building. burden of tax. produced in fishponds. dated January 20. Gotamco transacts with the WHO. it is exempt. drying. Then it can no longer state." contemplates *** PRECAUTION*** taxes which. and those which have undergone the process of manufacturing What is passed on to the consumer is merely the burden of paying the tax. Since its consumer is exempt from tax. sought exemption of the contractor. the WHO is exempt from direct and indirect tax. Gotamco cannot shift the burden. whether in their fish and other products raised or not. broiling. provision in the international agreement that exempts it from such. Philippine Acetylene alleges that it shall likewise be exempt from tax since it cannot shift the In the case of Philippine Packing Corporation v CIR burden of paying the VAT to its purchasers.919. It alleges that it should not be liable for contractor’s tax.500 (amount tax. 1960. as the payment thereof or its inclusion in the bid The taxpayer is engaged in the sale of flowers. a form of indirect tax. although not imposed upon or paid by the Organization directly. American Rubber must also be exempt from tax. INC tax on the manufacturer or producer and not a tax on the purchaser except probably in a very remote and inconsequential sense.

Few transactions are subject aid in view of Sony’s dire or adverse economic conditions. inputs and imports Sony’s deficiency VAT assessment stemmed from the CIR’s disallowance of the input VAT credits Question: that should have been realized from the advertising expense of the latter. the former never incurred any advertising Section 110(A) of the Tax Code provides that any input tax evidenced by a VAT invoice or official expense. it is subject to output VAT on the part of the SPECIFIC CHARACTERISTICS OF VALUE ADDED TAX retailer. Sony incurred and paid for advertising expense/ services. therefore. He is engaged in the hobby of collecting bags.  These salaries are not subject to VAT. In other words. In this case. 1. and was only "equivalent to the to input vat (since magkano lang naman yung utilities expenes. an entity can subtract from the expenses. What would be his costs?  Salaries to his employees to maintain the units. better to subject it to other percentage tax. At most. the retailer. internet income tax. sales or outputs the VAT paid on its purchases. it is not one that is Input VAT: VAT paid for the purchase of goods or services. the Court does not agree that the same subsidy should be  Subject to VAT subject to the 10% VAT. barter. It is evident under If a client would ask you: which is better. Output VAT: VAT imposed on the sale of services or goods. Sony-Singapore has granted to Sony Philippines a subsidy equivalent to the latter’s advertising expenses will not affect the validity of If leasing residential units the input taxes from such expenses. Tax imposed on the value added A. Since it is income. which is invoice-based. this is subject to input VAT on the part of Page | 19 .  It would depend on the purchases of the taxpayer. He can deduct input taxes from his output taxes. this is an additional income of Sony Philippines subject to income tax. goods produced from the same. However. there were no such exchanges. Kiko is engaged in buying and selling bags. He is VAT-registered. It can still deduct and not liable for VAT. the said subsidy termed by the CIR as reimbursement was not even exclusively earmarked for Sony’s advertising expense for it was but an assistance or So if it is a leasing business. output tax. Tax Credit Mechanism CIR vs. the Court agrees. it is subject to income tax. He is also VAT-registered. First consideration should be the type of business. A retailer purchases goods from a wholesaler. Other class notes: Output VAT vs. VAT charged on its sales or outputs the VAT it paid on its purchases. Since Sony’s advertising expense was reimbursed by SIS (Sony’s office in Singapore). then VAT-system is better because there is a There is also no denying that Sony incurred advertising expense. Aluquin testified that tax credit mechanism. Where the money came from is another matter all together but will definitely not change said fact. Illustration: 2. subject to vat. CIR now issued a deficiency assessment to Sony for P15m. Tax imposed on all levels of the production/distribution process Reynolds is engaged in the business of buying and selling bags. telecommunication. To begin with. Tax imposed on the sale/barter/exchange/lease 3.  Is the subsidy an income in part of Sony? Yes. it refers to the reduction of Output VAT (OV) against Input VAT (IV) and the reduction of Creditable Input VAT against future tax liabilities CIR’s Allegation: Sony should be liable to VAT. there is VAT imposed. Input VAT  Scope of VAT: sale. not to VAT expense. Sony is not entitled to a tax credit. at the most. There is no Input VAT component to his The amount is an income that is subject to income tax.  From the purchase of goods or capital equipment up to the sale of the same or Note: Output VAT and Input VAT are applicable only to VAT-registered entities. While it is an income. and not Sony Philippines. advertising companies issued invoices in the name of Sony and the latter paid for the  In Other Percentage Tax. which represens VAT and Withholding Tax. Example: Franz is not engaged in buy and sell.  If most of his purchases are subject to VAT. exchange or lease. Sony Philippines Under the tax credit method. When the retailer now sells it to another. Thus. Despite reimbursement from SIS. the said advertising expense receipt on purchase or importation of goods or for purchase of services shall be creditable against should be for the account of SIS. Moreover. Sony Philippines still incurred advertisement Under the VAT method of taxation. inputs and imports. Insofar as the above-mentioned subsidy may be considered as income and. subject to  Utilities: electric. he will be subjected to a higher rate which is up to 12%. so there shall be no VAT. As a result. water. there is no tax credit mechanism same. The fact that due to adverse economic conditions. Indubitably. The taxpayer can only deduct few latter’s (Sony’s) advertising expenses input taxes. an entity can credit against or subtract from the VAT charged on its CIR issued a letter of authority wherein officers of CIR are authorized to examine books of Sony. other percentage or VAT? Section 110 of the 1997 Tax Code that an advertising expense duly covered by a VAT invoice is a legitimate business expense.

He needs to add 1200 to represent the VAT. lease of goods or properties. Include activities incidental to main line of business (RA 9337) 3.919. or rendering of 3. Those who are mandated to register under the VAT system . It must be done in the ordinary course of trade or business 2. 4. o Services rendered by non-resident foreign persons shall be considered as being Kiko to Franz rendered in the course of trade or business. RR 16-2005. 1.  Sale of residential house and lot. TRANSACTIONS SUBJECT TO VAT GOVERNING REGULATIONS Elements of VAT-taxable transactions 1.200  Kiko will pay this amount “In the course of trade or business” o The regular conduct or pursuit of a commercial or an economic activity including On the part of Reynolds. 10. he paid 11. Regular conduct or pursuit of the activity. the incidence is on the final consumer. the threshold amount is P3. such option to register shall be considered as irrevocable for the period of 3 years. He decided to sell it for 20k. Since he is VAT-registered. VAT is 2400. even if the performance of services is not On the part of Kiko.200 (VAT) 11. whether or not in the course of trade or business + 1. non-profit private organization or a government 1200 in trust for the government.400 (VAT) 22.200. If taxpayer opted to register under vat system. Consumption-based Tax Therefore no cancellation within 3 years can be made if the taxpayer voluntarily registered himself under vat system Destination principle: VAT shall be imposed only upon goods consumed in the Philippines. It can be conducted by any person Gross Selling Price: 20k  Even by nonstock. on the seller. RR 16-2011 (Adjustment of threshold amount for liability) 2. The 1. as long as the activity is proprietary in nature Input VAT: 1.400 2. It is an output vat which is required to be remitted to the government. irrespective of the manner on how the Output VAT: 24. exchange. + 2. it is called vat payable. Page | 20 .200 (what was passed to him by his supplier.400  Franz will pay this amount In the course of business. He will only hold the person engaged therein is a non-stock.200 considered as vat payable Mandatory registration:  If the Input Vat is higher than Output Vat.000 (selling price) Importations are subject to VAT. It is not VAT-exempt or VAT zero-rated. the difference is called creditable input vat o Required if annual gross sales or receipts or expected gross sales or gross receipts This creditable input VAT may be subject of tax refund or a tax credit exceeds 1. the taxpayer shall be subject to VAT. Impact of Taxation and Incidence of Taxation  However this threshold amount will not apply to franchise grantees of radio and television broadcast Impact of taxation: the point on which a tax is originally imposed. Reynolds) Two types of persons liable for VAT:  If Output Vat is higher than the Input VAT.200 to be collected as VAT is not an transactions incidental thereto. Cases in Point: Magsaysay Lines and Western Mindanao Power Corporation Cross border doctrine: VAT shall not be imposed if the goods will be consumed outside the If the case is decided before the effectivity of RA 9337: only activities related to the main activity of Philippines. entity. selling price is only 10k.000 during any 12-month period shall be considered principally for subsistence or livelihood and 20. then the transaction is subject to the 12% VAT. he will pass on the 12% VAT to Kiko. and not merely isolated Books of Kiko 2. Those who voluntarily register business under the VAT system 2. incidental activities are not subject to vat After the effectivity of RA 9337: activities related to main activities and those incidental to main These are kindred concepts activity are subject to vat.200. Total amount to be regular paid by Franz is 22.122. Kiko now will pay 11. RR 10-2011 (Clarifying VAT rules on certain transactions) service in the Philippines. elements: 1.Reynolds to Kiko 3. Reynolds sold the bag to Kiko for 10k. o Any business where the gross sales or receipts do not exceed P100. non-profit organization. If all three elements are present.400. There must be a sale.000 (selling price) not in the course of trade or business. as amended by RR 4-2007 (Consolidated regulation) 1.500 Incidence of tax: that point on which the tax burden finally rests or settles down and in most Note: cases. the threshold amount is P10M. Franz) income is disposed.200 1.500 B. barter. by any person regardless of whether or not the income.000 (what he passed to his buyer. The impact of taxation is  If radio. 1.

o Houses: per residential house Therefore.919. 1.919. Note here that each person’s rental is only 7k. 2. Piece of Work If not: subject to Capital Gains Tax (for capital assets) Piece of Work vs. AND transactions. Exempt Transaction  No. Residential lots: threshold amount is 1. Sale of residential lots or house & lots Is the lease subject to VAT?  NO. per room. there are 5 students whose rental is 7k each per month.919. business 4. There is no use to know if the second condition is met.919. RATES OF VAT Illustration: Three types of vat system X is leasing apartment units. 3.  Lodging places  The 10k amount would not form part of cash receipts and therefore not subject to VAT. it shall be subject to VAT Illustrations:  Residential Unit (RR 16-2011) Apartment and house and lots used for residential purposes and buildings or parts/units thereof Ma’am purchased and sold bag for 10k  Contract of Sale used solely as dwelling places. Ordinary Is it material to know the annual gross receipt to be subjected to VAT? 2. Per room. House and lot: threshold amount is 3. 200 (RR 16-2011) The first condition for VAT to be applied is that the monthly rental per unit is 12. The monthly rental per unit is 10k. 1. Mam did not collect 10k kasi inutang ni Reynolds (2016). The income is already recognized  Inn  Pension houses What if Ma’am made the bag customized and Reynolds did not pay the 10k?  Motel  This is now a contract of piece of work. Zero-Rated Transaction Remember there are two conditions to be subjected to VAT: Note: Memorize! Be ready to classify whether the transactions are vat-taxable.500 ORDINARY RATE OF 12% The lease here will automatically be not subjected to VAT since the first condition (i.e.800) is not met.  If radio. The conditions must be concurrently met. the threshold amount is P10M.500 X is also leasing bed space units.800. It means that both elements must concur. that the monthly rental per unit must exceed 12. AND amount amount (b) Aggregate annual rental exceeds 1. exempt or zero-rated (a) Monthly rental per unit exceeds 12. Bedspaces: per person o Rooms for rent: Per room Page | 21 .500  Per unit in a bedspace unit is per person. X receives a rental of 35k. income can only be recognized if it is already collected. in which case “per unit” is defined as “per person”. (b) Aggregate annual rental exceeds 1. it must be in the ordinary court of is a bedspace unit. o Dorm.199. Hence it does not matter that X receives 35k per room each month since what is involved Note: Taxpayer must be engaged in the selling of House and Lots. Contract of Sale 3.500 Income derived Gross Receipts Gross Sales Reminder: the conjunction used is AND. “Per unit” o Apartments: per apartment unit In a contract of piece. When the gross sales exceed the threshold amount of 1. Lease of residential units Piece of Work Contract of Sale Subject to VAT Subject to VAT if gross sales Subject to VAT if gross sales Conditions: reached the threshold reached the threshold (a) Monthly rental per unit exceeds 12. Method of recognition of Cash Method Accrual Method  Lease of Commercial Spaces Income As long as the annual aggregate amount of rentals exceeded the threshold amount.800.800. Ma’am cannot reflect the 10k as an income subject to VAT. Boarding Houses. Hence. Does not include: Will Ma’am reflect the 10k as income subject to vat?  Hotel  Yes.

ownership is still on the consignor. Who owns consigned goods?  Consignor Is the advance given by Reynolds an income in the part of Ma’am?  Once delivery is made. They are originally business. Reynolds paid an advance of 10k Consignment: possession is transferred to another but ownership remains with the consignor Tony never paid so he incurred a debt for 50k Kiko regularly pays his rent. She took a soap for her personal use. Ma’am owns a grocery store. If this is sale and the goods worth 100k were delivered from A to B: If this is a contract of sale:  It is considered an income. Will the cancellation of the registration be tantamount to retirement from or cessation of 5. accrual method.  Even if is not yet collected. either: o Shareholders/investors as share or profits Is this a service.  NO. know first if the taxpayer or the transaction involved is subject to VAT Is this a transaction deemed sale? It is transaction deemed sale only if the transaction occurred in the ordinary course of  Yes. it will be subject to VAT. intended for sale. She bought products such as soap and shampoo. Transactions Deemed Sale business?  Yes. The ownership had never been transferred from A to B.  The transfer. it has already accrued. Note: the amount subject to VAT would only refer to the inventories of taxable goods. Page | 22 . so it is not part of the gross sales. use or consumption (not in the ordinary course of business) of properties or goods originally intended for sale not in the ordinary course of business The BIR subjected the five buildings of X to VAT. from the moment the cash was collected. NOTES: Before provisions of Transaction deemed sale can be applied. retail. because the items formed part of the inventory.Another illustration on Rent: Commercial Spaces (b) Distribution or transfer of goods or properties originally intended for sale to Ma’am has a building.  The properties must be originally intended for sale. or consumption must not be in the ordinary course of business. manufacture? o Creditors as payment of debts  Service.  The buildings in this case are not inventoriable since they are not being sold. Hence it is subject to VAT based on the he needs to cancel his own registration for being engaged in the rental business. It forms part of the Gross Sales subject to VAT Is the 10k advance payment of Reynolds subject to VAT? (d) Retirement from or cessation of business with respect to inventories of taxable  NO. method is used. Her tenants are Reynolds.  Only if B already sold the goods or B did not return the goods within 60days. so as to qualify as ones that are originally intended for sale. If not. (a) Transfer. has a Corporation named X Corporation. He transferred his business to X Corporation. This is an advance payment. it is reflect in the Illustration: gross receipts notwithstanding the fact that the income has not yet accrued (since this is an advance) Goods worth 100k were delivered by A to B under consignment basis.  YES  Cash method can be used. so use cash method. consignment and were left unreturned. Is the 50k unpaid rent of Tony an income? Is the 100k considered as sales of A?  NO.  Not yet. Note that these are commercial spaces so do not apply rule under revenue regulation on (c) Consignment of goods if actual sale is not made within 60 days from the date of Residential units. Note: only if goods are in the inventory. Illustration: Apply the retirement principle if the properties are inventoriable properties. The seller can report the income if it is earned. He also  YES. it is not a transaction deemed Was the assessment proper? sale. Tony and Kiko. use. He has a rental business wherein he rents out his 5 buildings. goods Note that in sales: accrual method. Assuming Ma’am is subject to vat.  It was not yet collected. Necessarily. Illustration: Is the 50k unpaid rent by Tony subject to VAT? Individual is VAT-registered.

Sales of real properties not primarily held for sale to customers or held for lease in the 8. importation. Approximately 120. Sale of agricultural food products in their original state 4. prawn. Franchise grantees of gas and water utilities do not exceed the amount of P1. Services rendered by regional or area headquarters established in the Philippines  Likewise exempt from other percentage tax 11. corn grits. EXEMPT TRANSACTIONS COMPLETE LIST OF EXEMPT TRANSACTIONS 1.919. Services by international air or shipping carriers functions and other non-bank financial intermediaries  Subject to other percentage tax of 3% 22. 2. o No imposition of Output VAT Such products are still considered in their original state even if they have o No acquisition of Input VAT undergone simple processes of preparation or preservation for the market.500  Subject to 2% other percentage tax  Note: the rate is 2%.200 for a house and lot and other residential dwelling  Except if the taxpayer voluntarily registered under the vat system 17. Philippine Packing Corporation vs. livestock  Transaction is not subject to vat. printing or publication of books and any newspaper. the gross annual sales and/or receipts 11. Export sales of non VAT-registered business 5.500 for a residential lot and P3. rice. CIR 12. goods and supplies by persons engaged in international  Exempt from VAT regardless of the amount of gross receipts earned shipping or air transport operations 21. Sale. Sales by non-agricultural. seeds. dental. Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws 12. ordinary salt and copra shall be considered in their original state. wearing apparel. but it can also zero-rated. It is taxable because it is rendered by Professional with the Cooperative Development Authority  Provided that the share capital contribution of each member does not exceed P15. fighting cocks. importation.800 18. domestic  Likewise exempt from other percentage tax animals and personal household effects belonging to persons coming to settle for the first time in the Philippines 4.000 7. Services subject to percentage tax  Likewise exempt from other percentage tax 6. salting. Sale. he shall be liable for 3% and is not devoted principally to publication of paid advertisements other percentage tax 19. Sales by agricultural cooperatives duly registered with the Cooperative Development 6. Services rendered by domestic common carriers by land transport operations.919. How come? 7.000 tons of pineapple Page | 23 . Services of medical dental hospital and veterinary except those rendered by prof Authority  Likewise exempt from other percentage tax 13. Sale or importation of agricultural and marine food products in their original state. Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the Cooperative Development Authority whose lending is limited to members Are services of Doctors exempt from VAT? 14. roasting.199. DEPED. barter or exchange of listed shares  Subject to ½ of 1%: stock transaction tax Appellant Philippine Packing Corporation is a domestic corporation engaged in the growing and canning of pineapples in Mindanao for sale locally. Services rendered pursuant to an employee-employer relationship 5. or lease of passenger or cargo vessels and aircraft des engine. Educational services rendered by private educational institutions duly accredited by transaction if the taxpayer is not VAT-registered. magazine. corn into grits and sugarcane into raw sugar Q: Export sales are VAT-exempt. Export sales by persons who are not VAT-registered 16. or stripping. such as freezing. aquarium fish. non-electric and non-credit cooperatives duly registered  No. Medical. Importation of professional instruments and implements. 1. Services of banks. non-bank financial intermediaries performing quasi-banking 10. Services by agricultural contract growers and milling for others of palay into rice. equipment. fish. hospital and veterinary services except those rendered by professionals A: It is exempt if the entity is not VAT-registered. taxpayer is exempt from VAT but not or bulletin which appears at regular intervals with fixed prices for subscription and sale exempt from other percentage tax. Gross sales and gross receipts not exceed threshold ordinary course of trade or business or sales within the low-cost cap of below 1. A transaction cannot be considered a zero rated 8. Importation of fuels. Transactions intended for subsistence livelihood 3. not 3%. If threshold amount is not reached. review If gross sales and gross receipts do not exceed threshold. Transactions by entities not registered under the vat system 2. unless the amount of gross sales or gross receipts and poultry feeds exceeds the threshold amount This does not include specialty feeds for race horses. Sale or lease of goods or properties or performance of services other than the transactions mentioned in the preceding paragraphs. Services rendered in favor of senior citizens and products sold to them 15. raw cane sugar and molasses. broiling. and TESDA and those by governmental educational institutions 9. and other animals generally considered as pets.  Exempt from vat but subject to other percentage tax of 3% 20. Importation of personal and household effects belonging to the residents of the Philippines returning from abroad 3.Sale or importation of fertilizers. Lease of a residential unit with a monthly rental not exceeding P12. and spare parts thereof for domestic or international 9. zoo animals. CHED. Importation of good exempt from custom duties and intended for personal use 10. smoking. Sale. Polished and/or husked NOTE: these are only some of the exempt transactions. seedlings and fingerlings. drying.

pineapple chunks. themselves have undergone processing of some kind. for the volume of its products (170. the vat rate is not 12% but 0%. the Creditable Input Vat is not a property right but a state or not". Transaction is zero-rated The seller is not entitled to any input tax on The input VAT on the purchases of a VAT- his purchases despite the issuance of a VAT registered person may be allowed as tax credit Will it not violate destination principle? invoice or receipt or refund  In CIR vs.  The manipulations to which appellant subjects the fresh pineapple fruit grown by it does not amount to a manufacturing process which would make it taxable. had precisely in mind that fruit crops could not be raised and sold on a large scale privilege. and that large sums of money  products must be consumed outside the Philippines go abroad every year for the purchase of food substance which might be grown here. Apply for refund of creditable input vat for a period of 2 years 3. TI will still be engaged in zero rated transaction. and the rest Texas Instrument has three options of using the creitable input VAT: are canned into sliced pineapple. do not advise your client to carry over the creditable input VAT. merely 2. Apply for a tax credit certificate which TI can use to pay off its tax liabilities. The legislature. Question: The canning of appellant's products is a mere incident and consequence of its large scale A Revenue Regulation provides that tax credit certificates are no longer transferrable.  NO. and in markets that would not be accessible to the fresh Elements: fruit." makes it clear that the exemption is not divested merely because the products TI can sell its tax credit certificates to other companies. Since it is zero rated. that there are immense tracts of public land in this country. in exempting "agricultural products — whether in their original state or not. The very text of the law. American Express: this is an exemption from the destination principle Registration is optional Registration is required. and pineapple 1. it is already a property right. it has no Output VAT but may acquire input VAT. 2. b. since in the following years. production of pineapples. the taxpayer shall be considered engaged in export sales if at least 70% of its wealth of the country. Export sale is a zero rated transaction. Every  If the taxpayer's activity does not solely deal with the sale of products outside the dollar's worth of food which the farmer produces and sells in these Islands adds directly to the Philippines. Carry over to the succeeding years juice. out of which it sells or gives away in fresh state 50. every year are produced by appellant from its plantations. without resort to some process to prevent their deterioration. and there is no reason a. The appellant corporation directly produces its goods from the cultivation of land. Export Sales wholly unproductive. crushed pineapple.000 tons which are not suitable for canning. Foreign currency denominated transaction engaging in the suitable preservative processes for the purpose of making the product available at all times.000 tons) made it impossible to dispose of the same in the local Is this constitutional? market. Purpose of Legislature The exemption was due to the belief on the part of the law making body that by exempting agricultural products from this tax the farming industry would be favored and the Three types of transactions under zero rated development of the resources of the country encouraged. Since Input VAT is higher than Output VAT. without regard to seasons. Service must be paid in an acceptable foreign currency in accordance with BSP rules and regulations c. If you are tax lawyer of TI. It is a fact. Appellant perforce had to resort to a preserving process. if government already issued the tax certificate. Service must be performed in the Philippines why it should not be given the protection that the law affords. Illustration: Texas Instrument is engaged in export sale. Is the business process outsourcing subject to 0% rate?  Service is performed in Philippines Difference between VAT-exempt and Zero-rated  Entities are paid in foreign currency Except: if render services for resident clients VAT-EXEMPT ZERO-RATED  Service is performed in favor of a foreign client Transaction is not subject to output tax Taxable transaction but does not result in an output tax  Yes. at present 1. in providing a tax exemption for agricultural products. for which it is not taxed. transaction shall be sold outside the Philippines. it may incur creditable input VAT. which might be made fruitful by cultivation. Page | 24 . Service must be performed in favor of a non-resident client ZERO-RATED TRANSACTIONS Question:  Transaction is subject to VAT. Any cancellation of tax credit certificate would result to a violation of due process under the constitution. However. Appellants does not make its profit upon goods produced by others. However. of which we take judicial cognizance. "whether in their original According to the case of ABAKADA Guro.

the invoices were not duly registered with the BIR. failure to indicate the TIN). customer or client. by itself.108-1.108-1 required the following to be reflected on the invoice: In a claim for tax refund or tax credit. verification of other tax liabilities of the taxpayer Moreover.. and If the claim for refund/TCC is based on the existence of zero-rated sales by the taxpayer but it 6.g. credit. Western Mindanao Power Corporation v. quantity. The word "zero-rated" was also not imprinted on the invoices. particularly Section 4. CIR The requirement is reasonable and is in accord with the efficient collection of VAT from the covered sales of goods and services. the printing of the word "zero-rated" on the invoice helps segregate sales that are WMPC filed with the Commissioner of Internal Revenue (CIR) applications for a tax credit subject to 10% (now 12%) VAT from those sales that are zero-rated. Hitachi is a domestic corporation engaged in the business of manufacturing and exporting The subsequent incorporation of Section 4. the applicant must prove not only entitlement to the grant of the claim under substantive law. and which may only be considered as such when it complies with the requirements of RR 7-95. Date of transaction. Hence. the government would be refunding money it did not collect. its claim for tax credit/refund of VAT on its purchases shall be Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their denied considering that the invoice it is issuing to its customers does not depict its being a invoices or receipts and this shall be considered as a "VAT invoice. Hitachi is registered as a Value-added Tax (VAT) taxpayer." All purchases covered by VAT-registered taxpayer whose sales are classified as zero-rated sales. justify the grant of a refund or tax credit. It sells electricity solely to the National Power Corporation their purchases when no VAT was actually paid. the word "zero-rated" imprinted on the invoice covering zero-rated sales. pursuant to RA. date of transaction. the term ‘zero-rated sale’ shall be written or printed The "BIR authority to print" is not one of the items required to be indicated on the invoices or prominently on the invoice or receipt. 2. documentary and evidentiary requirements for an administrative claim for a refund or tax 2. 4. Thus SOF has the power to expand the invoicing requirements on zero-rated transactions 3. In the new charter.108-1. Petitioner’s power generation services to NPC is zero-rated. The name. business style. the mere fact that petitioner’s application for zero-rating has been approved by the 3. it is believed that the Congress has HITACHI GLOBAL CORP vs. duties. taxpayer’s identification number (TIN) and address of seller. this invoices other than a "VAT invoice" shall not give rise to any input tax. Further. fails to comply with the invoicing requirements in the issuance of sales invoices (e. for every sale or lease of goods or properties or services. absent such word.4. input VAT is made. 5. Page | 25 . business style. 4. Invoicing Requirements. Quantity. The invoice value or consideration.  Principle of Legislative Approval by Reenactment If administrative ruling or issuance is enacted into a law. the case shall be referred by the processing office to the concerned BIR office for followed by the word VAT. the name. TIN. Hitachi’s export sales invoices did not indicate Hitachi’s Tax Identification Number (TIN) Moreover. CIR does not. unit cost and description of merchandise or nature of service. if any. It must also show satisfaction of all the 1. a creditable input tax should be evidenced by a VAT invoice or official receipt. The appearance of the word "zero-rated" on the face of Petitioner WMPC is a domestic corporation engaged in the production and sale of electricity. 5. CIR approved the validity of the issuance. treatment is without prejudice to the right of the taxpayer to charge the input taxes to the appropriate expense account or asset account subject to depreciation. issue duly registered receipts or sales or commercial  Rule-making power of Secretary of Finance invoices which must show: Section 4. which is in turn exempt from the payment of all forms of taxes. This section requires. unit cost and description of merchandise or nature of service. whichever is applicable. It is invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from registered as a VAT taxpayer. a successful claim for (NPC). among others. the charter of NPC was not yet amended.108-1 of RR 7-95 proceeds from the rule-making authority granted to the 1. if any. Note: when this case was promulgated. The name. 4. 6. Hitachi is also 9337 actually confirmed the validity of the imprinting requirement on VAT invoices or official registered with the Export Processing Zone Authority as an Ecozone Export Enterprise.  The claim for refund must be denied for failure to comply with the invoicing all entities transacting with NPC shall likewise be exempt from indirect tax. and address of the VAT-registered purchaser. Under the NIRC. The word "zero-rated" imprinted on the invoice covering zero-rated sales. customer or  PANASONIC failed to imprint “Zero-Rated” in its invoices client. filed an administrative claim for refund or issuance of a tax credit certificate before the BIR. 6395.  The failure to imprint BIR authority to print is not a ground to deny the claim or  The tax refund or credit cannot be allowed for failure to comply with the refund documentary requirements under the law Sec. Hitachi receipts." receipts. and address of the VAT-registered purchaser. Secretary of Finance for the efficient enforcement of the Tax Code and of course its amendments. . TIN and address of seller. computer products.108-1 of RR 7-95 in Section 113 (B) (2) (c) of R. the invoice value or consideration. requirements PANASONIC vs. If. the name. Nonetheless. certificate of its input VAT.All VAT-registered persons shall. TIN.A. CIR Sec. fees and imposts. that "(i)f the sale is subject to zero percent (0%) value-added tax.

however. such as the VAT. hence. or person rendering services and client or customer. however. Unlike a direct tax. since the ATP is not indicated in the invoices or receipts. shall be presented for cancellation prior to the issuance of the Tax Credit Certificate or refund. CIR taxpayer. properties or services VAT it paid.  However. Respondent. in the absence of such law or regulation. the sale of gold to the Central Bank is zero-rated. which primarily taxes The claim for refund shall be disallowed an individual’s ability to pay based on his income or net wealth. to do so. Effectively zero rated transaction by requiring the claimant to present its ATP from the BIR. To prove this. The taxpayer must be VAT-registered. are construed strictly against the taxpayer. the amount of tax paid on the goods. Without this proof. The respondent failed 1. invoice/receipt. transferred. but the tax burden. the international agreement or the special law effectively subject such transaction to a zero percent rate. While it is true that the petitioner should not have been liable for the VAT inadvertently passed CIR vs. debtor or creditor. respondent must not only prove that it is a VAT registered entity and that it filed its claims within the prescriptive period. amount or quantity of goods sold and their selling price. transferred in such instances is not the liability for the tax. other settlementbetween seller and buyer of goods. Hitachi failed to establish the factual basis of its claim for refund or tax credit. forms a substantial portion of consumer expenditures. relying on a letter from then BIR Deputy Commissioner tax liability that gold sold to the Central Bank is considered an export sale is subject to zero-rated if such sale is made by a VAT-registered person. Zero rating is primarily intended to be enjoyed by the seller – respondent herein. and taken collectively are the best means to prove the input VAT payments. bought. The claim must be filed within two years after the close of the taxable quarter when such sales Section 16 of Revenue Regulations 5-87 provides: were made.  However. While the pertinent provisions of the Tax Code and the rules and regulations  Refers to the local sale of goods and properties by a VAT-registered person or a person implementing them require entities engaged in business to secure a BIR authority to print or entity who was granted direct and indirect tax exemption under special laws or invoices or receipts and to issue duly registered invoices or receipts. it filed an application for tax refund/credit of the input VAT is an indirect tax. except the transitional paid shall be submitted together with the application. What is as purchaser. is a tax on consumption of goods. what is important with respect to the BIR authority to print is that it has been secured or obtained by the Contex Corporation vs. the petitioner is not the proper party to claim such VAT refund Respondent. As export sales. and that invoices or receipts are duly registered. the only way to verify whether the invoices or receipts are duly registered is 3. to the extent that such input tax has not been applied against the output tax. services. such as the income tax. These sales invoices or receipts issued by the supplier are necessary to substantiate the actual Failure to do so makes the person liable under Section 26452 of the NIRC. The VAT. As such.  Printing the ATP (Authority to Print) on the invoices or receipts is not a requirement for the grant of refund A "sales or commercial invoice" is a written account of goods sold or services rendered indicating the prices charged therefor or a list by whatever name it is known which is used in the The ATP need not be reflected or indicated in the invoices or receipts because there is no law or ordinary course of business evidencing sale and transfer or agreement to sell or transfer goods regulation requiring it. In adding or including the VAT due to the selling price. an indirect tax. the respondent failed to substantiate its claim Silicon Philippines v. the invoices or  One where the taxpayer transacts with an entity exempt from indirect tax provided that receipts would have no probative value for the purpose of refund. 50-2007) required that the BIR authority to print be reflected or indicated therein. The taxpayer must be engaged in sales which are zero-rated or effectively zero-rated. or lessor to the buyer. the seller remains the person primarily and legally liable Page | 26 . duly registered invoices or receipts evidencing zero-rated sales must be presented. 3. thus. In this case. like tax exemptions. and A photocopy of the purchase invoice or receipt evidencing the value added tax 4. no tax is chargeable to it The amount of tax paid may be shifted or passed on by the seller to the buyer. The original copy of the said input tax. transferee or lessee. a mining corporation duly organized and existing under Philippines laws. Manila Mining Corporation on to it by its supplier since such is a zero-rated sale on the part of the supplier. Under Section 112 (A) of the NIRC. or leased may be shifted or passed on by the seller. Section 238 of the NIRC expressly requires persons engaged in business to secure an ATP from the BIR prior to printing invoices or receipts. tax credit. However.  Tax refunds. CIR For a judicial claim for refund to prosper. Respondent’s sales of gold to the Central  What was shifted to Contex as the purchaser is merely the burden and not the Bank amounted to P200M. failure to print the ATP on and services. Thus. or certain transactions involving the  The export sale is zero-rated same. The creditable input tax due or paid must be attributable to such sales. the invoices or receipts should not result in the outright denial of a claim or the invalidation of A "receipt" on the other hand is a written acknowledgment of the fact of payment in money or the invoices or receipts for purposes of claiming a refund. 2. which charges no output VAT but can claim a refund of or a tax credit certificate for the input The claimants have the burden of proof to establish the factual basis of their claim for refund or VAT previously charged to it by suppliers. a claimant must be engaged in sales which are zero-rated or effectively zero-rated. is registered with the BIR as a VAT-registered enterprise. It must Requisites for Refund (Section 112A of NIRC) substantiate the input VAT paid by purchase invoices or official receipts. it is not specifically international agreements (RMC No. transferor. Indeed.

If exports of goods and services from the Philippines to a foreign country are free of the VAT. Total relief is given to the purchaser from the burden of the tax How to classify transaction between Seagate and its buyers? IMPORT! Page | 27 . Seagate Technology rule holds for such exports from the national territory -. Next step is to know if Seagate is VAT-registered.except specifically declared areas -.  Petitioner is registered as a NON-VAT taxpayer and cannot claim for the tax So does this mean that Seagate cannot claim for refund of input vat in its transactions credit with its buyers? Petitioner is exempt from VAT. properties or services related to such zero-rated sale shall be available as tax Respondent's exemption under both PD 66 and RA 7916 effectively subjects such transactions to credit or refund in accordance with these a zero rate.to an ecozone. Seagate is allowed to deduct input vat from the output vat. Primarily intended to be enjoyed by the Intended to benefit the purchaser who. it is not allowed any tax credit on  NO! VAT (input tax) previously paid. at the point of the sale. What is shifted only to the intermediate buyer and ultimately to the Seagate also passes input vat to its buyers. Effectively Zero-Rated Seagate is located in an ecozone which under the law is considered a separate customs ZERO-RATED EFFECTIVELY ZERO-RATED territory. Under the cross-border principle. This means that in such zone is created the legal The VAT is removed at the exempt stage All VAT is removed from the zero-rated fiction of foreign territory. person. Seagate also sells products to its buyers. It is the petitioner’s suppliers who are the proper parties to claim the tax credit and Remember one of the requirements of Sec 112 for a claim of refund is that the input vat must accordingly refund the petitioner of the VAT erroneously passed on to the latter. of input taxes that are attributable to export How to classify transaction between Supplier and Seagate? sales.for the payment of the tax. A zero-rated sale by a VAT-registered RA 7916 does not exempt transaction from VAT but exempts Seagate from VAT. which is a taxable transaction for Therefore. then the same CIR v. Tin Zero-Rated vs. However. It now claims for a refund. not seller who is directly and legally liable for being directly and legally liable for the Under Sec 112: the claim for refund of an unutilized input tax is that the input tax must have the VAT.e. will ultimately bear the arisen from a zero rated or effectively zero rated transaction. activity or firm. under RA 7916. Every sale from the supplier to Seagate is Rate does not yield any tax chargeable against the purchaser classified as export sale. shall not result in any output tax. which is zero-rated. because the ecozone within which it is registered is managed and operated by regulations the PEZA as a separate customs territory. no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. VAT (input tax) previously paid. Export sale of goods and supply of service Sale of goods or supply of services to persons or entities whose exemption under Input taxes were passed on by supplier to Seagate. suppliers. be attributable to either a zero-rated or an effectively zero-rated transaction. barter or goods. meaning the transaction or VAT-exempt party not subject to VAT (output tax) tax burden is not passed on to the purchaser. competitive by allowing the refund or credit burden of the tax shifted by the suppliers. rated transaction since this is an import sale. As an exempt VAT taxpayer.. exchange of the goods or properties). making such seller internationally payment of the VAT. (i. Tax Rate is Zero Seagate is located in a separate customs territory. VAT purposes. But this input vat is not attributable to zero final purchaser is the burden of the tax. Seagate should special laws or international agreements be exempt from national and local taxes except as to preferential tax. effectively subjects such transactions to a zero rate. It is a VAT-Exempt party so it cannot be directly or indirectly liable for the output vat. Input tax should not have been passed to Seller can claim a refund of or a tax credit certificate for the VAT previously charged by Seagate. Seagate is a VAT-exempt entity. it is The sale of goods or properties and/or These are sales by VAT-registered persons important to know if transactions between Seagate to buyers involve VAT-exempt services and the use or lease of properties is which are subject to 0% rate. Hence. Seagate paid for to which the Philippines is a signatory unutilized input tax. Since Seagate is VAT-Registered. Here is when you differentiate between a VAT-Exempt Transaction and a VAT-Exempt Entity VAT-EXEMPTION ZERO-RATED SALES A VAT-exempt party can avail of input vat IF it is a VAT-registered entity. The seller is not allowed any tax credit on The input tax on his purchases of goods. It creates the legal fiction of being in a foreign state. Summary made by Atty.

while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite.— Sales made by a VAT-registered person in the customs territory to a PEZA-registered entity (in xxxx this case. Philippines is a signatory. in which case it shall also be zero-rated. it goes taxpayer.usually in a foreign country -. its VAT registration liable for the payment of it as it is exempt in this particular transaction by operation of law to pay papers and photocopied documents attached thereto. Thus. but Party is also not subject to the VAT.for The proviso in P. by extending the exemption to entities or individuals dealing with PAGCOR. therefore. as well as compliance with the invoicing requirements. is sufficient for the effective zero rating of the transactions of a taxpayer. not upon the transactions themselves. as for the End point: Since Seagate is an exempt entity. EXEMPT TRANSACTION EXEMPT PARTY Goods or services which. transferee. can be shifted or passed to the buyer. Whether the payment was made. VAT. in casino operations. is different from its transactions which are not Acesite as the latter is effectively subject to zero percent rate under Sec. PAGCOR is undoubtedly exempt from such taxes because the law exempts from of or credit for any input taxes paid input taxes paid. Acesite tried to shift the said taxes Page | 28 . The non-taxability of transactions that are otherwise taxable is merely a necessary incident to the tax Indeed. The nature of its business and Thus. or lessee of same result the goods. these shall be subject to 0 percent. is clearly to proscribe any indirect tax. like VAT. and its sales cannot be subjected to Output VAT. it cannot be subjected to VAT. grants the latter an exemption from exempt or not . international agreement to which the without regard to the tax status . 8424. The unmistakable conclusion is that PAGCOR is not liable for the VAT and neither is Respondent. the indirect tax. unless the purchaser is exempt from the indirect  There was erroneous payment of taxes burden of the VAT. PAGCOR] for casino operations. A person or entity granted VAT exemption  PAGCOR’s tax exemption privilege includes the indirect tax of VAT to entitle are specifically listed in and expressly under the Tax Code. it does not matter since the entity itself is exempt from refunded. can be recovered or transaction is an exempt transaction or not. or services subject to VAT.A. transaction exempt from the VAT. Seagate) are considered exports to a foreign country. 108 [b] [3] of R. the latter is not transactions can easily be perused from. a special law or an Acesite to zero percent (0%) VAT rate exempted from the VAT under the Tax Code. depending on its taxes persons or entities contracting with PAGCOR in casino operations.D. the provision clearly exempts PAGCOR from indirect taxes. Although. as already clearly indicated in. but may Although the law does not specifically mention PAGCOR’s exemption from indirect the seller is not allowed any tax refund be allowed a tax refund of or credit for taxes. extending the exemption to entities or individuals dealing with PAGCOR use or consumption outside the Philippines. It must be noted that the indirect Nonetheless. Acesite incurred from its rental income and sale of food and beverages to PAGCOR during said period. The end result. 1869.of the party to the which its taxable transactions become the payment of taxes.D.  Solutio indebiti applies to the Government Enshrined in the basic legal principles is the time-honored doctrine that no person shall unjustly enrich himself at the expense of another. which as an entity is exempt. as amended (now Sec. Exempt Party to PAGCOR by incorporating it in the amount assessed to PAGCOR but the latter refused to pay the taxes on account of its tax exempt status. It goes without saying that the Government is not CIR vs. by their nature. the charter creating PAGCOR. as in the instant case. There is erroneous payment of taxes when a taxpayer pays under a mistake of fact. which provides: Tax Implication of Seagate’s Transactions Transactions subject to zero percent (0%) rated. 1869. the exemption conferred by law upon it as an entity. is that it is not subject to the VAT. legislature clearly granted exemption also from indirect taxes. exempt. by extending the tax exemption to entities or individuals dealing with PAGCOR in casino operations. that may be shifted to PAGCOR. In fact. ACESITE HOTEL CORP exempted from the application of this doctrine Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel along United Nations Avenue in Manila. previously paid to the suppliers because it is a VAT-registered entity. one step further by granting tax exempt status to persons dealing with PAGCOR in casino operations. its exemption as an entity and the non-exemption of its transactions lead to the tax of VAT. It leases its hotel’s premises to the Philippine Amusement and Gaming Corporation [hereafter. conversely. Its purchases cannot instance in a case where he is not aware of an existing exemption in his favor at the time the be subjected to an input VAT.  VAT exemption extends to Acesite A VAT-registered status. however." Such payment is held to be not voluntary and. sales by a PEZA.VAT. it is exempting PAGCOR Difference with the case of Contex: Seagate can claim for a tax refund of the input tax it from being liable to indirect taxes. properties. 8424). registration as a VAT or nonVAT differently worded. If entered into with a purchaser for use or consumption in the Philippines. (3) Services rendered to persons or entities whose exemption under special laws or registered entity (Seagate) to a VAT-registered person in the customs territory are deemed international agreements to which the Philippines is a signatory effectively subjects the supply of imports from a foreign country such services to zero (0%) rate If Seagate enters into such sales transactions with a purchaser -. R. and by virtue of It is undisputed that P. 108 B (3).A. Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code. Transaction is not subject to the VAT. then these shall subject the purchaser to 10 percent (now 12%).Exempt Transaction vs.

Moreover.(1) Subject to the provisions of Subsection (2) hereof. hence. its main object is The legislative intent. No. except Presidential Decree Thus. Exempt Transactions. which reads: and regulations of the BSP.9% of Marcopper. No." Page | 29 . engaged the services of Placer Dom Technical Services Philippines (PD Philippines). These services must be regularly conducted in from exemption from the payment of corporate income tax. the Court holds that the provision subjecting PAGCOR to 10% (1) Processing. No. 9337. No. Its services. exports are zero-rated. the omission or removal of PAGCOR the course of trade or business in the Philippines. HELD: The CIR invokes the destination principle.A. the BSP. the performance of all kinds of services conducted in require PAGCOR to pay corporate income tax. Instead. more concretely. 1869. the following transactions shall be exempt from the value-added tax:  Services are exemptions from the cross-border principle xxxx General Rule: the VAT system uses the destination principle as a basis for the jurisdictional (k) Transactions which are 'exempt under international agreements to reach of the tax. As an indirect tax on services. future liability" In this case. No. it did not amend the portion of Section 108 (B) (3)  “The use of a thing in a way that thereby exhausts it. is to the transaction itself or. The VAT is a tax on consumption "expressed as a percentage of the value added to goods or services" purchased by the producer or taxpayer. a non-resident when determining the service "location or position for legal purposes. 9337. PD Philippines filed for a claim for tax credit/refund and contends that its sale of services to Placer Dome Canada was zero-rated.A. Not being excepted.A.A. PDI destination is determined. the exemption is supported by type of service with the consumption of its output abroad.A.37 Petitioner is exempt from the payment of VAT. 16-2005.A. law does not imply that the service be done abroad in order to be zero-rated. R. services cannot be physically used in or bound for a specific place when their Makalupnit and BOAC Rivers in Marinduque which was affected by its mining operations. consideration. the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules R. having been performed in the Philippines. It undertook to clean-up and rehabilitate the Unlike goods." that subjects to zero percent rate services performed by VAT-registered persons to persons  Applied to services. PAGCOR v. No. as shown by the discussions in the Bicameral Conference Meeting. 9337 is clear only as to the removal of petitioner's acceptable foreign currency and accounted for in accordance with the rules and regulations of exemption from the payment of corporate income tax. Placer Dome Inc (PDI) owns 39. 9337. petitioner is no longer exempt from corporate income tax as it has been effectively omitted from the list of GOCCs that are exempt from it. Although R. manufacturing or repacking goods for other persons doing business outside the VAT is invalid for being contrary to R. No. expressed in the maxim: exceptio firmat regulam in casibus non exceptis Yet even as services may be subject to VAT.A. No. usually resulting in the performer's release from any past or Philippines is a signatory effectively subjects the supply of such services to 0% rate. The aforementioned Section 102(b) of the 1986 NIRC activates  It is still exempt from VAT such zero-rating on two categories of transactions: As to the validity of RR No. the services rendered by respondent are performed or successfully completed upon its sending to its foreign client the drafts and bills it has gathered from service establishment s VAT on Services here. there can only be a "predetermined end of a course" engaged the services of Placer Dome Technical Services Limited (PD Canada). 9337.D. Nowhere in R. No. amending Section 27 (c) of the National Internal Revenue Code  The tax credit/refund must be allowed of 1977. while rendered to a non-resident foreign corporation. the term means the performance or "successful completion of or entities whose exemption under special laws or international agreements to which the a contractual duty. Under Section 1 of R.A. because PAGCOR’s charter. 9337 itself exempts petitioner from VAT. which the Philippines is a signatory or under special laws. our tax laws extend the benefit of zero-rating the VAT due on certain services.  It is no longer exempt from corporate income tax . 9337 introduced amendments to Section 108 of R. is a Confusion in zero rating arises because petitioner equates the performance of a particular special law that grants petitioner exemption from taxes. are not destined to be consumed abroad. 8424 by imposing VAT Consumption: on other services not previously covered. BIR foreign corporation in Canada which. No. and not exempt under the Tax Code. while imports are taxed. 8424." for a valuable exempted from payment of corporate income tax excludes all others. in turn. other special laws. P.A. are therefore also consumed in the CIR v. Goods and services are taxed only in the country where they are consumed. . and (2) Services other than those mentioned in the preceding subparagraph. No. contending that Placer Dome Philippines’ services. The express mention of the GOCCs this country. Placer Dome Technical Services Philippines. or any international petitioner PAGCOR must be regarded as coming within the purview of the general rule that agreement. 529. where the services are paid for in petitioner can be subjected to VAT. which retained Section 108 (B) (3) of R. ISSUE: Whether or not PAGCOR is still exempt from corporate income tax and VAT with the enactment of R. GOCCs shall pay corporate income tax. The consumption contemplated by Section 6 of R.A. No. 9337 is it provided that Philippines which goods are subsequently exported. undertaken in "pursuit of a commercial or an economic activity.

American Express Ejusdem Generis Inapplicable Transactions subject to zero percent (0%) rate. manufacturing or repacking of goods" as mentioned in the provision. Its facilitation service is performed in the Philippines. manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported. for the supply of service to be zero-rated as an exception. the transactions respondent entered into with its Hong Kong-based client meet all Interpellations on the subject in the halls of the Senate also reveal a clear intent on the part of the these requirements. VAT rate for services that are performed in the Philippines. health care. administrative interpretation by reenactment clearly obtains. currency and accounted for in accordance with the rules and regulations of the [BSP].The law clearly provides for an exception to the destination principle. carried on over a sustained period of time. ‘(1) Processing.to name only a few. the principle of legislative approval of that is accounted for in conformity with law. re-enforced. it should be zero-rated. the law clearly provides for an exception to the destination principle. Indeed. information services focus on data technology. no common denominator to the exclusion of all others which is paid for in acceptable foreign currency and accounted for in accordance with the rules characterizes these three services. respondent. such service is commercial in nature. The legislature is presumed to have reenacted the law with full knowledge of the contents of the Respondent’s Services Exempt from the Destination Principle revenue regulations then in force regarding the VAT. 1. broader meaning. Undisputed is the fact that such service meets the statutory condition that it be paid in acceptable foreign currency duly accounted for in accordance with BSP rules. The service fall under any of the categories in Section 108(b) of the Tax Code. respondent regularly renders in the Philippines the service of facilitating the “Senator Herrera: What is important here is that these services are paid in collection and payment of receivables belonging to a foreign company that is a clearly acceptable foreign currency remitted inwardly to the Philippines” separate and distinct entity. Legislative Approval By Reenactment fortuitous or attenuated." Thus. Clearly. Second. It falls under the second 3. Under the last paragraph quoted above. the law merely requires that: currency accounted for in accordance with BSP rules and regulations. "paid for in acceptable foreign we have mentioned earlier are. foreign currency and accounted for in accordance with the rules and regulations of the Bangko followed by the general phrase "and other similar services. discernible class and are patently not of the same kind. for a zero percent Thus. computers. Thus. with a reasonable degree of frequency. respondent is not an entity exempt under any of our laws or international by Congress of a prior executive construction. on a significant scale. -.102-2(b)(2) of RR 7-95 as amended by RR 5-96. The scope of the word "services" in Section 102(b)(2) of the Tax Code is zero-rated. Upon the enactment of RA 8424. Nothing sets them apart from other and similar general and regulations of the [BSP]. are itself not restrictive. these three requirements for exemption from the destination principle are met by 2. consultancy. respondent definitely receives consideration in foreign currency rating of services under Section 102(b) of the Tax Code. therefore. CIR v. third. management. and not at random. messengerial work -. the consideration for producing written technical outputs." agreements. although the regulatory provision contains an enumeration of particular or specific words. the service fall under any of the currency and accounted for in accordance with the rules and regulations of the [BSP]. broad. the preceding phrase "as well as" is not meant to limit the effect of "and registered persons in the Philippines (other than the processing. which substantially carries over the particular provisions on zero Third. for categories in Section 102(b) of the Tax Code. for this service. "paid for in acceptable foreign the service be performed in the Philippines. where the services are paid for in acceptable First. The particular provisions of the regulations percent VAT rate for services that are performed in the Philippines. services performed by VAT. for a zero because they would carry out the legislative purpose. and. second. manufacturing or repacking of other similar services. that is. the statutory provision upon which this regulation is based is by currency and accounted for in accordance with the rules and regulations of the BSP. Aside from calling for the exercise or use of mental faculties or perhaps ‘(2) Services other than those mentioned in the preceding subparagraph. and most important. because it is a service other than "processing.The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate[:] The canon of statutory construction known as ejusdem generis or "of the same kind or specie" does not apply to Section 4. there is the regulatory intent to give the general phrase "and other similar services" a The law is very clear. First. it is not susceptible of narrow interpretation VAT Requirements for the Supply of Service Consumed Abroad" Not Required by Legislature Without doubt. when paid in acceptable foreign Third. The service be performed in the Philippines." Page | 30 . and to have approved or confirmed them However." goods for persons doing business outside the Philippines). Project studies involve investments or marketing. This principle means that "the reenactment of a statute substantially unchanged is persuasive indication of the adoption Finally. Zero Rating of "Other" Services Second.’" services that may involve advertising. engineering and architectural designs require creativity. that is. the law merely requires that first." such words do not constitute a readily Sentral ng Pilipinas (BSP). it be paid in acceptable foreign the supply of service to be zero-rated as an exception. and regulations. legislators not to impose the condition of being "consumed abroad" in order for services performed in the Philippines by a VAT-registered person to be zero-rated. It be paid in acceptable foreign currency accounted for in accordance with BSP rules category found in Section 102(b) of the Tax Code.

CONCEPT Persons or firms engaged in the processing of sardines. In the purchase. it already purchased ingredients so it has been subjected to input vat. the BIR. creditable against the output tax. CIR manufacturing of refined sugar. During that period of transition from non-VAT to VAT status. At the very beginning. whichever is higher. X buys the tuna from a be availed of. Main ingredient of this is tuna. is for the taxpayer to file a beginning inventory with the BIR RATE: 4% of gross value of purchases The language of Section 105 is explicit. equivalent to 4% of the Doctrine: There is nothing in Section 105 of the old NIRC that indicate that prior payment of gross value in money of their purchases of primary agricultural products which are used as inputs taxes is necessary for the availment of the transitional input tax credit. 1. shall be allowed a presumptive input tax. It precludes reading into the law that the transitional input tax credit is limited to the amount of VAT previously paid. materials and supplies. All that is required to their production. cooking oil and packed noodle-based instant meals. The law already presumes that the The term “goods and properties” includes “real properties held primarily for sale to customers input vat arising of the transaction is equivalent to 4% or held for lease in the ordinary course of business. materials and supplies" where actual payment of VAT  Cooking oil on the goods. "eight percent (8%) of the value of such inventory. there would have been no need to explicitly allow a claim  Sugar based on 8% of the value of such inventory. that in the case of real estate dealers. Under transitional input vat. Transitional Input VAT is not only limited to the improvement of real properties When X now sells the sardines. materials The transitional input tax credit operates to benefit newly VAT-registered persons. which shall be creditable against the supplies. and in the Fort Bonifacio Devt Corp v. credit serves to alleviate the impact of the VAT on the taxpayer. the transitional input tax output tax. the VAT- registered taxpayer is obliged to remit a significant portion of the income it derived from its sales Transitional input vat can be availed of by a newly registered taxpayer. This is a legislative act beyond authority of the CIR and the Secretary of Finance. This is distinguished from the second clause. whether or not it was actually paid. Transitional Input Tax Is the payment of input vat prior to registration a condition sine qua non before you can avail of transitional input vat? PRESUMPTIVE INPUT VAT  NO. So this transaction is subject to a presumptive input vat of 4%. this will be subject to VAT of 12% (output vat). as output VAT. Page | 31 . materials and supplies is assumed.Other Types of INPUT VAT: Can it still deduct the input vat it paid for its purchases prior to its registration?  Yes. whether or not and supplies equivalent to 2% of the value of such inventory or the actual VAT paid on they previously paid taxes in the acquisition of their beginning inventory of goods. He is at a RR 7-95 cannot limit the application and coverage of Section 105 (now Section 111(A) by stating disadvantage since he cannot deduct input vat from its output vat. "the  Milk actual value-added tax paid on the goods. FBDC is entitled to claim transitional input VAT based not only the improvements but also on the value of the entire real property TRANSITIONAL INPUT VAT and regardless of whether or not there was actual payment on the purchase price of the real property or not. the basis of the presumptive input tax shall be the improvements." the law does not contemplate the  Mackerels payment of any prior tax on such inventory. is utterly without basis in law. mackerel and milk. The contention that the 8% transitional input tax credit in Section 105 presumes that a previous Why are these products covered by presumptive input vat? tax was paid. fisherman. Had the intention of the law been to limit the  Packed noodles amount to the actual VAT paid. requires a transaction where a tax has been  Their main ingredient is agri-food products imposed by law." the implication is clear that under the first  Sardines clause. materials and such goods. Thus. Illustration: Lecture Note: The phrase “or actual vat paid” is considered a phrase imposing ceiling as to the amount that can X is a manufacturer of 666 Sardines. fisherman will not pass input VAT since agri-foods are exempt from VAT as being sold in their original state. subject Rationale of Transitional Input Tax: to the filing of an inventory. Presumptive Input VAT 2. The transitional input tax credit mitigates this initial diminution of the taxpayer’s income by affording the opportunity to offset the losses incurred through the Illustration: remittance of the output VAT at a stage when the person is yet unable to credit input VAT Amare already expects that its gross sales will exceed the threshold amount. materials and supplies. It is not a condition. CONCEPT A person who becomes liable to VAT or any person who elects to be VAT-registered shall. Before registration to payments. it can deduct. be allowed input tax on his beginning inventory of goods. When the aforesaid section speaks of When does Presumptive Input VAT apply? "eight percent (8%) of the value of such inventory" followed by the clause "or the actual value- Sale of the following: added tax paid on such goods.

and homes. If it also transacts with a nonresident client and the payment is through a foreign currency. the portion subject of refund under sec 112 is only the portion attributable to the zero percent transaction. is essentially based on the face of return it shows the excess payment. PROCEDURE RE: REFUND OF VAT (6) The input taxes claimed are attributable to zero-rated or effectively zero-rated sales. there is a need to comply Input vat would not only be related to the zero rated services but would also relate to those with the mandatory 120+30 days. in cases of mixed transaction. Necessarily. the CTA should have accepted either or both of these documents as evidence of were made payment regardless of any SPP’s zero-rated transactions supervening event The principle of solution indebiti applies to the government Note: Administrative claim for refund is required except if on The claim for tax credit or refund. Southern Philippines Power Corporation vs CIR Under the requirements mentioned in the above case. (3) The input taxes are due or paid. and 108(B)(1) Section 112 vs. the event transaction is subject to 12% vat. offices. the purpose is not to benefit the person legally liable overpayment to pay the tax. arising out of zero-rated transactions. Reckoning period Administrative Claim: from the close Both Administrative and of the taxable quarter when the sales Judicial Claims: from date of Consequently. transactions subject to 12% VAT (transactions with resident client). and c) Erroneous payment (9) The claim is filed within two years after the close of the taxable quarter when d) Penalties not provided by such sales were made. the refund must be proportionately distributed to those (1) The taxpayer is VAT-registered. the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations. Thus. claim Period for filing a Within 30 days judicial claim for Judicial claim may be The principle of solutio indebiti should govern this case since the BIR received something that refund  from the date of receipt of CIR simultaneously filed with the it was not entitled to. The government should not use decision if made within 120-day administrative claim. Mirant Pagbilao Corporation (4) The input taxes are not transitional input taxes. 2-year period applies only to the Yes. The only requirement is that it day period. (7) For zero-rated sales under Section 106(A)(2)(1) and (2). Only a preponderance of evidence is period. technicalities to hold on to money that does not belong to it. be filed within 2 administrative claim. In short. Section 112 Section 229 (8) Where there are both zero-rated or effectively zero-rated sales and taxable or Purpose of refund Refund of unutilized input vat Refund of OIEP exempt sales. BPO would make purchases for which it paid input vat.  from the expiration of the 120. the input taxes shall be proportionately allocated on the basis of sales b) Illegal payment volume. or needed to grant a claim for tax refund based on excess payment. Hence. 106(B). if no decision is made must be filed within 2 years Lecture Notes: within the 120-day period from date of payment regardless of supervening If a BPO transacted with a resident client. years? However. zero rate transaction over those which are not zero rated. Must judicial claim No. and the payment is through a foreign currency. In zero-rating a transaction. and the input taxes cannot be directly and entirely attributable to any a) Overpayment of these sales. CIR vs. this transaction is zero rated. it has to return the same. the reckoning date is the close of (5) The input taxes have not been applied against output taxes during and in the taxable quarter where the sale was made succeeding quarters. (2) The taxpayer is engaged in zero-rated or effectively zero-rated sales. 229 and (2). from having to shoulder the tax burden that ultimately would be shall Act on the passed to the public. Mirant Doctrine: on claims for refund under section 112. law Period for filing 2 years 2 years The law did not distinguish between an invoice and a receipt when used as refund evidence of a zero-rated transaction. those attributable to The following criteria governs claims for refund or tax credit under Section 112(A) of the NIRC: transactions subject to 12% vat would not be subject of refund. like SPP. Effectivity of Mirant Doctrine: September 12 2008 Page | 32 . but to relieve exempt entities like NPC which supplies electricity to Period when CIR 120 days None factories.

premature. Consider not the month where the transaction Under Section 112. Aichi Forging Company of Asia. Inc fatal to the filing of a judicial claim.: last day of filing The Court ruled that the administrative claim was timely filed while the judicial claim was 12/1/1999: claim was made. the filing of the said judicial claim with the CTA is premature. March 31 June 30 But NOTE! There was a simultaneous filing of both administrative and judicial claim. Applying the two -year period to judicial claims would render nugatory Aichi is engaged in processing of steel products. it is Important note: Do not count from the date of payment of Input VAT. San Roque Power Corporation Aichi now claims for refund for its unutilized input vat attributable to its effectively-zero rated San Roque Doctrine: exception to the 120 mandatory period transactions. Judicial claim: 4/10/2003 Page | 33 . it is not necessary that the judicial claim be filed within the 2 year period. This is not a claim for clear that Aichi timely filed its administrative claim within the two-year prescriptive erroneously paid input tax so the reckoning date is the close of taxable quarter where the sale period. was made. This requirement is only applied in Section 229 for claim for refunds of erroneously paid tax. San Roque: Two possible scenarios in Section 112:  Vat-registered  BOI-registered 1. the claim of Aichi must be denied for non-observance of the 120-day period Another note: If claim for refund is filed during the effectivity of Atlas Doctrine. July 1. it payment as taxable period. Prescriptive period for administrative claim: 2 years! Discussion by the Court Sept 30 1998. It pertains to input taxes. CIR issues decision before the lapse of 120 day period  NAPOCOR bought electricity from San Roque Reckoning date of filing judicial claim: [30 days] from the decision of CIR  Claiming for refund of unutilized input tax 2. CIR did not decide within 120days Admin claim: 3/28/2003 Reckoning date of filing judicial claim: [30 days] from the lapse of 120 days. which already provides for a specific period within which a also Vat-registered taxpayer should appeal the decision or inaction of the CIR. September 30 December Is it allowed? In this case.Prior to this. It is Section 112(D) of the NIRC. In this case. apply the date of Where the taxpayer did not wait for the decision of the CIR or the lapse of the 120-day period. remedies for premature filing. hence to the purchases made by the taxpayer. having simultaneously filed the administrative and the judicial claims. BUT SINCE it falls under sec 112. the last quarter was in September. was entered into but the close of taxable quarter when the sale was made. judicial claim will be dismissed on the ground of failure to exhaust administrative taxpayer. Aichi doctrine: 120+30 day period for filing a judicial claim is mandatory and The claim of Aichi that such non-observance is not fatal as long as both the administrative and jurisdictional judicial claim is filed within the 2-year prescriptive period is without legal basis.2002 up to Sept 30 2002: sales were made Sept 30 2004: Both admin and judicial claims were filed CIR vs. it is necessary that 120 day mandatory period be waited The sale being mentioned here is the sales made not by the taxpayer but the sales made to the Otherwise. Not from close of taxable quarter Sec 112 provides that the reckoning period of 2 years for filing a claim for refund is from close Effectivity of Atlas Doctrine: June 8 2007 of taxable quarter when sale is made 4/14/98: date of payment of Input Vat by MPC The input vat transactions here are until Sept 30 2002 1993-1996: Sales were made Close of taxable quarter: Sept 30 2002 Latest progress billing was on Sept 6 1996 When to file the claim: Sept 30 2004 Recall: 4 taxable quarters Sept 30 2004: claim for refund was filed. The 2 year Effectivity: October 6 2010 prescriptive period refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA. It has a pioneer status registered under BOI. what is applicable is the Atlas Doctrine: the two year period must be reckoned from date of payment. The 120 -day period is crucial in filing an appeal with the CTA. hence filed within the prescriptive period. The 120+30 day period is both mandatory and jurisdiction. Hence filed out of time. applying the Administrative Code which states that a year is composed of 12 calendar months instead of the Civil Code (a year is equivalent to 365 days). Sept 30 1996: last quarter When to file judicial claim? 30 days after the lapse of the 120-day period. On the other hand. The non-observance of the 120-day period is CIR vs.

there is no need for taxpayer to wait for 120 day period in filing of judicial However. Philex Mining Corporation vs CIR The CTA has no jurisdiction yet since there was no CIR decision yet to speak of. This is a general interpretative rule which can be availed of by taxpayers if they relied in must comply within 120+ 30day waiting period. The 30 day period would be meaningless if it falls within the 2yr prescriptive period December 31 2007: last day for filing administrative claim 3. the quarter when the sale was made filing was made in February. In this case. Note: On October 6 2010. Under BIR DA 489-03. Taxable quarters: March 31 Ordinarily. It must be denied on ground of failure to exhaust admin remedies by reason of premature filing. March 20 2006: Administrative claim was filed October 17 2007: Judicial claim was filed Other note: 2005: Taxable year Taxpayer here raised the atlas doctrine as a defense. Remember that the judicial claim claim. it was filed on time. February 14 2007: Judicial claim 2005: taxable year Three compelling reasons of the SC’s decision: 1. the Aichi doctrine is already applicable. December 31 2001: last taxable quarter: San Roque doctrine: Any judicial claim filed during effectivity of Administrative Issuance December 31 2003: last day of filing Administrative claim for refund (BIR DA 489-03) shall be entertained notwithstanding the non-compliance with the 120+30 day period March 28 2003: Administrative claim was filed. In this case. The denial Taganito Mining Corporaition filed a claim for refund for excessive input vat for year 2005 will become final and appealable. the judicial claim must have been filed around March to April. Sept 30 December 31 2001 In this case. In this case. claim was made on November 29 2006. the judicial claim was also filed on the same date. The 2-yr period does not refer to judicial claim for refund. The CIR is deemed to have denied the claim. It was filed within the 120 day period. The 120 day period refers only to the administrative claim December 31 2005: last quarter when the sale was made 2. the filing of the judicial claim should have been filed in August 2003 (120 Effectivity date of issuance: December 10 2003 to October 5 2010 days+30days from March).  Exporter of nickel oars  Vat registered The 30 day period is mandatory such that the claim must not be filed beyond the said period. judicial claim was already filed on March 28 2003. which violates the mandatory waiting period of 120+30 days. where the reckoning period is from the close of taxable From November. In  BOI registered this case there was a late filing of judicial claim for refund. March 31 2005 The Supreme Court held that Atlas Doctrine is not applicable. Applicable provision: Section 112. the claim was filed on march 20 2006. it must be complied with by the taxpayer. So still treated as a decision. the judicial claim was not denied despite being in violation of the mandatory waiting period. hence filed within the prescriptive period Atlas Doctrine effectivity: June 8 2007 up until the case of Mirant was promulgated The judicial claim has to comply with the mandatory 120+30 day period.For taxable period: 2001 For the judicial claim. CIR 120+30 days would fall on the month of August. Because Philex failed to comply. Consider the first quarter. Philex filed to elevate the claim of denial of CIR to CTA within the 30 day period [The inaction of CIR is deemed a denial]. The filing of judicial claim was premature. Only the administrative claim is required to be filed within the 2-yr period. hence it was filed on time. The atlas doctrine does not discuss Last day of filing of administrative claim: March 31 2007 the 120+30 period but the reckoning date of the 2-yr period (from the date of payment) In this case. its claim for refund shall be November 14 2005: Administrative claim denied. Page | 34 .  Mining Corporation  Claiming for Input VAT for sales made in 2005 Note: The inaction of CIR will be treated as denial which is considered a decision. The sale was made in 2001. November 29 2006: Amended administrative claim (the first administrative claim was erroneous) ***Period to appeal is mandatory in remedial law. Hence. the issuance in good faith. the judicial claim should not prosper for the failure to exhaust administrative June 30 remedies for premature filing. it is already proper to elevate the claim to the March 31 2005: First Taxable Quarter CTA. Since the right to appeal is a statutory privilege. there must be compliance with the 120+30 day mandatory period. the Taganito Mining Corporation vs. From March.  Mining corporation In this case judicial claim was filed beyond August since it was filed On October 17 2007. But in this case. When the 120- day lapsed without the CIR deciding on the claim.

The creditable input tax due or paid must be attributable to such sales. The claim must be filed within two years after the close of the taxable quarter when such sales were made. 2. 3. to the extent that such input tax has not been applied against the output tax. The administrative claim for refund must have been filed within two (2) years after the close of the taxable quarter when the importation or purchase was made COMPLIANCE REQUIREMENTS 1. CIR Requisites of credit/refund of input VAT on zero-rated sales: 1. 3. Is there double taxation?  No. The input taxes claimed must have been paid on capital goods. The taxpayer must be VAT-registered. and 4. The claimant must be a VAT registered person. and 4.) Quarterly Return  March 31: gross receipts from January to March  June 30: gross receipts from April to June  September 30: gross receipts from July to September  December 31: gross receipts from October to December Note: the gross receipts declared in the monthly return are also declared in the quarterly return. 2. Requisites of credit/refund of input VAT on capital goods: 1. Any payments made during the months covered by the Monthly Return can be credited to the liability at the end of the quarter. Silicon Philippines v. The input taxes must not have been applied against any output tax liability.) Monthly Return To be filed on those months not considered as end of the quarter month  January  February  April  May  July  August  October  November What shall be declared?  the gross receipts for such month 2. except the transitional input tax. The taxpayer must be engaged in sales which are zero-rated or effectively zero-rated. Quarterly return must be accompanied with summary list of sales and purchases Page | 35 .