under Section 105 of the Tax Code of 1997, 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 VAT imposed in Sections 106 to 108 of the same Tax Code.

VAT is a tax on consumption levied on the sale, barter, exchange or lease of goods or properties
and services in the Philippines and on importation of goods into the Philippines. This should be
understood to mean that the sale of goods and/or services takes place in the Philippines. Like any
other business tax, VAT is subject to the inherent limitation of taxation, among others, the
principle of territoriality — that is, taxation may be exercised only within the territorial
jurisdiction of that taxing authority. (Jose C. Vitug Tax Law and Jurisprudence, 1993, 3rd
Revised Edition, p. 9 citing 51 Am. Jur. 88) Accordingly, since the sale of the imported goods by
Siemens, Inc. took place outside the Philippines, the same shall not be subject to VAT. However,
Siemens, Inc. shall declare whatever income derived from the aforesaid sale as corporate income
tax under Section 27(A) of the Tax Code of 1997, as amended. April 3, 2006
BIR RULING [DA-203-06]

Under Section 108(A) of the Tax Code, as above cited, the phrase “sale of services” means the
performance of all kinds of services in the Philippines for others for a fee, remuneration or
consideration. Interpreting this provision, the BIR has ruled that for the VAT to apply, the sale of
goods and/or services should take place in the Philippines. Like any other business tax, VAT is
subject to the inherent limitation of taxation, among others, the principle of territoriality [BIR
Ruling No. 165-95, dated 23 October 1995; BIR Ruling No. 110-97, dated 23 October 1997; BIR
Ruling DA-ITAD 97-2005, dated 02 September 2005].

As previously discussed , the Licensee shall withhold the 12% VAT and claim the VAT withheld
as input tax upon filing his own VAT Return..
Thus, the BIR has ruled that Licensor is a non-resident foreign corporation, the Licensee shall be
obliged to withhold the 12% VAT in behalf of Licensor. The Licensee may thereafter claim the
VAT withheld as input tax upon filing his own VAT Return. In remitting the VAT withheld, the
Licensee as withholding agent shall use BIR Form No. 1600 Remittance Return of VAT and
Other Percentage Taxes Withheld. The duly filed BIR Form No. 1600 is the proof or
documentary substantiation for the claimed input tax or input VAT [Section 4.114-2 of RR No.
16-06].

RR 16-2005

" SECTION 4.113-1. Invoicing Requirements. —

(A) A VAT-registered person shall issue: —
(1) A VAT invoice for every sale, barter or exchange of goods or properties; and AHEDaI
(2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or
exchange of services.
Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their
invoice or official receipts. Said documents shall be considered as a "VAT Invoice" or VAT
official receipt. All purchases covered by invoices/receipts other than VAT Invoice/VAT Official
Receipt shall not give rise to any input tax.
VAT invoice/official receipt shall be prepared at least in duplicate, the original to be given to the
buyer and the duplicate to be retained by the seller as part of his accounting records.
(B) Information contained in VAT invoice or VAT official receipt. — The following
information shall be indicated in VAT invoice or VAT official receipt:
(1) A statement that the seller is a VAT-registered person, followed by his TIN;
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes the VAT; Provided, That:
(a) The amount of tax shall be shown as a separate item in the invoice or receipt;
(b) If the sale is exempt from VAT, 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%) VAT, the term "zero-rated sale" shall be written
or printed prominently on the invoice or receipt;
(d) If the sale involves 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 VAT on each portion of the sale shall be shown on the invoice or receipt. The
seller has the option to issue separate invoices or receipts for the taxable, exempt, and zero-rated
components of the sale.
(3) In the case of sales in the amount of one thousand pesos (P1,000.00) or more where the
sale or transfer is made to a VAT-registered person, the name, business style, if any, address and
TIN of the purchaser, customer or client, shall be indicated in addition to the information required
in (1) and (2) of this Section.