TAXATION II l Atty.
Kim Aranas l For the exclusive use of EH 404 2016-2017
BUSINESS TAXES
BUSINESS TAXES
Different from income and transfer taxes in the sense that the
transactions entered into by a taxpayer are done in the ordinary course
of business and for profit
Two types of Business Taxes
1. Value Added tax
2. Other Business taxes
Important: These are characterized as indirect taxes as opposed to
income taxes, which are classified as direct taxes. Thus, as indirect
taxes, the burden may be passed on to the final consumer (although the
businessman/seller may shoulder the tax because he is the statutory
taxpayer).
Definition of Value Added Tax
The VAT is a uniform tax ranging, at present, from 0 percent to 12%
percent levied on every importation of goods, whether or not in the
course of trade or business, or imposed on each sale, barter, exchange
or lease of goods or properties or on each rendition of services in the
course of trade or business as they pass along the production and
distribution chain, the tax being limited only to the value added to such
goods, properties or services by the seller, transferor or lessor.
Distinction between “importation” and “exportation”
Rules:
A. Only importation of goods are subject to VAT (those that come into
the territorial jurisdiction of the Philippines)
B. If it is for export – still subject to VAT in the sense that if registered
as an “export enterprise”, you can avail 0% VAT. It is beneficial
because output and input tax can be claimed.
C. If engaged in export, but does not qualify for 0% VAT, considered
as an exempt transaction.
“Whether or not in the course of trade or business”
For importation, it is immaterial whether or not it is in the course of
trade or business. It is subject to VAT.
However, for sale, barter, exchange or lease of goods or properties or
on each rendition of services, it must be in the course of trade or
business.
Important: In the course of trade or business, includes regular and
incidental transactions. But does not include isolated transactions.
“The tax being limited only to the “value added” to such goods,
properties or services by the seller, transferor or lessor.”
“Value added” means the added value to the property of the seller.
Example: A bought a property from the manufacturer at 10 pesos. A
sold it to B at 15 pesos. The value added is 5. The tax is imposed only
on the 5 pesos value added. If it was also sold at 10 pesos, there would
be no VAT.
Laws governing VAT
1. EO 273 – effective January 1 1988
2. There was no VAT before, only SALES TAX.
3. Currently governed RA 8424 (1997 tax code) amended by RA 9337
(Expanded Value Added Tax Law)
4. RR 16-2011 – Implemented the E-VAT Law
5. Lawyers and doctors are now covered under the EVAT law
6. RR 3-2012
1|U N I V E R S I T Y O F S A N C A R L O S
Controversies regarding VAT LAW
Was it constitutional to increase the VAT from 10 to 12%?
SC said it was. The law itself delegated the power to the President.
ABAKADA Guro Party List v. Ermita
The validity of raising the VAT rate from 10% to 12% by the President
was upheld by the Supreme Court. It is not oppressive, arbitrary and
confiscatory as the taxpayer is not permanently deprived of his privilege
to credit input tax. Moreover, Congress also provided for mitigating
measures to cushion the impact of the imposition of the tax on those
previously exempt.
CROSS BORDER DOCTRINE
CROSS BORDER DOCTRINE/ DESTINATION PRINCIPLE
The VAT law adheres to the cross border doctrine/destination principle.
Goods and services are taxed only in the country where they are
consumed. If the goods go out of the country, and it is not consumed
here, it is NOT SUBJECT TO 12% VAT. If it is consumed in the country,
then subject to 12% VAT.
Is there a distinction between the Cross-border Doctrine and
the Destination Principle?
Essentially, both terms are the same. Technically however:
A. The Cross Border Doctrine (CBD) does not subject to VAT goods,
properties or services beyond the territorial borders of the
Philippines
B. Destination principle exempts from VAT goods, properties, or
services destined for consumption outside the country
Important: Thus, the CBD does not necessitate actual consumption of
goods, properties or services outside the Philippines. CBD has something
to do with the territorial borders of the Philippines WHILE Destination
principle involves consumption of goods.
Exceptions to the destination principle:
CIR v. American Express
The court enumerated the exceptions to the destination principle:
1. The service is performed in the Philippines
2. The service falls under any of the categories provided in Section
102 (b) of the Tax Code
3. It is paid in acceptable foreign currency that is accounted for in
accordance with the regulations of the BSP.
ITEMS COVERED UNDER E-VAT LAW
ITEMS COVERED UNDER E-VAT LAW
NON-FOOD agricultural marine and other forest products in their original
state by the primary producer or owner of the land. This provision has
to be distinguished from SEC 109 (a) of the NIRC which refer to EXEMPT
TRANSACTIONS FROM VAT. It reads:
Relevant provision
SEC. 109. Exempt Transactions.
Sale or importation of agricultural and marine food products in their
original state, livestock and poultry of or king generally used as, or
yielding or producing foods for human consumption; and breeding stock
and genetic materials therefor.
Sec 109 particularly exempts from VAT agricultural and marine FOOD
PRODUCTS in their original state for human consumption. NON-FOOD
Products are not exempt from VAT
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017
Examples:
1. A “mango fruit” is exempted from VAT because it is an agricultural
food product.
2. Lumber or timber, while it is an agricultural food product, it is
NON-FOOD. Thus, it may be subject to VAT (subject to
requirements on registration, and threshold)
3. “Sale of cut tulips” is subject to VAT because it cannot fall under
the exemptions under sec 109. Exemptions are construed strictly
against the taxpayer. Tulips ARE NOT FOOD.
4. Cotton and cottonseeds in their original state are now covered
under the VAT law
5. Coal or natural gas in whatever form or state
6. Petroleum products including raw materials for their production
7. Electricity
8. Sale of the artist of his works of art
9. Musical compositions
10. Services by doctors licensed by the PRC
11. Lawyers who are members of the IBP
12. Differentiate this from Sec 109 (d) and (i) because it presupposes
an employer-employee relationship. If this is the case, THERE IS
NO VAT. Only INCOME TAX.
13. Common carriers by air and sea as to transport of passengers by
air and sea (Take note: Only AIR and SEA)
14. Carriers of land are not subject to VAT because they are subject
to Common Carriers tax which is a form of OPT.
15. Toll road operations (Case of Timbol)
16. Electricity from transmission, generation, and distribution
companies
17. Sale by electric cooperatives including importation of, spare parts,
machines and equipment
Important: When a particular transaction is subject to VAT. It is no
longer subject to other percentage tax. They are mutually exclusive.
HOWEVER, even if supposedly liable under VAT, but is not covered
(because could not reach required threshold for gross receipts) he will
be liable for OPT.
NATURE AND CHARACTERISTICS OF VAT LAW
NATURE AND CHARACTERISTICS OF VAT LAW
1. VAT a tax on the value added of the taxpayer
2. VAT is a transparent form of Sales tax
3. VAT collection is collected thru Tax credit method
4. No cascading of tax in VAT tax system
5. VAT is an indirect tax
6. VAT is regressive
7. VAT is a percentage tax
8. VAT is an excise tax
9. VAT is an ad valorem tax
VAT IS A TAX ON THE VALUE ADDED OF THE TAX PAPER
It is a tax on the value added of the taxpayer
Value added = sales less purchases
Both sales and purchases are subject to VAT during the taxable quarter .
A. Output VAT – The vat imposed in connection with sales
B. Input VAT – The vat imposed in connection with the purchases
Formula in computing for VAT
Output vat - Input vat = VAT payable of the seller
Example:
A purchased goods at 10 pesos and sold it at 20 pesos.
10 pesos multiplied by 12% = 1.2 (THIS IS INPUT)
20 multiplied by 12% = 2.4 (THIS IS OUTPUT)
2|U N I V E R S I T Y O F S A N C A R L O S
2.4 – 1.2. = 1.2
The 1.2 is basically the 12% added to the 10 pesos purchase cost.
Important: The taxpayer or the seller determines his tax liability by
computing the tax on the gross selling price or the gross receipts
(OUTPUT TAX) subtracted by the earlier VAT on the purchase or
importation or goods, or service (INPUT TAX).
A. If output greater than input = VAT liability
B. If output lower than input = treated as credit, carryover, or refund
Take note: VAT does not unduly burden the taxpayer because it is
really a burden on the financial consumer. It is an indirect tax. As for
the taxpayer, it is not a burden as well because there are provisions on
exempt transactions on basic necessities which are not subject to VAT.
Illustrative example: (See file name: CENTURY TUNA)
VAT IS A TRANSPARENT FORM OF SALES TAX
VAT is a transparent form of Sales Tax
Why? Because there’s a new requirement that VAT should be separately
indicated in the VAT invoice/receipt.
A. VAT invoice – supporting document in so far as sales of goods or
properties are concerned
B. VAT receipt – supporting document in so far as sale of services is
concerned
TN:
Gross sale – sale goods or properties
Gross receipt – sale of services
Prescribed format of official receipts:
1. Name of taxpayer
2. Tax ID
3. Indicate if VAT-registered
4. Date
5. Detail
6. Authority To Print
7. Publisher
8. Registration of Publisher
9. Tax ID of Printer
10. Breakdown (indicate what are the)
11. VAT-exempt sale
12. VAT-taxable sale
13. VAT zero-rated sale
14. how much is the 12% VAT
15. Amount due
In restaurants, you can ask for an official receipt. It should indicate that
it serves as an “OFFICIAL RECEIPT” and the DETAILS should be present.
Broad-based tax on consumption of goods, properties and
services in the Phil relate with “Destination” principle – tax
imports, zero-rate exports
A. In importation – following the destination principle, even if not in
trade or business as long as imported here in the Philippines under
the understanding that it will be consumed here, automatically it
will be subject to VAT.
B. In exportation – following the destination principle, with the
understanding that it will be consumed outside the country, you do
not subject it to VAT.
TN: “Consumption” goes hand in hand with “destination principle”
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017
VAT IS COLLECTED THROUGH TAX CREDIT METHOD
[Output tax on sales – input tax on purchases]
A. Tax credit method – input tax in relation to purchase are
deducted to the output tax in relation to sales transaction.
In contrast to:
B. Cost deduction method – the VAT paid will just form part of the
purchase cost and from that purchase cost, compute the VAT
payable.
NO CASCADING OF TAX IN VAT TAX SYSTEM
“Cascading” – tax on tax
Example: Manufacturer sells and charges 12%; Retailer charges 12%
again; and second retailer charges 12% again.
Important: SC laid down that it is not a tax on tax because GSP and
GR definition excludes VAT passed on by the sellers to the buyers. (PP
v. Tan, GR No. 15232, August 16, 2005) Allows the credit of “input tax”
against “output” tax applying the Principle of Recoupment of Tax.
Illustration:
Century Tuna sells it to you at P10.00, you paid P11.2 (including VAT).
But in ascertaining the profit, you do add profit at P10.00 (not on the
P11.2)
Relevant provision
Sec. 105(2). The term "gross selling price" means the total amount of
money or its equivalent which the purchaser pays or is obligated to pay
to the seller in consideration of the sale, barter or exchange of the goods
or properties, excluding the value-added tax. The excise tax, if any, on
such goods or properties shall form part of the gross selling price.
VAT should not be included in determining how much the GSP of the
customer is.
Tax –inclusive method” is adopted by the Philippines. VAT is
deemed included in total invoice amount in VAT invoice or
receipt
To get the VAT = Total Invoice Amount x
3 word in the exam. Use VAT taxable transaction instead.
28
TN: If problem is silent and it is computation, presumption is that the
price stated in the problem already includes the 12% VAT because we
follow Tax inclusive method.
VAT IS AN INDIRECT TAX
Indirect Tax (versus direct tax)
A. Impact of taxation – Seller (statutory taxpayer)
B. Incidence of Taxation – Final Consumer
Two aspects of taxation:
1. Impact of taxation – where tax is imposed
2. Incidence of taxation – the one who bears the burden
Forward passing versus Backward passing Sellers’ Market
versus Buyers Market
A. Forward passing – final consumer bears the burden
B. Backward passing – seller bears the burden
Seller’s market v. Buyer’s market
A. Seller’s market – Supply is higher. Forward passing happens here
B. Buyer’s market – Demand is higher. Backward passing happens
here.
3|U N I V E R S I T Y O F S A N C A R L O S
VAT IS REGRESSIVE
VAT is regressive
Tolentino v. Sec. of Finance
“Resort to indirect taxes should be minimized but not avoided entirely
because it is difficult if not impossible. In the case of VAT the law
minimizes the regressive effects of this imposition by providing 0-rating
or exemptions to certain transactions.”
Regressivity is not a negative standard for the courts to enforce
What Congress required by the Constitution to do is to “evolve a
progressive system of taxation? The provision is placed as moral
incentives t legislation and not as judicially enforceable rights.
The regressive effects are corrected by:
1. Zero rating of certain transactions
2. Exemptions
VAT IS A PERCENTAGE TAX
VAT is a percentage tax
Imposed by law directly not on the thing or service but on the act (sale,
barter, exchange, lease, importation, rendering service)
In re: Condominium corporation being subject to VAT (Although not
engaged in the sale, barter, exchange, service is rendered to the unit
owners)
VAT IS AN EXCISE AND AD VALOREM TAX
VAT is an excise tax
A tax on the privilege of engaging in the business of selling goods or
services, or in the importation of goods but unlike excise, it is not applied
only to a few selected goods
VAT is an ad valorem tax
The amount is based on the gross selling price on gross value in money
of goods and services
Ad valorem – after you ascertain the GSP or GR, add the 12% VAT
Important: “VATable” means VAT taxable transaction. Do not use this
TAXABLE TRANSACTIONS
TAXABLE TRANSACTIONS
1. Sale, barter, exchange or lease of goods or properties or similar
transactions, in the course of trade or business. Including Sale of
Real Properties
2. Sale of services or similar transactions in the course of trade or
business.
3. Importation of goods whether or not in the course of trade or
business.
1. SALE OF GOODS
The transaction must involve goods or properties. “Properties” cover
real or personal properties
It must be in the course of trade/business; otherwise it is not subject
to VAT. Regular conduct including incidental but not isolated
transaction whether non-stock, non-profit or government entity (Sec.
105)
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017

CIR v. Magsaysay Lines Inc. GR. No. 146984
Course of business
Is what is usually done in the management of trade or business. What
is clear therefore is that “course of business” or “doing business”
connotes regularity of activity. This pertains to the primary cause of
business
Related Case: CIR v. CA and Commonwealth Management & Services
Corp. GR. No. 125355, March 30, 2000
This actually involves the “NDC” a corporation run by the government
but because of the privation moved during the time of F. Ramos, the
vessels leased by NDC to its subsidiaries were sold to Magsaysay Lines
Inc. which involves 5 vessels. In that case, there was a bidding and
the highest bidder was Magsaysay lines, a contract of deed of sale was
made. Here comes BIR subjecting the sale to 10% VAT. The ruling of
BIR was that said vessels are ordinary assets of NDC and it is in the
ordinary course of business, its incidental. Because of the BIR ruling,
Magsaysay appealed to the Court of appeals, it said that the sale is not
anymore in the ordinary course of business because it is pursuant to
the privatation law which was passed by congress and the result is the
closure of the seller-NDC, hence, not on the ordinary course of
business instead an isolated transaction. Eventually it reach to the
Supreme Court discussed the nature of VAT and declared that it was
an Isolated Transaction.
Incidental Transactions
Included in the definition of “in the course of trade or business:
somehow related to the main business.
Recent BIR pronouncements:
RR 13-2012 on adjacent condominium units
Purchase of 2 condo units by 1 buyer even if there are 2 deeds of sale,
still has to be consolidated to ascertain if it exceeds the ceiling of
1,919, 500.
Author’s note: I think sir means 3,199,200 because condo man.
Nasayop ra cguro og ingon.
So recap, again this is only for Residential House and Lots or
Condominium units sold in the ordinary course of business. Because if
it is not in the ordinary course, it is subject to CGT. Real property must
be an ordinary asset to be subjected to VAT (capital asset – no VAT)
This is also on a per transaction basis. Not yearly. Because generally, a
business is only subject to vat is its gross annual sales exceeds
P1,919,500. But here, this is a per transaction basis. Meaning you
don’t look at how much is sold for the entire year, just look at the price
of the sale. So if you sell a lot for 500,000, it is not subject to VAT
even if the total annual sales is already P100M.
RMC 16-2012 vis-à-vis RMC 9-2013
– on condominium associations (Relate with RA 9904 – Magna Carta
for Homeowners & Homeowners assoc.)
subject to VAT

Isolated Transaction
Does not relate the main business not included in the definition above
mentioned.

Mindanao II Geothermal Partnership v. CIR/Mindanao I

Geothermal Partnership v. CIR. GR. No. 193301 & GR. No.
194637, March 11, 2013
This involves the sale of the Nissan patrol which was subjected to VAT.
Petitioners contend that it should not be subjected to VAT because it’s Not included in the graph is it is a sale in the ordinary course of
their capital asset. business. So ofcourse that is subject to VAT. So sales that are
incidental to the business are also VATable.
SC said it is ordinary asset because it’s recorded in books of accounts,
subject to depreciation
Taxpayer’s business is conversion of steam to electricity. DIFFERENT MODES OF SALE OF REAL PROPERTY
Sale of Nissan patrol – isolated or incidental.

SPECIAL RULES FOR RESIDENTIAL PROPERTIES

FOR SALE OF REAL PROPERTIES (HOUSE AND LOT)

OR CONDOMINIUMS (RESIDENTIAL DWELLING)

Subject to VAT if selling price exceeds P3,199,200

Some taxpayers use a tax avoidance scheme wherein the treat the
amount of the price in excess of 3,199,200 as miscellaneous charge so
they can avoid VAT. This has already been spotted by the BIR
{RR-3-2012}
There are different mode of paying for a Vatable sale of real property.
PURCHASE OF LOTS 1. Cash basis
If it has a value exceeding 1,919,500 it is subject to VAT. If two lots 2. Installment basis
are adjacent, their combined values must be taken into account. 3. Deferred payment basis

Authors Note: Author’s note:

If house and lot or condo, use the 3,199,200. This is important for you to know when to pay the VAT. Cash basis,
If lot only, use 1,919,500. you pay the VAT immediately for the entire purchase price.

For installment basis, you pay VAT everytime you receive money from
the buyer, so you don’t pay VAT for the whole sale right away.

4|U N I V E R S I T Y O F S A N C A R L O S
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017
Lastly, you have deferred payment basis. Mura ra ni siyag installment
kay dili bayaran daan. But the thing is, if you add all the payments
made by the customer including the downpayment and the
installments made on the first year after the sale, if it totals 25% or
more of the total price, it is no longer installment basis. It is already
deferred. So if it is already classified as deferred basis, treat it like a
cash basis and pay the VAT for the whole price immediately even if
you still haven’t received all the payments.
2. SALE OF SERVICES
E.g. Lease/rent exceeding the exempt amount; dining in a resto; lease
of motion picture, films, discs (only the lease of the film, it excludes
showing or exhibiting the film as it becomes subject to amusement
tax)
HOW TO DETERMINE IF SUBJECT TO VAT
1. First question. Determine if such transaction falls under the
taxable transactions.
a. If yes. Go to the second question, ascertain if it
exceeds to P1,919,500? or if not, if it is voluntarily
registered in VAT.
2. If answer is NO, then not subject to VAT but subject to
Other percentage tax (OPT)
3. If answer is YES, then subject to VAT.
If exhibiting the film, take note this amusement tax is different from
that collected by the local government. This amusement tax pertains
to OPT, as collected by the National Government.
TN: Dining in a restaurant, you did not purchase the food here. You
purchase the service of the restaurant. So if it is only the purchase of
roasted chicken, going back to the exempt transaction, and this is the
only provided transaction, this will be exempt from VAT. However, if it
were bought inside the restaurant, it will be subject to VAT since it is
already the sale of service.
EXCEPTION TO RULES ON VATABLE SERVICES
Services rendered by NON RESIDENT PERSONS – always treated as “in
the course of trade/business” hence always VATable.
Even if isolated: VATable.
Following the destination principle and even more the Cross-border
doctrine hence taxable (See Sec. 105) – EXCEPTION to RULE on
REGULARITY.
DOMESTICE CARRIERS
Persons Cargo
By sea or air VAT VAT
By land Common carriers tax (OPT) VAT
The reason is administrative feasibility, because it would be difficult
since this buses and taxis will have to issue an official receipt for VAT
transactions.
Author’s note:
So, if by sea or air and if by land for cargo, they are subject to VAT,
but only if they exceed 1,919,500. It’s not automatic.
While for carriers of passengers by land, always subject to 3% CCT
even if their sales exceed P100M.
Sale of electricity is subject to VAT.
Non-life insurance – 12% VAT
Life insurance – no VAT.
TN: not subject to VAT because LIFE is PRICELESS
5|U N I V E R S I T Y O F S A N C A R L O S
CIR v. Sony Philippines Inc.
Sony Phil engaged the services of several advertising companies; Due
to Sony Phil’s dire economic conditions, Sony Int’l Singapore handed
Sony Phil a dole-out to answer for the expenses payable to the
advertising companies;
Sony Phil was thereafter assessed deficiency VAT for the transaction
i.e. dole-out, between Sony Phil and Sony Int’l Singapore. The reason
for the BIR is that the dole-out is part of the incidental course of
business.
RULING: The Supreme Court ruled that the dole-out or subsidy from
the Singaporean company to the Phil Company neither constituted a
sale of goods or properties nor sale of services.
3. IMPORTATION
Importation of goods whether or not in the course of trade or business
or not is VATABLE.
Only importation of goods/properties, NOT service.
Exempt importation:
Personal household effects of balikbayan or to resettle in the
Philippines with exceptions.
Two cases of tax free Importations:
1. Importation of TAX free products regardless of the status of
the importer;
Subsequent sale is still VAT exempt.
2. Importation of taxable products but exempted due to status
of VAT exempt importer.
Subsequent sale to a VATable buyer is subject to
VAT. Whether or not made in the course of trade
or business.
AN: So in the first, if the original buyer/importer sells it further to
somebody else, the sale would still be exempt because the exemption
is within the item itself. But if it is in the 2nd, the subsequent sale
would be subject to VAT because the exemption was only on the
original importer.
In relation to importation, recall the two territories- the Custom zone
and PEZA zone. If you are a business entity and you locate in the
economic zone (PEZA), presumption is that you already registered with
PEZA. Under PEZA, you can avail two famous tax incentives;
1. First, you can avail the income tax holiday whether 4 years
(if non-pioneer) or 6 years (if pioneer) where you will not be
subject to taxes,
2. Second you can avail the 5% tax in lieu of all taxes. A PEZA
registered entity, either way, you are deemed exempt from
VAT but you are exempted as an entity. So if you purchase
VATable property, the supplier cannot imposed VAT to you
by reason that you are a VAT exempt entity, however if you
sold these properties outside the economic zone to a
VATable entity, then it will be subject to VAT provided that
the property itself is not exempt from VAT.
TN: It is not a requirement for a PEZA entity is located under Mactan
economic zone, the only requirement is that the place is a PEZA
registered location. E.g 2 quad and Keppel.
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017

WHEN SUBJECT TO VAT ZERO RATED GOODS AND PROPERTIES (SEC. 106 A)
1. Export Sales (refer to SEC. 106, Tax Code);
GR: Persons whose gross annual sales or receipts during any year or in a. Actual Export
any 12-month period exceed P1,919,500 (RR-16-2011) or even If b. Sale of Raw Materials or Packaging to a Non-
sales/receipts do not exceed but REGISTERED under the VAT system. resident buyer for delivery in the Philippines
Formula: c. Sale of Raw Materials or Packaging to a Export
Output Tax XXX Oriented Business
Less: Input tax XXX d. Sale of Gold to BSP
VAT Payable/ (Excess Input Tax) XXX e. Sales under the Omnibus Investment Code and
other special laws
VAT is imposed in addition to Excise Tax (Title VI, NIRC) f. Sale of goods, supplies, equipment and fuel to
those engaged in international shipping or
Non-VAT Transactions international air transport operations.
Transaction is subject to Other Percentage Tax (Title V, NIRC); VAT 2. Foreign Currency Denominated Sale;
will no longer be imposed. 3. Sales to persons or entities whose exemption under special
laws or international agreements to which the Philippines is
Tax is imposed on Gross Receipts or Gross Income a signatory effectively subjects such sales to 0% rate.

Some transactions are not subject to any kind of business tax – VAT or
EXPORT SALES
OPT (e.g. sale of agri food products in its original state; sale of books;
etc)
A. ACTUAL EXPORT - SEC. 106 A.2.A.(1)
Classification of VAT Transactions 1. Pertains to actual shipment abroad;
1. VAT taxable transaction: 12% OR 0% a. (NOTE: Not just Raw materials/packaging
2. Exempt Transactions materials only. Any item)
2. Paid in acceptance foreign currency or its equivalent;
3. Accounted in accordance with rules and regulations of BSP
(need not go through BSP);

Do not take into consideration the shipping arrangement i.e. FOB

shipping point/destination.

FOB Shipping point, ownership is transferred to the buyer upon

shipment. If FOB destination, Ownership is transferred to the buyer
upon reaching the destination.

WHAT IF THE GOODS WERE EXPORTED NOT BECAUSE THEY

WERE SOLD BUT JUST FOR CONSIGNMENT?
Avail ZERO rated transaction if there is already sale. In consignment,
there is no sale yet of the goods. So if there is still no sale, no zero
rating.

B.SALE OF RAW MATERIALS - SEC. 106 A.2.A.(2)

Sec. 106 A(2)(a)(2). Sale of raw materials or packaging materials to

a nonresident buyer for delivery to a resident local export-oriented
enterprise to be used in manufacturing, processing, packing or
repacking in the Philippines of the said buyer’s goods and paid for in
acceptable foreign currency and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP).

Sale of raw or packaging materials to non-resident buyer;

Shipment is in the Philippines only to the resident export-oriented
(REO) enterprise;

This REO enterprise converts/use it in manufacturing, packing or

repacking;

Same requisite as in (1) – foreign currency payment in accord to BSP

rules.

6|U N I V E R S I T Y O F S A N C A R L O S
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017

As to the Must be in Must be in No

1st type 2nd type
mode of an an requireme
 There’s ACTUAL  NO ACTUAL shipment
payment acceptable acceptable nt.
shipment; (constructive export)
foreign foreign Reason:
currency duly currency duly because it
 pertains to ANY  Limited to RAW or
accounted accounted is sold to
goods; PACKAGING
for in for in local
materials;
accordance accordance resident
with the with the export-
 We don’t care if  Buyer must be non-
rules of the rules of the oriented
the buyer is resident.
BSP BSP enterprise
resident or not as
long as it goes
Similarity to the 2nd:
outside the
- Deemed export sale because the raw material or packaging
country.
material forms part of the finished output and there’s a
presumption that these finished outputs will have to shipped
Distinction of the 1st and 2nd type: out or exported outside the country.
- It is also need not be located in an economic zone.
Basis for saying there’s no actual shipment in the 2nd type: Because it is
to be delivered to resident export-oriented enterprise.
D.SALE OF GOLD TO BSP - SEC. 106 A.2.A.(4)
Is it a requirement that it must be paid in foreign currency? YES. Refer Zero rated only if the sale is to BSP
to codal provision above. Purpose to encourage people to sell it to BSP to augment the countries
reserves
When are you considered to be a resident export-oriented
enterprise? For the sale of silver, diamonds and other precious materials are not
When your export sales exceed 70% of your total annual production. zero-rated. it may be subject to VAT.

When we talk of export-oriented enterprise, is it a requirement that you
should be located in an economic zone? NO.
T.N.: When you start your business during the registration process at
SEC, you should already declare that you are an export-oriented
enterprise (Form F-100)
C.SALE TO EXPORT ORIENTED ENTERPRISE - SEC. 106
A.2.A.(3)
 Sale of RM or packaging materials to export-oriented
enterprise;
 Export sales exceed (not equal!) 70% of total annual
production;
“may be” because it is still subject to threshold. If the gross
sales/receipts do not exceed the threshold, then no VAT but subject to
OPT (3% business tax). If it exceeds, then it is already subject to VAT.
What if initially, you paid the 3% business tax (as when in a mining
business) because you didn’t expect that you will be mandatorily
covered under the VAT law, what will happen if your gross sales exceed
1, 919, 500? Of course, you will pay the 12 % VAT. But what will happen
to the 3% you already paid? Note: it pertains to precious metals other
than Gold.
- RR-5-2013: Advance Payment of Business Tax. You can
claim the advance payment of 3% business tax as tax credit
as far as your tax liability is concerned. This is to encourage
these people mining these precious metals to declare correct
gross sales.

The sale is deemed as constructive export (RM/PM forms part of the

product to be exported by the buyer) E.EXPORT SALES UNDER THE OMNIBUS - SEC. 106 A.2.A. (5)
Investments Code of 1987 & other special laws. (constructive exports)
Need not be in the economic zone; may be anywhere 1. Sales to Bonded Manufacturing Warehouses of Export
Need not be paid in foreign currency Oriented Manufacturers
2. Sale to export processing zones
Distinctions: 3. Export traders operating bonded manufacturing warehouse
1st type 2nd type 3rd type 4. Sales to diplomatic missions and other agencies including
sales to embassies and consulate
As to All Sale of raw Sale of
5. Sec. 106 A.2.a. (6) – Sale of goods, supplies, equipment and
goods or encompassin or packaging raw or
fuel to those engaged in INTERNATIONAL sipping or
property g materials packaging
INTERNATIONAL air transport operations. (RA 9337)
sold materials
6. The sale covers GSEF transporting goods or passengers from
As to the No specific- Sold to non- Sold to an Philippine Port directly to a foreign port without any
buyer ation resident export- stoppage in the Phil.
oriented 7. Pertains to sale for outbound transport. What if
enterprise purchase/importation?

F. SALE OF GOODS, SUPPLIES, EQUIPMENT AND FUEL TO

THOSE ENGAGED IN INTERNATIONAL SHIPPING OR
INTERNATIONAL AIR TRANSPORT OPERATIONS.

The exportation covers GOODS, SUPPLIES, EQUIPMENT and FUEL (G-

S-E-F) to international shipping or international air transport – deemed
Constructive Export.

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TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017

ZERO-RATED SALES UNDER SPECIAL LAWS AND

 Transports goods or passenger from Philippine port directly to a
foreign port without any stoppage in the Philippines. [Nigawas
directly from the Philippines]
Take note: importation made by an international shipping or
international air transport are exempt from VAT (not zero-rated) But this
only covers GOODS, SUPPLIES AND FUEL (G-S-F). Equipment is not
included. Sec. 109 (U)
Reason: “mahalon” ang equipment.
INTERNATIONAL AGREEMENTS.
Sec. 106 A(2)(c). Sales to persons or entities whose exemptions under
special laws or international agreements to which the Philippines is a
signatory effectively subjects such sales to zero rate.
- The zero-rating becomes “effective” because of the special
law or international agreement they entered into.

Examples of entities which the Philippines has international agreement:

FOREIGN CURRENCY DENOMINATED SALE
Sales to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory
effectively subjects such sales to 0% rate.
 Asian Development Bank (ADB)
 International Rice Research Institute (IRRI)
Provided by special law:
 RA 7916 – Granting Philippine Economic Zone Locators and
Companies within these PEZA Zones Indirect Tax Exemption

The phrase “foreign currency denominated sale” means sale to a

nonresident of goods, except those mentioned in Section 149 and 150,
assembled or manufactured in the Philippines, paid for in acceptable
ZERO-RATED SERVICES
foreign currency and accounted for in accordance with the rules of the
Bangko Sentral ng Pilipinas (BSP).
ZERO-RATED SALE OF SERVICES
First three types of export sales as compared to FCDS:
Sec. 108 (B). Transactions Subject to Zero Percent (0%) Rate. – The
following services performed in the Philippines by VAT-registered
persons shall be subject to zero percent (0%) rate:
1st type, 2nd type and 3rd type Foreign Currency
of EXPORT SALES vs. Denominated Sales
(1) Processing, manufacturing or repacking goods for other
(FCDS)
persons doing business outside the Philippines which goods
DIFFERENCES are subsequently exported, where the services are paid for in
As to 1st: acceptable foreign currency and accounted for in accordance
 There’s ACTUAL  NO Actual with the rules and regulations of the Bangko Sentral ng
SHIPMENT; Shipment; Pilipinas (BSP);
 No requirement as to  The buyer must
who will be the buyer; be a (2) Services other than those mentioned in the preceding
nonresident; paragraph rendered to a person engaged in business
nd
As to 2 : conducted outside the Philippines or to a nonresident
 Limited only to raw and  NOT limited to person not engaged in business who is outside the
packaging materials; raw and Philippines when the services are performed, the
packaging consideration for which is paid for in acceptable foreign
materials; currency and accounted for in accordance with the rules and
As to 3rd: regulations of the Bangko Sentral ng Pilipinas (BSP).
 It need NOT be paid in  It must be paid in
foreign currency; foreign currency;
SIMILARITIES (3) Services rendered to persons or entities whose exemption
As to 1st and 2nd: under special laws or international agreements to which the
 These must be paid in  Must be paid in Philippines is a signatory effectively subjects the supply of
foreign currency; foreign currency. such services to zero percent (0%) rate;
As to 2nd type:
 Buyer is a nonresident.  Buyer is a
nonresident. (4) Services rendered to persons engaged in international
EXCEPTION to FCDS: Sec 149 and 150. shipping or International air-transport operations, including
If the property that you bought falls under Sec. 149 and 150, even if the leases of property for use thereof;
buyer is a non-resident paid for in acceptable foreign currency
accounted in accordance with the BSP rules, will it be zero-rated?
- NO. Meaning, it will not fall under the foreign currency (5) Services performed by subcontractors and/or contractors in
denominated sale provision in the tax code. processing, converting, or manufacturing goods for an
- Exception to the exception: automobiles not considered enterprise whose export sales exceed seventy percent (70%)
as automobiles under the tax code (Sec. 149 [a]): of total annual production;
o Buses, trucks, cargo vans, jeeps/jeepneys/jeepney
substitutes, single cab, chassis, and special-
purpose vehicles. (6) Transport of passengers and cargo by air or sea vessels from
o The enumerated are covered under zero-rated the Philippines to a foreign country; (Added by R.A. No. 9337)
transactions. and

8|U N I V E R S I T Y O F S A N C A R L O S
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017

(7) Sale of power or fuel generated through renewable sources VAT-exempt transaction VAT Zero-rated transaction
of energy such as, but not limited to, biomass, solar, wind,
hydropower, geothermal, ocean energy, and other emerging
energy sources using technologies such as fuel cells and  No need of  Registration is a
hydrogen fuels. (Added by R.A. No. 9337) registration; requirement;
 No pass on or  No pass on or shifting
Note: More or less the same with export sales but in this section, it shifting of the of the VAT;
involves labor. VAT;  Can claim tax input;
 Follows tax-credit
In the first, the product is subsequently exported. What if the product  Can’t claim tax method (output-input);
was not subsequently exported? input;  the relief of the
- It falls under the next sale of service as long as it satisfies taxpayer is total
with the other requirements under no. 2.  Follows cost- because the VAT
- Actually, no. 2 is a fallback provision if it would not meet under deduction passed on by the
the first sale of service. method; manufacturer to the
zero-rated VAT-
T.N.: In practice, when you have clients abroad and they have matters  The relief of the registered entity (he
to be settled in the Philippines, one way of avoiding VAT is to advise taxpayer only can recover as input
them to remit their payment in foreign currency. Provided, you are a partial because VAT)
VAT-registered. we only use here
the cost-deduction
In nos. 3-5, same with sales of goods but this pertains to the labor method. Your tax
aspect. shield is only up
to the amount
In addition to that (nos. 6 & 7): decreased in your
- Transport of passengers and cargo by air or sea from tax payable.
Philippines to foreign country (outbound);

- Sale of power or fuel through renewable energy source Situation:

including fuel cells and hydrogen fuels;
“sale or exchange of services” Just see Sec.108(A) because it has a
very long definition.
To summarize the zero-rated sale of service:
1. The sale of service must be performed in the Philippines;
2. Must be a VAT-registered entity. Otherwise, you will be
exempt.
3. There is no such thing as actual export as compared to sale
of goods or properties. So everything is “effectively” zero-
rated. Meaning, not automatic. You still need to get a
certification from the BIR.
Distinguish VAT-exempt transaction from Zero-rated transaction:
Mikmik Corp., a VAT-registered entity sold fuel to Gilson Corp., a
corporation engaged in international shipping but not VAT-registered.
Inadvertently, Mikmik Corp. shifted 12% VAT to Gilson which was paid
by the latter. Thereafter, Mikmik Corp. remitted the 12% VAT collected
to the BIR. (Mikmik is in the Philippines while Gilson is international).
May Gilson Corp. claim for VAT input refund on the 12% VAT passed
to it considering it’s a VAT exempt entity because it is engaged in
international shipping?
- NO. Gilson Corp. is not VAT-registered. So there’s no way that
it can claim VAT input in the first place.
- Gilson is not the proper party to ask for the refund because
remember, it is an indirect tax. Gilson is the buyer, he is not
the statutory taxpayer.
Difference between automatic zero-rating and “effective” zero-rating:

Automatic Zero-rating “Effective” Zero-rating

 It generally  applicable on
applies to actual exemptions under
export. special laws or
 the tax is at 0%; international
 the seller charges agreements to which
no output tax but the Philippines is a
can claim refund signatory;
or tax credit  the seller charges no
certificate for the output tax but may
tax previously still claim input tax
charged by therefore it may result
suppliers (output to a refund or tax
– input). credit.
 This applies to
indirect or
constructive sales i.e.
sale to export-
oriented enterprise or
foreign currency
denominated sale.

9|U N I V E R S I T Y O F S A N C A R L O S
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017
TRANSACTIONS DEEMED SALE
- The purpose is to recapture the input tax that was previously
claimed before the deemed sale transaction
1. Transfer, use or consumption not in the ordinary course of
trade or business of goods and properties originally intended
for sale or for use in the course of trade or business.
2. Distribution or transfer to shareholders, investors basically
involving property dividends and creditors involving
properties for sale
The property must be originally intended for sale.
Two situations (1) distributions or transfers to shareholders or
investors and (2) payment of debt to creditors.
Situation 1 contemplates of property dividend and stock dividends. For
stock dividends, only of securities of dealer because if you are not then
the stocks distributed are not ordinary assets.
Illustration: Maricris Colina is engaged in the business of dried
mangoes manufacturing/trading. She is indebted to Mr. Largo for
P100,000 at 6% interest per annum. Foreseeing that she might not be
able to pay on time, she proposed that she will pay with her dried
mangoes valued at P150,000. The creditor gladly accepted it.
A. Will the transaction be subject to VAT? Yes, transaction deemed
sale.
B. If so, how much is the tax base? 150,000
C. What if the dried mangoes she paid is value only at P90,000, how
much is the tax base? 90,000 value of the mango
What if she rendered service, is it VATable? Not subject to VAT if she
is not ordinarily engaged in that kind of service.
3. Consignment of goods if the actual sale is not made within
60 days from the date of actual consignment
Not the same as sale for the consignor just left the goods for the
disposal of the consignee and there is no transfer of ownership
Consignment excludes physical change to the product (e.g. flour to
bread)
Reckoning point is the date of consignment whether sold or not
The one liable is the consignor/deemed seller (the consignee is
deemed buyer)
Remedy:
(1) return the goods prior to the lapse of the 60-day period or
(2) withdrawal by consignor and reconsign it.
for return no need of physical or actual return for as long as there is
proper documentation as to the renewal of consignment
4. Retirement from or cessation of business with respect to
inventories of taxable goods
- Presupposes there are inventories left.
- Retirement/cessation encompasses:
Stoppage of business
Change in business form (sole proprietorship to
partnership/corporation)
10 | U N I V E R S I T Y O F S A N C A R L O S
Merger/consolidation
Change in business activity from VAT registered to
VAT-Exempt
The remaining inventories already formed part of previous purchases
to which input tax has been claimed.
Change in business activity from VAT taxable status to VAT exempt
status or VAT-registered to being VAT-exempt is treated as cessation
of operation.
Possible grounds (1) optional VAT registration only or (2) reasonable
ground to believe that for any 12-month period, he cannot reach the
threshold.
Approval of a request for cancellation of registration
a. Reversion to exemption status
b. Desire to revert to exempt status, after the lapse of
years of voluntary VAT registration
c. Failed expectation to reach the ceiling from
mandatory registration
OUTPUT TAX
RATES:
1. 12% Standard Rate
i. 12% of sales of goods/services less sales returns,
allowances, discounts
ii. 12% of total value plus customs duties, excise
taxes, other charges (if importer)
2. 0% or Zero Rated VAT Rate for zero rated transactions
INPUT TAX
1. 12% Standard Rate from (1) local purchases, (2) importation
(Sec. 110)
2. 0% Zero Rated VAT Rate for zero rated transactions
3. 2% Transitional Input Tax or 12% actual input tax rate – if it is
the first time that you are covered under the VAT law you may avail of
this rate which is applied to the value of the goods existing at the date
persons commences business and/or becomes liable to VAT (Sec. 111-
A)
- 2% of value of beginning inventory, materials, supplies on hand OR
Actual value of VAT paid, whichever is higher.
- Applies only to VATable purchases with substantiation for the 12%
actual input tax is used but if 2% transitional input tax is used, no
proof is necessary for actual payment of input VAT.
- May be applied when a VAT exempt taxpayer becomes VAT-
registered (mandatory) or voluntarily registered.
4. 4% Presumptive Input Tax – of the value of amount paid
applied to purchases of VAT exempt goods used as inputs
manufacturing or processing “certain” food products by a VAT
registered taxpayer (Sec. 111-B)
- Only if used in process Sardines, Mackerel, Milk, Noodle-based
instant meals, Cooking Oil, Refined Sugar (SM2-NCR)
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017
- Processing is defined as pasteurization and canning activities which
alters the physical form, texture or inner substance of a product due to
physical or chemical process.
- for a special purpose which it could not have been used in its original
state.
5. 5% Final Withholding Tax (FWT) rate vis-à-vis Creditable
Withholding VAT (WVAT) (Sec. 114)
- these are to be withheld by the payor
5% Final Withholding VAT applies if the buyer is the Government,
agencies of the Government or GOCC for the reason of expediency of
collection (lifeblood)
- No more credit or deduction on the output tax of seller (7% is
deemed as the standard input VAT)
- Transaction must be VATable. The 5% is not declared as part of the
seller’s gross sales/receipts.
- If actual input VAT is greater than standard input VAT, you may
claim it as expense or cost.
- If actual input VAT is less than standard input VAT, you may claim it
as a reduction of your expense or cost.
Creditable Withholding VAT – payments for VATable purchase of
goods or services from Non-resident supplier/sellers.
- Withheld at source by the payor (purchasers within the
jurisdiction of the Philippines)
- Payor is either a domestic corporation or a resident person.
- Seller is a non-resident supplier/seller.
- 12% is withheld even for isolated transaction
- To be remitted in 10 days to BIR
- If zero-rated, the withholding payor may still claim the
remittance as input tax and avail of tax credit/refund.
Note: If payor is non-resident while seller is domestic or resident, no
creditable. The seller is liable for the payment of VAT.
6. Excess input tax credits
PERSONS EXEMPT FROM VAT
i. Those engaged in transactions EXEMPT from VAT
ii. Those who entered in transactions incidental to VAT-exempt
activities
iii. Those who entered into ISOLATED transactions
TAX EXEMPT TRANSACTIONS
Difference between persons exempt from VAT and VAT Exempt
Transactions:
Persons exempt from VAT is directed on the taxpayer on reason that
the seller is exempt while VAT exempt transaction pertain to
transaction which are VAT exempt regardless of the seller.
(A) Sale or importation of agricultural and marine food
products in their original state, livestock and poultry of a kind
generally used as, or yielding or producing foods for human
consumption; and breeding stock and genetic materials
therefor.
11 | U N I V E R S I T Y O F S A N C A R L O S
"Products classified under this paragraph shall be considered
in their original state even if they have undergone the simple
processes of preparation or preservation for the market, such
as:
a. freezing,
b. drying,
c. salting,
d. broiling,
e. roasting,
f. smoking or
g. stripping
Note: Includes vacuum packing/tetra packing
Polished and/or husked rice, corn grits, raw cane sugar and molasses,
ordinary salt, and copra shall be considered in their original state;
o Sale or importation of agricultural, marine food products in their
original state.
Examples:
 EGGS: exempt whether red-egg or salted egg. Salting does
not deviate the food product from its original form
 ROASTED CHICKEN: Exempt
 COFFEE BEANS: Exempt
 DRIED FISH: Exempt
 COTTON or COTTON SEEDS: VATable even in its original
state
 COPRA: Exempt
 PETROLEUM PRODUCTS: VATable
 ELECTRICITY: VATable
 DRIED MANGOES: VATable
 SUGAR: Only Raw cane Sugar is VAT exempt. Refined sugar
is already VATable.
There is an entire revenue regulation devoted to the payment of VAT
on sugar. It is actually called the “Advance Value Added Tax” that you
pay on every sugar that the sugar miller produces. So it is not totally
exempt unless it falls under raw cane sugar or molasses.
Cane sugar produced from the following shall be presumed to be
refined sugar:
1. Product of a refining process
2. Product of a sugar refinery, or
3. Product of a production line of a sugar mill accredited y the BIR to
be producing and/or capable of producing sugar with polarimeter
reading of 99.5% and above
 RICE: It is exempt in whatever form. Either it is palay, rice
or cultured rice.
(B) Sale or importation of fertilizers; seeds, seedlings and
fingerlings; fish, prawn, livestock and poultry feeds, including
ingredients, whether locally produced or imported, used in the
manufacture of finished feeds (except specialty feeds for race
horses, fighting cocks, aquarium fish, zoo animals and other
animals generally considered as pets);
Pertains solely to the ingredients of the feeds, not ingredients of the
fertilizer
(C) Importation of personal and household effects belonging
to the residents of the Philippines returning from abroad and
nonresident citizens coming to resettle in the Philippines:
Provided, That such goods are exempt from customs duties
under the Tariff and Customs Code of the Philippines;
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017
Applies only to the citizens of the Philippines, both resident citizens
and non-resident citizens.
There is a qualification that the household or the personal belongings
must be exempt from Customs Duties
As to when considered exempted, we will discuss it under the Tariff
and Customs Code
(D) Importation of professional instruments and implements,
wearing apparel, domestic animals, and personal household
effects (except any vehicle, vessel, aircraft, machinery other
goods for use in the manufacture and merchandise of any kind
in commercial quantity) belonging to persons coming to settle
in the Philippines, for their own use and not for sale, barter or
exchange, accompanying such persons, or arriving within
ninety (90) days before or after their arrival, upon the
production of evidence satisfactory to the Commissioner, that
such persons are actually coming to settle in the Philippines
and that the change of residence is bona fide;
The fourth exemption is not limited only to personal and/or household
effects, this includes professional instruments and implements as well
as even domestic animals
This is different from letter (C) because third exemption is only limited
to the citizens of the Philippines
 First condition, this applies to all types of persons provided
that particular person comes here to resettle in the
Philippines. Of course it is a matter of declaration of
presenting sufficient proof to the Commissioner that the
purpose of coming here bringing all these things is to
resettle
 Second condition, these items must accompany the person
arriving here in the Philippines or must arrive within a period
of 90 days before or after the date of arrival. It can be
shipped by a courier but it must arrive within a period of 90
days before or after the date of actual arrival or together
with the persons coming to resettle in the Philippines.
Exceptions: this provision does not include vehicles, vessels, aircraft
machinery and other goods for commercial purposes
 This means that the exempted goods should only be for
personal use or personal consumption
 If you want these items to be exempted, you cannot
rely on section 109 under VAT Law because these are
not exempted, but you can still claim for exemption
under special laws or international agreements
 For example, consuls, ambassadors or international
organization officers, you can rely PD529 for them to be
exempted
 Take Note: the exemption is not automatic, you must
first declare it to the BIR and get a certification from
the Bureau that that particular vehicle, aircraft, goods
or machinery that you bring to the Philippines is
exempted under that particular special law
Example:
After her divorce with Danrey, a US citizen in New
York, Anne Sing (I think naa ni sa slide nga
example)
Question: Is the importation of the laptops and
the law books subject to VAT?
Answer: It is exempted from VAT. If Anne Sing is
a Filipino, she is not subject to VAT under (D)
because these are under professional instruments
or implements. They cannot be in (C). Even if
Anne Sing is not a citizen, it would still be under
(D). It cannot be in letter (C) because it is only
12 | U N I V E R S I T Y O F S A N C A R L O S
limited to personal and household effects. But you
do not just stop there, there should be always that
condition that the purpose of coming here is to
resettle in the Philippines and these laptops and
law books arrived together with Anne Sing Ray or
90 days before or after her date of arrival.
Question: How about the car?
Answer: Of course, the car is considered a vehicle.
It is not exempted.
(E) Services subject to percentage tax under Title V;
 VAT is also a percentage tax, so percentage tax can never
be imposed twice.
 Under Title V: it is specifically specified under each
provision of the OPT.
 Example: land carriers or overseas dispatch
 We will discuss this when we reach OPT.
(F) Services by agricultural contract growers and milling for
others of palay into rice, corn into grits and sugar cane into
raw sugar;
 In letter (A), original state of the agricultural and marine
food products. We’ve said that basically if you read the
entire provision on exemptions, you will notice there that
what are exempted from VAT are the basic necessities. You
have the food, medication, education, shelter etc.
 Now, that exemption of the millers and growers is basically
related to the first exemption, exempting the agricultural
food products.
 For example, for the rice. Like what I said, it would be
useless if you do not exempt the fertilizer that is used to
grow the rice and if you also do not exempt the milling of
the rice. Otherwise, VAT would still be passed on.
 In (B), same reason in connection with the (A) exemption.
(G) Medical, dental, hospital and veterinary services except
those rendered by professionals.
 We are actually referring here to the hospital facility of the
medical or hospital services availed. This is another basic
necessity health.
 The laboratory services are still part because they are still
conducted under the service given to you.
 Medications from the pharmacies operated by the hospital:
 if it is an in-patient (those admitted in the hospital)
purchasing the medicine, it is exempt from VAT
because that is considered part of the hospital service
 if it is an out-patient purchasing the medicine, it may be
subject to VAT. It is still maybe because an out-patient
services, you still look if it exceeds the threshold of the
gross sales within the taxable year. Otherwise, it will be
subject to business tax as the case may be.
 Except those rendered by professionals: it refers still to the
medical, dental, veterinary services rendered by those
engaged in private practice. They may be subject to VAT.
May be because of the threshold.
 However, if that doctor or practitioner is under an
employee-employer relationship with the hospital, they are
exempted from VAT. They are still considered part of the
hospital services and under an EE-ER relationship.
(H) Educational services rendered by private educational
institutions, duly accredited by the Department of
Education(DepED), the Commission on Higher Education
(CHED), the Technical Education and Skills Development
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017
Authority (TESDA)and those rendered by government
educational institutions
 Another basic necessity which is education.
 If private educational institution, it must be duly accredited
by:
 CHED - tertiary
 DepEd - primary and secondary
 TESDA - vocational
 Government educational institutions – no need to discuss
because it is understandable why it is exempted
 What if these educational institutions, because they cannot
impose output tax because they are not VATABLE, purchase
from a supplier passed on VAT to the educational institution.
Can they claim it as input VAT?
 The educational institution cannot avail of the tax credit
method because it is exempted. The recovery will only
be up to the cost-deduction method. It will just form
part of the purchase cost or the cose of operation of
that exmept entity.
(I) Services rendered by individuals pursuant to an employer-
employee relationship;
 It is not for business purpose. You do not subject it to
business taxes like VAT.
(J) Services rendered by regional or area headquarters
established in the Philippines by multinational corporations
which act as supervisory, communications and coordinating
centers for their affiliates, subsidiaries or branches in the
Asia-Pacific Region and do not earn or derive income from the
Philippines;
 They do not earn any income in the Philippines. They do not
do any business in the Philippines. Therefore, they are not
subject to business tax, exempted to VAT.
(K) Transactions which are exempt under international
agreements to which the Philippines is a signatory or under
special laws, except those under Presidential Decree No. 529;
 The difference with the third type of zero-rated sale of
goods or properties pertain also to international agreements
or special laws to which the Philippines is a signatory. There
has to be a specific provision that that particular transaction
indicated in that special law or international agreement is
effectively zero-rated. If there is no specific agreement that
it is effectively zero-rated, the least burdensome then it falls
under 109.
 When it comes under an exemption from VAT, it must be
expressly provided
 When it comes under a zero-rated transaction, it must also
be expressly provided
(L) Sales by agricultural cooperatives duly registered with the
Cooperative Development Authority to their members as well
as sale of their produce, whether in its original state or
processed form, to non-members; their importation of direct
farm inputs, machineries and equipment, including spare
parts thereof, to be used directly and exclusively in the
production and/or processing of their produce;
 Take Note: the exemption pertains to the entity and not the
product
 The exempted entity here is an agricultural cooperative duly
registered with the CDA
 You have to take into consideration what is exempted here.
When it comes to the sale, the exemption is only to the sale
13 | U N I V E R S I T Y O F S A N C A R L O S
of their produce whether in their original state or processed
form to non-members. When we talk about agricultural
cooperatives, they can also act as retailers or resellers of
other entities’ produce or product. So as it is, when they act
as retailers or resellers not there own produce, then it is not
already considered exempted from VAT.
 If we say agricultural cooperative
a. it must be registered to the CDA
b. if the sale pertains to the sale to members or the sale
to non-members.
 If sale to members, whether or not it is the
produce of the agricultural cooperative, it will
be exempt.
 If the buyer is a non-member:
 Product of the agricultural coop:
exempt from VAT
 Non-produce: not exempt, may be
subject to VAT (subject to
threshold)
 Their importation of direct farm inputs, machineries and
equipment, including spare parts: it must be used DIRECTLY
and EXCLUSIVELY for production and processing of their
produce
 Strictly interpret it because it is an exemption
(M) Gross receipts from lending activities by credit or multi-
purpose cooperatives duly registered with the Cooperative
Development Authority;
 It is provided under the Cooperative Development Act
 Credit and multi-purpose
(N) Sales by non-agricultural, non- electric and non-credit
cooperatives duly registered with the Cooperative
Development Authority: Provided, That the share capital
contribution of each member does not exceed Fifteen
thousand pesos (P15, 000) and regardless of the aggregate
capital and net surplus ratably distributed among the
members;
 Non-agricultural, non-electric and non-credit coops – their
sales are exempted
 It is the electric cooperative that it is not exempted. Under
the eVAT law, it is subject to VAT. It follows that the
transmission or sale even by an electric cooperative is not
anymore exempted.
(O) Export sales by persons who are not VAT-registered;
 For the export seller or transferor to avail for the zero-rated
transaction, it must be VAT registered.
 If the transactions enumerated sill qualify under sec. 106,
but not VAT registered, then this is the fallback provision.
 Otherwise, if they are VAT registered it is subject to zero-
rated transactions.
(P) Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or
business or real property utilized for low-cost and socialized
housing as defined by Republic Act No. 7279, otherwise
known as the Urban Development and Housing Act of 1992,
and other related laws, residential lot valued at One million
nine hundred nineteen thousand five hundred pesos
(P1,919,500) and below, house and lot, and other residential
dwellings valued at Three million one hundred ninety nine
thousand two hundred pesos (P3,199,200) and below:
Provided, That not later than January 31, 2009 and every
three (3) years thereafter, the amount herein stated shall be
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017
adjusted to their present values using the Consumer Price
Index, as published by the National Statistics Office (NSO);
 Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or
business – it is exempted from VAT because it is subject to
Capital Gains Tax. They are classified as capital assets.
Ordinary asset subject to VAT.
 Can VAT and CGT be imposed together? No. VAT only
applicable to ordinary asset and not capital asset.
 Income Tax and VAT in sale of real property? Yes. Ordinary
asset if you are engaged in sale of real property asset. You
are considered a habitual seller of real property when you
sell exceeding real properties even if not registered.
 Ordinary asset but not subject to VAT, if it is low-cost
housing or socialized housing
 Real property utilized for low-cost and socialized housing
 Low-cost housing: it does not exceed P3 million
(for the homeless)
 Level 1: 450,000 to 1,250,000
 Level 2: exceeding 1,250,000 to P3
million
 Socialized housing: it does not exceed P450,000
 The one considered exempt is the developer or dealer
 The sale: residential lot valued at One million nine hundred
nineteen thousand five hundred pesos (P1,919,500) and
below (not exceeding P1,919,500)
 The sale house and lot, and other residential dwellings
valued at Three million one hundred ninety nine thousand
two hundred pesos (P3,199,200) and below (not exceeding
P3,199,200)
 Sale of condominiums: considered as other residential
dwellings
(Q) Lease of a residential unit with a monthly rental not
exceeding Twelve thousand eight hundred pesos (P12, 800):
Provided, That not later than January 31, 2012 and every
three (3) years thereafter, the amount herein stated shall be
adjusted to its present value using the Consumer Price Index
as published by the National Statistics Office (NSO);
 When it comes to lease of residential units, it is residential.
 If it is an office space or commercial unit and the lease is
under P12,800, it may be subject to VAT or OPT.
 Residential unit: this refers to apartments, houses and lots
use for residential purposes. Buildings or units thereof, used
solely as dwelling places. For example, dormitories, rooms
and bed spaces.
 Except motels, motel rooms or hotels. This is because it
is only transient. You are actually referring to the
purchase of service. (Include also pension house)
 If you allow monthly rentals, what will prevail is the
registration.
 General rule: lease of properties real or personal is subject
to VAT regardless of the place of execution of the contract
of lease. So long as the properties are in the Philippines
 Exception: the lease of residential units and lease does not
exceed P12,800
 Check RR 16-2011
 First question, is it a residential unit. If not a residential
unit, there is no use of ascertaining the rental.
 If yes: Second question, check the monthly rental and if
exceeds P12,800.
 If no: automatic it is exempted regardless of the aggregate
amount.
 If yes (exceeds P12,800): third question – if the aggregate
amount exceeds P1,919,500
 If yes – VATABLE
 If no – subject to the 3% OPT under section 116
14 | U N I V E R S I T Y O F S A N C A R L O S
 To be subject to VAT:
a. the monthly rent must exceed P12,800 per unit
b. the total aggregate threshold will exceed P1,919,500
 Treatment of advance payment: (1,2,3 –slide)
 Generally, these are exempted from VAT
 Unless and until the loan from the lessor to the
lessee is applied as payment of the lease
 Unless and until the security deposit is used to
the payment of lease
 Then include in ascertaining the VATable amount
 Pre-paid rental: the moment the lessor receives the cash,
even if it is prepaid, it may be subject to VAT already.
(R) Sale, importation, printing or publication of books and any
newspaper, magazine review or bulletin which appears at
regular intervals with fixed prices for subscription and sale
and which is not devoted principally to the publication of paid
advertisements;
 Only those primarily used for education, religious etc. –
exempted
 Those books published for commercial enterprise essentially
for advertising purposes, it may be subject to VAT
 Primary condition is not primarily devoted to paid
advertisement
 Religious items – may be subject to VAT
 eBooks: may be exempted in one BIR ruling provided it
follows the condition
(S) Transport of passengers by international carriers;
 international carriers: no qualifications if international
shipping or international air transport
 provided origin is the Philippines directly going abroad
 no stopover anywhere in the Philippines
 must be carriers not passengers
(T) Sale, importation or lease of passenger or cargo vessels
and aircraft, including engine, equipment and spare parts
thereof for domestic or international transport operations;
 the exemption applies for passenger or cargo vessel
 age limit: 15 years old
 tankers
 age limit; 10 years
 high speed passenger crafts
 age limit: 5 years old
 must be within the age limit to be exempt
 Include domestic
(U) Importation of fuel, goods and supplies by persons
engaged in international shipping or air transport operations;
 Goods, fuel supplies (GSF): only those engaged in
international shipping or air transport operations
 Connect with sec. 106 zero-rated sale of service wherein
VAT registered if its sale of goods, supplies, equipment or
fuel to those engaged in international shipping or air
transport operations
 If exemption, only importation
(V) Services of bank, non-bank financial intermediaries
performing quasi-banking functions, and other non-bank
financial intermediaries; and
 Exempt from VAT because subject to Gross receipts tax
(GRT)
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017

(W) Sale or lease of goods or properties or the performance of

services other than the transactions mentioned in the GSP is in the viewpoint of seller
preceding paragraphs, the gross annual sales and/or receipts Purchase cost is the viewpoint of the seller
do not exceed the amount of One million nine hundred
nineteen thousand five hundred (P1,919,500): Provided, That B. Sale of Service (Sec. 108) – Gross Receipts (GR)
not later than January 31, 2009 and every three (3) years
thereafter, the amount herein stated shall be adjusted to its GR = amount of money or equivalent representing contract price,
present With footnote in the book value using the Consumer compensation, royalty or rental;
Price Index, as published by the National Statistics-Office PLUS: deposits/actual payment actually or constructively
(NSO); received (under control & free disposal) for service performed
or to be performed;
 Aside from knowing if it is a taxable transaction, know also PLUS: amount of money for materials and supplies with
the gross sales or gross receipts during the taxable year services;
exceeds the threshold. Because if it did not exceed the
threshold, exempted not subject to VAT unless voluntarily LESS: a. VAT
registered under the VAT system. b. Security Deposits (earmarked for payment to
 What is the basis of voluntary registration? Second provision unrelated 3rd parties)
of sec. 109 c. reimbursement for advance payment which do not
redound to the benefit of payor
(2) A VAT-registered person may elect that Subsection (1) not apply to
its sale of goods or properties or services: Provided, that an election Discussion: But in the discussion on treatments on advance payments:
made under this subsection shall be irrevocable for a period of three
(3) years from the quarter the election was made. GR: Security deposit and a loan of lessor to the lessee is not VATable as
it is not considered payment
 For example, even if you are selling marine or agricultural E: If there is an agreement between lessor and lessee that the security
food product which in its very nature is exempted. You can deposit will be used to answer for the lease, it will be subject to VAT
subject that to VAT because you are voluntarily registering
under the VAT system provided that an election made under C. Importation – Landed Cost (LC)
this subsection shall be irrevocable for a period of 3 years
from the quarter the election was made. LC = invoice amount + freight + customs duties + insurance + excise
 Generally, they are exempt but there is no stopping the one taxes, if any
selling it for VAT purposes.
 Especially with entities engages in mixed VATable and vat
exempt, others will voluntary register to avoid ascertaining, VAT LIABILITY OF SELLER
which is VAT exempt and VATABLE sale. The statutory taxpayer is the SELLER, so the impact of taxation falls on
him.

OPTIONAL REGISTRATION OF PERSONS EXEMPT FROM VAT: A. Tax Credit Method

Irrevocable for 3 years. Instances are: (Sec. 106(2))
1. Gross Receipts not exceeding 1,919,500 pertaining to transaction
that would have been VATable had it exceeded the threshold;
2. Mixed Business transactions bot VATable and non VATable;
3. Franchise grantees of TV and/or radio broadcasting
- if it opts to voluntarily register for under VAT system, it is
irrevocable perpetually (Sec. 119, proviso)
- would have been subject to franchise tax (preceding year
gross receipt is 10M or less)
- VATable of more than 10M
Discussion: Because this is subject to Other Percentage Tax (OPT)
if the gross receipts does not exceed 10M.
If GR of these grantees exceed 10M – mandatorily covered under
the VAT system
If GR does not exceed 10M – it may voluntarily register under the
VAT system (not in the 3% OPT)
VAT BASE
– the amount where the applicable output VAT (12%) will be multiplied
If Output > Input:
Tax payable = Output Tax (outbound)
– Input Tax (inbound)
If Input > Output:
- it may be claimed as a Carry-over, Credit or Refund.
B. When to recognize?
1. Output VAT – upon sales of goods/services
2. Input VAT is recognized upon:
a. CONSUMMATION if purchase of goods or properties to be
supported by VAT invoice/VAT Official Receipt;
b. PAYMENT or compensation, royalty, rent if purchase of service
as supported by VAT Official Receipt;
c. PAYMENT OF VAT prior to release in BOC as supported by
“import entry declaration” by BOC

A. Sale of Goods or Properties (Sec. 106) – Gross Selling Price TREATMENT OF EXCESS INPUT TAX (Sec 110.B):
(GSP) Instances why Input > Output:
a. Zero-rated sales with 0% output tax;
GSP = amount or money or its equivalent purchaser pays or obliged b. Development stage enterprise
to pay in consideration for sale, barter, exchange c. Purchase during the period > sales
PLUS: Excise Tax
LESS: VAT
*because VAT is non-cascading. It is not a tax on tax,
as GSP does not include the VAT

15 | U N I V E R S I T Y O F S A N C A R L O S
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017
WHEN TO CLAIM FOR REFUND
Not time-bound – no deadline to recover the excess input tax, as long
as you carry-over it in the next taxable quarter
In claiming for refund or credit, secure a Tax Credit Certificate within 2
years only, otherwise, it becomes useless.
NOTE: The choices if it is a zero-rated sale are mutually exclusive.
REQUISITES TO CLAIM FOR REFUND/CREDIT
1. VAT-registered person
- because this has something to with a zero-rated transaction
2. Claimed input taxes are directly attributable to zero-rated sale
3. Duly supported with VAT invoices or VAT Official receipt with
proper content
- requisite information that must be found in the receipt (TIN of
publisher, etc.)
4. The claimed input tax were not applied against output tax nor
carried over to succeeding months/quarters
- mutually exclusive
5. Claim for refund/credit (admin) must be made within 2 years FROM
the close of taxable quarter when the sales (0%) were made NOT
when input tax was paid
- in 2003-2010 there BIR Ruling stated that claim for tax
credit/refund must be made within 2 years covering both the
administrative claim and the legal claim
Administrative claim – claim at the BIR level
Legal claim – appeal in the Court of Tax Appeal
- if the 2-year period is about to lapse and no Commissioner on
Internal Revenue (CIR) has no resolution yet, and the 120-
period has not lapsed (CIR has 120 days to resolve), the
taxpayer has no recourse but to go immediately to the CTA, as
it was deemed a denial of the admin claim. Otherwise, if he does
not appeal in CTA, he will be barred when the 120-day period
will lapse
- Aichi Forging case clarified that the 2-year period does not
include the appeal to the CTA, it pertains only to the
administrative claim of the credit/refund
WHERE?
a. BIR Office – for large taxpayers
b. RDO
16 | U N I V E R S I T Y O F S A N C A R L O S
c. one stop shop center of DOF
WHEN: within 2 years
Sec. 112.C – CIR may grant refund or issue TCC within 120 days (4
months). If denied, appeal to CTA within 30 days from receipt of adverse
decision OR appeal to CTA within 30 days upon the lapse of the 120
days period.
Discussion:
The confusion before was due to Sec. 229 on Refund/Credit of Income
Tax which pertain only to erroneously/illegally collected taxes and has
nothing to do with the claim where input tax is higher than output tax
brought by zero rating of the transaction (not illegal).
CIR v. San Roque Power Corporation
The court held that the taxpayer can file an appeal in one of two ways:
1. File the judicial claim within 30 days after the Commissioner denies
the claim within 120-day waiting period, or
2. File the judicial claim within 30 days from the expiration of the 120-
day period if the Commissioner does not act within that period.
Aichi Forging Case v. San Roque
Aichi clarified that it is only the administrative claim that must be filed
within the two-year prescriptive period. San Roque, on the other hand,
has ruled that the 30-day period always applies, whether there is a
denial or inaction on the part of the CIR. (Rohm Appollo Semiconductor
Phil. v. CIR)
 If there’s decision within the 120 days, count 30 days, and appeal
WITHIN that 30-day period
 If no decision, count 120 days and upon the lapse of the 120-day
period, appeal WITHIN 30 days after the lapse
 Do not mind if the 2-year period had lapse, as long as when you claim
the refund/credit, the requirements passed at the BIR level are within
the 2 years
The 30 day period to appeal is mandatory and jurisdictional.
A claim for tax refund or credit, like a claim for tax exemption, is
construed strictly against the taxpayer. One of the conditions for a
judicial claim of refund or credit under the VAT System is with the
120+30 day mandatory and jurisdictional periods. Thus, strict
compliance with the 120+30 day periods is necessary for such
a claim to prosper, whether before, during, or after the effectivity of
the Atlas doctrine, except for the period from the issuance of BIR
Ruling No. DA-489-03 on 10 December 2003 to 6October 2010
when the Aichi doctrine was adopted, which again reinstated
the 120+30 day periods as mandatory and jurisdictional.
 120+30 day mandatory and jurisdictional period – happens when
there is NO decision issued by the CIR within the 4-month period to
decide
 BIR Ruling No. DA-489-03 – 2 year period covers both admin and
judicial claim. From 2003 to 2010, it is permissible that taxpayer
appeals even if 120-day period has not lapsed. But after 2010,, it will
be considered PREMATURE if you appeal directly without the lapse of
the 120-day period
Remember relevant figures
- 30 days
- 120 days
- 2 years
The 30 day period to appeal is MANDATORY and Jurisdictional
- A claim for tax refund or tax credit is construed strictly
against the taxpayer
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017
- One of the conditions for a judicial claim of refund under the
VAT system is with the 120 + 30 day mandatory and
jurisdictional periods
When does the 120 + 30 day period occur?
- If there is no decision issued by the commissioner in the 4
month period to decide
- Thus, strict compliance with the 120 plus 30 day period is
necessary for such claim to prosper
o Whether before, during or after the effectively of
the ATLAS DOCTRINE, EXCEPT
 for the period from the issuance of BIR
Ruling DA-489-03 on DECEMBER 10,
2003 to October 6, 2010
ATLAS DOCTRINE
- The BIR in BIR Ruling DA-489-03 ruled that the 2 year
period covers admin and judicial claims
- Thus, even if the 120 day has yet to lapse, the taxpayer can
go directly to the Court of Tax Appeals
o This rule is only permissible from the period from
2003 -2010
o However AFTER SUCH PERIOD, action is
PREMATURE if one goes directly to the appellate
court without the LAPSE of the 120 day period
REFUND OF INPUT VAT PRIOR TO VAT REGISTRATION
- Input VAT attributable to 0-rated sales prior to its
registration MAY NOT BE the subject of refund.
o Reason: Because the Input VAT refund or credit
can only be claimed under a VAT ZERO RATED
TRANSACTION.
o Note: if not VAT registered, cannot claim input
vat refund or credit
- Under Sec 112, one of the conditions for the entitlement to
VAT refund or tax credits or excess unutilized input tax from
zero rated sales is that the taxpayer should be VAT
registered.
- Thus to be entitled to VAT refund or tax credit, taxpayer
must prove that
o IT WAS VAT REGISTERED during period it
incurred its unutilized INPUT VAT.
SUMMARY OF RULES ON PRESCRIPTIVE PERIOD FOR
CLAIMING REFUND OR CREDIT OF INPUT VAT (Sec 112,
NIRC) (Silicon Philippines vs CIR)
A. 2 YR PRESCRIPTIVE PERIOD
1. It is only the administrative claim that must be filed within
the two year prescriptive period (AICHI)
2. The proper reckoning date for the 2 yr. period is the close of
the TAXABLE QUARTER WHEN THE RELEVANT SALES WERE
MADE (SAN ROQUE)
TN: In Atlas doctrine, the counting of the 2 yr period will start from the
date of the actual filing of the return and payment of the VAT.
However, it has changed in the SAN ROQUE Doctrine. So we don’t look
at the ACTUAL DATE when the return was filed.
Reason: If you base it on the date the return was filed, and the VAT
was paid, the government would be at a disadvantage. TO illustrate,
what if after 1 year after filing the return, the taxpayer opts to pay the
penalty for filing late. The taxpayer would still be able to claim VAT
INPUT.
REMEMBER:The only other rule which is THE ATLAS DOCTINE ONLY
APPLIES TO THE PERIOD FROM June 8 2007 to September 12,
2008.
17 | U N I V E R S I T Y O F S A N C A R L O S
TN: that the above period must be distinguished from the
others previously mentioned
The previous period of 2003 to 2010 wherein AICHI is not applicable.
Thus the two year period here refers to both ADMIN and JUDICIAL
claims.
BEFORE 2003 AND AFTER 2010 (not in between) – the two year
period applies to ADMIN cases only
The June 8 2007 period to September 12, 2008 period starts
the reckoning point of the 2 year period for filing a claim for
tax refund/credit of unutilized vat input payment from the
date of the FILING OF VAT return and payment of tax
AFTER the June 2007, to September 2008, the proper
reckoning period for the 2 year prescriptive period is the close
of the taxable quarter when the relevant sales were made
FOR ADMINSTRATIVE CLAIMS.
B. 120 + 30 day period
1. The taxpayer can file an appeal in one of two ways
a. File a judicial claim within 30 days after
Commissioner denies claim within the 120 day
period
b. File judicial claim within 30 days after the
expiration of the 120 day period if the
commissioner does not act with the 120 day
period
2. The 30 day period always applies whether there is a denial
or inaction on the part of the CIR
- So if you file your appeal on the 40th day, it cannot be
permitted. This is no longer recognizable by the appellate
court
3. GR: The 30 day period to appeal is mandatory and
jurisdictional
E: Premature filing (the 120 day period has not lapsed but
within the 2 year period) is allowed only if filed within the
2003-2010 period.
Note again the situation in the 2003-2010 period is that the
120 day and 2 years period has not yet lapsed, but an
appeal is filed.
If however the 120 day period has not yet lapsed, but the 2
YR PERIOD HAS LAPSED and you appealed, this appeal shall
not be recognized because it is BEYOND THE 2 YEAR
PRESCRIPTIVE PERIOD. The AICHI doctrine would not apply
Examples of Substantiation Requirements for Input Tax
1. Importation – import entry declaration
2. Purchase of goods/ properties – VAT invoice
3. Purchase of services – VAT official receipts
4. Payment to non-resident – monthly remittance return
of VAT withheld
- Recall that when it comes to payment of nonresidents the
one residing in the Phils will have to withhold creditable
withholding tax.
5. Transitional Input Tax Inventory of goods with detailed
statement
6. Presumptive Input Tax invoices
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017
ADMISNTRATIVE MATTERS
1. Filing of VAT return
- Monthly ; to be consolidated quarterly
- For the monthly vat return must be filed not later than the
20th day following the end of each month.
- For quarterly VAT return, it is to be filed 25 days following
the close of the taxable quarter
2. Pay as you file system
BUSINESS OPERATION OF BUSINESS MAY BE SUSPENDED
FOR AT LEAST 5 DAYS DUE TO THE FF:
1. Failure to issue VAT invoice or VAT official receipts
2. Failure to file VAT return
3. Understatement of Taxable Sale for 30% or more of correct
taxable sale/ receipt during the quarter
4. Failure of any person to register
TN: 1-3 refers to VAT registered persons. 4 pertains to non VAT
registered ENTITIES that are MANDATORILY covered (those whose
gross sales or gross receipts already exceeded threshold)
PENALTY/ CONSEQUENCE for ISSUANCE OF VAT INVOCIE/ OR despite
being exempt
1. Continue to pay current tax due
- Means you have to pay for the output VAT
2. Liable to pay OPT plus VAT as if VATable
- Reason: You issue vat invoice or vat official receipts
3. Cannot claim input tax
4. Liable for 50% surcharge
- If you are covered under 3% OPT, you have to specify in the
sales if it is exempt or nonvatable sale.
MIXED BUSINESS
- Input taxes on exempt/ non-VATable sale shall form part of
the cost of asset or operating expenses of taxpayer
deductible only from his gross income.
TN: This is the tax deduction method for exempt and non vatable
sales. But for Vatable sales, the input tax may be claimed as credit and
deduction to your output (Tax credit method)
- If the input tax cannot be directly attributed to transactions
subject to or exempt from VAT, taxpayer has to allocate the
input taxes on these assets based on GSP/ GR for preceding
taxable quarter
TN: There is no problem as far as OUTPUT VAT is concerned because
the receipt can identivy the Vatable and vat exempt sales. HOWEVER,
when INPUT is now claimed from supplier, it is hard to trace which one
was used for VAT exmept / VAtable sales. THUS the need to
ALLOCATE BASED ON THE GROSS SELLING PRICE/ GROSS
RECEIPTS for preceding taxable quarter. The GSP each of the
VATable and nonvatable will be totaled. After totaling, get the
ratio (PRO RATA).
Example: VATABLE sale – 2, NonVatable – 1. Total is 3. 2/3 of Input
will pertain to tax credit method (Vatable sales) while 1/3 pertains to
the tax deduction method (Cannot claim as input VAT)
- THUS REMEMBER
o For mixed businesses
18 | U N I V E R S I T Y O F S A N C A R L O S
 If VAT invoice/OR is issued for BOTH
VATable and nonVatable transactions
regardless if exempt BOTH shall
become VATABLE and OUTPUT shall
be paid
 So if you don’t declare which is VAtable
or NonVAtable BOTH BECAOMES
VATABLE AND OUTPUT TAX shall then
be paid.
 Thus if you have a mixed business, it
would be best to identify those which
are vatable or not.
SPECIAL TYPES OF PERSONS
1. Husband and wife are considered separate taxpayers
2. Joint venture undertaking construction or engaged in energy
related projects
o Subject to VAT although exempt from income tax
3. Government
o Government function: Exempt fromVAT
o Proprietary Function: Subject to VAT
4. Non-stock, non-profit association
o Association dues and special assessments; guest
fees and fees for use of facilities are exempt from
VAT
o Income from operating restaurant, boutique or
shop or for leasing facilities – TAXABLE
VAT RULINGS/ PRONOUNCEMENTS
1. Manila Mandarin Hotel vs CIR
o Mandarin provides limousine services to its clients
o Issue: Whether or not they should bay 3%
common carriers tax or 12% VAT
o Held: 12% VAT
o Reason: As a hotel, it is part of sales of
services (limousine service)
2. SM Prime Holdings vs CIR
o Gross receipts of theatre owner or operator from
sales of tickets to moviegoers are exempt from
VAT.
o Theatre and movie houses not incuded in
enumeration of taxable services in VAT law
o Reason: It is already subject to AMUSEMENT TAX.
What would be taxable only is the “leasing” of
such movies
UNITILIZED INPUT VAT BEYOND 2YR PRESCRIPTIVE PERIOD
- Accumulated and unapplied input taxes that has not been
claimed for refund or credit within 2 year prescriptive period
cannot be claimed as outright expense
- In a case, the excess input Vat was not carried over, and
the 2 year period had lapsed, and was not able to claim for
credit or refund so they claimed it as EXPENSE.
o BIR ruled that they cannot do that. Taxpayer has
only 3 options
 Carry it over
 Credit
 Refund
RA 9994 (Expanded Senior Citizens Act of 2010)
- Senior citizens ( when one reaches the age of 60)
o granted twenty percent (20%) discount and
exemption from the value -added tax (VAT),
TAXATION II l Atty. Kim Aranas l For the exclusive use of EH 404 2016-2017

on the following transactions exclusive to Senior

Citizens
o TN: 20% discount and exemption from VAT

1. on the purchase of medicines, including the purchase of

influenza and pnuemococcal vaccines, and such other
essential medical supplies, accessories and equipment to be
determined by the Department of Health (DOH).

2. on the professional fees of attending physician/s in all

private hospitals, medical facilities, outpatient clinics and
home health care services;

TN: Professional services generally not exempted HOWEVER exception

is when one is a senior citizen

3. on the professional fees of licensed professional

health providing home health care services as
endorsed by private hospitals or employed through home
health care employment agencies;

4. on medical and dental services, diagnostic and

laboratory fees in all private hospitals, medical facilities,
outpatient clinics, and home health care services, in
accordance with the rules and regulations to be issued by
the DOH, in coordination with the Philhealth

5. in actual fare for land transportation travel in public utility

buses (PUBs), public utility jeepneys (PUJs), taxis, Asian
utility vehicles (AUVs), shuttle services and public railways,
including Light Rail Transit (LRT), Mass Rail Transit (MRT),
and Philippine National Railways (PNR);

6. in actual transportation fare for domestic air transport

services and sea shipping vessels and the like, based on the
actual fare and advanced booking;

7. on the utilization of services in hotels and similar

lodging establishments, restaurants and recreation
centers;

8. on admission fees charged by theaters, cinema

houses and concert halls, circuses, leisure and amusement;
and

9. on funeral and burial services for the death of senior

citizens;

Special thanks to the tax team:

Natu-el, Divinagracia, Brigoli, Lleve, Cabatana,
Nivera, Songalia & Belarmino.

19 | U N I V E R S I T Y O F S A N C A R L O S