TAXATION II Francisco B.

Gonzalez V
2nd semester 2017-2018 IIId

THE VALUE ADDED TAX (SEC 105-118, NIRC)

AS AMENDED BY RA 10963 TRAIN LAW
PLEASE NOTE THAT THIS COVERS ONLY SEC. 105 TO 108 OF THE NIRC.
PLS CONSIDER THE DATES OF THE RULINGS AS A FACTOR IN YOUR
STUDIES

Republic Act 9337 amending the provisions of Section 106, 107, 108, 109,
110, 111, 112, 113, 114, 116 of the NIRC of 1997.

Republic Act 10378 amending the provisions of Section 28, 109, 118, 236,
of the NIRC of 1997.

Republic Act 10968 amending Sec. 106 to 109 and other pertinent
provisions of the VAT Law.

Tolentino v. CIR G.R. No. 115455. August 25, 1994

Destination Principle BIR Ruling 032-98 (shimizu)

CIR vs Burmeister Wain GR153205 Jan 22 2007
CIR vs American Express GR 152609, 29 June 2005
Refutation of destination principle
CIR vs. Placer Dome GR164365 June 8 2007

Revenue Regulation 16-2005 Consolidated Value-Added Tax Regulation of

2005 as amended by Revenue Regulation 4-2007 and by Revenue Regulation No. 13-
2018.

Sec. 105: Persons liable

Distinguish a direct tax from an indirect tax.

BIR Ruling 88-243 (shifting of HDMF)
BIR Ruling 91-151 purchase of prime commodities from CDA;
CIR vs. Gotamco Feb 27, 1987
Contex vs. CIR GR 151135 July 2, 2004

Definition of the term “Business” : Sec 22 (S);

CIR vs. Magsaysay Lines July 28, 2006 GR 146984;
Revenue Audit Memorandum Order 1-86 (branch operations of foreign
corp. in the phil. ;
Imperial vs. Collector, 97 Phil. 992 (isolated transactions)BIR ruling
113-98(sale by libertry broadcasting of microwave backbone);
Vat ruling 012-02 (sale not subject to VAT when not in business);
Manila Polo Club vs. Meer 106 Phil. 885 (when there is no profit
involved);
 See section 109 as implemented by 16-2005 however please see RR
4-2007 Section 14 amending Sec. 4.109-1(B)(1) subsection (p)
BIR Ruling/s: 276-07(when real properties were not considered goods
subject to vat)
Bir Ruling 024-05(real property and personal property are not subject
to vat under a 40 ( c ) (2) exchange;
BIR Ruling 218-06 (incidental sale)
Itad ruling 29-02 (proctor and gamble international and phil);
ITAD ruling 93-05 (onshore offshore production);
CIR vs CA Commonwealth GR No. 125355 March 30, 2000 doing
business
Commissioner of Internal Revenue vs. Sony Philippines, Inc.
(November 17, 2010)

RMC 15-2011 incidental sales of goods not normally held for sale

Sec. 106:VAT on Sale of Goods or Properties

Rate and Base of Tax

Goods or properties
a) Real Properties: See Rev. Regulation 16-2005 as amended
by 4-2007; 174-98 (Sale of fish); VAT Ruling 037-01
(lease of dormitory space), RR 4-2007
b) patents, copyrights, design model, etc.
129-98(royalty payments us-phil tax treaty warner studios
subject to vat), 104-98 (royalty payments not subject to vat
because of peza)
c) use in the Philippines industrial, commercial, scientific
equipment
d) motion pictures
e) Radio, television satellite and cable television time
BIR ruling 14-98( govt airtime is subject to VAT);38-98
(PLDT IT trunkline services),88-59(advertising agencies
gross billings subject to vat),88-85 (advertising agencies)
f) OTHERS
BIR Ruling 27-98 (purchase of electric cooperative is
subject to vat although their service is vat exempt)
CIR vs. Magsaysay Lines July 28, 2006 GR 146984;

Gross Selling Price: How is it computed

Zero Rated Sales: automatic RR 16-2005 Sec 4.106-5 as amended by

RR 4-2007 and RR 13-2018 (Automatic Zero Rating)
a) export sales:88-182;87-170 and RMC 7-94 (ice and bottled
water);88-182(export of minerals); CIR vs. Toshiba
Information Equipment GR No. 150154 Aug 9, 2005
Sale of Gold to the BSP is now subject to the VAT at 12%
1. sale and actual shipment of goods from the
Philippines to a foreign country regardless of
shipping arrangement, paid in acceptable foreign
currency or its equivalent in goods or services and
accounted through the Banko Sentral ng Pilipinas

2. Sale of raw materials or packaging materials to a

non-resident buyer for delivery to a resident local
export-oriented enterprise to be used in
manufacturing, processing , packing or repacking in
the Philippines accounted for with the rules of the
BSP.

3. Sale of raw materials or packaging materials to a n

export oriented enterprise whose export sales exceed
70% of annual production.

Any enterprise whose export sales exceed 70% of

the total annual production of the preceding taxable
year shall be considered export-oriented enterprise.

4. Those considered export sales under Executive

Order No. 226, otherwise known as the Omnibus
Investment Code of 1987 and other special laws.

5. 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 exclusively for international shipping or air
transport operations.

The sale of goods, supplies, equipment and fuel to

persons engaged in international shipping or
international air transport operations is limited to
goods, supplies, equipment and fuel that shall be used
in the transport of goods and passengers from a port in
the Philippines directly to a foreign port, or vice versa,
without docking or stopping at any other port in the
Philippines unless the docking or stopping at any other
Philippine port is for the purpose of unloading
passengers and/or cargoes that originated from abroad,
or to load passengers and/or cargoes bound for abroad:
Provided, further, that if any portion of such fuel,
goods, supplies or equipment is used for purposes
other than that mentioned in this paragraph, such
portion of fuel, goods, supplies, and equipment shall
be subject to 12% VAT.
Provided, That items (2), (3), and (4)
abovementioned shall be subject to the
twelve percent (12%) VAT and no longer be
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 and pays
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 decided within ninety
(90) days from the filing of the VAT
refund application.

The 90-day period to process and

decide, pending the establishment of the
enhanced VAT Refund System shall
only be up to the date of approval of the
Recommendation Report on such
application for VAT refund by the
Commissioner or his duly authorized
representative.

However, all claims for refund/tax credit

certificate filed prior to January 1, 2018
shall still be governed by the one
hundred twenty (120)-day processing
period.

The Secretary of Finance shall provide

transitory rules for the grant of refund
under the enhanced VAT Refund
System after the determination of the
fulfilment of the condition by the
Commissioner of Internal Revenue as
provided in item 1 paragraph 1 hereof;
and

2. All pending VAT refund claims as of

December 31, 2017 shall be fully paid in
cash by December 31, 2019.
 Provided, That Department of Finance
shall establish a VAT refund center in
the BIR and in the Bureau of Customs
(BOC) that will handle the processing
and granting of cash refunds of
creditable input tax.

“Foreign Currency denominated Sale definition/provision

has been deleted.”
(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.

(c) Sales to Person or Entities Deemed Tax –Exempt

under Special Law or International Agreement
SBMA under RA 7227, PEZA, ADB IRRI,

- BIR Ruling DA 119-06 (sale of goods online for delivery to

the Philippines);033-98( sale to peza enterprise); RMC 74-
99 (SALE TO PEZA ENTERPRISES); BIR 321-88
(ADB); BIR ruling 65-99; CIR vs Burmeister Wain
GR153205 Jan 22 2007;CIR vs American Express GR
152609, 29 June 2005,

Zero Rated Sales: Effectively Zero rated

SEC. 4.106-6. Meaning of the Term “Effectively Zero-rated
Sale of Goods and Properties”. – The term “effectively zero-
rated sale of goods and properties” shall refer to the local sale
of goods and properties by a VAT-registered person to a person
or entity who was granted indirect tax exemption under special
laws or international agreement. Under these Regulations,
transactions which, although not involving actual export, are
considered as “constructive export” shall be entitled to the
benefit of zero-rating, such as local sales of goods and
properties to persons or entities covered under pars. (a) no. (3) -
(sale to export-oriented enterprises), (a) no. (6) - (sale of goods,
supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations),
(b) (Foreign Currency Denominated Sale) and (c) (Sales to
Tax-Exempt Persons or Entities) of the preceding section.
Except for Export Sale under Sec. 4.106-5(a) and Foreign
Currency Denominated Sale under Sec. 4.106-5(b), other cases
of zero-rated sales shall require prior application with the
appropriate BIR office for effective zero-rating. Without an
approved application for effective zero-rating, the transaction
otherwise entitled to zero-rating shall be considered exempt.
The foregoing rule notwithstanding, the Commissioner may
 prescribe such rules to effectively implement the processing of
applications for effective zero-rating.

BIR Ruling 063-93Merger & consolidations; 472-93, and Sec. 4.100.5

Rev. Reg. 7-95 but see Revenue Memorandum Circular 19-99

Determination of the tax

How to show VAT as part of the bill RR No. 16-2005
Commissioner of Internal Revenue vs. SM Prime Holdings, Inc.
(February 26, 2010)
Diaz vs. Secretary of Finance (July 19, 2011)

Sec. 107 VAT on Importation

Train law amendment

“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.

In General: RR 16-2005 Sec 4.107-1

Transfers of Goods by Tax exempt entities: RR 16-2005 Sec 4.107-1 (c) BIR
Ruling 100-95 (toyota corrolla)

Sec. 108 VAT on Sale of Services and Use or Lease of Properties.

Amendment of Sec. 108 under the Train Law has made the sale of electricity
by electric cooperatives subject to the VAT.

Sec. 4.108-3 of RR No. 16-2005 now reads as follows:

Xxx xxx xxx

(f) Sale of electricity by generation, transmission by any entity

including the National Grid Corporation of the Philippines (NGCP)
and distribution companies including electric cooperatives shall be
subject to the twelve percent (12%) VAT on gross receipts.

Xxx xxx xxx

Sec 108 is further amended to include the following provisions under Sec. 108 (B)(8)
which now provides:

“(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 the 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 be
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 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.”

Subparagraph (B)(1) to (5) covers the following:

“(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;

The following transactions shall not be affected by the above:

“(6) Transport of passengers and cargo by domestic 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.

Rate and Base of Tax

Sale or exchange of service RR 16-2005 Sec 4.108-1, 2 and 3
RMC 77-2008
VAT ruling 003-88 (airline tickets)
RMC 46-2008

Zero Rated Sales: automatic vs. effectively zero rated RR 16-2005 Sec
4.108-5 and Sec. 4.108-6 as amended by RR 4-2007 and RR 13-2018
BIR ruling 377-05
BIR Ruling DA 012-05
RMO 7-2006
CIR vs. Amexco G.R. No. 152609 June 29, 2005
CIR vs Burmeister Wain GR153205 Jan 22 2007
CIR vs. Placer Dome GR164365 June 8 2007

Zero Rated Vs. exempt transactions: CIR vs. Seagate Technology (Phils) Gr.
153866 Feb 11, 2005
How is it computed: RR 16-2005 sec. 4.108-4

Invoicing requirements RR 16-2005 Sec. 4.113-1

 Change of status: RR 16-2005 Sec 9.236-6

Determination of the tax

How to show VAT as part of the bill RR No. 16-2005

Sec. 109 Exempt transactions RR 16-2005 Sec. 4.109-1

RA10378 amending Sec. 28(A)(3)(a), 109,118 and 236 of the NIRC
RA 10968 amended Sec. 109 (1)(D) and (P) and (Q)and (W) and (X)
to (BB) to read as follows:

(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 that the goods are brought from their former place of abode,
exempt such goods from payment of duties and taxes: Provided,
further, that 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;

“(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 five
hundred thousand 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 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); Please note that prior to the amendment, the exemption levels
above for 1,500,000 was already raised to P 1,919,500 and P 2,500,000
was already raised to 3,199,200 under RR 16-2011.
 “(Q) Lease of a residential unit with a monthly rental not exceeding
Fifteen thousand pesos (P15,000); Please note that prior to the
amendment, the exemption level under this section was at P 12,800.00
under RR 16-2011.

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

charges collected by homeowners associations and condominium
corporations;

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

“(AA) Sale of drugs and medicines prescribed for diabetes, high

cholesterol, and hypertension beginning January 1, 2019; and

“(BB) 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). This was formerly Sec. 109 (1)(W) but it was
renamed BB, the coverage was also increased to the P 3,000,000.00 level
which was formerly P 1,919,500.00.

Tambunting Pawnshop, Inc. vs. Commissioner of Internal Revenue

(January 21, 2010)
Commissioner of Internal Revenue vs. Philippine Health Care
Providers, Inc. (April 24, 2007)
Accenture, Inc. vs. Commissioner of Internal Revenue (July 11, 2012)
Commissioner of Internal Revenue vs. Sekisui Jushi Philippines, Inc.
(July 21, 2006)
Commissioner of Internal Revenue vs. Seagate Technology (February 11,
2005)
Commissioner of Internal Revenue vs. Toshiba Information Equipment
(August 9, 2005)
Commissioner of Internal Revenue vs. Contex Corporation (July 2,
2004)

Special topics
Effect of issuing erroneous receipt Sec. 113 NIRC RR 16-2005 Sec. 4.113-4
VAT receipt vs. VAT invoice Kepco Phil. Corp vs.CIR Gr 181858 Nov. 24,
2011
Joint ventures BIR Ruling 140-00
 Subsistence level RMC 4-98
Withholding tax on VAT RR 16-2005 Sec 4.114 -2 as amended by RR 4-2007
When to pay RR 16-2005 Sec 4.114-1
Royalties 104-98
Professional Services 88-250
Vat Exempt cooperatives 122-98
Dwelling below 1.0 m 152-98
Treatment of VAT exempt transactions, supplies passed on to VAT exempt
Lease of Dormitory spaces VAT Ruling 037-01
VAT/Percentage tax on tiangge RR No. 16- 2003
Power of Commissioner to suspend business operations RR 16-2005 Sec.
4.115-1

Sec. 110 of the NIRC was amended as follows:

“Sec. 110. Tax Credits.—

“(A) Creditable Input Tax.—
“(1) x x x
“(2) x x x
“(a) x x x
“(b) x x x

“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 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 (?1,000,000): 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 fee.

Sec 112 of the NIRC is amended as follows:

“Sec. 112. Refunds or Tax Credits of Input Tax.—

“(A) x x x
“(B) x x x

“(C) Period within which Refund 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 the ninety (90)-day period shall be
punishable under Section 269 of this Code.

Sec. 104 of the NIRC is amended as follows:

“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.

“x x x

“(B) x x x

“(C) Withholding of 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 witholding system under this Subsection
shall shift from final to a creditable system: Provided, further, That the payment for
lease or use of properties or property rights to nonresident owners shall be subject
to twelve 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.

Sec. 106 of the NIRC is amended as follows:

“Sec. 116. Tax on Persons Exempt from Value-added Tax (VAT).— Any person
whose sales or receipts are exempt under Section 109(BB) of this Code from the
payment of value-added tax and who is not a VAT-registered person shall pay a
tax equivalent to three percent (3%) of his gross quarterly sales or receipts:
Provided, That cooperatives, and beginning January 1, 2019, self-employed and
professionals with total annual gross sales and/or gross receipts not exceeding
Five hundred thousand pesos (P500,000) shall be exempt from the three percent
(3%) gross receipts tax herein imposed.”