VALUE-ADDED TAX

REVIEWER
SECTIONS 105 TO 115 OF THE NIRC

SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells barters, exchanges,
leases goods or properties, renders services, and any person who imports goods shall be subject to the
value-added tax (VAT) imposed in Sections 106 to 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing
contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act
No. 7716.

The phrase “in the course of trade or business” means the regular conduct or pursuit of a commercial or
an economic activity, including transactions incidental thereto, by any person regardless of whether or
not the person engaged therein is a non-stock, nonprofit 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.

The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the
Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade
or business.

SEC. 106. Value-Added Tax on Sale of Goods or Properties. -

(A) Rate and Base of Tax. - There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, value-added tax equivalent to twelve percent (12%) of the gross selling
price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid
by the seller or transferor.

(1) “Goods or Properties.” The term “goods” or “properties“ shall mean all tangible and intangible
objects which are capable of pecuniary estimation and shall include:

(a) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade
or business;

(b) The right or the privilege to use patent, copyright, design or model, plan, secret formula or process,
goodwill, trademark, trade brand or other like property or right;

(c) The right or the privilege to use in the Philippines of any industrial, commercial or scientific
equipment;

(d) The right or the privilege to use motion picture films, tapes and discs; and

(e) Radio, television, satellite transmission and cable television time.

The term “gross selling price” means the total amount of money or its equivalent which the purchaser
pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or
properties, excluding the value-added tax. The excise tax, if any, on such goods or properties shall form
part of the gross selling price.

(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
(a) Export Sales. - The term “export sales” means:

(1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which may influence or determine the transfer of
ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in
goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);

(2) Sale and delivery of goods to:

(i) Registered enterprises within a separate customs territory as provided under special laws; and

(ii) Registered enterprises within tourism enterprises 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.

(NOTE: The amendment introduced by the TRAIN Law on Section 106(A)(2)(9)(2) was vetoed by the
President. The veto message reads:

I am constrained to veto the provisions under Section 31 of the enrolled bill, to wit:

Section 31:

(2) Sale and Delivery of Goods to:

(i) Registered Enterprises with a Separate Customs Territory as 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.)

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

(4) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed
seventy percent (70%) of total annual production;

(5) Those considered export sales under Executive Order NO. 226, otherwise known as the “Omnibus
Investment Code of 1987”, and other special laws; and

(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 shall be
used for international shipping or air transport operations.

Provided, That subparagraphs (3), (4), and (5) hereof shall be subject to the twelve percent (12%) value-
added tax and no longer be considered export sales subject to zero percent (0%) VAT rate upon
satisfaction of the following conditions:
(1) The successful establishment and implementation of an enhanced VAT refund system that grants
refunds of creditable input tax within 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 21, 2017 shall be fully paid in cash by December 31,
2019.

Provided, That the Department of Finance shall establish a VAT refund center in the Bureau of Internal
Revenue(BIR) and in the Bureau of Customs(BOC) that will handle the processing and granting of cash
refunds of creditable input tax.

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.

Provided, further, That the BIR and the BOC shall be required to submit to the Congressional Oversight
Committee on the Comprehensive Tax Reform Program (COCCTRP) a quarterly report of all pending
claims for refund and any unused fund.

(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.

(B) Transactions Deemed Sale. - The following transactions shall be deemed sale:

(1) Transfer, use or consumption not in the course of business of goods or properties originally intended
for sale or for use in the course of business;

(2) Distribution or transfer to:

(a) Shareholders or investors as share in the profits of the VAT-registered persons; or

(b) Creditors in payment of debt;

(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such goods
were consigned; and

(4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of
such retirement or cessation.

(C) Changes in or Cessation of Status of a VAT-registered Person. - The tax imposed in Subsection (A) of
this Section shall also apply to goods disposed of or existing as of a certain date if under circumstances
to be prescribed in rules and regulations to be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner, the status of a person as a VAT-registered person changes or is
terminated.

(D) Sales Returns, Allowances and Sales Discounts. - The value of goods or properties sold and
subsequently returned or for which allowances were granted by a VAT-registered person may be
deducted from the gross sales or receipts for the quarter in which a refund is made or a credit
memorandum or refund is issued. Sales discount granted and indicated in the invoice at the time of sale
and the grant of which does not depend upon the happening of a future event may be excluded from
the gross sales within the same quarter it was given.

(E) Authority of the Commissioner to Determine the Appropriate Tax Base. - The Commissioner shall, by
rules and regulations prescribed by the Secretary of Finance, determine the appropriate tax base in
cases where a transaction is deemed a sale, barter or exchange of goods or properties under Subsection
(B) hereof, or where the gross selling price is unreasonably lower than the actual market value.

SEC. 107. Value-Added Tax on Importation of Goods. -

(A) In General. - There shall be levied, assessed and collected on every importation of goods a value-
added tax equivalent to twelve percent (12%) based on the total value used by the Bureau of Customs in
determining tariff and customs duties plus customs duties, excise taxes, if any, and other charges, such
tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That
where the customs duties are determined on the basis of the quantity or volume of the goods, the
value-added tax shall be based on the landed cost plus excise taxes, if any. [8]

(B) Transfer of Goods by Tax-exempt Persons. - In the case of tax-free importation of goods into the
Philippines by persons, entities or agencies exempt from tax where such goods are subsequently sold,
transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers,
transferees or recipients shall be considered the importers thereof, who shall be liable for any internal
revenue tax on such importation. The tax due on such importation shall constitute a lien on the goods
superior to all charges or liens on the goods, irrespective of the possessor thereof.

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -

(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to
twelve percent (12%) of gross receipts derived from the sale or exchange of services, including the use
or lease of properties.

The phrase “sale or exchange of services” means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or rendered
by construction and service contractors; stock, real estate, commercial, customs and immigration
brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of
cinematographic films; persons engaged in milling processing, manufacturing or repacking goods for
others; proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns, resorts;
proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including
clubs and caterers; dealers in securities; lending investors; transportation contractors on their transport
of goods or cargoes, including persons who transport goods or cargoes for hire another domestic
common carriers by land relative to their transport of goods or cargoes; common carriers by air and sea
relative to their transport of passengers, goods or cargoes from one place in the Philippines to another
place in the Philippines; sales of electricity by generation companies, transmission, and distribution
companies; services of franchise grantees of electric utilities. [29] telephone and telegraph, radio and
television broadcasting and all other franchise grantees except those under section 119 of this Code,
and non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity,
and bonding companies; and similar services regardless of whether or not the performance thereof calls
for the exercise or use of the physical or mental faculties. The phrase “sale or exchange of services” shall
likewise include:

(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan
secret formula or process, goodwill, trademark, trade brand or other like property or right;

(2) The lease of the use of, or the right to use of any industrial, commercial or scientific equipment;

(3) The supply of scientific, technical, industrial or commercial knowledge or information;

(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of
enabling the application or enjoyment of any such property, or right as is mentioned in subparagraph (2)
or any such knowledge or information as is mentioned in subparagraph (3);

(5) The supply of services by a nonresident person or his employee in connection with the use of
property or rights belonging to, or the installation or operation of any brand, machinery or other
apparatus purchased from such nonresident person.

(6) The supply of technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial undertaking, venture, project
or scheme;

(7) The lease of motion picture films, films, tapes and discs; and

(8) The lease or the use of or the right to use radio, television, satellite transmission and cable television
time.

Lease of properties shall be subject to the tax herein imposed irrespective of the place where the
contract of lease or licensing agreement was executed if the property is leased or used in the
Philippines.

The term “gross receipts” means the total amount of money or its equivalent representing the contract
price, compensation, service fee, rental or royalty, including the amount charged for materials supplied
with the services and deposits and advanced payments actually or constructively received during the
taxable quarter for the services performed or to be performed for another person, excluding value-
added tax.

(B) Transactions Subject to Zero Percent (0%) Rate - The following services performed in the Philippines
by VAT- registered persons shall be subject to zero percent (0%) rate.

(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);

(2) Services other than those mentioned in the preceding paragraph, rendered to a person engaged in
business conducted outside the Philippines or to a nonresident person not engaged in business who is
outside the Philippines when the services are performed, [19] the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with the rules and 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;

(4) Services rendered to persons engaged in international shipping or international air transport
operations, including leases of property for use thereof: Provided, That these services shall be exclusive
for international shipping or air transport operations;

(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; and

(7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to,
biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using
technologies such as fuel cells and hydrogen fuels.

(8) Services rendered to:

(i) Registered enterprises within a separate customs territory as provided under special law; and

(ii) Registered enterprises within tourism enterprise zones as declared by TIEZA subject to the provisions
under Republic Act No. 9593 or the Tourism Act of 2009.

(NOTE: The amendment introduced by the TRAIN Law was vetoed by the President. The veto message
reads:

I am constrained to veto the provisions under Section 33 of the enrolled bill, to wit:

Section 33:

(8) Services Rendered To:

I. Registered Enterprises Within A Separate Customs Territory As Provided Under Special Laws; 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.

The above provisions go against the principle of limiting the VAT zero-rating to direct exporters. The
proliferation of separate customs territories, which include buildings, creates significant leakages in our
tax system. This makes the tax system highly inequitable and significantly reduces the revenues that
could be better used for the poor. As to tourism enterprises, the current law only allows for duty and tax
free importation of capital equipment, transportation equipment and other goods. The TIEZA Law
explicitly allows only duty and tax free importation of capital equipment, transportation equipment and
other goods (in certain cases and always subject to rules provided by the DOF). Thus, this provision
actually grants a new incentive to suppliers of registered tourism enterprises. At any rate, TIEZA law,
which is still in effect for two more years, can be used to avail of the above-mentioned incentives.)
Provided, That subparagraphs (B)(1) and (B)(5) hereof shall be subject to the twelve percent (12%)
value-added tax and no longer subject to zero percent (0%) VAT rate upon satisfaction of the following
conditions:

(1) The successful establishment and implementation of an enhanced VAT refund system that grants
refund of creditable input tax within 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.

Provided, That the Department of Finance shall establish a VAT refund center in the Bureau of Internal
Revenue(BIR) and in the Bureau of Customs(BOC) that will handle the processing and granting of cash
refunds of creditable input tax.

An amount equivalent to five percent (5%) of the total value-added tax 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.

Provided, further, That the BIR and the BOC shall be required to submit to the COCCTRP a quarterly
report of all pending claims for refund and any unused fund. [4]

SEC. 109. Exempt Transactions. – [30]

(1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from
the value-added tax.

(A) Sale or importation of agricultural and marine food products in their original state, livestock and
poultry of or king generally used as, or yielding or producing foods for human consumption; and
breeding stock and genetic materials therefor.

Products classified under this paragraph shall be considered in their original state even if they have
undergone the simple processes of preparation or preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking or stripping. Polished and/or husked rice, corn grits, raw cane sugar
and molasses, ordinary salt and copra shall be considered in their original state; [29]

(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry
feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished
feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other
animals generally considered as pets);

(C) Importation of personal and household effects belonging to the residents of the Philippines returning
from abroad and nonresident citizens coming to resettle in the Philippines: Provided, That such goods
are exempt from customs duties under the Tariff and Customs Code of the Philippines;

(D) Importation of professional instruments and implements, tools of trade, occupation or employment,
wearing apparel, domestic animals, and personal and household effects belonging to persons coming to
settle in the Philippines or Filipinos or their families and descendants who are now residents or citizens
of other countries, such parties hereinafter referred to as overseas Filipinos, in quantities and of the
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: 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 the goods are brought from their former place of abode,
exempt such goods from payment of duties and taxes: Provided, further, That the vehicles, vessels,
aircrafts, machineries and other similar goods for use in manufacture, shall not fall within this
classification and shall therefore be subject to duties, taxes and other charges; [4]

(E) Services subject to percentage tax under Title V;

(F) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and
sugar cane into raw sugar;

(G) Medical, dental, hospital and veterinary services except those rendered by professionals; [19]

(H) Educational services rendered by private educational institutions, duly accredited by the Department
of Education(DepED), the Commission on Higher Education (CHED), the Technical Education and Skills
Development Authority (TESDA) and those rendered by government educational institutions; [8]

(I) Services rendered by individuals pursuant to an employer-employee relationship;

(J) Services rendered by regional or area headquarters established in the Philippines by multinational
corporations which act as supervisory, communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the
Philippines;

(K) Transactions which are exempt under international agreements to which the Philippines is a
signatory or under special laws, except those under Presidential Decree No. 529; [8]

(L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to
their members as well as sale of their produce, whether in its original state or processed form, to non-
members; their importation of direct farm inputs, machineries and equipment, including spare parts
thereof, to be used directly and exclusively in the production and/or processing of their produce;

(M) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with
the Cooperative Development Authority;

(N) Sales by non-agricultural, non- electric and non-credit cooperatives duly registered with the
Cooperative Development Authority: Provided, That the share capital contribution of each member does
not exceed Fifteen thousand pesos (P15,000) and regardless of the aggregate capital and net surplus
ratably distributed among the members;

(O) Export sales by persons who are not VAT-registered;

(P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary
course of trade or business or real property utilized for low-cost and socialized housing as defined by
Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other
related laws, residential lot valued at One million pesos (P1,500,000) and below, house and lot, and
other residential dwellings valued at Two million five hundred thousand pesos (P2,500,000) and below:
Provided, That beginning January 1, 2021, the VAT exemption shall only apply to sale of real properties
not primarily held for sale to customers or held for lease in the ordinary course of trade or business, sale
of real property utilized for socialized housing as defined by Republic Act No. 7279, sale of house and lot,
and other residential dwellings with the selling price of not more than Two million pesos (P2,000,000):
Provided, further, That every three (3) years thereafter, the amount herein stated shall be adjusted to its
present value using the Consumer Price Index, as published by the Philippine Statistics Authority(PSA);

(Q) Lease of a residential unit with a monthly rental not exceeding Fifteen thousand pesos (₱15,000); [4]

(R) Sale, importation, printing or publication of books, and any newspaper, magazine, journal, review
bulletin, or any such educational reading material covered by the UNESCO Agreement on the
Importation of Educational, Scientific and Cultural Materials, including the digital or electronic format
thereof: Provided, That the materials enumerated herein are not devoted principally to the publication
of paid advertisements;

(S) Transport of passengers by international carriers;

(T) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and
spare parts thereof for domestic or international transport operations;

(U) Importation of fuel, goods and supplies by persons engaged in international shipping or air transport
operations: Provided, That the fuel, goods, and supplies shall be used for international shipping or air
transport operations;

(V) Services of bank, non-bank financial intermediaries performing quasi-banking functions, and other
non-bank financial intermediaries;

(W) Sale or lease of goods and services to senior citizens and persons 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;

(X) Transfer of property pursuant to Section 40(C)(2) of the NIRC, as amended;

(Y) Associations dues, membership fees, and other assessments and charges collected by homeowners’
associations and condominium corporations;

(Z) Sale of gold to the Banko Sentral ng Pilipinas (BSP);

(AA) Sale of or importation of prescription drugs and medicines for:

(i) Diabetes, high cholesterol, and hypertension beginning January 1, 2020; and

(ii) Cancer, mental illness, tuberculosis, and kidney diseases beginning January 1, 2021.

Provided, That the DOH shall issue a list of approved drugs and medicines for this purpose within sixty
(60) days from the effectivity of this Act; and

(BB) Sale or importation of the following beginning January 1, 2021 to December 31, 2023:
(i) Capital equipment, its spare parts and raw materials, necessary for the production of personal
protective equipment components such as coveralls, gown, surgical cap, surgical mask, N-95 mask, scrub
suits, goggles and face shield, double or surgical gloves, dedicated shoes, and shoe covers, for COVID-19
prevention; and

(ii) All drugs, vaccines and medical devices specifically prescribed and directly used for the treatment of
COVID-19; and

(iii) Drugs for the treatment of COVID-19 approved by the Food and Drug Administration (FDA) for use in
clinical trials, including raw materials directly necessary for the production of such drugs: Provided, That
the Department of Trade and Industry (DTI) shall certify that such equipment, spare parts or raw
materials for importation are not locally available or insufficient in quantity, or not in accordance with
the quality or specification required: Provided, further, That for item (ii), within sixty (60) days from the
effectivity of this Act, and every three (3) months thereafter, the Department of Health (DOH) shall issue
a list of prescription drugs and medical devices covered by this provision: Provided, finally, That the
exemption claimed under this subsection shall be subject to post audit by the Bureau of Internal
Revenue or the Bureau of Customs as may be applicable.

(CC) 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 (P3,000,000.00). [45]

SEC. 110. Tax Credits. -

A. Creditable Input Tax. –

(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113
hereof on the following transactions shall be creditable against the output tax:

(a) Purchase or importation of goods:

(i) For sale; or

(ii) For conversion into or intended to form part of a finished product for sale including packaging
materials; or

(iii) For use as supplies in the course of business; or

(iv) For use as materials supplied in the sale of service; or

(v) For use in trade or business for which deduction for depreciation or amortization is allowed under
this Code.

(b) Purchase of services on which a value-added tax has been actually paid.

(2) The input tax on domestic purchase or importation of goods or properties by a VAT-registered
person shall be creditable:

(a) To the purchaser upon consummation of sale and on importation of goods or properties; and
(b) To the importer upon payment of the value-added tax prior to the release of the goods from the
custody of the Bureau of Customs.

Provided, that the input tax on goods purchased or imported in a calendar month for use in trade or
business for which deduction for depreciation is allowed under this Code shall be spread evenly over the
a month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for
such goods, excluding the VAT component thereof, exceeds One million pesos (P1,000,000): Provided,
however, That if the estimated useful life of the capital good is less than five (5) years, as used for
depreciation purposes, then the input VAT shall be spread over such a shorter period: [8] Provided,
further, That the amortization of the input VAT shall only be allowed until December 31, 2021 after
which taxpayers with unutilized input VAT on capital goods purchased or imported shall be allowed to
apply the same as scheduled until fully utilized: Provided, finally, That in the case of purchase of
services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or licensee
upon payment of the compensation, rental, royalty or free. [4]

(3) A VAT-registered person who is also engaged in transactions not subject to the value-added tax shall
be allowed tax credit as follows:

(a) Total input tax which can be directly attributed to transactions subject to value-added tax; and

(b) A ratable portion of any input tax which cannot be directly attributed to either activity.

The term “input tax” means the value-added tax due from or paid by a VAT-registered person in the
course of his trade or business on importation of goods or local purchase of goods or services, including
lease or use of property, from a VAT-registered person. It shall also include the transitional input tax
determined in accordance with Section 111 of this Code.

The term “output tax” means the value-added tax due on the sale or lease of taxable goods or
properties or services by any person registered or required to register under Section 236 of this Code.

(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax exceeds the input
tax, the excess shall be paid by the Vat-registered person. If the input tax exceeds the output tax, the
excess shall be carried over to the succeeding quarter or quarters. Provided, however, That any input tax
attributable to zero-rated sales by a VAT-registered person may at his option be refunded or credited
against other internal revenue taxes, subject to the provisions of Section 112.

(C) Determination of Creditable Input Tax. - The sum of the excess input tax carried over from the
preceding month or quarter and the input tax creditable to a VAT-registered person during the taxable
month or quarter shall be reduced by the amount of claim for refund or tax credit for value-added tax
and other adjustments, such as purchase returns or allowances and input tax attributable to exempt
sale.

The claim for tax credit referred to in the foregoing paragraph shall include not only those filed with the
Bureau of Internal Revenue but also those filed with other government agencies, such as the Board of
Investments and the Bureau of Customs.

SEC. 111. Transitional/Presumptive Input Tax Credits. –

(A) Transitional Input Tax Credits. - A person who becomes liable to value-added tax or any person who
elects to be a VAT-registered person shall, subject to the filing of an inventory according to rules and
regulations prescribed by the Secretary of finance, upon recommendation of the Commissioner, be
allowed input tax on his beginning inventory of goods, materials and supplies equivalent to two percent
(2%) [19] of the value of such inventory or the actual value-added tax paid on such goods, materials and
supplies, whichever is higher, which shall be creditable against the output tax.

(B) Presumptive Input Tax Credits. - Persons or firms engaged in the processing of sardines, mackerel
and milk, and in manufacturing refined sugar and cooking oil, shall be allowed a presumptive input tax,
creditable against the output tax, equivalent to four percent (4%) [8] of the gross value in money of their
purchases of primary agricultural products which are used as inputs to their production.

As used in this Subsection, the term 'processing' shall mean pasteurization, canning and activities which
through physical or chemical process alter the exterior texture or form or inner substance of a product
in such manner as to prepare it for special use to which it could not have been put in its original form or
condition.

SEC. 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales
were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the extent that such input tax has not been
applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)
(2)(a)(1), (2) and (b) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds
thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively
zero-rated sale and also in taxable or exempt sale of goods of properties or services, and the amount of
creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions,
it shall be allocated proportionately on the basis of the volume of sales. Provided, finally, That for a
person making sales that are zero-rated under Section 108(B) (6), the input taxes shall be allocated
ratably between his zero-rated and non-zero-rated sales. [8]

(B) Cancellation of VAT Registration. - A person whose registration has been cancelled due to retirement
from or cessation of business, or due to changes in or cessation of status under Section 106(C) of this
Code may, within two (2) years from the date of cancellation, apply for the issuance of a tax credit
certificate for any unused input tax which may be used in payment of his other internal revenue taxes.

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. [4] - In proper cases, the
Commissioner shall grant a refund for creditable input taxes within ninety (90) days from the date of
submission of the 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.

In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty (30)
days from the receipt of the decision denying the claim, appeal the decision with the Court of Tax
Appeals: Provided, however, That failure on the part of any official, agent, or employee of the BIR to act
on the application within ninety (90) days period shall be punishable under Section 269 of this Code.

(D) Manner of Giving Refund. - Refunds shall be made upon warrants drawn by the Commissioner or by
his duly authorized representative without the necessity of being countersigned by the Chairman,
Commission on audit, the provisions of the Administrative Code of 1987 to the contrary
notwithstanding: Provided, That refunds under this paragraph shall be subject to post audit by the
Commission on Audit.

CHAPTER II

COMPLIANCE REQUIREMENTS

SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. -

(A) Invoicing Requirements. - A VAT-registered person shall issue:

(1) A VAT invoice for every sale, barter or exchange of goods or properties; and

(2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of
services.

(B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following information shall be
indicated in the VAT invoice or VAT official receipt:

(1) A statement that the seller is a VAT-registered person, followed by his Taxpayer's Identification
Number (TIN); and

(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication
that such amount includes the value-added tax. Provided, That:

(a) The amount of the tax shall be known as a separate item in the invoice or receipt;

(b) If the sale is exempt from value-added tax, the term VAT-exempt sale: shall be written or printed
prominently on the invoice or receipt;

(c) If the sale is subject to zero percent (0%) value-added tax, the term “zero-rated sale” shall be written
or printed prominently on the invoice or receipt.

(d) If the sale involved goods, properties or services some of which are subject to and some of which are
VAT zero-rated or Vat exempt, the invoice or receipt shall clearly indicate the break-down of the sale
price between its taxable, exempt and zero-rated components, and the calculation of the value-added
tax on each portion of the sale shall be known on the invoice or receipt: Provided, That the seller may
issue separate invoices or receipts for the taxable, exempt, and zero-rated components of the sale.

(3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of
the service; and

(4) In the case of sales in the amount of One thousand pesos (P1,000) or more where the sale or transfer
is made to a VAT-registered person, the name, business style, if any, address and Taxpayer Identification
Number (TIN) of the purchaser, customer or client.
(C) Accounting Requirements. - Notwithstanding the provisions of Section 233, all persons subject to the
value-added tax under Sections 106 and 108 shall, in addition to the regular accounting records
required, maintain a subsidiary sales journal and subsidiary purchase journal on which the daily sales
and purchases are recorded. The subsidiary journals shall contain such information as may be required
by the Secretary of Finance.

(D) Consequence of Issuing Erroneous VAT Invoice or VAT Official Receipt.-

(1) If a person who is not a VAT-registered person issues an invoice or receipt showing his Taxpayer
Identification Number (TIN), followed by the word “VAT”;

(a) The issuer shall, in addition to any liability to other percentage taxes, be liable to:

(i) The tax imposed in Section 106 or 108 without the benefit of any input tax credit; and

(ii) A 50% surcharge under Section 248(B) of this Code;

(b) The VAT shall, if the other requisite information required under Subsection (B) hereof is shown on
the invoice or receipt, be recognized as an input tax credit to the purchaser under Section 110 of this
Code.

(2) If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt transaction,
but fails to display prominently on the invoice or receipt the term ‘VAT exempt sale,’ the issuer shall be
liable to account for the tax imposed in section 106 or 108 as if Section 109 did not apply.

(E) Transitional Period. – Notwithstanding Subsection (B) hereof, taxpayers may continue to issue VAT
invoices and VAT official receipt for the period July 1, 2005 to December 31, 2005 in accordance with
Bureau of Internal Revenue administrative practices that existed as of December 31, 2004.

SEC. 114. Return and Payment of Value-Added Tax. –

(A) In General. [4] - Every person liable to pay the value-added tax imposed under this Title shall file a
quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the
close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered
persons shall pay the value-added tax on a monthly basis: 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.

Any person, whose registration has been cancelled in accordance with Section 236, shall file a return and
pay the tax due thereon within twenty-five (25) days from the date of cancellation of registration:
Provided, That only one consolidated return shall be filed by the taxpayer for his principal place of
business or head office and all branches.

(B) Where to File the Return and Pay the Tax. - Except as the Commissioner otherwise permits, the
return shall be filed with and the tax paid to an authorized agent bank, Revenue Collection Officer or
duly authorized city or municipal Treasurer in the Philippines located within the revenue district where
the taxpayer is registered or required to register.

(C) Withholding of Creditable Value-added Tax. - The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or -controlled corporations (GOCCs) shall,
before making payment on account of each purchase of goods and services which are subject to the
value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added tax
imposed in Sections 106 and 108 of this Code, deduct and withhold a final value-added tax at the rate of
five percent (5%) of the gross payment thereof: Provided, That beginning January 1, 2021, the VAT
withholding system under this Subsection shall shift from final to creditable system: Provided, further,
That the payment for lease or use of properties or property rights to nonresident owners shall be
subject to ten percent (12%) withholding tax at the time of payment. Provided, finally, That payments
for purchases of goods and services arising from projects funded by Official Development Assistance
(ODA) as defined under Republic Act No. 8182, otherwise known as the Official Development Assistance
Act of 1996, as amended, shall not be subject to the final withholding tax system as imposed in this
Subsection. [4] For purposes of this Section, the payor or person in control of the payment shall be
considered as the withholding agent.

The value-added tax withheld under this Section shall be remitted within ten (10) days following the end
of the month the withholding was made.

SEC. 115. Power of the Commissioner to Suspend the Business Operations of a Taxpayer. - The
Commissioner or his authorized representative is hereby empowered to suspend the business
operations and temporarily close the business establishment of any person for any of the following
violations:

(a) In the case of a VAT-registered Person. –

(1) Failure to issue receipts or invoices;

(2) Failure to file a value-added tax return as required under Section 114; or

(3) Understatement of taxable sales or receipts by thirty percent (30%) or more of his correct taxable
sales or receipts for the taxable quarter.

(b) Failure of any Person to Register as Required under Section 236.

The temporary closure of the establishment shall be for the duration of not less than five (5) days and
shall be lifted only upon compliance with whatever requirements prescribed by the Commissioner in the
closure order.

RULES AND DEFINITION OF TERMS UNDER THE REVENUE REGULATIONS 16 OF 2005

IN RELATION TO SEC 107 OF THE NIRC, AS AMENDED THE TERM “GOODS AND PROPERTIES” INCLUDES:

all tangible and intangible objects which are capable of pecuniary estimation and shall include, among
others:

(1) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade
or business;

(2) The right or the privilege to use patent, copyright, design or model, plan, secret formula or process,
goodwill, trademark, trade brand or other like property or right;
(3) The right or the privilege to use any industrial commercial or scientific equipment;

(4) The right or the privilege to use motion picture films, films, tapes and discs; and

(5) Radio, television, satellite transmission and cable television time.

THE TRANSACTIONS WHICH ARE "DEEMED SALE" PURSUANT TO SEC. 106 (B) OF THE TAX CODE SHALL
REFER OR INTERPRETED AS TO INCLUDE THE FOLLOWING:

(1) Transfer, use or consumption not in the course of business of goods or properties originally intended
for sale or for use in the course of business. Transfer of goods or properties not in the course of business
can take place when VAT-registered person withdraws goods from his business for his personal use;

(2) Distribution or transfer to:

i. Shareholders or investors share in the profits of VAT-registered person;

Property dividends which constitute stocks in trade or properties primarily held for sale or lease
declared out of retained earnings and distributed by the company to its shareholders shall be subject to
VAT based on the zonal value or fair market value at the time of distribution, whichever is applicable.

ii. Creditors in payment of debt or obligation.

(3) Consignment of goods if actual sale is not made within 60 days following the date such goods were
consigned. Consigned goods returned by the consignee within the 60-day period are not deemed sold;

(4) Retirement from or cessation of business with respect to all goods on hand, whether capital goods,
stock-in-trade, supplies or materials as of the date of such retirement or cessation, whether or not the
business is continued by the new owner or successor. The following circumstances shall, among others,
give rise to transactions "deemed sale" for purposes of this Section;

i. Change of ownership of the business. There is a change in the ownership of the business when a single
proprietorship incorporates; or the proprietor of a single proprietorship sells his entire business.

ii. Dissolution of a partnership and creation of a new partnership which takes over the business.

RULES ON IMPORTATION BY TAX -EXEMPT PERSONS AND THEIR SUBSECQUENT DISPOSITION OF

GOOD IMPORTED

In the case of tax-free importation of goods into the Philippines by persons, entities or agencies exempt
from tax where such goods are subsequently sold, transferred or exchanged in the Philippines to non-
exempt persons or entities:

The purchasers, transferees or recipients shall be considered the importers thereof, who shall be liable
for any internal revenue tax on such importation.

The tax due on such importation shall constitute a lien on the goods, superior to all charges/or liens,
irrespective of the possessor of said goods.

INTERPRETATION OR DEFINITION OF SALE OR EXCHANGE OF SERVICES

It shall include all performance of all kind of services in the Philippines for others for a fee, remuneration
or consideration, whether in kind or in cash, including those performed or rendered by the following:

(1) construction and service contractors;

(2) stock, real estate, commercial, customs and immigration brokers;

(3) lessors of property, whether personal or real;

(4) persons engaged in warehousing services;

(5) lessors or distributors of cinematographic films;

(6) persons engaged in milling, processing, manufacturing or repacking goods for others;

(7) proprietors, operators, or keepers of hotels, motels, rest houses, pension houses, inns, resorts,
theaters, and movie houses;

(8) proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including
clubs and caterers;

(9) dealers in securities;

(10) lending investors;

(11) transportation contractors on their transport of goods or cargoes, including persons who transport
goods or cargoes for hire and other domestic common carriers by land relative to their transport of
goods or cargoes;

(12) common carriers by air and sea relative to their transport of passengers, goods or cargoes from one
place in the Philippines to another place in the Philippines;

(13) sales of electricity by generation, transmission, and/or distribution companies (including electric
cooperatives);

(14) franchise grantees of electric utilities, telephone and telegraph, radio and/or television
broadcasting and all other franchise grantees, except franchise grantees of radio and/or television
broadcasting whose annual gross receipts of the preceding year do not exceed Ten Million Pesos
(P10,000,000.00), and franchise grantees of gas and water utilities; (The ten million limit is found only in
the regulations)

(15) non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity
and bonding companies; and

(16) similar services regardless of whether or not the performance thereof calls for the exercise or use of
the physical or mental faculties.

The phrase "sale or exchange of services" shall likewise include:

(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan,
secret formula or process, goodwill, trademark, trade brand or other like property or right;

(2) The lease or the use of, or the right to use any industrial, commercial or scientific equipment;
(3) The supply of scientific, technical industrial or commercial knowledge or information;

(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of
enabling the application or enjoyment of any such property, or right as is mentioned in subparagraph (2)
hereof or any such knowledge or information as is mentioned in subparagraph (3) hereof;

(5) The supply of services by a non-resident person or his employee in connection with the use of
property or rights belonging to, or the installation or operation of any brand, machinery or other
apparatus purchased from such nonresident person;

(6) The supply of technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial undertaking, venture, project
or scheme;

(7) The lease of motion picture films, films, tapes, and discs; and

(8) The lease or the use of, or the right to use, radio, television, satellite transmission and cable
television time.

REVENUE REGULATIONS 13 OF 2018 AMENDED THE REVENUE REGULATIONS 16 OF 2005

SUCH REGULATIONS PROVIDES THE FOLLOWING RULES AND DEFINITIONS.

RULES ON SOME SERVICES

FOR LESSORS OF PROPERTY

The rule is that, lease of property shall be subject to VAT regardless of the place provided the subject
property of the leased is within the Philippines.

LESSEE IS ALLOWED TO PAY ADVANCE PAYMENT. THE FOLLOWING THE RULES:

In a lease contract, the advance payment by the lessee may be:

(i) a loan to the lessor from the lessee, or

(ii) an option money for the property, or

(iii) a security deposit to insure the faithful performance of certain obligations of the lessee to the lessor,
or

(iv) pre-paid rental.

If the advance payment is actually a loan to the lessor, or an option money for the property, or a security
deposit for the faithful performance of certain obligations of the lessee, such advance payment is not
subject to VAT. However, a security deposit that is applied to rental shall be subject to VAT at the time
of its application.

If the advance payment constitutes a pre-paid rental, then such payment is taxable to the lessor in the
month when received, irrespective of the accounting method employed by the lessor.

FOR COMMON CARRIERS

Those receipts from service, hire, or operating lease of transportation equipment not subject to the
percentage tax on domestic common carriers on land and keepers of garages shall be subject to VAT.

In case of domestic common carriers by air and sea, they are subject to 12% VAT rate on their gross
receipts.

SALE OF ELECTRICITY

Subject to 12% rate of VAT on their Gross receipts.

DEALERS IN SECURITIES

Dealers in securities and lending investors shall be subject to VAT on the basis of their gross receipts.
Note that in this case, gross receipt shall mean gross selling price deducting therefrom the cost of
securities sold.

NON-LIFE INSURANCE

Subject to VAT base on gross receipts which shall mean total premiums collected whether paid in
money, notes, credits or any substitute for money.

However, note that while non-life insurance premiums are subject to VAT on the other hand, non-life
reinsurance premiums are not subject to VAT the reason is that non-life reinsurance has already been
subjected to VAT upon receipt of the insurance premiums.

PRE-NEED COMPANIES

They are considered to be rendering services to plan holders by being in charge of the management of
the funds provided by said holders and making payments at the time of need or maturity of the
contract.

HEALTH MAINTENANCE ORGANIZATIONS

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.

ZERO-RATED AND EFFECTIVELY ZERO-RATED SALES OF GOODS OR PROPERTIES AND SERVICES

FOR GOODS

1. The sale and actual shipment of goods from the Philippines to a foreign country

a. Irrespective of any shipping arrangement;

b. Paid for in acceptable foreign currency or its equivalent in goods or services; and

c. Accounted for in accordance with the rules and regulations of the BSP,
2. Sale of raw materials or packaging materials by a VAT-registered entity to a non-resident buyer

a. For delivery to a resident local export-oriented enterprise;

b. Used in the manufacturing, processing, packing, repacking in the Philippines of the said buyer’s goods;

c. Paid for in acceptable foreign currency; and accounted for in accordance with the rules and
regulations of the BSP

3. Sale of raw materials or packaging materials to export-oriented enterprise whose export sales
exceed 70% of total annual production

4. sale of gold

5. export sales under EO 226

UNDER REVENUE REGULATIONS 4 OF 2021

The following are exempt from VAT:

1. Sale of residential lot valued at less than P1,500,000.00 or house and lot for less than
P2,500,000.00
2. Sale, importation, printing, publication of books, any newspaper, magazine, journal, review
bulletin or such education reading material covered by UNESCO agreement on importation,
scientific, educational, and cultural materials.
3. Importation of medicines for diabetes and hypertension, cancer, mental illness, tuberculosis,
and kidney diseases
4. Materials necessary for PPE
5. All drugs, vaccines and medicine devices for COVID 19
6. Drugs for treatment of COVID 19

IMPACT AND INCIDENT OF TAX

As a rule, the impact of the VAT is directed on the seller because of the fact that the law directly
imposes the obligation to pay tax. However, exemption can gleaned in case of importation, because it is
the importer who has the burden of paying VAT.

On the other hand, the incidence of the VAT is that it is the consumer who is ultimately liable to pay
VAT. It is recognized under the law that VAT is an indirect tax meaning it can shifted from buyer,
transferee or lessee of goods, properties or services.

SALES TAX

Shell Co., Inc. v. Municipality of Sipocot, Camarines Sur G.R. No, L-12680, 1959 have discussed the situs
of sales tax
 “it is the place of the consummation of the sale, associated with the delivery of
the things which are the subject matter of the contract that determines the situs of the
contract for purposes of taxation, and not merely the place of the perfection of the
contract.”

Under 106 of NIRC

There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a
value-added tax equivalent to twelve percent (12%) of the gross selling price or gross value in money of
the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.

The definitions tells us that upon consummation of the sale, the imposition of VAT is deemed to
occurred or ought to occur regardless of the terms of payment between the contracting parties since
the obligation arises from the moment of sale and which is based on the gross selling price.

TAX ON CONSUMPTION

As a rule, VAT on good and services are taxed on the place where they are consumed and such place of
consumption is determinative of the place where it is to be taxed.

However, the law provides for some exeptions, an application of zero-rated supply of services when the
the following requisites are present:

a. Services is performed in the Philippines in favor of person who is doing business outside of the
Philippines.
b. Those who falls under Section 108 (B) of the NIRC
c. It is paid for in acceptable foreign currency that is accounted for in accordance with BSP rules.

IT IS NOT A CASCADING TAX. THERE IS NO TAX PYRAMIDING

It is a tax on the value added of a taxpayer and it not a tax which is imposed on tax since it(tax) is not
considered as a gain.

TAX CREDIT METHOD

COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY has explained the concept of tax
credit.

“Claims for tax refund/tax credit are construed in ‘strictissimi juris’ against the
taxpayer. This is due to the fact that claims for refund/credit [partake of] the nature of
an exemption from tax. Thus, it is incumbent upon the [respondent] to prove that it is
indeed entitled to the refund/credit sought. Failure on the part of the [respondent] to
prove the same is fatal to its claim for tax credit. He who claims exemption must be able
to justify his claim by the clearest grant of organic or statutory law. An exemption from
the common burden cannot be permitted to exist upon vague implications”
 ”If, however, the input taxes exceed the output taxes, the excess shall be carried
over to the succeeding quarter or quarters. Should the input taxes result from zero-
rated or effectively zero-rated transactions or from the acquisition of capital goods, any
excess over the output taxes shall instead be refunded to the taxpayer or credited
against other internal revenue taxes.”

Section 110 of the NIRC also provides:

If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the
Vat-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the
succeeding quarter or quarters. Provided, however, That any input tax attributable to zero-rated sales
by a VAT-registered person may at his option be refunded or credited against other internal revenue
taxes, subject to the provisions of Section 112.

CROSS-BORDER DOCTRINE

No VAT shall be imposed to form part of the cost of goods sold destined for consumption outside of the
territorial border of the taxing authority. (Commissioner Internal Revenue, Petitioner, Vs. Filminera
Resources Corporation Gr. No. 236325 September 16, 2020)

DESTINATION PRINCIPLE

Goods and services are taxed only in the country where they are consumed. Thus, exports are zero-
rated, while imports are taxed. It serves as a basis for the jurisdictional reach of the tax.
(COMMISSIONER OF INTERNAL REVENUE vs. AMERICAN EXPRESS INTERNATIONAL, INC. G.R. No. 152609
June 29, 2005)

TOSHIBA INFORMATION EQUIPMENT (PHILS.), INC. vs COMMISSIONER OF INTERNAL REVENUE G.R.

No. 157594 March 9, 2010

“An exempt transaction, on the one hand, involves goods or services which, by their
nature, are specifically listed in and expressly exempted from the VAT under the Tax Code,
without regard to the tax status – VAT-exempt or not – of the party to the transaction…

An exempt party, on the other hand, is a person or entity granted VAT exemption under
the Tax Code, a special law or an international agreement to which the Philippines is a signatory,
and by virtue of which its taxable transactions become exempt from VAT x x

It is now a settled rule that based on the Cross Border Doctrine, PEZA-registered
enterprises, such as Toshiba, are VAT-exempt and no VAT can be passed on to them. The Court
explained in the Toshiba case that –

PEZA-registered enterprise, which would necessarily be located within ECOZONES, are

VAT-exempt entities, not because of Section 24 of Rep. Act No. 7916, as amended, which
imposes the five percent (5%) preferential tax rate on gross income of PEZA-registered
 enterprises, in lieu of all taxes; but, rather, because of Section 8 of the same statute which
establishes the fiction that ECOZONES are foreign territory.

The Philippine VAT system adheres to the Cross Border Doctrine, according to which, no
VAT shall be imposed to form part of the cost of goods destined for consumption outside of the
territorial border of the taxing authority. Hence, actual export of 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 ten percent (10%) VAT.”

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. AMERICAN EXPRESS INTERNATIONAL, INC.

(PHILIPPINE BRANCH) G.R. NO. 152609 : June 29, 2005

”As a general rule, the value-added tax (VAT) system uses the destination principle.
However, our VAT law itself provides for a clear exception, under which the supply of service
shall be zero-rated when the following requirements are met: (1) the service is performed in the
Philippines; (2) the service falls under any of the categories provided in Section 102(b) of the Tax
Code; and (3) it is paid for in acceptable foreign currency that is accounted for in accordance
with the regulations of the Bangko Sentral ng Pilipinas. Since respondent's services meet these
requirements, they are zero-rated. Petitioner's Revenue Regulations that alter or revoke the
above requirements are ultra vires and invalid.”

COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY

“Claims for tax refund/tax credit are construed in ‘strictissimi juris’ against the taxpayer.
This is due to the fact that claims for refund/credit [partake of] the nature of an exemption from
tax. Thus, it is incumbent upon the [respondent] to prove that it is indeed entitled to the
refund/credit sought. Failure on the part of the [respondent] to prove the same is fatal to its
claim for tax credit. He who claims exemption must be able to justify his claim by the clearest
grant of organic or statutory law. An exemption from the common burden cannot be permitted
to exist upon vague implications”

”If, however, the input taxes exceed the output taxes, the excess shall be carried over to
the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively
zero-rated transactions or from the acquisition of capital goods, any excess over the output
taxes shall instead be refunded to the taxpayer or credited against other internal revenue
taxes.”

PERSONS LIABLE TO VAT

Under section 105 of NIRC:

Any person who, in the course of trade or business

1. Sells, barters, or exchanges goods or properties (seller or transferor);

2. Leases goods or properties ; OR
3. Renders services;
 4. any person who imports goods
5. Any person, whether or not made in the course of trade or business, imports goods;

MANDATORY VAT REGISTRATION

The following are require to file VAT registration:

1. Any person or entity who, in the course of his trade or business, sells, barters, exchanges, leases
goods or properties and renders services subject to VAT, if the aggregate amount of actual gross
sales or receipts exceed Three Million Pesos (Php3,000,000.00)
2. A person required to register as VAT taxpayer but failed to register
3. Any person, whether or not made in the course of his trade or business, who imports goods.

OPTIONAL VAT REGISTRATION

The following has the option to file VAT registration:

1. Any person who is VAT-exempt under Sec. 109 of the Tax Code, as amended, may, in relation to
Sec. 109 (2) of the same Code, elect to be VAT-registered by registering with the RDO that has
jurisdiction over the head office of that person, and pay the annual registration fee of P500.00
for every separate and distinct establishment.
2. Any person who is VAT-registered but enters into transactions which are exempt from VAT
(mixed transactions) may opt that the VAT apply to his transactions which would have been
exempt under Section 109 of the Tax Code, as amended.
3. Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the
preceding year do not exceed ten million pesos (P10,000,000.00) derived from the business
covered by the law granting the franchise may opt for VAT registration. This option, once
exercised, shall be irrevocable. (Sec. 119, Tax Code).
4. Any person who elects to register under optional registration shall not be allowed to cancel his
registration for the next three (3) years.

PERSONS REQUIRED TO REGISTER AS NON-VAT OR VAT-EXEMPT PERSONS

A Non-VAT registered person whose annual gross sales or receipts do not exceed P1,919,500 shall not
be liable to VAT, instead, he shall be liable for 3% percentage tax (Sec. 116, NIRC).

1. An individual who is a Marginal Income Earner (MIE) not deriving compensation as employee
under an employer-employee relationship, self-employed and deriving gross sales or receipts
not exceeding P100,000 in any 12-month period, and where the activities of such MIE is
principally for subsistence or livelihood, he shall be exempt.
2. In transactions subject to VAT but became not subject from VAT because his annual gross sales
do not exceed P1,919,500 (Sec. 109(1)(V), NIRC). Though not subject from VAT, he shall pay
 percentage tax under Section 116.He should register as a non-VAT taxpayer unless he opts to
become VAT registered under Section 109(2) of NIRC.
3. Any person who is not required to register for VAT (those whose annual VATable gross sales or
gross receipts do not exceed P1,919,500) may elect to register for VAT by registering with the
Revenue District Office that has a jurisdiction over the head office of that person. Any person
who elects to register based on the above provision shall not be entitled to cancel his
registration for the next three (3) years (Sec. 236(H), NIRC).
4. Any person in VAT-exempt transactions under Section 109(1) (A) to (V) of NIRC, regardless of
their annual gross sales

TRADE IN THE COURSE OF BUSINESS

SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells barters, exchanges,
leases goods or properties, renders services, and any person who imports goods shall be subject to the
value-added tax (VAT) imposed in Sections 106 to 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing
contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act
No. 7716.

“in the course of trade or business” means the regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental thereto, by any person regardless of whether or not
the person engaged therein is a non-stock, nonprofit 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.

The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the
Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade
or business.

One of the demonstrative case that may sufficiently explain Section 105 pertaining the trade in the
course of business and incidental transaction is the CTA case of Philippine Aerospace Development
Corporation v. Commissioner of Internal Revenue, CTA Case EB No. 1035

“Based on the foregoing, the VAT is imposed on a sale or transaction entered into by a
person in the course of any trade or business. A transaction wil be characterized as having been
entered into by a person in the course of trade or business if it is: (1) regularly conducted; and
(2) undertaken in pursuit of a commercial or economic activity. Likewise, transactions that are
made incidental to the pursuit of a commercial or economic activity are considered as entered
into in the course of trade or business.

'Incidental' means something else as primary; something necessary, appertaining to, or

depending upon another, which is termed the principal. Hence, an isolated transaction is not
necessarily disqualified from being made incidentally in the course of trade or business.

Absence proof to the contrary, the tools and equipment subject of the assessment shall
be considered to have been used by petitioner in the conduct of its business. Prior to the sale,
 the tools and equipment formed part of petitioner's assets being used in its business operations.
Therefore, petitioner's sale of tools and equipment is an incidental transaction because the said
tools and equipment were used in furtherance of petitioner's business”

COMMISSIONER OF INTERNAL REVENUE vs. SONY PHILIPPINES, INC. G.R. No. 178697 November 17,
2010

“SEC. 106. Value-added Tax on Sale of Goods or Properties. –(A) Rate and Base of Tax. –
There shall be levied, assessed and collected on every sale, barter or exchange of goods or
properties, value-added tax equivalent to ten percent (10%) of the gross selling price or gross
value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by
the seller or transferor.

Thus, there must be a sale, barter or exchange of goods or properties before any VAT
may be levied. Certainly, there was no such sale, barter or exchange in the subsidy given by SIS
to Sony. It was but a dole out by SIS and not in payment for goods or properties sold, bartered
or exchanged by Sony.”

MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE G.R. No.

193301 March 11 2013

The phrase "in the course of trade or business" means the regular conduct or pursuit of
a commercial or an economic activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a nonstock, nonprofit 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.

COMMISSIONER OF INTERNAL REVENUE vs.COURT OF APPEALS and COMMONWEALTH

MANAGEMENT AND SERVICES CORPORATION G.R. No. 125355 March 30, 2000

“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.

The definition of the term "in the course of trade or business" present law applies to all
transactions even to those made prior to its enactment. Executive Order No. 273 stated that any
person who, in the course of trade or business, sells, barters or exchanges goods and services,
was already liable to pay VAT. The present law merely stresses that even a nonstock, nonprofit
organization or government entity is liable to pay VAT for the sale of goods and services.”

MEDICARD PHILIPPINES, INC. vs. COMMISSIONER OF INTERNAL REVENUE G.R. No. 222743 April 5,
2017

“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.

Section 4.108-4. x x x. "Gross receipts" refers to the total amount of money or its
equivalent representing the contract price, compensation, service fee, rental or royalty,
including the amount charged for materials supplied with the services and deposits 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 the VAT.

As to the CIR's argument that the act of earmarking or allocation is by itself an act of
ownership and management over the funds, the Court does not agree.1âwphi1 On the contrary,
it is MEDICARD's act of earmarking or allocating 80% of the amount it received as membership
fee at the time of payment that weakens the ownership imputed to it. By earmarking or
allocating 80% of the amount, MEDICARD 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. Prior to that, MEDI CARD is bound to pay from the amounts it had
allocated as an administrator once its members avail of the medical services of MEDICARD's
healthcare providers.”

TFS, INCORPORATED vs. COMMISSIONER OF INTERNAL REVENUE G.R. No. 166829

April 19 2010

“In fine, although strict compliance with the rules for perfecting an appeal is
indispensable for the prevention of needless delays and for the orderly and expeditious dispatch
of judicial business, strong compelling reasons such as serving the ends of justice and preventing
a grave miscarriage may nevertheless warrant the suspension of the rules.33 In the instant case,
we are constrained to disregard procedural rules because we cannot in conscience allow the
government to collect deficiency VAT from petitioner considering that the government has no
right at all to collect or to receive the same. Besides, dismissing this case on a mere technicality
would lead to the unjust enrichment of the government at the expense of petitioner, which we
cannot permit. Technicalities should never be used as a shield to perpetrate or commit an
injustice”

6. CIR vs. SM Prime Holdings, Inc., GR No. 183505, 26 February 2010

The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the
imposition of VAT on the gross receipts of cinema/theater operators or
proprietors derived from admission tickets. The removal of the prohibition under
the Local Tax Code did not grant nor restore to the national government the
power to impose amusement tax on cinema/theater operators or proprietors.
Neither did it expand the coverage of VAT. Since the imposition of a tax is a
burden on the taxpayer, it cannot be presumed nor can it be extended by
implication. A law will not be construed as imposing a tax unless it does so
clearly, expressly, and unambiguously. As it is, the power to impose amusement
tax on cinema/theater operators or proprietors remains with the local
government.

7. Diaz vs. The Secretary of Finance, GR No. 193007, 19 July 2011

Value Added Tax (VAT) on tollway operations cannot be deemed a tax on tax
due to the nature of VAT as an indirect tax. In indirect taxation, a distinction is
made between the liability for the tax and burden of the tax. The seller who is
liable for the VAT may shift or pass on the amount of VAT it paid on goods,
properties or services to the buyer. In such a case, what is transferred is not the
seller’s liability but merely the burden of the VAT.

8. PSALM vs. Commissioner of Internal Revenue, G.R. No. 226556, 3 July

2019

The sale of the power plants is not in pursuit of a commercial or economic activity
but a governmental function mandated by law to privatize NPC generation
assets. The sale of the power plants is clearly not the same as the sale of
electricity by generation companies, transmission, and distribution companies,
which is subject to VAT under Section 108 of the NIRC.

9. PSALM vs. Commissioner of Internal Revenue, G.R. No. 198146, 8

August 2017

The power plants, which were previously owned by NPC were transferred to
PSALM for the specific purpose of privatizing such assets. The sale of the power
plants cannot be considered as an incidental transaction made in the course of
NPC's or PSALM's business. Therefore, the sale of the power plants should not
be subject to VAT.

10. Association of Non-Profit Clubs, Inc. (ANPC), herein represented by its

authorized representative, Ms. Felicidad M. Del Rosario vs. Bureau of
Internal Revenue (BIR), herein represented by Hon. Commissioner Kim S.
Jacinto Henares, G.R. No. 228539, 26 June 2019

The Court declares as invalid the BIR's interpretation in RMC No. 35-2012 that
membership fees, assessment dues, and the like are part of "the gross receipts
of recreational clubs" that are "subject to VAT." It is a basic principle that before a
transaction is imposed VAT, a sale, barter or exchange of goods or properties, or
sale of a service is required.

11. In The Matter Of Declaratory Relief On The Validity Of BIR Revenue

Memorandum Circular No. 65-2012 "Clarifying The Taxability Of
Association Dues, Membership Fees And Other Assessments/Charges
Collected By Condominium Corporations, G.R. No. 215801, 15 January
2020
The value-added tax is an indirect tax and the amount of tax may be shifted or
passed on to the buyer, transferee or lessee of the goods, properties or services.
This rule shall likewise apply to existing contracts of sale or lease of goods,
properties or services at the time of the effectivity of Republic Act No. 7716.

The phrase "in the course of trade or business" means the regular conduct or
pursuit of a commercial or an 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.

9. VAT on Sale of Goods or Properties (Section 106)

There shall be levied, assessed and collected on every sale, barter or exchange of
goods or properties, value-added tax equivalent to twelve percent (12%) of the gross
selling price or gross value in money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor.

(1) “Goods or Properties.” The term “goods” or “properties“ shall mean all tangible
and intangible objects which are capable of pecuniary estimation and shall include:

(a) Real properties held primarily for sale to customers or held for lease in the ordinary
course of trade or business;
(b) The right or the privilege to use patent, copyright, design or model, plan, secret
formula or process, goodwill, trademark, trade brand or other like property or right;
(c) The right or the privilege to use in the Philippines of any industrial, commercial or
scientific equipment;
(d) The right or the privilege to use motion picture films, tapes and discs; and
(e) Radio, television, satellite transmission and cable television time.

a. Requisites for the imposition of VAT

1. The seller must be VAT-registered, or he is VAT-registrable;

2. The goods or properties sold may either be tangible or intangible which are
capable of pecuniary estimation;
3. The sale must be undertaken in the course of trade or business;
4. The sale must have been done in the Philippines;
5. The sale must be for use or consumption in the Philippines;
6. The sale must not be a zero-rated sale; and
7. The sale must not be VAT-exempt.

b. Gross selling price

The term “gross selling price” means the total amount of money or its equivalent
which the purchaser pays or is obligated to pay to the seller in consideration of
the sale, barter or exchange of the goods or properties, excluding the value-
added tax. The excise tax, if any, on such goods or properties shall form part of
the gross selling price (Section 106 (A) (1) of the NIRC).

c. Allowed deductions

In computing the taxable base during the month or quarter, the following shall be
allowed as deductions from gross selling price:

a. Discounts which is determined and granted at the time of sale, expressly

indicated in the invoice, the amount thereof forming part of the gross sales
duly recorded in the books of accounts, and the grant of which is not
dependent upon the happening of a future event; and

b. Sales returns and allowances for which a proper credit or refund was made
during the month or quarter to the buyer for sales previously recorded as
taxable sales. (Revenue Regulations No. 16-2005).

d. Transactions - Deemed Sale [Section 106(B)]

The following transactions shall be deemed sale:

(1) Transfer, use or consumption not in the course of business of goods or

properties originally intended for sale or for use in the course of business;
(2) Distribution or transfer to:

(a) Shareholders or investors as share in the profits of the VAT-registered

persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty (60) days
following the date such goods were consigned; and

(4) Retirement from or cessation of business, with respect to inventories of

taxable goods existing as of such retirement or cessation.

10. VAT on the Sale of Services and Use or Lease of Properties (Section
108)

There shall be levied, assessed and collected, a value-added tax equivalent to

twelve percent (12%) of gross receipts derived from the sale or exchange of
services, including the use or lease of properties. 

The phrase “sale or exchange of services” means the performance of all kinds
of services in the Philippines for others for a fee, remuneration or consideration,
including those performed or rendered by construction and service contractors;
stock, real estate, commercial, customs and immigration brokers; lessors of
property, whether personal or real; warehousing services; lessors or distributors
of cinematographic films; persons engaged in milling processing, manufacturing
or repacking goods for others; proprietors, operators or keepers of hotels, motels,
rest houses, pension houses, inns, resorts; proprietors or operators of
restaurants, refreshment parlors, cafes and other eating places, including clubs
and caterers; dealers in securities; lending investors; transportation contractors
on their transport of goods or cargoes, including persons who transport goods or
cargoes for hire another domestic common carriers by land relative to their
transport of goods or cargoes; common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place in the Philippines to
another place in the Philippines; sales of electricity by generation companies,
transmission, and distribution companies; services of franchise grantees of
electric utilities. telephone and telegraph, radio and television broadcasting and
all other franchise grantees except those under section 119 of this Code, and
non-life insurance companies (except their crop insurances), including surety,
fidelity, indemnity, and bonding companies; and similar services regardless of
whether or not the performance thereof calls for the exercise or use of the
physical or mental faculties.

The phrase “sale or exchange of services” shall likewise include:

(1) The lease or the use of or the right or privilege to use any copyright, patent,
design or model, plan secret formula or process, goodwill, trademark, trade
brand or other like property or right;
(2) The lease of the use of, or the right to use of any industrial, commercial or
scientific equipment;
(3) The supply of scientific, technical, industrial or commercial knowledge or
information;
(4) The supply of any assistance that is ancillary and subsidiary to and is
furnished as a means of enabling the application or enjoyment of any such
property, or right as is mentioned in subparagraph (2) or any such knowledge or
information as is mentioned in subparagraph (3);
(5) The supply of services by a nonresident person or his employee in connection
with the use of property or rights belonging to, or the installation or operation of
any brand, machinery or other apparatus purchased from such nonresident
person.
(6) The supply of technical advice, assistance or services rendered in connection
with technical management or administration of any scientific, industrial or
commercial undertaking, venture, project or scheme;
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite
transmission and cable television time.

Lease of properties shall be subject to the tax herein imposed irrespective of the
place where the contract of lease or licensing agreement was executed if the
property is leased or used in the Philippines.

The term “gross receipts” means the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty,
including the amount charged for materials supplied with the services and
deposits and advanced payments actually or constructively received during the
taxable quarter for the services performed or to be performed for another person,
excluding value-added tax. 

a. Requisites for the imposition of VAT

a. Seller must be VAT-registered or VAT registrable and his gross annual

receipts exceeds ₱3,000,000.00;
b. The sale must be performed in the course of trade or business;
c. The sale must be for a valuable consideration actually or constructively
received;
d. The sale must have been done and for use or consumption in the Philippines;
e. The sale must not be considered as zero-rated sale;
f. The sale must not be VAT-exempt;

In the case of lease of properties, the property being leased should be located in
the Philippines irrespective of the place where the contract of lease or licensing
agreement was executed.
 b. Gross receipts

The term “gross receipts” means the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty,
including the amount charged for materials supplied with the services and
deposits and advanced payments actually or constructively received during the
taxable quarter for the services performed or to be performed for another person,
excluding value-added tax (Section 108 (A) of the NIRC).

11. VAT on Importation of Goods (Section 107)

There shall be levied, assessed and collected on every importation of goods a

value-added tax equivalent to twelve percent (12%) based on the total value
used by the Bureau of Customs in determining tariff and customs duties plus
customs duties, excise taxes, if any, Automatically Zero- Effectively Zero-
and other charges, such tax to be Rated Transactions Rate Transactions
paid by the importer prior to the Refer to the actual Refer to the local
release of such goods from customs export sale of goods sale of goods or
and supply of services supply of services
custody: by a VAT-registered
Provided, That where the customs person to persons
duties who were granted
are determined on the basis of indirect tax
exemption under
the quantity or volume of the goods,
special laws or
the value-added tax shall be based international
on the landed cost plus excise taxes, agreement to which
if any. the Philippines is a
signatory
In the case of tax-free importation of Refer to the local sale Refer to the local
of goods or supply of sale of goods or
goods into the Philippines by services by a VAT- supply of services
persons, entities or agencies exempt registered person to by a VAT-registered
from tax where such goods are persons who were person to persons
subsequently sold, transferred or granted indirect tax who were granted
exchanged in the Philippines to non- exemption under indirect tax
special laws or exemption under
exempt persons or entities, the
international special laws or
purchasers, transferees or recipients agreement to which international
shall be considered the importers the Philippines is a agreement to which
thereof, who shall be liable for any signatory the Philippines is a
internal revenue tax on such signatory
importation. The tax due on such Refer to the local sale The seller charges
of goods or supply of no output tax but
importation shall constitute a lien on services by a VAT- can claim a refund
the goods superior to all charges or registered person to of or a TCC for the
liens on the goods, irrespective of the persons who were VAT previously
possessor thereof. granted indirect tax charged by the
exemption under suppliers.
special laws or
international
agreement to which
the Philippines is a
signatory
12. Zero-Rated Sales

Zero-rated sale by a VAT-registered person is a taxable transaction for VAT

purposes but the sale does not result in any output tax. However, the input tax on
the purchases of goods, properties or services related to such zero-rated sale
shall be available as tax credit or refund. To be subject to zero tax-rate, however,
the seller must be a VAT-registered person because if he is not VAT registered,
the transactions entered into by him are exempt from the tax.

a. Automatically Zero-Rated Transactions vs. Effectively

b. Zero-Rated Export Sales of Goods or Properties [Section 106) (A) (2)]

The following sales by VAT-registered persons shall be subject to zero percent

(0%) rate:

(a) Export Sales. - The term “export sales” means:

(1) The sale and actual shipment of goods from the Philippines to a foreign
country, irrespective of any shipping arrangement that may be agreed upon
which may influence or determine the transfer of ownership of the goods so
exported and paid for in acceptable foreign currency or its equivalent in goods or
services, and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);

(2) Sale and delivery of goods to:

(i) Registered enterprises within a separate customs territory as provided under

special laws; and
(ii) Registered enterprises within tourism enterprises 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. 

c. Zero Rated Sale of Services [Section 108(B)]

The following services performed in the Philippines by VAT- registered persons

shall be subject to zero percent (0%) rate:

(1) Processing, manufacturing or repacking goods for other persons doing

business outside the Philippines which goods are subsequently exported, where
the services are paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);
(2) Services other than those mentioned in the preceding paragraph, rendered to
a person engaged in business conducted outside the Philippines or to a
nonresident person not engaged in business who is outside the Philippines when
the services are performed, the consideration for which is paid for in acceptable
foreign currency and accounted for in accordance with the rules and 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;

(4) Services rendered to persons engaged in international shipping or

international air transport operations, including leases of property for use thereof:
Provided, That these services shall be exclusive for international shipping or air
transport operations;
 
(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; and

(7) Sale of power or fuel generated through renewable sources of energy such
as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean
energy, and other emerging energy sources using technologies such as fuel cells
and hydrogen fuels. 
(8) Services rendered to:

(i) Registered enterprises within a separate customs territory as provided under

special law; and
(ii) Registered enterprises within tourism enterprise zones as declared by TIEZA
subject to the provisions under Republic Act No. 9593 or the Tourism Act of
2009.

Provided, That subparagraphs (B)(1) and (B)(5) hereof shall be subject to the
twelve percent (12%) value-added tax and no longer subject to zero percent (0%)
VAT rate upon satisfaction of the following conditions:

(1) The successful establishment and implementation of an enhanced VAT

refund system that grants refund of creditable input tax within 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.

Provided, That the Department of Finance shall establish a VAT refund center in
the Bureau of Internal Revenue(BIR) and in the Bureau of Customs(BOC) that
will handle the processing and granting of cash refunds of creditable input tax.

An amount equivalent to five percent (5%) of the total value-added tax 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.
Provided, further, That the BIR and the BOC shall be required to submit to the
COCCTRP a quarterly report of all pending claims for refund and any unused
fund. 

d. Cases:

1. Coral Bay Nickel Corporation vs. CIR, GR No. 190506, 13 June 2016

The old rule clearly did not take into consideration the Cross Border Doctrine
essential to the VAT system or the fiction of the ECOZONE as a foreign territory.
It relied totally on the choice of fiscal incentives of the PEZA-registered
enterprise. Again, for emphasis, the old VAT rule for PEZAregistered enterprises
was based on their choice of fiscal incentives: (1) If the PEZAregistered
enterprise chose the five percent (5%) preferential tax on its gross income, in lieu
of all taxes, as provided by Rep. Act No. 7916, as amended, then it would be
VATexempt; (2) If the PEZA-registered enterprise availed of the income tax
holiday under Exec. Order No. 226, as amended, it shall be subject to VAT at ten
percent (10%). Such distinction was abolished by RMC No. 74-99, which
categorically declared that all sales of goods, properties, and services made by a
VAT-registered supplier from the Customs Territory to an ECOZONE enterprise
shall be subject to VAT, at zero percent (0%) rate, regardless of the latter's type
or class of PEZA registration; and, thus, affirming the nature of a PEZA-
registered or an ECOZONE enterprise as a VAT-exempt entity.

2. CIR vs. Cebu Toyo Corp., GR No. 149073, 16 February 2005

Under the VAT system, a zero-rate sale by a VAT-registered person, which is a
taxable transaction for VAT purposes, shall not result in any output tax. However,
input tax on his purchase of goods, properties or services related to such zero-
related sale shall be available as a tax credit or refund. While a zero rating and
exemption are computationally the same, they actually differ in several aspects,
to wit: (a) A zero-rated sale is a taxable transaction but does not result in an
output tax while an exempted transaction is not subject to the output tax; (b) The
input VAT on the purchases of a VATregistered person with zero-rated sales may
be allowed as tax credits or refunded while the seller in an exempt transaction is
not entitled to any input tax on his purchases despite the issuance of a VAT
invoice or receipt. (c) Persons engaged in transactions which are zero-rated,
being subject to VAT, are required to register while registration is optional for
VAT-exempt persons.

3. CIR vs. Seagate Technology (Philippines), GR No. 153866, 11 February

2005

As a PEZA-registered enterprise within a special economic zone, STP is entitled

to the fiscal incentives and benefit provided for in either PD 66 or EO 226. It
shall, moreover, enjoy all privileges, benefits, advantages or exemptions under
both Republic Act Nos. (RA) 7227 and 7844. Its sales transactions intended for
export may not be exempt, but like its purchase transactions, they are zerorated.
No prior application for the effective zero rating of its transactions is necessary.
Being VAT-registered and having satisfactorily complied with all the requisites for
claiming a tax refund of or credit for the input VAT paid on capital goods
purchased, STP is entitled to such VAT refund or credit. STP, which as an entity
is exempt, is different from its transactions which are not exempt. The end result,
however, is that it is not subject to the VAT. The non-taxability of transactions
that are otherwise taxable is merely a necessary incident to the tax exemption
conferred by law upon it as an entity, not upon the transactions themselves.

4. Sitel vs. Commissioner, G.R. No. 201326, 8 February 2017

In order that a foreign corporation may be regarded as doing business within a

State, there must be continuity of conduct and intention to establish a continuous
business, such as the appointment of a local agent, and not one of a temporary
character." A taxpayer claiming a tax credit or refund has the burden of proof to
establish the factual basis of that claim. Tax refunds, like tax exemptions, are
construed strictly against the taxpayer.
5. Commissioner vs. Euro-Philippines Airline Services, Inc., G.R. No.
222436, 23 July 2018
The services rendered to persons engaged in international shipping or
International air- transport operations, including leases of property for use thereof
which is performed in the Philippines by VAT-registered persons shall be subject
to zero percent (0%) rate.

13. VAT – Exempt Transactions

a. VAT-Exempt Transactions vs. VAT-Exempt Entity

VAT-Exempt Transactions VAT-Exempt Entity

Involves goods or services which, by A person or entity granted VAT
their nature, are specifically listed inexemption and by virtue of which its
and expressly exempted from VAT taxable transactions become exempt
from VAT
The transaction is not subject to VAT, The transaction is not subject to VAT,
but the seller is not allowed any tax but the seller is not allowed any tax
refund of or credit for any input taxes refund of or credit for any input taxes
paid. paid.

b. VAT-exemption vs. Zero-rating

In zero-rated transactions, there is total relief for the purchaser from the burden
of the tax since he does not have to pay any VAT on the transaction; while in
exempt transaction, there is only partial relief because the seller is not allowed
any tax refund or credit for input taxes paid on his purchases from his supplier.
Some jurisdictions call zero-rated transactions “exempt with credit” (because you
can credit input tax) and VAT-exempt transactions “exempt without credit”
(because you cannot credit input tax).

The purpose of zero-0rated transactions is to exempts the transaction completely

from VAT previously collected since input taxes passed to him may be recovered
as refunds or credits.

c. Transactions (See Section 109)

The following transactions shall be exempt from the value-added tax:

(A) Sale or importation of agricultural and marine food products in their original
state, livestock and poultry of or king generally used as, or yielding or producing
foods for human consumption; and breeding stock and genetic materials therefor.
Products classified under this paragraph shall be considered in their original state
even if they have undergone the simple processes of preparation or preservation
for the market, such as freezing, drying, salting, broiling, roasting, smoking or
stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses,
ordinary salt and copra shall be considered in their original state;

(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn,
livestock and poultry feeds, including ingredients, whether locally produced or
imported, used in the manufacture of finished feeds (except specialty feeds for
race horses, fighting cocks, aquarium fish, zoo animals and other animals
generally considered as pets);

(C) Importation of personal and household effects belonging to the residents of

the Philippines returning from abroad and nonresident citizens coming to resettle
in the Philippines: Provided, That such goods are exempt from customs duties
under the Tariff and Customs Code of the Philippines;
(D) Importation of professional instruments and implements, tools of trade,
occupation or employment, wearing apparel, domestic animals, and personal and
household effects belonging to persons coming to settle in the Philippines or
Filipinos or their families and descendants who are now residents or citizens of
other countries, such parties hereinafter referred to as overseas Filipinos, in
quantities and of the 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: 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 the goods are
brought from their former place of abode, exempt such goods from payment of
duties and taxes: Provided, further, That the vehicles, vessels, aircrafts,
machineries and other similar goods for use in manufacture, shall not fall within
this classification and shall therefore be subject to duties, taxes and other
charges; 
(E) Services subject to percentage tax under Title V;

(F) Services by agricultural contract growers and milling for others of palay into
rice, corn into grits and sugar cane into raw sugar;

(G) Medical, dental, hospital and veterinary services except those rendered by
professionals; 

(H) Educational services rendered by private educational institutions, duly

accredited by the Department of Education (DepED), the Commission on Higher
Education (CHED), the Technical Education and Skills Development Authority
(TESDA) and those rendered by government educational institutions;
(I) Services rendered by individuals pursuant to an employer-employee
relationship;
(J) Services rendered by regional or area headquarters established in the
Philippines by multinational corporations which act as supervisory,
communications and coordinating centers for their affiliates, subsidiaries or
branches in the Asia-Pacific Region and do not earn or derive income from the
Philippines;

(K) Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those under Presidential
Decree No. 529; 
(L) Sales by agricultural cooperatives duly registered with the Cooperative
Development Authority to their members as well as sale of their produce,
whether in its original state or processed form, to non-members; their importation
of direct farm inputs, machineries and equipment, including spare parts thereof,
to be used directly and exclusively in the production and/or processing of their
produce;
(M) Gross receipts from lending activities by credit or multi-purpose cooperatives
duly registered with the Cooperative Development Authority;

(N) Sales by non-agricultural, non- electric and non-credit cooperatives duly

registered with the Cooperative Development Authority: Provided, That the share
capital contribution of each member does not exceed Fifteen thousand pesos
(P15,000) and regardless of the aggregate capital and net surplus ratably
distributed among the members;

(O) Export sales by persons who are not VAT-registered;

(P) Sale of real properties not primarily held for sale to customers or held for
lease in the ordinary course of trade or business or real property utilized for low-
cost and socialized housing as defined by Republic Act No. 7279, otherwise
known as the Urban Development and Housing Act of 1992, and other related
laws, residential lot valued at One million pesos (P1,500,000) and below, house
and lot, and other residential dwellings valued at Two million five hundred
thousand pesos (P2,500,000) and below: Provided, That beginning January 1,
2021, the VAT exemption shall only apply to sale of real properties not primarily
held for sale to customers or held for lease in the ordinary course of trade or
business, sale of real property utilized for socialized housing as defined by
Republic Act No. 7279, sale of house and lot, and other residential dwellings with
the selling price of not more than Two million pesos (P2,000,000): Provided,
further, That every three (3) years thereafter, the amount herein stated shall be
adjusted to its present value using the Consumer Price Index, as published by
the Philippine Statistics Authority(PSA); 
(Q) Lease of a residential unit with a monthly rental not exceeding Fifteen
thousand pesos (₱15,000); 

(R) Sale, importation, printing or publication of books, and any newspaper,

magazine, journal, review bulletin, or any such educational reading material
covered by the UNESCO Agreement on the Importation of Educational, Scientific
and Cultural Materials, including the digital or electronic format thereof: Provided,
That the materials enumerated herein are not devoted principally to the
publication of paid advertisements; 
(S) Transport of passengers by international carriers;

(T) Sale, importation or lease of passenger or cargo vessels and aircraft,

including engine, equipment and spare parts thereof for domestic or international
transport operations;
(U) Importation of fuel, goods and supplies by persons engaged in international
shipping or air transport operations: Provided, That the fuel, goods, and supplies
shall be used for international shipping or air transport operations; 

(V) Services of bank, non-bank financial intermediaries performing quasi-banking

functions, and other non-bank financial intermediaries;
(W) Sale or lease of goods and services to senior citizens and persons 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; 
(X) Transfer of property pursuant to Section 40(C)(2) of the NIRC, as amended;

(Y) Associations dues, membership fees, and other assessments and charges
collected by homeowners’ associations and condominium corporations;

(Z) Sale of gold to the Banko Sentral ng Pilipinas (BSP);

(AA) Sale of or importation of prescription drugs and medicines for:

(i) Diabetes, high cholesterol, and hypertension beginning January 1, 2020; and
(ii) Cancer, mental illness, tuberculosis, and kidney diseases beginning January
1, 2021. 

Provided, That the DOH shall issue a list of approved drugs and medicines for
this purpose within sixty (60) days from the effectivity of this Act; and

(BB) Sale or importation of the following beginning January 1, 2021 to December

31, 2023: 
(i) Capital equipment, its spare parts and raw materials, necessary for the
production of personal protective equipment components such as coveralls,
gown, surgical cap, surgical mask, N-95 mask, scrub suits, goggles and face
shield, double or surgical gloves, dedicated shoes, and shoe covers, for COVID-
19 prevention; and

(ii) All drugs, vaccines and medical devices specifically prescribed and directly
used for the treatment of COVID-19; and

(iii) Drugs for the treatment of COVID-19 approved by the Food and Drug
Administration (FDA) for use in clinical trials, including raw materials directly
necessary for the production of such drugs: Provided, That the Department of
Trade and Industry (DTI) shall certify that such equipment, spare parts or raw
materials for importation are not locally available or insufficient in quantity, or not
in accordance with the quality or specification required: Provided, further, That for
item (ii), within sixty (60) days from the effectivity of this Act, and every three (3)
months thereafter, the Department of Health (DOH) shall issue a list of
prescription drugs and medical devices covered by this provision: Provided,
finally, That the exemption claimed under this subsection shall be subject to post
audit by the Bureau of Internal Revenue or the Bureau of Customs as may be
applicable.

(CC) 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
(P3,000,000.00). 

14. Tax Credits (Section 110)

A. Creditable Input Tax

(1) Any input tax evidenced by a VAT invoice or official receipt issued in

accordance with Section 113 hereof on the following transactions shall be
creditable against the output tax:

(a) Purchase or importation of goods:

(i) For sale; or
(ii) For conversion into or intended to form part of a finished product for sale
including packaging materials; or
(iii) For use as supplies in the course of business; or
(iv) For use as materials supplied in the sale of service; or
(v) For use in trade or business for which deduction for depreciation or
amortization is allowed under this Code.

(b) Purchase of services on which a value-added tax has been actually paid.

(2) The input tax on domestic purchase or importation of goods or properties by a

VAT-registered person shall be creditable:

(a) To the purchaser upon consummation of sale and on importation of goods or

properties; and

(b) To the importer upon payment of the value-added tax prior to the release of
the goods from the custody of the Bureau of Customs.

Provided, that the input tax on goods purchased or imported in a calendar month
for use in trade or business for which deduction for depreciation is allowed under
this Code shall be spread evenly over the a month of acquisition and the fifty-
nine (59) succeeding months if the aggregate acquisition cost for such goods,
excluding the VAT component thereof, exceeds One million pesos (P1,000,000):
Provided, however, That if the estimated useful life of the capital good is less
than five (5) years, as used for depreciation purposes, then the input VAT shall
be spread over such a shorter period: Provided, further, That the amortization of
the input VAT shall only be allowed until December 31, 2021 after which
taxpayers with unutilized input VAT on capital goods purchased or imported shall
be allowed to apply the same as scheduled until fully utilized: Provided, finally,
That in the case of purchase of services, lease or use of properties, the input tax
shall be creditable to the purchaser, lessee or licensee upon payment of the
compensation, rental, royalty or free. 

(3) A VAT-registered person who is also engaged in transactions not subject to

the value-added tax shall be allowed tax credit as follows:

(a) Total input tax which can be directly attributed to transactions subject to
value-added tax; and
(b) A ratable portion of any input tax which cannot be directly attributed to either
activity.

If at the end of any taxable quarter the output tax exceeds the input tax, the
excess shall be paid by the Vat-registered person. If the input tax exceeds the
output tax, the excess shall be carried over to the succeeding quarter or quarters.
Provided, however, That any input tax attributable to zero-rated sales by a VAT-
registered person may at his option be refunded or credited against other internal
revenue taxes, subject to the provisions of Section 112.
The sum of the excess input tax carried over from the preceding month or quarter
and the input tax creditable to a VAT-registered person during the taxable month
or quarter shall be reduced by the amount of claim for refund or tax credit for
value-added tax and other adjustments, such as purchase returns or allowances
and input tax attributable to exempt sale.

The claim for tax credit referred to in the foregoing paragraph shall include not
only those filed with the Bureau of Internal Revenue but also those filed with
other government agencies, such as the Board of Investments and the Bureau of
Customs.

a. Input Tax vs. Output Tax

Input tax is the Value Added Tax (VAT) due from or paid by a VAT registered
person on importation of goods or local purchase of goods, properties, or
services, including lease or use of properties, in the course of his trade or
business while output tax is the VAT due on the sale or lease of taxable goods or
properties or services by any person registered or required to register under
Section 236 of the NIRC ([Sec. 110(A) (3), NIRC]).

Creditable input taxes

1. Source of Creditable Input Taxes

Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section
113 of the NIRC on the following transactions shall be creditable against the output tax:
1. Purchase or importation of goods:
a. For sale; or
b. For conversion into or intended to form part of a finished product for sale including packaging
materials; or
c. For use as supplies in the course of business; or
d. For use as materials supplied in the sale of service; or
e. For use in trade or business for which deduction for depreciation or amortization is allowed
under NIRC, except automobiles, aircraft and yachts. (Capital Goods)
2. Purchases of real properties for which a VAT has actually been paid;
3. Purchases of services in which a VAT has actually been paid (Sec. 110, NIRC);
4. Transactions “deemed sales”;
5. Presumptive input tax;
6. Transitional input tax credits allowed under the transitory and other provisions (Sec. 4.110- 1
R.R. 16-2005).
2. Claimant of Input Tax Credit

The input tax credit on importation of goods or local purchases of goods, properties or services
by a VAT registered person shall be creditable:
1. To the importer upon payment of the VAT prior to the release of the goods from the customs
custody;
2. To the purchaser of the domestic goods or properties upon consummation of the sale; or
3. To the purchaser of the services or the lessee or the licenses upon payment of the
compensation, rental, royalty or fee (R.R. 16- 2005).
As long as the invoices from the suppliers are issued in the name of the taxpayer and expenses
were actually incurred by the taxpayer, then the input tax pertaining to such expenses must be
credited to the taxpayer. Where the money came from to pay these expenses is another matter
altogether but it does not change the fact that input tax has been incurred (CIR v. Sony
Philippines, Inc., G.R. No. 178697, November 17, 2010).
Any VAT-registered person whose sales are zero-rated or effectively zero-rated may within 2
years after the close of the taxable quarter when the sales were made, apply for the issuance of a
tax credit certificate or refund of the creditable input tax due or paid attributable to such sale.
The creditable input tax allowed to be refunded does not include transitional input tax.
In case the taxpayer is engaged both in zero-rated and taxable or exempt sale, and the amount of
creditable input tax due or paid cannot be directly and entirely attributed to any one of the
transactions, it shall be allocated proportionately on the basis of the volume of sales.
3. Determination of Input Tax Creditable during a Taxable Month or Quarter

a. The amortization of the input VAT shall only be allowed until December 31, 2021
after which taxpayers with unutilized input VAT on capital goods purchased or
imported shall be allowed to apply the same as scheduled until fully utilized.
Apportionment of Input on Mixed Transactions
A VAT-registered person who is also engaged in transactions not subject to VAT shall be
allowed to recognize input tax credit on transactions subject to VAT as follows:
1. All the input taxes that can be directly attributed to transactions subject to VAT may be
recognized for input tax credit: Provided, that input taxes which are directly attributable to VAT
taxable sales of goods and services from the Government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs shall not be credited against output taxes arising
from sales to nongovernment entities, and
2. If any input tax cannot be directly attributed to either a VAT taxable or VAT-exempt
transaction, the input tax shall be pro-rated to the VAT taxable and VAT-exempt transactions;
only the ratable portion pertaining to transactions subject to VAT may be recognized for input
tax credit.
Other Types of Input Tax (Section 111)
1. Transitional Input Tax Credits
a. Available to:
(1) Any person who becomes liable to VAT
(2) Any person who elects to be VAT – registered.

b. XXX subject to the filing of an inventory according to rules and regulations

prescribed by the Secretary of finance, upon recommendation of the Commissioner,
be allowed input tax on his beginning inventory of goods, materials and supplies
equivalent to two percent (2%)  of the value of such inventory or the actual value-
added tax paid on such goods, materials and supplies, whichever is higher, which
shall be creditable against the output tax [Sec. 111 (A), NIRC].

2. Presumptive Input Tax Credits

a. Available to:
(1) Persons engaged in the processing of sardines, mackerel, milk
(2) Manufacturers of refined sugar, cooking oil, and packed noodle-based instant
meals.

b. XXX four percent (4%)  of the gross value in money of their purchases of primary
agricultural products which are used as inputs to their production [Sec. 111 (B),
NIRC].

3. Cases
a. Fort Bonifacio Development v. CIR, GR No. 158885, 2 April 2009
The language of Section 105 is explicit. It precludes reading into the law that the transitional
input tax credit is limited to the amount of VAT previously paid. When the aforesaid section
speaks of "eight percent (8%) of the value of such inventory" followed by the clause "or the
actual value-added tax paid on such goods, materials and supplies," the implication is clear that
under the first clause, "eight percent (8%) of the value of such inventory," the law does not
contemplate the payment of any prior tax on such inventory. This is distinguished from the
second clause, "the actual value-added tax paid on the goods, materials and supplies" where
actual payment of VAT on the goods, materials and supplies is assumed. Had the intention of the
law been to limit the amount to the actual VAT paid, there would have been no need to explicitly
allow a claim based on 8% of the value of such inventory.
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered
persons, whether or not they previously paid taxes in the acquisition of their beginning inventory
of goods, materials and supplies. During that period of transition from non-VAT to VAT status,
the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the
very beginning, the VAT-registered taxpayer is obliged to remit a significant portion of the
income it derived from its sales as 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.
b. Fort Bonifacio Development Corporation v. CIR, GR No. 173425, 4 September 2012

To require prior payment of taxes, as proposed in the Dissent is not only tantamount to judicial
legislation but would also render nugatory the provision in Section 105 of the old NIRC that the
transitional input tax credit shall be "8% of the value of [the beginning] inventory or the actual
[VAT] paid on such goods, materials and supplies, whichever is higher" because the actual VAT
(now 12%) paid on the goods, materials, and supplies would always be higher than the 8% (now
2%) of the beginning inventory which, following the view of Justice Carpio, would have to
exclude all goods, materials, and supplies where no taxes were paid. 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.
Moreover, prior payment of taxes is not required to avail of the transitional input tax credit
because it is not a tax refund per se but a tax credit. Tax credit is not synonymous to tax refund.
Tax refund is defined as the money that a taxpayer overpaid and is thus returned by 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 to a taxpayer as a subsidy, a refund, or an incentive to encourage
investment. Thus, unlike a tax refund, prior payment of taxes is not a prerequisite to avail of a
tax credit.
XXX
As we see it then, the 8% 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.
Refunds or Tax Credit of Input Tax

“SEC. 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales, except transitional input tax, to the
extent that such input tax has not been applied against output tax: Provided, however, That in the
case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b) and Section 108 (B)(1) and
(2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided,
further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also
in taxable or exempt sale of goods of properties or services, and the amount of creditable input
tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be
allocated proportionately on the basis of the volume of sales. Provided, finally, That for a person
making sales that are zero-rated under Section 108(B) (6), the input taxes shall be allocated
ratably between his zero-rated and non-zero-rated sales.
(B) Cancellation of VAT Registration. - A person whose registration has been cancelled due to
retirement from or cessation of business, or due to changes in or cessation of status under Section
106(C) of this Code may, within two (2) years from the date of cancellation, apply for the
issuance of a tax credit certificate for any unused input tax which may be used in payment of his
other internal revenue taxes.
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made.  - In proper cases,
the Commissioner shall grant a refund for creditable input taxes within ninety (90) days from the
date of submission of the 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.
In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying the claim, appeal the decision with the
Court of Tax Appeals: Provided, however, That failure on the part of any official, agent, or
employee of the BIR to act on the application within ninety (90) days period shall be punishable
under Section 269 of this Code.
(D) Manner of Giving Refund. - Refunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized representative without the necessity of being
countersigned by the Chairman, Commission on audit, the provisions of the Administrative Code
of 1987 to the contrary notwithstanding: Provided, That refunds under this paragraph shall be
subject to post audit by the Commission on Audit.”
a. Contex Corporation v. CIR, GR No. 151135, 2 July 2005
Further, in indirect taxation, there is a need to distinguish between the liability for the tax and the
burden of the tax. As earlier pointed out, the amount of tax paid may be shifted or passed on by
the seller to the buyer. What is transferred in such instances is not the liability for the tax, but the
tax burden. In adding or including the VAT due to the selling price, the seller remains the person
primarily and legally liable for the payment of the tax. What is shifted only to the intermediate
buyer and ultimately to the final purchaser is the burden of the tax.  Stated differently, a seller
who is directly and legally liable for payment of an indirect tax, such as the VAT on goods or
services is not necessarily the person who ultimately bears the burden of the same tax. It is the
final purchaser or consumer of such goods or services who, although not directly and legally
liable for the payment thereof, ultimately bears the burden of the tax.
Under Zero-rating, all VAT is removed from the zero-rated goods, activity or firm. In contrast,
exemption only removes the VAT at the exempt stage, and it will actually increase, rather than
reduce the total taxes paid by the exempt firm’s business or non-retail customers. It is for this
reason that a sharp distinction must be made between zero-rating and exemption in designating a
value-added tax.
XXX
On the second issue, it may not be amiss to re-emphasize that the petitioner is registered as a
NON-VAT taxpayer and thus, is exempt from VAT. As an exempt VAT taxpayer, it is not
allowed any tax credit on VAT (input tax) previously paid. In fine, even if we are to assume that
exemption from the burden of VAT on petitioner’s purchases did exist, petitioner is still not
entitled to any tax credit or refund on the input tax previously paid as petitioner is an exempt
VAT taxpayer.
Rather, it is the petitioner’s suppliers who are the proper parties to claim the tax credit and
accordingly refund the petitioner of the VAT erroneously passed on to the latter.
b. Philippine Geothermal v. CIR, GR No. 154028, 29 July 2005

The amount of refund should have been based on the VAT Returns filed by the taxpayer.
Whether NPC had reimbursed petitioner is not the concern of the CTA. It is solely a matter
between petitioner and NPC. For indirect taxes like VAT, the proper party to question or seek a
refund of the tax is the statutory taxpayer, the person on whom the tax is imposed by law and
who paid the same even when he shifts the burden thereof to another.
Petitioner has the legal personality to apply for a refund since it is the one who made the
erroneous VAT payments and who will suffer financially by paying in good faith what it had
believed to be its potential VAT liability.
Under the principle of solutio indebiti, the government has to restore to petitioner the sums
representing erroneous payments of taxes. It is of no moment whether NPC had already
reimbursed petitioner or not because in this case, there should have been no VAT paid at all.
c. San Roque Power Corporation v. Commissioner of Internal Revenue, GR No. 180345, 25
November 2009
It bears emphasis that effective zero-rating is not intended as a benefit to the person legally liable
to pay the tax, such as petitioner, but to relieve certain exempt entities, such as the NPC, from the
burden of indirect tax so as to encourage the development of particular industries. Before, as well
as after, the adoption of the VAT, certain special laws were enacted for the benefit of various
entities and international agreements were entered into by the Philippines with foreign
governments and institutions exempting sale of goods or supply of services from indirect taxes at
the level of their suppliers. Effective zero-rating was intended to relieve the exempt entity from
being burdened with the indirect tax which is or which will be shifted to it had there been no
exemption. In this case, petitioner is being exempted from paying VAT on its purchases to
relieve NPC of the burden of additional costs that petitioner may shift to NPC by adding to the
cost of the electricity sold to the latter.
d. CIR v. Aichi Forging Co. of Asia, Inc., GR No. 184823, 6 October 2010

A taxpayer is entitled to a refund either by authority of a statute expressly granting such right,
privilege, or incentive in his favor, or under the principle of solutio indebiti requiring the return
of taxes erroneously or illegally collected. In both cases, a taxpayer must prove not only his
entitlement to a refund but also his compliance with the procedural due process as non-
observance of the prescriptive periods within which to file the administrative and the judicial
claims would result in the denial of his claim.
There is nothing in Section 112 of the NIRC to support respondent’s view. Subsection (A) of the
said provision states that "any VAT-registered person, whose sales are zero-rated or effectively
zero-rated may, within two years after the close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales." The phrase "within two (2) years x x x apply for the issuance of a tax
credit certificate or refund" refers to applications for refund/credit filed with the CIR and not to
appeals made to the CTA. This is apparent in the first paragraph of subsection (D) of the same
provision, which states that the CIR has "120 days from the submission of complete documents
in support of the application filed in accordance with Subsections (A) and (B)" within which to
decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory Section 112(D) of
the NIRC, which already provides for a specific period within which a taxpayer should appeal
the decision or inaction of the CIR. The second paragraph of Section 112(D) of the NIRC
envisions two scenarios: (1) when a decision is issued by the CIR before the lapse of the 120-day
period; and (2) when no decision is made after the 120-day period. In both instances, the
taxpayer has 30 days within which to file an appeal with the CTA. As we see it then, the 120-day
period is crucial in filing an appeal with the CTA.
e. Commissioner of Internal Revenue v. San Roque Power Corporation, GR No. 187485, 12
February 2013

Clearly, San Roque failed to comply with the 120-day waiting period, the time expressly given
by law to the Commissioner to decide whether to grant or deny San Roque's application for tax
refund or credit. It is indisputable that compliance with the 120-day waiting period is mandatory
and jurisdictional. The waiting period, originally fixed at 60 days only, was part of the provisions
of the first VAT law, Executive Order No. 273, which took effect on 1 January 1988. The
waiting period was extended to 120 days effective 1 January 1998 under RA 8424 or the Tax
Reform Act of 1997. Thus, the waiting period has been in our statute books for more than fifteen
(15) years before San Roque filed its judicial claim.
 Prescriptive Periods under Section 112(A) and (C)

There are three compelling reasons why the 30-day period need not necessarily fall within the
two-year prescriptive period, as long as the administrative claim is filed within the two-year
prescriptive period.
First, Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer "may, within
two (2) years after the close of the taxable quarter when the sales were made, apply for the
issuance of a tax credit certificate or refund of the creditable input tax due or paid to such sales."
In short, the law states that the taxpayer may apply with the Commissioner for a refund or credit
"within two (2) years," which means at anytime within two years. Thus, the application for
refund or credit may be filed by the taxpayer with the Commissioner on the last day of the two-
year prescriptive period and it will still strictly comply with the law. The twoyear prescriptive
period is a grace period in favor of the taxpayer and he can avail of the full period before his
right to apply for a tax refund or credit is barred by prescription.
Second, Section 112(C) provides that the Commissioner shall decide the application for refund
or credit "within one hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with Subsection (A)." The reference
in Section 112(C) of the submission of documents "in support of the application filed in
accordance with Subsection A" means that the application in Section 112(A) is the
administrative claim that the Commissioner must decide within the 120-day period. In short, the
two-year prescriptive period in Section 112(A) refers to the period within which the taxpayer can
file an administrative claim for tax refund or credit. Stated otherwise, the two-year prescriptive
period does not refer to the filing of the judicial claim with the CTA but to the filing of the
administrative claim with the Commissioner. As held in Aichi, the "phrase ‘within two years x x
x apply for the issuance of a tax credit or refund’ refers to applications for refund/credit with the
CIR and not to appeals made to the CTA."
Third, if the 30-day period, or any part of it, is required to fall within the two-year prescriptive
period (equivalent to 730 days), then the taxpayer must file his administrative claim for refund or
credit within the first 610 days of the two-year prescriptive period. Otherwise, the filing of the
administrative claim beyond the first 610 days will result in the appeal to the CTA being filed
beyond the two-year prescriptive period. Thus, if the taxpayer files his administrative claim on
the 611th day, the Commissioner, with his 120-day period, will have until the 731st day to
decide the claim. If the Commissioner decides only on the 731st day, or does not decide at all,
the taxpayer can no longer file his judicial claim with the CTA because the two-year prescriptive
period (equivalent to 730 days) has lapsed. The 30-day period granted by law to the taxpayer to
file an appeal before the CTA becomes utterly useless, even if the taxpayer complied with the
law by filing his administrative claim within the two-year prescriptive period.
The theory that the 30-day period must fall within the two-year prescriptive period adds a
condition that is not found in the law. It results in truncating 120 days from the 730 days that the
law grants the taxpayer for filing his administrative claim with the Commissioner. This Court
cannot interpret a law to defeat, wholly or even partly, a remedy that the law expressly grants in
clear, plain, and unequivocal language.
Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal
language. The taxpayer can file his administrative claim for refund or credit at anytime within
the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive
period, his claim is still filed on time. The Commissioner will have 120 days from such filing to
decide the claim. If the Commissioner decides the claim on the 120th day, or does not decide it
on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only
the plain meaning but also the only logical interpretation of Section 112(A) and (C).
f. San Roque Power Corporation v. Commissioner of Internal Revenue, GR No. 203249, 23
July 2018

No retroactive application of the Aichi ruling

SEC. 112. Refunds or Tax Credits of Input Tax. –
(A) Zero-rated or Effectively Zero-rated Sales.- Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales, except transitional input tax, to the
extent that such input tax has not been applied against output tax:
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases,
the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes
within one hundred twenty (120) days. from the date of submission of complete documents in
support of the application filed in accordance with Subsections (A) and (B) hereof.
In case of full or partial denial of the claim tor tax refund or tax credit, or the failure on the
part of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim
or after the expiration of the one hundred twenty-day period, appeal the decision or the unacted
claim with the Court of Tax Appeals interpreting the 120-day and 30-day periods prescribed
therein as mandatory and jurisdictional. Thus, it cannot appropriately be insisted that the CTA En
Banc's imputed error may be traced to a misplaced invocation of Aichi.
Thus, in San Roque, a case involving the same parties and substantially the same factual
antecedents as in the present petition, we rejected the claim that the CTA decisions may be relied
upon as binding precedents. We said –
There is also the claim that there are numerous CTA decisions allegedly supporting the argument
that the filing dates of the administrative and judicial claims are inconsequential, as long as they
are within the two-year prescriptive period. Suffice it to state that CTA decisions do not
constitute precedents, and do not bind this Court or the public. That is why CTA decisions are
appealable to this Court, which may affirm, reverse or modify the CT A decisions as the facts
and the law may warrant. Only decisions of this Court constitute binding precedents, forming
part of the Philippine legal system. As held by this Court in The Philippine Veterans Affairs
Office v. Segundo:
x x x Let it be admonished that decisions of the Supreme Court "applying or interpreting the laws
or the Constitution . . . form part of the legal system of the Philippines," and, as it were, "laws"
by their own right because they interpret what the laws say or mean. Unlike rulings of the lower
courts, which bind the parties to specific cases alone, our judgments are universal in their scope
and application, and equally mandatory in character. Let it be warned that to defy our decisions
is to court contempt.
We further held in said case that Article 8 of the Civil Code enjoins adherence to judicial
precedents. The law requires courts to follow a rule already established in a final decision of
the Supreme Court. Contrary to the petitioner's view, the decisions of the CTA are not given the
same level of recognition.
Concerning the 120-day period in Section 112 (D) of the NIRC, there was no jurisprudential
rule prior to Aichi interpreting such provision as permitting the premature filing of a judicial
claim before the expiration of the 120-day period. The alleged CTA decisions that entertained
the judicial claims despite their prematurity are not to be relied upon because they are not final
decisions of the Supreme Court worthy of according binding precedence. That Aichi was yet to
be promulgated at that time did not mean that the premature filing of a petition for review before
the CTA was a permissible act.
It was only in Aichi that this Court directly tackled the 120-day period in Section 112 (D) of the
NIRC and declared it to be mandatory and jurisdictional. In particular, Aichi brushed aside the
contention that the nonobservance of the 120-day period is not fatal to the filing of a judicial
claim as long as both the administrative and judicial claims are filed within the two-year
prescriptive period provided in Section 112 (A) of the NIRC.
The mandatory and jurisdictional nature of the 120-day period first expressed in Aichi, however,
is not a new rule of procedure to be followed in pursuit of a refund claim of unutilized creditable
input VAT attributable to zero-rated sales. As suggested above, the pronouncement
in Aichi regarding the mandatory and jurisdictional nature of the 120-day period was the
Court's interpretation of Section 112 (D) of the NIRC. It is that law, Section 112 (D) of the
NIRC, that laid the rule of procedure for maintaining a refund claim of unutilized creditable
input VAT attributable to zero-rated sales. In said provision, the Commissioner has 120 days to
act on an administrative claim.
Hence, from the effectivity of the 1997 NIRC on 1 January 1998, the procedure has always been
definite: the 120-day period is mandatory and jurisdictional. Accordingly, a taxpayer can file a
judicial claim (1) only within thirty days after the Commissioner partially or fully denies the
claim within the 120-day period, or (2) only within thirty days from the expiration of the 120-
day period if the Commissioner does not act within such period. This is the rule of procedure
beginning 1 January 1998 as interpreted in Aichi.
Given all the foregoing, it is indubitable that, subject to our discussion below on the reason why
the present petition should nonetheless be granted, the petitioner's arguments have no leg to stand
on –
(1) The Aichi ruling laid down a new rule of procedure which cannot be given retroactive effect
without impairing vested rights. Section 112 (D) of the NIRC, not the Aichi ruling, lays down
the rule of procedure governing refund claims of unutilized creditable input VAT attributable to
zero-rated sales; Aichi is merely an interpretation of an existing law; there is no vested right to
speak of respecting a wrong construction of the law  (permitting a premature filing of judicial
claim);
(2) A judicial ruling overruling a previous one cannot be applied retroactively before its
abandonment.
There was no established doctrine abandoned or overturned by Aichi; the petitioner merely harps
on CTA decisions that cannot be relied on as binding precedents; and
(3) A judicial decision which declares an otherwise permissible act as impermissible violates the
ex post facto rule under the Constitution –
Prior to Aichi, there was no law or jurisprudence permitting the premature filing of a judicial
claim of creditable input VAT; Aichi did not declare as impermissible that which was previously
recognized by law or jurisprudence as a permissible act; it is, therefore, inconsequential to
consider the ex post facto provision of the Constitution.
To reiterate, the 120-day and 30-day periods, as held in the case
of Aichi, are mandatory and jurisdictional. Thus, noncompliance with the mandatory 120+ 30-
day period renders the petition before the CTA void. The ruling in said case as to the mandatory
and jurisdictional character of said periods was reiterated in San Roque and a host of succeeding
similar cases.
Significantly, a taxpayer can file a judicial claim only within thirty (30) days from the expiration
of the 120-day period if the Commissioner does not act within the 120-day period. The taxpayer
cannot file such judicial claim prior to the lapse of the 120-day period, unless the CIR partially or
wholly denies the claim within such period. The taxpayer-claimant must strictly comply with the
mandatory period by filing an appeal to the CTA within thirty days from such inaction;
otherwise, the court cannot validly acquire jurisdiction over it.
In this case, the petitioner timely filed its administrative claims for refund/credit of its unutilized
input VAT for the first quarter of 2004, and for the second to fourth quarters of the same year,
on 22 December 2005 and 27 February 2006, respectively, or within the two-year prescriptive
period. Counted from such dates of submission of the claims (with supporting documents), the
CIR had 120 days, or until 13 April 2006, with respect to the first administrative claim, and
until 27 June 2006, on the second administrative claim, to decide.
However, the petitioner, without waiting for the full expiration of the 120-day periods and
without any decision by the CIR, immediately filed its petitions for review with the CT A on 30
March 2006, or a mere ninety-eight (98) days for the first administrative claim; and on 20 June
2006, or only one hundred thirteen (113) days for the second administrative claim, from the
submission of the said claims. In other words, the judicial claims of the petitioner were
prematurely filed as correctly found by the CTA En Banc.
Invoicing and Accounting Requirements for VAT – registered Persons

“SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. -

(A) Invoicing Requirements. - A VAT-registered person shall issue:
(1) A VAT invoice for every sale, barter or exchange of goods or properties; and
(2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or
exchange of services.
(B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following
information shall be indicated in the VAT invoice or VAT official receipt:
(1) A statement that the seller is a VAT-registered person, followed by his Taxpayer's
Identification Number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes the value-added tax. Provided, That:
(a) The amount of the tax shall be known as a separate item in the invoice or receipt;
(b) If the sale is exempt from value-added tax, the term VAT-exempt sale: shall be written or
printed prominently on the invoice or receipt;
(c) If the sale is subject to zero percent (0%) value-added tax, the term “zero-rated sale” shall be
written or printed prominently on the invoice or receipt.
(d) If the sale involved goods, properties or services some of which are subject to and some of
which are VAT zero-rated or Vat exempt, the invoice or receipt shall clearly indicate the break-
down of the sale price between its taxable, exempt and zero-rated components, and the
calculation of the value-added tax on each portion of the sale shall be known on the invoice or
receipt: Provided, That the seller may issue separate invoices or receipts for the taxable, exempt,
and zero-rated components of the sale.
(3) The date of transaction, quantity, unit cost and description of the goods or properties or
nature of the service; and
(4) In the case of sales in the amount of One thousand pesos (P1,000) or more where the sale or
transfer is made to a VAT-registered person, the name, business style, if any, address and
Taxpayer Identification Number (TIN) of the purchaser, customer or client. 
(C) Accounting Requirements. - Notwithstanding the provisions of Section 233, all persons
subject to the value-added tax under Sections 106 and 108 shall, in addition to the regular
accounting records required, maintain a subsidiary sales journal and subsidiary purchase journal
on which the daily sales and purchases are recorded. The subsidiary journals shall contain such
information as may be required by the Secretary of Finance.
(D) Consequence of Issuing Erroneous VAT Invoice or VAT Official Receipt.-
(1) If a person who is not a VAT-registered person issues an invoice or receipt showing his
Taxpayer Identification Number (TIN), followed by the word “VAT”;
(a) The issuer shall, in addition to any liability to other percentage taxes, be liable to:
(i) The tax imposed in Section 106 or 108 without the benefit of any input tax credit; and
(ii) A 50% surcharge under Section 248(B) of this Code; 
(b) The VAT shall, if the other requisite information required under Subsection (B) hereof is
shown on the invoice or receipt, be recognized as an input tax credit to the purchaser under
Section 110 of this Code.
(2) If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt
transaction, but fails to display prominently on the invoice or receipt the term ‘VAT exempt
sale,’ the issuer shall be liable to account for the tax imposed in section 106 or 108 as if Section
109 did not apply. 
(E) Transitional Period. – Notwithstanding Subsection (B) hereof, taxpayers may continue to
issue VAT invoices and VAT official receipt for the period July 1, 2005 to December 31, 2005
in accordance with Bureau of Internal Revenue administrative practices that existed as of
December 31, 2004.”

a. Commissioner of Internal Revenue v. Philex Mining Corporation, GR No. 230016, 23

November 2020

Under Section 112 (A),24 a taxpayer engaged in zero-rated sales may apply for the issuance of a
tax credit certificate, or refund of excess input tax due or paid, attributable to the sale, subject to
the following conditions: (1) the taxpayer must be VAT-registered; (2) the taxpayer must be
engaged in sales which are zero-rated or effectively zero-rated; (3) the claim must be filed within
two (2) years after the close of the taxable quarter when such sales were made; ( 4) the creditable
input tax due or paid must be attributable to such sales, except the transitional input tax, to the
extent that such input tax has not been applied against the output tax; and ( 5) in case of zero-
rated sales under Section 106 (A)(2)(a)(l), the acceptable foreign currency exchange proceeds
have been duly accounted for in accordance with Bangko Sentral ng Pilipinas rules and
regulations.
As the CTA aptly held, and as will be discussed below, there was nothing in the Tax Code or in
RR No. 16-2005 that would suggest that the subsidiary journals and monthly VAT declarations
are part of the substantiation requirements that must be complied with to support a claim for tax
refund or credit.
Under Section 110 (A) of the Tax Code, creditable input taxes must be evidenced by a VAT
invoice or official receipt, which must, in turn, be issued in accordance with Sections 113 and
237. Related to these provisions, Sections 4.110-8, 4.113-1 (A) and (B) of RR No. 16-2005
enumerate the documents required and information that must appear on the face of the official
receipt, to substantiate the input tax on importation of goods other than capital goods and on
domestic purchases of services x x x.
From the foregoing, it is apparent that importation of non-capital goods must be evidenced by
import entry declarations or any equivalent document; and the domestic purchase of services, by
VAT official receipts showing: (1) that the seller is a VAT-registered person; (2) the Tax
Identification Number (TIN) of the seller; (3) the word "zero-rated sale" was written or printed
prominently on the receipt in case of zero-rated sales; ( 4) the date of transaction, nature of
service, as well as the name, business style, if any, and address of the purchaser; and (5) the TIN
of the purchaser. Case law states that failure to comply with the invoicing requirements is
sufficient ground to deny the claim for refund or tax credit. Too, Revenue Memorandum Circular
No. 42-200341 only provides for non-compliance with the invoicing requirements as a ground
for denial of the claim for refund or credit, The reason for strict compliance with invoicing
requirements is only a "VAT invoice/official receipt" can give rise to any input tax from
domestic, x x x.

The reason for strict compliance with invoicing requirements is only a "VAT invoice/official
receipt" can give rise to any input tax from domestic purchase of goods or service. Without input
tax, there is nothing to refund. On the other hand, the particulars recorded in the subsidiary
journals do not affect the character of an invoice or receipt as a "VAT invoice/official receipt."
A taxpayer's books of accounts include the journal and the ledger and their subsidiaries, or their
equivalents. The general journal is a book of original entry in which the transactions affecting
the taxpayer's business are recorded consecutively day by day as they occur. It is a
chronological, or date order, record of the transactions of a business. The general journal may
consist of several books such as sales book, purchase book, cash book, and such other books as
the taxpayer may find convenient for his business. A subsidiary sales journal is a repository of
day-to-day sales, while a subsidiary purchase journal records all purchases. Evidently, subsidiary
journals may be sources of information from which the CIR may utilize in making
assessments46 but their submission is not indispensable to substantiate the input taxes.
xxx
For one, the subject of the claim for refund is input tax on the importation of goods other than
capital goods and domestic purchases of services. Also, the CTA was able to determine the
existence of Philex Mining's valid creditable input VAT attributable to its zero-rated sales by
probing all the official receipts, quarterly VAT returns, and the import entry declarations
submitted. The CTA evaluated the ICPA's report and concluded that Philex Mining incurred
input taxes in connection with its zero-rated sales and the input taxes were not applied against
any of its output tax liability.
xxx
In all, Phil ex Mining's failure to maintain subsidiary sales and purchase journals or to file the
monthly VAT declarations should not result in the outright denial of its claim for refund or credit
of unutilized input VAT attributable to its zero-rated sales. These are not part of the requirements
for Philex Mining to be entitled thereto. Section 112 (A) of the Tax Code is very clear; no
construction or interpretation is needed. The Court may not construe a statute that is free from
doubt; neither can we impose conditions or limitations when none is provided for. While tax
refunds are in the nature of tax exemptions and are construed strictissimi Juris against the
taxpayer, tax statutes shall be construed strictly against the taxing authority and liberally in favor
of the taxpayer, for taxes, being burdens, are not to be presumed beyond what the statute
expressly and clearly declares. Verily, the CTA did not err in ruling that the absence of
subsidiary sales journal subsidiary purchase journal, and monthly VAT declarations is not
sufficient to deprive Phil ex Mining of its right to a refund.
Return and Payment of VAT

“SEC. 114. Return and Payment of Value-Added Tax. –

(A) In General. - Every person liable to pay the value-added tax imposed under this Title shall
file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days
following the close of each taxable quarter prescribed for each taxpayer: Provided, however,
That VAT-registered persons shall pay the value-added tax on a monthly basis: 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.
Any person, whose registration has been cancelled in accordance with Section 236, shall file a
return and pay the tax due thereon within twenty-five (25) days from the date of cancellation of
registration: Provided, That only one consolidated return shall be filed by the taxpayer for his
principal place of business or head office and all branches.
(B) Where to File the Return and Pay the Tax. - Except as the Commissioner otherwise
permits, the return shall be filed with and the tax paid to an authorized agent bank, Revenue
Collection Officer or duly authorized city or municipal Treasurer in the Philippines located
within the revenue district where the taxpayer is registered or required to register.
(C) Withholding of Creditable Value-added Tax. - The Government or any of its political
subdivisions, instrumentalities or agencies, including government-owned or -controlled
corporations (GOCCs) shall, before making payment on account of each purchase of goods and
services which are subject to the value-added tax imposed in Sections 106 and 108 of this Code,
deduct and withhold the value-added tax imposed in Sections 106 and 108 of this Code, deduct
and withhold a final value-added tax at the rate of five percent (5%) of the gross payment
thereof: Provided, That beginning January 1, 2021, the VAT withholding system under this
Subsection shall shift from final to creditable system: Provided, further, That the payment for
lease or use of properties or property rights to nonresident owners shall be subject to ten percent
(12%) withholding tax at the time of payment. Provided, finally, That payments for purchases of
goods and services arising from projects funded by Official Development Assistance (ODA) as
defined under Republic Act No. 8182, otherwise known as the Official Development Assistance
Act of 1996, as amended, shall not be subject to the final withholding tax system as imposed in
this Subsection. For purposes of this Section, the payor or person in control of the payment shall
be considered as the withholding agent. 
The value-added tax withheld under this Section shall be remitted within ten (10) days following
the end of the month the withholding was made.”

Power of the Commissioner to Suspend the Business Operations of a Taxpayer

SEC. 115. Power of the Commissioner to Suspend the Business Operations of a Taxpayer. -
The Commissioner or his authorized representative is hereby empowered to suspend the business
operations and temporarily close the business establishment of any person for any of the
following violations:
(a) In the case of a VAT-registered Person. –
(1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as required under Section 114; or
(3) Understatement of taxable sales or receipts by thirty percent (30%) or more of his correct
taxable sales or receipts for the taxable quarter.
(b) Failure of any Person to Register as Required under Section 236.
The temporary closure of the establishment shall be for the duration of not less than five (5) days
and shall be lifted only upon compliance with whatever requirements prescribed by the
Commissioner in the closure order.
a. Oplan Kandado

Revenue Memorandum Order No. 3 – 2009 amends and consolidates the guidelines in the
conduct of surveillance and stock-taking activities, and implements the administrative sanction
of suspension and temporary closure of business.
“Oplan Kandado” is an intensive campaign, which seeks to padlock businesses with unpaid tax
dues, as well as those who are engaged in illegal practices such as failure to register,
understatement of taxable sales by more than 30 percent and the refusal to issue receipts.
Other Cases
a. CIR v. Seagate Technology Phils., GR No. 153866, 11 February 2005

Respondent, as a PEZA-registered enterprise within a special economic zone, is entitled to the

fiscal incentives and benefits provided for in PD 66. It shall also enjoy all privileges, benefits,
advantages or exemptions under both Republic Act Nos. (RA) 7227 and 7844.
Special laws expressly grant preferential tax treatment to business establishments registered and
operating within an eco-zone, which by law is considered as a separate customs territory. As
such, respondent is exempt from all internal revenue taxes, including the VAT, and regulations
pertaining thereto. It has opted for the income tax holiday regime, instead of the 5% preferential
tax regime. As a matter of law and procedure, its registration status entitling it to such tax
holiday can no longer be questioned. Its sales transactions intended for export may not be
exempt, but like its purchase transactions, they are zero-rated. No prior application for the
effective zero rating of its transactions is necessary. Being VAT-registered and having
satisfactorily complied with all the requisites for claiming a tax refund of or credit for the input
VAT paid on capital goods purchased, respondent is entitled to VAT refund or credit.
 Preferential Tax Treatment Under Special Laws
- Petitioner enjoys preferential tax treatment. It is not subject to internal revenue laws and
regulations and is even entitled to tax credits. The VAT on capital goods is an internal
revenue tax from which petitioner as an entity is exempt. Although the transactions
involving such tax are not exempt, petitioner as a VAT-registered person, however, is
entitled to their credits.

b. CIR v. Mirant Pagbilao Corp., GR No. 172129, 12 September 2008

The claim is to be construed strictissimi juris against the taxpayer, meaning that the claim cannot
be made to rest on vague inference. Where the rule of strict interpretation against the taxpayer is
applicable as the claim for refund partakes of the nature of an exemption, the claimant must
show that he clearly falls under the exempting statute. On the other hand, a tax refund may be, as
usually it is, predicated on tax refund provisions allowing a refund of erroneous or excess
payment of tax. The return of what was erroneously paid is founded on the principle of solutio
indebiti, a basic postulate that no one should unjustly enrich himself at the expense of another.
The caveat against unjust enrichment covers the government. And as decisional law teaches, a
claim for tax refund proper, as here, necessitates only the preponderance-of-evidence threshold
like in any ordinary civil case.
unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer
must be claimed within two years reckoned from the close of the taxable quarter when the
relevant sales were made pertaining to the input VAT regardless of whether said tax was
paid or not. As the CA aptly puts it, albeit it erroneously applied the aforequoted Sec. 112(A),
"[P]rescriptive period commences from the close of the taxable quarter when the sales were
made and not from the time the input VAT was paid nor from the time the official receipt was
issued"22 Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent
transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized
creditable input VAT. The reckoning frame would always be the end of the quarter when the
pertinent sales or transaction was made, regardless when the input VAT was paid. Be that as it
may, and given that the last creditable input VAT due for the period covering the progress billing
of September 6, 1996 is the third quarter of 1996 ending on September 30, 1996, any claim for
unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after
September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPC's claim for
refund or tax credit filed on December 10, 1999 had already prescribed.
c. Atlas Consolidated v. CIR, GR Nos. 141104 & 148763, 8 June 2007

Although the Court agreed with the petitioner corporation that the two-year prescriptive period
for the filing of claims for refund/credit of input VAT must be counted from the date of filing of
the quarterly VAT return, and that sales to PASAR and PHILPOS inside the EPZA are taxed as
exports because these export processing zones are to be managed as a separate customs territory
from the rest of the Philippines, and thus, for tax purposes, are effectively considered as foreign
territory, it still denies the claims of petitioner corporation for refund of its input VAT on its
purchases of capital goods and effectively zero-rated sales during the period claimed for not
being established and substantiated by appropriate and sufficient evidence.
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the
sovereign authority, and should be construed in strictissimi juris against the person or entity
claiming the exemption. The taxpayer who claims for exemption must justify his claim by the
clearest grant of organic or statute law and should not be permitted to stand on vague
implications.
d. CIR v. Sony Philippines, Inc., GR No. 178697, 17 November 2010

Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority given to the
appropriate revenue officer assigned to perform assessment functions. It empowers or enables
said revenue officer to examine the books of account and other accounting records of a taxpayer
for the purpose of collecting the correct amount of tax.
There must be a grant of authority before any revenue officer can conduct an examination
or assessment. Equally important is that the revenue officer so authorized must not go beyond the
authority given. In the absence of such an authority, the assessment or examination is a nullity.
The LOA 19734 covered the period 1997 and unverified prior years. For said reason, the CIR
acting through its revenue officers went beyond the scope of their authority because the
deficiency VAT assessment they arrived at was based on records from January to March 1998 or
using the fiscal year which ended in March 31, 1998.
It violated also Section C of Revenue Memorandum Order No. 4390 - A Letter of Authority
should cover a taxable period not exceeding one taxable year.
CIR’s argument that Sony’s advertising expense could not be considered as an input VAT credit
because the same was eventually reimbursed by Sony International Singapore (SIS).
            Sony’s deficiency VAT assessment stemmed from the CIRs disallowance of the input
VAT credits that should have been realized from the advertising expense of the latter. It is
evident under Section 110 of the 1997 Tax Code that an advertising expense duly covered by a
VAT invoice is a legitimate business expense.  There is also no denying that Sony incurred
advertising expense. Aluquin testified that advertising companies issued invoices in the name of
Sony and the latter paid for the same. Indubitably, Sony incurred and paid for advertising
expense/ services. Where the money came from is another matter altogether but will definitely
not change said fact.
The CIR further argues that Sony itself admitted that the reimbursement from SIS was income
and, thus, taxable.
Insofar as the subsidy may be considered as income and, therefore, subject to income tax, the
Court agrees. However, the Court does not agree that the same subsidy should be subject to the
10% VAT. To begin with, the said subsidy termed by the CIR as reimbursement was not even
exclusively earmarked for Sony’s advertising expense for it was but an assistance or aid in view
of Sony’s dire or adverse economic conditions, and was only equivalent to the latter’s (Sony’s)
advertising expenses.
There must be a sale, barter or exchange of goods or properties before any VAT may be levied.
Certainly, there was no such sale, barter or exchange in the subsidy given by SIS to Sony. It was
but a dole out by SIS and not in payment for goods or properties sold, bartered or exchanged by
Sony.
e. Commissioner of Internal Revenue v. Negros Consolidated, GR No. 212735, 5 December
2018.

Having established that COFA is a cooperative in good standing and duly registered with the
CDA and)s the-producer of the sugar, its sale then of refined sugar whether sold to members or
non-members, following the express provisions of Section 109(L) of RA 8424, as amended, is
exempt from VAT. As a logical and necessary consequence then of its established VAT
exemption, COFA is likewise exempted from the payment of advance VAT required under RR
No. 13-2008.
COFA is a VAT-exempt agricultural cooperative. Exemption from the payment of VAT on sales
made by the agricultural cooperatives to members or to non-members necessarily includes
exemption from the payment of "advance VAT" upon the withdrawal of the refined sugar from
the sugar mill.
The CIR argues that the VAT exemption given to cooperatives under the laws pertain only to the
sale of the sugar but not to the withdrawal of the sugar from the refinery. The CIR is wrong.
To recall, VAT is a transaction tax - it is imposed on sales, barters, exchanges of goods or
property, and on the performance of services. The withdrawal from the sugar refinery by the
cooperative is not the incident which gives rise to the imposition of VAT, but the subsequent sale
of the sugar. If at all, the withdrawal of the refined sugar gives rise to the obligation to pay the
VAT on the would-be sale. In other words, the advance VAT which is imposed upon the
withdrawal of the refined sugar is the very same VAT which would be imposed on the sale of
refined sugar following its withdrawal from the refinery, hence, the term "advance." It is thus
wrong to say the withdrawal of the refined sugar as a tax incident different from or in addition to
the sale itself.
COFA was a previous recipient and holder of certificates of tax exemption issued by the BIR.
The issuance of the certificate of tax exemption presupposes that the cooperative submitted to the
BIR the complete documentary requirements. In the same manner, COFA's entitlement to tax
exemption cannot be made dependent upon the submission of the monthly VAT declarations and
quarterly VAT returns, as the CIR suggests. Here, it was established that COFA satisfied the
requirements under Section 109(L) of RA 8424, as amended, to enjoy the exemption from VAT
on its sale of refined sugar; its exemption from the payment of advance VAT for the withdrawal
it made from May 12, 2009 to July 22, 2009 follows, as a matter of course.
E. Percentage Tax
Sections 116 to 127
Nature
Percentage tax is a tax imposed on sale, barter, exchange or importation of goods, or sale of
services based upon gross sales, value in money of receipts derived by the manufacturer,
producer, importer or seller measured by certain percentage of the gross selling price or receipts.
If the transaction is subject to OPT, it is no longer subject to VAT. Nonetheless, OPT as well as
VAT may be imposed together with excise taxes (Tabag, 2015).

3. Percentage Tax Return (Section 128)

a. Where to file
Except as the Commissioner otherwise permits, every person liable to the percentage tax under
this Title may, at his option, file a separate return for each branch or place of business, or a
consolidated return for all branches or places of business with the authorized agent bank,
Revenue District Officer, Collection Agent or duly authorized Treasurer of the city or
municipality where said business or principal place of business is located, as the case may be.

b. Due dates
(1) Persons Liable to Pay Percentage Taxes
Every person subject to the percentage taxes imposed under this Title shall file a quarterly return
of the amount of his gross sales, receipts or earnings and pay the tax due thereon within twenty-
five (25) days after the end of each taxable quarter: Provided, That in the case of a person whose
VAT registration is cancelled and who becomes liable to the tax imposed in Section 116 of this
Code, the tax shall accrue from the date of cancellation and shall be paid in accordance with the
provisions of this Section.

(2) Person Retiring from Business

Any person retiring from a business subject to percentage tax shall notify the nearest internal
revenue officer, file his return and pay the tax due thereon within twenty (20) days after closing
his business.

CIR vs. Citytrust Investment Phils., Inc., GR No. 139786, 27 September 2006
The GRT is a percentage tax under Title V of the Tax Code ([Section 121], Other Percentage
Taxes), while the FWT is an income tax under Title II of the Code (Tax on Income). The two
concepts are different from each other. In Solidbank Corporation, this Court defined that a
percentage tax is a national tax measured by a certain percentage of the gross selling price or
gross value in money of goods sold, bartered or imported; or of the gross receipts or earnings
derived by any person engaged in the sale of services. It is not subject to withholding. An income
tax, on the other hand, is a national tax imposed on the net or the gross income realized in a
taxable year. It is subject to withholding.

F. Excise Tax
Sections 129 to 172
Nature
Excise Tax is a tax on the production, sale or consumption of a commodity in a country.
It finds application on goods manufactured or produced in the Philippines for domestic sale or
consumption or for any other disposition; and
On goods imported.
3. Amendments by brought by RA 10963:
a. Alcohol products;
no significant amendment by RA 10963

b. Tobacco products; o significant amendment by RA 10963

c. Petroleum
Product type EFFECTIVITY (RA 10963-TRAIN Law)
January 1, January 1, January 1,
2018 2019 2020
(a) Lubricating oils and greases, including
but not limited to base stock for lube oils
and greases, high vacuum distillates,
aromatic extracts and other similar
preparations, and additives for lubricating
oils and greases, whether such additives are
petroleum based or not,per liter and
kilogram respectively, of volume capacity Php8.00 Php9.00 Php10.00
or weight
(a.1) Locally produced or imported oils
previously taxed but are subsequently
reprocessed, re-refined or recycled, per liter
and kilogram of volume capacity or weight.
(b)Processed gas, per liter of volume
capacity
(c)Waxes and petrolatum, per kilogram
(d)Denatured alcohol to be used for motive
power , per liter of volume capacity
(e)Asphalt, per kilogram
(f)Naphtha, regular gasoline, pyrolysis
gasoline and other similar products of Php7.00 Php9.00 Php10.00
distillation, per liter of volume capacity
(g)Unleaded premium gasoline, per liter of
volume capacity
(h)Kerosene, per liter of volume capacity Php3.00 Php4.00 Php5.00
(i)Aviation turbo jet fuel,aviation gas, per
liter of volume capacity Php4.00 Php4.00 Php4.00
(j)Kerosene when used as aviation fuel, per
liter of volume capacity
(k)Diesel fuel oil, and on similar fuel oils
having more or less the same generating
power, per liter of volume capacity
(l)Liquified petroleum gas used for motive Php2.00 Php4.50 Php6.00
power, per kilogram
(m)Bunker fuel oil, and on similar oils
having more or less the same generating
power, per liter of volume capacity
(n)Petroleum coke, per metric ton
(o)Liquified petroleum gas, per kilogram Php1.00 Php2.00 Php3.00
(p)Naphtha and pyrolysis gasoline, when
used as raw material in the production of
petrochemical products or in the refining of
petroleum products, or as replacement fuel
for natural-gas-fired-combined cycle power Php0.00 Php0.00 Php0.00
plant, in lieu of lacally-extracted natural gas
during the non-availability thereof, per liter
 of volume capacity
(q)Liquified petroleum gas, when used as
raw material in the production of
petrochemical products, per kilogram
(r)Petroleum coke when used as feedstock
to any power generating facility, per metric
ton

Fuel Marking
Fuel marking is mandated under the Tax Reform for Acceleration and Inclusion Act (TRAIN)
as a measure against the smuggling of petroleum products.

Under the fuel marking program, only petroleum products for domestic consumption with
proof of payment of taxes will be subject to marking. In such case, it is the responsibility of
the entity or taxpayer who owns, imports, manufactures and/refines said products to cause and
accommodate their marking.
d. Non-essential goods:
no significant amendment by RA 10963
1. Jewelries; no significant amendment by RA 10963
2. Perfumes and toilet waters; no significant amendment by RA 10963
3. Yachts and other vessels intended for pleasure or sports; no significant amendment by
RA 10963
e. Non-essential services;
f. Sweetened beverages;
TAX RATE
Per Liter of Volume
Product
Capacity

Using purely caloric sweeteners, and purely non-caloric Php6.00

sweeteners, or a mix of caloric and non-caloric sweeteners
Using purely high fructose corn syrup or in combination with Php12.00
any caloric or non-caloric sweetener
Using purely coconut sap sugar and purely steviol glycosides exempt

g. Mineral products;
Product type TAX RATES (RA 10963-TRAIN Law)
Coal and coke (Domestic and Imported) January 1, 2018 - Php50.00
 January 1, 2019 - Php100.00
January 1, 2020 - Php150.00
   and onwards

Nonmetallic Minerals and Quarry Reources

(Locally extracted or produced)  Four percent (4%) based on the actual market
value of the gross output thereof at the time of
removal

Nonmetallic Minerals and Quarry Resources

(Imported) Four percent (4%) based on the value used by
the Bureau of Customs (BOC) in determining
tariff and customs duties, net of excise tax and
value-added tax

Locally-extracted natural gas and liquefied exempt

natural gas
All Metallic Minerals (locally extracted or
produced copper, gold, chromite and other
metallic minerals)
Imported copper, gold, chromite and other
metallic minerals
On indigenous petroleum
Four percent (4%) based on the actual market
value of the gross output thereof at the time of
removal
Four percent (4%) based on the value used by
BOC in determining tariff and customs duties,
net of excise tax and value added tax
Six percent (6%) of the fair international
market price thereof, on the first taxable sale,
barter, exchange or such similar transaction,
such tax to be paid by the buyer or purchaser
before removal from the place of production.
The phrase “first taxable sales, barter,
exchange or similar transaction’' means the
transfer of indigenous petroleum in its
original, state to a first taxable transferee. The
fair international market price shall be
determined in consultation with appropriate
government agency.

h. Automobiles;
NET MANUFACTURER'S PRICE/IMPORTER'S TAX RATES (RA 10963
SELLING PRICE (TRAIN Law)
OVER UP TO RATE
0 Php600,000.00 4%
Php600,000.00 Php1,000,000.00 10%
Php1,100,000.00 Php4,000,000.00 20%
 Php4,000,000.00 over 50%

4. Excise Tax Return

a. Where to file
The return shall be filed with the Authorized Agent Bank (AAB) within the territorial
jurisdiction of the Revenue District Office where the residence or place of business of the
taxpayer is located or where the collection agent is assigned. In places where there are no AABs,
the return shall be filed directly with the Revenue Collection Officer (RCO) within the Revenue
District Office which has jurisdiction over the residence or place of business of the taxpayer or
where the collection agent is assigned.

b. Due dates
Excise Tax Return for Cosmetic Procedure This excise return shall be filed and the excise tax
due, if any, shall be paid at the same time within ten (10) days following the close of the month.

Excise Tax Return for Automobiles and Non-Essential Goods For each place of production, a
separate return shall be filed and the excise tax shall be paid before removal of the
abovementioned products from the place of production.

Excise Tax Return for Alcohol Products For each place of production, a separate return shall
be filed and the excise tax shall be paid before removal of the alcohol products from the place of
production.

Excise Tax Return for Mineral Products For each place of production, a separate return shall
be filed and the excise tax shall be paid upon removal of the mineral products from the place of
production. In the case of locally produced or extracted minerals or quarry resources where the
mine site or place of extraction is not the same as the place of processing or production, the
return shall be filed and the excise tax paid to the Revenue District Office having jurisdiction
over the locality where the same are mined, extracted or quarried.

On locally produced or extracted metallic mineral or mineral products, the person liable shall file
a return and pay the tax within fifteen (15) days after the end of the calendar quarter when such
products were removed, subject to the filing of a bond in an amount which approximates the
amount of excise tax due on the removals for the said quarter.

Excise Tax Return for Petroleum Products For each place of production, a separate return
shall be filed and the excise tax shall be paid before removal of the petroleum products from the
place of production.

Excise Tax Return for Tobacco Products For each place of production, a separate return shall
be filed and the excise tax due shall be paid before removal of the tobacco products from the
place of production.
Excise Tax Return for Sweetened Beverages For each place of production, a separate return
shall be filed and the excise tax due shall be paid before removal of the sweetened beverages
from the place of production.
Chevron Philippines, Inc. vs. CIR, GR No. 210836, 1 September 2015
Excise tax on petroleum products is essentially a tax on property, the direct liability for which
pertains to the statutory taxpayer (i.e., manufacturer, producer or importer). Any excise tax paid
by the statutory taxpayer on petroleum products sold to any of the entities or agencies named in
Section 135 of the National Internal Revenue Code (NIRC) exempt from excise tax is deemed
illegal or erroneous, and should be credited or refunded to the ayor pursuant to Section 204 of the
NIRC. This is because the exemption granted under Section 135 of the NIRC must be construed
in favor of the property itself, that is, the petroleum products.
G. Documentary Stamp Tax
Sections 173 to 201;
Nature
Documentary Stamp Tax is a tax on documents, instruments, loan agreements and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, right or property
incident thereto.
The documentary stamp tax is an excise tax levied on documents, instruments, loan agreements
and papers evidencing the acceptance, assignment, sale or transfer of an obligation, rights, or
property incident thereto. The amount of tax is either fixed or based on the par or face value of
the document or instrument.
The tax is paid by the person making, signing, issuing, accepting or transferring the documents.
However, whenever one party to the taxable document enjoys exemption from the tax, the other
party thereto who is not exempt shall be the one directly liable for the tax.

3. Documentary Stamp Tax Return

a. Where to file
The return shall be filed within five (5) days after the close of the month when the taxable
document was made, signed, issued, accepted or transferred or upon remittance by revenue
collection agents of collection from the sale of loose documentary stamps.
The return shall be filed with the Authorized Agent Bank (AAB) within the territorial
jurisdiction of the Revenue District Office where the residence or place of business of the
taxpayer is located or where the collection agent is assigned. In places where there are no AABs,
the return shall be filed directly with the Revenue Collection Officer (RCO) within the Revenue
District Office which has jurisdiction over the residence or place of business of the taxpayer or
where the collection agent is assigned.

b. Due dates
The Documentary Stamp Tax return (BIR Form 2000) shall be filed in triplicate (two copies for
the BIR and one copy for the taxpayer) within five (5) days after the close of the month when the
taxable document was made signed, issued, accepted or transferred; upon remittance by
Collection Agents of collection from sale of loose stamps. The Documentary Stamp Tax shall be
paid upon filing of the return.

Philippine Banking Corporation v. Commissioner of Internal Revenue, G.R. No. 170574, 30

January
DST is imposed on Certificates of Deposits Bearing Interest including a special savings
account evidenced by a passbook.
Documentary stamp tax is a tax on documents, instruments, loan agreements, and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, right or property
incident thereto.
A DST is actually an excise tax because it is imposed on the transaction rather than on the
document.
A DST is also levied on the exercise by persons of certain privileges conferred by law for the
creation,revision, or termination of specific legal relationships through the execution of specific
instruments.
Hence, in imposing the DST, the Court considers not only the document but also the nature and
character of the transaction.
Section 180 of the 1977 NIRC imposes a DST of P0.30 on each P200 of the face value of any
certificate of deposit drawing interest.
As correctly observed by the CTA, a certificate of deposit is a written acknowledgment by a
bank of the receipt of a sum of money on deposit which the bank promises to pay to the
depositor, to the order of the depositor, or to some other person or his order, whereby the relation
of debtor or creditor between the bank and the depositor is created.
The definition of a certificate of deposit is all encompassing to include a savings account deposit
such as ISA