TRANSFER TAXES Case: Collector v.
Fisher, 1 SCRA 93
SITUS OF TRANSFER TAXES (SEC. 104, NIRC)
“Gross estate' and 'gifts' include real and personal
property, whether tangible or intangible, or mixed,
wherever situated.
a. Decedent or donor was a nonresident alien at the
time of his death or donation
- His real and personal property so transferred
but which are situated outside the Philippines
shall not be included as part of his 'gross
estate' or 'gross gift’
b. Franchise which must be exercised in the
Philippines;
- Situated in the Philippines
c. Shares, obligations or bonds issued by any
corporation or sociedad anonima organized or
constituted in the Philippines in accordance with its
laws;
- Situated in the Philippines
d. Shares, obligations or bonds by any foreign
corporation eighty-five percent (85%) of the
business of which is located in the Philippines;
- Situated in the Philippines
e. Shares, obligations or bonds issued by any foreign
corporation if such shares, obligations or bonds
have acquired a business situs in the Philippines;
- Situated in the Philippines
f. Shares or rights in any partnership, business or
industry established in the Philippines
- Situated in the Philippines
Provided, still further, that no tax shall be collected under
this Title in respect of intangible personal property:
(a) if the decedent at the time of his death or the donor at
the time of the donation was a citizen and resident of a
foreign country which at the time of his death or donation
did not impose a transfer tax of any character, in respect of
intangible personal property of citizens of the Philippines
not residing in that foreign country
EXEMPTION OF INTANGIBLE PERSONAL PROPERTY
BASED ON RECIPROCITY (SEC. 104, NIRC)
No tax shall be collected in respect of intangible personal
property if the laws of the foreign country of which the
decedent or donor was a citizen and resident at the time of
his death or donation allows a similar exemption from
transfer or death taxes of every character or description in
respect of intangible personal property owned by citizens
of the Philippines not residing in that foreign country.
INTANGIBLE PROPERTIES CONSIDERED SITUATED IN
THE PHILIPPINES (SEC. 104, NIRC)
1. Franchise which must be exercised in the
Philippines;
2. Shares, obligations or bonds issued by any
corporation or sociedad anonima organized or
constituted in the Philippines in accordance with
its laws;
3. Shares, obligations or bonds by any foreign
corporation eighty-five percent (85%) of the
business of which is located in the Philippines;
4. Shares, obligations or bonds issued by any foreign
corporation if such shares, obligations or bonds
have acquired a business situs in the Philippines;
5. Shares or rights in any partnership, business or
industry established in the Philippines
Mobilia sequuntur personam
It literally means "movables follow the person" or
"movables follow the owners." So, the domicile of the
owner is deemed the situs of intangible personal property.
It must be remembered, however, that tangible property
may acquire situs elsewhere provided it has a definite
location there with some degree of permanency.
Note: Intangible personal properties are in effect
exceptions to this rule.
Such doctrine has been decreed as a mere "fiction of law
having its origin in considerations of general convenience
and public policy and cannot be applied to limit or control
the right of the State to tax property' within its
jurisdiction," and must "yield to established fact of legal
ownership, actual presence and control elsewhere, and
cannot be applied if to do so would result in inescapable
and patent injustice." (Wells Fargo Bank vs. Collector (70
Phil. 505)
ESTATE TAXES
(Sections 84-97, RA 8424)
BASES OF ESTATE TAXATION
Estate tax is an excise tax imposed upon the privilege of
transmitting property at the time of death and on the
privilege that a person is given in controlling to a certain
extent the disposition of his property to take effect upon
death. Estate tax laws rest in their essence upon the
principle that death is the generating source from which
the taxing power takes its being, and that it is the power to
transmit or the transmission from the dead to the living on
which the tax is more immediately based. (Lorenzo v.
Posadas, G.R. No. 43082, June 18, 1937)
Inheritance tax is a tax imposed on the legal right or
privilege to succeed to, receive or take property her or
under a will, intestacy law, or deed, grant or gift becoming
operative at or after the death.
(Lorenzo v. Posadas, G.R. No. 43082, June 18, 1937)
COMPOSITION/VALUATION OF GROSS ESTATE (SEC.
85)
Gross Estate - The value of the gross estate of the
decedent shall be determined by including the value at the
time of his death of all property, real or personal, tangible
or intangible, wherever situated: Provided, however, that
in the case of a nonresident decedent who at the time of his
death was not a citizen of the Philippines, only that part of
the entire gross estate which is situated in the Philippines
shall be included in his taxable estate.
Decedent’s interest in property
To the extent of the interest therein of the decedent at the
time of his death
Transfers in contemplation of death
To the extent of any interest therein of which the decedent
has at any time made a transfer, by trust or otherwise, in
contemplation of or intended to take effect in possession
or enjoyment at or after death, or of which he has at any
time made a transfer, by trust or otherwise, under which
he has retained for his life or for any period which does not
in fact end before his death (1) the possession or
enjoyment of, or the right to the income from the property,
or (2) the right, either alone or in conjunction with any
person, to designate the person who shall possess or enjoy
the property or the income therefrom; except in case of a
bona fide sale for an adequate and full consideration in
money or money's worth.
Cases:
When the donor makes his will within a short time of, or
simultaneously with, the making of gifts, the gifts are
considered as having been made in contemplation of
death. (Vidal de Roces vs. Posadas)
Dizon vs. Posadas (57 Phil. 465)
Revocable transfers
(1) To the extent of any interest therein, of which the
decedent has at any time made a transfer (except in case of
a bona fide sale for an adequate and full consideration in
money or money's worth) by trust or otherwise, where the
enjoyment thereof was subject at the date of his death to
any change through the exercise of a power (in whatever
capacity exercisable) by the decedent alone or by the
decedent in conjunction with any other person (without
regard to when or from what source the decedent acquired
such power), to alter, amend, revoke, or terminate, or
where any such power is relinquished in contemplation of
the decedent's death.
(2) For the purpose of this Subsection, the power to alter,
amend or revoke shall be considered to exist on the date of
the decedent's death even though the exercise of the
power is subject to a precedent giving of notice or even
though the alteration, amendment or revocation takes
effect only on the expiration of a stated period after the
exercise of the power, whether or not on or before the date
of the decedent's death notice has been given or the power
has been exercised. In such cases, proper adjustment shall
be made representing the interests which would have been
excluded from the power if the decedent had lived, and for
such purpose if the notice has not been given or the power
has not been exercised on or before the date of his death,
such notice shall be considered to have been given, or the
power exercised, on the date of death.
Property passing under general power of
appointment
To the extent of any property passing under a general
power of appointment exercised by the decedent: (1) by
will, or (2) by deed executed in contemplation of, or
intended to take effect in possession or enjoyment at, or
after his death, or (3) by deed under which he has retained
for his life or any period not ascertainable without
reference to his death or for any period which does not in
fact end before his death (a) the possession or enjoyment
of, or the right to the income from, the property, or (b) the
right, either alone or in conjunction with any person, to
designate the persons who shall possess or enjoy the
property or the income therefrom; except in case of a bona
fide sale for an adequate and full consideration in money
or money's worth.
Proceeds of life insurance
To the extent of the amount receivable by the estate of the
deceased, his executor, or administrator, as insurance
under policies taken out by the decedent upon his own life,
irrespective of whether or not the insured retained the
power of revocation, or to the extent of the amount
receivable by any beneficiary designated in the policy of
insurance, except when it is expressly stipulated that the
designation of the beneficiary is irrevocable.
Prior interests
Except as otherwise specifically provided therein,
Subsections (B), (C) and (E) of this Section shall apply to
the transfers, trusts, estates, interests, rights, powers and
relinquishment of powers, as severally enumerated and
described therein, whether made, created, arising, existing,
exercised or relinquished before or after the effectivity of
this Code.
Transfers for insufficient consideration
If any one of the transfers, trusts, interests, rights or
powers enumerated and described in Subsections (B), (C)
and (D) of this Section is made, created, exercised or
relinquished for a consideration in money or money's
worth, but is not a bona fide sale for an adequate and full
consideration in money or money's worth, there shall be
included in the gross estate only the excess of the fair
market value, at the time of death, of the property
otherwise to be included on account of such transaction,
over the value of the consideration received therefor by
the decedent.
Capital of the Surviving Spouse
The capital of the surviving spouse of a decedent shall not,
for the purpose of this Chapter, be deemed a part of his or
her gross estate.
DEDUCTIONS FROM THE GROSS ESTATE (SEC. 86),
A. Deductions Allowed to the Estate of Citizen or a
Resident. -
Claims against the estate
At the time of indebtedness was incurred that debt
instrument was duly notarized and, if the loan was
contracted within three (3) years before the death of the
decedent, the administrator or executor shall submit a
statement showing the disposition of the proceeds of the
loan.
Requisites for deductibility:
1. It must be a personal obligation of the deceased
existing at the time of his death except those
incurred incidental to his death such as unpaid
funeral expenses and unpaid medical expenses.
2. The liability was contracted in good faith and for
adequate and full consideration in money or
money’s worth.
3. Debt or claim must be valid and enforceable in
court.
4. Indebtedness not condoned by the creditor or the
action to collect from the decedent must not have
prescribed.
5. It must be duly substantiated.
Claims against insolvent persons
For claims of the deceased against the insolvent persons
where the value of decedent’s interest therein is included
in the value of the gross estate.
Requisites for deductibility
1. The full amount of the receivables be included
first in the gross estate.
2. The incapacity of the debtors to pay their
obligation is proven not merely alleged.
Unpaid mortgages
For unpaid mortgages upon, or any indebtedness in
respect to, property where the value of decedent’s interest
therein, undiminished by such mortgage or indebtedness,
is included in the value of the gross estate, but not
including any income tax upon income received after the
death of the decedent, or property taxes not accrued
before his death, or any estate tax. The deduction herein
allowed in the case of claims against the estate, unpaid
mortgages or any indebtedness shall, when founded upon
a promise or agreement, be limited to the extent that they
were contracted bona fide and for an adequate and full
consideration in money or money’s worth.
Requisites for deductibility:
1. The value of the property to the extent of the
decedent’s interest therein, undiminished by such
mortgage or indebtedness is included in the gross
estate.
2. The mortgage indebtedness was contracted in
good faith and for an adequate and full
consideration in money or money’s worth.
Casualty losses
There shall also de deducted losses incurred during the
settlement of the estate arising from fires, storms,
shipwreck, or other casualties, or from robbery, theft, or
embezzlement, when such losses are not compensated for
by insurance or otherwise, and if at the time of the filing of
the return such losses have not been claimed as deduction
for the income tax purposes in an income tax return, and
provided that such losses were incurred not later than the
last day for the payment of the estate tax as prescribed in
Subsection (A) of Section 91.
Requisites for deductibility:
A. Allowed as deductions from the gross estate of RC,
NRC, and RA decedent provided that they:
1. Were incurred during the settlement of the
estate
2. Arise from fire, storm, shipwreck, or other
casualties, or from robbery, theft, or
embezzlement
3. Not compensable (No insurance)
4. Not claimed as a deduction from income tax
5. Incurred not later than the last day or any
extension thereof for payment of the estate
tax.
B. Allowed as deductions from the gross estate of
NRA decedent:
- The same items herein shall be allowed as
deduction but only the proportion of such
deductions which the value of his gross estate
in the Philippines bears to the value of his
entire gross estate, wherever situated shall be
deducted.
Property previously taxed (vanishing deduction)
An amount equal to the value specified below of any
property forming part of the gross estate situated in the
Philippines of any person who died within five (5) years
prior to the death of the decedent, or transferred to the
decedent by gift within five (5) years prior to his death,
where such property can be identified as having been
received by the decedent from the donor by gift, or from
such prior decedent by gift, bequest, devise or inheritance,
or which can be identified as having been acquired in
exchange for property so received:
Rate of deduction
This depends on the period reckoned from the date of
transfer (death of prior decedent) to the death of the
decedent.
PERIOD DEDUCTION
1 day to 1 year 100%
 1 year and 1 day to 2 years 80%
2 years and 1 day to 3 60%
years
3 years and 1 day to 4 40%
years
4 years and 1 day to 5 20%
years
More than 5 years No deduction allowed
These deductions shall be allowed only where a donor's
tax or estate tax imposed under this Title was finally
determined and paid by or on behalf of such donor, or the
estate of such prior decedent, as the case may be, and only
in the amount finally determined as the value of such
property in determining the value of the gift, or the gross
estate of such prior decedent, and only to the extent that
the value of such property is included in the decedent's
gross estate, and only to the extent that the value of such
property is included in the decedent’s gross estate, and
only if in determining the value of the estate of the prior
decedent, no deduction was allowable under paragraph (5)
in respect of the property or properties given in exchange
therefor. Where a deduction was allowed of any mortgage
or other lien in determining the donor's tax, or the estate
tax of the prior decedent, which was paid in whole or in
part prior to the decedent's death, then the deduction
allowable under said Subsection shall be reduced by the
amount so paid. Such deduction allowable shall be reduced
by an amount which bears the same ratio to the amounts
allowed as deductions under paragraphs (2), (3), (4) and
(6) of this Subsection as the amount otherwise deductible
under said paragraph (5) bears to the value of the
decedent's estate. Where the property referred to consists
of two or more items, the aggregate value of such items
shall be used for the purpose of computing the deduction.
Requisites for deductibility:
1. Present decedent died within 5 years from receipt
of property from a prior decedent or donor.
2. The property formed part of the gross estate
situated in the Philippines of the prior decedent or
was a taxable gift of the donor.
3. The estate tax on the prior succession or donor’s
tax must have been paid.
4. The property must be identified as the one
received or acquired.
5. No vanishing deduction was allowed on the same
property on the prior decedent’s estate.
Transfers for public use
The amount of all the bequests, legacies, devises or
transfers to or for the use of the Government of the
Republic of the Philippines, or any political subdivision
thereof, for exclusively public purposes.
Requisites for deductibility:
1. The disposition is in a last will and testament.
2. To take effect after death.
3. In favor of the government of the Philippines or
any political subdivision thereof;
4. For exclusive public purposes;
5. The value of the property given is included in the
gross estate.
Family home
Amount equivalent to the current fair market value of the
decedent's family home: Provided, however, That if the
said current fair market value exceeds Ten million pesos
(P10, 000,000), the excess shall be subject to estate tax.
Requisites for deductibility:
1. The family home must be the actual residential
home of the decedent and his family at the time of
his death, as certified by the Barangay Captain of
the locality where the family home is situated.
2. The total value of the family home must be
included as part of the gross estate
3. Allowable deduction must be in the amount
equivalent to:
a. The current FMV of the family home as
declared or included in the gross estate,
or
b. The extent of the decedent’s interest
(whether conjugal/community or
exclusive property)
4. The deduction does not exceed P10,000,000
Standard deduction
An amount equivalent to P5,000,000.
Amount received by heirs under R.A. 4917
Any amount received by the heirs from the decedent’s
employee as a consequence of the death of the decedent-
employee in accordance with Republic Act No. 4917:
Provided, That such amount is included in the gross estate
of the decedent.
Requisites for deductibility:
1. Amounts received by heirs from decedent’s
employer;
2. Received as a consequence of death of the
decedent-employee;
3. Amount is included in the gross estate of the
decedent.
B. Deductions Allowed To Nonresident Estates
In the case of a nonresident not a citizen of the Philippines,
by deducting from the value of that part of his gross estate
which at the time of his death is situated in the Philippines:
Standard Deduction
An amount equivalent to P500,000
Claims against the estate, Unpaid mortgage, Claims
against Insolvent persons, Casualty losses
Proportion of gross estate in the Philippines over the
worldwide gross estate
Transfers for Public Use
The amount of all bequests, legacies, devises or transfers
to or for the use of the Government of the Republic of the
Philippines or any political subdivision thereof, for
exclusively public purposes.
EXEMPTIONS AND EXCLUSIONS
Property excluded from gross estate
1. Exclusive property (capital/paraphernal) of
surviving spouses (Sec 85 (h), NIRC)
2. Property outside Philippines of NRA decedent.
3. Intangible personal property in the Philippines of
NRA decedent provided there is reciprocity
4. Benefits received by members from the GSIS and
SSS by reason of death
5. Amounts received from the Philippine and US
governmentsfor damages suffered during the last
war (RA 227)
6. Benefits received by beneficiaries residing in the
PH under law administered by the US Veterans
Administration (RA 360)
7. Grants and donations to the Intramuros
Administration (PD 1616)
Exemption of certain acquisitions and transmissions
(Sec. 87)
The following shall not be taxed:
a. The merger of usufruct in the owner of the naked
title;
b. The transmission or delivery of the inheritance or
legacy by the fiduciary heir or legatee to the
fideicommissary
c. The transmission from the first heir, legatee or
donee in favor of another beneficiary, in
accordance with the desire of the predecessor; and
d. All bequests, devises, legacies or transfers to social
welfare, cultural and charitable institutions, no part
of the net income of which inures to the benefit of
any individual: Provided, however, That not more
than thirty percent (30%) of the said bequests,
devises, legacies or transfers shall be used by such
institutions for administration purposes.
Capital of the surviving spouse
The capital of the surviving spouse of a decedent shall not,
for the purpose of this Chapter, be deemed a part of his or
her gross estate.
ADMINISTRATIVE PROVISIONS ON ESTATE TAXES
(SEC. 89-97, NIRC)
SEC. 89. REPEALED
SEC. 90. Estate Tax Returns.-
(A) Requirements. - In all cases of transfers subject to the
tax imposed herein, or regardless of the gross value of the
estate, where the said estate consists of registered or
registrable property such as real property, motor vehicle,
shares of stock or other similar property for which a
clearance from the Bureau of Internal Revenue is required
as a condition precedent for the transfer of ownership
thereof in the name of the transferee, the executor, or the
administrator, or any of the legal heirs, as the case may be,
shall file a return under oath in duplicate, setting forth:
(1) The value of the gross estate of the decedent at the
time of his death, or in case of a nonresident, not a citizen
of the Philippines, of that part of his gross estate situated
in the Philippines;
(2) The deductions allowed from gross estate in
determining the estate as defined in Section 86; and
(3) Such part of such information as may at the time be
ascertainable and such supplemental data as may be
necessary to establish the correct taxes.
Provided, however, That estate tax returns showing a
gross value exceeding Five million pesos (P5,000,000)
shall be supported with a statement duly certified to by a
Certified Public Accountant containing the following:
(a) Itemized assets of the decedent with their
corresponding gross value at the time of his death, or in
the case of a nonresident, not a citizen of the Philippines, of
that part of his gross estate situated in the Philippines;
(b) Itemized deductions from gross estate allowed in
Section 86; and
(c) The amount of tax due whether paid or still due and
outstanding.
(B) Time for Filing. [4]- For the purpose of determining the
estate tax provided for in Section 84 of this Code, the estate
tax return required under the preceding Subsection (A)
shall be filed within one (1) year from the decedent's
death.
A certified copy of the schedule of partition and the order
of the court approving the same shall be furnished the
Commissioner within thirty (30) days after the
promulgation of such order.
(C) Extension of Time. - The Commissioner shall have
authority to grant, in meritorious cases, a reasonable
extension not exceeding thirty (30) days for filing the
return.
(D) Place of Filing. - Except in cases where the
Commissioner otherwise permits, the return required
under Subsection (A) shall be filed with an authorized
agent bank, or Revenue District Officer, Collection Officer,
or duly authorized Treasurer of the city or municipality in
which the decedent was domiciled at the time of his death
or if there be no legal residence in the Philippines, with the
Office of the Commissioner.
SEC. 91. Payment of Tax. -
(A) Time of Payment. - The estate tax imposed by Section
84 shall be paid at the time the return is filed by the
executor, administrator or the heirs.
(B) Extension of Time. - When the Commissioner finds that
the payment on the due date of the estate tax or of any part
thereof would impose undue hardship upon the estate or
any of the heirs, he may extend the time for payment of
such tax or any part thereof not to exceed five (5) years, in
case the estate is settled through the courts, or two (2)
years in case the estate is settled extrajudicially.
In such case, the amount in respect of which the extension
is granted shall be paid on or before the date of the
expiration of the period of the extension, and the running
of the Statute of Limitations for assessment as provided in
Section 203 of this Code shall be suspended for the period
of any such extension.
Where the taxes are assessed by reason of negligence,
intentional disregard of rules and regulations, or fraud on
the part of the taxpayer, no extension will be granted by
the Commissioner.
If an extension is granted, the Commissioner may require
the executor, or administrator, or beneficiary, as the case
may be, to furnish a bond in such amount, not exceeding
double the amount of the tax and with such sureties as the
Commissioner deems necessary, conditioned upon the
payment of the said tax in accordance with the terms of the
extension.
(C) Payment by Installment. – In case the available cash of
the estate is insufficient to pay the total estate tax due,
payment by installments shall be allowed within two (2)
years from the statutory date for its payment without civil
penalty and interest. [79]
(D) Liability for Payment - The estate tax imposed by
Section 84 shall be paid by the executor or administrator
before delivery to any beneficiary of his distributive share
of the estate. Such beneficiary shall to the extent of his
distributive share of the estate, be subsidiarily liable for
the payment of such portion of the estate tax as his
distributive share bears to the value of the total net estate.
For the purpose of this Chapter, the term 'executor' or
'administrator' means the executor or administrator of the
decedent, or if there is no executor or administrator
appointed, qualified, and acting within the Philippines,
then any person in actual or constructive possession of any
property of the decedent.
SEC. 92. Discharge of Executor or Administrator from
Personal Liability. - If the executor or administrator makes
a written application to the Commissioner for
determination of the amount of the estate tax and
discharge from personal liability therefore, the
Commissioner (as soon as possible, and in any event
within one (1) year after the making of such application, or
if the application is made before the return is filed, then
within one (1) year after the return is filed, but not after
the expiration of the period prescribed for the assessment
of the tax in Section 203 shall not notify the executor or
administrator of the amount of the tax. The executor or
administrator, upon payment of the amount of which he is
notified, shall be discharged from personal liability for any
deficiency in the tax thereafter found to be due and shall
be entitled to a receipt or writing showing such discharge.
SEC. 93. Definition of Deficiency. - As used in this Chapter,
the term 'deficiency' means:
(a) The amount by which the tax imposed by this Chapter
exceeds the amount shown as the tax by the executor,
administrator or any of the heirs upon his return; but the
amounts so shown on the return shall first be increased by
the amounts previously assessed (or collected without
assessment) as a deficiency and decreased by the amount
previously abated, refunded or otherwise repaid in respect
of such tax; or
(b) If no amount is shown as the tax by the executor,
administrator or any of the heirs upon his return, or if no
return is made by the executor, administrator, or any heir,
then the amount by which the tax exceeds the amounts
previously assessed (or collected without assessment) as a
deficiency; but such amounts previously assessed or
collected without assessment shall first be decreased by
the amounts previously abated, refunded or otherwise
repaid in respect of such tax.
SEC. 94. Payment before Delivery by Executor or
Administrator. - No judge shall authorize the executor or
judicial administrator to deliver a distributive share to any
party interested in the estate unless a certification from
the Commissioner that the estate tax has been paid is
shown.
SEC. 95. Duties of Certain Officers and Debtors. -
Registers of Deeds shall not register in the Registry of
Property any document transferring real property or real
rights therein or any chattel mortgage, by way of gifts inter
vivos or mortis causa, legacy or inheritance, unless a
certification from the Commissioner that the tax fixed in
this Title and actually due thereon had been paid is show,
and they shall immediately notify the Commissioner,
Regional Director, Revenue District Officer, or Revenue
Collection Officer or Treasurer of the city or municipality
where their offices are located, of the nonpayment of the
tax discovered by them. Any lawyer, notary public, or any
government officer who, by reason of his official duties,
intervenes in the preparation or acknowledgment of
documents regarding partition or disposal of donation
inter vivos or mortis causa, legacy or inheritance, shall
have the duty of furnishing the Commissioner, Regional
Director, Revenue District Officer or Revenue Collection
Officer of the place where he may have his principal office,
with copies of such documents and any information
whatsoever which may facilitate the collection of the
aforementioned tax. Neither shall a debtor of the deceased
pay his debts to the heirs, legatee, executor or
administrator of his creditor, unless the certification of the
Commissioner that the tax fixed in this Chapter had been
paid is shown; but he may pay the executor or judicial
administrator without said certification if the credit is
included in the inventory of the estate of the deceased.
SEC. 96. Restitution of Tax Upon Satisfaction of
Outstanding Obligations. - If after the payment of the
estate tax, new obligations of the decedent shall appear,
and the persons interested shall have satisfied them by
order of the court, they shall have a right to the restitution
of the proportional part of the tax paid.
SEC. 97. Payment of Tax Antecedent to the Transfer of
Shares, Bonds or Rights.- There shall not be transferred
to any new owner in the books of any corporation,
sociedad anonima, partnership, business, or industry
organized or established in the Philippines any share,
obligation, bond or right by way of gift inter vivos or
mortis causa, legacy or inheritance, unless a certification
from the Commissioner that the taxes fixed in this Title
and due thereon have been paid is shown.
If a bank has knowledge of the death of a person, who
maintained a bank deposit account alone, or jointly with
another, it shall allow any withdrawal from the said
deposit account, subject to a final withholding tax of six
percent (6%). For this purpose, all withdrawal slips shall
contain a statement to the effect that all of the joint
depositors are still living at the time of withdrawal by any
one of the joint depositors and such statement shall be
under oath by the said depositors.
Cases:
i. Marcos II vs. Court of Appeals 273 SCRA 47
ii. Dizon vs. Court of Tax Appeals GR No. 140944, April
20, 2008
DONOR’S TAXES
(Sections 98-104, RA 8424)
Purpose of donor’s tax
Imposition of gift tax
(A) There shall be levied, assessed, collected and paid upon
the transfer by any person, resident or nonresident, of the
property by gift, a tax, computed as provided in Section 99.
(B) The tax shall apply whether the transfer is in trust or
otherwise, whether the gift is direct or indirect, and
whether the property is real or personal, tangible or
intangible. (Sec. 98)
Computation of donor’s tax
Rates of Tax Payable by Donor
GR: The tax for each calendar year shall be 6% computed
on the basis of the total gifts in excess of P250,000 exempt
gift made during the calendar year.
XPN: Any contribution in cash or in kind to any candidate,
political party or coalition of parties for campaign
purposes shall be governed by the Election Code, as
amended. (Sec. 99)
Invalid donations
CIVIL CODE
Article 739. The following donations shall be void:
1. Those made between persons who were guilty of
adultery or concubinage at the time of the donation;
2. Those made between persons found guilty of the
same criminal offense, in consideration thereof;
3. Those made to a public officer or his wife,
descendants and ascendants, by reason of his office.
In the case referred to in No. 1, the action for declaration of
nullity may be brought by the spouse of the donor or
donee; and the guilt of the donor and donee may be proved
by preponderance of evidence in the same action.
Article 748. The donation of a movable may be made
orally or in writing.
An oral donation requires the simultaneous delivery of the
thing or of the document representing the right donated.
If the value of the personal property donated exceeds five
thousand pesos, the donation and the acceptance shall be
made in writing. Otherwise, the donation shall be void.
Article 749. In order that the donation of an immovable
may be valid, it must be made in a public document,
specifying therein the property donated and the value of
the charges which the donee must satisfy.
The acceptance may be made in the same deed of donation
or in a separate public document, but it shall not take effect
unless it is done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the
donor shall be notified thereof in an authentic form, and
this step shall be noted in both instruments
FAMILY CODE
Article. 87. Every donation or grant of gratuitous
advantage, direct or indirect, between the spouses during
the marriage shall be void, except moderate gifts which the
spouses may give each other on the occasion of any family
rejoicing. The prohibition shall also apply to persons living
together as husband and wife without a valid marriage.
REVISED CORPORATION CODE
Section. 35. Corporate Powers and Capacity. – Every
corporation incorporated under this Code
has the power and capacity:
 i. To make reasonable donations, including
those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar
purposes: Provided, That no foreign
corporation shall give donations in aid of any
political party or candidate or for purposes of
partisan political activity
Political contributions
(Abello v. CIR, GR No. 120721, February 23, 2005)
Condonation of debt
Forgiveness of indebtedness. — The cancellation and
forgiveness of indebtedness may amount to a payment of
income, to a gift, or to a capital transaction, dependent
upon the circumstances. If, for example, an individual
performs services for a creditor, who, in consideration
thereof cancels the debt, income to that amount is realized
by the debtor as compensation for his services. If, however,
a creditor merely desires to benefit a debtor and without
any consideration therefor cancels the debt, the amount of
the debt is a gift from the creditor to the debtor and need
not be included in the latter's gross income. If a
corporation to which a stockholder is indebted forgives the
debt, the transaction has the effect of the payment of a
dividend. (Sec. 50, RR 02-40)
Renunciation of an heir and accretion
Renunciation by the surviving spouse of his/her share in
the conjugal partnership or absolute community after the
dissolution of the marriage in favor of the heirs of the
deceased spouse or any other person/s is subject to
donor’s tax whereas general renunciation by an heir,
including the surviving spouse, of his/her share in the
hereditary estate left by the decedent is not subject to
donor’s tax, unless specifically and categorically done in
favor of identified heir/s to the exclusion or disadvantage
of the other co-heirs in the hereditary estate. (RR 2-2003)
Transfer for less than adequate and full consideration
Where property, other than real property referred to in
Section 24(D), is transferred for less than an adequate and
full consideration in money or money's worth, then the
amount by which the fair market value of the property
exceeded the value of the consideration shall, for the
purpose of the tax imposed by this Chapter, be deemed a
gift, and shall be included in computing the amount of gifts
made during the calendar year. Provided, however, That a
sale, exchange, or other transfer of property made in the
ordinary course of business (a transaction which is a bona
fide, at arm’s length, free from any donative intent), will be
considered as made for an adequate and full consideration
in money or money’s worth. (Sec. 100, NIRC)
Exempt donations (Sec. 101)
The following gifts or donations shall be exempt from the
tax provided for in this Chapter:
(A) In the Case of Gifts Made by a Resident
(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
said Government; and
(2) Gifts in favor of an educational and/or charitable,
religious, cultural or social welfare corporation, institution,
accredited nongovernment organization, trust or
philanthropic organization or research institution or
organization: Provided, however, That not more than thirty
percent (30%) of said gifts shall be used by such donee for
administration purposes. For the purpose of this
exemption, a 'non-profit educational and/or charitable
corporation, institution, accredited nongovernment
organization, trust or philanthropic organization and/or
research institution or organization' is a school, college or
university and/or charitable corporation, accredited
nongovernment organization, trust or philanthropic
organization and/or research institution or organization,
incorporated as a non-stock entity, paying no dividends,
governed by trustees who receive no compensation, and
devoting all its income, whether students' fees or gifts,
donation, subsidies or other forms of philanthropy, to the
accomplishment and promotion of the purposes
enumerated in its Articles of Incorporation.
(B) In the Case of Gifts Made by a Nonresident not a Citizen
of the Philippines. –
(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
said Government.
(2) Gifts in favor of an educational and/or charitable,
religious, cultural or social welfare corporation, institution,
foundation, trust or philanthropic organization or research
institution or organization: Provided, however, That not
more than thirty percent (30%) of said gifts shall be used
by such donee for administration purposes.
Tax credit
(C)Tax Credit for Donor's Taxes Paid to a Foreign Country.–
(1) In General. - The tax imposed by this Title upon a donor
who was a citizen or a resident at the time of donation
shall be credited with the amount of any donor's tax of any
character and description imposed by the authority of a
foreign country.
(2) Limitations on Credit. - The amount of the credit taken
under this Section shall be subject to each
of the following limitations:
(a) The amount of the credit in respect to the tax paid to
any country shall not exceed the same proportion of the
tax against which such credit is taken, which the net gifts
situated within such country taxable under this Title bears
to his entire net gifts; and
(b) The total amount of the credit shall not exceed the
same proportion of the tax against which such credit is
taken, which the donor's net gifts situated outside the
Philippines taxable under this title bears to his entire net
gifts.
Tax return (time of filing and payment)
SEC. 103. Filing of Return and Payment of Tax. -
(A) Requirements. - any individual who makes any transfer
by gift (except those which, under Section 101, are exempt
from the tax provided for in this Chapter) shall, for the
purpose of the said tax, make a return under oath in
duplicate. The return shall set forth:
(1) Each gift made during the calendar year which is to be
included in computing net gifts;
(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 regulations made pursuant to law.
(B)Time and Place of Filing and Payment -The return of the
donor required in this Section shall be filed within thirty
(30) days after the date the gift is made and the tax due
thereon shall be paid at the time of filing. Except in cases
where the Commissioner otherwise permits, the return
shall be filed and the tax paid to an authorized agent bank,
the Revenue District Officer, Revenue Collection Officer or
duly authorized Treasurer of the city or municipality
where the donor was domiciled at the time of the transfer,
or if there be no legal residence in the Philippines, with the
Office of the Commissioner. In the case of gifts made by a
nonresident, the return may be filed with the Philippine
Embassy or Consulate in the country where he is domiciled
at the time of the transfer, or directly with the Office of the
Commissioner.
VALUE ADDED TAX
(Sec. 105-Sec. 112 as amended by RA 9337)
Objectives of VAT
Characteristics of VAT and Philippine VAT System
1. It is an indirect tax.
The amount of tax maybe shifted or passed on by
the seller to the buyer, transferee, or lessee of
goods, properties, or services (Sec, 105)
2. It is a tax imposed on value added to goods
properties or services of a taxpayer.
3. It is a transparent form of sales tax.
The law requires that the tax be shown as a
separate item in the VAT invoice or receipt.
4. It is a broad-based tax on consumption imposed on
all stages of taxable sale but the burden rests with
the final consumer who consumes the goods,
properties, or services in the Philippines.
5. It is collected through the tax credit method
(Invoice Method)
Input taxes shifted by the sellers to the buyer are
credited against the buyer’s output taxes when he
in turn sells the taxable goods, properties or
service.
6. It adopts the “tax-inclusive method”.
Unless otherwise stated, any price charged by a
VAT registered person shall be deemed to include
the VAT charged.
7. It follows the Destination Principle/Cross Border
Doctrine
Goods and services are taxed only in the country
where these are consumed. No VAT shall be
imposed to form part of the cost of the goods
destined for consumption outside the territorial
border of the taxing authority.
8. It does not cascade (tax on tax), hence, there is no
tax pyramiding
9. It adopts the “catching up principle” or
“recoupment principle”
VAT foregone in a prior exempt transaction may be
recovered from the succeeding customer liable to
VAT.
10. It is a regressive tax.
The principle of progressive taxation has no
relation with the VAT system inasmuch as the VAT
paid by the consumer or business for every goods
bought or services enjoyed is the same regardless
of income (Abakada Guro Party List vs. Ermita GR
No. 168730, September 1, 2005)
CIR vs. Magsaysay Lines G.R. No. 146984, July 28, 2006
CIR vs. Toshiba Information Equipment PHils, GR No.
150154, August 9, 2005
Purposes and objectives of VAT
Persons and transactions subject to VAT
1. Any person who in the course of trade or business:
b. Sells, barters, or exchanges, leases goods
or properties; or
c. Renders services
Exception: A person, whether or not VAT-registered,
whose annual gross sales or receipts does not exceed P3M
shall not be liable to VAT, but instead he shall be liable for
the 3% percentage tax, unless he opted to be registered as
a VAT person.
 2. Any person who imports goods
In the course of trade or business (Rule of regularity)
Regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental thereto, by any
persons regardless of whether or not the person engaged
therein is a nonstock, non profit private organization
(irrespective of the disposition of its net income and
whether or not it sells exclusively to members or their
guests), or government entity (Sec 105)
Transactions deemed sale
1. Transfer, use or consumption not in the course of
business of goods or properties originally intended
for sale or for use in the course of business;
2. Distribution or transfer to:
a. Shareholders or investors as share in the
profits of the VAT-registered persons; or
b. Creditors in payment of debt;
3. Consignment of goods if actual sale is not made
within sixty (60) days following the date such
goods were consigned; and
4. Retirement from or cessation of business, with
respect to inventories of taxable goods existing as
of such retirement or cessation.
VAT registration requirement
VAT TAX RATES AND TAX BASES
1. VAT on Sale of Goods and Properties
There shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, VAT equivalent
to 12% of the gross selling price or gross value in
money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor.
(Sec 106 [a])
Zero percent tax rate
The following sales by VAT-registered persons shall be
subject to zero percent (0%) rate:
a. Export Sales
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 offshore gaming licensees subject to
gaming tax under Section 125-A of this Code
2. VAT on Importation of Goods
There shall be levied, assessed and collected on every
importation of goods a VAT equivalent to 12% based on
the total value used by the BOC 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:
XPN: Where the customs duties are determined on the
basis of the quantity or volume of the goods, the VAT shall
be based on the landed cost plus excise taxes, if any. (Sec
107 [a])
3. VAT on Sale of Services and Use or Lease of
Properties
There shall be levied, assessed and collected, a VAT
equivalent to 12% of gross receipts derived from the sale
or exchange of services, including the use or lease of
properties. (Sec 108 [a])
Transactions Subject to 0% Rate
The following services performed in the Philippines by
VAT- registered persons shall be subject to 0% rate:
1. Processing, manufacturing or repacking goods for
other persons doing business outside the
Philippines which goods are subsequently
exported, where the services are paid for in
acceptable foreign currency and accounted for in
accordance with the rules and regulations of the
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 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
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 70% of total annual
production;
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.
8. Services rendered to offshore gaming licensees
subject to gaming tax under Section 125-A of this
 Code by service providers, including accredited
service providers as defined in Section 27 (G) of
this Code.
Effectively zero-rated transactions
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.
Since the buyer is exempt from indirect tax, the seller
cannot pass on the VAT and therefore, the exemption
enjoyed by the buyer shall extend to the seller, making the
sale effectively zero-rated. (R.M.C. 50-2007)
Cases:
CIR vs. Manila Mining Corporation G.R. No. 153204, August
31, 2005
CIR vs. Sekisui Jushi Philippines, inc. G.R. No. 149671, July
21, 2006
CIR vs. American Express International G.R. NO. 152609,
June 29, 2005
VAT-exempt transactions
1. Sale or importation of agricultural and marine
food products in their original state, livestock and
poultry of or king generally used as, or yielding or
producing foods for human consumption; and
breeding stock and genetic materials therefor
Products classified under this paragraph shall be
considered in their original state even if they have
undergone the simple processes of preparation or
preservation for the market, such as freezing,
drying, salting, broiling, roasting, smoking or
stripping. Polished and/or husked rice, corn grits,
raw cane sugar and molasses, ordinary salt and
copra shall be considered in their original state;
2. Sale or importation of fertilizers; seeds, seedlings
and fingerlings; fish, prawn, livestock and poultry
feeds, including ingredients, whether locally
produced or imported, used in the manufacture of
finished feeds (except specialty feeds for race
horses, fighting cocks, aquarium fish, zoo animals
and other animals generally considered as pets);
3. Importation of personal and household effects
belonging to the residents of the Philippines
returning from abroad and nonresident citizens
coming to resettle in the Philippines: Provided,
That such goods are exempt from customs duties
under the Tariff and Customs Code of the
Philippines;
4. Importation of professional instruments and
implements, tools of trade, occupation or
employment, wearing apparel, domestic animals,
and personal and household effects belonging to
persons coming to settle in the Philippines or
Filipinos or their families and descendants who
are now residents or citizens of other countries,
such parties hereinafter referred to as overseas
Filipinos, in quantities and of the class suitable to
the profession, rank or position of the persons
importing said items, for their own use and not for
barter or sale, accompanying such persons, or
arriving within a reasonable time: Provided, That
the Bureau of Customs may, upon the production
of satisfactory evidence that such persons are
actually coming to settle in the Philippines and the
goods are brought from their former place of
abode, exempt such goods from payment of duties
and taxes: Provided, further, That the vehicles,
vessels, aircrafts, machineries and other similar
goods for use in manufacture, shall not fall within
this classification and shall therefore be subject to
duties, taxes and other charges;
5. Services subject to percentage tax under Title V;
6. Services by agricultural contract growers and
milling for others of palay into rice, corn into grits
and sugar cane into raw sugar;
7. Medical, dental, hospital and veterinary services
except those rendered by professionals;
8. Educational services rendered by private
educational institutions, duly accredited by the
DepED, CHED, the TESDA and those rendered by
government educational institutions;
9. Services rendered by individuals pursuant to an
employer-employee relationship;
10. Services rendered by regional or area
headquarters established in the Philippines by
multinational corporations which act as
supervisory, communications and coordinating
centers for their affiliates, subsidiaries or
branches in the Asia-Pacific Region and do not
earn or derive income from the Philippines
11. Transactions which are exempt under
international agreements to which the Philippines
is a signatory or under special laws, except those
under Presidential Decree No. 529;
12. Sales by agricultural cooperatives duly registered
with the Cooperative Development Authority to
their members as well as sale of their produce,
whether in its original state or processed form, to
non-members; their importation of direct farm
inputs, machineries and equipment, including
spare parts thereof, to be used directly and
exclusively in the production and/or processing of
their produce;
13. Gross receipts from lending activities by credit or
multi-purpose cooperatives duly registered with
the Cooperative Development Authority;
14. Sales by non-agricultural, non- electric and non-
credit cooperatives duly registered with the
Cooperative Development Authority: Provided,
That the share capital contribution of each
member does not exceed P15,000 and regardless
of the aggregate capital and net surplus ratably
distributed among the members;
15. Export sales by persons who are not VAT-
registered;
16. Sale of real properties not primarily held for sale
to customers or held for lease in the ordinary
course of trade or business or real property
utilized for low-cost and socialized housing as
defined by Republic Act No. 7279, otherwise
known as the Urban Development and Housing
Act of 1992, and other related laws, residential lot
valued at One million pesos (P1,500,000) and
below, house and lot, and other residential
dwellings valued at Two million five hundred
thousand pesos (P2,500,000) and below:
Provided, That beginning January 1, 2021, the VAT
exemption shall only apply to sale of real
properties not primarily held for sale to customers
or held for lease in the ordinary course of trade or
business, sale of real property utilized for
socialized housing as defined by Republic Act No.
7279, sale of house and lot, and other residential
dwellings with the selling price of not more than
Two million pesos (P2,000,000): Provided, further,
That every three (3) years thereafter, the amount
herein stated shall be adjusted to its present value
using the Consumer Price Index, as published by
the Philippine Statistics Authority (PSA);
17. Lease of a residential unit with a monthly rental
not exceeding Fifteen thousand pesos (₱15,000);
18. Sale, importation, printing or publication of books,
and any newspaper, magazine, journal, review
bulletin, or any such educational reading material
covered by the UNESCO Agreement on the
Importation of Educational, Scientific and Cultural
Materials, including the digital or electronic
format thereof: Provided, That the materials
enumerated herein are not devoted principally to
the publication of paid advertisements;
19. Transport of passengers by international carriers;
20. Sale, importation or lease of passenger or cargo
vessels and aircraft, including engine, equipment
and spare parts thereof for domestic or
international transport operations;
21. Importation of fuel, goods and supplies by persons
engaged in international shipping or air transport
operations: Provided, That the fuel, goods, and
supplies shall be used for international shipping
or air transport operations;
22. Services of bank, non-bank financial
intermediaries performing quasi-banking
functions, and other non-bank financial
intermediaries;
23. 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;
24. Transfer of property pursuant to Section 40(C)(2)
of the NIRC, as amended;
25. Associations dues, membership fees, and other
assessments and charges collected by
homeowners’ associations and condominium
corporations;
26. Sale of gold to the Banko Sentral ng Pilipinas
(BSP);
27. Sale of or importation of prescription drugs and
medicines for:
a. Diabetes, high cholesterol, and
hypertension beginning January 1, 2020;
and
b. Cancer, mental illness, tuberculosis, and
kidney diseases beginning January 1,
2021.
Provided, That the DOH shall issue a list of
approved drugs and medicines for this
purpose within sixty (60) days from the
effectivity of this Act; and [105]
28. Sale or importation of the following beginning
January 1, 2021 to December 31, 2023:
a. Capital equipment, its spare parts and
raw materials, necessary for the
production of personal protective
equipment components such as coveralls,
gown, surgical cap, surgical mask, N-95
mask, scrub suits, goggles and face shield,
double or surgical gloves, dedicated
shoes, and shoe covers, for COVID-19
prevention; and
b. All drugs, vaccines and medical devices
specifically prescribed and directly used
for the treatment of COVID-19; and [106]
c. Drugs for the treatment of COVID-19
approved by the Food and Drug
Administration (FDA) for use in clinical
trials, including raw materials directly
 necessary for the production of such registered Freeport Zone
drugs: Provided, That the Department of enterprises.
Trade and Industry (DTI) shall certify that
such equipment, spare parts or raw Simply put, the difference lies in the input tax. In VAT-
materials for importation are not locally exempt transactions there is no input tax credit allowed. In
available or insufficient in quantity, or not the case of 0% rated transaction of a VAT registered
in accordance with the quality or person, the sale of goods or properties is multiplied by 0%
specification required: Provided, further, thus his
That for item (ii), within sixty (60) days output tax is P 0.00. If the person is VAT registered, he may
from the effectivity of this Act, and every claim such input tax as tax credit or refund.
three (3) months thereafter, the
Department of Health (DOH) shall issue a BASIS EXEMPT ZERO-RATED
list of prescription drugs and medical Nature of Not taxable; Transaction is
devices covered by this provision: transactio removes VAT at taxable for VAT
Provided, finally, That the exemption the exempt stage purposes
claimed under this subsection shall be although the
subject to post audit by the Bureau of tax levied is
Internal Revenue or the Bureau of 0%
Customs as may be applicable. By whom made Need not be a Made by a VAT
d. (CC) Sale or lease of goods or properties VAT-registered registered
or the performance of services other than person person
the transactions mentioned in the Input tax Not subject to May claim input
preceding paragraphs, the gross annual output tax, thus tax credit
sales and/or receipts do not exceed the cannot claim although the
amount of Three million pesos input tax credit. transaction
(P3,000,000.00) resulted to zero
output tax.

VAT-exempt entities Tax Credit/ Cannot avail of Can claim or

Refund tax credit or enjoy tax
Zero-rated vs. VAT-exempt transactions refund. Thus, credit/refund
ZERO-RATED VAT - EXEMPT may result in (Total Relief)
It generally refers to the In VAT-exempt sales, the increased prices
export sale of good and taxpayer/seller shall not (Partial Relief)
supply of services. The bill any output tax on his
output tax rate is set at sales to his customers and
zero. When applied to the corollary, is not allowed INPUT TAX CREDITS
tax base, such rate any credit or refund of the
obviously results in no tax input taxes he paid on his Sources of input tax credits
chargeable against the purchases.
purchaser. Any input tax evidenced by a VAT invoice or official receipt
This non-crediting of input issued in accordance with Section 113 of the NIRC on the
The seller of such taxes is exempt following transactions shall be creditable against the
transactions charges no transactions is the output tax:
output tax but can claim a underlying reason why the 1. Purchase or importation of goods:
refund or tax credit NIRC adopted the rule on a. For sale; or
certificate for the VAT apportionment of tax b. For conversion into or intended to form part
previously charged by credits under Section of a finished product for sale including
suppliers. (AT&T 104(A) whenever a VAT packaging materials; or
Communications Services registered taxpayer c. For use as supplies in the course of business;
Phils., Inc. v. CIR, G.R. No. engages in other VAT or
182364, August 3, 2010) taxable and non-VAT d. For use as materials supplied in the sale of
taxable sales (CIR v. service; or
No VAT shall be shifted or Eastern Telecomm. Phils., e. For use in trade or business for which
passed-on by VAT Inc., G.R. No. 163835, July deduction for depreciation or amortization is
registered sellers or 7, 2010) allowed under NIRC, except automobiles,
suppliers from the aircraft and yachts. (Capital Goods)
Customs Territory on their 2. Purchases of real properties for which a VAT has
sale, barter or exchange of actually been paid
goods, properties or
services to the subject
 3. Purchases of services in which a VAT has actually
been paid (Sec. 110, NIRC)
4. Transactions “deemed sales”
5. Presumptive input tax
6. Transitional input tax credits allowed under the
transitory and other provisions. (Sec. 4.110-1, RR
No. 16 – 2005)
Presumptive input-tax credits
It is an input tax credit allowed to persons or firms
engaged in the: (SMM-RCN)
1. Processing of:
a. Sardines
b. Mackerel
c. Milk
2. Manufacturing of:
a. Refined sugar
b. Cooking oil
c. Packed noodle based instant meals
The allowed input tax credit shall be equivalent to four
percent (4%) of the gross value in money of their
purchases of primary agricultural products which are used
as inputs to their production. (Sec. 111 (B), NIRC)
They are given this 4% presumptive input tax because the
goods used in the said enumeration are VAT-exempt.
(Ingles, 2015)
NOTE: The term “processing” shall mean pasteurization,
canning and activities which through physical or chemical
process alter the exterior texture or form or inner
substance of a product in such manner as to prepare it for
special use to which it could not have been put in its
original form or condition.
Transitional input VAT
A person who becomes liable to VAT or any person who
elects to be a VAT-registered person shall, subject to the
filing of an inventory according to rules and regulations
prescribed by the Secretary of finance, upon
recommendation of the Commissioner, be allowed input
tax on his beginning inventory of goods, materials and
supplies equivalent to two percent (2%) of the value of
such inventory or the actual value-added tax paid on such
goods, materials and supplies, whichever is higher, which
shall be creditable against the output tax.
Unutilized input tax credits
Taxpayers with unutilized input VAT on capital goods
purchased or imported shall be allowed to apply the same
as scheduled until fully utilized.
Provided, that in the case of purchase of services, lease or
use of properties, the input tax shall be creditable to the
purchaser, lessee or licensee upon payment of the
compensation, rental, royalty or free.
Withholding VAT
The Government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs shall,
before making payment on account of each purchase of
goods and services which are subject to the VAT imposed
in Sections 106 and 108 of this Code, deduct and withhold
the value-added tax imposed in Sections 106 and 108 of
this Code, deduct and withhold a final value-added tax at
the rate of five percent (5%) of the gross payment thereof:
Provided, That beginning January 1, 2021, the VAT
withholding system under this Subsection shall shift from
final to creditable system:
Provided, further, That the payment for lease or use of
properties or property rights to nonresident owners shall
be subject to 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.
The value-added tax withheld under this Section shall be
remitted within ten (10) days following the end of the
month the withholding was made.
VAT compliance requirements
GR: Every person liable to pay the VAT 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:
XPN: VAT-registered persons shall pay the value-added tax
on a monthly basis.
Beginning January 1, 2023, the filing and payment required
under this Subsection shall be done within twenty-five
(25) days following the close of each taxable quarter.
Any person, whose registration has been cancelled in
accordance with Section 236, shall file a return and pay the
tax due thereon within 25 days from the date of
cancellation of registration: Provided, That only one
consolidated return shall be filed by the taxpayer for his
principal place of business or head office and all branches.
Where to File the Return and Pay the Tax
Except as the Commissioner otherwise permits, the return
shall be filed with and the tax paid to an authorized agent
bank, Revenue Collection Officer or duly authorized city or
municipal Treasurer in the Philippines located within the
revenue district where the taxpayer is registered or
required to register.