2019 Vat Lock

7/31/2019
Value-added Tax
Provisions amended by the TRAIN Law:
1. Sec. 106(A)(2)(a)(2):
Value-added Tax (2) Sale and delivery of goods to:
(i) Registered enterprises within a separate customs territory as

Secs. 105 to 115 of the NIRC provided under special laws; and,
(ii) Registered enterprises within tourism enterprise zones as declared

by the Tourism Infrastructure and Enterprise Zone Authority (TIEZA)
subject to the provisions under Republic Act No. 9593 or The Tourism
Act of 2009. (Vetoed by PRRD)
Value-added Tax Value-added Tax

Provisions amended by the TRAIN Law: Provisions amended by the TRAIN Law:
2. Sec. 106(A)(2)(a)(4): 3. Sec. 106(A)(2)(a)(6):
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP) (6) The sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air transport
Deleted as zero-rated transaction. Now an exempt transaction under operations: Provided, That the goods, supplies, equipment and fuel
Sec. 109(1)(z). shall be used (exclusively) for international shipping or air transport
operations.
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4. Formerly Sec. 106(A)(2)(b): 5. The following shall no longer be subject to 0% VAT:
(b) Foreign Currency Denominated Sale. - The phrase “foreign currency (3) Sale of raw materials or packaging materials to a nonresident buyer
denominated sale” means sale to a nonresident of goods, except those for delivery to a resident local export-oriented enterprise to be used in
mentioned in Sections 149 and 150, assembled or manufactured in the manufacturing, processing, packing or repacking in the Philippines of
Philippines for delivery to a resident in the Philippines, paid for in the said buyer’s goods and paid for in acceptable foreign currency and
acceptable foreign currency and accounted for in accordance with the accounted for in accordance with the rules and regulations of the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP). Bangko Sentral ng Pilipinas (BSP);
Deleted as zero-rated transaction. (4) Sale of raw materials or packaging materials to export-oriented
enterprise whose export sales exceed seventy percent (70%) of total
annual production;

5. The following shall no longer be subject to 0% VAT: upon satisfaction of the following conditions:
(5) Those considered export sales under Executive Order No. 226, (1) The successful establishment and implementation of an enhanced
otherwise known as the Omnibus Investment Code of 1987, and other VAT refund system that grants refunds of creditable input tax within
special laws ninety (90) days from the filing of the VAT refund application with the
Bureau: Provided, That, to determine the effectivity of item no. 1, all
applications filed from January 1, 2018 shall be processed and must be
decided within ninety (90) days from the filing of the VAT refund
application; and,
(2) All pending VAT refund claims as of December 31, 2017 shall be
fully paid in cash by December 31, 2019.
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Provided, That the Department of Finance shall establish a VAT refund Provided, further, That the BIR and the BOC shall be required to submit
center in the Bureau of Internal Revenue (BIR) and in the Bureau of to the Congressional Oversight Committee on the Comprehensive Tax
Customs (BOC) that will handle the processing and granting of cash Reform Program (COCCTRP) a quarterly report of all pending claims for
refunds of creditable input tax. refund and any unused fund.
An amount equivalent to five percent (5%) of the total VAT collection

of the BIR and the BOC from the immediately preceding year shall be
automatically appropriated annually and shall be treated as a special
account in the General Fund or as trust receipts for the purpose of
funding claims for VAT refund: Provided, That any unused fund, at the
end of the year shall revert to the General Fund.

6. Sec. 108(B)(4): 7. Sec. 108(B)(8):
(4) Services rendered to persons engaged in international shipping or (8) Services rendered to:
international air transport operations: Provided, That these services
shall be used (exclusively) for international shipping or air transport (i) Registered enterprises within a separate customs territory as
operations. provided under special law; and
(ii) Registered enterprises within tourism enterprise zones as declared

by the TIEZA subject to the provisions under Republic Act No. 9593 or
The Tourism Act of 2009. (Vetoed by PRRD).
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8. The following shall no longer be subject to 0% VAT: upon satisfaction of the following conditions:
(1) Processing, manufacturing or repacking goods for other persons (1) The successful establishment and implementation of an enhanced
doing business outside the Philippines which goods are subsequently VAT refund system that grants refunds of creditable input tax within
exported, where the services are paid for in acceptable foreign ninety (90) days from the filing of the VAT refund application with the
currency and accounted for in accordance with the rules and Bureau: Provided, That, to determine the effectivity of item no. 1, all
regulations of the Bangko Sentral ng Pilipinas (BSP); applications filed from January 1, 2018 shall be processed and must be
decided within ninety (90) days from the filing of the VAT refund
(5) Services performed by subcontractors and/or contractors in application; and
processing, converting, or manufacturing goods for an enterprise
whose export sales exceed seventy percent (70%) of total annual (2) All pending VAT refund claims as of December 31, 2017 shall be
production; fully paid in cash by December 31, 2019.

Provided, That the Department of Finance shall establish a VAT refund Provided, further, That the BIR and the BOC shall be required to submit
center in the Bureau of Internal Revenue (BIR) and in the Bureau of to the Congressional Oversight Committee on the Comprehensive Tax
Customs (BOC) that will handle the processing and granting of cash Reform Program (COCCTRP) a quarterly report of all pending claims for
refunds of creditable input tax. refund and any unused fund.
An amount equivalent to five percent (5%) of the total VAT collection

of the BIR and the BOC from the immediately preceding year shall be
automatically appropriated annually and shall be treated as a special
account in the General Fund or as trust receipts for the purpose of
funding claims for VAT refund: Provided, That any unused fund, at the
end of the year shall revert to the General Fund.
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9. Exempt Transactions - Sec. 109(1): (D) Provided, That the Bureau of Customs may, upon the production of
satisfactory evidence that such persons are actually coming to settle in
the Philippines and that the goods are brought from their former place
(D) Importation of professional instruments and implements, tools of
trade, occupation or employment, wearing apparel, domestic animals, of abode, exempt such goods from payment of duties and taxes:
and personal and household effects belonging to persons coming to Provided, further, That vehicles, vessels, aircrafts, machineries and
settle in the Philippines or Filipinos or their families and descendants other similar goods for use in manufacture, shall not fall within this
who are now residents or citizens of other countries, such parties classification and shall therefore be subject to duties, taxes and other
hereinafter referred to as overseas Filipinos, in quantities and of the charges; (Revised)
class suitable to the profession, rank or position of the persons
importing said items, for their own use and not for barter or sale,
accompanying such persons, or arriving within a reasonable time:

(P) Sale of real properties not primarily held for sale to customers or (P) Provided, That beginning January 1, 2021, the VAT exemption shall
held for lease in the ordinary course of trade or business or real only apply to sale of real properties not primarily held for sale to
property utilized for low-cost and socialized housing as defined by customers or held for lease in the ordinary course of trade or business,
Republic Act No. 7279, otherwise known as the Urban Development sale of real property utilized for socialized housing as defined by
and Housing Act of 1992, and other related laws, residential lot valued Republic Act No. 7279, sale of house and lot, and other residential
at One million five hundred thousand pesos (₱1,500,000) and below, dwellings with selling price of not more than Two million pesos
house and lot, and other residential dwellings valued at Two million (₱2,000,000): Provided, further, That every three (3) years thereafter,
five hundred thousand pesos (₱2,500,000) and below: the amount herein stated shall be adjusted to its present value using
the Consumer Price Index, as published by the Philippine Statistics
Authority (PSA); (Revised)
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(Q) Lease of a residential unit with a monthly rental not exceeding (W) Sale or lease of goods and services to senior citizens and persons
Fifteen thousand pesos (₱15,000); (Revised) with disability, as provided under Republic Act Nos. 9994 (Expanded
Senior Citizens Act of 2010) and 10754 (An Act Expanding the Benefits
(U) Importation of fuel, goods and supplies by persons engaged in and Privileges of Persons With Disability), respectively; (New)
international shipping or air transport operations: Provided, That the
fuel, goods, and supplies shall be used for international shipping or air (X) Transfer of property pursuant to Section 40(C)(2) of the NIRC, as
transport operations; (Revised) amended; (New)
(Y) Association dues, membership fees, and other assessments and

charges collected by homeowners associations and condominium
corporations; (New)

(AA) Sale of drugs and medicines prescribed for diabetes, high 10. Input Tax on Capital Goods – Sec. 110(A)(2)(b):
cholesterol, and hypertension beginning January 1, 2019; (New)
Provided, further, That the amortization of the input VAT shall only be
(BB) Sale or lease of goods or properties or the performance of allowed until December 31, 2021 after which taxpayers with unutilized
services other than the transactions mentioned in the preceding input VAT on capital goods purchased or imported shall be allowed to
paragraphs, the gross annual sales and/or receipts do not exceed the apply the same as scheduled until fully utilized.
amount of Three million pesos (₱3,000,000); (Revised)
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11. VAT Refund – Sec. 112(C): 12. VAT Returns – Sec. 114(A):
(C) Period within which Refund of Input Taxes shall be Made.— In Provided, finally, That beginning January 1, 2023, the filing and
proper cases, the Commissioner shall grant a refund for creditable payment required under this Subsection shall be done within twenty-
input taxes within ninety (90) days from the date of submission of the five (25) days following the close of each taxable quarter.
official receipts or invoices and other documents in support of the
application filed in accordance with Subsections (A) and (B) hereof:
Provided, That should the Commissioner find that the grant of refund
is not proper, the Commissioner must state in writing the legal and
factual basis for the denial.

13. Shift from Creditable to Final Withholding VAT – Sec. 114(C): 14. Percentage Tax – Sec. 116:
(C) Withholding of Value-added Tax.— xxx Provided, That beginning Tax on Persons Exempt from Value-added Tax (VAT).— Any person
January 1, 2021, the VAT withholding system under this Subsection whose sales or receipts are exempt under Section 109(BB) of this Code
shall shift from final to a creditable system: Provided, further, That the from the payment of value-added tax and who is not a VAT-registered
payment for lease or use of properties or property rights to person shall pay a tax equivalent to three percent (3%) of his gross
nonresident owners shall be subject to twelve percent (12%) quarterly sales or receipts: Provided, That cooperatives, and beginning
withholding tax at the time of payment: January 1, 2019, self-employed and professionals with total annual
gross sales and/or gross receipts not exceeding Five hundred
thousand pesos (₱500,000) shall be exempt from the three percent
(3%) gross receipts tax herein imposed. (Vetoed by PRRD)
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15. Mandatory VAT Registration – Sec. 236(G): 16. Optional VAT Registration – Sec. 236(H):
(a) His gross sales or receipts for the past twelve (12) months, other Provided, That any person taxed under Section 24(A)(2)(b) and
than those that are exempt under Section 109(A) to (BB) (should be 24(A)(2)(c)(2)(a) of the NIRC who elected to pay the eight percent (8%)
AA), have exceeded Three million pesos (₱3,000,000); or tax on gross sales or receipts shall not be allowed to avail of this
option.
(b) There are reasonable grounds to believe that his gross sales or
receipts for the next twelve (12) months, other than those that are
exempt under Section 109(A) to (BB) (should be AA), will exceed Three
million pesos (₱3,000,000).
Value-added Tax General Principles

Secs. 105 to 115 of the NIRC Characteristics:
I. General Principles  Indirect Tax;

II. VAT on Goods
III. VAT on Importation  Tax on consumption;
IV. VAT on Services
V. Zero-rated and Exempt Sales  Regressive Tax;
VI. Input Taxes
VII. VAT Refund  Philippines uses Tax Credit Method.
VIII. Other Matters
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General Principles General Principles

Illustration on input and output tax:
 Output tax - VAT on the sale of goods or services.
 Input tax - VAT on the purchase of goods or services. For the 1st Quarter of 2013, X purchased P10,000.00 (VAT exclusive)
worth of goods and subsequently sold the same for P30,000.00 (VAT
exclusive).
Formula:
1st Quarter VAT return:

Output Tax: xxx
Output Tax: (P30,000.00 x 12%) P3,600.00
Input Tax: (xxx)
Input Tax: (P10,000.00 x 12%) 1,200.00
VAT payable: xxx
VAT payable: P2,400.00

Characteristics: Sales to ECONZONE Enterprises:
 Destination Principle - goods and services are taxed only in the 1. Under RMC 74-99 dated October 15, 1999, all sales of goods,
country where they are consumed. properties, and services made by a VAT-registered supplier from the
Customs Territory to an ECOZONE enterprise shall be subject to VAT, at
 Cross Border Doctrine - mandates that no VAT shall be imposed to zero percent (0%) rate, regardless of the latter's type or class of PEZA
form part of the cost of the goods destined for consumption outside registration; and, thus, affirming the nature of a PEZA-registered or an
the territorial border of the taxing authority. Hence, actual export of ECOZONE enterprise as a VAT-exempt entity.
goods and services from the Philippines to a foreign country must be
free of VAT, while those destined for use or consumption within the
Philippines shall be imposed with 12% VAT.
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Sales to ECONZONE Enterprises: Sales to ECONZONE Enterprises:
2. Section 8 of Rep. Act No. 7916 mandates that PEZA shall manage 3. The petitioner's principal office was located in Barangay Rio Tuba,
and operate the ECOZONES as a separate customs territory. The Bataraza, Palawan. Its plant site was specifically located inside the Rio
provision thereby establishes the fiction that an ECOZONE is a foreign Tuba Export Processing Zone — a special economic zone (ECOZONE) As
territory separate and distinct from the customs territory. Accordingly, such, the purchases of goods and services by the petitioner that were
the sales made by suppliers from a customs territory to a purchaser destined for consumption within the ECOZONE should be free of VAT;
located within an ECOZONE will be considered as exportations. hence, no input VAT should then be paid on such purchases, rendering
Following the Philippine VAT system’s adherence to the Cross Border the petitioner not entitled to claim a tax refund or credit. Verily, if the
Doctrine and Destination Principle, the VAT implications are that “no petitioner had paid the input VAT, the CTA was correct in holding that
VAT shall be imposed to form part of the cost of goods destined for the petitioner's proper recourse was not against the Government but
consumption outside the territorial border of the taxing authority.” against the seller who had shifted to it the output VAT following RMC
No. 42-03. (Coral Bay Nickel Corporation vs. CIR, GR No. 190506 dated
June 13, 2016)

Secretary of Finance vs. Lazatin, GR No. 210588 dated November 29, Secretary of Finance vs. Lazatin, GR No. 210588 dated November 29,
2016: 2016:
The Secretary of Finance issued Revenue Regulations No. 2-2012 dated 1. RR No. 2-2012 is invalid and unconstitutional because: a) it illegally
February 17, 2012 requiring the payment of value-added tax (VAT) and imposes taxes upon FEZ enterprises, which, by law, enjoy tax-exempt
excise tax on the importation of all petroleum and petroleum products status, and b) it effectively amends the law (i.e., RA 7227, as amended
coming directly from abroad and brought into the Philippines, by RA 9400) and thereby encroaches upon the legislative authority
including Freeport and economic zones (FEZs). It then allows the credit reserved exclusively by the Constitution for Congress.
or refund of any VAT or excise tax paid if the taxpayer proves that the
petroleum products previously brought in has been sold to a duly
registered FEZ locator and used pursuant to the registered activity of
such locator.
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2016: 2016:
2.a. RR No. 2-2012 clearly imposes VAT and excise tax on the 2.a.1. Under RA 9400 and its Implementing Rules, Clark FEZ is
importation of petroleum and petroleum products into FEZs. Strictly considered a customs territory separate and distinct from the
speaking, however, articles brought into these FEZs are not taxable Philippines customs territory. Thus, as opposed to importations into
importations under the law based on the following considerations: and establishments in the Philippines customs territory, which are fully
subject to Philippine customs and tax laws, importations into and
establishments located within the Clark FEZ (FEZ Enterprises) enjoy
special incentives, including tax and duty-free importation. More
specifically, Clark FEZ enterprises shall be entitled to the freeport
status of the zone and a 5% preferential income tax rate on its gross
income, in lieu of national and local taxes.

2016: 2016:
2.a.2. the Philippine VAT system adheres to the cross border doctrine. 2.b. Therefore, the act of bringing the goods into an FEZ is not a
Under this rule, no VAT shall be imposed to form part of the cost of the taxable importation. As long as the goods remain (e.g., sale and/or
goods destined for consumption outside the Philippine customs consumption of the article within the FEZ) in the FEZ or re-exported to
territory. Thus, we have already ruled before that an FEZ enterprise another foreign jurisdiction, they shall continue to be tax-
cannot be directly charged for the VAT on its sales, nor can VAT be free. However, once the goods are introduced into the Philippine
passed on to them indirectly as added cost to their purchases. customs territory, it ceases to enjoy the tax privileges accorded to
FEZs. It shall then be considered as an importation subject to all
applicable national internal revenue taxes and customs duties.
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Persons Liable: Rule on regularity does not apply to:
1. Seller of goods; 1. Importations; and,

2. Seller of services / lessor of goods or properties; 2. Sale of services by non-residents in the Phils. – collected via
3. Importer of goods. Withholding VAT under Sec. 114 (C).
Course of Trade or business - means the regular conduct or pursuit of a

commercial or economic activity, including transactions incidental
thereto, by any person regardless of whether or not the person
engaged therein is a non-stock, non-profit private organization
(irrespective of the disposition of its net income and whether or not it
sells exclusively to members or their guests), or government entity.

Special Rules on: Is the sale of a fully depreciated car by a Corporation engaged in the
conversion of steam to electricity subject to VAT?
1. Husband and Wife are separate taxpayers but subject to the
aggregation rule; Mindanao II asserts that the sale of a fully depreciated Nissan Patrol is
2. An unincorporated joint venture (construction projects) while not an incidental transaction in the course of its business; hence, it is
exempt from income tax is subject to VAT; an isolated transaction that should not have been subject to 10% VAT
(now 12%).
3. General Professional Partnerships (“GPP”) may be subject to VAT but
the partners who exercise their profession thru the GPP are no longer
subject to VAT;
4. Director’s fees are not subject to VAT. Fees and allowances being
given to a director of a corporation are not derived from an economic
or commercial activity pursued in the course of trade or business.
Rather, these are paid in the exercise of the right of an owner in the
management of a corporation. (RMC No. 77-2008 dated November 24,
2008)
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Mindanao Geothermal Case: Mindanao Geothermal Case:
1. Mindanao II relies on Commissioner of Internal Revenue v. 2. Mindanao II’s sale of the Nissan Patrol is said to be an isolated
Magsaysay Lines, Inc. (Magsaysay) and Imperial v. Collector of Internal transaction. However, it does not follow that an isolated transaction
Revenue (Imperial) to justify its position. Magsaysay, decided under the cannot be an incidental transaction for purposes of VAT liability.
NIRC of 1986, involved the sale of vessels of the National Development Indeed, a reading of Section 105 of the 1997 Tax Code would show
Company (NDC) to Magsaysay Lines, Inc. The Supreme Court ruled that that a transaction "in the course of trade or business" includes
the sale of vessels was not in the course of NDC’s trade or business as "transactions incidental thereto."
it was involuntary and made pursuant to the Government’s policy for
privatization. Magsaysay, in quoting from the CTA’s decision, imputed
upon Imperial the definition of "carrying on business." Imperial,
however, is an unreported case that merely stated that "‘to engage’ is
to embark in a business or to employ oneself therein."

Mindanao Geothermal Case: Is the sale of two (2) power plants by the Power Sector Assets and
Liabilities Management Corporation (“PSALM”) in connection with
3. Mindanao II’s business is to convert the steam supplied to it by the privatization of the National Power Corporation (“NPC”) subject
to VAT?
PNOC-EDC into electricity and to deliver the electricity to NPC. In the
course of its business, Mindanao II bought and eventually sold a Nissan
Patrol. Prior to the sale, the Nissan Patrol was part of Mindanao II’s 1. Under Section 50 of the EPIRA law, PSALM's principal purpose is to
property, plant, and equipment. Therefore, the sale of the Nissan manage the orderly sale, disposition, and privatization of the NPC
Patrol is an incidental transaction made in the course of Mindanao II’s generation assets, real estate and other disposable assets, and IPP
business which should be liable for VAT. (Mindanao Geothermal II contracts with the objective of liquidating all NPC financial obligations
Partnership vs. CIR, GR No. 193301 dated March 11, 2013) and stranded contract costs in an optimal manner.
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PSALM Case: PSALM Case:
2. The sale of the power plants is not "in the course of trade or 3.a. In the more recent case of Mindanao II Geothermal Partnership v.
business" as contemplated under Section 105 of the NIRC, and thus, CIR, which was decided under the 1997 NIRC, the Court held that the
not subject to VAT. The sale of the power plants is not in pursuit of a sale of a fully depreciated vehicle that had been used in Mindanao II's
commercial or economic activity but a governmental function business was subject to VAT, even if such sale may be considered
mandated by law to privatize NPC generation assets. PSALM was isolated. The Court ruled that it does not follow that an isolated
created primarily to liquidate all NPC financial obligations and stranded transaction cannot be an incidental transaction for VAT purposes. The
contract costs in an optimal manner. Court then cited Section 105 of the 1997 NIRC which shows that a
transaction "in the course of trade or business" includes "transactions
incidental thereto." Thus, the Court held that the sale of the vehicle is
It is very clear that the sale of the power plants was an exercise of a
governmental function mandated by law for the primary purpose of an incidental transaction made in the course of Mindanao II's business
privatizing NPC assets in accordance with the guidelines imposed by which should be subject to VAT.
the EPIRA law.

PSALM Case: PSALM Case:
3.b. The CIR alleges that the sale made by NPC and/or its successors- 3.c. Unlike the Mindanao II case, the power plants in this case were
in-interest of the power plants is an incidental transaction which not previously used in PSALM's business. The power plants, which
should be subject to VAT. This is erroneous. As previously discussed, were previously owned by NPC were transferred to PSALM for the
the power plants are already owned by PSALM, not NPC. Under the specific purpose of privatizing such assets. The sale of the power
EPIRA law, the ownership of these power plants was transferred to plants cannot be considered as an incidental transaction made in the
PSALM for sale, disposition, and privatization in order to liquidate all course of NPC's or PSALM's business. Therefore, the sale of the power
NPC financial obligations. plants should not be subject to VAT. (PSALM vs. CIR, GR No. 198146
dated August 8, 2017)
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If a Company renders services in the Philippines on a reimbursement COMASERCO Case:
of cost basis, is the transaction subject to VAT?
2. Hence, it is immaterial whether the primary purpose of a
1. Yes, as long as the Company renders services in the Philippines, corporation indicates that it receives payments for services rendered
whether it incurs profit or not it is subject to VAT. to its affiliates on a reimbursement-on-cost basis only, without
realizing profit, for purposes of determining liability for VAT on services
The Tax Code clarifies that even a non-stock, non-profit organization or rendered. As long as the entity provides service for a fee,
government entity, is liable to pay VAT on the sale of goods or services. remuneration or consideration, then the service rendered is subject
VAT is a tax on transactions, imposed at every stage of the distribution to VAT. (CIR vs. CA and COMASERCO, GR No. 125355 dated March 30,
process on the sale, barter, exchange of goods or property, and on the 2000)
performance of services, even in the absence of profit attributable
thereto. The term "in the course of trade or business" requires the
regular conduct or pursuit of a commercial or an economic activity,
regardless of whether or not the entity is profit-oriented.

Are subsidized expenses paid for by a subsidiary and subsequently Sony Case:
reimbursed by its parent company subject to VAT?
2.a. Insofar as the above-mentioned subsidy may be considered as
1. No. The CIR further argues that Sony (“the subsidiary”) itself income and, therefore, subject to income tax, the Court agrees.
admitted that the reimbursement from SIS (“parent company”) was However, the Court does not agree that the same subsidy should be
income and, thus, taxable. In support of this, the CIR cited a portion of subject to the 12% VAT. To begin with, the said subsidy termed by the
Sony's protest filed before it: CIR as reimbursement was not even exclusively earmarked for Sony's
advertising expense for it was but an assistance or aid in view of Sony's
“The fact that due to adverse economic conditions, SIS has granted to our dire or adverse economic conditions, and was only "equivalent to the
client a subsidy equivalent to the latter's advertising expenses will not latter's (Sony's) advertising expenses. Section 106 of the Tax Code
affect the validity of the input taxes from such expenses. Thus, at the explains when VAT may be imposed or exacted. xxx”
most, this is an additional income of our client subject to income tax. We
submit further that our client is not subject to VAT on the subsidy income
as this was not derived from the sale of goods or services.”
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Sony Case: Sony Case:
2.b. “Thus, there must be a sale, barter or exchange of goods or 3. In the case of CIR v. Court of Appeals (CA), the Court had the
properties before any VAT may be levied. Certainly, there was no such occasion to rule that services rendered for a fee even on
sale, barter or exchange in the subsidy given by SIS to Sony. It was but reimbursement-on-cost basis only and without realizing profit are also
a dole out by SIS and not in payment for goods or properties sold, subject to VAT. The case, however, is not applicable to the present
bartered or exchanged by Sony. case. In that case, COMASERCO rendered service to its affiliates and, in
turn, the affiliates paid the former reimbursement-on-cost which
means that it was paid the cost or expense that it incurred although
without profit. This is not true in the present case. Sony did not render
any service to SIS at all. The services rendered by the advertising
companies, paid for by Sony using SIS dole-out, were for Sony and not
SIS. SIS just gave assistance to Sony in the amount equivalent to the
latter's advertising expense but never received any goods, properties
or service from Sony. (CIR vs. Sony Philippines, Inc., GR No. 178697
dated November 17, 2010)

Mandatory VAT Registration: Formula in determining whether a taxpayer should register for VAT:
a. Gross sales or receipts for the past twelve (12) months, other than Gross Sales or Receipts: xxx
those that are exempt under Sec. 109 (1)(A) to (BB) (should be AA) of Less: Gross Sales or Receipts (109(1) A to AA*): xxx
the Tax Code, have exceeded P3,000,000.00); or
Total xxx
b. There are reasonable grounds to believe that the taxpayer’s gross
sales or receipts for the next 12 months, other than those that are
exempt under Sec. 109 (1)(A) to (BB) (should be AA) of the Tax Code, Total compare with P3,000,000.00 threshold
will exceed P3,000,000.00; or
c. Franchise grantees of radio and television broadcasting, whose gross *Tax Code refers to it as BB
annual receipts for the preceding calendar year exceeded
P10,000,000.00.
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Optional VAT Registration: Optional VAT Registration:
a. Any person who is VAT-exempt under Sec. 109(1)(BB) not required c. Franchise grantees of radio and/or television broadcasting whose
to register for VAT may elect to be VAT-registered. annual gross receipts of the preceding year do not exceed
PhP10,000,000.00 derived from the business covered by the law
b. Any person who is VAT-registered but enters into transactions which granting the franchise may opt for VAT registration. This option, once
are exempt from VAT (mixed transactions) may opt that the VAT apply exercised, shall be irrevocable. (Sec. 119, Tax Code)
to his transactions which would have been exempt under Section
109(1) of the Tax Code, as amended. [Sec. 109(2)] Any person who elects to register under a. and b. shall not be allowed
to cancel his registration for the next three (3) years.
Main/Principal line of business must be subject to VAT applying the
predominance test. (RMC No. 46-2008 dated February 1, 2008)
General Principles VAT on Goods

Optional VAT Registration: Requisites:
Self-employed individuals and professionals availing of the 8% tax on 1. There is an actual or deemed sale, barter or exchange of goods or
gross sales and/or receipts are not qualified to avail of optional VAT properties for a valuable consideration;
Registration. 2. The sale is undertaken in the course of trade or business or exercise
of profession in the Philippines;
Note: 8% tax on gross sales and/or receipts is in lieu of the 3% 3. The goods or properties are located within the Philippines and are
percentage tax under Sec. 116. for use or consumption therein; and,
4. The sale is not exempt from VAT under Sec. 109 of the Tax Code,
special law, or international agreement binding upon the government
of the Philippines.
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VAT on Goods VAT on Goods

General Principles: Sale of Real Property Exempt from VAT:
1. In general, the tax base is the gross selling price. a. Sale of idle real property (one that is not used in business and not
booked as Property, Plant and Equipment);
2. Real property – held primarily for sale to customers or held for lease
in the ordinary course of trade or business of the seller. Exception: if b. Sale of real properties utilized for low-cost housing as defined by RA
the real property is used in business (incidental transaction). No. 7279, otherwise known as the "Urban Development and Housing
Act of 1992" and other related laws, such as RA No. 7835 and RA No.
3. Tax base of sale of real property subject to VAT is the gross selling 8763; (to be deleted effective January 1, 2021)
price or zonal value or market value, whichever is higher.

Sale of Real Property Exempt from VAT: VAT on Sale of Real Property also applies:
c. Sale of real properties utilized for socialized housing as defined If two or more adjacent residential lots are sold or disposed in favor of
under RA No. 7279, and other related laws, such as RA No. 7835 and one buyer, for the purpose of utilizing the lots as one residential lot,
RA No. 8763, wherein the price ceiling per unit is PhP450,000.00 or as the sale shall be exempt from VAT only if the aggregate value of the
may from time to time be determined by the HUDCC and the NEDA lots do not exceed P1,919,500.00. Adjacent residential lots, although
and other related laws; and, covered by separate titles and/or separate tax declarations, when sold
or disposed to one and the same buyer, whether covered by one or
d. Sale of residential lot valued at P1,919,500.00 and below (as separate Deed of Conveyance, shall be presumed as a sale of one
clarified by RR 13-2018 and to be deleted effective January 1, 2021), residential lot. (Revenue Regulations No. 13-2018 dated March 15,
or house & lot and other residential dwellings valued at P3,199,200.00 2018)
and below (as clarified by RR 13-2018, to be adjusted to
P2,000,000.00 effective January 1, 2021).
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Sale of Real Property on Installment: Sale of Real Property on Installment:
1. Sale of Real Property on Installment Plan – Initial Payments in the

year of the sale do not exceed 25% of the gross selling price. – VAT is
paid on installments.
2. Sale of Real Property on Deferred Payment Basis - Initial Payments in

the year of the sale exceed 25% of the gross selling price. – Considered
a cash sale. Thus, VAT is paid during the year of sale.
Initial Payments – payments which the seller receives before or upon

execution of the instrument of sale and payments which he expects or
is scheduled to receive during the year of sale.

Transactions Deemed Sale: Transactions Deemed Sale:
a. Transfer, use or consumption not in the course of business of goods c. Consignment of goods if actual sale is not made within 60 days
or properties originally intended for sale or for use in the course of following the date such goods were consigned. Consigned goods
business. Transfer of goods or properties not in the course of business returned by the consignee within the 60-day period are not deemed
can take place when VAT-registered person withdraws goods from his sold;
business for his personal use;
d. Retirement from or cessation of business with respect to all goods
b. Distribution or transfer to: (i) Shareholders or investors share in the on hand, whether capital goods, stock-in-trade, supplies or materials
profits of VAT-registered person; (ii) Creditors in payment of debt or as of the date of such retirement or cessation, whether or not the
obligation. business is continued by the new owner or successor. (Sec. 106(B) of
the NIRC)
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VAT on Goods VAT on Importation

Transactions Deemed Sale: General Principles:
The following circumstances shall, among others, give rise to 1. Importer is the one liable to pay the VAT and it is paid prior to the
transactions "deemed sale": release of goods from customs custody;
i. Change of ownership of the business. There is a change in the 2. VAT on importation is an NIRC tax but is collected by the Bureau of
ownership of the business when a single proprietorship Customs (“BOC”) (Sec. 12 of the NIRC);
incorporates; or the proprietor of a single proprietorship sells his
entire business. 3. The VAT shall be based on the total value used by the BOC in
ii. Dissolution of a partnership and creation of a new partnership determining customs duties, plus customs duties, excise tax, if any, and
which takes over the business. (RR No. 16-2005 dated September 1, other charges. If the basis in computing customs duties is based on
2005) volume or quantity of the imported goods, the VAT shall be based on
the landed cost. Landed cost consists of the invoice amount, customs
duties and other charges, including excise tax, if any. (Revenue
Regulations No. 16-05 dated September 1, 2015)
VAT on Importation VAT on Services

General Principles: Requisites:
4. VAT is imposed on goods brought into the Philippines whether for a. There is a sale or exchange of service or lease of property
use in business or not. enumerated in the law or other similar services;
b. The service is performed or to be performed in the Philippines;
5. In the case of goods imported into the Philippines by VAT-exempt c. The service is performed or to be performed in the course of the
persons, entities or agencies which are subsequently sold, transferred taxpayer’s trade or business or profession;
or exchanged in the Philippines to non-exempt persons or entities, the d. The service is performed or to be performed for a valuable
latter shall be considered the importers thereof and shall be liable for consideration actually or constructively received; and,
VAT due on such importation. The tax due on such importation shall e. The service is not exempt under the Tax Code, special law, or
constitute a lien on the goods, superior to all charges/or liens, international agreement.
irrespective of the possessor of said goods. Also, if this particular
scenario results in a deficiency VAT, a Preliminary Assessment Notice is
not required under Sec. 228 of the Tax Code. (Sec. 107 of the NIRC)
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VAT on Services VAT on Services

Gross Receipts: MEDICARD Phils., Inc. vs, CIR, GR No. 222743 dated April 5, 2017:
"Gross receipts" refers to the total amount of money or its equivalent Whether the amounts received by MEDICARD which are earmarked for
representing the contract price, compensation, service fee, rental or payment to doctors, hospitals and clinics are subject to VAT?
royalty, including the amount charged for materials supplied with the
services and deposits applied as payments for services rendered and
advance payments actually or constructively received during the
taxable period for the services performed or to be performed for
another person, excluding VAT.
Except: (1) amounts earmarked for payment to unrelated 3rd parties;

and, (2) amounts received as reimbursement for advance payments on
behalf of another which do not redound to the benefit of the payor.
Compare with amounts received as deposits.

MEDICARD Phils., Inc. vs, CIR, GR No. 222743 dated April 5, 2017: MEDICARD Phils., Inc. vs, CIR, GR No. 222743 dated April 5, 2017:
1. Amounts earmarked and eventually paid by HMOs (MEDICARD) to 2.a. Gross Receipts of HMOs under RR No. 16-2005:
medical service providers do not form part of gross receipts for VAT
purposes.
HMO's gross receipts shall be the total amount of money or its
equivalent representing the service fee actually or constructively
received during the taxable period for the services performed or to be
performed for another person, excluding the value-added tax. The
compensation for their services representing their service fee, is
presumed to be the total amount received as enrollment fee from
their members plus other charges received.
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2.b. Definition of Gross Receipts in general under RR No. 16-2005: 2.c. Definition of Gross Receipts in general under RR No. 4-2007:
Section 4.108-4. x x x. "Gross receipts" refers to the total amount of Gross receipts refers to the total amount of money or its equivalent
money or its equivalent representing the contract price, representing the contract price, compensation, service fee, xxx and
compensation, service fee, rental or royalty, including the amount deposits applied as payments for services rendered and advance
charged for materials supplied with the services and deposits applied payments actually or constructively received during the taxable period
as payments for services rendered, and advance payments actually or for the services performed or to be performed for another person,
constructively received during the taxable period for the services excluding the VAT, except those amounts earmarked for payment to
performed or to be performed for another person, excluding the VAT. unrelated third (3rd) party or received as reimbursement for advance
payment on behalf of another which do not redound to the benefit of
the payor.

3. The CTA En Banc overlooked that the definition of gross receipts 4. As to the CIR's argument that the act of earmarking or allocation is
under RR No. 16-2005 merely presumed that the amount received by by itself an act of ownership and management over the funds, the
an HMO as membership fee is the HMO's compensation for their Court does not agree. On the contrary, it is MEDICARD's act of
services. As a mere presumption, an HMO is, thus, allowed to establish earmarking or allocating 80% of the amount it received as membership
that a portion of the amount it received as membership fee does NOT fee at the time of payment that weakens the ownership imputed to it.
actually compensate it but some other person, which in this case are By earmarking or allocating 80% of the amount, MEDICARD
the medical service providers themselves. unequivocally recognizes that its possession of the funds is not in the
concept of owner but as a mere administrator of the same. For this
reason, at most, MEDICARD's right in relation to these amounts is a
mere inchoate owner which would ripen into actual ownership if, and
only if, there is underutilization of the membership fees at the end of
the fiscal year.
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MEDICARD Phils., Inc. vs, CIR, GR No. 222743 dated April 5, 2017: Whether the gross receipts derived by operators or proprietors of
cinema/theater houses from admission tickets are subject to VAT?
5. It is significant to note in this regard that MEDICARD established that
upon receipt of payment of membership fee it actually issued two 1. The enumeration of services subject to VAT under Section 108 of the
official receipts, one pertaining to the VATable portion, representing NIRC is not exhaustive.
compensation for its services, and the other represents the non-
vatable portion pertaining to the amount earmarked for medical A cursory reading of Sec. 108 of the Tax Code clearly shows that the
utilization. enumeration of the sale or exchange of services subject to VAT is not
exhaustive. The words, “including,” “similar services,” and “shall
likewise include,” indicate that the enumeration is by way of example
only.

SM Prime Holdings Case: SM Prime Holdings Case:
2.a. Among those included in the enumeration is the lease of motion 2.b. Since the activity of showing motion pictures, films or movies by
picture films, films, tapes and discs. This, however, is not the same as cinema/ theater operators or proprietors is not included in the
the showing or exhibition of motion pictures or films. enumeration, it is incumbent upon the court to the determine
whether such activity falls under the phrase similar services. The intent
Exhibition is defined as To show or display. x x x To produce anything in of the legislature must therefore be ascertained.
public so that it may be taken into possession. While the word lease is
defined as a contract by which one owning such property grants to
another the right to possess, use and enjoy it on specified period of
time in exchange for periodic payment of a stipulated price, referred to
as rent.
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SM Prime Holdings Case: SM Prime Holdings Case:
3.a. The legislature never intended operators or proprietors of 3.b. To hold otherwise would impose an unreasonable burden on
cinema/theater houses to be covered by VAT. Only lessors or cinema/theater houses operators or proprietors, who would be paying
distributors of cinematographic films are included in the coverage of an additional 10% VAT (now 12%) on top of the 30% amusement tax
VAT. (now 10%) imposed by Section 140 of the LGC of 1991, or a total of
40% tax. Such imposition would result in injustice, as persons taxed
under the NIRC of 1997 would be in a better position than those taxed
under the LGC of 1991. We need not belabor that a literal application
of a law must be rejected if it will operate unjustly or lead to absurd
results. Thus, we are convinced that the legislature never intended to
include cinema/theater operators or proprietors in the coverage of
VAT. (CIR vs. SM Prime Holdings, Inc., GR No. 183505 dated February
26, 2010)

Are Toll Fees collected by Tollway Operators subject to VAT? Diaz Case:
Petitioners’ main argument is that toll fees are taxes and to impose 1.a. In sum, fees paid by the public to tollway operators for use of the
VAT on toll fees would be imposing a tax on a tax. Hence, the argument tollways, are not taxes in any sense. A tax is imposed under the taxing
that the VAT on tolls fees would be a “tax on tax.” power of the government principally for the purpose of raising
revenues to fund public expenditures. Toll fees, on the other hand, are
collected by private tollway operators as reimbursement for the costs
and expenses incurred in the construction, maintenance and operation
of the tollways, as well as to assure them a reasonable margin of
income. Although toll fees are charged for the use of public facilities,
therefore, they are not government exactions that can be properly
treated as a tax. Taxes may be imposed only by the government under
its sovereign authority, toll fees may be demanded by either the
government or private individuals or entities, as an attribute of
ownership.
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Diaz Case: Diaz Case:
1.b.1. Parenthetically, VAT on tollway operations cannot be deemed a 1.b.2. Consequently, VAT on tollway operations is not really a tax on
tax on tax due to the nature of VAT as an indirect tax. In indirect the tollway user, but on the tollway operator. Under Section 105 of the
taxation, a distinction is made between the liability for the tax and Code, VAT is imposed on any person who, in the course of trade or
burden of the tax. The seller who is liable for the VAT may shift or pass business, sells or renders services for a fee. In other words, the seller
on the amount of VAT it paid on goods, properties or services to the of services, who in this case is the tollway operator, is the person liable
buyer. In such a case, what is transferred is not the seller’s liability but for VAT. The latter merely shifts the burden of VAT to the tollway user
merely the burden of the VAT. as part of the toll fees.
Thus, the seller remains directly and legally liable for payment of the
VAT, but the buyer bears its burden since the amount of VAT paid by
the former is added to the selling price. Once shifted, the VAT ceases
to be a tax and simply becomes part of the cost that the buyer must
pay in order to purchase the good(s), property or service.

Diaz Case: Diaz Case:
1.c. For this reason, VAT on tollway operations cannot be a tax on tax 2. Section 108(A) of the Code clearly states that services of all other
even if toll fees were deemed as a "user’s tax." VAT is assessed against franchise grantees are subject to VAT, except as may be provided under
the tollway operator’s gross receipts and not necessarily on the toll Section 119 of the Code. Tollway operators are not among the
fees. Although the tollway operator may shift the VAT burden to the franchise grantees subject to franchise tax under the latter provision.
tollway user, it will not make the latter directly liable for the VAT. The Neither are their services among the VAT-exempt transactions under
shifted VAT burden simply becomes part of the toll fees that one has to Section 109 of the Code. (Diaz vs. the SOF and the CIR, GR No. 193007
pay in order to use the tollways. dated July 19, 2011)
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Kinds of Franchise Grantees: Rules on lease of residential units:
1. Radio and /or television broadcasting – P10,000,000.00 threshold – 1.a. As a general rule, lease of real property is subject to VAT. However,
VAT/3% percentage tax; Lease of residential units with a monthly rental per unit not
2. Gas and Water utilities – 2% percentage tax; exceeding P15,000.00, regardless of the amount of aggregate rentals
3. Others – P3,000,000.00 threshold / 3% percentage tax; received by the lessor during the year are exempt from VAT.

Rules on lease of residential units: Rules on lease of residential units:
1.b. Residential unit - The term “residential units” shall refer to 2. Lease of residential units where the monthly rental per unit exceeds
apartments and houses & lots used for residential purposes, and P15,000.00 but the aggregate of such rentals of the lessor during the
buildings or parts or units thereof used solely as dwelling places (e.g., year do not exceed P3,000,000.00 shall likewise be exempt from VAT,
dormitories, rooms and bed spaces) except motels, motel rooms, however, the same shall be subjected to 3% percentage tax.
hotels, hotel rooms, lodging houses, inns and pension houses. The
term “unit” shall mean an apartment unit in the case of apartments,
house in the case of residential houses; per person in the case of
dormitories, boarding houses and bed spaces; and per room in case of
rooms for rent.
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Rules on lease of residential units: Rules on Common Carriers:
3. If the lessor has several residential units for lease, some are leased 1.a. Common carriers by land with respect to their gross receipts from
out for a monthly rental per unit of not exceeding P15,000.00 while the transport of passengers including operators of taxicabs, utility cars
others are leased out for more than P15,000.00 per unit: for rent or hire driven by the lessees (rent-a-car companies), and
tourist buses used for the transport of passengers shall be subject to
a. The gross receipts from rentals not exceeding P15,000.00 per month the percentage tax imposed under Sec. 117 of the Tax Code, but shall
per unit shall be exempt from VAT regardless of the aggregate annual not be liable for VAT;
gross receipts.
b. The gross receipts from rentals exceeding P15,000.00 per month per 1.b. Common carriers by land with respect to their gross receipts from
unit shall be subject to VAT if the aggregate annual gross receipts from the transport of goods are subject to VAT;
said units only (not including the gross receipts from units leased for
not more than P15,000.00) exceeds P3,000,000.00. Otherwise, the
gross receipts will be subject to the 3% tax imposed under Section 116
of the Tax Code.

Rules on Common Carriers: Rules on Common Carriers:
2.a. Domestic common carriers by air and sea are subject to 12% VAT 3.a. Gross receipts derived from transport of cargo from the
on their gross receipts from their transport of passengers, goods or Philippines to another country by international carriers doing
cargoes from one place in the Philippines to another place in the business in the Philippines are liable to the 3% percentage tax under
Philippines; Sec. 118 of the Tax Code.
2.b. Transport of passengers and cargo by domestic air or sea carriers 3.b. Transport of passengers by international carriers shall be exempt
from the Philippines to a foreign country are subject to 0% VAT; from VAT under 109(1)(S) of the Tax Code.
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Other Rules: Other Rules:
1. Sale of electricity by generation, transmission, and distribution 3. PAGCOR is exempt from VAT by virtue of its charter, PD 1869 in
companies shall be subject to 12% VAT on their gross receipts; relation to Sec. 109(1)(K). (PAGCOR vs. CIR, GR Nos. 210689-90 dated
Provided, That sale of power or fuel generated through renewable November 22, 2017)
sources of energy such as, but not limited to, biomass, solar, wind,
hydropower, geothermal, ocean energy, and other emerging energy 4. Services rendered by Health Maintenance Organizations (HMOs) are
sources using technologies such as fuel cells and hydrogen fuels shall subject to VAT. HMOs are entities, organized in accordance with the
be subject to 0% VAT. provisions of the Corporation Code of the Philippines and licensed by
the appropriate government agency, which arranges for coverage or
2. Dealers in securities and lending investors shall be subject to VAT on designated managed care services needed by plan holders/members
the basis of their gross receipts. However, for Dealer in Securities, the for fixed prepaid membership fees and for a specified period of time.
term "gross receipts" means gross selling price less cost of the Except if the HMO renders medical services – exempt under Sec.
securities sold. 109(1)(G).
VAT on Services Zero-rated Sales and Exempt Sales

Other Rules: Zero Rated Sale of Goods:
5. Professionals - These includes lawyers, doctors, those who passed (a) Export Sales. - The term 'export sales' means:
the applicable licensure exams conducted by the PRC, actors/actresses,
talents, singers, emcees, radio/television broadcasters,
(1) The sale and actual shipment of goods from the Philippines to a
choreographers, musical/radio/movie/television/stage directors, and foreign country, irrespective of any shipping arrangement that may be
professional athletes. agreed upon which may influence or determine the transfer of
ownership of the goods so exported and paid for in acceptable foreign
6. Services of banks, non-bank financial intermediaries performing currency or its equivalent in goods or services, and accounted for in
quasi-banking functions, and other non-bank financial intermediaries accordance with the rules and regulations of the Bangko Sentral ng
are subject to percentage tax under Secs. 121 and 122 of the Tax Code, Pilipinas,(BSP);
such as money changers and pawnshops.
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Zero-rated Sales and Exempt Sales Zero-rated Sales and Exempt Sales
Zero Rated Sale of Goods: Zero Rated Sale of Goods:
(a) Export Sales. - The term 'export sales' means: (a) Export Sales. - The term 'export sales' means:
(3) Sale of raw materials or packaging materials to a nonresident buyer (4) Sale of raw materials or packaging materials to export-oriented
for delivery to a resident local export-oriented enterprise to be used in enterprise whose export sales exceed seventy percent (70%) of total
manufacturing, processing, packing or repacking in the Philippines of annual production;
the said buyer's goods and paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the (5) Those considered export sales under Executive Order No. 226,
Bangko Sentral ng Pilipinas (BSP): otherwise known as the Omnibus Investment Code of 1987, and other
special laws; and,
Zero Rated Sale of Goods: Zero Rated Sale of Goods:
(a) Export Sales. - The term 'export sales' means: (b) Sales to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory
effectively subjects such sales to zero rate.
(6) The sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air transport
operations: Provided, That the goods, supplies, equipment and fuel Note: Foreign Currency Denominated Sale previously under Sec.
shall be used for international shipping or air transport operations. 106(A)(2)(b) – deleted by the TRAIN Law.
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Zero Rated Sale of Services: Zero Rated Sale of Services:
The following services performed in the Philippines by VAT-registered (2) Services other than those mentioned in the preceding paragraph
persons shall be subject to zero percent (0%) rate: rendered to a person engaged in business conducted outside the
Philippines or to a nonresident person not engaged in business who
(1) Processing, manufacturing or repacking goods for other persons is outside the Philippines when the services are performed, the
doing business outside the Philippines which goods are subsequently consideration for which is paid for in acceptable foreign currency and
exported, where the services are paid for in acceptable foreign accounted for in accordance with the rules and regulations of the
currency and accounted for in accordance with the rules and Bangko Sentral ng Pilipinas (BSP);
regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) Services rendered to persons or entities whose exemption under
special laws or international agreements to which the Philippines is a
signatory effectively subjects the supply of such services to zero
percent (0%) rate;
Zero Rated Sale of Services: Zero Rated Sale of Services:
(4) Services rendered to persons engaged in international shipping or (7) Sale of power or fuel generated through renewable sources of
international air transport operations, including leases of property for energy such as, but not limited to, biomass, solar, wind, hydropower,
use thereof: Provided, That these services shall be exclusively for geothermal, ocean energy, and other emerging energy sources using
international shipping or air transport operations; technologies such as fuel cells and hydrogen fuels.
(5) Services performed by subcontractors and/or contractors in

processing, converting, or manufacturing goods for an enterprise
whose export sales exceed seventy percent (70%) of total annual
production;
(6) Transport of passengers and cargo by air or sea vessels from the
Philippines to a foreign country (Domestic Carrier); and,
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Correlation Between: Zero-Rated Sale vs. Exempt Sale:
1. Sale of raw materials or packaging materials to a nonresident buyer 1. A zero-rated sale is a taxable transaction but does not result in an
for delivery to a resident local export-oriented enterprise to be used in output tax while an exempted transaction is not subject to the output
manufacturing, processing, packing or repacking in the Philippines of tax;
the said buyer's goods and paid for in acceptable foreign currency and 2. The input VAT on the purchases of a VAT-registered person with
accounted for in accordance with the rules and regulations of the zero-rated sales may be allowed as tax credits or refunded while the
Bangko Sentral ng Pilipinas (BSP); [Sec. 106(A)(2)(a)(2)] seller in an exempt transaction is not entitled to any input tax on his
purchases despite the issuance of a VAT invoice or receipt; and,
2. Processing, manufacturing or repacking goods for other persons 3. Persons engaged in transactions which are zero-rated, being subject
doing business outside the Philippines which goods are subsequently to VAT, are required to register while registration is optional for VAT-
exported, where the services are paid for in acceptable foreign exempt persons. (CIR vs. Cebu Toyo Corp., GR No. 149073 dated
currency and accounted for in accordance with the rules and February 16, 2005)
regulations of the Bangko Sentral ng Pilipinas (BSP); [Sec. 108(B)(1)]
Automatic vs. Effectively Zero-Rated Sales: Automatic vs. Effectively Zero-Rated Sales:
1. Zero-rated transactions (automatic) generally refer to the export 2. Automatic zero rating is primarily intended to be enjoyed by the
sale of goods and supply of services. Effectively zero-rated seller who is directly and legally liable for the VAT, making such seller
transactions, however, refer to the sale of goods or supply of services internationally competitive by allowing the refund or credit of input
to persons (made by a VAT-registered person) or entities whose taxes that are attributable to export sales. Effective zero rating, on the
exemption under special laws or international agreements to which contrary, is intended to benefit the purchaser who, not being directly
the Philippines is a signatory effectively subjects such transactions to a and legally liable for the payment of the VAT, will ultimately bear the
zero rate. burden of the tax shifted by the suppliers. (CIR vs. Seagate Technology
(Philippines), GR No. 153866 dated February 11, 2005)
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Exempt Party vs. Exempt Transaction: Exempt Party vs. Exempt Transaction:
1. An exempt transaction, on the one hand, involves goods or services 2. An exempt party, on the other hand, is a person or entity granted
which, by their nature, are specifically listed in and expressly exempted VAT exemption under the Tax Code, a special law or an international
from the VAT under the Tax Code, without regard to the tax status — agreement to which the Philippines is a signatory, and by virtue of
VAT-exempt or not — of the party to the transaction. Indeed, such which its taxable transactions become exempt from the VAT. Such
transaction is not subject to the VAT, but the seller is not allowed any party is also not subject to the VAT, but may be allowed a tax refund of
tax refund of or credit for any input taxes paid. or credit for input taxes paid, depending on its registration as a VAT or
non-VAT taxpayer. (CIR vs. Seagate Technology (Philippines), GR No.
153866 dated February 11, 2005)
Important VAT Exempt Transactions: Important VAT Exempt Transactions:
1. Sale or importation of agricultural and marine food products in their 2. Importation of personal and household effects belonging to
original state, livestock and poultry of a kind generally used as, or residents of the Philippines returning from abroad and non-resident
yielding or producing foods for human consumption; and breeding citizens coming to resettle in the Philippines; Provided, that such goods
stock and genetic materials therefor. are exempt from customs duties under the Tariff and Customs Code of
the Philippines; [Sec. 109(1)(C)]
Products classified under this paragraph shall be considered in their
original state even if they have undergone the simple processes of 3. Services subject to percentage tax under Title V of the Tax Code;
preparation or preservation for the market, such as freezing, drying, [Sec. 109(1)(E)]
salting, broiling, roasting, smoking or stripping. Polished and/or husked
rice, corn grits, raw cane sugar and molasses, ordinary salt, and copra 4. Medical, dental, hospital and veterinary services, except those
shall be considered in their original state; [Sec. 109(1)(A)] rendered by professionals. [Sec. 109(1)(G)]
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5.a. Importation of professional instruments and implements, tools of 5.b. Provided, That the BOC may, upon the production of satisfactory
trade, occupation or employment, wearing apparel, domestic animals, evidence that such persons are actually coming to settle in the
and personal and household effects belonging to persons coming to Philippines and that the goods are brought from their former place of
settle in the Philippines or Filipinos or their families and descendants abode, exempt such goods from payment of duties and taxes:
who are now residents or citizens of other countries, such parties Provided, further, That vehicles, vessels, aircrafts, machineries and
hereinafter referred to as overseas Filipinos, in quantities and of the other similar goods for use in manufacture, shall not fall within this
class suitable to the profession, rank or position of the persons classification and shall therefore be subject to duties, taxes and other
importing said items, for their own use and not for barter or sale, charges; [Sec. 109(1)(D)] – as amended by the TRAIN Law.
accompanying such persons, or arriving within a reasonable time:
6.a. Educational services rendered by private educational institutions, 6.b. "Educational services" shall refer to academic, technical or
duly accredited by the Department of Education (DepEd), the vocational education provided by private educational institutions duly
Commission on Higher Education (CHED), the Technical Education and accredited by the DepED, the CHED and TESDA and those rendered by
Skills Development Authority (TESDA) and those rendered by government educational institutions and it does not include seminars,
government educational institutions; [Sec. 109(1)(H)] in-service training, review classes and other similar services rendered
by persons who are not accredited by the DepED, the CHED and/or the
TESDA;
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6.c. When a non-stock, non-profit educational institution proves that it 7. Services rendered by individuals pursuant to an employer-employee
uses its revenues actually, directly, and exclusively for educational relationship; [Sec. 109(1)(I)]
purposes, it shall be exempted from income tax, VAT, and LBT. (CIR vs.
De La Salle University, Inc., GR No. 196596 dated November 9, 2016) 8. Transactions which are exempt under international agreements to
which the Philippines is a signatory or under special laws except those
granted under PD No. 529 — Petroleum Exploration Concessionaires
under the Petroleum Act of 1949; [Sec. 109(1)(K)]
9. Export sales by persons who are not VAT-registered; [Sec. 109(1)(O)]
10. Sale, importation, printing or publication of books and any 13. Transfer of property pursuant to Section 40(C)(2) of the NIRC, as
newspaper, magazine, review, or bulletin which appears at regular amended; [Sec. 109(1)(X)]
intervals with fixed prices for subscription and sale and which is not
devoted principally to the publication of paid advertisements; [Sec. 14. Association dues, membership fees, and other assessments and
109(1)(R)] charges collected by homeowners associations and condominium
corporations; [Sec. 109(1)(Y)]
11. Transport of passengers by international carriers; [Sec. 109(1)(S)]
15. Sale of gold to the Bangko Sentral ng Pilipinas (BSP); [Sec.
12. Sale or lease of goods and services to senior citizens and persons 109(1)(Z)]
with disability, as provided under Republic Act Nos. 9994 (Expanded
Senior Citizens Act of 2010) and 10754 (An Act Expanding the Benefits
and Privileges of Persons With Disability), respectively; [Sec.
109(1)(W)]
34
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Important VAT Exempt Transactions: CIR vs. United Cadiz Sugar Farmers Association Multi Purpose
Cooperative, GR No. 209776 dated December 7, 2016:
16. Sale of drugs and medicines prescribed for diabetes, high
cholesterol, and hypertension beginning January 1, 2019; [Sec. Whether the sale of sugar by a cooperative is exempt from VAT?
109(1)(AA)] and,
17. Sale or lease of goods or properties or the performance of services

other than the transactions mentioned in the preceding paragraphs,
the gross annual sales and/or receipts do not exceed the amount of
Three million pesos (₱3,000,000.00). [Sec. 109(1)(BB)]
CIR vs. United Cadiz Sugar Farmers Association Multi Purpose CIR vs. United Cadiz Sugar Farmers Association Multi Purpose
Cooperative, GR No. 209776 dated December 7, 2016: Cooperative, GR No. 209776 dated December 7, 2016:
1.a. Certain transactions are exempted from the imposition of VAT. 1.b. Sugar is an agricultural food product. Notably, tax regulations
One exempted transaction is the sale of agricultural food products in differentiate between raw sugar and refined sugar.
their original state. Agricultural food products that have undergone
simple processes of preparation or preservation for the market are For internal revenue purposes, the sale of raw cane sugar is exempt
nevertheless considered to be in their original state. from VAT because it is considered to be in its original state. On the
other hand, refined sugar is an agricultural product that can no longer
be considered to be in its original state because it has undergone the
refining process; its sale is thus subject to VAT.
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2.a. Although the sale of refined sugar is generally subject to VAT, such 2.b. Second, the cooperative must sell either:
transaction may nevertheless qualify as a VAT-exempt transaction if
the sale is made by a cooperative. Under Section 109(1)(L) of the NIRC, 1) exclusively to its members; or
sales by agricultural cooperatives are exempt from VAT provided the
following conditions concur: 2) to both members and non-members, its produce, whether in its
original state or processed form.
First, the seller must be an agricultural cooperative duly registered

with the CDA. An agricultural cooperative is "duly registered" when it
has been issued a certificate of registration by the CDA. This
certificate is conclusive evidence of its registration.
2.c. The second requisite differentiates cooperatives according to its 3. In sum, the sale of refined sugar by an agricultural cooperative duly
customers. If the cooperative transacts only with members, all its registered with the CDA is exempt from VAT. A qualified cooperative
sales are VAT-exempt, regardless of what it sells. On the other hand, if also enjoys exemption from the requirement of advance payment of
it transacts with both members and non-members, the product sold VAT upon withdrawal from the refinery/mill. The agricultural
must be the cooperative's own produce in order to be VAT-exempt. cooperative's exemption from the requirement of advance payment is
Stated differently, if the cooperative only sells its produce or goods a logical consequence of the exemption from VAT of its sales of refined
that it manufactures on its own, its entire sales is VAT-exempt. sugar.
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Input Tax Input Tax

Substantiation Requirements:
Output tax - VAT on the sale of goods or services.
Input tax - VAT on the purchase of goods or services. 1. For the domestic purchase of goods and properties — invoice
showing the information required under Secs. 113 and 237 of the Tax
Code.
Formula:
2. For the purchase of real property — public instrument i.e., deed of
Output Tax: xxx absolute sale, deed of conditional sale, contract/agreement to sell,
Input Tax: (xxx) etc., together with VAT invoice issued by the seller.
VAT payable: xxx
3. For the purchase of services — official receipt showing the
information required under Secs. 113 and 237 of the Tax Code.
Input Tax Input Tax

Substantiation Requirements: When to Claim Input Tax:
4. For the importation of goods – import entry or other equivalent 1. To the importer upon payment of VAT prior to the release of goods
document showing actual payment of VAT on the imported goods. from customs custody;
2. To the purchaser of the domestic goods or properties upon
consummation of the sale; or
3. To the purchaser of services or the lessee or licensee upon payment
of the compensation, rental, royalty or fee.
37
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Input Tax Input Tax

Special Rule on Capital Goods: Special Rule on Capital Goods:
Purchase or importation of capital goods, which are depreciable assets 3. Provided, further, That the amortization of the input VAT shall only
for income tax purposes, the aggregate acquisition cost of which be allowed until December 31, 2021 after which taxpayers with
(exclusive of VAT) in a calendar month exceeds One Million pesos unutilized input VAT on capital goods purchased or imported shall be
(P1,000,000.00), regardless of the acquisition cost of each capital allowed to apply the same as scheduled until fully utilized.
good:
1. If the estimated useful life of a capital good is five (5) years or more
— The input tax shall be spread evenly over a period of sixty (60)
months;
2. If the estimated useful life of a capital good is less than five (5) years
— The input tax shall be spread evenly on a monthly basis by dividing
the input tax by the actual number of months comprising the
estimated useful life of a capital good.
Input Tax Input Tax

Input Tax on Capital Goods illustration: May the VAT on subsidized expenses paid for by a Subsidiary (Sony)
Month of Amount PhP 12% Input Useful No. of Last Month using the “dole out” or “subsidy” by its Parent Company (SIS) be
Purchase PhP Tax Life Monthly Amortization claimed as input VAT credits?
Amortization
Jan 18 8,500,000.00 1,020,000.00 6 years 60 Dec 22
Feb 18 8,500,000.00 1,020,000.00 4 years 48 Jan 22 The CIR contends that since Sony’s advertising expense was
Dec 21 10,000,000.00 1,200,000.00 5 years 60 Nov 26 reimbursed by SIS, the former never incurred any advertising expense.
Jan 22 10,000,000.00 1,200,000.00 5 years - *Outright claim As a result, Sony is not entitled to a tax credit. At most, the CIR
on January 2022 continues, the said advertising expense should be for the account of
SIS, and not Sony.
38
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Input Tax Input Tax

CIR vs. Sony Philippines, Inc., GR No. 178697 dated November 17, Transitional Input Tax:
2010:
1. Statutory Provision?
Sony’s deficiency VAT assessment stemmed from the CIR’s
disallowance of the input VAT credits that should have been realized
A person who becomes liable to value-added tax or any person who
from the advertising expense of the latter. It is evident under Section elects to be a VAT-registered person shall, subject to the filing of an
110 of the 1997 Tax Code that an advertising expense duly covered by inventory according to rules and regulations prescribed by the
a VAT invoice (now VAT OR) is a legitimate business expense. Secretary of Finance, upon recommendation of the Commissioner, be
xxx. There is also no denying that Sony incurred advertising expense. allowed input tax on his beginning inventory of goods, materials and
(The BIR examiner) testified that advertising companies issued invoices supplies equivalent to two percent (2%) of the value of such inventory
in the name of Sony and the latter paid for the same. Indubitably, or the actual value-added tax paid on such goods, materials and
Sony incurred and paid for advertising expense/ services. Where the supplies, whichever is higher, which shall be creditable against the
money came from is another matter all together but will definitely not output tax. [Sec. 111(A)]
change said fact.
Input Tax Input Tax

Transitional Input Tax: Transitional Input Tax:
2. Who are entitled to claim? 3. How much Transitional Input Tax?
a. Taxpayers who became VAT-registered persons upon exceeding the The transitional input tax shall be two percent (2%) of the value of the
minimum turnover of P3,000,000.00 in any 12-month period, or beginning inventory on hand or actual VAT paid on such, goods,
b. Who voluntarily register even if their turnover does not exceed materials and supplies, whichever is higher, which amount shall be
P3,000,000.00 (except franchise grantees of radio and television creditable against the output tax of VAT-registered person. The value
broadcasting whose threshold is P10,000,000.00). allowed for income tax purposes on inventories shall be the basis for
the computation of the 2% transitional input tax, excluding goods that
are exempt from VAT under Sec. 109 of the Tax Code.
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Input Tax Input Tax

Transitional Input Tax: Fort Bonifacio Development Corporation vs. CIR, GR No. 173425
dated September 4, 2012:
4. Rationale For Grant of Transitional Input Tax? The transitional input
tax credit operates to benefit newly VAT-registered persons. During a. Whether prior payment of taxes is necessary in order to claim
that period of transition from non-VAT to VAT status, the transitional transitional input VAT under Sec. 111(A) of the Tax Code?
input tax credit serves to alleviate the impact of the VAT on the b. Whether Sec. 4.105-1 of RR No. 7-95 is consistent with the Tax Code
taxpayer. At the very beginning, the VAT-registered taxpayer is obliged in so far as it limits the transitional input VAT to the improvements on
to remit a significant portion of the income it derived from its sales as the land?
output VAT. 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 remittance of the output VAT at
a stage when the person is yet unable to credit input VAT payments.
(Fort Bonifacio Development vs. CIR, GR No. 158885 dated April 2,
2009)
Input Tax Input Tax

Fort Bonifacio Development Corporation vs. CIR, GR No. 173425 Fort Bonifacio Development Corporation vs. CIR, GR No. 173425
dated September 4, 2012: dated September 4, 2012:
1.a. Prior payment of taxes is not required for a taxpayer to avail of the 1.b. To require prior payment of taxes, is not only tantamount to
transitional input VAT credit. There is nothing in Sec. 111(A) of the Tax judicial legislation but would also render nugatory the provision that
Code that indicates that prior payment of taxes is necessary for the the transitional input tax credit shall be 2% of the value of [the
availment of the 2% transitional input tax credit. Obviously, all that is beginning] inventory or the actual [VAT] paid on such goods, materials
required is for the taxpayer to file a beginning inventory with the BIR. and supplies, whichever is higher" because the actual VAT paid on the
goods, materials, and supplies would always be higher than the 2% of
the beginning inventory. Clearly, limiting the value of the beginning
inventory only to goods, materials, and supplies, where prior taxes
were paid, was not the intention of the law. Otherwise, it would have
specifically stated that the beginning inventory excludes goods,
materials, and supplies where no taxes were paid.
40
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Input Tax Input Tax

Fort Bonifacio Development Corporation vs. CIR, GR No. 173425 Fort Bonifacio Development Corporation vs. CIR, GR No. 173425
dated September 4, 2012: dated September 4, 2012:
1.c. Moreover, prior payment of taxes is not required to avail of the 2.a. As regards Section 4.105-147 of RR No. 7-95 which limited the 2%
transitional input tax credit because it is not a tax refund per se but a transitional input tax credit to the value of the improvements on the
tax credit. Tax credit is not synonymous to tax refund. Tax refund is land, the same contravenes Sec. 105 of the old NIRC, which defines
defined as the money that a taxpayer overpaid and is thus returned by "goods or properties," to wit:
the taxing authority. Tax credit, on the other hand, is an amount
subtracted directly from one’s total tax liability. It is any amount given (1) The term "goods or properties" shall mean all tangible and
to a taxpayer as a subsidy, a refund, or an incentive to encourage intangible objects which are capable of pecuniary estimation and shall
investment. Thus, unlike a tax refund, prior payment of taxes is not a include:
prerequisite to avail of a tax credit.
(A) Real properties held primarily for sale to customers or held for
lease in the ordinary course of trade or business; xxx
Input Tax Input Tax

Fort Bonifacio Development Corporation vs. CIR, GR No. 173425 Presumptive Input Tax:
dated September 4, 2012:
Persons or firms engaged in the processing of sardines, mackerel, and
2.b. As mandated by Article 7 of the Civil Code, an administrative rule milk, and in manufacturing refined sugar, cooking oil and packed
or regulation cannot contravene the law on which it is based. RR No. 7- noodle-based instant meals, shall be allowed a presumptive input tax,
95 is inconsistent with Section 105 insofar as the definition of the term creditable against the output tax, equivalent to four percent (4%) of
"goods" is concerned. This is a legislative act beyond the authority of the gross value in money of their purchases of primary agricultural
the CIR and the Secretary of Finance. products which are used as inputs to their production. [Sec. 111(B)]
As we see it then, the 2% transitional input tax credit should not be

limited to the value of the improvements on the real properties but
should include the value of the real properties as well.
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VAT Refund under Sec. 112 VAT Refund under Sec. 112
Excess Input VAT: Illustration of Sec. 112(A):
1. Attributable to a zero-rated transaction – Sec. 112(A); and, For the 1st Quarter of 2018, X a VAT-registered person purchased
2. At time of cancellation of VAT registration – Sec. 112(B). P10,000.00 (VAT exclusive) worth of goods from Z, also a VAT-
registered person and subsequently sold the same for P30,000.00 to
the Asian Development Bank (VAT exclusive).
1st Quarter VAT return:

Output Tax: (P30,000.00 x 0%) P -
Input Tax: 1,200.00
VAT payable: P(1,200.00)
Illustration of Sec. 112(B): May the taxpayer a claim for refund inadvertently unclaimed input
VAT?
For the year 2019, XYZ Corporation’s latest quarterly VAT return shows
the following data:
VAT return filed Should be
Output VAT 1,000,000.00 1,000,000.00
2nd Quarter VAT return:
Input VAT 2,200,000.00 2,500,000.00
Output Tax: (P30,000.00 x 12%) P 3,600.00 VAT Payable (1,200,000.00) (1,500,000.00)
Input Tax: 10,000,200.00
VAT payable: P (9,996,660.00)
Taxpayer files a refund for P300,000.00.
XYZ Corporation decides to permanently cease its business operations
effective July 31, 2019.
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Coca-Cola Case: Coca-Cola Case:
1.a. Petitioner, in advancing its claim for refund or tax credit, cannot 1.b. Under the VAT System, there is no claim or issue that the input
rely on Section 229 of the Tax Code. Time and again, the Court had VAT is "excessively" collected, that is, that the input VAT paid is more
consistently ruled on the inapplicability of Section 229 to claims for the than what is legally due. The person legally liable for the input VAT
recovery of unutilized input VAT. In CIR v. San Roque Power Corporation cannot claim that he overpaid the input VAT by the mere existence of
(San Roque), the Court explained that input VAT is not "excessively" an "excess" input VAT. The term "excess" input VAT simply means
collected as understood under Section 229 because at the time the that the input VAT available as credit exceeds the output VAT, not
input VAT is collected, the amount paid is correct and proper. If said that the input VAT is excessively collected because it is more than
input VAT is in fact "excessively" collected as understood under Section what is legally due. Thus, the taxpayer who legally paid the input VAT
229, then it is the person legally liable to pay the input VAT, and not cannot claim for refund or credit of the input VAT as "excessively"
the person to whom the tax is passed on and who is applying the input collected under Section 229.
VAT as credit for his own output VAT, who can file the judicial claim for
refund or credit outside the VAT system.
Coca-Cola Case: Coca-Cola Case:
2. In addition, neither can petitioner advance its claim for refund or tax 3.a. It is clear, that neither the law nor jurisprudence authorize
credit under Sections 110 (B) and 112 (A) of the Tax Code. A plain and petitioner's claim for refund or issuance of tax credit. In asserting its
simple reading of the aforequoted provisions reveals that if and when alleged right to said claim, petitioner unfortunately failed to convince
the input tax exceeds the output tax, the excess shall be carried over the Court that it is entitled to the refund or credit of input VAT in the
to the succeeding quarter or quarters. It is only when the sales of a amount of P123,459,647.70 it inadvertently failed to include in its VAT
VAT-registered person are zero-rated or effectively zero-rated that he Return. This is because as shown above, petitioner's claim is not
may have the option of applying for the issuance of a tax credit governed by Section 229 as an ordinary refund or credit outside of
certificate or refund of creditable input tax due or paid attributable to the VAT System as the same does not involve a tax that is
such sales. "erroneously, illegally, excessively, or in any manner wrongfully
collected." Neither is said claim authorized under Sections 110(B)
and 112(A) as the same does not seek to refund or credit input tax
due or paid attributable to zero-rated or effectively zero-rated sales.
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Coca-Cola Case: Compare with:
3.b. Even assuming, for argument's sake, that petitioner's application

for refund or issuance of tax credit is permitted under case law as well
VAT return filed Should be
as the provisions of the tax code, said claim must nonetheless fail in Output VAT 2,000,000.00 2,000,000.00
view of petitioner's failure to properly substantiate the same. xxx. Input VAT 1,200,000.00 2,500,000.00
VAT Payable 800,000.00 (500,000.00)
Considering that petitioner did not pay any VAT for the 1st quarter of
2008, it did not overpay its taxes due for the 1st quarter of 2008.
Thus, there is no basis for petitioner to ask for refund of erroneously
paid output VAT. (Coca-Cola Bottlers Phils., Inc., vs. CIR, GR No. 222428 Can the taxpayer file a claim for refund?
dated February 19, 2018.
Administrative Claim for Refund: Procedural Rules common to Sec. 112(A) and (B):
1. Excess Input Tax attributable to a Zero-Rated Transaction – Two (2) 1. The claim for refund must be accompanied by complete supporting
years from close of the taxable quarter when the sales were made. documents.
2. The taxpayer-claimant shall also attach a notarized sworn
2. Excess Input Tax upon Cancellation of VAT Registration – Two (2) certification attesting to the completeness and veracity of the
years from cancellation of VAT registration. documents submitted. Claim shall be processed based on documents
submitted, as well as the books of accounts and accounting records,
presented by the taxpayer-claimant.
3. Failure of the part of the taxpayer-claimant to submit the relevant
vital document/s in support of his/its claim upon filing of the
application shall result to the non-acceptance of the application, and
failure to present the books of accounts and accounting records
relevant to the claim is a ground for its denial.
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Procedural Rules on Administrative Claim for Refund – Sec. 112(A): Procedural Rules on Administrative Claim for Refund – Sec. 112(A):
1.a. In Atlas Consolidated Mining and Development Corporation v. 1.b. However, this was overtuned in CIR v. Mirant Pagbilao Corporation
Commissioner of Internal Revenue, GR Nos. 141104 & 148763 dated (Mirant), GR No. 172129 dated 12 September 2008 wherein the
June 8, 2007, the Supreme Court held that the two-year prescriptive Supreme Court held that the two-year prescriptive period to file a
period for filing a claim for input tax is reckoned from the date of the refund for input VAT arising from zero-rated sales should be reckoned
filing of the quarterly VAT return and payment of the tax due. If the from the close of the taxable quarter when the sales were made.
said period is about to expire but the BIR has not yet acted on the
application for refund, the taxpayer may interpose a petition for
review with this Court within the two year period.
Procedural Rules on Administrative Claim for Refund – Sec. 112(B): Rules on Judicial Claim for Refund:
1. The date of cancellation is the date of issuance of tax clearance by 1. San Roque Doctrine – old rule:
the BIR, after full settlement of all tax liabilities relative to cessation of
business or change of status of the concerned taxpayer; and,
a. The taxpayer can file an appeal in one of two ways: (1) file the
judicial claim within thirty days after the Commissioner denies the
2. Filing of the claim (for refund) shall be made only after completion claim within the 120-day period, or (2) file the judicial claim within
of the mandatory audit of all internal revenue tax liabilities covering thirty days from the expiration of the 120-day period if the
the immediately preceding year and the short period return and the Commissioner does not act within the 120-day period.
issuance of the applicable tax clearance. b. The 30-day period always applies, whether there is a denial or
inaction on the part of the CIR.
c. As a general rule, the 30-day period to appeal is both mandatory
and jurisdictional. (Aichi and San Roque)
45
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Rules on Judicial Claim for Refund: Rules on Judicial Claim for Refund:
1. San Roque Doctrine – old rule: 3.a. TRAIN Law:
d. As an exception to the general rule, premature filing is allowed only Period within which Refund of Input Taxes shall be Made.— In proper
if filed between 10 December 2003 and 5 October 2010, when BIR cases, the Commissioner shall grant a refund for creditable input taxes
Ruling No. DA-489-03 was still in force. (San Roque) within ninety (90) days from the date of submission of the official
receipts or invoices and other documents in support of the application
e. Late filing is absolutely prohibited, even during the time when BIR filed in accordance with Subsections (A) and (B) hereof: Provided, That
Ruling No. DA-489-03 was in force. (San Roque) [Mindanao II should the Commissioner find that the grant of refund is not proper,
Geothermal Partnership vs. CIR GR No. 191498 dated January 15, the Commissioner must state in writing the legal and factual basis for
2014] the denial.
3.b. TRAIN Law: 4. TRAIN Law:
In case of full or partial denial of the claim for tax refund, the taxpayer Salient Features:
affected may, within thirty (30) days from the receipt of the decision
denying the claim, appeal the decision with the Court of Tax Appeals: 1. Provision on tax credit was deleted. Impliedly, if proper, the CIR shall
Provided, however, That failure on the part of any official, agent, or grant the cash refund within 90 days from submission of official
employee of the BIR to act on the application within the ninety (90)- receipts or invoices and other documents.
day period shall be punishable under Section 269 of this Code.
2. No provision allowing the taxpayer to appeal to the CTA by way of

inaction.
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5. TRAIN Law: 6. TRAIN Law:
In relation to the 90-day period: a. Failure on the part of any official, agent or employee of the BIR to
act on the claim for refund within the 90-day period shall be
a. The 90-day period to process and decide shall start from the filing of punishable under Sec. 269 of the NIRC.
the claim up to the release of the payment of the VAT refund.
Provided, That, the claim/application is considered to have been filed b. The BIR official, agent, or employee who was found to have
only upon submission of the official receipts or invoices and other deliberately caused the delay in the processing of the VAT refund claim
documents in support of the application as prescribed under pertinent may be subjected to penalties imposed under Sec. 269.
revenue issuances;
b. All claims for refund prior to January 1, 2018 covered by 120-day
rule.
Rules on Judicial Claim for Refund: Rules on Substantiation for claims for refund:
7. TRAIN Law: 1. Failure to indicate the words “zero-rated” in the official receipts
results in denial of the claim for refund of excess input VAT attributable
to a zero-rated transaction. The printing of the word “zero-rated” is
a. In the event that the 90-day period has lapsed without having the
refund released to the taxpayer-claimant, the VAT refund claim may required to be placed on VAT invoices or receipts covering zero-rated
still continue to be processed administratively. sales in order to be entitled to claim for tax credit or refund.
In Panasonic v. CIR, the Supreme Court held that the appearance of the
word “zero-rated” on the face of invoices covering zero-rated sales
b. In case of denial, CIR must state in writing the legal and factual basis prevents buyers from falsely claiming input VAT from their purchases
for the denial. Taxpayer may appeal the decision with the CTA within when no VAT is actually paid. Absent such word, the government may
30 days from receipt of said decision. (Revenue Regulations No. 26- be refunding taxes it did not collect. (Microsoft vs. CIR, GR No. 180173
2018 dated December 21, 2018) dated April 6, 2011)
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Rules on Substantiation for claims for refund: Rules on Substantiation for claims for refund:
2.a. However, under Section 112 (A) of the NIRC, a claimant must be 2.b. It has been settled that the ATP need not be reflected or indicated
engaged in sales which are zero-rated or effectively zero-rated. To in the invoices or receipts because there is no law or regulation
prove this, duly registered invoices or receipts evidencing zero-rated requiring it. Thus, in the absence of such law or regulation, failure to
sales must be presented. However, since the ATP is not indicated in the print the ATP on the invoices or receipts should not result in the
invoices or receipts, the only way to verify whether the invoices or outright denial of a claim or the invalidation of the invoices or receipts
receipts are duly registered is by requiring the claimant to present its for purposes of claiming a refund.
ATP from the BIR. Without this proof, the invoices or receipts would
have no probative value for the purpose of refund. Indeed, what is
important with respect to the BIR ATP is that it has been secured or
obtained by the taxpayer, and that invoices or receipts are duly
registered. (Silicon Phils. vs. CIR, GR No. 172378 dated January 17,
2011)
VAT Refund under Sec. 112 Other Matters

May the taxpayer claim the untilized input tax attributable to zero- Suspension or Closure of business:
rated sales as an expense for income tax purposes? In addition to other administrative and penal sanctions provided for in
the Tax Code and implementing regulations, the Commissioner of
No, the unutilized creditable input tax related to zero-rated sales can Internal Revenue or his duly authorized representative may order
only be recovered through the application for refund or tax credit. suspension or closure of a business establishment for a period of not
Nowhere in the Tax Code can we find a specific provision expressly less than five (5) days for any of the following violations:
providing for another mode for recovering unapplied input taxes,
particularly that unapplied input taxes may be treated outright as a) Failure to issue receipts and invoices.
deductible expense for income tax purposes (RMC No. 57-2013 dated b) Failure to file VAT return as required under the provisions of Sec.
August 23, 2013). 114 of the Tax Code.
c) Understatement of taxable sales or receipts by 30% or more of his
correct taxable sales or receipt for the taxable quarter.
d) Failure of any person to register as required under the provisions
of Sec. 236 of the Tax Code. (Sec. 115)
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Other Matters Other Matters

Issuance of a VAT Invoice or VAT Receipt by a non-VAT person. — If a Erroneous Issuance of a VAT Invoice or VAT Receipt by a VAT-
person who is not VAT-registered issues an invoice or receipt showing registered person. — If a VAT-registered person issues a VAT invoice
his TIN, followed by the word "VAT", the erroneous issuance shall or VAT official receipt for a VAT-exempt transaction, but fails to display
result to the following: prominently on the invoice or receipt the words "VAT-exempt sale“:
The non-VAT person shall be liable to: 1. The transaction shall become taxable and the issuer shall be liable to
1. the percentage taxes applicable to his transactions; pay VAT thereon; and,
2. VAT due on the transactions under Sec. 106 or 108 of the Tax
Code, without the benefit of any input tax credit; and, 2. The purchaser shall be entitled to claim an input tax credit on his
3. a 50% surcharge under Sec. 248 (B) of the Tax Code. purchase. (Sec. 113 D(2) of the Tax Code)
VAT shall be recognized as an input tax credit to the purchaser under

Sec. 110 of the Tax Code, provided the requisite information required
under the law or regulations of the BIR is shown on the invoice or
receipt. (Sec. 113 D(1) of the Tax Code)
Other Matters
Deadline for tax VAT returns:
a. Monthly - 20th day following the end of each month;

b. Quarterly – twenty-five (25) days following the close of taxable
quarter.
Provided, finally, That beginning January 1, 2023, the filing and

payment required under this Subsection shall be done within twenty-
five (25) days following the close of each taxable quarter. – TRAIN Law.
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7/31/2019

Value-added Tax (2) Sale and delivery of goods to:

(i) Registered enterprises within a separate customs territory as

(ii) Registered enterprises within tourism enterprise zones as declared

Value-added Tax Value-added Tax

2. Sec. 106(A)(2)(a)(4): 3. Sec. 106(A)(2)(a)(6):

Value-added Tax Value-added Tax

4. Formerly Sec. 106(A)(2)(b): 5. The following shall no longer be subject to 0% VAT:

Value-added Tax Value-added Tax

Value-added Tax Value-added Tax

An amount equivalent to five percent (5%) of the total VAT collection

Value-added Tax Value-added Tax

6. Sec. 108(B)(4): 7. Sec. 108(B)(8):

(ii) Registered enterprises within tourism enterprise zones as declared

Value-added Tax Value-added Tax

Value-added Tax Value-added Tax

An amount equivalent to five percent (5%) of the total VAT collection

Value-added Tax Value-added Tax

Value-added Tax Value-added Tax

Value-added Tax Value-added Tax

(Y) Association dues, membership fees, and other assessments and

Value-added Tax Value-added Tax

Value-added Tax Value-added Tax

Value-added Tax Value-added Tax

Value-added Tax Value-added Tax

Value-added Tax General Principles

I. General Principles  Indirect Tax;

General Principles General Principles

1st Quarter VAT return:

General Principles General Principles

General Principles General Principles

General Principles General Principles

General Principles General Principles

General Principles General Principles

General Principles General Principles

1. Seller of goods; 1. Importations; and,

Course of Trade or business - means the regular conduct or pursuit of a

General Principles General Principles

General Principles General Principles

General Principles General Principles

General Principles General Principles

General Principles General Principles

General Principles General Principles

General Principles General Principles

General Principles General Principles

General Principles General Principles

General Principles General Principles

General Principles VAT on Goods

VAT on Goods VAT on Goods

VAT on Goods VAT on Goods

VAT on Goods VAT on Goods

1. Sale of Real Property on Installment Plan – Initial Payments in the

2. Sale of Real Property on Deferred Payment Basis - Initial Payments in

Initial Payments – payments which the seller receives before or upon

VAT on Goods VAT on Goods

VAT on Goods VAT on Importation

VAT on Importation VAT on Services

VAT on Services VAT on Services

Except: (1) amounts earmarked for payment to unrelated 3rd parties;

Compare with amounts received as deposits.

VAT on Services VAT on Services

VAT on Services VAT on Services

VAT on Services VAT on Services

VAT on Services VAT on Services