312 IG: ‘TAX MADE LESS TAXIN “REVIEWER WITH CODALS AND CASES and full consideration, The requisites for this type op transfer are: «Bona fide transaction; «Arm's length; and + Free from any donativ What are the implications if the real property Sold was a capita ‘asset as against an ordinary asset? ‘9 For example, the real property had a cost of PLOOK, an Fay (of P200k, but sold for only P170k. + Ifitwere classified as a capite the FMV (remember, the base I or the FMV, whichever is higher) as an ordinary asset, it will be taxed e taxed for income tax purposes (tax I be taxed for donor's tax (tax , donor's tax will be attracted e intent. it will be taxed 6% of ther the consideration If it were clas unwittingly. Cancellation of Indebtedness If a creditor desires to benefit a debtor, and without any consideration therefore, cancels the debt (and the det accepts"), the amount of the debt is a donation by the creditor to the debtor. (Section 50, R.R. 2-1940) Value of the Gifts ‘Sec. 102. Valuation of Gifts Made in Property. — If the gifts, ‘made in property, the fair market value thereof at the time of the gift sift. In case of real property, the provisions of Section 88(8) shall apply to the valuation thereof. ‘The fair market value of the property donated/given at the time ‘of the donation shail be the value of the gross gifts. Donors tax 313 pe oe Sa cde abeten © F509 00000» Ses hc a te Ce Raa tl See. 102. Exemption of Certain Gina donations shall be exempt trom te tox prondaa ion tee (A) In the Case of Gifts Made by a Resident, — (1) Gits made to or forthe use ofthe National any entity created by any ofits agencies when e not conduc for 1 Subdlision of the sad Government educational andor 2) Gifts in favor of be used by sucn 5 tration purposes. For the purpose ofthe exemption, {2 ‘non-profit educational and/or charitable corporation, institution, ‘accredited -nongovernment ‘or gifts, donation, subsidies oF ‘accomplishment and promotion of the purposes enumerated in ts Articles of Incorporation. (As amended by TRAIN) ‘+ These “exemptions of certain gifts” should be taken to mean the deductions allowed by law to arrive at the taxable net gifts. * The deductions allowed for a resident or citizen donor: 1. Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the government. us, cultural trust or philanthropic organizations, research institutions or organizations, provided that not more than 30% of said gifts shall be used by such donee for administration purposesa4 TAXING: SOPALS AND CASES ‘TAX MADE LE [A REVIEWER WITH COM + The entity must be: its income to the accomplishment of Wy, Devoting ane the purpose enumerated in its AOI Your answer. University later sels the three parcels of idle land to Prego Sperart ‘stock corporation, will SLC University ‘three parcels of idle land in favor ‘Nueva’ Ecija, will SLC University ‘of the Municipality of ‘your answer. (2017 Bar Exam) be liable for donor's ta Hence, assuming this isthe case Puregold is exempt from capita g of land in Muntintupa for ony is son, Kornelio, in 1980 whet nding | id the corresponding donor's tax, ‘of PhP75,000, and paid DONORS Tax 315 roxr ab rg es erty in 2000 to Katrina for PhP 6.5 ‘entary stamp tax, local ‘faim ‘the donation to PhP 65 millon. ‘Upon the death of ther beloved parents i 209, K Fy Karlie inherited @ huge tract of farm land in Frye ed ‘Schoo! Alumni Association (KCHS AA), uni of the same school and are active KCHS AA is an organization intended to promote and strengthen ties between the school and its alumni; 2. The Kanlaon City Water District which intends to use the land for Its offices; or 3. Their second cousin on the maternal side, Kikay, who serves as the caretaker of the property. Advise the siblings which donation would expose them to the least tax lability. (2018 Bar Exam) ‘Suggested answer: 1 woul advise the siblings to donate the land to ‘the Kanlaon City Water District because the donation will be exempt from donor's tax. Under the Tax Code, donations to any government ‘entity created by any ofits agencies which isnot conducted for profit {s exempt from donor's tax. A water district, such as the donee here, 18.2 government entity not organized for proft. Hence, the donation willbe exempt. ue to rising fiquidty problems and pressure from its concerned Suppliers, ® Corp. inathuted 0 fash auction sale of Its snares of ‘tock. P Corp. was then able t sll ts treasury shares to, In. 2° unrelated corporation, fr P1, 000,000.00, which was ent 3 tle below the valuation of P Corp. s shares based on is atest aucitedioe LS TAXING . neve WITH CODALS AND CASES eS ws tn, fepelangeene ters ea nota 2) Cte the instances under the Tax Cade where afts made are ‘exempt from donor's tax. b) Does the above transaction fall under any of the exemptions? Explain, (2019 Bar Exam) Suggested answer: a) ‘ats0 exempt from donor's tax ‘does not fal under any of the enumerated exemptions, but ‘exempt from donor’s tax because TRAIN states that that a sale, exchange, or other transfer of property made in the ordinary course of usiness (a transaction which is bona ‘Ade, at arm's length, and free from any donative intent), wil be considered as made for an adequate and full consideration In money or money's worth and therefore not subject to donors ‘ax. In this case, the sale of ts shares to an unrelated corporation 2 litle below tne valuation was bona fide, at arm's length, and ‘ree from any donatve intent. Hence, tis exempt. » G. Deductions from the Gross Gifts by Husband and Wife For deductions from gross gifts made by husband and wife, o (of community/conjugal property, each donor has his or her ow? dedu Their donations will be distributed equally among ‘one donor for donor’s tax purposes, without prejudice to the rg! ‘cons Pursuant to the pertinent provisions of the Civil Code (6) In the Case of cits niger (2). ie Casa of Gifts Made by» Nonresidane Not @ (2) its made to or forthe use of the on Use ofthe National Government oF entity created by any of ts agencies whichis not conducted fr OP basin ofthe sald Government. DONOR'S tax In favor of an educational an 3 socal welfare corporation, araicct opi organization rey however, That nt mre tas Git shal be used by such donee tor nie (2) Gifts On purposes Same as the resident or citizen donor. 1. Other Deductions The BIR has allowed the following as deductions from ar to arrive at net gifts ae © Encumbrance on the property donated, if assumed by the donee © Those specifically provided by the donor as a imi the property donated. (RR, 12-2018) Example: Fabby Wabby donated land which was subject to a mortgage to Elfie. The FMV of the land was PIM, but the mortgage was P400k, Eifie agreed to assume the mortgage, hence the deduction of 400k Is allowed. The net gift is P6O0k: 3. Exemptions Under Special Laws * Gifts and donations to the University ofthe Philipines is exempt from donor's tax. (R.A. 9500) * Contributions to the National Book Trust Fund is exempt from donor's tax. (R.A. 9521) + Donations to qualified foster care agencies are exempt from donor's tax. (R.A. 10165) * Under R.A. 7166, contributions to candidates or pol duly reported to the BIR are not subject to any doner: © Any provision of law Payment of any gift tax. (R-R. 6-209) ion of Bares for campaign purposes, dy "=P Dject to the payment of any gif 2318 sabe LESS TAKING: sanevtsitn WITH CODALS AND CASES me taxes: s what happens to the money 2011) to ico Segue na eancite? (RR, 7-2014, February ‘| GR: The money given to the can Ga: The mene come, 2 ong a5 campaign. + HOWEVER, un be subject to income tax. A fate (winner or loser) must fle GOMELEC his/her statement of expenditures, contri CSntributions will be directly subject to income ‘hn. De Sarepen is a candidate in the upcoming Senatorial elections. Bie oe Szinacen, believing in the sincerity and ability of Mr. DS Spropen'to introduce much needed reforms in the country, ee wrbuted PS00,000.00 In cash to the campaign chest of Mr. De ‘Sranen. In adaition, Mr. De Almacen purchased tarpaulins, t-shirts, Gmorells, cops and ether campaign materials that he also donated {Mr De Sarapen for use in his campaign. Is the contribution of cash ‘and campaign materials subject to donor's tax? (2014 Bar Ex ‘Suggested answer: No, they are actually exempt fram donor's tex. Cermtaign contributions, whether in cash or in kind, to any political ‘candidate is exempt from gift tax. percent (6%) computed on the basi two hundred fity thousand pesos (P250,000) exempt gift made (B) Any contribution in cash or in kind to any candidate on of parties for campaign purposes shall be by the Election Code, as amended. (As amended by TRAIN) Donor's tax is reported by calendar year. So i you want to avoid paying the tax Jatin (Secerber 3 and lancory "sme We se he + Donations made which are not over P250,000 in a calendar Yee ‘are exempt from donor's tax, DONORS Tax 319 Note that the P250,000 coun A ts as a d Because the 6% rate is feduction from total gh 250,000, posed on the total gits in excess of The basic tax formula is as follows (On the first donation of a calendar year Gross gifts Net Gifts xX Donor's tax rate Donor’s tax due on the net gifts (On 2 subsequent donation in the same calender year Gross gifts made on this date Less: Deductions from these gross aifts Net gifts made on this date Plus: All prior net gifts given with the same calendar year Agaregate net gifts Donor’s tax on aggregate net gifts ‘Less: Donor’s tax on all prior net aifts within the same calendar year Donor’s tax due on the net gifts of this date Donor’s Tax Return ‘Sec. 103. Filing of Return and Payment of Tax. — In computing net gif (2) The deductions claimed and allowable; (3) Any previous net gifts made during the same calendar year: (4) The name of the donee; and (5) Such further information as may be required by rules and Fegulations made pursuant to law.aoe ues TAXING: anevienet antH CODALS AND CASES DDONoR'S Tax. s 21 (B) Time and Place of FA09 271 pe hed within thirty (30) days red in ths Schon ne tax dve thereon shall be paid at regatethe it made 208 oe Commissioner otherwise fax pald to an authorized wth the Philippine domiciled atthe te ofthe t ‘The donor's tax return must be filed within 30 days after the date of the donation. (on all donations of one date, only one donor's tax return is required. In case of husband and wife as donors, the donor's tax return of the husband will be apart of the donor's tax return of the When and where to pay? The donor's tax will be paid at the the return is fled, and with the office where the return is, 1: In order to be |) exempt from donor's tax, an deduction of the donation given to qualified donee inst ly accredited by the PCNC, the donor engaged in business notice of donation on every donation worth at least P50, the Revenue District Office (RDO) which has jurisdiction ) days after receipt ofthe ssued Certificate of Donat, ‘which shall be attached to the said Notice of Donation, thirty percent (30%) of the said Gifts for the taxable year shall be used by such accredited nor /NGO institution (qualified-donee purposes. (R.R. 12-2018) (C) Tax Credit for Donor's Taxes Paid to a Foreign Country. ~ (2) In General, — The tax imposed by this Tile upon a donor whe i a canes or. 2 escent at the time of donation shall be credited ead ne wench _ 2 Sate ener ck nr (2) The amount of the credit in ce / tty a a 6 oe he 8 oy which Such credit Is taken, whieh the net git sees a aaeest Metron unset see wash (b) The total amount of the credit shall not exceed the donor's net gifts situated outside the Philippines taxable under title bears to his entire net gifts ae ‘Only resident or citizen donors are allowed donor’ tax credit © Why? Because they are the only ones taxed worldwide. A ‘nonresident noncitizen is not taxed for his donations in fore aes is donations in foreign For a foreigner’s donor's tax paid to a foreign country, a credit is allowed to reduce the Pippin donor’ tx to pay, under the Foreign donor's tax paid = xxx Limit: Net foreign gifts Net foreign gifts phippine Donors Tax = xxxx Net gifts, worldwide rene Allowed ta» tax paid and the itis whichever is lower of the foreign donor's Example: Idolo Iniesta donated property to Liza I.S. Darna here in the Philippines, net gift value of P200,000, He also donated to Claire Fraser in Scotiand, net gift value (of P300,000. In Scotland, he paid a tax of P10,000 Foreign donor's tax paid = P10,000 Donor's tax supposed to be paid worldwide, without the credit = P14,000. Credit is: 300,000. x p1.,000 = 8,400 500,000awains: TAX MADE LESS cases 322 “A REVIEWER WITH CODALS AND jen the tax paid abroad and the credit limitation. So, it Mi tdolo Iniesta has to pay P5,600- If two foreign countries Limitation A: Foreign donor's tax pald to Net gifts, foreign cOUntY Net gifts, foreign country Net gifts, world ‘Allowed tax credit = whatever's lower the foreign country ine donor's tax Limitation 8 (by totals) ‘Total of foreign donor's taxes paid to the foreign countries [Net gifts, outside the Phil, philippine donor's tax et gifts, world Allowed tax credit = whatever's lower ‘Tax credit to apply is whatever Is lower between Limitation A and Limitation 8 VALUE-ADDED TAX TITLE Iv VALUE-ADDED Tax CHAPTER x IMPOSITION OF TAX Sec. 105. Persons Liable. — Any person who, in the course of trade or business, sells barters, exchanges, leases goods or propertics, renders services, and any gerson wre imparts qooee sal ocoatoeet to the value-added tax (VAT) imposed i Seton 106 fo 108 ofthis ‘The value-added tax isan 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 atthe time (of the effectivity of Republic Act No. 7716 VAT is imposed on any person who: 1. Sells, barters, or exchanges goods or properties in the course of trade or business; or 2. Sells services in the course of trade or business; or 3. Imports goods, whether or not in the course of trade or business. The VAT is a tax on consumpti © VAT is imposed on the seller, not the buyer. + EXCEPT: in importation 323“TAX MADE LESS TAXING: [A REVIEWER WITH CODALS AND CASES 1s VAT really a tax on the value-added? o-_Yes. Consider this: to Bo-ra a piece of wood — a nice, fine, wel- Aragorn sels Sanded piece of wood Price: 100 VAT (12%): ee Total: ruiz ‘b0-ra then expertly crafts the wood into a rocking chair and sells it to Clint Barton. Price: P1s0 Tex: pis Total: 168: Bo-ra has an output tax of P18, and an input tax of P12. She has a P6 net VAT payable (output minus input). But where do we ‘see the tax on the "value added” by B? We see that at the level of the price. By applying her sills and labor (and masungit but cute charm), Bo-ra made 2 chait ‘out of the wood that she had bought from Aragorn. From P100, the price increased to P150. There was a PSO increase because lue added by Bo-ra. And applying the VAT on this P50, it 0 the same amount, which is 6. This proves that the t& the “value added.” How do we know ifthe transaction is what are the elements? oe 41. It must be done in the ordinary course of trade or business? 2. There must be a sale Properties, or rendering 3. It ls not VAT-exempt or VAT zero-rated. © Ifall three are present, then the transaction Is subject! the 12% VAT. Absence. transaction Suiceeae ‘of one will not make the trans se of goods oF ippines; and But remember that importations are subject to VAP whether or not in the course of trade or business: VALUE-ADDs sd 32s fe is 6 rc on reorient . tere sn for thereto be txabe ain ne weet ase required by either law or jurisprudence, '5 not © In fact, the NIRC and CIR v. ca CA and Commonwealth ‘Management and Services Corporation (COMASERCO) (a. No, 125955, March 30, 2000) sate tat nonstock, nonprft organi are subject to VAT, e done fora fee or remuneration," "8 25 he service i Ordinary course of trade or business ‘Sec. 105. — ‘The phrase "In the course of trade or business” means thereto, by any person regardless of ‘or not the person engaged therein Is a nonsteck, nonpront private to the contrary notwithstanding, services as ines by nonresident foreign + “Ordinary course of trade or business” means the regular conduct or pursuit of a commercial or an economic activity. idental thereto, © It covers any person regardless of whether or not the person engaged therein is a nonstock, nonprofit organization (lerespective of the disposition of its net income and whether (OF not It sells exclusively to members or their guests), or a Government entity. © Italso includes transactions * There should be © a commercial or economic activity, and © regularity in the action. Regular involves more than one requires repetition and continuity if the taxpayer i @ nonresident foreign person, there eet of conduc. Services rendered by ther ear agered as beng nthe course of trade and tus, subject tothe VAT © This is an exception to the “regul .quirement..+ Any sale, barter, ING: ‘TAX MADE LESS TAXI A REVIEWER WITH CODALS AND CASES or exchange of goods oF services in the cour ‘business is subject to ‘VAT. Fer eee correc ce No, 193301, March 11, 2013) Heres lta eS Oe July 28, 2006) ee ee cnt mua pve of NPC en ie aes ean ae rherrs of trade or 0 The sale of 2 while isolated, (© Was it incidental to the taxpayer's business? (© Is the taxpayer a nonresident alien? (Because if he is, the transaction need not be regular.) Between an automobile shop that sells five parcels of land and 2 real estate dealer who sold a parcel of land, bot! This provision notwithstanding, importation of goods for persona Use i til subjec fo VAT becaine of Secon 107) © This isan exception to “pursuit of a commercial or an economic activity” requirement, ‘Sale, barter, exchange, lease of goods or properties, or rendering of Service in the Philippines + There must be a sale, barter, « : bs 3 , exchange, lease of goods 0 Properties, or rendering of service in the Philippines. © Cence, fa taxpayer renders service to an affiliate for 2 ee the fee is merely to reimburse costs), the service VALUE-ADDED Tax. = subject to VAT. (CIR v. CA a and Services Corporation [Comoe March 30, 2000) © Similarly the fees collected by tol way operators are subject lor are engaged in rendering service ing, _and_ operating expressways). Finances GR ho 183007, wnonweatth Management SERCO], GR, No. 125355, (constructing, m (Diaz v. Secretary 2011) when there is no sale, barter or excha then no VAT should be imposed. 3° °F 99005 oF properties, © Hence, when an afte provides funds to a taxpayer then uses the funds to pay 2 thd pony, te waceelon no subject fo VA, as there wasn sal, barter or exchange between the affilate andthe taxpayer The money wes simply given 25 a dole-out.(CIRv. Sony Pilppines, Ihe GR. 178697, November 1, 2010) 0 Membership fees, association dues, and the like collected by recreational clubs from its members are also not subject to VAT, because the clubs aren ts service tots members. I activity because these facilities of the club. (Association of Non-# G.R. No. 228539, June 26, 2019) © The same rule applies for membership fees, association dues, and the like collected by condominium corporations. These are not subject to VAT. (BIR v. First E-Bank Tower Condominium Corp., G.R. Nos 215801 and 218924, January 415, 2020, which invalidated the controversial RMC 65-2012) © The allocation of condominium units to partners venture is also not subject to VAT, as the alloc Partners’ ‘agreement. (Malayan Insurance Company, Inc. v. St. Francis ‘Square Realty Corporation, G.R. No. 198916, July 23, 2018) If the said transaction is outside the Philippines, then it is not Subject to VAT. ‘Masarap Kumain, Inc. (MKI) is a Value-Added Tax (VAT)-registered company which has been engaged inthe catering business forthe ast 10 years. It has invested 2 substantial portion of its capt ‘on at wares, table linens, plates, chairs, catering equipment, and Gelivery vans, MIKI sold Its frst delivery van, already 10 years old ‘and lle, to Magpopale Gravel and Sand Corp. (NGSC), 2 corporation228 G: aoe LESS TAXIN anes nEtianta CODALS ANO CASES crore eons es Es oe oe na ot ne War ncudd inte ordinary course ect atta et Bech tna sb whet ge hr the same way ine similar case. | a domestic corporation engaged inthe In june 2013, ony ral proserten nthe Phopines, entered to 9 asin: 0 ies jena rouse an lt wt EEE, In, 2M dea art aoraten, The resisenal Nowse and Io wil be ee SFCEE nc dung ther vst t he Pines. The ee tna nas sgn by representatives from DDD Cop. ard Fm Snoapore-DOD Cop id ne subject the sal ese to Fey tesa tat kos note Gores sence contrac. Was 000 Cop. correct» explain. (2015 Bar Exam) Philippines. It is immaterial where the lease agreement Was signed. ‘All the ‘homeowners belonging to ABC Vilage Homeowners’ ees Board looked ints the need to increase the prevaling sesodation dies. hr. Xone ofthe tistees, proposed an react of 100% % Account forthe payment othe 125 value-added tax (VAT) onthe sociation dues which were beng clected for services alegedY fendered "inthe course of trade or business” By ABC Voge Homeouners Assocation. 2) _ hat consitutes transactions done “in the course of trade 0” tusines for purposes ofapiyng VATS 2) Is Me. Xcorect in stating tat the association dues are ub {@ var? tsp, 019 Bar Exam) i S Suggested answers: 9) For VAT purposes, this means the regular conduct or pursult of @ commercial or an economic activity, including incidental {transactions thereto, It covers any person regardless whethe r not the person engaged therein is @ nonstock, nonprom VALUE-ADDED Tax ‘organization (irrespective ofthe whether or not it Sells exclush (or a government entity. isposton of ts net income and vely to members or ther quest), For the next part, we'll go by tax rates. ok at those taxed at 12% (Usual VATable and ). Next, those taxed at 0%. And then finally, the Impor exempt transactions. 8, Normal VAT Transactions (12%) When it comes to normal VAT transactions or those subject to 12%, we have three categories: 1, The sale of goods and properties, 2. The sale of services, and 3. Importation. Let's start with sale of goods and properties first. ‘SEC. 106. Value-added Tax on Sale of Goods or Properties. — bartered or exchanged (As amended by TRA Geni + In dealing with this element, you're dealing with two questions: © Is this a normal sale? © If not is this at least a transaction which are deemed sales by law (Section 106(8})? the VAT rate is 12% on the gross selling price or gross value in money of the goods, properties sold, bartered, or exchanged. actions that © We say “generally” because there are some transactions are subnet 09 or tancoxemp, but wel tackle those lt330 aoe ves TAXING anenenet WT CODALS AND CASES sor gale of goods or properties, the tax base Is the Oross sling price, Gross selling price see. 106. (D) Sales Returns, Allowances and Sales Discounts. 208, (0) Ses gropetes sos and subsequerly returned Fe ae eens wore arated by 0 VATTealtered person nd am tne ges sales ores for the quater mn Te ced a ode or creck memorandum or refund is ssued. ING ume gamed and indicated Inthe Invice tthe time of Sas cetera of ncn doesnt cepend upon the happening 3 thar event nay be exude rom the gross sles within the sre tuortr twas gen ‘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. © In other words, the gross selling price includes everything that the buyer pays the seller, except the VAT which is shifted to the buyer. For example, Elton sold a shirt to Sassy. The quoted selling price was P00, but there were freight charges of ee {9F0ss selling price is P150. You apply the VAT to © While the law says the VAT is based on the gr ‘gross selling price” does not mean gross sal Fegulations allow downward adjustments Sales returns and allowances; Seles discounts agreed upon at the time of the s2l° Indicated in the sales invoice, and availed of by the buYe* ‘VALUE-ADDED Tax ao Goods or properties ‘See. 106. (A) (1) all tangible and int estimation and shal 90005” or “properties? sha le objects which are. pecuniey objects whch ar capsie of rercnany iy fr Sle to customers or held for trade or business; ee The right or the privege to use pate ret fora or process goa Tike property oF fons (2) The right or the privilege ouee mation pure fins, apes a discs; and peels copyright, design or iil trademark, trade (©) Radio, television, satelite transmission and cable television time. ‘+ Goods or properties include: 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 privilege to use patent, copyright, design or trade brand or other like property or right 3. The right or the privilege to use in the Philippines of any Industrial, commercial or scientific equipment 4. The right or the privilege to use motion picture films, tapes and discs; and 5. Radio, television, satelite transmission and cable television time. * This is not an exclusive list, obviously. Transactions deemed sale ied Sale. — The following ‘See. 106. (8) Transactions Deem ‘transactions shall be deemed sale: (2) Transfer, use or consumption not in the course of business of ‘G00ds or properties originally intended forsale or for use in the course of business; (2) Distribution or transfer to ) Shareholders or investors as share in the profits of the VAT- Fegistered persons; orrx MADE LESS TAKING: anette nH CODALS AND CASES Creators n payment of 8% i leis nat ace within sixty (6 ment of goodsit cua sales Pot - ene etch goods were consigned; 2nd business, with respect to ert Mable goods existing as of such retirement or (4) Retirement from or cessation of Inventories cessation. red sales in the By virtue of law, the folowing are considered s — Of rade or business, and is subject to the VAT: : 1, use or consumption not In the course of business of 1 arr egperties onginaly Intended for sale or for use y the course of business; 2. Distribution or transfer of inventory to shareholders or Ihocetors as shere nthe profs of the VAT-registered persons (Property Dividends) 3. Distribution or transfer of inventory to creditors in payment of debt; 4. Consignment of goods if actual sale Is not made within sity (60) days folowing the date such goods were consigned; ant 5. Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement cessation, (Includes capital goods — R.R. 16-2005). For example, Ramen at Taek’s Room, bbasis kimchi ramen which is just absolutely ‘The CIR shall determine the appropriate tax base in cases whet@ transactions are deemed sales, or where the gross selling price lower then the actual market value ‘VALUE-ADDED Tax 333 Now lets look at Sale of Service and use or lease of proper 5. ‘Sec. 108. Value-added Tax Lease of Properties. — » °” S#le Of Services and Use or (A) Rate and Base of Tax. — There sha colectd, 9 vaiadded tax equvalem to te feet Ces gross ved from twelve percent including the be change of le_or_exchany Kinds of services Inthe Futons sans the 25 in the Philipines for ethers for rato res an rel moreno seme tease or distributors of chematogaphe saee ean, SeMees Inrmiling, processing manatees or aa" eee Ciners Dronitre,cperiton c ines, inluding cubs and caterers; deniers n secures ending bwestony transportation contractors on ther tensor ef goose or coees, including persons who transport goods or cargoes er he a seer ‘domeste common carers by ind retve “sale or exchange of ) The lease or the use of or the right or privilege to use Shy cop isin ox olla, sere formula or procesey geod remands oan ter ike property oreghts (2) The ease or ne use forte rt to se of any nds, Semmercia or scene eum (2) The supply of seni ectneal,inustil or commercial Knowledge ar infor (4) The supply of any assistance that shed 35.2 means of en: ry and subsidiary the application oF ’s is mentioned In tion 2s iS iedge oF InforXIN: nx mane 638 7 . anes TH CODA AND CAS! a a Seta ‘supply of ser (2) The rennet person ical advice, as8StONCe OF services (6) he, SY mn wth technical management er erdered cannes genie, Industral of commer ag, wet, projet oF See: (7) The lease of motion picture fms, and films, tapes and discs; ee ee ee sere of ropes ena Pc oct nese fe Bac Ue cry leased OF aed hd ine ‘Any sale orexchange of services inthe course of trade or business, including the use Or leese of properties, shall be subject tothe vat For the sale or exchange of services, Including the use or lease of properties, the VAT rate is 12% of the gross receipts. ‘To be defined as “sales of services,” the services: (©. Should be rendered in the Philippines, © Can be any and all kinds of services rendered to others (provided there is no employer-employee relationship); and (© There is a fee, remuneration or consideration Lease of properties shall be subject to VAT Irrespective of the place where the contract or lease or licensing agreement was executed if the property is leased or used in the Philippines. Sale of services in the course of trade or business includes those Performed or rendered by: Construction and service contractors; 2. stock, real estate, commercial, customs and immigration brokers; 3. lessor of property, whether personal or real; 4. warehousing services; lessor or distributors of cinematographic films; VALUE-ADDED Tax, 335 7. proprietors, operators, or houses, pension houses, nee seers ot NOLES, motels, rest inns, resorts, 8. proprietors oF operators of reste Parlors, cafes and other eatin caterers; 9 place 9. dealers in securities; 10. lending investors; 11, transportation contractors on their transport of goods or cargoes, inclusing persons who transport goods on ee soce for hire and other domestic common cameos ich ieee 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 companies, transmission by any entity including the National Grid Cor Phi ‘on companies including electric /e8} (RR. No. 13-2018) 14. services of franchise grantees of electric utlities, telephone and telegraph, radio and television broadcasting and all other franchise grantees, except those under Section 119 of the refreshment luding clubs and non-life insurance companies (except their crop insurances), Including surety, fidelity 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. Aliso Included are: 1. The lease or use of or right or privilege to use any copyright, sign or model, plan, secret formula or process, rrademark, trade brand and other like property or 2. ‘The lease or the use of, or the right to use of any industrial, ‘commercial or scientific equipment; 3. The supply of scientific, technical, indust knowledge or information; 4. The supply of any assistance that is 2 to and is furnished as a means of enabling the appl 1 oF commercial336 save LESS TAXING: saneve TH CODALS AND CASES perty, oF right as Is enumerated in 5 enjoyment of any such Fcc knowledge Or information "bus sais Belt seta to i Beliatrc Cho Var Baa ht Oe VAT VATEXEHPT | she idm veer ins TAXABLE from Cho to ffct her Vat 7100 iso #212 WAD +80 a 80 law does not alow this, ‘Albus sels ellatrix | Bellatrix paid Albus P12 as VAT to Belatrix sellsto Cho _| But she recovered the P12 by vat vat TAXABLE TAXABLE 100 Piso, ald Albus. So, In essence, she| 422 Wan east) ‘recovered the P12 she had paid Pua Pues. Abus. What if the transaction of Bellatrix to Cho is VAT ZERO-RATED? Bellatrix paid Albus P12 as VAT Eze | eco om See mae ‘offset her VAT payment to Albus Piso ‘She has an output of zero, an +PO an input of P12. Piso So, if we were our next sale tr exempt? latrix, and we had a choice... wk ction be — normal VATable, ze (© Clearly, we won't go for exempt, because we won't recover the VAT we paid to our suppliers (Albus). + But what do you do with the unrecovered VAT in exempt transactions? ‘+ Ie-will be considered cost. © It isa toss-up between going for normal VATable transactions ‘and zero-rated transactions. + In both these cases, we will recover the VAT we paid to our suppliers. It will just depend on different factors. If we go for a zero-rated transaction, do we want to go through the hassle of having to deal withthe BIR and paying the fees? If we go for the normal VATable, the recovery would be quicker. But this would mean we'd have to keep track of the VAT paid fo us ‘and then have to pay the net VAT payable to the government, And ‘what if our line of business is really engaged in exporting (zero- Fated), should we go to the trouble of looking for Buyers here in the Phitippines if that’s not our main line of business anyway?Less TAXING: VALUE-ADDED Tax wxqot a ‘A REVIEWER WITH “CODALS AND CASES aoe ah ae . tanmate etl arses TARAS map, ela cela a 6) hana nar be considered export sles subject ws mey 208 1% and no longer + Purpose: : + To exempt the tra upon satisfaction of the following condtions: = (0%) VAT rate Collected since inp refunds or credits var ncaction completely ‘fOr VAT previoy a eg te im may be recoveregs! lishment andi GR rotund ys grants refunds of credeatle par ane ries tra fae eae ee en em a cal ‘dec in from At ein esse one ater anoen For goods fay The talon sles by VATreiterea 106 (2a pecan (0%) rte ‘See. 106. (2) See. persons shall be subje (2) Export Sales. — The term “export sales’ means: Je and acl shipment of goods from the Philippines toa re a spective of any spping arrangement tat may an cou, reeeenayifvence or determine the transfer of "goods sn exported ane pad forin acceptable oregn valet goods ar services, es an regulations ofthe Bangko Senta ng nding VAT refund claims as of December iy paid in cash by December 31,2019, ne 21 2017 shal be ‘An amount equivalent to five percent ‘of the BIR and the BOC from the immedi claims for refund and any unused fund, ‘No-B593-or Fhe FourtsmAct-of 2609--(Vetoed) eof raw materials or packaging materas to 9 nonresident persons or entities whose exemption under special laws ‘oF international agreements to which the Philppines Is 2 signatory effectively subjects such sales to zero rate, (AE amended by TRAIN) * For goods, arate of 0¥ of the gross seling price wil be applied Sate frm materials or packaging materials to export-oriented 1. Export sate; or ise hose export sales exceed seventy percent (70%) of tt annual production; ea 2. Sales to persons or enies whose exemption under special laws, or international agreements to which the Philippines is (5) Those considered export sales under Executive Order No. 226 a Signatory (effectively-zero rated sales) werwise known as the Omnibus Investment Cade of 1987, and : other special laws; and Export sales means: © The sale tual shipments or exportations of goods Supplies, equipment and fuel to persons ales and actual ples, equipment and fuel to ps from the Philippines to a foreign country, irrespective of any al shipping or international air transom ‘operations: Provided, That the goods, sx ‘equipment and fuel shipping arrangement that may be agreed upon which may Shall be used for international shipping or aie transport operation®. influence or determine the transfer of ownership of the goods 50 exported, and{AX MADE LESS TAXING: VALUE-ADDED Tax _ ‘AREVIEWER WITH ‘CODALS AND CASES ; : ‘As long as the good: cca sree Le ls of rom materiale aera expr ony (Secretary of Fiance, Lary USES dls ‘to a resident local export-orienteg resident buyet for dete") anufacturing, Processing, packing 0. Thus, sales by suppliers from in : outside the e enterprise to be used roe of sald buyer's goods an separate customs te cozone to this : o erritory are deem or repacking in Ws Preign currency and accounted for as export sales. (CIR v. Sekicu! ust Php eae bald for emith BSP rules and regulations; ‘No. 149761, July 21, 2006) ken Gite ' als to an expor- + But what if suppi vie of raw materiale or packaging materia eH ers erroneously impose VAT on good 2% Sats amps whose export sles ceed 70% of 5016 to an entity within a separate customs terneores gong 08 70% is exported, then 100% of : Sriuol reduction (2 ong © The purchaser's (ie., the entity in the ecozone) ret input may be refunded); recourse is against the supplier, not the government. 43, Those considered export sales under EO 226 and other speci The purchaser cant run after the goverronent Taws; and © The supplier isthe ler i the proper party to claim the refund ri ment and fuel to persons because VAT is an indirect tax and the supplier is the engaged inn ng or international ir transport one statutory lable, (Coral oy Nike! Corporation creates. as long 8s the goods, supplies, equipment, nd WEIR, GR: No. 190506, Jane 13, 2016) Fae ised Tor intemetional shipping ‘oF air transpot operations For services + TAH peo st same sandra to remove th 20a Tie oF packaging moterals to nonresidents, sale of packaging = arr ane capart sues Bide Sec. 108. (8) Transactions Subject to Zere Percent (0%) Lay re eae een nliabaeedd lens Rate. ~ Tne folowing services pertormed in tre Pitppes y Var registered persons sal be safest to eo pee (Ox) ate ©. These transactions will be subject fo the normal 12% rat f2 Successful VAT refund system fs established, among others (Q) Processing, manufacturing orepacking goods or cter persons doing business outside the Pil Under the cross-border principle or desti VAT system, no VAT shall be imposed t of goods destined outside of the territori principle of the Fm part of the cost border of the taxing pines], GR. No authority. (CIR v. Seagate Technology ned in the preceding paragraph, 153866, February 11, 2005) Whil ecozc geographic usiness conducted outside the within the Philippines, it is deemed a separate customs territory 16s oF to-a nonresident person not engaged in business who and is regarded inlaw as foreign soil. I cuice the Pili when the services re performed, the ©Since ecozones (such as the Clark Special Economic Zone a Clark Freeport Zone) are considered foreign territories, 2 R.R- which imposes VAT on the importation of petroleum products into the ecozones is invalid. (Secretary of Finance v. L272? GR. No. 210588, November 25, 2016) Articles brought into and remain in ecozones are Percent (096) rate; taxable importations, because the goods remai foreign territory. the rules and regulations of the ional agreements to which the Philippines is Subjects the Supply of SUCh Services to zero«: aoe vess TAA o anevttnrtH CODALS AND CASES VALUE-ADDED Tax - 7 national shipping 5es of property I be exclusively for enc wal nana, ee Seeae ts 5) Sees peemed rocesing, convert, hose export sales exceed productions by domes (6) Tanspot of pasenges and cargo bY {Onrthe Batpines to a foreign country; and cere tough renews sures ot oe fienfe to, biomass, st wind, hyéropowey, Seatona orton ena emerging energy SOUrcES using Fane such Tue cals and hyerogen Tues Iror sea vessels (7). Sale of power 0 following conditions: (2) The successful establishment and implementation ofan enhanced VAT refund system that grants refunds of credtabl in ‘lnety (90) days from the fling ofthe VAT refund a nding VAT refund claims as of December 31, 2027 shall be in cash by December 31, 2019, ish a VAT refund venue ( in the Bureau of handle te processing and granting of c8h year shall be automaticaly appropriated annually and {reated as a special account in the General Fund or as trust receipts ee rarer nen ee er Ci Ata ae a: pty provided further, Tat the BIR and ne ‘submit to the COCCTRP a Ara Feud ae any unused fond oe $9 a ee fects anne eles, 1 revert to the General Fund 80¢ shal be recur ute ero t pening Sa 2 rate of 0% of the ing instances: From processing, manufacturing or repacking of goods: ‘2. For other persons doing business autside the Philippines, b, The goods are subsequently exported, and 2 The services are paid or in acceptable fori ian cure and accounted for in acordanes mi te es ooh regulations ofthe BSP Services other than processing, manufacturing or repacking of goods, rendered to a: a. Person engaged in business conducted outside the Philippines, or b. Nonresident person not engaged in business who is ‘Outside the Philippines when the services are performed, and c. The consideration is paid in acceptable foreign currency ‘and accounted for in accordance with the rules and regulations of the BSP |. Services rendered to persons or entities whose exemption under special laws or international agreements to which the Is a signatory effectively subjects such services to ter E al ing Services rendered to persons engaged in shipping or international alr transport operations, leases of property for use thereof, as long as the services shall be exclusively for international shipping or air transport operations; Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed 70% of total annual Production; «Transport of passengers and cargo by domestic air and sea vessels from the Philippines to a foreign country; and348 ‘TAX MADE LESS TAXING: ‘a REVIEWER WITH CODALS AND CASES rated through renewable sources, 7 Sale owe 8 ever the sal of SErICES YO malay ray (is sree foun ofthese pants) (R foes ot ey zoos for et 'R. 13-2018) to the normal 12% rateits These Chul VAT refund system is established, among others, For “services other than processing, manufacturing or repacking ‘of goods’ 0 The phrase covers all aspects of the word “service” as long as lippines the service is done in the Branch], G.R. No, 152609, June 29, 200! (© The recipient of the services (other than processing manufacturing, or repacking of goods under Section 108 [ ikewise be for a person engaged in business outside ines. (CIR v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.R. No. 153205, January 22, 2007 where the recipient of the services was the Consortium Who was deemed doing business within the Philippines) It Is not enough that the recipient has no business presence in the Philippines. The taxpayer has the burden to prove that the recipient is engaged in business outside the Philipines. (Accenture, Inc. v. CIR, G.R. No. 190102 July 11, 2012) ‘The VAT system generally follows the “destination prince” (exports are zero-rated whereas imports are taxed). © However, there is an exception in the form of service Performed in the Philippines for a recipient doing busines ‘utside the Philippines (since the service is still done he®) (CIR v. ‘Burmelster and Wain Scandinavian Controc™ ‘Mindano, Inc., GR. No. 153205, January 22, 2007). Effectively-zero rated sales usually com 1 aws ant international agreements a. © RA. 7227, RA. 7916, Ast Cn embassies Bee a Le sag Asia Development Bank, E pifference between zero-rated and e (cIR v. Seagate Technology [Philipp 1, 2005). ‘VALUE-ADDED Tax. . ffectvely zero-rated tra fi Insactions ines], G.R. No. 153866, February Zera-rated transactions refer to the export sale of goods and supply of services. The seller of such transactions charges no output tax, but can claim 2 refund or a tax ere ertincate for the VAT previously charged by suppliers. This sf the VAT isis forthe benefit of Effectively zero-rated transactions refer to the sale Supply of services to persons or enti whose exon ey special laws or international agreements to which the Is a signatory effectively subjects such transactions to 2 zero rate. Such rate does not yield any tax chargeable against the purchaser. This is for the benefit ofthe purchaser. (© Strictly speaking, it is the sales by the suppliers which are zero-rated. But the entities are granted an indirect tax ‘exemption for policy and economic reasons. In both zero-rated and effectively zero-rated transactions, the seller who charges zero output tax can claim a refund or a tax credit certificate for the VAT previously charged by suppliers. 1 offce in the Philppines and does no business in the Philippines. XYZ Law Offices rendered its opinion on the query and biled Gainsburg US$1,000 for the opinion, Gainsburg remitted its payment through Citibank which converted the remitted US$1,000 to pesos ‘and deposited the converted amount inthe XYZ Law Offices account. What are the tax implications of the payment to XYZ Law offices in terms of VAT and income taxes? (2013 Bar Exem) ‘Suggested answer: The payment of XYZ Law Offices is subject to Zero-rated VAT and income tax. Its subject to zero-rated VAT as ‘it was for services rendered for persons doing business outside the Philippines and paid In foreign currency. The payment will form part OF the grass income of the Law Office (which wil be d! the partners) because these services were performed wi Jurisdiction of the Philippines.se ADE LESS TAKING: 2 A REVIEWER WITH ‘CODALS AND CASES (1) Subject to the provisions transactions shall be exempt 5. Exempt Transactions. Sec, 109, Exempt Transactions, ‘added 2x: poration of agrcutural and marine food products in poraiyestoce and poultry ofa kind generally used as, sat cng foods for human consumption; and breeding ‘Stock and genetic materials therefor rtationoffertiizers; seeds, seedlings and fingerings; cluding ingredients, Code of the Philippines; Importation of professional instruments and implement 7 That vehicles, vessels, ‘Qoods for use in manufactures! iassfcation and shall therefore be subject 0 other charges, ‘Services subject to percentage tax under Tite V; Services by ag balay into rice, corn into, ‘contract growers and its and sugar cane in VALUE-ADDED Tax. - 1 (@) Medical, dental, hospital an fendered by professionals, "7 Y*"NAy services except those Spee tee tc lee et ste pa {and Skills Development Authorty (TESDA) and eens eaucaton () Services rendered by indvsuts pur employee relationship; eee es (2) Services rendered by reson or aes head Inthe. Philppines by "mutinatonal corporations heh os ae ‘supervisory, Communications and coordinating centers for affiliates, subsidiaries or branch the Asia-Pacific Regic ° ‘not earn or derive income from the ines; - () Transactions which are exempt under international agreement to which the Philippines isa sgnatory or under speci ons, except those under Presidential Decree No, 529; " (1) Sales by agrcutural cooperatives dy cei © Cooperative Developr ory members ob all ss spare parts thereat, 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 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; (0) Export sales by persons wio are not VAT-registered; (P) Sale of real properties not primaniy held for ordinary course of trade or Business o real cost and socialized housing as defined by herwise known as the Urban Devel 1992, and other related laws, five hundred thousand beginning January 1, 203 ‘only apply to sale of real properties not primarily held eea rc nane uss TAIN = A REVIEWER WITH CODALS AND CASES came oP 1 tat, er Taclaes hotang business Spepublic Act No. 7279, sale of house ar and other ce 727, tae thane rae "rovided, further, That every three (3) years ‘rv stated shall be adjusted to its pres thereafter, the amount ‘alue using the Consumer Price Index, Statistics Authority (PSA) Lease ofa residential ‘Reem trousane pesos (35 importation, printing or publication of books and any (8) Samora” review buetn which appears at reg eUSDaDe, Sa oso subsrpson and sae and which is ht sestas pip ete puesto of paid advertisement; ha monthly rental not exceeding carriers; “Transport of passengers by intern (1) Sale, importation or lease of passenger or cargo vessels and Birerat, including engine, equipment and spare parts thereot for 3nsport operations termediaries; the “Teanste of property pursuant to Section 40(C)(2) ofthe MIRC, n dues, membership fees, and other assessments and charges collected by homeowners associations and condominium corporations; Sale of gold tothe Bangko Sentral n inas (BSP); (AA) Sale or importation of prescription drugs and medicines for 1 glabetes, high cholesterl, and hypertension beai hing January , 2020; and ste} an Hypertension bea li) c2acer,_mental illness, tuberculosis, and kidney ‘iseases begining Tanvary 1.3023, neTUons 274 | VALUE-ADDED Tax, 353 Provided, that the DOH shal sue a ‘and medicines for this pur effectivity ofthis Act; and = "Nn Sb ist of approved dru bey (60) days from the Soe las ie eS pos pt rope eo bt erie be pe the amount of Three millon pesos (3,000,000) (Ac ane et TRAIN and further amended by RA. 11469) a or the performance of + VAT-exempt transactions refer tothe sae of goods and/or services and the use of lease of pripenes Hare ne subject to VAT (output tax) and the sel Is nt allowed any toe credit of VAT (input tax) on purchases. : e exempt sale of goods, properties or Ny Output tax to his customers because services shall not bi the said transaction is not subject to VAT. (RR. 16-2005) + The seller does not charge VAT and he CANNOT claim exer from what has been passed to him. on enpen + AVAT-registered person may elect that the exemptions shall not apply to his sales of goods or properties or services. © But once the election is made, it shall be irrevocable for a Period of three years counted from the quarter when the ‘lection was made. ‘+ Let's go through the VAT-exempt transactions: (based on R.R. 16-2005, unless otherwise indicated) (© Sale or importation of agricultural and marine food products in thelr original stat tock and poultry, and breeding stock and genetic mat stock" does not include fighting cocks, lude even if the products rocess of preparation or Polished and/or husked rice, corn grits, raw cane sugar lasses, ordinary salt and copra are considered ral food products in their original state. ‘Raw cane sugar” is the natural sugar extracted from sugarcane through simple mechanical process by pressing for the juice, boling it to crystallize, fitering Using 2 centrifuge to separate these crystals, and“TAX MADE LESS TAXING: [A REVIEWER WITH CODALS AND CASES arying—resulting to crystalized brown sugar. (pp 08-2015) all only refer to raw cane sugar produced fro, i sal ony Sage of iterng and centre conducting only Age process pled there agen eae rea, Only those eo} are exernp rom VAT, (Rae (2015) eee Seca teat Se cee ee eee, Tor tace horses, Rahting cocks, aquarium fish, 200 anime and other animals generally considered as pets, Importation of personal and household effects belonging gaat ot ecules reuenng fom auroed a re conti rosele® the Pipes Provided the goods are exert from cust dts es te on ond cstoms Cade othe Palppng Importation of professional instruments and_ implements, wearing apparel, domestic animals, and personal househa ‘effects (except goods for use in manufacture and ‘merchandise for any kind commercial quantity) + Belonging to people coming to settle in the Philippines and are not for sale; Services subject to percentage tax Services by agricultural contract growers and milling for ‘thers of palay into rice, corn into grits and sugar cane into raw sugar Agricultural contract growers are folks producing for other folks poultry livestock, or other agricultural and marine food products in their includes contract However, the processing and dressing se independently from growing poultry, livest Subject to VAT, as these services are separated from thé VaT-exempt act of growing. (RMC 097-10) Medical, dental, hospital and veterinary services, exe those rendered by professionals VALUE-ADDED Tax. 355 Ce ee : sega srs men drugs and medicine 7, Ned. But the hos 38 hospital ori Siew let A ealth care company ich arranges for the provision Of pre-need health ce to ts members NOT VaTecenpt ar tea See for medial serves, 1 dees not provide arenes services. (CIR v. Philippine Health Care E.R. No, 168129, Apr'24, 29g7y” oe Providers, In, Educational. services rendered Y pevate educational institutions, accredited by the DEPC,"Cnes, ema a those rendered by government educational Educational services do not include semi traini ‘merely provides and Services rendered by individuals pursuant to an employer- ‘employee relationship Services rendered by RAHQS ‘Transactions exempt under international agreements except those granted under PD. 529 or the Petroleum Exploration Concessionaires Sales by agricultural cooperatives duly registered and in good to their members, as well as sale of the produce to non- members Sale by agricultural cooperatives to non-members: ‘can only be exempted from VAT if the producer of the the those sales to its members shall be exempted from VAT. (RR. 4-2007) The sale or importation of agricultural food products in their original state is exempt from VAT irrespective of the seller and buyer thereof. (R.R. 4-2007) ‘To enjoy VAT exemption, the cooperative must Be registered with the CDA; and + Sell exclusively to its members, oF nonmembers, the + If it sells both to members and nonmembers, the sale must be ofits produce, whether in its originalIG: ‘TAX MADE LESS TAXING [AREVIEWER WITH CODALS AND CASES rocessed state. (CIR V. Asso December 7, 2016, where the cooperative fi ‘the exemption for raw sugy a the requisites for exemption) bn gr words gr a Co ed ae Gross receipts from lending activities by credit or mut. Se al eee ee ee + Provided, that share capital contribution of each member does not exceed P15,000 and regardless of the aggregate ‘capital and net surplus ratably distributed among the members; Export sales by persons who are not VAT-registered ‘Sale of real properties not primarily held for sale to customers (or held for lease in the ordinary course of trade or business; If the real property Is not primarily held for sale to customers or held for lease in the ordinary course o thereof shall be subject al to the taxpayer's main Sale of real properties utlized for low-cost housing * “Low-cost housing” refers to housing projects intended {for homeless low-income family beneficiaries, undertake" by the Government or private developers, which may either be a subdivision or a condominium registered 20 licensed by the HLURB. Sale of real properties utilized for socialized housing "Socialized housing” refers to housin: e jing. program: Projects covering houses and lots or home lots undertaken by the Government or the private secto the underprivileged and homeless citizens. \VALUE-ADDED Tax. (9 Sale of the following residential lot valued at P1,919,500 and below, or + house and lot and other resident ana eat esdentia Gwetings valued at (RR. 16: 200 16-2011, to be read with + If. two oF more adjacent resident lots or other resider a s, house and shall be exempt rom VAT onl ithe egpregote value of the lots donot exceed P1,819,500 or veo fts, and P3,199,200 fo or ther residenal dnengs. Adjacent es los, house and lots or other residential dwelings although covered by separate tes and/or seperare tax declarations, when sld or dsposed to one and the same buyer whether covered by one or separate shal be presumed a6 2 sale Tt, house and ots or residential Gweling, (A. 13-2042) + This does notinclude the for may not be parking lot which may separate and distin the rules on threshold amount not being a residential lot, house and lot or a residential dwelling. Thus, the sale Is subject to VAT regardless of the selling price. (RR. 13-2012) © Beginning 2021, the VAT exemption for the sale of real properties shall only apply to the: + sale of real properties nat primarily held for sale to Customers or held for lease in the ordinary course of trade or business; + sale of house an selling price of nat ‘every 3 years depending on the Consumer Pri © Lease of residential units where the monthly rental per of the amount Unit does not exceed P15,000, regardless of the amour of aggregate rentals received by the lessor during the year (RR 13-2018)358 XING: ‘TAX MADE LESS TA) ‘REVIEWER WITH CODALS AND CASES aunts where the the lease of residenti month, row yeror unit exceeds P15,000 but the aggregate a rental pets of the lessor during the year do Not exceqy such reas Of ice be exert Hom VAT. Howes 5,000,000 shal the ae pereeage tox. (Ri 2018) sa, iss than P35,000/month -> exempt nora se ‘iterations of this rule) ‘Residential units” shall refer to apartments and houses near in ge reer nurs, er Deon However, Sale, importation, printing or publication of books and any newspaper, magazine, review, or bulletin which appears a regular intervals with’ fixed prices for subscription and sale ‘and is not devoted principally to the publication of paid ads ‘Transport of passengers by international carriers The transport of cargo by international carriers is lke VAT-exempt as it is subject to percentage tax. (R.R. 2013) portation, or lease of passenger or cargo vessels and including engine, equipment and spare parts thereo! Or international transport operations; Provided, however, thatthe exemption from VAT on he md local purchase of passenger and/or cae be subject tothe requirements on etalon and mandatory vessel Drogram of MARINA. (RR. 15-2015) Importation of ful, goods and supplies by persons end In international shipping or ai transport operations, proved that such are used for international ir trans that such ‘or international shipping or air transpot ° ° ‘VALUE-ADDED Tax. - + Said fuel, goods and supp or should’ pertain to the rane passenger from a port in the Philippines oon Should be used exclusively Philippines directly toa forelan port. or vice versa, without dock at any other port in the Phi the docking or stoppin tae the Philippines uness the docking oy ne peti unloading passenger and/or cargoes hat org fo, Io to lead passer abroad. (RR. 4-2007) - "S #0" cargoes bound for + If any portion of such fue, goods of supplies for purposes other than that mentioned cs shah ea subject to 12% VAT. Services of banks, non-bank financial intermediaries performing quasi-banking functions, a rnon-t ertorning quae, bank Ns, and other non-bank Services proved, by sich intutes, the money changers or pownshops, ae subject to x (RR. 4-2007) : a Sale or lease of goods and services to senior citizens and PWDs ‘Transfers of property based on Section 40(C)(2) or tax-free exchanges + This includes the transfer of property to @ REIT in exchange for Its shares. (R.R. 03-2020) ‘Association dues, membership fees, and other assessments collected on a purely reimbursement basis by homeowners’ associations and condo corps established under either the ‘Magna Carta for Homeowners (R.A. 9904) or the Condo Act (R.A. 4726) For homeowners’ associations, note that the homeowners’ association has to present a certification from the LGU and other evidence that the association is providing basic services to its residents. (BIR Ruling No. 391-16, November 18, 2016, as related to RA. 9904) For condo corps, the association dues, membership fees, land other assessments are not collected in the course of trade or business, These are not subject to VAT. These are collected to maintain the common areas of the done for the Benet ofthe condo owners, It is not collected as a service fee for services provides by the condominium to the owners. (BIR v. First E-Bank Tower Condominium Corp., G.R. Nos. 215801 & 218924,“TAX MADE LESS TAXING: [A REVIEWER WITH CODALS AND CASES january 15, 2020, which invalidated the controversy RMC 65-2012) (0 Sale of gold to the BSP cancer, mental 3023), provided the exemption o ration by the manufacturers, ree reeer of arugs and medicines included Soproved drugs and medicines of the OOH I (R.R. © Sale or lease of goods or properties or the perfor Services other than the enumerated, the gross ann and/or receipts do not exceed P3,000,000. + So if gross annual sales and/or receipts do not exceeg 3,000,000, a person need not register as a VAT-taxpayer qualified self-employed individuals and professor ‘the 8% income tax on gross sales and/or receipts from 12% VAT. (RLR. 13-21 Are the ees, per diems, honoraria or allowances given to directors, of corporations exempt? ‘of an owner in the management ble for 3% percentage tax. (RMC 77-2008) \VAT-registered taxpayer erroneously imposes VAT on (oF @ VAT-exempt transaction? 1e basis of erroneously paid taxes. (CIR v. Acesite [Philippines] Hote! Corporation, G.R. No. 147295, February 7, where Acesite erroneously VAT to the BIR on a zero-rated transaction with PAGCOR.) ‘Are the following transactions subject to VAT? If yes, what is the applic rate fr each transaction State the relevant authonty/ies 2. Sonstruction by XYZ Construction Co. of concrete barriers fr {he Asian Development Bank in Ortigas Center to prevent car Doms fm ramming the ADB gates along ADB Avenue in Mandaliyond Call Center operated by : 'Y @ domestic enterprise in Makati that ‘handles exclusively the reservations of a hotel chain which are 3 VALUE-ADDED Tax. | re scr mi ag Ss ray Sale of orchids by @ flower Tagaytay. (2010 Bar Exam) Suggested answer: shop which eases ts flowers in 2, Zerovrated, as ths a service to an entity whose exemption Under interational agreements nec tesserae em 2, Zerovrated, a6 these are serces permed for 2 forign Corporation doing busines otsde the Pape po fe Carraney under the res and equations te 9 ._VAT-able, as orchids are not agricultural food products a ‘not exempt, dehted Karlito, a Filipino businessman, is engaged in the business of metal fabrication and repair of LPG cylinder tanks, He conducts business under the name and style of “Karlte’s Enterprises,” 8 ‘single proprietorship. Started only five (5) years ago, the business has grown so enormously that Karto decided to incorporate Ie by transferring all the assets ofthe business, particularly the inventory Karito. ‘As a result, Karlto’s Enterprises, the sole proprietorship, ceased {0 do business and applied for cancelation ofits BIR Certificate of to VAT on account of ‘market price of the assets transferred to Karito’s Enterpr Is the transfer subject to VAT? (2018 Bar Exam) together with others, not exceeding four (4) persons, gains contro of ‘ald corporation. Hence, It isnot subject t0 VAT.