TAX 2 INGLES - WRAP IT B4 U TAP IT
I. TRANSFER TAXES ● As it now stands, estate tax has a flat rate of 6% based on the value of the net
A. Estate Tax
1. General Principles & Definition of the Estate Tax
● Estate tax – the tax on the right to transmit property at death and on certain
transfers by the decedent during his lifetime which are made by the law equivalent
of testamentary dispositions.
● Accrues upon the death of the decedent.
● The tax is measured by the value of the property transmitted at the time of
death, regardless of its appreciation or depreciation.
● The accrual of tax is DISTINCT from the obligation to pay the tax.
● Lorenzo v. Posadas (1937)
○ Inheritance is in reality an excise tax or privilege tax imposed on the right
to succeed, receive, or take property under a will or the intestacy law or
deed, grant, or gift, to become operative at or after death.
○ Doctrine: A transmission by inheritance is taxable at the time of the
predecessor’s death, notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary. The tax is
measured by the value of the property transmitted at that time regardless
of its appreciation or depreciation.
○ Thus, inheritance tax should be paid when properties are delivered to the
trustee.
○ Ingles Notes
■ When we talk about estate tax - what point in time are we most
concerned with? The death of the decedent
■ Not upon knowledge of BIR? Because some people hide death?
NO.
2. Rates and Value of Gross Estate
Sections 84 (as amended by TRAIN) & 88, Tax Code
Sec. 84. Rates of Estate Tax. —There shall be levied, assessed, collected and paid upon
the transfer of the net estate as determined in accordance with Sections 85 and 86 of every
decedent, whether resident or nonresident of the Philippines, a tax at the rate of 6%
based on the value of such net estate. (As amended by TRAIN)
RR 12-2018
● TRAIN removed the graduated rates for estate tax.
estate.
○ Net estate x 6% = estate tax
● Ingles Notes
○ It’s important to know the base of the tax which is the net (taxable) estate.
○ Like income tax, it’s impt. to have a working formula in your head.
■ Income tax → gross income - deductions = net taxable income
■ Estate tax → gross estate - deductions = net taxable estate
○ When it comes to gross estate, there are only a few deductions.
○ What is the value of the gross estate? When do you peg it?
■ FMV of the properties at the time of death of the decedent.
○ How do you know the value to include in the real property existing at the
time of the death?
■ See table below
Determination of the value of the state
Sec. 88. Determination of the Value of the Estate. —
(A) Usufruct. — To determine the value of the right of usufruct, use or habitation, as well as
that of annuity, there shall be taken into account the probable life of the beneficiary in
accordance with the latest Basic Standard Mortality Table, to be approved by the Secretary
of Finance, upon recommendation of the Insurance Commissioner.
(B) Properties. – The estate shall be appraised at its fair market value as of the time of
death. However, the appraised value of real property as of the time of death shall be,
whichever is higher of -
1. The fair market value as determined by the Commissioner; or
2. The fair market value as shown in the schedule of values fixed by the Provincial
and City Assessors.
● The properties comprising the gross estate shall be based on the FMV as of the time
of death.
○ RECALL: FMV – price of an asset when buyer and seller have reasonable
knowledge of the asset and are willing to trade without pressure
Type of property FMV
Real property 1. The FMV as determined by the Commissioner; or
2. The FMV as shown in the schedule of values fixed by the
Provincial and City Assessors
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… Whichever is higher (Sec. 88B) include real and personal property, whether tangible or intangible, or mixed, wherever
(Similar to CGT, whichever is higher based on gross selling price or situated:
FMV )
Provided, however, That where the decedent or donor was a nonresident alien at the time
Personal property Purchase price may indicate the FMV of his death or donation, as the case may be, his real and personal property so transferred
recently acquired by but which are situated outside the Philippines shall not be included as part of his 'gross
the decedent estate' or 'gross gift’:

Personal property There should be some evidence of FMV Provided, further, That franchise which must be exercised in the Philippines; shares,
NOT recently obligations or bonds issued by any corporation or sociedad anonima organized or
acquired constituted in the Philippines in accordance with its laws; shares, obligations or bonds by
any foreign corporation eighty-five percent (85%) of the business of which is located in the
Shares of stock Common shares - based on their book value Philippines; shares, obligations or bonds issued by any foreign corporation if such shares,
unlisted in the stock Preferred shares - based on their par value obligations or bonds have acquired a business situs in the Philippines; shares or rights in
exchange any partnership, business or industry established in the Philippines, shall be considered
as situated in the Philippines:
Share of stock listed The mean between the highest and lowest quotation on the date
in the stock of death; Provided, still further, that no tax shall be collected under this Title in respect of intangible
exchange personal property:
If none, then the date nearest the death 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
Use of usufruct There shall be taken into account the probable life of the donation did not impose a transfer tax of any character, in respect of intangible
beneficiary in accordance with the latest basic standard mortality personal property of citizens of the Philippines not residing in that foreign
table, to be approved by the Sec. of Finance. (Sec 88A) country, or
b. 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
3. Gross Estate
transfer or death taxes of every character or description in respect of intangible
Section 85, 104, Tax Code
personal property owned by citizens of the Philippines not residing in that
SEC. 85. Gross Estate. - The value of the gross estate of the decedent shall be determined foreign country. xxx
by including the value at the time of his death of all property, real or personal, tangible or
● For estate tax purposes, residence refers to the domicile of the person (CIR v. de
intangible, wherever situated
Lara)
● For residents and citizens:
Provided, however, that in the case of a nonresident decedent who at the time of his
○ Gross estate includes ALL properties, real or personal, tangible or
death was not a citizen of the Philippines, only that part of the entire gross estate which is
intangible, wherever situated.
situated in the Philippines shall be included in his taxable estate.
● For nonresident aliens (NRAs):
○ GR: Gross estate includes only properties in the Philippines.
(A) Decedent's Interest. - To the extent of the interest therein of the decedent at the time
○ XPN: Intangible personal property (IPP).
of his death;
■ Its inclusion to the gross estate is subject to the rule of
reciprocity.
SEC. 104. Definitions. - For purposes of this Title, the terms 'gross estate' and 'gifts'
■ The IPPs of the NRA here are EXEMPT from the estate tax:
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1. If the foreign country of the NRA does not impose a
transfer tax of any character on the IPP of Filipinos not
residents of that foreign country; or
2. The foreign country of the NRA allows a similar
exemption from transfer tax in respect of IPP owned by
Filipinos not residents of that foreign country.
○ Collector of Internal Revenue v. Fisher (January 28, 1961)
■ Doctrine: Reciprocity must be total. If any of the 2 states or
countries collects or imposes and does not exempt any transfer,
death, legacy, or succession tax of any character, reciprocity does
not apply.
■ In the PH, both an estate and inheritance tax is imposed upon his
estate and its settlement.
■ However, in California, only inheritance tax is imposed.
■ Under the Federal Internal Revenue Code, estate tax is
imposed on non-residents who are not citizens of the US, but
does not provide for any exemption on the basis of reciprocity.
■ In view of the express provisions of both the Philippine and
California laws that the exemption would apply only if the law of
the other grants an exemption from legacy, succession, or death
taxes of every character, there could not be partial reciprocity.
It would have to be total or none at all.
■ Because there is no “total reciprocity” between PH and
Californian laws, the estate should not be exempted from paying
inheritance tax.
○ Reciprocity in exemption does NOT require the foreign country to possess
international personality. (CIR v. Campos Rueda)
● Gross estate includes any interest or right in the nature of property, but less than
title, having value or capable of having value like:
1. Dividends declared but paid after the death;
2. Partnership profits;
3. Right of usufruct
● The following, among others, are IPPs located in the Philippines:
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 issued by any foreign corporation (FC) 85% of
the business of which is located in the Philippines
■ This is different from the 50% requirement in the situs rules for
dividends issued by a foreign corporation for income tax.
■ RECALL: Dividends from a foreign corporation are considered
income within if 50% or more of the gross income of the foreign
company (from the 3 years) was derived from sources within the
Philippines. (Sec 42A)
■ Keep those distinctions in mind because there are different rules
depending on the tax system you're talking about.
4. Shares, obligations or bonds issued by a FC if such shares, obligations, or
bonds have acquired a business situs in the Philippines; and
5. Shares or rights in any partnership, business or industry in the Philippines
NOTE: This only applies to non-resident aliens because if you’re a resident or a
citizen, you’re taxed for gross estate anyway
● Ingles Notes:
○ How do you know if properties are within the PH for it to be included in the
gross estate of a NRA (who dies anywhere)?
■ We have to first look at gross estate, then figure out the value of
property
■ If real property is located in the PH, it is within the PH
■ For IPPs, see above
○ Are shares of domestic stocks included?
■ Yes see above
Properties not in the estate (included in determining gross estate for estate tax)
● There may be properties, which at the time of the decedent’s death, are not in the
estate because they were transferred by him during his lifetime.
● These are: (CRGI)
1. Transfers in contemplation of death;
2. Revocable transfers;
3. Transfers under a general power of appointment; and
4. Transfers for an insufficient consideration
● The values of these properties will be INCLUDED in the determination of the gross
estate for estate tax purposes.
○ As such, the gross estate, for purposes of the estate tax, may EXCEED the
actual value of his assets at the time of his death as it includes the value of
transfers of property by him during his lifetime that partake of the nature
of testamentary dispositions
● These kinds of transfers have the following in common:
1. They are ostensible transfers, usually with the purpose to EVADE the
estate tax;
2. They are extension of interests; and
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3. If the transfers are in fact for bona fide consideration, they will NOT form
part of the gross estate (this provisio is present in all provisions regarding
these transfers)
■ This is IMPT. As long as the transfers were for bona fide
consideration, then you don’t have to add it in determining gross
estate.
● Ingles Notes:
○ Why do we include these in the gross estate even if they’re no longer with
the decedent?
■ The law presumes they’re usually for the purpose to evade tax
Transfers in contemplation of death
(B) Transfer 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
Revocable transfers
(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. xxx
● Transfer in contemplation of death – It is a transfer motivated by the thought of
death, although death may not be imminent.
● Examples of circumstances which may be taken into consideration in determining
whether the transfer was made in contemplation of death:
1. Age and state of health of the decedent at the time of the transfer (E.g. Is
he terminally ill?)
2. Length of time between the transfer and the date of the death
3. Concurrent making of a will or making of a will within a short time after
the transfer.
● The following are transfers in contemplation of death:
○ Transfers, by trust or otherwise, in contemplation or intended to take
effect (in possession or enjoyment) at or after death;
○ Transfers, by trust or otherwise, under which the decedent has retained for
his life (or for any period which does not in fact end before his death) the:
1. possession or enjoyment of, or the right to the income from the
property; or
2. the right to designate the person who shall possess or enjoy the
property or the income therefrom.
● In the case of bona fide sale for an adequate and full consideration in money or
money’s worth, the value of the property transferred will NOT be considered in
determining the gross estate.
● Ingles Notes:
○ What if the transfer was in contemplation of death but it was paid for in full
value?
■ It would not be included in the net estate.
○ Why not?
■ It is a bona fide sale for an adequate and full consideration in
money or money’s worth.
■ This exception is there throughout the different types of
properties no longer in the estate.
■ Rationale: Cash given in consideration of the transfer is part of
the gross estate.
(C) Revocable Transfer. -
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.
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● Revocable transfer – A transfer where the terms of the enjoyment of the property
may be altered, amended, revoked, or terminated by the decedent.
● It is sufficient that the decedent had the power to revoke, though he did not exercise
the power to revoke
● Same rule with bona fide sales applies
● Ingles Notes:
○ Why are these still included in the gross estate of the decedent?
■ Ingles: Transferee does not have full ownership over the
property. At any time the decedent can get it back.
○ Give an example of a revocable transfer:
■ Student: X transfers land to Y for consideration subject to the
condition that non-payment would return the title to the
decedent
Transfers under a general power of appointment
(D) 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.
● Power of appointment – The right to designate the person or persons who will
succeed the property of a prior decedent
● General power of appointment – One which may be exercised in favor of anybody.
This forms part of the POWERHOLDER’s estate.
○ Example: AJ donated property to Pat, with a provision that Pat can
transfer the property to anyone. Pat transferred it to Morgan. The property
should be included in the gross estate of PAT.
● Limited/specific power of appointment – One which may be exercised only in
favor of a certain person or persons designated by the prior decedent.
○ Example: AJ donated property to Pat, with a provision that Pat should
only transfer the property to only Morgan. The value of the property
should NOT be included in the gross estate of Pat.
● In order that property passing under a power of appointment may be INCLUDED in
the gross estate of the transferor, it must be a GENERAL power of appointment.
● XPN: Bona fide rule applies.
● Ingles Notes:
○ Who gives to the decedent the power to designate or make a general
appointment?
■ The decedent himself when he makes the donation reserves the
right to designate who will succeed
■ No 2 transfers - 1 who originally owns it to the decedent whose
gross estate we're trying to determine and ??? i lagged
○ Who gives the decedent the power to decide?
■ A who makes the initial transfer of the property, with the
provision that B has a general power of appointment to succeed
to the property
○ If A gives B the GPA, is the property included in the gross estate of B?
■ Yes
○ If A tells B that he can only give it to C, is the property included in the gross
estate of B?
■ No
○ What’s the difference between a GPA and SPA that makes the law tell B
that you have to include anything within the GPA as part of your gross
estate?
■ GPA - can be any person
■ SPA - only the person designated by A may succeed to the
property
○ So when you compare the 2, when is B given a right of ownership?
■ Under the GPA.
■ Same principle applies for revocable transfers, as if B has all the
rights of the owner therefore it should be part of his gross estate
○ What is the exception?
■ Bona fide sale made for full and adequate consideration.
Life insurance proceeds
(E) 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
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the policy of insurance, except when it is expressly stipulated that the designation of the
beneficiary is irrevocable.
● Proceeds of insurance under policies taken out by the decedent upon his life
shall constitute part of the gross estate, if the beneficiary is:
1. The estate of the decedent, his executor or administrator as such; or
■ For #1: Does not matter if revocable or not. As long as the
beneficiary is the estate of the decedent, or his executor or
administrator, then you include it in the gross estate.
2. A third person (not those in #1), and the designation of the beneficiary is
REVOCABLE.
■ For #2: Life insurance proceeds are EXCLUDED provided:
a. Irrevocable; and
b. Payable to the beneficiary other than estate, executor,
or administrator.
● Insurance Code:
○ GR: Designation of a beneficiary is generally revocable.
○ XPN: When the policy states that the designation is irrevocable.
■ In such cases, the proceeds are NOT considered as part of the
decedent’s estate.
● Not included in the computation of gross income if the proceeds are from:
1. Company policy;
2. GSIS; or
3. SSS
● Life insurance proceeds must be taken out BY THE DECEDENT.
● It must stem from life insurance to be included in the gross estate.
● If it’s accident insurance, it’s not included.
● Ingles Notes:
○ You are advising a client. Client has 2 children and wants to take out life
insurance with them as beneficiaries. How can he exclude anything they
get from the gross estate?
■ Make it irrevocable in the policy.
■ Revocable → part of gross estate for tax purposes
■ Irrevocable → NOT part of gross estate for tax purposes
○ If you look at it this way, life insurance is a good way of estate planning.
When someone dies, you want cash on hand. It will come to hand when it’s
not included in the gross estate. One legal way to do that is through life
insurance, as long as the beneficiary is designated as irrevocable in the
policy. You don’t want the proceeds to be in the gross estate because
number one, your family should not worry about cash. One way to
guarantee cash for your family is when the life insurance proceeds are not
included in the gross estate. You want it to be irrevocable.
○ Goes into the whole principle that if it's REVOCABLE, the decedent still has
some ownership over it.
Transfers of insufficient consideration
(F) Prior Interests. - Except as otherwise specifically provided therein, Subsections (B -
Transfers in contemplation of death), (C - Revocable Transfers ) and (E - Life insurance
proceeds) 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.
(G) 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.
● In the transfers in contemplation of death, revocable transfer, or transfer under GPA,
the value to include in the gross estate will be determined under the following
rules:
1. If the transfer was in the nature of a bona fide sale for an ADEQUATE and
FULL consideration in money or money’s worth
■ No value will be included in the gross estate;
2. If the consideration received on the transfer was LESS THAN adequate
and full →
■ Value to include in the gross estate will be the excess of the FMV
at the time of the decedent’s death over the consideration
received;
■ Maqs example: X has property worth P10M. He sold it to Y for
only P5M. Since the consideration was inadequate, the excess of
the FMV will be included in the gross estate so 10-5 = 5M will be
included in the gross estate
3. If there was NO CONSIDERATION received on the transfer (donation
mortis causa)
■ Value to include in the gross estate will be the FMV of the
property at the time of the decedent’s death.
● When looking at a transaction, ask yourself, “Was the consideration INSUFFICIENT?”
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○ If yes → Add the balance of the FMV at the time of death and the pay him a certain amount of rice, and others of money every year, and with
consideration the express provision that failure to fulfill this condition would revoke the
○ If no → It was a bona fide sale. Don’t add the value to the gross estate donations ipso facto.
○ The nature of these donations is not affected by the fact that they were
Capital of the surviving spouse subject to a condition, since it was imposed as a resolutory condition.
Neither does the fact that these donations are revocable, give them the
(H) Capital of the Surviving Spouse. — The capital of the surviving spouse of a decedent
character of donations mortis causa, inasmuch as the revocation is not
shall not, for the purpose of this Chapter, be deemed a part of his or her gross estate.
made to depend on the donor's exclusive will, but on the failure to fullfill
● The capital of the surviving spouse shall NOT form part of the decedent's gross the condition imposed. In relation to the donor's will alone, these
estate. donations are irrevocable.
● Tuason v. Posadas - donations inter vivos; part of gross estate; legatees
Summary of some cases on estate tax ○ Esparanza Tuason made 2 separate donations inter vivos to plaintiffs
Mariano and Alfonso in 1922 and 1923 respectively. In 1926, she died of
Transferee: Time Was What did the SC say?
senile weakness at the age of 73. In a will executed late in 1925, she gave 2
voluntary or between there
legacies (about P5,000 each) to the 2 plaintiffs.
compulsory transfer & a
○ When the law says “all gifts”, it refers to gifts inter vivos, and not mortis
heir? death will?
causa. Such, clearly, is the tenor of the language which refers to donation
that took effect before the donor's death, and not to mortis causa
Zapanta v. Compulsory heir None Yes Not considered advances.
donations, which can only be made with the formalities of a will, and can
Posadas (but in the case they
seem to be only take effect after the donor's death.
(1928) Not part of gross estate.
voluntary??) ○ Section 15401 presumes that such gifts have been made in anticipation of
inheritance, devise, bequest, or gift mortis causa, when the donee, after
Tuason v. Voluntary heir 3 years Yes Considered as advance. the death of the donor proves to be his heir, devisee or donee mortis
Posadas Donees became legatees in the causa, for the purpose of evading the tax. It is to prevent this that it
(1930) will. provides that they shall be added to the resulting amount.
○ It appearing that the heirs after the death of Esperanza were found to be
Part of gross estate, include it. legatees under her will, the donation inter vivos she had made to them in
1922 and 1923, must be added to the net amount that is to be taxed.
Dizon v. Compulsory heir 1 day No Considered advances. The ● Dizon v. Posadas - gift inter vivos; part of gross estate; compulsory heir
Posadas donee is a compulsory heir. ○ Dison alleged that the tax collected was illegal as he received the property
(1932) from his father before his death by a deed of gift inter vivos which was duly
Include it in the gross estate accepted and registered before his father’s death
○ The Court held that the facts MAY NOT warrant the inference that the
Vidal de Voluntary heir 9 months Yes Considered advances. Donees conveyance, acknowledged by the donor 5 days before his death and
Roces v. were legatees in the will. accepted by the donee 1 day before the donor's death, was fraudulently
Posadas made for the purpose of evading the inheritance tax.
(1933) Include that in the gross estate

● Zapanta v. Posadas - transfer during lifetime; not part of gross estate
○ During his lifetime Father Braulio donated some of his property to the 6
plaintiffs (relatives, brothers) , with the condition that some of them would
1
ADMINISTRATIVE CODE, SEC. 1540. Additions of gifts and advances. — After the aforementioned
deductions have been made, there shall be added to the resulting amount the value of all gifts or
advances made by the predecessor to any of those who, after his death, shall prove to be his heirs,
devisees, legatees, or donees mortis causa.
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○ But the facts DO warrant the inference that the transfer was an
advancement upon the inheritance which the donee, as the sole and
forced heir of the donor, would be entitled to receive upon the death of the
donor.
○ The argument advanced by Dison that he is not an heir of his deceased
father within the meaning of Sec. 1540 because his father in his lifetime
had given him all his property and left no property to be inherited, is so
fallacious that the urging of it here casts a suspicion upon his reason for
completing the legal formalities of the transfer on the eve of the latter's
death.
● Vidal de Roces v. Posadas - donations inter vivos; part of gross estate; legatees
○ Tuazon donated certain parcels of land situated in Manila to Spouses Vidal
de Roces and Elvira Vidal de Richards. Tuazon died a year later without a
forced heir, and in her will, she left P5k to each of them.
○ The tax collected by the CIR on the properties donated in 1925 really
constitutes an inheritance tax imposed on the transmission of said
properties in contemplation or in consideration of the donor's death and
under the circumstance that the donees were later instituted as the
former's legatees.
○ The law considers such transmissions in the form of gifts inter vivos, as
advances on inheritance and nothing therein violates any constitutional
provision, hence, it is subject to the payment of inheritance taxes and
within the power of the Legislature.
● When it comes to transfers done during the lifetime of a decedent, there is a
disputable presumption that the transfers are in contemplation of death if the
recipients are compulsory heirs.
○ Government presumes that one is transferring property beforehand to
escape the estate tax, and instead pay the lower donor's tax.
○ The case of Zapanta showed that the presumption is disputable. There,
the Court considered the gifts as NOT advances even if the recipients were
compulsory heirs. Reason for this was the condition imposed upon the
recipients by the decedent (they had to pay the decedent a certain amount
of rice and money during his lifetime). It showed that the transfer was NOT
in contemplation of death, because decedent in fact, would benefit from
the transfer.
● The presence of a will also plays a part.
○ In Tuason and Vidal de Roces, the Court considered the transfers as
advances because a will was made making the transferees legatees.
○ This played a part in the Court's impression that there was an intention of
the decedent to minimize his gross estate.
○ Sec. 1540 of the Admin. Code presumes that gifts are made in anticipation
of inheritance, devise, bequest, or gift mortis causa, when the donee after
the death of the donor proves to be his heir, devisee, or donee mortis
causa, for the purpose of evading the tax.
○ The gifts referred to are those donations inter vivos that take effect
immediately or during the lifetime of the donor but are made in
consideration or in contemplation of death.
○ The law considers them as advances on the inheritance. It does not cover
gifts completely independent of death or without regard to it.
● Thus, when looking at cases like these, the totality of all the factors and facts must
be taken into consideration.
● Does the government always want to consider a transfer an advance (to be covered
by the estate tax)?
○ Not necessarily. There are instances where they will argue for it to be
considered under the donor's tax.
● In summary, gross estate is made up of:
1. The decedent's interests at the time of his death
2. Transfers made during his lifetime (in contemplation of death,
revocable, under a GPA, insufficient consideration)
3. Life insurance proceeds
4. Other stuff required by law to be included in the gross estate in order to
allow deductions:
a. claims against insolvent persons,
b. unpaid mortgage,
c. value of the family home,
d. vanishing deductions, and
e. the retirement benefits under R.A. 4917
Ingles Notes
● Do you agree with the principle of estate taxes?
○ Student: Yes, because the Tax Code seeks to avoid a situation wherein they
will try to avoid payment of estate taxes. Otherwise it will be easy to evade
the payment of inheritance taxes if i just –
○ Ingles: Nooooo im not talking about transfers in contemplation of death.
I'm talking about the whole principle of estate tax in the first place. Asking
a family grieving to pay taxes from their dead mom/dad.
○ Student: Law says it’s a privilege tax on the right to transmit property but I
don't agree because we shouldn't really impose a tax since it will
eventually go the heirs
○ Ingles: So there are the usual bullshit arguments like lifeblood theory that
properties have to pass through with consent of the estate. But I think the
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whole reason we have it in the first place is because we want to avoid a Kinds of deductions
situation where wealth is only concentrated in a few families and to break ● Standard deductions
down generational wealth. I don’t think it’s fair to impose estate taxes on ○ 5M for residents/citizens of the PH
grieving families. But I doubt you can declare it unconstitutional in court. ○ 500k for nonresidents/noncitizens of the PH
We have a lot of impositions that are stupid like DST (donor’s tax makes ● Ordinary deductions - Residents/citizens and nonresidents/noncitizens are entitled
sense pa) but those are still in our laws so take it as it is. to these:
● What’s important about gross estate is: a. Claims against the estate
○ Knowing the formula b. Claims against insolvent persons
○ Determining WHO died to determine which properties will be determined c. Unpaid mortgage or indebtedness on property
in the gross estate (worldwide properties or only properties in the PH) d. Taxes paid
○ What properties will be included in the gross estate. e. Losses
■ Those that decedent still has interest in: f. Vanishing deductions
● Real property; shares of stock; personal property; cash g. Transfers for public use
in the bank [easy to take out, just don't announce to ● Special deductions - Non-resident aliens are NOT entitled to these deductions
the world that they died or just keep it at home]; life a. Family home (max of P10M)
insurance proceeds b. Amounts received by heirs under R.A. 4917
● Ingles life tip: You can use these to pay for estate tax. ● Net share of SS in the conjugal partnership if any
Those are ways to ensure you’re still liquid before any
of your parents pass away. Because it’s a pain. Imagine Deductions for CITIZENS or RESIDENTS of the Philippines
a situation wherein one of your parents die, and all Section 86 (as amended by TRAIN)
your money is trapped in a bank account or liquid
assets like properties which you can’t sell because it’s SEC. 86. Computation of Net Estate. - For the purpose of the tax imposed in this Chapter,
not under your name. Then you have to pay funeral the value of the net estate shall be determined:
services, debts, estate tax before money is released. So (A) Deductions Allowed to the Estate of Citizen or a Resident. - In the case of a citizen or
as a practical consideration, always have cash on hand. resident of the Philippines, by deducting from the value of the gross estate-
Or share your bank PWs to a loved one so when
someone dies it can be easily transferred to another Deductions for a citizen or a resident
account. Or at least have a bank relationship manager ● Deductions from gross estate are:
for you to transfer funds almost immediately. 1. Standard deduction of P5M;
■ Other properties not owned but deemed by law to be included: 2. Claims against the estate;
Transfers made during his lifetime (in contemplation of death, 3. Claims against insolvent persons;
revocable, under a GPA, insufficient consideration), life proceeds 4. Unpaid mortgages or indebtedness on property;
5. Accrued taxes and losses;
4. Net Estate and Deductions 6. Vanishing deductions;
7. Transfers for public use;
Computation for the net estate: 8. Family home to the extent to P10M;
● Basic equation to determine the net taxable estate: 9. Amounts received heirs under RA 4917 (retirement benefits of employees
○ Net taxable income = gross estate – deductions of private firms)
● Complication arises when the decedent is married at the time of his death (Later 10. Net share of the SS in the conjugal partnership, if any.
topic) ● These deductions are allowed for a citizen or resident of the Philippines.
● Non resident aliens have a different set of deductions.
TAX 2 INGLES - WRAP IT B4 U TAP IT
● Because of TRAIN, funeral expenses, medical expenses, and judicial expenses are NO
LONGER deductions.
Standard Deduction
(1) Standard Deduction. — An amount equivalent to Five million pesos (P5,000,000).
● Don't forget to deduct P5M every time you compute the net estate. You don't need
any substantiation either.
● Ingles Notes
○ Do you need anything to prove standard deductions?
■ No need for any proof
Claims against the estate
(2) For claims against the estate: Provided, That at the time the indebtedness was
incurred the debt instrument was duly notarized and, if the loan was contracted within 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.
● Claims – debts or demands of a pecuniary nature which could have been enforced
against the deceased in his lifetime and could have been reduced to simple money
judgments.
● Claims against the estate or indebtedness in respect of property may also arise out
of contract, tort, or operation of law. (R.R. 12-2018)
● If the obligation was enforceable against him when he was alive:
○ Obligations will be claims against his estate when he dies.
● If the obligation prescribed during his lifetime, or was unenforceable against him:
○ Obligation will NOT be a claim against his estate when he dies.
● Ingles notes
○ Give me an example of this.
Requisites (to form part of gross estate)
1. The liability must represent a personal deceased at the time of his death;
2. Lability was contracted in good faith and for adequate and full consideration;
3. Claim must be a debt or claim which is valid in law and enforceable in court; and
4. Indebtedness must NOT have been condoned by the creditor during the lifetime of
the decedent, or the actions to collect must not have prescribed.
○ Dizon in his capacity as Administrator of deceased Fernandez v. CIR
(April 30, 2008)
■ Doctrine: If the debts were condoned AFTER the decedent's
death, the debts are still deductible, following the date-of-death
valuation rule
■ Estate tax is a tax imposed on the act of transferring property by
will or intestacy and, because the act on which the tax is levied
occurs at a discrete time (the instance of death), the net value of
the property transferred should be ascertained, as nearly as
possible, as of that time.
■ There is no law which disregards the date-of-death valuation
principle and particularly provides that post-death
developments must be considered in determining the net value
of the estate.
■ Therefore, the claims existing at the time of death are significant
to, and should be made the basis of, the determination of
allowable deductions. Thus, the BIR’s deficiency estate tax
assessment against the Estate of Jose is NULLIFIED.
○ Maqs explanation: You determine the net value at the time of death. Any
developments after death aren’t considered. If my estate was worth P100M
but I also owed you P100M, then estate tax is 0. If you condoned my debt
after I died, estate tax is still 0. But if you condoned my debt before I died,
there’s no more claim against me, so there’s no more deduction. Estate tax
will be based on the P100M.
Documentary requirements for diff. kinds of unpaid obligations (R.R. 12-2018):
● For loans:
1. Debt instrument must be notarized at the time the indebtedness was
incurred
● EXCEPT for loans granted by financial institutions where
notarization is not part of the business practice
2. Duly notarized certification from the creditor as to the unpaid balance of
the debt, including interest as of the time of death;
3. Proof of financial capacity of the creditor to lend the amount at the time
the loan was granted; and
4. Statement under oath by the administrator or executor of the estate
reflecting the disposition of the proceeds of the loan if said loan was
contracted within 3 years prior to the death of the decedent.
● For unpaid obligations from purchase of goods or services:
1. Documents evidencing purchase of goods or service (like official receipts,
etc.) or contracts of service;
2. Duly notarized certification from the creditor as to the unpaid balance of
the debt, including interest as of the time of death; and
3. Certified true copy of the latest audited balance sheet of the creditor with
a detailed schedule of its receivable showing the unpaid balance.
● For settlements made through court:
TAX 2 INGLES - WRAP IT B4 U TAP IT

1.Documents filed in court and the court order approving such claims, in
(4) For unpaid mortgages upon, or any indebtedness in respect to, property where the
addition to the documents above.
value of decedent's interest therein, undiminished by such mortgage or indebtedness, is
● There is NO requirement to add the amount to the gross estate (as compared to
included in the value of the gross estate, but not including any income tax upon income
claims against insolvent persons/mortgage). This is a DIRECT DEDUCTION.
received after the death of the decedent, or property taxes not accrued before his death,
or any estate tax.
Claims against insolvent persons (zero-sum)
(3) For claims of the deceased against insolvent persons where the value of decedent's The deduction herein allowed in the case of claims against the estate, unpaid mortgages or
interest therein is included in the value of the gross estate. 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
● Claims against insolvent persons are deductions from the gross estate
money or money's worth.
● SUBJECT to the condition that the full amounts of the receivables are first included
in the gross estate. ● The (unpaid) mortgage or indebtedness will be claimed as a deduction from the
● Deduction from the gross estate will be the uncollectible portion. gross estate.
● Insolvent persons are those defined under FRIA and other existing laws. (R.R. ● If the loan is merely an accommodation loan, where the proceeds of the loan went
12-2018) to another person, the value of the unpaid loan must be INCLUDED in the receivable
○ FRIA: Insolvent shall refer to the financial condition of a debtor that is of the estate. (R.R. 12-2018)
generally unable to pay its or his liabilities as they fall due in the ordinary ○ Accommodation loan – legal agreement signed by 2 parties whereby one
course of business or has liabilities that are greater than its or his assets. of the co-signers guarantees credit liability for the other co-signer (google
● Ingles Notes lol)
Claims against the estate Claims against insolvent persons
Zero-sum computations
● The values of each of the ff must first be ADDED to the gross estate:
Creditor Third persons Estate/Decedent
1. claims against insolvent persons; and
2. unpaid mortgage/ indebtedness on property
Debtor Estate/Decedent Insolvent persons
● These are called zero-sum computations. They do not really benefit the heirs
Included in Should NOT be indicated Should be indicated in gross estate since because these transactions were not supposed to be part of the gross estate
gross in the gross estate the debtors are the third parties. anyway. Note that the value of the property undiminished by the mortgage must be
estate? Rationale: Estate would have gotten the included in the gross estate. (R.R. 12-2018)
money if not for the insolvency of these ● Ex: Kobe Ryan died leaving real property with a FMV of P1M, subject to a mortgage in
persons, therefore making that money the amount of P600k. Before the estate can deduct the P600k, it has to include the
which cannot be claimed anymore as total FMV of the property to the gross estate.
part of the gross estate ● Ingles Notes
○ What should be listed in the computation of the gross estate?
Zero sum? Direct deduction. NO Zero sum. Full amounts of the ■ Value of the property undiminished by the amount of the
requirement to add the receivables must first be included in the mortgage.
amount to the gross estate gross estate.
first. Taxes
● Taxes are deductions from the gross estate if such taxes accrued PRIOR to the
decedent's death. (R.R. 12-2018)
Unpaid mortgage or indebtedness on property (zero-sum) ● Those that accrued AFTER the decedent's death are NOT deductions from gross
estate.
TAX 2 INGLES - WRAP IT B4 U TAP IT

● These taxes can NOT be deducted: ○ What if the house burns down AFTER the decedent dies but is
1. Income tax on income received AFTER death compensated by insurance, can it be claimed as a deduction?
2. Property taxes not accrued BEFORE death (accrued after death) ■ No, must NOT be compensated by insurance
3. Estate tax (cannot be deducted because law says they should not)
Vanishing deductions
Losses
(5) Property Previously Taxed. — An amount equal to the value specified below of any
There shall also be deducted losses incurred during the settlement of the estate arising property forming a part of the gross estate situated in the Philippines of any person who
from fires, storms, shipwreck, or other casualties, or from robbery, theft or died within five (5) years prior to the death of the decedent, or transferred to the decedent
embezzlement, when such losses are not compensated for by insurance or otherwise, and by gift within five (5) years prior to his death, where such property can be identified as
if at the time of the filing of the return such losses have not been claimed as a deduction for having been received by the decedent from the donor by gift, or from such prior decedent
the income tax purposes in an income tax return, and provided that such losses were by gift, bequest, devise or inheritance, or which can be identified as having been acquired
incurred not later than the last day for the payment of the estate tax as prescribed in in exchange for property so received:
Subsection (A) of Section 91.
One hundred percent (100%) of the value, if the prior decedent died within one (1) year
prior to the death of the decedent, or if the property was transferred to him by gift within
● Losses are DEDUCTIBLE from the gross estate if:
the same period prior to his death;
1. Arising from fire, storm, shipwreck, or other casualty, robbery, theft or
embezzlement (7);
Eighty percent (80%) of the value, if the prior decedent died more than one (1) year but not
2. Not compensated by insurance or otherwise;
more than two (2) years prior to the death of the decedent, or if the property was
3. Not claimed as a deduction in an income tax return of the estate subject to
transferred to him by gift within the same period prior to his death;
income tax;
4. Occurring during the settlement of the estate; and
Sixty percent (60%) of the value, if the prior decedent died more than two (2) years but not
5. Occurring before the last day for the payment of the estate tax (1 year after
more than three (3) years prior to the death of the decedent, or if the property was
the decedent's death, or the allowed extension).
transferred to him by gift within the same period prior to his death;
● Example:
○ Ronaldo McDonaldo died Jan. 1, 2018. A fire razed his mansion on March 1,
Forty percent (40%) of the value, if the prior decedent died more than three (3) years but
2018. His estate was settled Jan. 1, 2020.
not more than four (4) years prior to the death of the decedent, or if the property was
■ He can claim a deduction, because the fire happened within a
transferred to him by gift within the same period prior to his death;
year of his death.
○ Joe Li Bag died Jan. 1, 2018. A fire razed his shanty on Jan. 19, 2019.
Twenty percent (20%) of the value, if the prior decedent died more than four (4) years but
■ He cannot claim a deduction, because the fire happened more
not more than five (5) years prior to the death of the decedent, or if the property was
than 1 year after his death.
transferred to him by gift within the same period prior to his death;
● Ingles Notes
○ Can the payment of estate tax be extended by the CIR? Yes
These deductions shall be allowed only where a donor's tax or estate tax imposed under
■ 5 years - settled judicially/through courts
this Title was finally determined and paid by or on behalf of such donor, or the estate of
■ 2 years - settled extrajudicially
such prior decedent, as the case may be, and only in the amount finally determined as the
○ What if the house burns down BEFORE the decedent dies, can it be
value of such property in determining the value of the gift, or the gross estate of such prior
claimed as a deduction?
decedent, and only to the extent that the value of such property is included in the
■ No, because the loss must happen during the settlement of the
decedent's gross estate, and only if in determining the value of the estate of the prior
estate.
decedent, no deduction was allowable under paragraph (2) In respect of the property or
TAX 2 INGLES - WRAP IT B4 U TAP IT
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 (1) and (3) of this Subsection as the amount otherwise
deductible under said paragraph (2) 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.
● Property may change hands within a very short period of time by reason of the
early death of the owner who received it by inheritance or by donation (gift)
● To provide relief to the burdened taxpayer, vanishing deductions are allowed to
reduce the gross estate.
● Vanishing deductions are allowed when:
1. Present decedent died within 5 years from receipt of the property from a
prior decedent or donor;
2. Property on which the vanishing deduction is being claimed must be
located in the PH;
3. Property must have formed part of the taxable estate of the PRIOR
decedent, or of the taxable gift of the donor;
4. Estate tax on the prior succession or the donor's tax on the gift must have
been finally determined and paid;
5. Property must be identified as the one received from the prior decedent or
donor, or something acquired in exchange therefore;
6. No vanishing deduction on the property was allowable to the estate of the
prior decedent.
● How do we compute?
○ Step 1: Get the basis, either:
a. the value of the property in the prior estate or the value used for
donor's tax purposes OR
b. the value of the property in the present estate
■ … whichever is LOWER.
○ Step 2: The Step 1 value will be reduced by any payment made by the
present decedent on any mortgage or lien on the property (when such
mortgage/lien was used as a deduction on the prior dead guy's estate, or
gift of the donor)
○ Step 3: The Step 2 value shall be further reduced by:
■ (Step 2 value ÷ Gross estate ) x (Expenses, losses, indebtedness,
taxes and transfers for public use)
■ This is done to prevent double deduction
○ Step 4: Look at the chart below and multiply to get the value that you can
actually deduct.
% If received by inheritance or gift
100 Within 1 year prior to death of the decedent
80 More than 1 year but not more than 2 years
60 More than 2 years but not more than 3 years
40 More than 3 years but not more than 4 years
20 More than 4 years but not more than 5 years
● Example:
○ Tony Stank inherited land from his pop, Howard Stank, with a fair market
value of P500k at the time of the inheritance. 2 and a half years later,
Tony died after stealing Than Nosh's bejeweled glove and getting
electrocuted. The FMV of the land was P600k at that time. The gross
estate, on which the land was part, was P2M. Deductions from the gross
estate (not including the family home medical expenses, standard
deduction, or R.A. 4917 receivable) amounted to P400k.
○ What is the vanishing deduction?
■ Step 1: Get the lower value → P500k
■ Step 2: No mortgage mentioned, so → P500k
■ Step 3: P500k/2M x P400k = P100k
■ Basis of the vanishing deduction (500K - 100K) = P400k
■ Step 4: Vanishing deduction (60% of P400k) = P240k
● Ingles Notes
○ Rationale: Property which will be taxed in the estate proceedings was
already taxed within 5 years prior. It’s called vanishing because deductions
would vary depending on the year it was received.
○ What if the prior decedent already claimed vanishing deductions?
■ Present decedent can no longer claim vanishing deductions
Transfers for public use
(6) 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.
TAX 2 INGLES - WRAP IT B4 U TAP IT
● Transfers for public use – dispositions in a last will and testament, or a transfer to
take effect after death, in favor of the Government of the PH, or any political
subdivision thereof, for exclusively public purposes
● You can deduct the value of the property transferred to the government.
● Ingles Notes
○ What if it is donated to Pres. Duterte to fund his alleged extrajudicial
killings? Not deductible; not for public use (illegal).
Family home (zero sum)
(7) The Family Home. — An 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.
● Allowable deduction is the amount equivalent to the current FMV of the family
home.
○ But the maximum amount you can deduct is P10,000,000.
● The family home follows the definition of the Family Code:
○ Dwelling house (including the land where it's situated), where the husband
and wife, or a head of the family, and members of their family reside.
○ Deemed constituted on the house and lot from the time it's actually
occupied as a family residence and considered as such for as long as any
of its beneficiaries actually resides therein.
○ Actual occupancy shall not be considered interrupted or abandoned in
such cases as the temporary absence from the constituted family home
due to travel or studies or work abroad.
○ Family home is generally characterized by permanency.
○ A person may only constitute only 1 family home. (R.R. 12-2018)
● Head of the family – An unmarried or legally separated man or woman:
○ with 1 or both parents, OR with 1 or more brothers or sisters, OR with one
or more legitimate, recognized natural or legally adopted children living
with and dependent upon him or her for their chief support,
○ where such brothers or sisters or children are not more than 21 years old,
unmarried and not gainfully employed, OR where such children, brothers
or sisters, regardless of age are incapable of self-support because of
mental or physical defect, OR any of the beneficiaries mentioned in Article
154 FC who is living in the family home and dependent upon the head of
the family for legal support.
● Requisites for deducting the family home (R.R. 12-2018):
1. Must be the actual home of the decedent and his family at the time of his
death, as certified by the Barangay Captain of the locality;
2. Total value of the family home must be included as part of the gross estate
(zero-sum); and
3. Deduction must be equivalent to current FMV OR the extent of the
decedent's Interest (whether conjugal/community or exclusive property),
whichever is lower, but not exceeding P10M
● REMEMBER: For a person married at the time of death, and who was under a system
of conjugal partnership or absolute community –
○ Deduction for the family home is 1/2 of the FMV, but should not exceed
P10M, if such family home was conjugal property or community property
● Ingles Notes
○ A single person named Jack lives with his special needs brother who is 45
years old. Jack dies. Will the house of Jack be considered a family home?
■ Yes, because Jack is considered the head of the family under the
Family Code.
■ Under the TRAIN Law, no need to deal with ceilings anymore
EXCEPT for Family Home.
○ Note that FMV of the family home is INCLUDED in the computation of gross
estate, but the FMV of the family home is an allowable deduction up to the
amount of 10M (aka zero-sum)
○ An old person is about to die. He has real property held as a capital asset
and goes up to you and says I want to get rid of this property. I can either
sell it or just die and it will be transferred to my heirs. What is the best tax
option?
■ What is the tax implication if he sells it as a capital asset, if FMV of
real property is P10M?
● If he sells that property, he pays taxes worth 600K (6%
of 10M).
● If he sells it as a capital asset he pays CGT + DST pa
■ If he dies and that’s his only property (gross estate is P10M) , how
much taxes does he have to pay? Don’t assume it’s a family
home.
● He needs to pay estate tax of 300k (6% x 5M net taxable
estate)
● You subtract a standard deduction of 5M from gross
estate.
■ 2nd situation is better tax-wise in favor of the taxpayer.
○ Considerations to take into account:
■ Who you’re giving the property to – If it’s not to heirs then it
doesn’t really matter
■ If you sell – whether other heirs’ legitimes will be impaired
TAX 2 INGLES - WRAP IT B4 U TAP IT
○ That’s why when you’re studying tax, you have to look at everything from a
comparative lens. Don’t get stuck at estate tax when someone dies. You
have to look at the one who dies, the wishes of the future decedent, and
where the properties should go to.
Amounts receivable under R. A. 4917 ((zero-sum)
(8) Amount Received by Heirs Under Republic Act No. 4917. — Any amount received by
the heirs from the decedent-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.
● Retirement benefits received by employees of private firms in accordance with
a reasonable benefit plan maintained by the employer are EXEMPT from all
taxes, provided that the retiring employee:
1. has been in the services of the same employer for at least 10 years; and
2. is not less than 50 years old at the time of his retirement (aka 50 yrs old
and above)
● Amount must:
1. have been received by the heirs of the decedent-employee as a
consequence of the latter's death, and
2. included in the gross estate of the decedent. (zero sum)
Net share of the surviving spouse in the conjugal partnership, if any
Sec. 86. (C) Share in the Conjugal Property. — The net share of the surviving spouse in
the conjugal partnership property as diminished by the obligations properly chargeable to
such property shall, for the purpose of this Section, be deducted from the net estate of the
decedent.
● If the decedent was married, we'll have to consider the share of the SS in the
conjugal partnership.
● Share of the SS must be removed to ensure that only the decedent's interest in the
estate is taxed. (More on this later!)
Deductions for a NONRESIDENT, NON CITIZEN of the Philippines
(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:
5. Net Estate of Married Persons
Sections 85-86 (as amended by TRAIN)
1. Standard Deduction. — An amount equivalent to Five hundred thousand pesos
(P500,000);
2. That proportion of the deductions specified in paragraphs (2), (3) , and (4) of
Subsection (A) of this Section which the value of such part bears to the value of
his entire gross estate wherever situated.
3. 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. (As amended by
TRAIN)
● The estate of a nonresident alien decedent at the time of death, with properties
within and outside the PH, is subject to tax only on his/her estate within the PH.
● The estate of a nonresident alien in the PH is allowed deductions for:
1. Standard deduction of P500,000;
2. The proportion of the total losses and indebtedness which the value of
such part bears to the value of his entire gross estate wherever situated.
○ This includes:
i. Claims against the estate;
ii. Claims against insolvent persons;
iii. Unpaid mortgages, taxes, and casualty losses;
○ Computation for allowable deduction for the proportion of total
losses and indebtedness:
(Gross estate, Philippines ÷ Gross estate, World) x ( claims against
the estate, claims against insolvent persons, unpaid mortgages,
taxes, and casualty losses)
3. Vanishing deductions;
4. Transfers for public use; and
5. Net share of the SS in the conjugal property or community property.
● Ingles Notes
○ In short, a non-resident alien is entitled to all ordinary deductions AND to
a standard deduction of 500k. No special deductions
○ I won't ask you to compute this but know the theory that you’re only
allowed to deduct the portion of properties found in the PH
○ What's the gross estate of a nonresident, noncitizen?
■ Properties in the PH except IPPs subject to total reciprocity rule
○ How do you know if an alien is a resident of the PH?
■ If their domicile is in the PH. That’s what makes them residents
of the PH (not the 180 days rule - that’s for income tax)
Sec. 85. (H) 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
TAX 2 INGLES - WRAP IT B4 U TAP IT
estate.
Sec. 86. (C) Share in the Conjugal Property. — The net share of the surviving spouse in
the conjugal partnership property as diminished by the obligations properly chargeable to
such property shall, for the purpose of this Section, be deducted from the net estate of the
decedent.
Gross Estate of a Decedent
● The gross estate of a decedent who was married and who was under the system of
absolute community of property or conjugal property of gains during the marriage
consists of:
1. The EXCLUSIVE properties of the decedent, and
2. The COMMUNITY properties
● EXCLUSIVE properties of the decedent :
1. Property acquired during the marriage by gratuitous title
(inheritance/donation) by either spouse, and the fruits and income thereof
■ XPN: Unless the donor, testator, or grantor states that they will
be part of the community property
2. Property for personal and exclusive use of either spouse
■ XPN: But jewelry will form part of the community property
3. Property acquired BEFORE the marriage by either spouse who has
legitimate descendants by a former marriage, and the fruits as well as the
income of such property
4. Proceeds of life insurance taken out by the decedent on his own life, when
includible in the gross estate, if the premiums were paid out of exclusive
funds.
● COMMUNITY properties:
1. All properties owned by the spouses at the time of the celebration
marriage or acquired thereafter (presumed to belong to the community)
2. The family home constituted by the husband and wife is community
property.
3. Proceeds of life insurance taken out by the decedent on his own life, when
includible in the gross estate, if the premiums were paid out of community
funds
Deductions from gross estate
● Same rules and ceilings which were discussed on the part of deductions will apply.
● Example: Elvis Rooney, a resident Filipino, was married under the system of ACP
during the marriage. He died leaving a family home worth P30M, some real estate
worth P14M and a condo unit he was given by a friend during his marriage worth
P5M. He had a claim against Fifi San Pedro, an insolvent person, worth P2M
○ Step 1: Determine what are conjugal/community property and what are
exclusive. Add both up to get the gross estate.
■ 30M family home + 14M real estate + 5M condo unit = 49M
■ Gross estate = P49M
○ Step 2: Subtract your ordinary deductions from the conjugal/ community
property, to get your net conjugal/community estate.
■ 49M - 2M claim against insolvent debtor - 5M standard deduction
= 42M
■ Net conjugal/community estate = P42,000,000
○ Step 3: Get the 1/2 share of the surviving spouse from the conjugal/
community property by dividing Step 2 by 2. Set that aside.
■ 42M ÷ 2 = 21M
■ Share of surviving spouse = P21,000,000
○ Step 4: Subtract your ordinary deductions and special deductions from
the gross estate (your amount in Step 1). You'll end up with the net estate
(of the decedent).
■ 49M gross estate - 2M claim against insolvent person - 10M family
home - 5M standard deduction = 32M
■ Net estate = P32,000,000
■ Ordinary deductions = Claim against insolvent person -
P2,000,000
■ Special deductions = Family home P10,000,000 (why
P10,000,000 only? Cos that's the max!)
■ Standard deduction = P5,000,000 (Don't forget this. The facts
won't mention this but you still have to deduct this!)
○ Step 5: Subtract the 1/2 share of the surviving spouse (amount in Step 3)
from your net estate to get the net taxable estate of the decedent.
■ 32M - 21M = 11M
■ Net taxable estate = P11M (then multiply by 6% as the estate tax
rate)
● Ingles Notes
○ Computations are based on RR
○ Unpaid real property taxes because if it’s a deduction based on a claim
against a insolvent person, it will mess up computations in 298
○ Just study the steps and theories behind the steps. I’m not gonna ask you
to compute in MT but it will be helpful to know the theory behind it bec
that’s what lawyers are supposed to do.
TAX 2 INGLES - WRAP IT B4 U TAP IT
6. Exemption from Estate Tax
Section 87, Tax Code
SEC. 87 Exemption of Certain Acquisitions and Transmissions. – 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.
The following are EXEMPT from estate tax:
1. Merger of usufruct in the owner of the naked title;
2. Transmission or delivery of the inheritance or legacy by the fiduciary heir/legatee
to the fideicommissary;
a. RECALL SUCCESSION: The testator imposes what is essentially a restriction
or burden on the first heir, couple with a selection of a subsequent
recipient of the property. ("I institute A to 1/2 of my estate and impose
upon him the obligation to preserve and transmit the property upon his
death to X and Y.")
3. Transmission from the 1st heir/legatee/donee in favor of another beneficiary in
accordance with the desire of the predecessor;
4. All bequests, devises, legacies, or transfers to social welfare, cultural and
charitable institutions, no part of the net income inures to the benefit of any
individual, provided that not more than 30% of the said bequests, devises, legacies
or transfers shall be used by such institutions for the administration purposes;
5. Irrevocable life insurance to someone other than the estate, administrator,
executor;
6. GSIS/SSS benefits;
7. Retirement benefits of private firms approved by the BIR; and
8. Separate property of the surviving spouse
Tax Credit for Foreign Estate Tax (Sec. 86)
(D) Tax Credit for Estate Taxes paid to a Foreign Country. -
(1) In General. - The tax imposed by this Title shall be credited with the amounts of any
estate tax 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 decedent's net estate situated within such country taxable under this Title
bears to his entire net estate; 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 decedent's net estate situated
outside the Philippines taxable under this Title bears to his entire net estate.
● To minimize the onerous effect of taxing the same property twice, a tax credit
against PH estate tax is allowed for estate taxes paid to foreign countries:
○ (One foreign country) - (what you paid to the foreign country)
○ Tax credit limit = (net foreign estate/entire estate) x (tax here in the PH)
● Between what you paid to the foreign country and the tax credit limit here, you
choose whatever is lower as what you can credit.
● See example in donor’s tax part
● If tax is paid to 2 or more foreign countries:
○ Limitation A: see above
○ Limitation B:
■ Tax credit limit = (total foreign net estate/entire net estate) x (tax
here in the PH)
● Between limitations A and B, choose whatever is lower as your credit.
● Ingles Notes:
○ Skipped for recit. Just know the theory behind it
7. Administrative Provisions (Sec. 89-97, as amended by TRAIN)
Estate Tax Returns
NOTE: 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
TAX 2 INGLES - WRAP IT B4 U TAP IT

d. other similar property for which clearance from the BIR is required as a
a nonresident, not a citizen of the Philippines, of that part of his gross estate
condition precedent for the transfer of ownership thereof in the name of
situated in the Philippines;
the transferee
2. The deductions allowed from gross estate in determining the estate as defined in
Section 86; and
The return shall be under oath and shall include the following:
3. Such part of such information as may at the time be ascertainable and such
1. Value of the gross estate at the time of the decedent ‘s death
supplemental data as may be necessary to establish the correct taxes.
○ XPN: for nonresident/noncitizens of the PH, the value of the part of the
gross estate here in the PH;
Provided, however, That estate tax returns showing a gross value exceeding Five million
2. Deductions allowed from the gross estate;
pesos (P5,000,000) shall be supported with a statement duly certified to by a Certified
3. Whatever is necessary to establish the correct estate tax.
Public Accountant containing the following:
4. If the estate tax return shows that the gross estate exceeds P5M, it should be
a. Itemized assets of the decedent with their corresponding gross value at the time
accompanied by a statement certified by a CPA.
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;
Ingles Notes
b. Itemized deductions from gross estate allowed in Section 86; and
● Before TRAIN, there were graduated rates similar to income tax but now there’s just
c. The amount of tax due whether paid or still due and outstanding.
a flat rate. Now if your property is let’s say 3M, no need to file an estate tax return.
● When do you still have to file an estate tax return if your gross estate is below 5M?
(B) Time for Filing. - For the purpose of determining the estate tax provided for in Section
○ If property is registered you still need to file (e.g. shares of stock, real
84 of this Code, the estate tax return required under the preceding Subsection (A) shall be
property like condos) - even if they're small in value, you still need to file
filed within one (1) year from the decedent's death.
an estate tax return even if u dont have to pay.
○ WHY is that so? As long as it's registered in the PH, they wanna know that
A certified copy of the schedule of partition and the order of the court approving the same
the owner is deceased and you need clearance from BIR to transfer
shall be furnished the Commissioner within thirty (30) days after the promulgation of such
property to heirs.
order.
○ So you still need a Certificate Authorizing Registration, which is only
given when you file an estate tax return.
(C) Extension of Time. - The Commissioner shall have authority to grant, in meritorious
○ This is one of the problems when settling estates/taxes because it’s very
cases, a reasonable extension not exceeding thirty (30) days for filing the return.
tedious. Even if you only have really small property, the RD or CorpSec will
not allow transfer of that property to the heirs unless you get the BIR
(D) Place of Filing. - Except in cases where the Commissioner otherwise permits, the
clearance on CAR
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
Time for filing
municipality in which the decedent was domiciled at the time of his death or if there be no
● GR: Estate tax return should be filed within 1 year from the decedent's death.
legal residence in the Philippines, with the Office of the Commissioner.
● XPN: BIR can extend this in meritorious cases, but not more than 30 days.

An estate tax return must be filed when the estate is: Substantial compliance
1. Subject to estate tax; or ● A return need not be complete in all particulars. It is sufficient if it complies
2. Regardless of the amount of the gross estate, where gross estate consists of: substantially with the law.
a. registered or registrable property, ● There is substantial compliance when:
b. motor vehicle or 1. The return is made in good faith and is not false or fraudulent;
c. shares of stock, or 2. It covers the entire period involved; and
TAX 2 INGLES - WRAP IT B4 U TAP IT

3. It contains information as to the various items of income, deductions and

credits with such definiteness as to permit the computation and
(C) Payment by Installment. — In case the available cash of the estate is insufficient to pay
assessment of the tax.
the total estate tax due, payment by installment shall be allowed within two (2) years from
○ CIR v. Gonzales (1966)
the statutory date for its payment without civil penalty and interest. (As amended by
● Doctrine: see 3rd requisite for substantial compliance
TRAIN)
● Where the return was made on the wrong form, it was
held that the filing thereof did not stop the running of
(D) Liability for Payment. — The estate tax imposed by Section 84 shall be paid by the
the period of limitations
executor or administrator before delivery to any beneficiary of his distributive share of the
● Where the return was very deficient, there was no
estate. Such beneficiary shall to the extent of his distributive share of the estate, be
return at all.
subsidiarily liable for the payment of such portion of the estate tax as his distributive share
● Ingles: The problem with the return filed is that the
bears to the value of the total net estate.
information is insufficient. There were several
properties of a substantial value that were not
For the purpose of this Chapter, the term "executor"or "administrator" means the
included and there were no heirs indicated as well.
executor or administrator of the decedent, or if there is no executor or administrator
● Approval of probate court is NOT mandatory in collection of estate taxes.
appointed, qualified, and acting within the Philippines, then any person in actual or
constructive possession of any property of the decedent.
Payment of Tax
Sec. 91. Payment of Tax. — ● When to pay:
○ GR: Estate tax shall be paid at the time the return is filed (by the executor,
(A) Time of Payment. — The estate tax imposed by Section 84 shall be paid at the time administrator, or heirs)
the return is filed by the executor, administrator or the heirs. ○ XPN: Commissioner may extend the payment of such tax.
■ Should not exceed:
(B) Extension of Time. — When the Commissioner finds that the payment on the due date ● 5 years in case of judicial settlement
of the estate tax or of any part thereof would impose undue hardship upon the estate or ● 2 years if extrajudicial settlement.
any of the heirs, he may extend the time for payment of such tax or any part thereof not to ■ Running of the period of limitation for assessment shall be
exceed five (5) years, in case the estate is settled through the courts, or two (2) years in case suspended for the period of such extension.
the estate is settled extrajudicially. In such case, the amount in respect of which the ● How to pay:
extension is granted shall be paid on or before the date of the expiration of the period of ○ TRAIN now allows payment by installment for estate tax, which should be
the extension, and the running of the Statute of Limitations for assessment as provided in made within 2 years
Section 203 of this Code shall be suspended for the period of any such extension. ○ RR 12-2018 also allows the partial disposition of estate and the
application of its proceeds to the estate tax due.
Where the taxes are assessed by reason of negligence, intentional disregard of rules and ● Who will pay
regulations, or fraud on the part of the taxpayer, no extension will be granted by the ○ Estate tax shall be paid by the executor or administrator BEFORE
Commissioner. delivery to any beneficiary of his distributive share of the estate.
○ The inheritance tax, although charged against the account of each
If an extension is granted, the Commissioner may require the executor, or administrator, or beneficiary, should be paid by the executor or administrator.
beneficiary, as the case may be, to furnish a bond in such amount, not exceeding double ○ Such beneficiary shall be subsidiarily liable for the payment of such tax to
the amount of the tax and with such sureties as the Commissioner deems necessary, the extent of his share.
conditioned upon the payment of the said tax in accordance with the terms of the
extension.
TAX 2 INGLES - WRAP IT B4 U TAP IT
○ CIR v. Gonzales (1966)
■ Doctrine: When there are 2 or more executors, all of them are
severally liable for the payment of the estate tax.
■ The inheritance tax, although charged against the account of
each beneficiary, should be paid by the executor or
administrator.
■ It is immaterial that Lilia administers only 1/3 of the estate; as an
administratrix, she is liable for the entire estate tax.
○ Government of the Philippines v. Pamintuan (1930)
■ Doctrine: Claims for income tax need NOT be filed with the
committee on claims and appraisals in the course of testate
proceedings. The amount thereof may be collected AFTER the
distribution of the decedent’s estate among his heirs, who shall
be liable in proportion to their share in the inheritance.
■ The administration proceedings of the late Pamintuan having
been closed, and his estate distributed among his heirs, the
latter are responsible for the payment of the income tax here in
question in proportion to the share of each in said estate
■ Heirs are not required to respond with their own property for the
debts of their deceased ancestors. But even after the partition of
an estate, heirs and distributees are liable individually for the
payment of all lawful outstanding claims against the estate in
proportion to the amount or value of the property they have
respectively received from the estate. The hereditary property
consists only of that part which remains after the settlement of
all lawful claims against the estate, for the settlement of which
the entire estate is first liable.
○ Ingles Notes
■ Heirs will be liable even if it is the decedent who should be liable
for income tax because the heirs are liable individually for the
payment of all lawful outstanding claims against the estate in
proportion to their respective shares.
■ Can the gov’t go straight after the heirs? Yes see Pamintuan
CIR v. Pineda - 2 ways of collecting estate tax
● The government, in collecting unpaid taxes accruing BEFORE the death of the
decedent, has 2 ways of collecting the said taxes:
1. By going after all the heirs and collecting from each one of them the
amount of the tax proportionate to the inheritance received; or
○ Remedy adopted in Government v. Pamintuan when the gov’t
filed an action against all the heirs for the collection of the tax.
2. By subjecting said property of the estate which is in the hands of an heir or
transferee to the payment of the tax due the estate. (or, go against 1 heir
for the entire tax, subject to the heirs right of contribution from his
co-heirs)
■ Remedy adopted in CIR v. Pineda
■ Pursuant to the lien created by Sec. 315 of the Tax Code
● Manuel is liable as an heir AND as a holder-transferee of the property
○ As an heir: Liable only for the part of tax proportionate to his share
○ As a holder-transferee: Liable for the tax up to the amount of property in
his possession. The Government has a lien over Manuel’s share because
the estate is liable for unpaid income taxes.
○ Government can subject the property in Manuel’s possession (P2,500 he
received) to satisfy the P760.28 assessment. After such payment, Manuel
has a right of contribution from his co-heirs.
Ingles Notes
● Who pays the estate tax? Executor or the beneficiary. Beneficiary is only liable up to
the extent of the amount that they received
Miscellaneous Provisions
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
TAX 2 INGLES - WRAP IT B4 U TAP IT

upon his return, or if no return is made by the executor, administrator, or any heir, and due thereon have been paid is shown.
then the amount by which the tax exceeds the amounts previously assessed (or
collected without assessment) as a deficiency; but such amounts previously If a bank has knowledge of the death of a person, who maintained a bank deposit account
assessed or collected without assessment shall first be decreased by the alone, or jointly with another, it shall allow any withdrawal from the said deposit account,
amounts previously abated, refunded or otherwise repaid in respect of such tax. 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
SEC. 94. Payment before Delivery by Executor or Administrator. - No judge shall time of withdrawal by any one of the joint depositors and such statement shall be under
authorize the executor or judicial administrator to deliver a distributive share to any party oath by the said depositors.
interested in the estate unless a certification from the Commissioner that the estate tax has
● TRAIN now allows the withdrawal of bank deposits of dead folks, subject to a final
been paid is shown.
withholding tax of 6%:
○ Provided that the withdrawal shall only be paid within 1 year from the
SEC. 95. Duties of Certain Officers and Debtors. - Registers of Deeds shall not register in
death of the decedent (RR 12-2018)
the Registry of Property any document transferring real property or real rights therein or
● Ingles Notes
any chattel mortgage, by way of gifts inter vivos or mortis causa, legacy or inheritance,
○ One of the shareholders in a company died. The daughter of the
unless a certification from the Commissioner that the tax fixed in this Title and actually due
shareholder asks that her mom’s share be transferred to her. Can the
thereon had been paid is show, and they shall immediately notify the Commissioner,
Corporate Secretary transfer the share?
Regional Director, Revenue District Officer, or Revenue Collection Officer or Treasurer of the
■ Yes, as long as there is a certification from the Commissioner
city or municipality where their offices are located, of the nonpayment of the tax
that the taxes have been paid
discovered by them. Any lawyer, notary public, or any government officer who, by reason of
■ There should be no transfer of anything in the corporate books
his official duties, intervenes in the preparation or acknowledgment of documents
unless there is a certification from the BIR showing that the taxes
regarding partition or disposal of donation inter vivos or mortis causa, legacy or
have been paid.
inheritance, shall have the duty of furnishing the Commissioner, Regional Director,
■ This certification is called Certification Authorizing
Revenue District Officer or Revenue Collection Officer of the place where he may have his
Registration – it certifies that taxes have been paid and it
principal office, with copies of such documents and any information whatsoever which
authorizes the registration to the new owner.
may facilitate the collection of the aforementioned tax. Neither shall a debtor of the
○ Decedent dies, so the heir withdraws money from the decedent’s bank. Is
deceased pay his debts to the heirs, legatee, executor or administrator of his creditor,
this allowed?
unless the certification of the Commissioner that the tax fixed in this Chapter had been
■ Yes, the law allows the withdrawal, provided that it is made
paid is shown; but he may pay the executor or judicial administrator without said
within 1 year from the date of the death of the decedent, and it
certification if the credit is included in the inventory of the estate of the deceased.
shall be subject to a FWT of 6%.
■ “All withdrawal slips shall contain a statement to the effect that
SEC. 96. Restitution of Tax Upon Satisfaction of Outstanding Obligations. - If after the
all of the joint depositors are still living at the time of withdrawal
payment of the estate tax, new obligations of the decedent shall appear, and the persons
by any one of the joint depositors and such statement shall be
interested shall have satisfied them by order of the court, they shall have a right to the
under oath by the said depositors.”
restitution of the proportional part of the tax paid.
● It’s as if you're paying the estate tax portion
○ Ur making them withdraw imbis na paying estate tax
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
To KNOW:
anonima, partnership, business, or industry organized or established in the Philippines any
● What is gross estate
share, obligation, bond or right by way of gift inter vivos or mortis causa, legacy or
● Temporal requirement (time period to look at to peg value of gross estate)
inheritance, unless a certification from the Commissioner that the taxes fixed in this Title
TAX 2 INGLES - WRAP IT B4 U TAP IT

● What is included in gross estate (Not only those in the name of the decedent but the
Renunciation Subject to tax?
other things there that make things more complicated)
● Deductions
Renunciation by the SS of his/her share in the conjugal Subject to
● When you have to pay
partnership or absolute community after dissolution of donor's tax
● Why do you have to pay
the marriage in favor of the heirs
● When to file estate tax returns
● What happens if decedent still has accrued debts to gov’t before and after death
General renunciation by an heir, including the surviving Not subject to
B. Donor’s Tax spouse, of share in the hereditary estate left by decedent donor's tax

1. General Principles & Determination of the Donor’s Tax Renunciation by an heir, including the surviving spouse, of Subject to
share in the hereditary estate to a specified and donor's tax
In General identified heir to the exclusion or disadvantage of the other
Sections 98 (as amended by TRAIN) co-heirs (Specific exclusion or specific grant)

SEC. 98. Imposition of 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.
● Donor’s tax will be levied, assessed, collected, and paid upon the transfer by any
person, resident or nonresident, of property by gift.
○ Property can be real or personal, tangible or intangible
○ Transfer can be in trust or otherwise
○ Gift can be direct or indirect
● Donor's tax shall not apply unless and until there is a completed gift.
○ Transfer of property by gift is perfected from the moment the donor
knows of the acceptance by the donee.
○ It is completed by the delivery, either actually or constructively, of the
donated property to the donee.
○ Thus, the law in force at the time of the perfection/completion of the
donation shall govern the Imposition of the donor's tax.
(R.R. 12-2018)
● A gift that is incomplete because of reserved powers becomes COMPLETE when
either:
1. Donor renounces the power; or
2. His right to exercise the reserved power ceases because of the happening
of some event or contingency or the fulfillment of some condition, other
than because of the donor's death.
● Implications of Renunciation (R.R. 12-2018)
Ingles Notes
● Who pays the donor’s tax?
○ The donor. Take note of this because some of the cases talk about gift tax,
which is assessed with the donee.
● Tax rate to be paid by donor:
○ 6% computed on the basis of the total gifts in excess of P250k made
during the calendar year.
● If the donee does not accept the donation, is donor’s tax imposed?
○ No
● When is the reckoning point for donor’s tax?
○ Donor’s tax – Time of completion of donation.
■ If perfection and completion at a different time, follow the value
at the time of the completion because the donor's tax is levied
upon the transfer and hence, the transfer would have happened
at the completion of the donation.
○ RECALL: Estate tax – Time of death
● Why is a general renunciation not subject to donor’s tax while a specific renunciation
is subject to donor’s tax?
○ Specific renunciation – intention of donor is to give a gift to a specified
person. It’s considered a gift, because similar to the estate tax, it’s as if you
have ownership over the share and you signify who you want to transfer it
to. That’s a badge of ownership.
○ General renunciation – there is no such intention.
○ NOTE: Implications of renunciation is always asked in the bar
● What if there is one spouse with one child, and the spouse makes a general
renunciation? Is that subject to donor’s tax?
TAX 2 INGLES - WRAP IT B4 U TAP IT

○ Yes, subject to donor’s tax.

Provided, still further, That no tax shall be collected under this Title in respect of intangible
● What’s an example of a general renunciation?
personal property:
○ “I renounce my inheritance”
a. if the decedent at the time of his death or the donor at the time of the donation
● Give me a specific renunciation
was a citizen and resident of a foreign country which at the time of his death or
○ “I renounce my inheritance in favor of my eldest child” – to the exclusion of
donation did not Impose a transfer tax of any character, in respect of intangible
her other children.
personal property of citizens of the Philippines not residing In that foreign
● There are 3 heirs, A B and C.
country, or
○ If A renounces her inheritance – Is that subject to donor’s tax? NO
b. if the laws of the foreign country of which the decedent or donor was a citizen
○ If heir A says im renouncing my share in the estate but please give it to A is
and resident at the time of his death or donation allows a similar exemption from
that subject to donor’s tax? Yes subject to donor’s tax
transfer or death taxes of every character or description In respect of intangible
● What if there are only 2 heirs and A says I am only renouncing my share in my estate.
personal property owned by citizens of the Philippines not residing in that
Subject to donor’s tax?
foreign country.
○ Yes since there’s automatically a favored person who will receive your
share.
○ Isn’t that a general renunciation? Yes but only 1 person can receive the 2 kinds of donors (similar to estate tax)
same. 1. Resident or citizen of the Philippines
○ What about those not part of the legitimes? Will they not get a share? 2. Nonresident, not citizen of the Philippines
■ No, compulsory heirs exclude intestate heirs (collateral relatives
and shiit) If the donor is a resident or a citizen of the PH, gross gifts would consist of:
1. Real estate, regardless of location
(NOTE: RMC 03-2019 was assigned in the syllabus but it’s about VAT refund claims and it 2. Tangible personal property, regardless of location
wasn’t even asked about so not including it na. RR 12-2018 is cited all throughout) 3. Intangible personal property, regardless of location

Gross Gifts If the donor is a nonresident and not a citizen of the PH, gross gifts would consist of:
1. Real estate located in the Philippines
Sec. 104. Definitions. — For purposes of this Title, the terms "gross estate "and "gifts"
2. Tangible personal property located in the Philippines
include real and personal property, whether tangible or intangible, or mixed, wherever
3. Intangible personal property located in the Philippines, subject to the "reciprocity
situated: Provided, however, That where the decedent or donor was a nonresident alien at
clause" (Similar to the rules for estate tax)
the time of his death or donation, as the case may be, his real and personal property so
a. If the donor at the time of the donation was a citizen and resident of a
transferred but which are situated outside the Philippines shall not be included as part of
foreign country which at the time of the donation did not impose a
his "gross estate" or "gross gift":
transfer tax of any character in respect of IPP of Filipino citizens not
residing in that country, or
Provided, further, That franchise which must be exercised in the Philippines; shares,
b. If the laws of the foreign country of which the donor was a citizen and
obligations or bonds issued by any corporation or sociedad anonima organized or
resident at the time of donation allow a similar exemption from transfer
constituted in the Philippines in accordance with its laws; shares, obligations or bonds by
taxes of every character in respect of IPP owned by citizens of the PH not
any foreign corporation eighty-five percent (85%) of the business of which is located in the
residing in that country
Philippines; shares, obligations or bonds issued by any foreign corporation if such shares,
c. RECALL: The following are IPPs within the PH:
obligations or bonds have acquired a business situs in the Philippines; shares or rights in
i. Franchise which must be exercised in the Philippines
any partnership, business or industry established in the Philippines, shall be considered as
ii. Shares, obligations, or bonds issued by any corporation or
situated in the Philippines:
sociedad anonima organized or constituted in the Philippines in
accordance with its laws
TAX 2 INGLES - WRAP IT B4 U TAP IT
iii. Shares, obligations or bonds issued by any foreign corporation
(FC) 85% of the business of which is located in the Philippines
iv. Shares, obligations or bonds issued by a FC if such shares,
obligations, or bonds have acquired a business situs in the
Philippines; and
v. Shares or rights in any partnership, business or industry in the
Philippines
Pirovano v. CIR (1965) - proceeds of life insurance taken out by a corporation on the life of
its President; subject to donor’s tax
● The heirs wanted to consider the conveyance remuneratory so it wouldn't be taxed
as a gift
● Doctrine: A donation made by a corporation to the heirs of a deceased officer out of
gratitude for his past services is subject to donor's tax. It is not subject to deduction
for the value of said services that do not constitute a recoverable debt.
● Thus, the proceeds of life insurance taken out by a corporation on the life of its
President is subject to donor’s tax when the corporation gives the proceeds to the
President’s children.
● Like "love and affection", gratitude has no economic value and is not
"consideration" in the sense that the word is used in this section of the Tax Code.
● There is nothing on record to show that Pirovano was not compensated for his
services as President/GM while he was alive. The President’s successful activities
cannot be deemed consideration for the gifts to his heirs, since the services were
rendered long before the corporation ceded the value of the life policies to said
heirs. Such services were not the result of one bargain or of a mutual exchange of
promises
● Ingles Notes:
○ If I give everyone in class a +5 across the board, is that subject to donor’s
tax? No. It’s not considered property contemplated by donor’s tax.
Badges of a donation inter vivos
1. Made out of love and affection
2. Reservation of usufruct in favor of the donor (e.g. naked ownership has been
transferred to donee)
3. Donor reserved certain properties for himself (so he still had something to live by);
4. Donee accepted the donation (note: no need for acceptance if donation mortis
causa)
● Spouses Gestopa v. CA (2000) - acceptance clause is a mark of a donation inter
vivos
○ Doctrine: An acceptance clause is a mark that the donation is inter vivos.
Donations mortis causa, being in the form of a will, are not required to be
accepted by the donee during the donors' lifetime.
○ First, the granting clause shows that Diego donated the properties out of
love and affection for the donee. This is a mark of a donation inter vivos.
○ Second, the reservation of lifetime usufruct indicates that the donor
intended to transfer the naked ownership over the properties.
○ Third, the donor reserved sufficient properties for his maintenance in
accordance with his standing in society, indicating that the donor intended
to part with the 6 parcels of land.
○ Lastly, the donee accepted the donation. Acceptance is a requirement for
donations inter vivos.
● Ingles Notes
○ What’s the tax implication if it’s a donation inter vivos?
■ Donor will have to pay donor’s tax
○ If it’s a donation mortis causa, it will be subject to estate tax since it will be
upon death of the donor
○ What’s a usufruct? Right to receive, use benefit on a property even if legal
title is transferred to the donee
Ingles Notes
● If you receive something, would you prefer that it be characterized as donation or
based on past services?
○ Donation. More benefit for donee because it is the donor who will pay the
donor’s tax.
● Will a donation be subject to income tax on the donee’s end?
○ No. Gifts are exempted from income tax under Sec. 32.
○ RECALL: Sec 32: Exclusions from Gross Income – (3) Gifts, Bequests, and
Devises. - The value of property acquired by gift, bequest, devise, or
descent: Provided, however, That income from such property, as well as
gift, bequest, devise or descent of income from any property, in cases of
transfers of divided interest, shall be included in gross income.
● Is a donation by a Filipino citizen of property in Switzerland subject to donor’s tax?
○ Yes. Property of a Filipino citizen regardless of location is subject to
donor’s tax.
● Non resident aliens in the PH - what properties are subject to PH donor’s tax?
○ All properties found in the PH, except IPPs subject to reciprocity rule
Also considered as gifts:
1. Transfers for insufficient consideration; and
2. Cancellation of indebtedness.
TAX 2 INGLES - WRAP IT B4 U TAP IT
1. Transfers for Insufficient Consideration
SEC. 100. 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, and free
from any donative intent), will be considered as made for an adequate and full
consideration in money or money's worth. (As amended by TRAIN)
A transfer of real/personal property will be considered a donation/ gift and subject to the
donor's tax when:
1. The transfer was for less than adequate and full consideration,
2. Such transfer was effective during his lifetime (inter vivos), and
3. Other than REAL property in Sec. 24(D), NIRC i.e. the property was NOT subject to
final capital gains tax (capital asset)
○ Real properties classified as capital assets under Sec. 24(D) → not subject
to donor’s tax, subject to 6% CGT on gross selling price/FMV (whichever is
higher)
○ Real properties classified as ordinary assets → subject to donor’s tax AND
income tax, not subject to CGT
○ Note: you can transfer capital assets that are not real property (e.g.
paintings not used for business)
● PRIOR TO TRAIN: Absence of donative intent did not matter (prior to TRAIN)
○ Philippine American Life and General Insurance v. CIR (2014)
■ Doctrine: The absence of donative intent did not matter, as Sec.
100 categorically states that the amount by which the FMV of the
property exceeds the value of the consideration shall be deemed
a gift. Thus, when the shares were sold for lower than their book
value, the difference in price is considered a donation by fiction
of law and subject to donor’s tax. The absence of donative
intent, does not exempt the sales of stock transaction from
donor's tax since Sec. 100 of the NIRC categorically states that
the amount by which the FMV of the property exceeded the value
of the consideration shall be deemed a gift. Thus, even if there is
no actual donation, the difference in price is considered a
donation by fiction of law.
■ NOTE: this case was PRIOR to TRAIN.
● GENERAL RULE: The amount by which the value of the property exceeded the
consideration received shall be considered a donation.
○ Example: Bettina Cooper sold her car to Ronnie Lodge for P100k. It had an
FMV of P280k. The P180k will be considered a donation and thus subject to
tax.
● TRAIN now gives an EXCEPTION: When the transfer is made in the ordinary course
of business, it will be considered as made for an adequate and full consideration.
The requisites for this type are:
1. Bona fide transaction;
2. Arm’s length; and
3. Free from any donative intent
● Ingles Notes
○ People were wary of situations where they would unwittingly expose
themselves to donors tax as what happened in this case, that's why the
insufficient transfer consideration provision is here so that people won’t
sell stuff below FMV to save on taxes. But TRAIN comes along and gives an
exception (see above)
○ This is because sometimes, businesses have to sell property for a lower
consideration especially if they’re going out of business, as long as the 3
requisites are met
○ Arms length - what principle in tax do you remember?
■ Transfer pricing in Tax 1
■ RECALL: Transfer pricing is the standard for determining the
appropriate transfer prices of controlled transactions of
associated enterprises. It requires that a transaction with a
related party should be made under comparable conditions and
circumstances as a transaction with an independent party.
Meaning if 2 associated enterprises derive profits at levels above
or below the comparable market level solely by reason of the
special relationship between them, the profits will be deemed as
non arm's length. In such a case, tax authorities can make the
necessary adjustments to the taxable profits of the related
parties in their jurisdictions so as to reflect the true value that
would otherwise be derived on an arm’s length basis.
○ But even given this TRAIN amendment, what does RMC 23-19 say?
■ It is the transferor’s burden to prove.
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■ Even with TRAIN, it doesn't amend PhilAm Life because in the
end you still have to prove and justify to the BIR examiner that
you don’t need to pay donor’s tax on this
● What are the implications if the real property sold was a capital asset as against
an ordinary asset?
○ RECALL: Capital assets - property held by taxpayer but does NOT include:
■ Stock in trade of the taxpayer
■ Other property of a kind which would properly be included in the
inventory of the taxpayer
■ Property held by the taxpayer primarily for sale to customers in
the ordinary course of his trade or business
■ Property used in the trade or business of a character which is
subject to allowable depreciation
■ Real property used in trade or business of the taxpayer.
■ NOTE: Definition under Sec 39 of capital assets is negative in
nature, hence assets above are ordinary assets.
■ Examples of capital assets:
● Personal property not used in trade or business
● Movable properties on one’s residence, vehicles,
appliances, furniture, jewelry, sculpture of a zombie,
securities held by one by way of investment
● Real property not used in trade or business
● Residential house and lot, idle land not used in
business operations.
○ Example: Real property had a cost of P100k, an FMV of P200k, but sold for
only P170k.
■ If it were classified as a capital asset → taxed 6% of the FMV
(remember, base is either the consideration or the FMV,
whichever is higher)
● 6% x 200k = 12k
■ If it were classified as an ordinary asset → taxed twice
● Will be taxed for income tax purposes (tax base of P70k
= 170k - 100k)
● Will be taxed for donor's tax (tax base of P30k = 200k -
170k). In this case, donor's tax will be attracted
unwittingly = 6% x 30k = 1.8k
Ingles Notes
● If I sell a share of stock that is below FMV, who has the burden of proving that it’s a
bona fide transaction, at arm’s length, and free from donative intent? Or is there a
presumption that it already complies with those requisites?
○ Stand of the BIR via an RMC a couple years ago is that it is up to the
taxpayer to prove that it is a bona fide transaction, at arm’s length, and
free from donative intent. (Note: Sir said that this argument can be subject
to attack)
● GR: Donative intent does not matter as long as the transfer is for an insufficient
consideration. Thus, it will be subject to tax.
○ In cases like this, the amount by which the value of the property exceeded
the consideration received shall be considered a donation.
○ A sold to B his pod cruiser for 100k, It had a FMV of 280K. The 180K will be
considered a donation and thus subject to donor’s tax.
● RECALL: What are properties subject to capital gains tax under Sec. 24(D)?
○ Real property classified as capital asset. → subject to CGT
○ Real property is classified as an ordinary asset → NOT subject to CGT
● Why aren’t real properties classified as capital assets (and therefore subject to CGT)
NOT subject to this transfer for less than sufficient consideration; thus, NOT subject
to donor’s tax?
○ CGT will take into account the same values taken into account in donor’s
tax – higher of the zonal or FMV.
○ Donor’s tax won’t play a part in a real property classified as a capital asset
because CGT takes care of everything.
○ Government does not lose any money.
● Role of donor’s tax is to catch any leakage when it comes to ostensible transfers for
income tax purposes. There would be a tax leakage because the tax would only be
based on the consideration. It would be treated like an ordinary sale; hence Sec. 40,
which imposes higher of the FMV or the assessed or the book value will NOT apply.
Therefore, there will be a difference or balance when it comes to the government
collecting taxes.
○ This difference between the FMV and the consideration received shall be
subject to donor’s tax – this is how the gov’t gets its income.
○ Ex: House owned by A is worth P100M. Consideration of the sale of the
house to B is P1.
■ What is the tax if it’s a capital asset?
● 6% on P100M FMV
■ What if it is an ordinary asset?
● Taxed for income tax based on the income derived
from sale.
● Taxed for donor’s tax based on the difference between
the FMV and consideration.
● Why are you removing CGT from the question in considering what’s subject to
donor’s tax?
○ If it’s a capital asset, it’s subject to CGT instead of donor’s tax.
TAX 2 INGLES - WRAP IT B4 U TAP IT
○ Sir: Note that it has to be REAL property subject to CGT (because domestic
shares can also be subject to CGT)
● Why is real property subject to CGT not included in the provision for transfer for
insufficient property?
○ Sir: Go back to why you have transfers for insufficient consideration. Why
do we have this? When is it triggered? When property is sold for a lower
consideration than that of the FMV. Then the balance is subject to donor’s
tax.
○ Example: a lot with FMV of 100M is sold by the owner for P30M. What is the
tax the owner has to pay?
○ 6% of 100M = P600k
○ If real property held as a capital asset is sold for less than the FMV , you will
never have a situation where it will need to be subject to donor’s tax
because you will always peg it on the value whichever is higher, even if it’s
sold for insufficient consideration. You’re looking at FMV or gross selling
price, whichever is higher.
○ SO if you have a situation where property is sold less than FMV, donor’s tax
will not be triggered because you will have to pay for the FMV which is
higher
○ This does not apply to domestic shares because if you sell them below
FMV, whatever balance you have will be subject to donor’s tax because
it will be a transfer for less than sufficient consideration
2. Cancellation of Indebtedness
● If a creditor desires to benefit a debtor, and without any consideration therefore,
cancels the debt (and the debtor "accepts"):
○ The amount of the debt is a donation by the creditor to the debtor. (Sec.
50, R.R. 2-1940)
● Ingles Notes
○ It becomes subject to income tax when the cancellation is a consideration
for services rendered.
Value of the Gifts
Sec. 102. Valuation of Gifts Made in Property. — If the gift is made in property, the fair
market value thereof at the time of the gift shall be considered the amount of the gift. In
case of real property, the provisions of Section 88(B) shall apply to the valuation thereof.
● Value of the gross gifts
○ FMV of the property donated/given at the time of the donation
● In case of real property
○ Sec 88(B): Estate shall be appraised at its FMV as of the time of death.
However, the appraised value of real property as of the time of death shall
be, whichever is higher of:
1. The FMV as determined by the Commissioner, or
2. The FMV as shown in the schedule of values fixed by the
Provincial and City Assessors.
● Ingles Notes:
○ A bit similar to estate tax
■ 6% on net taxable gifts = gross gifts - deductions
2. Exemptions (Deductions)
Deductions from Gross Gifts - Residents or Citizen Donors
Section 101, Tax Code
Sec. 101. Exemption of Certain Gifts. — 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 the 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 nonstock 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. (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.
TAX 2 INGLES - WRAP IT B4 U TAP IT
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
2. Gifts in favor of educational and/or charitable, religious, cultural or social welfare
corporations, institutions, accredited NGOs, 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
○ Entity must be:
1. Non-stock
2. Paying no dividends
3. Governed by trustees who receive NO compensation; and
4. Devoting ALL its income (whether students' fees or gifts,
donation, subsidies or other forms of philanthropy) to the
accomplishment of the purpose enumerated in its AoI (RR
12-2018)
● Ingles Notes
○ That’s why it’s good to donate to charitable institutions because it’s
exempted from donor’s tax and also it just nice to donate to them
Deductions from the Gross Gifts by Husband and Wife
● GR: For deductions from gross gifts made by husband and wife, out of
community/conjugal property, each donor has his or her own deductions.
○ Their donations will be distributed equally among them (1/2).
● XPN: If what was donated is a conjugal or community property and only the
husband signed the deed of donation:
○ There is only 1 donor for donor's tax purposes
○ Without prejudice to the right of the wife to question the validity of the
donation without her consent pursuant to the pertinent provisions of the
Civil Code and the Family Code
Ingles Notes
● What if I donated to a city?
○ Subject to exemption because a city is a political subdivision.
● What are the tax implications of donations to a non-stock, non-profit school? (on the
side of the donor)
1. Not subject to donor’s tax.
2. Tax deduction on the income tax based if it is an accredited NGO or if it is a
registered non-stock, non-profit.
■ Note: There is a different amount of tax deductions on the
income tax depending if donee is an accredited NGO or a
registered non-stock non profit school. (not further emphasized
how different, basta they have tax deduction)
● What are the procedural requirements to avail of tax exemption?
1. Tax return filed within 30 days from the donation
2. Filed in the domicile of the donor
3. Notice of Donation
4. Certification that the donee is included in the exemption under the Tax
Code
● Gibbs v. CIR (1962) (not assigned)
○ Doctrine: The agreements, as well as said promissory notes, are a mere
device to avoid and evade payment of the corresponding gift taxes. The
promissory notes bear no date and were not executed before any witness;
and that the date of maturity therein set is so distant, in relation to the due
dates under said deeds of trust.
● Example: If X’s father wants to buy him a property in The Fort, and the father pays
for it and puts it under the name of X. What are the tax implications?
○ It is considered as a donation on the part of the father.
○ He has to pay the full value of property
Deductions for a Nonresident, Not Citizen Donor
(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.
● Same as the resident or citizen donor.
Other Deductions
● BIR has allowed the ff as deductions from gross gifts to arrive at net gifts:
1. Encumbrance on the property donated, if assumed by the donee
2. Those specifically provided by the donor as a diminution of the property
donated. (R.R. 12-2018)
● Example: Fabby Wabby donated land which was subject to a mortgage to Elfie. The
FMV of the land was P1M, but the mortgage was P400k. Elfie agreed to assume the
mortgage, hence the deduction of P400k is allowed.
TAX 2 INGLES - WRAP IT B4 U TAP IT

○ The net gift is P600k ○ If not used as campaigned funds, it would be part of the income tax of the
● Ingles Notes candidate
○ X donates to Y a piece of land worth 10M, but the condition in the donation ○ I give 100M to Leni Robredo. She only uses 90M in her campaign. What
is that Y has to assume the 800K mortgage. How does it play a part in the happens to the 10M? It will be subject to Leni’s income tax
donor’s tax?
■ Assumption of the encumbrance on the property donated gives Gifts and donations to UP (RA 9500, Section 25)
a deduction on the donor’s tax because it is treated as a
SEC.25. Tax Exemptions.—The provisions of any general or special law to the contrary
consideration
notwithstanding:
a. All revenues and assets of the University of the Philippines used for educational
Exemptions Under Special Laws
purposes or in support thereof shall be exempt from all taxes and duties;
1. Gifts and donations to the University of the Philippines is exempt from donor’s tax
b. Gifts and donations of real and personal properties of all kinds shall be exempt
(RA 9500)
from the donor’s tax and the same shall be considered as allowable deductions
2. Contributions to the National Book Fund is exempt from donor’s tax (RA 9521)
from the gross income of the donor, in accordance with the provisions of the
3. Donations to qualified foster care agencies are exempt from donor’s tax (RA 10165)
National Internal Revenue Code of 1997, as amended: Provided, That the
4. Contributions to candidates or political parties duly reported to the BIR are not
allowable deductions shall be equivalent to 150 percent to the value of such
subject to donor’s tax. (RA 7166)
donation. Valuation of assistance other than money shall be based on the
acquisition cost of the property. Such valuation shall take into consideration the
Contributions to candidates or political parties (RA 7166, Section 13)
depreciated value of property in case said property has been used;
Section 13. xxx Any provision of law to the contrary notwithstanding any contribution in c. Importation of economic, technical, vocational, scientific, philosophical,
cash or in kind to any candidate or political party or coalition of parties for campaign historical and cultural books, supplies and materials duly certified by the Board,
purposes, duly reported to the Commission shall not be subject to the payment of any gift including scientific and educational computer and software equipment, shall be
tax exempt from customs duties;
d. The University shall only pay 0% value-added tax for all transactions subject to
● Contributions to candidates or political parties duly reported to the BIR are not
this tax; and
subject to any donor's tax.
e. All academic awards shall be exempt from taxes.
● Any provision of law to the contrary notwithstanding, any contribution in cash or in
kind to any candidate or political party or coalition of parties for campaign
purposes, duly reported to the Commission, shall not be subject to the payment of Contributions to the National Book Fund (RA 9521, Section 3)
any gift tax (Sec 13, R.R. 8-2009)
Section 3. The National Book Development Trust Fund. - A National Book Development
● Segue to income taxes: What happens to the money given to the candidate? (R.R.
Trust Fund, hereafter referred to as the Fund, is hereby established exclusively for the
7-2011)
support and promotion of Filipino authorship especially in science and technology and in
○ GR: Money given to the candidate will NOT go into his taxable income, as
subject areas wherein locally authored books are either few or nonexistent. The Fund shall
long as it is utilized in his campaign.
be subject to the following;
○ XPN: Unutilized/excess campaign funds shall be subject to income tax
a. The contribution to the Fund shall be sourced from the following:
○ Any candidate (winner or loser) must file with the COMELEC his/her
1. The amount of Fifty million pesos (P50,000,000.00) shall be alloted in
statement of expenditures. If not, he/she will be precluded from using
the annual General Appropriation Act (GAA) for the next five (5) years
such expenditures as deductions from his/her campaign contributions. As
starting from the enactment of this law;
such, the entire amount of such contributions will be directly subject to
2. The amount of Fifty million pesos (P50,000,000.00) shall be taken from
income tax.
the Philippine Amusement and Gaming Corporation (PAGCOR) fund at
● Ingles Notes
Five million pesos (P5,000,000.00) per month for ten (10) months;
○ Not subject to donor’s tax, provided they are used as campaign funds.
TAX 2 INGLES - WRAP IT B4 U TAP IT
3. Another amount of Fifty million pesos (P50,000,000.00) shall be taken
from the Philippine Charity Sweepstakes Office (PCSO) at Five million
pesos (P5,000,000.00) per month for ten (10) months;
b. Only the interest drawn from the Fund from sources cited in Section 3 (a1), (a2)
and (a3) shall be awarded as grants to promote Filipino authorship and to
support the completion of local manuscripts or research works for publication;
c. The grants can be awarded only after one (1) year from the organization of the
Fund, and the grants shall be awarded equitably among the regions.
d. Government corporations are hereby authorized to give grants to the Fund at
their discretion;
e. The private portion of the Fund shall be raised from donations and other
conveyances including funds, materials, property and services, by gratuitous
title;
f. Contributions to the Fund shall be exempt from the donor's tax and the same
shall be considered as allowable deductions from the gross income of the donor,
in accordance with the provisions of the National Internal Revenue Code of 1997,
as amended: Provided, That the allowable deductions shall be equivalent to one
hundred fifty percent (150%) of the value of such donation;
g. The National Book Development Board(NBDB) shall be the administrator of the
Fund;
h. For the sound and judicious management of the Fund, the NBDB shall appoint a
government financial institution, with sound track record on fund management,
as portfolio manager of the Fund, subject to guidelines promulgated by the
NBDB; and
i. The NBDB shall prepare the implementing guidelines and decision-making
mechanisms, subject to the following:
1. No part of the seed capital of the Fun, including earnings thereof, shall
be used to underwrite overhead expenses for the administration; and
2. There shall be an external auditor to perform an annual audit of the
Fund's performance.
Donations to qualified foster care agencies (RA 10165, Sections 3-5 & 22-24)
Section 3. Definition of Terms. – For purposes of this Act, the following terms are defined:
a. Agency refers to any child-caring or child-placing institution licensed and accredited
by the Department of Social Welfare and Development (DSWD) to implement the
foster care program.
b. Child refers to a person below eighteen (18) years of age, or one who is over eighteen
(18) but is unable to fully take care of or protect oneself from abuse, neglect, cruelty,
exploitation or discrimination because of a physical or mental disability or condition.
c. Child Case Study Report refers to a written report prepared by a social worker
containing all the necessary information about a child.
d. Child with Special Needs refers to a child with developmental or physical disability.
e. Family refers to the parents or brothers and sisters, whether of the full or half-blood,
of the child.
f. Foster Care refers to the provision of planned temporary substitute parental care to a
child by a foster parent.
g. Foster Child refers to a child placed under foster care.
h. Foster Family Care License refers to the document issued by the DSWD authorizing
the foster parent to provide foster care.
i. Foster Parent refers to a person, duly licensed by the DSWD, to provide foster care.
j. Foster Placement Authority (FPA) refers to the document issued by the DSWD
authorizing the placement of a particular child with the foster parent.
k. Home Study Report refers to a written report prepared by a social worker containing
the necessary information on a prospective parent or family member.
l. Matching refers to the judicious pairing of a child with foster parent and family
members based on the capacity and commitment of the foster parent to meet the
individual needs of the particular child and the capacity of the child to benefit from
the placement.
m. Parent refers to the biological or adoptive parent or legal guardian of a child.
n. Placement refers to the physical transfer of the child with the foster parent.
o. Relatives refer to the relatives of a child, other than family members, within the
fourth degree of consanguinity or affinity.
p. Social Worker refers to the registered and licensed social worker of the DSWD, local
government unit (LGU) or agency.
Section 4. Who May Be Placed Under Foster Care. – The following may be placed in foster
care:
a. A child who is abandoned, surrendered, neglected, dependent or orphaned;
b. A child who is a victim of sexual, physical, or any other form of abuse or exploitation;
c. A child with special needs;
d. A child whose family members are temporarily or permanently unable or unwilling to
provide the child with adequate care;
e. A child awaiting adoptive placement and who would have to be prepared for family
life;
f. A child who needs long-term care and close family ties but who cannot be placed for
domestic adoption;
g. A child whose adoption has been disrupted;
h. A child who is under socially difficult circumstances such as, but not limited to, a
TAX 2 INGLES - WRAP IT B4 U TAP IT
street child, a child in armed conflict or a victim of child labor or trafficking;
i. A child who committed a minor offense but is released on recognizance, or who is in
custody supervision or whose case is dismissed; and
j. A child who is in need of special protection as assessed by a social worker, an agency
or the DSWD.
k. Provided, That in the case of (b), (c), (f), (h), (i), and (j), the child must have no family
willing and capable of caring and providing for him.
Section 5. Who May Be a Foster Parent. – An applicant who meets all of the following
qualifications may be a foster parent:
a. Must be of legal age;
b. Must be at least sixteen (16) years older than the child unless the foster parent is a
relative;
c. Must have a genuine interest, capacity and commitment in parenting and is able to
provide a familial atmosphere for the child;
d. Must have a healthy and harmonious relationship with each family member living
with him or her;
e. Must be of good moral character;
f. Must be physically and mentally capable and emotionally mature;
g. Must have sufficient resources to be able to provide for the family’s needs;
h. Must be willing to further hone or be trained on knowledge, attitudes and skills in
caring for a child; and
i. Must not already have the maximum number of children under his foster care at the
time of application or award, as may be provided in the implementing rules and
regulations (IRR) of this Act.
Provided, That in determining who is the best suited foster parent, the relatives of the child
shall be given priority, so long as they meet the above qualifications: Provided, further,
That an alien possessing the above qualifications and who has resided in the Philippines
for at least twelve (12) continuous months and maintains such residence until the
termination of placement by the DSWD or expiration of the foster family license, may
qualify as a foster parent.
Section 22. Assistance and Incentives to Foster Parent. –
a. Support Care Services. – The DSWD, the social service units of LGUs and agencies
shall provide support care services to include, but not limited to, counseling, visits,
training on child care and development, respite care, skills training and livelihood
assistance.
b. Additional Exemption for Dependents. – For purposes of claiming the Twenty-five
thousand pesos (PhP 25,000.00) additional exemption for foster parents for each
dependent not exceeding four (4) as provided for by Republic Act No. 9504, the
definition of the term "dependent" under Section 35(B) of the National Internal
Revenue Code (NIRC) of 1997 shall be amended to include "foster child": Provided,
That all other conditions provided for under the aforesaid section of the NIRC of 1997
must be complied with: Provided, further. That this additional exemption shall be
allowed only if the period of foster care is at least a continuous period of one (1)
taxable year.
For purposes of this section, only one (1) foster parent can treat the foster child as a
dependent for a particular taxable year. As such, no other parent or foster parent can claim
the said child as a dependent for that period.
Section 23. Incentives to Agencies. – Agencies shall be entitled to the following tax
incentives:
a. Exemption from Income Tax. – Agencies shall be exempt from income tax on the
income derived by it as such organization pursuant to Section 30 of the NIRC of 1997,
as implemented by Revenue Regulation (RR) No. 13-98; and
b. Qualification as a Donee Institution. – Agencies can also apply for qualification as a
donee institution.
Section 24. Incentives to Donors. – Donors of an agency shall be entitled to the following:
a. Allowable Deductions. – Donors shall be granted allowable deductions from its
gross income to the extent of the amount donated to agencies in accordance with
Section 34(H) of the NIRC of 1997; and
b. Exemption from Donor’s Tax. – Donors shall be exempted from donor’s tax under
Section 101 of the NIRC of 1997: Provided, That not more than thirty percent (30%) of
the amount of donations shall be spent for administrative expenses.
3. Tax Rates
Tax Rates Payable by Donor
Section 99 (as amended by TRAIN)
Sec. 99. Rates of Tax Payable by Donor. —
(A) In General. — The tax for each calendar year shall be six percent (6%) computed on
the basis of the total gifts in excess of two hundred fifty thousand pesos (P250,000)
exempt gift made during the calendar year.
(B) 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. (As
TAX 2 INGLES - WRAP IT B4 U TAP IT
amended by TRAIN)
● Flat rate of 6% is imposed on the total gifts in excess of 250k.
● Donor’s tax is reported by calendar year.
○ So if you want to avoid paying the tax, split the donation (Dec. 31 and Jan.
1)
● Donations made which are not over P250,000 in a calendar year are EXEMPT from
donor’s tax.
○ Note: P250k counts as a deduction from total gifts, because the 6% rate is
imposed on the total gifts in excess of P250,000.
● The basic tax formula is as follows:
○ On the first donation of a calendar year:
■ Gross gifts - deductions from these gross gifts = net gifts
■ (Net gifts) x (Donor’s tax rate) = donor’s tax due on the gifts
○ On a subsequent donation in the same calendar year
■ Gross gifts made on this date - deductions from these gross gifts
= net gifts made on this date
■ Net gifts made on this date + all prior net gifts given with the
same calendar year = aggregate net gifts
■ Donor’s tax on aggregate net gifts - donor’s tax on all prior net
gifts within the same calendar year = Donor’s tax due on the net
gifts of this date
Ingles Notes
● The 250k acts as a deduction from total gifts. In computing the donor's tax, deduct
this amount from the total gifts.
● Multiple gifts within a year
○ For the subsequent gifts, add the value of the gifts minus the 250k and
compute 6% on that basis. Then subtract the donor’s tax already paid to
get the donor’s tax that you have to pay for that donation.
○ Just keep building up until the end of the year.
● Sir: If you wanna keep giving to your gifts/family members and you wanna keep it
under the radar, give them 250k a year cos it’s not subject to donor’s tax.
● Donor’s tax is reckoned per calendar year. What’s the implication for that?
○ You pay donor’s tax based on total donations made from Jan 1 to Dec 31 of
the year
○ So if you give a donation subject to tax on Jan 1, do you pay donor’s tax on
Dec 31 or before Feb 1?
■ Before Feb 1. Because you pay donor’s tax upon filing which is
within 30 days from doing the donation
○ On June 1, you had another donation. What happens to the donation in
Jan 1?
■ File before July 1st.
■ You add whatever donation you had in Jan 1 to your donor’s tax
return for June/July, but subtract what you got paid in Jan 1. It
all becomes 0 donor’s tax payable to the BIR on Dec 31st
4. Administrative Requirements
Section 103, Tax Code
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.
Donor’s Tax Return
● How many to file
○ On all donations of one date, only 1 donor's tax return is required.
○ In case of husband and wife as donors, the donor's tax return of the
husband will be a part of the donor's tax return of the wife.
● When to file
TAX 2 INGLES - WRAP IT B4 U TAP IT
○ Donor's tax return must be filed within 30 days after the date of the
donation.
● Where to file
○ Authorized agent bank, Revenue District Officer, Revenue Collection
Officer or Treasurer of the city/municipality where the donor was
domiciled at the time of the transfer
○ For nonresidents, with the PH Embassy or Consulate in the country where
he is domiciled at the time of the transfer OR directly with the Office of the
Commissioner.
● When and where to PAY
○ Donor's tax will be paid at the time the return is filed and with the office
where the return is filed
● To be (1) exempt from donor's tax, and (2) to claim full deduction of the
donation given to qualified donee institutions duly accredited by the PCNC:
○ Donor engaged in business shall give a Notice of Donation on every
donation worth at least P50k
○ To the Revenue District Office (RDO) which has jurisdiction over his place
of business within 30 days
○ After receipt of the qualified donee institution's duly issued Certificate of
Donation, which shall be attached to the said Notice of Donation, stating
that not more than 30% of the said donation/ gifts for the taxable year
shall be used by such accredited nonstock, non-profit corporation/NGO
institution (qualified-donee institution) for administration purposes. (R.R.
12-2018)
Donor’s Tax Credit - not discussed
(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.
INGLES SYNTHESIS
(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.
● Only resident or citizen donors are allowed donor's tax credit.
○ Why? Because they are the only ones taxed worldwide. A nonresident
noncitizen is not taxed for his donations in foreign jurisdictions.
● For a foreigner's donor's tax paid to a foreign country, a credit is allowed to reduce
the Philippine donor's tax to pay, under the formula:
○ Limit:
(Net foreign gifts/Net gifts, worldwide) x PH donor’s tax = Foreign donor’s
tax paid
○ Allowed tax credit is whichever is lower of the foreign donor's tax paid and
the limit.
● Example: Mi 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 Scotland, 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:
■ (300k/500k) x 14k = 8,400
○ So choose what is lower between the tax paid abroad and the credit
limitation. So, it is P8,400. That's the tax credit.
○ Mi Idolo Iniesta has to pay P5,600.
● If two foreign countries
○ Limitation A: Foreign donor's tax paid to the foreign country
■ (Net gifts, foreign country / Net gifts, world) x (PH donor’s tax)
■ Allowed tax credit = whatever's lower
○ Limitation B (by totals)
■ Total of foreign donor’s taxes paid to the foreign countries
■ (Net gifts, outside the PH/ Net gifts, world) x (PH donor’s tax)
■ Allowed tax credit = whatever's lower
○ Tax credit to apply is whatever is lower between Limitation A and
Limitation B
● Situation: Client on a deathbed with a real property (house) that he wants to
transfer to his child. Different tax implications if it is a:
○ Sale
■ Subject to capital gains tax of 6% based on the FMV or assessed
value, whichever is higher.
■ (no deductions in CPG)
○ Donation
■ Subject to 6% donor’s tax based on the value in excess of P250k
■ (FMV at the time of donation - 250,000) x 6%
■ (deduction of 250,000)
TAX 2 INGLES - WRAP IT B4 U TAP IT

○ If it will be subject to Estate Tax (client just dies) II. VALUE-ADDED TAX
■ Deductions
● Half of the value owned by the spouse
● 10M peso deduction of Family Home VAT WHEEL: Lecture on how VAT system works
● 5M Standard deduction
■ Subject to 6% estate tax, subject to deductions.
○ Thus, if your client is the person dying, advise them to just die to be
subjected to estate tax because of more deductions. Before TRAIN, it
would have been better to sell your property because you might not have
enough deductions, so it would have been easier to pay off the capital
gains tax. But because of TRAIN, it’s easier to just die and pass it on by
estate tax because you will pay less taxes due to the deductions. This is
only for purely tax purposes because there are other considerations to
take into account.

● Best way to look at the VAT system is by looking at the entire supply chain from
A (supplier) to Erin (consumer)
● Things to remember:
○ VAT liability of statutory taxpayer = (output - input)
○ Output tax is what the taxpayer-seller passes on to the purchaser.
○ Input tax is what is passed on to the purchaser/taxpayer by the seller.
○ What is output tax for the seller is input tax to the purchaser.
● A is a supplier of wood. A will sell a piece of wood to B.
○ A’s price: 100
○ VAT: 12% of 100 = 12
○ Total to be paid by B: 100+12 = 112
○ VAT Liability of A: 12 - 0 = 12 to be remitted by A to the gov’t
■ Output VAT of A: 12 which is what A gets from B (in other words,
what B pays to A)
■ Input VAT of A: 0 since A is the supplier (input is what was paid
to the previous supplier)
■ A is the statutory taxpayer who pays the government. A is liable
for remitting P12 to the government.
■ B is the person absorbing the economic burden since VAT is an
indirect tax
TAX 2 INGLES - WRAP IT B4 U TAP IT
○ At this point of the transaction, once A sells the piece of wood to B, the
government should at least immediately get that P12 . That’s why VAT is
made. So that the government can get a piece of the transaction at every
part of the transaction, so it’s easier for the gov’t. A fulfills its duty by
remitting theP 12 VAT liability to the government.
● B buys the wood from A and makes it into a chair. B sells the chair to C.
○ B’s price: P150
■ Why did B increase the price from 100 to 150? That’s the value
added by B. B carved the wood into a chair. His labor is worth 50.
○ VAT: 12% of 150 = 18
○ Total to be paid by C: 150 + 18 = 168
○ VAT liability of B: 18-12 = 6 to be remitted by B to the gov’t
■ Output VAT of B: 18 (what C pays to B )
■ Input VAT of B: 12 (what B paid to A)
■ 18 comes out of C’s pocket, not B’s pocket.
■ So the VAT system allows the seller to offset input with the
output of the services he renders or sales he makes. B’s VAT
liability is P6. That immediately goes to the gov’t because B has
to remit it within a certain number of days to the government.
○ How much is the value added that B made to the chair? P50 (150-100).
What is 12% of 150? 6. So really, the tax is on the value added by B.
○ At this point in time, the government has already received P18.
■ 6 (output of B) + 12 (VAT paid by C)
■ C IS NOT happy because it shelled out P18 by paying B the VAT
component of P18 and purchase price of P150.
● To offset it, C varnishes the chair and his labor costs P50. C sells the varnished
chair to D.
○ C’s price: 200
○ VAT: 12% of 200 = 24
○ Total to be paid by D: 200 + 24 = 224
○ VAT liability of C: 24-18 = 6 to be remitted by C to the gov’t
■ Output VAT of C: 24 paid by D, as the customer of C
■ Input VAT of C: 18 which is what C previously paid to B
○ VAT liability should reflect the 12% on the value added by C
■ 200-150 =50 for varnish and labor and profit.
■ 12% of 50 = 6 so it matches. C has to remit 6 to government
○ At this point, government now has P24
■ A remitted 12 + B remitted 6 + C remitted 6 = 24 which is the
output of D
● D is a hypebeast. He posts a sticker of Supreme on the chair. Now it’s a hype
chair and it increases the price to P1000. He sells it to Erin the consumer.
○ D’s price: 1000
○ VAT: 12% of 1000 = 120 which is what is to be paid by Erin
○ Total to be paid by Erin: P1120
○ VAT liability of D: 120 - 24 = 96 to be remitted by D to the gov’t
■ Output VAT of D: 120 which is the amount paid by Erin to D
■ Input VAT of D: 24 which is the amount D had paid to C.
○ So if you buy anything, you ultimately end up with the VAT liability and
shouldering economic burden.
● The total the government would’ve gotten if everything is correctly remitted is
P120 which is all their input tax together.
○ If you look at the VAT wheel, it’s ultimately Erin who pays
○ If you’re a supplier in the supply chain or retailer like D, you don’t really
worry about shouldering the economic burden of VAT because in the end
it’s the consumer who pays for everything. That’s why you want a clean vat
wheel like this. Because whatever you pay your suppliers, it will be offset
by whatever you sell to the next person in the supply chain or the
consumer in the end.
○ So this is how VAT works if transaction is VATable and if consumer pays
proper VAT of 12%. Consumer in the end is the one who shoulders the VAT
in terms of economic burden. But the statutory taxpayer has the duty to
remit to the gov’t.
● Compared to other tax regimes though, everyone is happy.
○ Government will get that P120 component at the end of all transactions. In
the eyes of the gov’t, they will get a piece of the VAT at every stage of the
transaction. The government will get money almost immediately.
● Keep in mind in this VAT wheel: where are you in the supply chain?
○ Seller? Retailer? Buyer/consumer?
○ Administrative burden = statutory taxpayer
○ Economic burden = buyer/consumer
● Things will get complicated when you have exempt or zero rated transactions in
the supply chain as the consumer. WHY?
○ When you talk about exempt transactions, other jurisdictions don’t
consider these as exempt w/o credit. What happens is that the taxpayer
will not be able to offset whatever input VAT you already incurred because
offsetting of input VAT is only allowed when it comes to zero rated
transactions
○ If it’s purely 12% throughout the supply chain, you don’t have to worry
about offsetting.
○ If it’s a zero rated transaction, the law favors both supplier and customer.
Customers do not have to pay VAT (does not shoulder economic burden).
TAX 2 INGLES - WRAP IT B4 U TAP IT

Suppliers within the supply chain will be able to ask for a refund of the
input VAT.
○ If it’s an exempt transaction, the law does not allow you to make bawi the
P12 or the input VAT you already got. Because that’s how the law is.
Exempt transactions favor just the consumer because the consumer does
not have to pay economic burden and instead it is shouldered by the
supplier, since he’s not allowed to get input VAT back.
■ That’s a problem. In other jurisdictions, they limit exempt
transactions as much as possible. If you look at the VAT wheel it’s
nice cos everyone sees the gross selling price and how much is
added per transaction (A→ B adds P50 → C adds P50 → D adds
800). Consumers will really see the economic changes made by
each person in the supply chain.
■ If you have a VAT exempt transaction in the wheel and if you’re B
and you realize your sale to C is VAT exempt, the implication is
that B won’t be able to recover the P12 because output is 0 while
input is 12. B won’t be able to recover the P12. So what people
would do is add P12 to the purchase price.
■ For transparency purposes, this P12 is not an economic addition
but a mere way to offset the cost made by VAT exempt
transaction which is a legal mandate. So nagugulo yung buong
transaction if you have VAT exempt in the middle.
■ So as much as possible, if you want good VAT system, you want
everything at 12% or have a zero rated/exempt transaction at the
end so that supplier won’t be worried about offsetting since they
can ask for refund
● VAT is a regressive tax because it doesn’t consider the income or the paying ability of
the taxpayer. Whether you’re rich or poor, you pay VAT. How does it protect those
who are less fortunate? Or less resources to pay VAT? That’s why you have VAT
exempt transactions since you remove economic burden from the purchaser
because these transactions are normally those which are entered into by the less
fortunate or because you wanna favor the purchaser of these transactions .
1. Basic Elements
Section 105, Tax Code (as amended by RA No. 9337; applies to all provisions infra)
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to
the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise
apply to existing contracts of sale or lease of goods, properties or services at the time of the
effectivity of Republic Act No. 7716.
In General
● Definition of VAT:
○ VAT is a tax on consumption, levied on the sale, barter, exchange, or lease
of goods or properties and services in the Philippines and the importation
of goods into the Philippines.
● 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 seller is the one statutorily liable for the payment of the tax, but the amount of
the tax may be shifted or passed on to the buyer, transferee or lessee of the
goods or properties or services.
○ GR: VAT is imposed on the seller, not the buyer.
○ XPN: In importation
● If the seller is VAT exempt:
○ There is no need for payment on VAT on his sales.
○ Seller will have to shoulder the burden of the VAT passed to him by his
suppliers for his purchases.
Is VAT really a tax on the value-added? YES. Consider this:
● Aragorn sells to Bo-ra a piece of wood, a nice, fine, well sanded piece of wood.
Price P100
VAT (12%) 12% of 100 = P12
Total 100 + 12 VAT = P112
● Bo-ra expertly crafts the wood into a rocking chair and sells it to Clint Barton:

SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells Price P150
barters, exchanges, leases goods or properties, renders services, and any person who
imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 Tax 12% of 150 = P18
of this Code.
Total 150 + 18 VAT = P168
TAX 2 INGLES - WRAP IT B4 U TAP IT
● 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 skills and labor (and masungit
but cute charm), Bo-ra made a chair out of the wood that she had bought from
Aragorn. From P100, the price increased to P150. There was a P50 increase because
of the value added by Bo-ra. And applying the VAT on this P50, it results into the
same amount, which is 6. This proves that the tax is really on the "value added."
How do we know if the transaction is subject to VAT?
● Elements (to be subject to VAT):
1. It must be done in the ordinary course of trade or business;
○ XPN: Importations are always subject to VAT whether or not in
the course of trade or business
2. There must be a sale, barter, exchange, lease of goods or properties, or
rendering of service in the Philippines; and
3. It is not VAT-exempt or VAT zero-rated.
● If all 3 are present, then the transaction is subject to the 12% VAT. Absence of one
will make the transaction NOT subject to VAT.
● As it is a tax on the transaction, there is NO need whatsoever for there to be a
taxable gain (unlike in income tax).
○ It is not required by either law or jurisprudence.
○ CIR v. Commonwealth Management & Services Corp. (2000) - receiving
payment w/o profits → Subject to VAT
■ Doctrine: Nonstock, nonprofit organizations are subject to VAT,
as long as the service is done for a fee or remuneration
■ VAT is a tax on transactions, imposed at every stage of the
distribution process on the sale, barter, exchange of goods or
property, and on the performance of services, even in the
absence of profit attributable thereto. The term "in the course
of trade or business" requires the regular conduct or pursuit of
a commercial or an economic activity, regardless of whether or
not the entity is profit-oriented.
■ It is immaterial whether the primary purpose of a corporation
indicates that it receives payments for services rendered to its
affiliates on a reimbursement-on-cost basis only, without
realizing profit, for purposes of determining liability for VAT on
services rendered. As long as the entity provides service for a fee,
remuneration or consideration, then the service rendered is
subject to VAT.
■ Sec. 109, RA 8424 clearly enumerates the transactions exempted
from VAT. The services rendered by COMASERCO do not fall
within the exemptions.
■ Ingles: You don’t think of VAT as income tax. It doesn't matter if
you profit. As long as you get something and the requisites are
there, you will be subject to VAT. whether it’s reimbursement or
whatever.
1st element: Ordinary course of trade or business
Sec. 105. – xxx The phrase “in the course of trade or business” means the regular
conduct or pursuit of a commercial or an economic activity, including transactions
incidental thereto, by any person regardless of whether or not the person engaged therein
is a non-stock, nonprofit private organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to members or their guests), or government
entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code
rendered in the Philippines by nonresident foreign persons shall be considered as being
rendered in the course of trade or business.
● "Ordinary course of trade or business" – means the regular conduct or pursuit of a
commercial or an economic activity.
○ Includes transactions incidental thereto.
○ Covers any person regardless of whether or not the person engaged
therein is a nonstock, nonprofit organization, or a gov’t entity.
■ irrespective of the disposition of its net income, and
■ whether or not it sells exclusively to members or their guests
● There should be:
1. A commercial or economic activity; and
○ XPN: importation of goods for PERSONAL use is still subject to
VAT because of Sec. 107. This is an exception to "pursuit of a
commercial or an economic activity" requirement
2. Regularity in the action
○ Regular – Involves more than 1 isolated transaction. Requires
repetition and continuity of action.
○ XPN: If the taxpayer is a nonresident foreign person, there is NO
need for the regularity of conduct. Services rendered by them in
the PH are considered as being in the course of trade or
business, and thus, subject to the VAT. This is an exception to the
"regularity" requirement.
TAX 2 INGLES - WRAP IT B4 U TAP IT
● Any sale, barter, or exchange of goods or services in the course of trade or
business is subject to VAT.
○ Mindanao II Geothermal Partnership v. CIR (2013) - Sale of vehicles →
subject to VAT (incidental to business)
■ Doctrine: The sale of a vehicle used in the business of the
taxpayer, while isolated, is subject to VAT as the transaction was
an incidental transaction made in the course of the taxpayer's
business.
■ A reading of Sec. 105 of the 1997 Tax Code would show that a
transaction "in the course of trade or business" includes
"transactions incidental thereto."
■ Mindanao II's business is to convert the steam supplied to it by
PNOC-EDC into electricity and to deliver the electricity to NPC. In
the course of its business, Mindanao II bought and eventually
sold a Nissan Patrol. Prior to the sale, the Nissan Patrol was part
of Mindanao II's property, plant, and equipment. Therefore, the
sale of the Nissan Patrol is an incidental transaction made in the
course of Mindanao II's business which should be liable for VAT.
■ Ingles Notes
● Who was the taxpayer here? Mindanao II
● What’s their business? To operate and maintain a
geothermal power plant and agreed to deliver energy
to NPC
● Is it involved in the business of selling cars? No.
● Then why is the sale of the car subject to VAT? Codal
includes all transactions incidental to the primary
purpose which is the sale of electricity
● Take note of this case. It’s very impt esp business
dealing with retail or wholesale. It doesn't matter if it's
not in their inventory but if they've been using that
property in their business, then whatever those
properties are will be subject to VAT because it’s
incidental to your business.
○ CIR v. Magsaysay Lines (2006) - Sale of vessel mandated by law →
NOT subject to VAT (isolated transaction)
■ Doctrine: The involuntary sale of vessels by a taxpayer not
engaged in the sale of vessels pursuant to the government's
policy of privatization is not subject to VAT because the sale was
not in the course of trade or business
■ The VAT system assures fiscal adequacy through the collection of
taxes on every level of consumption, yet assuages the
manufacturers or providers of goods and services by enabling
them to pass on their respective VAT liabilities to the next link of
the chain until finally the end consumer shoulders the entire tax
liability. Yet VAT is not a singular-minded tax on every
transactional level. Its assessment bears direct relevance to the
taxpayer's role or link in the production chain.
■ Transactions outside the course of trade or business may
invariably contribute to the production chain, but they do so
only as a matter of accident or incident. As the sales of goods or
services do not occur within the course of trade or business, the
providers of such goods or services would hardly, if at all, have
the opportunity to appropriately credit any VAT liability as
against their own accumulated VAT collections since the
accumulation of output VAT arises in the first place only through
the ordinary course of trade or business.
■ In the instant case, the sale was an isolated transaction. The
sale which was involuntary and made pursuant to the declared
policy of Government for privatization could no longer be
repeated or carried on with regularity. The normal VAT-registered
activity of NDC is leasing personal property
■ Given that the transaction was not made in the course of trade or
business of the seller (NDC) the sale is not subject to VAT, no
matter how the said sale may hew to those transactions deemed
sale.
■ Ingles Notes: What’s the difference between this case and the
Mindanao case? In this case, the sale of the vessels was made
pursuant to a government privatization policy.
○ PSALM v. CIR (2017) - Sale of powerplant mandated by law → NOT
subject to VAT (non-commercial)
■ Doctrine: The sale of a power plant by a GOCC due to a law that
mandated the privatization of NPC assets is also not subject to
VAT because it was not in pursuit of a commercial or economic
activity.
■ The power plants, which were previously owned by NPC, were
transferred to PSALM for the specific purpose of privatizing such
assets. The sale of the power plants cannot be considered as an
incidental transaction made in the course of NPC's or PSALM's
business.
● When determining if this element/requisite exists, be mindful of the following:
1. Was the transaction done regularly? Or isolated?
2. Was it incidental to the taxpayer's business?
TAX 2 INGLES - WRAP IT B4 U TAP IT
3. Is the taxpayer a nonresident alien? (Because if he is, the transaction need
not be regular.)
● Example: Between an automobile shop that sells 5 parcels of land and a real estate
dealer who sold a parcel of land, both will be subject to VAT.
1. The automobile shop because of its regular conduct
2. The real estate dealer because of the nature of his business in the pursuit
of an economic activity
Ingles Notes
● It has to be in the ordinary course of trade or business, but incidental transactions
also trigger the imposition of VAT.
● Take note of PSALM v. CIR and CIR v. Magsaysay Lines, Inc. cases and their
differences between the Mindanao II Geothermal Partnership v. CIR case.
● You might come across a situation where the sale of property has nothing to do with
services or the primary business of the corporation. BUT the BIR will always go back
to the case of Mindanao II Geothermal Partnership v. CIR to say that the sale of the
car was subject to VAT because (1) it was used in the business; (2) it’s incidental to
the business; and (3) it is neither a sale because it was ordered by the government or
law to do so because of privatization, therefore it’s part of VAT.
● This is the exact same reason if you own a business and your business owns an office
where it is located, if you sell that office even if your business has nothing to do with
your property or the sale of real estate, you will be subject to VAT on real property.
This is why it’s very important to know if the property you’re selling, as a corporation
or individual, has been used in the trade or business.
● If it’s a capital asset – will be subject to CGT but will NOT be subject to VAT.
● If it’s an ordinary asset – BIR will say that it has been used in the trade/business of
the corporation; therefore it will be under the ordinary income tax regime and be
subject to VAT.
2nd element: Sale, barter, exchange, lease of goods or properties, or rendering of service
in the Philippines
There must be a sale, barter, exchange, lease of goods or properties, or rendering of
service in the Philippines.
● CIR v. CA and COMASERCO - rendering of service → Subject to VAT
○ Doctrine: If a taxpayer renders service to an affiliate for a fee (even if the
fee is merely to reimburse costs), the service is still subject to VAT.
● Diaz v. Secretary of Finance ( 2011) - Toll fees → Subject to VAT
○ Doctrine: The fees collected by toll way operators are subject to VAT. Toll
way operators are engaged in rendering service (constructing,
maintaining, and operating expressways).
○ “All kinds of services”: When a tollway operator takes a toll fee from a
motorist, the fee is in effect for the latter's use of the tollway facilities over
which the operator enjoys private proprietary rights that its contract and
the law recognize. In this sense, the tollway operator is no different from
the following service providers under Sec. 108 who allow others to use
their properties or facilities for a fee
○ Fees paid by the public to tollway operators for use of the tollways, are not
taxes in any sense. A tax is imposed under the taxing power of the
government principally for the purpose of raising revenues to fund public
expenditures. Toll fees, are collected by private tollway operators as
reimbursement for the costs and expenses incurred in the construction,
maintenance and operation of the tollways, as well as to assure them a
reasonable margin of income. Taxes may be imposed only by the gov’t
under its sovereign authority, toll fees may be demanded by either the
government or private individuals or entities, as an attribute of ownership.
○ Parenthetically, VAT on tollway operations cannot be deemed a tax on tax
due to the nature of VAT as an indirect tax. In indirect taxation, a
distinction is made between the liability for the tax and burden of the tax.
The seller who is liable for the VAT may shift or pass on the amount of VAT
it paid on goods, properties or services to the buyer. In such a case, what is
transferred is not the seller's liability but merely the burden of the VAT
○ Ingles Notes
■ Petitioners were saying that it is a tax on a tax. BUT it is not
because a toll fee is not a tax to begin with since it is imposed by
a private entity, not by the national gov’t. You can’t tax a tax. But
if what you’re imposing is not a tax to begin with, then you can
tax it.
■ Requisites for a good tax system: (1) Fiscally adequate; (2) Must
have administrative feasibility it’s still administratively feasible
even if it will give a hardship as long as it does not violate a law
or the Constitution; (3) Theoretical justice
■ Can you apply the elements of VAT to whatever the tollway
operators do?
■ 1st element: It’s in the ordinary course of trade and business
because tollway operators collect tolls pursuant to their business
of operating tollways. DUH
■ 2nd element: They are providing a service and making it
easier/more convenient for people using the infrastructure. (i.e.
providing transport service)
■ 3rd element: Not vat exempt and zero rated
TAX 2 INGLES - WRAP IT B4 U TAP IT
When there is NO sale, barter or exchange of goods or properties, then no VAT should be
imposed.
● CIR v. Sony Philippines, Inc. (2010) - Dole-outs for advertising expenses → NOT
subject to VAT
○ Doctrine: When an affiliate provides funds to a taxpayer who then uses the
funds to pay a third party, the transaction is NOT subject to VAT, as there
was no sale, barter, or exchange between the affiliate and the taxpayer.
The money was simply given as a dole-out.
○ Ingles Notes
■ Money transferred from Sony SG to Sony PH - no services
rendered by the latter; 2nd element of VAT not fulfilled.
■ Sony PH paid its advertising expenses to its supplier. They didn’t
have money to pay for it so Sony SG paid for it. BIR was
complaining that the money given by Sony SG to Sony PH is VAT
taxable (When it comes to VAT, BIR normally wants to tax you at
the point you get the money)
■ 1st transaction = Sony incurring advertising expenses (purchased
ad expenses from 3rd party supplier). Sony PH paid the
advertising company.
● Supplier – advertising company
● Customer – Sony PH
● Supplier is the statutory taxpayer. BIR won’t go after
SONY PH but against the ad company.
■ 2nd transaction = Sony PH getting money from Sony SG.
● CIR was going against Sony PH for the money it
received from Sony SG. Because in that instance, it
seems as if Sony PH is now the supplier. Because it
received money from a would-be customer.
● But is Sony SG a customer of Sony PH? No because
there was no sale, barter, exchange, lease of
properties. Sony SG merely gave money to help Sony
PH pay expenses. It was just a dole-out from another
company. Now the 2nd element is missing. Therefore
not subject to VAT.
■ BIR wants to tax both transactions. 1st is the tax credit issue. 2nd
is the VATable services issue
● Association of Non-Profit Clubs v. BIR (2019) - Club fees/dues → NOT subject to
VAT
○ Doctrine: Membership fees, association dues, and the like collected by
recreational clubs from its members are also not subject to VAT, because
the clubs aren't selling its service to its members. There is no economic or
commercial activity because these dues are devoted to the operations and
maintenance of the facilities of the club. As such, there could be no "sale,
barter or exchange of goods or properties, or sale of a service" to speak of,
which would then be subject to VAT under the 1997 NIRC.
● BIR v. First E-Bank Tower Condominium Corp (2020) - Condo dues/fees → NOT
subject to VAT
○ Doctrine: The same rule applies for membership fees, association dues,
and the like collected by condominium corporations. These are not
subject to VAT.
○ Association dues, membership fees, and other assessments/charges do
not arise from transactions involving the sale, barter, or exchange of goods
or property. Nor are they generated by the performance of services. For
when a condominium corporation manages, maintains, and preserves the
common areas in the building, it does so only for the benefit of the
condominium owners. It cannot be said to be engaged in trade or
business, thus, the collection of association dues, membership fees, and
other assessments/charges is not a result of the regular conduct or pursuit
of a commercial or an economic activity, or any transactions incidental
thereto. Neither can it be said that a condominium corporation is
rendering services to the unit owners for a fee, remuneration or
consideration. Association dues, membership fees, and other
assessments/charges form part of a pool from which a condominium
corporation must draw funds in order to bear the costs for maintenance,
repair, improvement, reconstruction expenses and other administrative
expenses.
○ Ingles Notes
■ There is no VAT on association dues and membership fees. Why?
They are merely for the maintenance of the building.
■ If you go back to the Diaz case, the maintenance of tollways is an
economic activity and therefore subject to VAT. What’s the
difference?
● In Diaz, there was a rendering of service. The fact they
charged a fee for those services, even if it was just for
maintenance
● In this case, assessment dues are not in consideration
of a service for the unit owners. It was just for
maintenance for spaces already owned by them.
■ Really? Isn't that a service? Don’t your parents pay for
association fees to the subdivision you live in? What does it do
for you? They keep streets clean.
■ Isn’t that a rendering of service? Yes
TAX 2 INGLES - WRAP IT B4 U TAP IT

■ So?? In the COMASERCO case, it doesn’t matter if the service is R.R. 13-2018
only rendered on a reimbursement basis or if there’s a mark up.
How do you reconcile? That’s why an association is there. To
maintain the common area.
■ Sir: Right now it doesn't matter because TRAIN has explicitly
stated the association dues are not subject to VAT.
● Malayan Insurance Company, Inc. v. St. Francis Square Realty Corp. (2018) -
Allocation of condo units to partners in a JV → NOT subject to VAT
○ Doctrine: The allocation of condominium units to partners of a joint
venture is also not subject to VAT, as the allocation is not a sale, barter, or
exchange of goods, but a return of the partners' capital Investments under
the joint venture agreement.
○ The allocation of condo units in a joint venture project is not subject to
income tax because it’s a mere return of capital. (BIR Ruling)
2. Normal VAT Transactions and Importations
■ Consistent with this ruling
○ Ingles Notes
3 categories when it comes to normal VAT transactions or those subject to 12%:
■ What's the transaction in a nutshell? Is that subject to VAT under
1. The sale of goods and properties,
the elements? There’s no sale or exchange of services because
2. The sale of services, and
the units were given as a return of the capital, therefore not
3. Importation
subject to VAT.

(1) Sale of Goods and Properties - Section 106, 107 (as amended by TRAIN)
If the said transaction is OUTSIDE the PH, then it is NOT subject to VAT.
● Ingles Notes: You will not be subject to VAT in the Philippines, but you may be
subject to a country or state which imposes VAT.
○ Example: I (Filipino) sold my car located in California to another Filipino
because I have a business of selling cars.
○ Will I be subject to income tax for income received from the sale of a car in
LA?
■ Yes because PH citizens are taxed worldwide, regardless of situs
of income
○ Will I be subject to VAT for selling the car, with my business here in the PH?
■ Not subject to VAT because the transaction is outside of the PH.
■ Even if I’m a resident citizen, the transaction should be in the PH
to be subject to VAT according to the Code
SEC. 106. Value-added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. —
There shall be levied, assessed and collected on every sale, barter or exchange of goods or
properties, a value-added tax equivalent to twelve percent (12%) of the gross selling price
or gross value in money of the goods or properties sold, bartered or exchanged, such tax to
be paid by the seller or transferor. (As amended by TRAIN)
● In dealing with this element, you're dealing with 2 questions:
1. Is this a normal sale?
2. If not, is this at least a transaction which is deemed sales by law (Section
106[B])?
● GR: Generally, VAT rate is 12% on the gross selling price or gross value in money of
the goods, properties sold, bartered, or exchanged.
● XPN: We say "generally" because there are some transactions that are subject to 0%
or tax-exempt, but we'll tackle those later.
● For sale of goods or properties, the tax base is the gross selling price.

Gross Selling Price

The term "gross selling price" means the total amount of money or its equivalent which
TAX 2 INGLES - WRAP IT B4 U TAP IT
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.
Sec. 106. (D) Sales Returns, Allowances and Sales Discounts. — The value of goods or
properties sold and subsequently returned or for which allowances were granted by a
VAT-registered person may be deducted from the gross sales or receipts for the quarter in
which a refund is made or a credit memorandum or refund is issued. Sales discount
granted and indicated in the invoice at the time of sale and the grant of which does not
depend upon the happening of a future event may be excluded from the gross sales within
the same quarter it was given.
● 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 VAT
○ Excise tax, if any, on such goods or properties shall form part of the gross
selling price.
○ Excise or excise tax – any duty on manufactured goods that is levied at
the moment of manufacture rather than at sale.
○ In other words, gross selling price includes everything that the buyer pays
the seller, EXCEPT the VAT which is shifted to the buyer.
● Example: Elton sold a shirt to Sassy. The quoted selling price was P100, but there
were freight charges of P50. The gross selling price is P150. You apply the VAT to
P150.
● While the law says the VAT is based on the gross selling price, "gross selling price"
does NOT mean gross sales.
○ Gross sales – grand total of all sale transactions reported in a period,
without any deductions included within the figure. Net sales (or gross
selling price) are defined as gross sales minus the ff deductions: (1) Sales
allowances; (2) Sales discounts; (3) Sales returns
● The law and regulations allow downward adjustments for:
1. Sales returns and allowances
■ Sales returns and allowances is a deduction from sales that
shows the sale price of goods returned by customers, as well as
discounts taken by them to retain defective goods. (google)
2. Sales discounts agreed upon at the time of the sale indicated in the sales
invoice, and availed of by the buyer.
Ingles Notes
● The 12% is the basic stuff you have to know.
Goods and Properties
Sec. 106. (A) (1) The term "goods" or "properties" shall mean all tangible and intangible
objects which are capable of pecuniary estimation and shall include:
a. Real properties held primarily for sale to customers or held for lease in the ordinary
course of trade or business;
b. The right or the privilege to use patent, copyright, design or model, plan, secret
formula or process, goodwill, trademark, trade brand or other like property or right;
c. The right or the privilege to use in the Philippines of any industrial, commercial or
scientific equipment;
d. The right or the privilege to use motion picture films, tapes and discs; and
e. Radio, television, satellite transmission and cable television time.
● Goods or properties – all tangible and intangible objects which are capable of
pecuniary estimation.
● They include:
1. Real properties held primarily for sale to customers, or held for lease in the
ordinary course of trade or business;
2. Right or privilege to use patent, copyright, design or model, plan, secret
formula or process, goodwill, trademark, trade brand or other like
property or right;
3. Right or the privilege to use in the PH of any industrial, commercial or
scientific equipment;
4. Right or the privilege to use motion picture films, tapes and discs;
5. Radio, television, satellite transmission and cable television time.
● This is not an exclusive list, obviously.
● Ingles:
○ Codal gives an enumeration of goods and services you can provide. Is the
list exclusive? No
○ Royalties - subject to VAT?
■ Yes – Tax Code provides that intangible properties capable of
pecuniary estimation are also subject to VAT
○ If it’s not zero-rated and it’s not exempt, it’s VATable as long as it reaches
that 3M threshold of the taxpayer
Transactions deemed sale
Sec. 106. (B) Transactions Deemed Sale. — The following transactions shall be deemed
sale:
1. Transfer, use or consumption not in the course of business of goods or properties
originally intended for sale or for use in the course of business;
2. Distribution or transfer to:
TAX 2 INGLES - WRAP IT B4 U TAP IT
a. Shareholders or Investors as share in the profits of the VATregistered 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.
● By virtue of law, the following are considered sales in the course of trade or
business, and is subject to the VAT:
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 of inventory to shareholders or investors as share
in the profits 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 60 days following
the date such goods were consigned; and
5. Retirement from or cessation of business, with respect to inventories of
taxable goods existing as of such retirement or cessation, (includes capital
goods — R.R. 16-2005)
● Example: Ramen at Taek's Room, Inc. sells on a regular basis kimchi ramen which is
just absolutely delicious. It decides to give its tax counsel, Deok Sun, a box of its
best-selling kimchi ramen.
○ That transaction is a transaction deemed sale under (1).
● Ingles Notes
○ At the outset, they don’t look to be VAT-able because there is no change of
money. These are actually transactions that are sometimes without
consideration because you are giving your inventory, etc. BUT these are
subject to VAT.
○ Basic principle: If these goods or properties were sold in the ordinary
course of business, they would be VATable.
○ (1) Consumption of properties that would have been subject to vat in the
ordinary course of the business
■ You could have sold it. What’s an example?
■ You own a food business and you sell fried chicken. You gave it to
your friend for free. That is VATable.
○ (2) Giving of inventory to your shareholders as property dividends
■ Property dividend – alternative to cash or stock dividends, where
a company gives shareholders property in lieu of cash or cash
(E) Authority of the Commissioner to Determine the Appropriate Tax Base. — The
equivalents. (google)
Commissioner shall, by rules and regulations prescribed by the Secretary of Finance,
■ Akin to a sale
■ What is transferred to the shareholders? What is consumed?
They don’t transfer the share. It is the share in the profits of the
VAT-registered person.
○ (3) Distribution/transfer of inventory to creditors in payment of debt;
■ You give your inventory to creditors to pay for debt
○ (4) Consignment
■ Consignment – arrangement wherein goods are left in the
possession of another party, who sell the goods and take a piece
of the profit (google)
■ VAT-able taxpayer is the consignor (person who gave the goods).
Deemed as a sale because you gave it to someone supposed to
sell it, but it was not sold within 60 days and is still with another
person.
■ Morgan example: Morgan consigns Cevean to Keoni on Jan 1. If
it’s still with Keoni on Mar. 20, then it is subject to VAT on
Morgan’s end. Law treats it as sold even if it’s not.
○ (5) Retirement from or cessation of business - includes capital goods (R.R.
16-2005)
■ You have a business selling various products as a VAT-registered
taxpayer. You’re retiring from your business. Tax implication is
that your inventory is deemed sold, thus subject to VAT.
■ Don’t you find that unfair? You’re going out of business and the
inventory you’re stuck with will not be subject to tax. You, the
business, have to shell out the tax for it because you’re not
selling it to anyone.
■ You own a business and you sell blindfolds. You have 1M worth of
inventory. You’re retiring your business because no one is
buying. What would you do, knowing that when you retire your
business, you would have to pay 120,000 as VAT?
● Sell for a lower price for someone else to cover the VAT
for it. Otherwise you’ll get stuck with your inventory
then you get stuck with the VAT.
■ That’s why take note of your transactions deemed sale.
Implications is that they will be subject to 12% VAT
■ If a client is closing shop, advise them to sell at marked down
sale to get a return on the inventory and pass down the VAT
liability to consumers.
TAX 2 INGLES - WRAP IT B4 U TAP IT
determine the appropriate tax base in cases where a transaction is deemed a sale, barter or
exchange of goods or properties under Subsection (B) hereof, or where the gross selling
price is unreasonably lower than the actual market value.
● The CIR shall determine the appropriate tax base in cases where:
1. transactions are deemed sales, or
2. where the gross selling price is unusually lower than the actual market
value.
(2) Sale of Service and Use or Lease of Properties
Sec. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. —
(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added
tax equivalent to twelve percent (12%) of gross receipts derived from the sale or exchange
of services, including the use or lease of properties.
The phrase 'sale or exchange of services' means the performance of all kinds of services
in the Philippines for others for a fee, remuneration or consideration, including those
performed or rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of property, whether personal or
real; warehousing services; lessors or distributors of cinematographic films; persons
engaged in milling, processing, manufacturing or repacking goods for others; proprietors,
operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts;
proprietors or operators of restaurants, refreshment parlors, cafes and other eating places,
including clubs and caterers; dealers in securities; lending investors; transportation
contractors on their transport of goods or cargoes, including persons who transport goods
or cargoes for hire and other domestic common carriers by land relative to their transport
of goods or cargoes; common carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in the Philippines to another place in the
Philippines; sales of electricity by generation companies, transmission, and distribution
companies; services of franchise grantees of electric utilities, telephone and telegraph,
radio and television broadcasting and all other franchise grantees except those under
Section 119 of this Code and non-life insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding companies; and similar services
regardless of whether or not the performance thereof calls for the exercise or use of the
physical or mental faculties. The phrase 'sale or exchange of services' shall likewise
include:
1. The lease or the use of or the right or privilege to use any copyright, patent,
design or model plan, secret formula or process, goodwill, trademark, trade
brand or other like property or right
2. The lease or the use of, or the right to use of any Industrial, commercial or,
scientific equipment;
3. The supply of scientific, technical, Industrial or commercial knowledge or
information;
4. The supply of any assistance that is ancillary and subsidiary to and is furnished as
a means of enabling the application or enjoyment of any such property, or right
as is mentioned in subparagraph (2) or any such knowledge or information as Is
mentioned in subparagraph (3);
5. The supply of services by a nonresident person or his employee in connection
with the use of property or rights belonging to, or the installation or operation of
any brand, machinery or other apparatus purchased from such nonresident
person;
6. The supply of technical advice, assistance or services rendered in connection
with technical management or administration of any scientific, industrial or
commercial undertaking, venture, project or scheme;
7. The lease of motion picture films, films, tapes and discs; and
8. The lease or the use of or the right to use radio, television, satellite transmission
and cable television time.
Lease of properties shall be subject to the tax herein imposed irrespective of the place
where the contract of lease or licensing agreement was executed if the property is leased or
used in the Philippines.
● Any sale or exchange of services in the course of trade or business, including the use
or lease of properties, shall be subject to the VAT.
○ VAT rate is 12% of the gross receipts.
● To be defined as sales of services, the services:
1. Should be rendered in the Philippines,
2. Can be any and all kinds of services rendered to others (provided there is
no employer-employee relationship); and
3. There is a fee, remuneration or consideration.
● Lease of properties shall be subject to VAT:
○ if the property is leased or used in the Philippines
○ irrespective of the place where the contract or lease or licensing
agreement was executed
● Sale of services in the course of trade or business includes those performed or
rendered by:
1. Construction and service contractors;
2. Stock, real estate, commercial, customs and immigration brokers;
3. Lessors of property, whether personal or real;
4. Warehousing services;
5. Lessor or distributors of cinematographic films
TAX 2 INGLES - WRAP IT B4 U TAP IT
6. Persons engaged in milling, processing, manufacturing or repacking of
goods for others;
7. Proprietors, operators, or keepers of hotels, motels, rest houses, pension
houses, inns, resorts;
8. Proprietors or operators of restaurants, refreshment parlors, cafes and
other eating places, including clubs and caterers;
9. Dealers in securities;
10. Lending investors;
11. Transportation contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for hire and other
domestic common carriers by land, relative to their transport of goods or
cargoes;
12. Common carriers by air and sea relative to their transport of passengers,
goods or cargoes from one place in the PH to another place in the PH;
13. Sales of electricity by generation companies, transmission by any entity
including the National Grid Corporation of the PH, and distribution
companies including electric cooperatives; (R.R. No. 13-2018)
14. Services of franchise grantees of electric utilities, telephone and telegraph,
radio and television broadcasting and all other franchise grantees, except
those under Sec. 119 of the NIRC;
15. 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.
● Also included are:
1. Lease or use of or right or privilege to use any copyright, patent, design or
model, plan, secret formula or process, goodwill, trademark, trade brand
and other like property or right;
2. Lease or the use of, or the right to use of any industrial, commercial or
scientific equipment;
3. Supply of scientific, technical, industrial or commercial knowledge or
information;
4. Supply of any assistance that is ancillary and subsidiary to and is furnished
as a means of enabling the application or enjoyment of any such property,
or right as is enumerated in number (2) hereof or any such knowledge or
information as is mentioned in number (3);
5. Supply of services by a nonresident person or his employee in connection
with the use of property or rights belonging to, or the installation or
operation of any brand, machinery or other apparatus purchased from
such non-resident person;
6. Supply of technical advice, assistance or services rendered in connection
with technical management or administration of any scientific, industrial
or commercial undertaking, venture, project or scheme;
7. Lease of motion picture films, tapes, and discs;
8. Lease or use of or the right to use radio, television, satellite transmission
and cable television time
NOTE: The list is not exhaustive, obviously.
● CIR v. SM Prime (2010) → exhibition of movies NOT subject to VAT
○ Doctrine: However, the exhibition of movies (as opposed to the lease
thereof) is not subject to VAT, but subject to amusement tax imposed by
LGUs.
○ Although the enumeration of the "sale or exchange of services" subject to
VAT is not exhaustive.
○ The words, "including," "similar services," and "shall likewise include,"
indicate that the enumeration is by way of example only. And moreso
among those included in the enumeration is the "lease of motion picture
films, films, tapes and discs."
○ Still, this is NOT the same as the showing or exhibition of motion
pictures or films. Legislature never intended to include cinema/theater
operators or proprietors in the coverage of VAT.
○ Ingles Notes:
■ What is the difference between exhibiting and leasing cinema
films? When you watch a movie in Rockwell Power Plant, you do
not pay VAT. It’s an exhibition. If you look at your movie ticket,
there is no VAT component.
■ How do you know if it’s a mere exhibition or a leasing of a film?
● Exhibition – Cinema ticket is not what you're
purchasing. You’re purchasing the right to watch the
film legally. So the cinema ticket is just a symbolism of
you being able to get that right.
● Leasing – e.g. video rental stores when you go there
and borrow VHS, laser disc, or DVD.
■ What about Netflix? Is it an exhibition or leasing out of moves? Is
it subject to VAT? Are you saying It’s not subject to VAT but it’s
subject to amusement tax because of this case?
● Sir: This is a real issue now. Netflix does not have a PH
corporation here. We’re just accessing whatever US
corporation handles the PH. If I’m Netflix, I don't want
to be taxed in the PH. I wouldn’t wanna be taxed in all
jurisdictions where netflix is shown. So if I were Netflix,
I would argue that the services I provide are not
TAX 2 INGLES - WRAP IT B4 U TAP IT
located in the PH. My streaming services are located
where my servers are located. Sure my customers are
in the PH, but since we follow the situs rule for income
tax and VAT, not the business effects rule, then they
can’t be reached in the PH. When you pay for Netflix
next time, try to check if there’s a VAT component in
payment for netflix.
● Cash deposits or advances received by taxpayers other than GPP from clients and
customers shall be subject to VAT, if applicable
○ e.g. if the taxpayer exceeds the threshold or if it is registered as a VAT
taxpayer. (RMC 16-2013)
○ But see Medicard Philippines, Inc. v. CIR (2017)
■ Doctrine: Amounts earmarked for payment to a third party are
not part of gross receipts and therefore not subject to VAT.
● For VAT, all gross receipts from services rendered by the partners shall be entirely
taxable to the partnership.
Sec. 108. The term 'gross receipts' means the total amount of money or its equivalent
● Medicard Philippines, Inc. v. CIR (2017) - earmarking funds as administrator →
representing the contract price, compensation, service fee, rental or royalty, including the
NOT subject to VAT
amount charged for materials supplied with the services and deposits and advanced
payments actually or constructively received during the taxable quarter for the services
performed or to be performed for another person, excluding value-added tax.
● Gross receipts – mean cash or its equivalent actually received or constructively
received (not including the VAT) as:
○ Payments on the contract price, compensation, service fee, rental or
royalty;
○ Payments or materials supplied with the services; and
○ Deposits of advanced payments on the contract for services.
○ Example: Geralt of Cainta was a Filipino monster hunter who specialized
in hunting aswangs. He spent P20M for materials and P10 for labor. People
tossed him coins as payment amounting to gross receipts of P30M, the
whole of which is VATable by 12%.
● Constructive receipt – occurs when the money consideration or its equivalent is
placed in the control of the person who rendered the service without restriction by
the payor,
○ E.g. a bank deposit; issuance by the debtor of a notice to offset any debt
or obligation and acceptance thereof by the seller as payment for the
services rendered
● Gross receipts do NOT include:
1. Amounts earmarked for payment to unrelated 3rd parties or
■ It is considered payment to a 3rd party if the same is made to
settle an obligation of another person (like a customer or a
client) to the said third party.
■ The sales invoice or official receipt must be issued by the 3rd
party to the obligor/debtor (the customer/client of the payor).
■ "Unrelated party" shall NOT include the taxpayer's employees,
partners, affiliates, relatives by consanguinity or affinity within
the 4th degree, and trust funds where the taxpayer Is the trustor,
trustee, or beneficiary, even if covered by an agreement to the
contrary.
2. Received as reimbursement for advance payment on behalf of another
which do not redound to the benefit of the payor. (R.R. 4-2007)
■ It is an advance payment on behalf of another if the payment is
to a 3rd party for a present or future obligation of said another
party.
■ The sales invoice or official receipt must be issued by the
obligee/creditor to the obligor/debtor (the "another party") for
the sale of goods or services by the former to the latter.
○ Doctrine: The HMO issued 2 official receipts—one pertaining to the
VATable portion that represented compensation for its services, the other
pertaining to the nonVATable portion pertaining to the amounts
earmarked for medical utilization. Amounts earmarked by an HMO to its
medical service providers on behalf of its clients do not form part of its
gross receipts for VAT purposes.
○ By earmarking said amounts, the HMO recognizes that it possesses said
funds not as an owner but as mere administrator of the same.
○ Ingles Notes
■ In the 20%, there is a sale of service and an exchange of money;
therefore subject to VAT.
● What is the service that Medicard gives that's allocated
as 20%? Arranging of medical services between the
customers and the healthcare providers. It also
provides its own lab services.
■ In the 80%, it is NOT subject to VAT because it was not in the
ordinary course of business of Medicard. There was no service
rendered, and Medicard does not own the money.
● What happens to the 80%? It’s earmarked for other
medical utilization. It’s not part of the payment for the
services that Medicard provides for its members. It is
TAX 2 INGLES - WRAP IT B4 U TAP IT
paid to the healthcare providers that provides services
to its members
○ Simplifying it with the elements:
■ There is no service being provided with that 80%
■ INCOME: If you’re holding money in trust for someone else, it's
not your money. Hence it’s not your income. Same principle
applies for VAT. if you’re holding it in trust, you can’t use the
money for yourself. Hence it’s not subject to VAT.
(3) VAT on Importation (Sec. 108, as amended by TRAIN)
Sec. 107. Value-Added Tax on Importation of Goods. — (A) In General. — There shall be
levied, assessed and collected on every importation of goods a value-added tax equivalent
to twelve percent (12%) based on the total value used by the Bureau of Customs in
determining tariff and customs duties, plus customs duties, excise taxes, if any, and
other charges, such tax to be paid by the importer prior to the release of such goods from
customs custody: Provided, That where the customs duties are determined on the basis of
the quantity or volume of the goods, the value-added tax shall be based on the landed
cost plus excise taxes, if any.
● Every importation of goods shall be subject to the VAT, whether for use in business
or not.
● Imported goods shall be subject to 12% VAT.
● The tax base is:
1. Total value used by the Bureau of Customs in determining tariff and
customs duty + customs duties + excise tax (if any) + other charges prior to
the removal of the goods from customs custody; OR
2. Based on the landed cost, if the customs duties are determined on the
basis of the quantity or volume of the goods.
○ landed cost = invoice cost + freight + insurance + customs duties
+ excise tax (if any) + other charges PRIOR to the removal of the
goods from customs custody.
● Ingles Notes
○ I ordered a 1M peso statue of Michael Jordan and then imported it to the
PH. Will that be subject to VAT?
■ Yes. Under the Customs and Tariffs Modernization Act, any
importation below P10,000 is not subject to duties & taxes, which
includes VAT.
○ De minimis importations meaning less than P10K are VAT exempt
whenever you import.
■ That’s why when you buy stuff online like essential oils, make
sure it’s less than 10K to avoid being taxed.
○ Morgan: Balikbayan boxes are exempted from VAT as long as the value is
below 150k
○ What if a VAT exempt person buys an exempt good but sells it to a person
not exempt? VATable person buying is subject to input VAT
(B) Transfer of Goods by Tax-Exempt Persons. — In the case of tax-free importation of
goods into the Philippines by persons, entities or agencies exempt from tax where such
goods are subsequently sold, transferred or exchanged in the Philippines to non-exempt
persons or entities, the purchasers, transferees or recipients shall be considered the
importers thereof, who shall be liable for any internal revenue tax on such importation. The
tax due on such importation shall constitute a lien on the goods superior to all charges or
liens on the goods, irrespective of the possessor thereof.
● When a person who was exempt from the VAT on his importation subsequently
sells (transfers or exchanges) in the PH such imported article to a non-exempt
person or entity, the purchaser (transferee or assignee) will be required to pay the
VAT.
○ Example: Tiki Taka, Inc. is a tax-exempt entity that imports high-end
soccer balls. Tiki Taka, Inc. then sold it to Diego Dribblers, Inc., a
non-exempt entity. Diego Dribblers, Inc. has to pay for the VAT. Diego
Dribblers, Inc. can claim the VAT paid as creditable input taxes.
○ MAQS EXAMPLE: A → B (importer, tax-exempt entity, thus zero-rated) → C
(domestic purchaser) – D (second domestic purchaser)
■ A-B is a zero-rated transaction. B, as statutory taxpayer, pays 0
tax.
■ B-C is a vatable transaction. C pays 100k as VAT. (C’s input tax)
■ C-D is also a vatable transaction. D pays C 200k as VAT. C only has
to remit 100k to the BIR because his input tax is creditable
against the output tax of 200k.
● A seller of goods or services who imports stuff can claim the VAT paid on
importations during a taxable period as input taxes creditable against the output
taxes on the sales of the same period.
● Same rule applies to technical importation of goods sold by a person located in a
special economic zone to a customer located in a customs territory.
● The VAT of an importation should be paid PRIOR to the release of the goods from
customs custody.
● If it is subject to both excise tax and VAT, the taxpayer has to pay BOTH prior to the
release.
● Ingles Notes
○ Destination principle means it’s going OUTSIDE the PH, not going inside
the PH.
TAX 2 INGLES - WRAP IT B4 U TAP IT

○ Is importation of goods when you buy something online for personal use ● In exempt transactions, there is only partial relief because the seller (Bellatrix) is
subject to 12% VAT? not allowed any tax refund or credit for input taxes paid on her purchases from her
■ Yes. Tax Code provides that imports of goods shall be subject to supplier (Albus).
12% VAT whether for use in business or not. ● In fact, some jurisdictions call zero-rated transactions "exempt with credit"
■ RECALL: An exception to ordinary course of trade/business is (because you can credit input tax) and VAT-exempt transactions "exempt without
importation for personal use. credit" (because you can't credit input tax).
○ Is there a limit to not being taxed 12% when you buy stuff online? What is ● So that's a helpful way of remembering the difference between zero-rated and
the limit for importing goods for it not to be subject to VAT? VAT-exempt. You CAN get a credit with zero-rated transactions and you CANNOT
■ Less than 10k get a credit with VAT exempt transactions.
○ Seller can only collect an Input VAT pertaining to the zero rated sale ● In normal VAT transactions, the VAT paid to the supplier (Albus) can be recovered
because you might have a situation where you’re a seller where you have by selling the product to a purchaser (Cho).
zero rated, vat exempt, and vatable transactions. You have to prove to BIR
Albus sells to Bellatrix sells to Bellatrix paid Albus P12 as VAT. But
that the input is directly related to zero rated transactions or pro-rated
Bellatrix Cho she recovered the P12 by selling the
with everything else. That’s why you like zero rated transactions cos you’ll
product to Cho. In her sale to Cho, she
at least get back our input. When it comes to VAT wheel, you don’t get
VAT TAXABLE VAT TAXABLE received P18 which covered the P12
money from your buyers. You can only get a refund.
she had paid Albus. So, in essence,
P100 + P12 (VAT) P150 + P18 = P168 she recovered the P12 she had paid
Before tackling zero-rated and exempt transactions, let's have an overview of the VAT
= P112 Albus.
system.
● Understanding VAT is a matter of perspective. ● What if the transaction of Bellatrix to Cho is VAT ZERO-RATED?
● Remember VAT is an indirect tax, hence the burden of paying the VAT is passed on
to the buyer. Albus sells to Bellatrix sells to Bellatrix paid Albus P12 as VAT. But,
Bellatrix Cho her transaction to Cho was zero-rated.
Example: Our focus here is on Bellatrix, a crazy strange witch who openly flirts with her boss So she did not receive anything from
in front of her husband. VAT TAXABLE VAT ZERO-RATED Cho to offset her VAT payment to
● Albus sells Bellatrix a purple potion; Bellatrix shoulders the 12% VAT on it. Albus. She has an output of zero, and
P100 + P12 (VAT) P150 + P0 = P150 an input of P12. She can apply for a
● Bellatrix can recover the amount she paid to Albus by selling the purple potion to
= P112 refund or a tax credit of the P12 with
Cho, wherein Cho will shoulder the 12% VAT.
● The biggest difference between zero-rated/effectively zero rated transactions and the BIR because the law allows this.
VAT-exempt transactions is the ability to recover VAT already paid to the seller. ● What if the transaction of Bellatrix to Cho is VAT EXEMPT?
● [In VAT], Why do we look at the input tax and not the output tax?
○ Because Input tax is what we all seek to recover, that is what we Albus sells to Bellatrix sells to Bellatrix paid Albus P12 as VAT. But, her
shouldered. Bellatrix wants to recover the 12% VAT that she had paid to Bellatrix Cho transaction to Cho was VAT-exempt. So
Albus. she did not receive anything from Cho
○ Output tax doesn't come out of our own pockets because we can pass VAT TAXABLE VAT EXEMPT to offset her VAT payment to Albus. She
that burden to our buyers. Bellatrix's selling of the purple potion to Cho has an output of zero, and an input of
will burden Cho, not Bellatrix. P100 + P12 P150 + 0 = P150 P12. However, unlike a zero-rated
● In zero-rated transactions, there is total relief for the purchaser (Cho) from the (VAT) = P112 transaction, she CANNOT apply for a
burden of the tax since she does not have to pay any VAT on the transaction. On the refund or a credit of the P12 with the
side of the seller (Bellatrix), the input tax on her purchases from her supplier (Albus) BIR as the law does not allow this.
shall be available as a tax credit or refund.
TAX 2 INGLES - WRAP IT B4 U TAP IT
● If we were Bellatrix, and we had a choice, what should our next sale transaction be
— normal VATable, zero-rated, or exempt?
○ 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? It will be considered a cost.
● It is a 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 with the 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 to 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 rated), should we go to the
trouble of looking for buyers here in the PH if that's not our main line of
business anyway?
3. Zero-rated Transactions
Section 106 and 108 (B) (as amended by TRAIN)
Sec. 106 – (xxx) (2) The following sales by VAT-registered persons shall be subject to zero
percent (0%) rate:
(a) Export Sales. - The term “export sales” means:
1. The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may
influence or determine the transfer of ownership of the goods so exported and paid
for in acceptable foreign currency or its equivalent in goods or services, and
accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);
2. [VETOED] Sale and delivery of goods to: (i) Registered enterprises within a separate
customs territory as provided under special laws; and (ii) — Registered-enterprises
within tourism enterprise-zones as declared by the Tourism—Infrastructure
and-Enterprise Zone Authority-(TIEZA) subject to the provisions under Republic- Act
No. 9593 or The Tourism Act of 2009.
3. Sale of raw materials or packaging materials to a nonresident buyer for delivery to a
resident local export-oriented enterprise to be used in manufacturing, processing,
packing or repacking in the Philippines of the said buyer's goods and paid for in
acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
4. Sale of raw materials or packaging materials to export-oriented enterprise whose
export sales exceed seventy percent (70%) of total annual production;
5. Those considered export sales under Executive Order NO. 226, otherwise known as
the “Omnibus Investment Code of 1987”, and other special laws; and
6. The sale of goods, supplies, equipment and fuel to persons engaged in international
shipping or international air transport operations: Provided, That the goods,
supplies, equipment and fuel shall be used for international shipping or air transport
operations.
Provided, That subparagraphs (3), (4), and (5) hereof shall be subject to the twelve percent
(12%) value-added tax and no longer be considered export sales subject to zero percent
(0%) VAT rate upon satisfaction of the following conditions:
1. The successful establishment and implementation of an enhanced VAT refund
system that grants refunds of creditable input tax within ninety (90) days from the
filing of the VAT refund application with the Bureau: Provided, That, to determine the
effectivity of item no. 1, all applications filed from January 1, 2018 shall be processed
and must be decided within ninety (90) days from the filing of the VAT refund
application; and
2. All pending VAT refund claims as of December 21, 2017 shall be fully paid in cash by
December 31, 2019.
TAX 2 INGLES - WRAP IT B4 U TAP IT
Provided, That the Department of Finance shall establish a VAT refund center in the Bureau
of Internal Revenue(BIR) and in the Bureau of Customs(BOC) that will handle the
processing and granting of cash refunds of creditable input tax.
An amount equivalent to five percent (5%) of the total VAT collection of the BIR and the
BOC from the immediately preceding year shall be automatically appropriated annually
and shall be treated as a special account in the General Fund or as trust receipts for the
purpose of funding claims for VAT refund: Provided, That any unused fund, at the end of
the year shall revert to the General Fund.
Provided, further, That the BIR and the BOC shall be required to submit to the
Congressional Oversight Committee on the Comprehensive Tax Reform Program
(COCCTRP) a quarterly report of all pending claims for refund and any unused fund.
(b) Sales to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales to zero
rate.
For Goods
For goods, a rate of 0% of the gross selling price will be applied to:
1. Export sales (zero-rated transactions); or
2. Sales to persons or entities who are exempted under special laws, or international
agreements to which the PH is a signatory (effectively-zero rated sales)
Export Sales
● Export sales – Sales and actual shipments or exportations of goods from the
Philippines to a foreign country irrespective of any shipping arrangement that may
be agreed upon which may influence or determine the transfer of ownership of the
goods so exported, and paid for in acceptable FOREIGN currency or its equivalent in
goods or services, and accounted for in accordance with the rules and regulations of
the BSP
● The ff are also considered export sales, which are zero-rated transactions
1. Sales of raw materials or packaging material to a nonresident buyer for
delivery to a resident local export-oriented enterprise to be used in
manufacturing, processing, packing or repacking in the PH of said buyer's
goods, paid for in acceptable FOREIGN currency, and accounted for in
accordance with BSP rules and regulations
2. Sale of raw materials or packaging materials to an export oriented
enterprise whose export sales exceed 70% of total annual production
○ As long as 70% is exported, then 100% of net input may be
refunded
3. Those considered export sales under EO 226 and other special laws
○ EO 226 - Omnibus Investments Code of 1987
4. Sale of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations
○ As long as the goods, supplies, equipment, and fuel are used for
international shipping or air transport operations.
● Ingles Notes:
○ THESE ARE CODALS TO MEMORIZE! If you miss 1 element, BIR is gonna say
it’s not a zero-rated sale therefore you’re not gonna be able to get your
input credited.
○ You are selling goods to a NONRESIDENT CITIZEN. But that’s not it. You
have to also be paid in foreign currency under the BSP rules. Goods have
to be exported. You can’t just say it’s an export sale. If you’re paid in pesos,
that’s not a zero rated transaction
● TRAIN has also set some standards to remove the zero-rating for (1) sale of
packaging materials to nonresidents, (2) sale of packaging materials to
export-oriented enterprises, and (3) export sales under EO 226.
○ These transactions will be subject to the normal 12% rate if a successful
VAT refund system is established, among others.
○ Ingles Notes: BIR said in 2021, these 3 transactions are no longer zero
rated. BUT a few months later, it said we’ll keep these zero rated. Right
now it’s still zero rated bec we want to help our economy recover by
allowing incentives to our export oriented enterprises.
Cross Border Principle
● CIR v. Seagate Technology (2005) - export sales to export processing zones →
zero rated
○ Book: Under the cross-border principle or destination principle of the
VAT system, no VAT shall be imposed to form part of the cost of goods
destined outside of the territorial border of the taxing authority.
○ Applying the destination principle to the exportation of goods, automatic
zero rating is primarily intended to be enjoyed by the seller who is directly
and legally liable for the VAT, making such seller internationally
competitive by allowing the refund or credit of input taxes that are
attributable to export sales.
○ Sales made by a VAT-registered person in the customs territory to a
PEZA-registered entity are considered exports to a foreign country.
○ Conversely, sales by a PEZA-registered entity to a VAT-registered person in
the customs territory are deemed imports from a foreign country.
TAX 2 INGLES - WRAP IT B4 U TAP IT
○ While an ecozone is geographically within the PH, it is deemed a separate
customs territory and is regarded in law as foreign soil.
○ If respondent is located in an export processing zone within that ecozone,
sales to the export processing zone, even without being actually exported,
shall in fact be viewed as constructively exported under EO 226.
Considered as export sales, such purchase transactions by respondent
would indeed be subject to a zero rate.
○ Ingles Notes:
■ Economic zones are not imposed national taxes because we
want foreign investors to come here and set up shop there to
provide business and jobs to FIlipinos. Normally, these
businesses within the exclusive economic zones must export
their goods and services outside. If they import into the PH, they
will be imposed importation VAT because they are now crossing
the border into the PH. In the legal fiction, any sale towards the
economic zone must be considered export sales under the PEZA
law and under the cross-border principle because they are
leaving the customs territory in the PH.
■ Will sales to a PEZA be subject to a VAT? No because of the cross
border principle or destination principle – if it goes out, it’s
considered an export.
■ That’s the issue with Duterte’s veto that sales to PEZA enterprises
are no longer zero rated. Initially, TRAIN was going to put the
destination principle and separate customs territory principle
into the tax law. D30 vetoed it (anything you sell to customs
territory should be taxable), not knowing that the status quo
right now because of SC is that these are still zero rated
transactions. Right now, these are all zero rated transactions
according to BIR even if we have a good credit VAT system.
● Secretary of Finance v. Lazatin (2016) - imports into ecozones → zero-rated
○ Doctrine: Since ecozones (such as the Clark Special Economic Zone and
Clark Freeport Zone) are considered foreign territories, a R.R. which
imposes VAT on the importation of petroleum products into the ecozones
is invalid.
○ Articles brought into and remain in ecozones are not taxable importations,
because the goods remain in foreign territory. As long as the goods remain
in the ecozone or re-exported to a foreign jurisdiction, they are tax-free.
But once introduced into the PH customs territory, it shall then be
considered "technical importation" subject to taxes and customs duties.
○ Ingles Notes:
■ Can we impose customs duties on goods brought on these
ecozones? No, our customs & tax laws do not apply to them.
■ How would you battle the smuggling of expensive cars in Subic
and now you see them in Makati? They are taxed when brought
or sold outside these ecozones?
■ Ingles: The RR not only amended the law. It hassled taxpayers
because they have to shell out money already and once you give
the BIR money they wont give it back to u lol. So RR is invalid
● CIR v. Sekisui Jushi Philippines, Inc. (2006) - sales to ecozone → zero-rated
○ Doctrine: Sales by suppliers from outside the ecozone to this separate
customs territory are deemed as exports and treated as export sales.
These sales are zero-rated or subject to a tax rate of zero percent.
○ Since 100 percent of the products of respondent are exported, all its
transactions are deemed export sales and are thus VAT zero rated. It has
been shown that respondent has no output tax with which it could offset
its paid input tax. Since the subject input tax it paid for its domestic
purchases of capital goods and services remained unutilized, it can claim a
refund for the input VAT previously charged by its suppliers
● What if suppliers erroneously impose VAT on goods sold to an entity within a
separate customs territory?
○ The purchaser's (i.e., the entity in the ecozone) recourse is against the
supplier, not the government. The purchaser can't run after the
government.
○ Coral Bay Nickel v. CIR (2016) – Goods destined for consumption within
ECOZONE → zero-rated
■ RMC No. 74-99, categorically declared that all sales of goods,
properties, and services made by a VAT-registered supplier from
the Customs Territory to an ECOZONE enterprise shall be subject
to VAT, at 0% rate, regardless of the latter's type or class of PEZA
registration; and, thus, affirming the nature of a PEZA-registered
or an ECOZONE enterprise as a VAT-exempt entity.
■ Petitioner's principal office was located in Brgy. Rio Tuba,
Bataraza, Palawan. Its plant site was specifically located inside
the Rio Tuba Export Processing Zone which is an ECOZONE. As
such, the purchases of goods and services by the petitioner that
were destined for consumption within the ECOZONE should be
free of VAT; hence, no input VAT should then be paid on such
purchases, rendering the petitioner NOT entitled to claim a tax
refund or credit.
TAX 2 INGLES - WRAP IT B4 U TAP IT

■ Doctrine: The supplier is the proper party to claim the refund

nonresident person not engaged in business who is outside the Philippines when
because VAT is an indirect tax and the supplier is the one
the services are performed, the consideration for which is paid for in acceptable
statutorily liable.
foreign currency and accounted for in accordance with the rules and regulations
■ Reporting and remittance of the VAT paid to the BIR remained to
of the Bangko Sentral ng Pilipinas (BSP);
be the seller/supplier's obligation. Hence, the proper party to
3. Services rendered to persons or entities whose exemption under special laws or
seek the tax refund or credit should be the suppliers, not the
international agreements to which the Philippines is a signatory effectively
petitioner.
subjects the supply of such services to zero percent (0%) rate;
■ Ingles Notes: If you have a separate customs territory, whatever
4. Services rendered to persons engaged in international shipping or international
sales you make to that area are export sales. We follow that cos
air transport operations, including leases of property for use thereof: Provided,
of destination principle and PEZA law. Problem if you take out
That these services shall be exclusive for international shipping or air transport
exemptions and zero rated is that people will lose incentives
operations;
because now they have the burden of paying 12%. It’s also not
5. Services performed by subcontractors and/or contractors in processing,
easy to get a refund because it involves a lot of accounting and
converting, or manufacturing goods for an enterprise whose export sales exceed
paperwork. BIR will keep denying until you reach SC and it will
seventy percent (70%) of total annual production;
take a lot of time. BIR will also not give the money back in
6. Transport of passengers and cargo by domestic air or sea vessels from the
interest as we learned in tax 1.
Philippines to a foreign country; and
7. Sale of power or fuel generated through renewable sources of energy such as, but
Ingles Notes
not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and
● You are in Korea and you buy goods there, but these goods are destined to be
other emerging energy sources using technologies such as fuel cells and
consumed outside Korea (except for food). If you buy skincare products, assuming
hydrogen fuels.
that you don’t consume them there, can you get a refund in the airport for the VAT
8. VETOED BY THE PRESIDENT
you paid?
9. Services rendered to offshore gaming licensees subject to gaming tax under
○ Yes, you can. This follows the cross-border principle. If you buy goods
Section 125-A of this Code by service providers, including accredited service
which are destined to be consumed abroad, there should be no VAT. This is
providers as defined in Section 27 (G) of this Code.
why most GST countries would allow VAT refund in the airport for products
bought within their jurisdiction, but will be consumed outside Since VAT is
a consumption tax, the consumption won’t happen within their taxing [KNOW THE CODAL WELL. TAKE NOTE OF EVERY WORD!]
jurisdiction and hence would give refund. In the PH, we don’t have this. For services performed in the PH, a rate of 0% of the gross receipts will be applied in the
ff instances:
For Services 1. Processing, manufacturing or repacking of goods:
a. For other persons doing business OUTSIDE the Philippines,
Sec. 108. (xxx) (B) Transactions Subject to Zero Percent (0%) Rate - The following
b. The goods are subsequently exported, AND
services performed in the Philippines by VAT- registered persons shall be subject to zero
c. Services are paid for in acceptable foreign currency and accounted for in
percent (0%) rate.
accordance with the rules and regulations of the BSP
1. Processing, manufacturing or repacking goods for other persons doing business
2. Services OTHER than processing, manufacturing or repacking of goods, rendered to:
outside the Philippines which goods are subsequently exported, where the
a. A person ENGAGED in business conducted OUTSIDE the Philippines, OR
services are paid for in acceptable foreign currency and accounted for in
Nonresident person NOT ENGAGED in business who is OUTSIDE the
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
Philippines when the services are performed, AND
(BSP);
b. Consideration is paid in acceptable foreign currency and accounted for in
2. Services other than those mentioned in the preceding paragraph, rendered to a
accordance with the rules and regulations of the BSP
person engaged in business conducted outside the Philippines or to a
TAX 2 INGLES - WRAP IT B4 U TAP IT
3. Services rendered to persons or entities whose exemption under special laws or
international agreements to which the PH is a signatory effectively subjects such
services to zero rate;
4. Services rendered to persons engaged in INTERNATIONAL shipping or international
air transport operations, including leases of property for use thereof, as long as the
services shall be exclusively 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 and sea vessels from the PH to a
foreign country; and
● Ingles Notes:
○ Transport of passengers by domestic LAND cargo from the PH to
a foreign country → NOT zero-rated because it’s impossible for a
land-based vehicle to go abroad since we live in an archipelago.
○ Try to distinguish the 2 transactions. One transaction provides
fuel and stuff to international air carriers. But the transport of
passengers by an INTERNATIONAL carrier is NOT zero-rated.
Transport of passengers by a DOMESTIC carrier from PH to a
foreign country IS zero-rated. If you take PAL, and it brings you
abroad like Las Vegas, that’s zero-rated because it’s a domestic
carrier transporting you abroad. It’s basically exporting you
abroad.
7. Sale of power or fuel generated through renewable sources of energy
■ NOTE: this does not cover the sale of services to maintain the operation of
these plants. (R.R. 13-2018)
● TRAIN has also set some standards to remove the zero-rating for (1) processing
goods for persons doing business outside the PH and (2) services performed by
contractors for export oriented enterprises.
○ These transactions will be subject to the normal 12% rate if a successful
VAT refund system is established, among others.
○ Ingles Notes: Nos. 1-5 will be subject to 12% VAT if a successful VAT refund
system is established.
For "services other than processing, manufacturing or repacking of goods"
● The phrase covers all aspects of the word "service" as long as the service is done in
the Philippines
● CIR v. American Express International (2005) – facilitating collection receivables
for AMEX HK → zero rated
○ Doctrine: When the PH branch facilitates the collection of receivables from
customers of its foreign affiliate, said service qualifies under Sec. 108(b)(2)
as zero-rated
○ Services are subject to VAT: The services rendered by AMEX-PH are
performed or successfully completed upon its sending to its foreign client
the drafts and bills it has gathered from service establishments here. Its
services, having been performed in the PH, are therefore also consumed in
the PH. Under the destination principle, such service is subject to VAT at
the rate of 10%.
○ Exempted from Destination Principle: However, the law provides for an
exception to the destination principle. These requirements are met by
AMEX-PH, thus, it should be zero-rated. (1) Its facilitation service is
performed in the PH. (2) It falls under the 2nd category found in Sec.
102(b), because it is a service other than "processing, manufacturing or
repacking of goods."; (3) The service meets the statutory condition that it
be paid in acceptable foreign currency duly accounted for in accordance
with BSP rules.
○ Ingles Notes
■ What is the service that AMEX PH provides?
● Facilitated collection of receivables for AMEX HK.
■ How is it paid for the services provided?
● It is paid in foreign currency.
■ So is it zero-rated? Yes.
■ Normal VAT transactions → services MUST be rendered in the PH
■ Zero-rated transactions → doesn’t matter where services were
rendered or consumed; what matters is where recipient conduct
its business (must be outside the PH)
● CIR v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc. (2007) –
recipient of services is doing business in the PH → not zero-rated
○ Doctrine: The recipient of the services (other than processing,
manufacturing, or repacking of goods under Section 108 [b] [1]) must be
for a person engaged in business OUTSIDE the PH. Here, the recipient of
the services was the Consortium who was deemed doing business within
the Philippines
○ While the Consortium's principal members are non-resident foreign
corporations, the Consortium itself is doing business in the Philippines.
The contract between the Consortium and NAPOCOR is for a 15-year term.
Considering this length of time, the Consortium's operation and
maintenance of NAPOCOR's power barges cannot be classified as a single
TAX 2 INGLES - WRAP IT B4 U TAP IT

or isolated transaction. Therefore, respondent's services to the ● Usually come from special laws and international agreements
Consortium, not being supplied to a person doing business outside the ○ R.A. 7227
PH, cannot legally qualify for 0% VAT. ○ R.A. 7916,
● Accenture, Inc. v. CIR (2012) – recipient of services was not doing in business ○ Asia Development Bank
outside the PH as a NRFC → not zero-rated ○ Embassies
○ Doctrine: It is not enough that the recipient has NO business PRESENCE in ○ Etc. (R.R. 16-2005)
the Philippines. The taxpayer has the burden to prove that the recipient is
ENGAGED in business OUTSIDE the Philippines. CIR v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc.
○ The evidence presented by Accenture may have established the fact its ● Difference between zero-rated and effectively zero-rated transactions
clients were foreign, however, this did not automatically mean that these
Zero-rated transactions Effectively zero-rated transaction
clients were doing business2 outside the Philippines.
○ To come within the purview of Sec. 108(B)(2), it is not enough that the
Refer to the export sale of goods Refer to the sale of goods or supply of
recipient of the service be proven to be a foreign corporation. It must be
and supply of services. services to persons or entities whose
proven that it is a nonresident foreign corporation.
exemption under special laws or
○ In Amex we ruled that the place of performance and/or consumption of
international agreements to which the PH is
the service is immaterial. The zero-rating of the services performed by
a signatory effectively subjects such
AMEX PH was affirmed by the Court, because although the services
transactions to a zero rate
rendered were both performed and consumed in the PH, the recipient of
NOTE: Strictly speaking, it is the sales by
the service was still an entity doing business outside the Philippines as
suppliers which are zero-rated. But the
required in Burmeister.
entities are granted an indirect exemption for
○ In Burmeister, the Court found that, although the place of the
policy and economic reasons.
consumption of the service does not affect the entitlement of a transaction
to zero-rating, the place where the recipient conducts its business does.
Seller of such transactions charges Such rate does not yield any tax chargeable
○ Ingles Notes: What was Accenture not able to prove?
no output tax, but can claim a against purchaser
■ That foreign clients were doing business outside the PH
refund or a tax credit certificate for
the VAT previously charged by
The VAT system generally follows the "destination principle"
suppliers
● GR: Destination principle
○ Exports are zero-rated For the benefit of the SELLER For the benefit of the PURCHASER.
○ Imports are taxed
● XPN: CIR v. Burmeister and Wain Scandinavian Contractor Mindanao In both, sellers who charges zero output tax can claim a refund or a tax credit
○ Doctrine: However, there is an exception in the form of services performed certificate for the VAT previously charged by suppliers.
in the PH for a recipient doing business outside the PH (since the service is
still done here)
Effectively-zero rated sales Ingles Notes
● A law firm was engaged by a client in the US to write an advisory memo on the labor
2
There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting" business. and tax implications of a certain transaction. The law firm was paid in dollars. Is it a
Each case must be judged in the light of its peculiar environmental circumstances. The term implies a zero-rated transaction? Yes, there was service rendered to a non-resident in the PH
continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance and paid in dollars.
of acts or works or the exercise of some of the functions normally incident to, and in progressive
prosecution of commercial gain or for the purpose and object of the business organization. (Accenture v
CIR)
TAX 2 INGLES - WRAP IT B4 U TAP IT

● The Tax Code says that the client can be a non-resident person not engaged in
D. Importation of professional instruments and implements, tools of trade, occupation
business who is outside the PH. Why was there a need to prove that the client is
or employment, wearing apparel, domestic animals, and personal and household
engaged in business if a client does not have to be a person engaged in business?
effects belonging to persons coming to settle in the Philippines or Filipinos or their
○ Court ruled that the recipient of the service must be doing business
families and descendants who are now residents or citizens of other countries, such
outside the PH for the transaction to qualify for zero-rating under Sec.
parties hereinafter referred to as overseas Filipinos, in quantities and of the class
108(B), Tax Code, as the provision is a verbatim copy of Sec. 102(B), 1977
suitable to the profession, rank or position of the persons importing said items, for
Tax Code; thus any interpretation of the latter holds true for the former.
their own use and not for barter or sale, accompanying such persons, or arriving
And in the former, there is a requisite that the recipient of services must be
within a reasonable time: Provided, That the Bureau of Customs may, upon the
performing business outside of the PH.
production of satisfactory evidence that such persons are actually coming to settle in
● The nice thing about zero-rated transactions is that you can claim an input VAT on
the Philippines and that the goods are brought from their former place of abode,
the zero-rated transaction.
exempt such goods from payment of duties and taxes: Provided, further, That
vehicles, vessels, aircrafts, machineries and other similar goods for use in
4. VAT exempt transactions manufacture, shall not fall within this classification and shall therefore be subject to
duties, taxes and other charges;
Ingles Notes E. *Services subject to percentage tax under Title V;
● No input VAT on the part of buyer; Seller cannot charge output VAT. F. *Services by agricultural contract growers and milling for others of palay into rice,
● Tax exemption without credit because you can’t credit input VAT. corn into grits and sugar cane into raw sugar;
G. *Medical, dental, hospital and veterinary services except those rendered by
Section 109 (as amended by TRAIN and CREATE) professionals;
H. *Educational services rendered by private educational institutions, duly accredited
SEC. 109. Exempt Transactions. —
by the Department of Education (DepEd), the Commission on Higher Education
1. Subject to the provisions of Subsection (2) hereof, the following transactions shall be
(CHED), the Technical Education and Skills Development Authority (TESDA) and
exempt from the value-added tax:
those rendered by government educational institutions;
A. *Sale or importation of agricultural and marine food products in their original state,
I. *Services rendered by individuals pursuant to an employer-employee relationship;
livestock and poultry of a kind generally used as, or yielding or producing foods for
J. *Services rendered by regional or area headquarters established in the Philippines
human consumption; and breeding stock and genetic materials therefor.
by multinational corporations which act as supervisory, communications and
Products classified under this paragraph shall be considered in their original state
coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific
even if they have undergone the simple processes of preparation or preservation for
Region and do not earn or derive income from the Philippines;
the market, such as freezing, drying, salting, broiling, roasting, smoking or stripping.
K. *Transactions which are exempt under international agreements to which the
Polished and/or husked rice, com grits, raw cane sugar and molasses, ordinary salt,
Philippines is a signatory or under special laws, except those under Presidential
and copra shall be considered in their original state;
Decree No. 529;
B. Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn,
L. *Sales by agricultural cooperatives duly registered with the Cooperative
livestock and poultry feeds, including ingredients, whether locally produced or
Development Authority to their members as well as sale of their produce, whether in
imported, used in the manufacture of finished feeds (except specialty feeds for race
its original state or processed form, to non-members; their importation of direct farm
horses, fighting cocks, aquarium fish, zoo animals and other animals generally
inputs, machineries and equipment, including spare parts thereof, to be used
considered as pets);
directly and exclusively in the production and/or processing of their produce;
C. *Importation of personal and household effects belonging to the residents of the
M. Gross receipts from lending activities by credit or multi-purpose cooperatives duly
Philippines returning from abroad and nonresident citizens coming to resettle in the
registered with the Cooperative Development Authority;
Philippines: Provided, That such goods are exempt from customs duties under the
N. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered
Tariff and Customs Code of the Philippines;
with the Cooperative Development Authority: Provided, That the share capital
TAX 2 INGLES - WRAP IT B4 U TAP IT
contribution of each member does not exceed Fifteen thousand pesos (P15,000) and
regardless of the aggregate capital and net surplus ratably distributed among the
members;
O. Export sales by persons who are not VAT-registered;
P. [REMOVED BY CREATE] Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or business or real
property utilized for low-cost and socialized housing as defined by Republic Act No.
7279, otherwise known as the Urban Development and Housing Act of 1992, and
other related laws, residential lot valued at One million five hundred thousand pesos
(Pl,500,000) and below, house and lot, and other residential dwellings valued at Two
million five hundred thousand pesos (P2,500,000) and below: Provided, That
beginning January 1, 2021, the VAT exemption shall only apply to sale of real
properties not primarily held for sale to customers or held for lease in the ordinary
course of trade or business, sale of real property utilized for socialized housing as
defined by Republic Act No. 7279, sale of house and lot, and other residential
dwellings with selling price of not more than Two million pesos (P2,000,000):
Provided, further, That every three (3) years thereafter, the amount herein stated
shall be adjusted to its present value using the Consumer Price Index, as published
by the Philippine Statistics Authority (PSA)
Q. *Lease of a residential unit with a monthly rental not exceeding Fifteen
thousand pesos (P15,000);
R. *[AMENDED BY CREATE] Sale, importation, printing or publication of books, and any
newspaper, magazine, journal, review bulletin, or any such educational reading
material covered by the UNESCO Agreement on the Importation of Educational,
Scientific and Cultural Materials, including the digital or electronic format thereof:
Provided, That the materials enumerated herein are not devoted principally to the
publication of paid advertisements;
S. *Transport of passengers by international carriers;
T. *Sale, importation or lease of passenger or cargo vessels and aircraft, including
engine, equipment and spare parts thereof for domestic or international transport
operations;
U. *Importation of fuel, goods and supplies by persons engaged in international
shipping or airtransport operations: Provided, That the fuel, goods, and supplies
shall be used for international shipping or air transport operations;
V. *Services of bank, non-bank financial intermediaries performing quasi-banking
functions, and other non-bank financial intermediaries;
W. *Sale or lease of goods and services to senior citizens and persons with disability, as
provided under Republic Act Nos. 9994 (Expanded Senior Citizens Act of 2010) and
VAT-exempt transactions in general
10754 (An Act Expanding the Benefits and Privileges of Persons with Disability),
respectively;
X. *Transfer of property pursuant to Section 40(C)(2) of the NIRC. as amended;
Y. *Association dues, membership fees, and other assessments and charges collected
by homeowners associations and condominium corporations;
Z. *Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
AA. *[AMENDED BY CREATE] Sale of or importation of prescription drugs and medicines
for:
i. Diabetes, high cholesterol, and hypertension beginning January 1, 2020; and
ii. Cancer, mental illness, tuberculosis, and kidney diseases beginning January
1, 2021: Provided, That the DOH shall issue a list of approved drugs and
medicines for this purpose within sixty (60) days from the effectivity of this
Act; and
BB. *[AMENDED BY CREATE] Sale or importation of the following beginning January 1,
2021 to December 31, 2023:
i. Capital equipment, its spare parts and raw materials, necessary for the
production of personal protective equipment components such as coveralls,
gown, surgical cap, surgical mask, N95 mask, scrub suits, goggles and face
shield, double or surgical gloves, dedicated shoes, and shoe covers, for
COVID-19 prevention;
ii. All drugs, vaccines and medical devices specifically prescribed and directly
used for the treatment of COVID-19; and
iii. Drugs for the treatment of COVID-19 approved by the Food and Drug
Administration (FDA) for use in clinical trials, including raw materials directly
necessary for the production of such drugs: Provided, That the Department
of Trade and Industry (DTI) shall certify that such equipment, spare parts or
raw materials for importation are not locally available or insufficient in
quantity, or not in accordance with the quality or specification required:
Provided, further, That for item (ii), within sixty (60) days from the effectivity
of this Act, and every three (3) months thereafter, the Department of Health
(DOH) shall issue a list of prescription drugs and medical devices covered by
this provision: Provided, finally, That the exemption claimed under this
subsection shall be subject to post audit by the Bureau of Internal Revenue
or the Bureau of Customs as may be applicable.
CC. [AMENDED BY CREATE] Sale or lease of goods or properties or the performance of
services other than the transactions mentioned in the preceding paragraphs, the
gross annual sales and/or receipts do not exceed the amount of Three million pesos
(P3,000,000.00)."
TAX 2 INGLES - WRAP IT B4 U TAP IT
● VAT-exempt transactions – refer to the sale of goods or properties and/or services
and the use or lease of properties that is NOT subject to VAT (output tax) and the
seller is NOT allowed any tax credit of VAT (input tax) on purchases
○ The person making the exempt sale of goods, properties or services shall
not bill any output tax to his customers because said transaction is not
subject to VAT. (R.R. 16-2005)
○ Seller does not charge VAT and he CANNOT claim exemption from what
has been passed to him.
● A VAT-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 3 years counted from the quarter when the election was
made.
VAT-exempt transactions (based on R.R. 16-2005, unless otherwise indicated)
A. Sale or importation of agricultural and marine food products in their original state,
livestock and poultry, and breeding stock and genetic materials:
○ Livestock – does not include fighting cocks, race horses, zoo animals and other
animals generally considered as pets.
○ Original state – shall include products that have undergone simple process of
preparation or preservation for the market (like freezing, drying)
○ Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary
salt and copra are considered agricultural food products in their original state
○ Raw cane sugar – natural sugar extracted from sugarcane through simple
mechanical process by pressing for the juice, boiling it to crystallize, filtering using
a centrifuge to separate these crystals, and drying—resulting to crystallized brown
sugar. (R.R. 08-2015)
■ Shall only refer to raw cane sugar produced from conducting only 1 stage
of filtering and centrifuging without any other further process applied
thereto.
■ Only those falling under the new definition (which includes muscovado)
are exempt from VAT. (R.R. 082015)
B. Sale or importation of fertilizers, seeds, seedlings, etc. EXCEPT specialty feeds
○ Specialty feeds – refer to non-agricultural feeds or food for race horses, fighting
cocks, aquarium fish, zoo animals and other animals generally considered as pets.
C. Importation of personal and household effects belonging to PH residents returning
from abroad and nonresident citizens coming to resettle in the PH
○ Provided the goods are exempt from customs duties under the Tariff and Customs
Code of the Philippines
D. Importation of professional instruments and implements, wearing apparel,
domestic animals, and personal household effects (except vehicles, goods for use in
manufacture and merchandise for any kind commercial quantity) belonging to
people coming to settle in the PH and are not for sale;
○ Ingles Notes: Look at VAT exempt transactions when it comes to household stock
of returning residents at VAT exempt. But you also have to look at the Tariffs and
Modernization Act which would exempt de minimis importation of less than P10k
→ exempted from all kinds of taxes and duties, which includes VAT
E. Services subject to percentage tax
○ Ingles Notes: Percentage tax is another kind of transfer tax which you will have to
learn after VAT. If your gross receipts or gross annual revenues are below 3M, you
will be subject to percentage tax. So just because you don’t reach the 3M
threshold does not mean that you are not subject to tax. You will be subject to
percentage tax. Percentage tax is different from VAT because the former does not
allow you input credit.
F. Services by agricultural contract growers and milling for others of palay into rice,
corn into grits and sugar cane into raw sugar
○ Agricultural contract growers – folks producing for other folks poultry, livestock,
or other agricultural and marine food products in their original state. This
includes contract growers who not only grow poultry or livestock, but also
process and dress poultry and livestock as a packaged service to its contract
growing. That's VAT exempt.
○ However, the processing and dressing services performed independently from
growing poultry, livestock, etc. are subject to VAT, as these services are separated
from the VAT-exempt act of growing. (RMC 097-10)
○ Ingles Notes: See RMC 97-2010
■ "Agricultural contract growers" refers to those persons producing for others
poultry, livestock or other agricultural and marine food products in their original
state. Its services involve growing of poultry, livestock or other agricultural and
marine food products into marketable poultry, livestock or other agricultural and
marine food products. There are agricultural contract growers which offer toll
processing/toll dressing/toll manufacturing as a packaged service to its contract
growing. Toll processing/toll dressing/toll manufacturing involves procedures
such as weighing, killing, dressing, scalding, cut-ups and packaging. In this case,
the contract growing and toll processing/toll dressing/toll manufacturing services
by agricultural contract growers are exempt from VAT
G. Medical, dental, hospital and veterinary services, except those rendered by
professionals
TAX 2 INGLES - WRAP IT B4 U TAP IT
○ Laboratory services are exempted. But if the hospital or clinic operates a
pharmacy or drug store, the sale of drugs and medicine is subject to VAT
○ CIR v. Philippine Health Care Providers, Inc. (2007)
■ Doctrine: A health care company which merely provides and arranges for
the provision of pre-need health care services to its members is NOT
VAT-exempt as it merely ARRANGES for medical services. It does not
PROVIDE the medical services.
○ Ingles Notes:
■ What about a doctor who charges consultation fees, is that subject to
VAT? Since it is rendered by a professional, it is subject to VAT.
■ What’s a dental service not rendered by the professional? Xray of your
teeth when you get braces is VAT exempt
○ Professional – a person formally certified by a professional body belonging to a
specific profession (e.g. lawyers or doctors). Also refers to a person who engaged
in some art or hobby for money as a means of livelihood, rather than a hobby (e.g.
professional boxer or professional artist). An insurance agent, management and
technical consultant, and recipients of professional and talent fees are also
considered professionals. (RR 8-2018)
H. Educational services rendered by PRIVATE educational institutions, accredited by
the DEPED, CHED, TESDA, and those rendered by GOVERNMENT educational
institutions
○ Educational services do NOT include seminars, in-service training, review classes
and other similar services rendered by persons who are NOT accredited by the
DEPED, CHED or TESDA
○ Ingles Notes: Ateneo - if you look at your tuition fee bill, it doesn’t include VAT.
I. Services rendered by individuals pursuant to an employer-employee relationship
○ Ingles Notes: This is why if you don’t have business, you don’t have to charge VAT
or pass on VAT to your employees because it’s explicit that services rendered
under the EER will be subject to VAT exemptions.
■ Practical application for this is when it comes to professional athletes.
For PBA players, under the PBA contract, it explicitly states that it is a
contract of employment. So initially when you look at that there’s no VAT.
But PBA teams have been treating their players as independent
contractors. And as independent contractors they are subject to VAT
because it complies with all the requisites.If you are helping a
professional athlete, then you are in a conundrum because under Labor
Law, if the contract of employment states that it’s an employment then
you are pushing that the basketball player is an employee of the team.
However, when it comes to tax purposes because the team has been
treating the player as an independent contractor, then now the player
will be exposed to VAT liability because he has not been paying his VAT.
J. Services rendered by RAHQs
○ Established in the PH 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 PH
○ Ingles Notes: Services rendered by RHQ (Companies registered as Regional
Headquarters) are not subject to VAT.
K. Transactions exempt under international agreements
○ EXCEPT those granted under P.D. 529 (Petroleum Exploration Concessionaires)
L. Sales by agricultural cooperatives duly registered and in good standing with the
Cooperative Development Authority (CDA) to their members, as well as sale of the
produce to nonmembers
○ Sale by agricultural cooperatives to non-members can only be exempted from VAT
if the producer of the agricultural products sold is the cooperative itself. If the
cooperative is not the producer (like a trader), then only those sales to its
members shall be exempted from VAT. (R.R. 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, or
○ CIR v. United Cadiz Sugar Farmers Association Multi-purpose Cooperative
(2016)
■ The cooperative sold REFINED sugar. The exemption for raw sugar didn't
apply to them, but they were still exempt because they were an
agricultural cooperative that fit the requisites for exemption
■ Doctrine: If it sells BOTH to members and nonmembers, the sale must be
of its produce, whether in its original or processed state. If the
agricultural cooperative only sells produce or goods that it manufactures
on its own, its entire sales is VAT-exempt.
■ Sale of refined sugar
● GR: Its sale is SUBJECT to VAT. It can no longer be considered to
be in its original state, as it has undergone the refining process;
● XPN: It may nevertheless qualify as a VAT-exempt transaction if
the sale is made by a COOPERATIVE.
■ Sales by agricultural cooperatives are EXEMPT from VAT provided the
ff conditions concur:
TAX 2 INGLES - WRAP IT B4 U TAP IT
● First, seller must be an agricultural cooperative duly registered
with the CDA (issued a certificate of registration by the CDA)
● Second, cooperative must sell either: (1) Exclusively to its
members; or (2) To both members & non-members its own
produce, whether in original or processed form
● If the cooperative transacts only with members, all its sales are
VAT-exempt, regardless of what it sells.
● If it transacts with both members and non-members, product
sold must be the cooperative's own produce in order to be
VAT-exempt.
■ With United established as a duly registered cooperative and the
producer of sugarcane, its sale of refined sugar is exempt from VAT,
whether the sale is made to members or to non-members.
M. Gross receipts from lending activities by credit or multipurpose cooperatives duly
registered and in good standing with the CDA
N. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered
with the CDA
○ Provided, that share capital contribution of each member does not exceed P15k
and regardless of the aggregate capital and net surplus ratably distributed among
the members;
O. Export sales by persons who are not VAT-registered
Q.
P. [REMOVED BY CREATE. Vetoed by Duterte for being "administratively difficult for the
BIR to implement and may cause delayed or erroneous processing of refund
claims.”]
○ Beginning 2021, the VAT exemption for the sale of real properties shall only apply to the:
■ 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 under R..A. 7279;
● Socialized housing – refers to housing programs and projects covering
houses and lots or home lots only undertaken by the Government or the
private sector for the underprivileged and homeless citizens which shall
include sites and services development, long-term financing, liberated
terms on interest payments, and such other benefits in accordance with
the provisions of RA No. 7279 (Urban Development and Housing Act of
1992)and RA No. 7835 and RA No. 8763
● Socialized housing shall also refer to projects intended for the
underprivileged and homeless wherein the housing package selling price
is within the lowest interest rates under the Unified Home Lending
Program (UHLP) or any equivalent housing program of the Government,
the private sector or nongovernment organizations.)
■ Sale of house and lot, and other residential dwellings with selling price of not
more than P2M (to be adjusted every 3 years depending on the Consumer Price
Index);
● R.R. 8-2021
Section 2, sub-section 4.109-1(B)(p)(4) of RR No. 4-2021 is amended to read as follows:
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 (RA) No. 7279, as amended,
and, sale of house and lot, and other residential dwellings with selling price of not more than Two
Million Pesos (₱2,000,000.00), as adjusted to ₱ 3,199,200.00 in 2011 using the 2010 Consumer Price Index
values: Provided, further, That every three (3) years thereafter, the amount stated herein shall be
adjusted to its present value using the Consumer Price Index as published by the Philippine Statistics
Authority (PSA).
Excess Percentage Tax payments as a result of the decrease of tax rate from 3% to 1% starting July 1,
2020 until the effectivity of RR No. 4-2021 may be carried forward to the succeeding taxable quarters.
This carry-over portion is intended for Percentage Taxpayers who are regularly filing the returns and are
expected to have overpaid taxes as a result of the retroactive application of the CREATE. Tax refund,
however, is still allowed in the event that the taxpayer shifted from non-VAT to VAT- registered status, or
the taxpayer has opted to avail of the eight percent (8%) Income Tax rate at the beginning of TY 2021.
Hence, Section 3(2)(b) of RR No. 4-2021 is amended to read as follows:
Percentage taxpayers who have overpaid taxes as a result of the decrease of tax rate from 3% to 1%
starting July 1, 2020 until the effectivity of RR No. 4-2021 are allowed for a tax refund in the event that:
a. The taxpayer shifted from non-VAT to VAT-registered status; or
b. The taxpayer has opted to avail the eight percent (8%) income tax rate at the beginning of
TY 2021.
Lease of residential units where the monthly rental per unit does not exceed
P15,000, regardless of the amount of aggregate rentals received by the lessor during
the year (R.R. 13-2018)
○ The lease of residential units where the monthly rental per unit EXCEEDS P15k but
the aggregate of such rentals of the lessor during the year do not exceed P3M shall
likewise be exempt from VAT. However, it shall be subjected to the 3% percentage
tax.
Monthly rent/aggregate of rentals Tax rate
Less than 15k/month → exempt EXEMPT from VAT
More than 15k/month but less than P3M/year 3% percentage tax only
More than P15k/month and more than P3M/year 12% VAT only
○ Residential units – refer to apartments and houses and lots used for residential
purposes, and buildings or parts or units thereof used solely as dwelling places.
TAX 2 INGLES - WRAP IT B4 U TAP IT
■ Motels, hotels, lodging houses, inns and pension houses are NOT
included. (R.R. 13-2018)
○ Units – refer to an apartment unit in case of apartments, house in the case of
residential houses, per person in the case of dorms, boarding houses and bed
spaces, and per room in case of rooms for rent.
○ Refer to R.R. 13-2018 on various iterations of this rule
○ Illustration 1:
■ Lessor rents his 15 residential units for P14,500 per month. During the
taxable year, his accumulated gross receipts amounted to P2,610,000.
● Not subject to VAT since his monthly rent per unit does not
exceed P15k.
● Not subject to 3% percentage tax.
■ If he has 20 residential units with the same monthly rent per unit and his
accumulated gross receipts during the taxable year amounted to
P3,480,000:
● Not subject to VAT since the monthly rent per unit does not
exceed P15k.
● Not subject to 3% percentage tax
○ Illustration 2:
■ Lessor rents his 15 residential units for P15.5k per month. During the
taxable year, his accumulated gross receipts amounted to P2,790,000.
● Not subject to VAT since his accumulated gross receipts did not
exceed P3M.
● Subject to 3% Percentage Tax since monthly rent per unit is more
than P15k.
■ If he has 20 residential units with the same monthly rent per unit and his
accumulated gross receipts during the taxable year amounted to
P3,720,000:
● Subject to 12% VAT since the accumulated earnings exceeded
P3M and the monthly rent per unit is more than P15k.
○ Illustration 3:
■ Lessor rents 2 commercial and 10 residential units for monthly rent of
P60k and P15k per unit, respectively. During the taxable year, his
accumulated gross receipts amounted to P3,240,000 (P1,440,000 from
commercial units and P1.8M from residential units).
● P1,440,000 from commercial units is not subject to VAT since it
did not exceed P3M but it is subject to 3% Percentage Tax.
● 1.8M accumulated receipts from the residential units are not
subject to Percentage Tax and exempt from VAT since the
monthly rent is not more than P15k.
■ If lessor has 5 commercial units and his accumulated gross receipts
during the taxable year amounted to P5.4M (P3.6M from commercial
units and P1.8M from residential units)
● Subject to VAT with respect to P3.6M since it exceeded P3M
● P1.8M accumulated receipts from residential units are not
subject to Percentage Tax and exempt from VAT since the
monthly rent is not more than P15,000.
○ Illustration 4:
■ Lessor rents his 5 commercial and 10 residential units for monthly rent of
P60k and P15.5k per unit, respectively.
● During the taxable year, his accumulated gross receipts
amounting to P5,460,000 (P3.6M from commercial units and
P1,860,000 from residential units) shall be subject to VAT since it
exceeded the P3M threshold and the monthly rent of residential
units is more than P15k
R. [AMENDED BY CREATE] 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
(6)
○ Provided, that the materials enumerated are not devoted principally to the
publication of paid advertisements;
○ Ingles Notes: If you buy at REX Bookstore, the book should NOT be subject to VAT.
S. Transport of passengers by international carriers
○ The transport of cargo by international carriers is VAT-exempt as it is subject to
percentage tax. (R.R. 15-2013)
○ Ingles Notes:
■ VAT exempt → Transport of PASSENGERS by INTERNATIONAL carriers
■ Zero rated service → Transport of PASSENGERS and CARGO by
DOMESTIC air and sea vessels from the PH to a foreign country
■ Percentage tax → Transfer of CARGO by INTERNATIONAL air carriers and
international shipping carriers from the PH to another country (as
amended by RA 10378)
○ RA No. 10378 (amending Sec. 118 of the NIRC)
SEC. 118. Percentage Tax on International Carriers. —
(A) International air carriers doing business in the Philippines on their gross receipts
derived from transport of cargo from the Philippines to another country shall pay a tax of
three percent (3%) of their quarterly gross receipts.
TAX 2 INGLES - WRAP IT B4 U TAP IT
(B) International shipping carriers doing business in the Philippines on their gross
receipts derived from transport of cargo from the Philippines to another country shall
pay a tax equivalent to three percent (3%) of their quarterly gross receipts."
W.
T. Sale, importation, or lease of passenger or cargo vessels and aircraft, including
engine, equipment and spare parts thereof for DOMESTIC or INTERNATIONAL
transport operations;
○ Exemption from VAT on the importation and local purchase of passenger and/or
cargo vessels shall be subject to the requirements on restriction on vessel
importation and mandatory vessel retirement program of MARINA. (R.R. 15-2015)
○ Ingles Notes:
■ Zero rated service → Services rendered to persons engaged in
INTERNATIONAL shipping or international air transport operations,
including leases of property for use thereof, as long as the services shall
be exclusively for international shipping or air transport operations;
U. Importation of fuel, goods and supplies by persons engaged in international
shipping or air transport operations, provided that such are used for international
shipping or air transport operations
○ Said fuel, goods and supplies should be used exclusively or should pertain to the
transport of goods and/or passenger from a port in the PH directly to a foreign
port, or vice versa, without docking or stopping at any other port in the PH unless
the docking or stopping at any other PH port is for the purpose of unloading
passenger and/or cargoes that originated from abroad, or to load passengers
and/or cargoes bound for abroad. (R.R. 4-2007)
○ If any portion of such fuel, goods or supplies is used for purposes other than that
mentioned, such shall be subject to 12% VAT.
○ Ingles Notes: We’re talking about the IMPORTATION, not the sale to international
carriers. If the IMPORTATION of petroleum will be used by international shipping
or air transport operations, it’s VAT-exempt.
■ Zero rated sale → SALE of goods, supplies, equipment and fuel to
persons engaged in international shipping or international air transport
operations, as long as the goods, supplies, equipment, and fuel are used
for international shipping or air transport operations.
V. Services of banks, non-bank financial intermediaries performing quasi-banking
functions, and other non-bank financial intermediaries
○ Services provided by such institutions, like money changers or pawnshops, are
subject to percentage tax. (R.R. 4-2007)
○ Ingles Notes: If you get interest income from your banks, is that subject to VAT or
is that VAT-exempted? Answered by the codal daw
Sale or lease of goods and services to senior citizens and PWDs
○ As provided under RA 9994 (Expanded Senior Citizens Act of 2010) and RA 10754
(An Act Expanding the Benefits and Privileges of Persons with Disability)
○ Ingles Notes: Compare this to sale of goods to national athletes which are also
given a 20% discount by law. The National Athlete’s Code does not give the VAT
exemption, but when you look at the Senior Citizens Act and the PWD Act it’s
explicitly stated that they are VAT exempt.
○ RA No. 9994 (amending the Expanded Senior Citizen Act of 2003)
SEC. 4. Privileges for the Senior Citizens. – The senior citizens shall be entitled to the following:
(a) the grant of twenty percent (20%) discount and exemption from the value -added tax (VAT), if
applicable, on the sale of the following goods and services from all establishments, for the exclusive
use and enjoyment or availment of the senior citizen
(1) on the purchase of medicines, including the purchase of influenza and pnuemococcal vaccines,
and such other essential medical supplies, accessories and equipment to be determined by the
Department of Health (DOH).
The DOH shall establish guidelines and mechanism of compulsory rebates in the sharing of burden of
discounts among retailers, manufacturers and distributors, taking into consideration their respective
margins;
(2) on the professional fees of attending physician/s in all private hospitals, medical facilities,
outpatient clinics and home health care services;
(3) on the professional fees of licensed professional health providing home health care services as
endorsed by private hospitals or employed through home health care employment agencies;
(4) on medical and dental services, diagnostic and laboratory fees in all private hospitals, medical
facilities, outpatient clinics, and home health care services, in accordance with the rules and
regulations to be issued by the DOH, in coordination with the Philippine Health Insurance
Corporation (PhilHealth);
(5) in actual fare for land transportation travel in public utility buses (PUBs), public utility jeepneys
(PUJs), taxis, Asian utility vehicles (AUVs), shuttle services and public railways, including Light Rail
Transit (LRT), Mass Rail Transit (MRT), and Philippine National Railways (PNR);
(6) in actual transportation fare for domestic air transport services and sea shipping vessels and the
like, based on the actual fare and advanced booking;
(7) on the utilization of services in hotels and similar lodging establishments, restaurants and
recreation centers;
(8) on admission fees charged by theaters, cinema houses and concert halls, circuses, leisure and
amusement; and
(9) on funeral and burial services for the death of senior citizens; xxxx
The establishment may claim the discounts granted under subsections (a) and (c) of this section as
tax deduction based on the cost of the goods sold or services rendered: Provided, That the cost of the
discount shall be allowed as deduction from gross income for the same taxable year that the discount
is granted: Provided, further, That the total amount of the claimed tax deduction net of VAT, if
applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to
proper documentation and to the provisions of the National Internal Revenue Code (NICR), as
amended.
Article 7. Twenty Percent (20%) Discount and VAT Exemption - The senior citizens shall be entitled
to the grant of twenty percent (20%) discount and to an exemption from the value-added tax (VAT), IF
TAX 2 INGLES - WRAP IT B4 U TAP IT
APPLICABLE, on the sale of the goods and services covered by Section 1 to 6 of this Article, from all
establishments for the exclusive use and enjoyment or availment of senior citizens.
○ RA No. 10754 (amending the Magna Carta for Persons with Disability)
SEC. 32. Persons with disability shall be entitled to:
(a) At least twenty percent (20%) discount and exemption from the value-added tax (VAT), if
applicable, on the following sale of goods and services for the exclusive use and enjoyment or
availment of the PWD:
(1) On the fees and charges relative to the utilization of all services in hotels and similar lodging
establishments; restaurants and recreation centers;
(2) On admission fees charged by theaters, cinema houses, concert halls, circuses, carnivals and
other similar places of culture, leisure and amusement;
(3) On the purchase of medicines in all drugstores;
(4) On medical and dental services including diagnostic and laboratory fees such as, but not limited
to, x-rays, computerized tomography scans and blood tests, and professional fees of attending
doctors in all government facilities, subject to the guidelines to be issued by the Department of
Health (DOH), in coordination with the Philippine Health Insurance Corporation (PhilHealth);
(5) On medical and dental services including diagnostic and laboratory fees, and professional fees of
attending doctors in all private hospitals and medical facilities, in accordance with the rules and
regulations to be issued by the DOH, in coordination with the PhilHealth;
(6) On fare for domestic air and sea travel;
(7) On actual fare for land transportation travel such as, but not limited to, public utility buses or
jeepneys (PUBs/PUJs), taxis, asian utility vehicles (AUVs), shuttle services and public railways,
including light Rail Transit (LRT), Metro Rail Transit (MRT) and Philippine National Railways (PNR);
and
(8) On funeral and burial services for the death of the PWD: Provided, That the beneficiary or any
person who shall shoulder the funeral and burial expenses of the deceased PWD shall claim the
discount under this rule for the deceased PWD upon presentation of the death certificate. Such
expenses shall cover the purchase of casket or urn, embalming, hospital morgue, transport of the
body to intended burial site in the place of origin, but shall exclude obituary publication and the cost
of the memorial lot.
xxx The establishments may claim the discounts granted in subsection (a), paragraphs (1), (2), (3),
(5), (6), (7), and (8) as tax deductions based on the net cost of the goods sold or services rendered:
Provided, however, That the cost of the discount shall be allowed as deduction from the gross
income for the same taxable year that the discount is granted: Provided, further, That the total
amount of the claimed tax deduction net of value-added tax, if applicable, shall be included in their
gross sales receipts for tax purposes and shall be subject to proper documentation and to the
provisions of the National Internal Revenue Code (NIRC), as amended.
X. Transfers of property based on Sec. 40(C)(2) or tax-free exchanges
○ Includes the transfer of property to a REIT exchange for its shares. (R.R. 03-2020)
■ RECALL: When you transfer property in exchange of shares so you get
control of the corporation → tax free
○ Ingles Notes: Sec. 40(C)(2) of the NIRC are tax-free exchanges, when you transfer
property in exchange of shares.
■ It’s now here in TRAIN because under PNoy, Commissioner Kim Henares
said that if you’re transferring your property in exchange for shares
(clearly a 40(C)(2) transfer, which is a tax-free exchange), it will be subject
to VAT. Her basis was that the tax-free exchange she’s talking about here
falls within the Income Tax chapter, making it exempt from Income Tax.
Since it’s exempt from income tax, she said that we can put VAT there
especially because the property is used in business.
■ TRAIN came along and explicitly stated that transactions under 40(C)(2)
are exempt from VAT. Everytime people did tax free exchange, people said
it was subject to VAT. With TRAIN, Congress stepped in and said it’s not
subject to VAT.
Y. Association dues, membership fees, and other assessments collected on a purely
reimbursement basis by homeowners' associations and condo corps
○ As 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, as related to R.A.
9904)
○ BIR v. First E-Bank Tower Condominium Corp (January 15, 2020)
■ Doctrine: For condo corps, the association dues, membership fees, and
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 building and are done for the benefit of the condo
owners. It is not collected as a service fee for services provided by the
condominium to the owners
■ This case invalidated the controversial RMC 65-2012
○ Ingles Notes: Not subject to VAT because it’s not a business concern, it’s merely
for reimbursement purposes and there’s no services given.
Z. Sale of gold to the BSP
AA. Sale or importation of prescription drugs and medicines for (1) diabetes, high
cholesterol, and hypertension (starting 2020) and (2) cancer, mental illness, TB, and
kidney disease (starting 2023)
○ Provided the exemption only applies to the sale or importation by the
manufacturers, distributors, wholesalers, and retailer of drugs and medicines
included in the list of approved drugs and medicines of the DOH (R.R. 18-2020);
○ Ingles Notes: Sale of medicines for COVID is not in the list, but you have to look at
the Bayanihan Act.
BB. [ADDED BY CREATE] Sale or importation of the following beginning Jan. 1, 2021 to
Dec. 31, 2023:
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○ 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, N95 mask, scrub suits, goggles and face shield,
double or surgical gloves, dedicated shoes, and shoe covers, for COVID-19
prevention;
○ All drugs, vaccines and medical devices specifically prescribed and directly used
for the treatment of COVID-19; and
○ Drugs for the treatment of COVID-19 approved by the DFA for use in clinical trials,
including raw materials directly necessary for the production of such drugs
■ DTI shall certify that such equipment, spare parts or raw materials for
importation are not locally available or insufficient in quantity, or not in
accordance with the quality or specification required:
CC. Sale or lease of goods or properties or the performance of services other than the
enumerated, provided the gross annual sales and/or receipts do not exceed
P3,000,000.
○ So if gross annual sales and/or receipts do not exceed P3M, a person need NOT
register as a VAT-taxpayer.
○ Ingles Notes:
■ 3M is the VAT threshold.
■ If you don’t reach 3M+, you’re not subject to VAT.
■ If you don’t reach the VAT threshold, you pay percentage tax.
■ What did CREATE do with the 3% percentage tax? It became 1%
percentage tax cos of COVID, but only until June 30 2023
● Are the fees, per diems, honoraria or allowances given to directors of corporations
exempt?
○ Yes, exempt since these are derived from an economic or commercial
activity. Said fees are remunerations paid in the exercise of a right of an
owner in the management of the corporation.
○ Not even liable for 3% percentage tax. (RMC 77-2008)
What if the VAT-registered taxpayer erroneously imposes VAT on a zero-rated or a
VAT-exempt transaction?
● CIR v. Acesite PH (2007) - exemption extends to those dealing with PAGCOR →
VAT exempt
○ Acesite erroneously paid VAT to the BIR on a zero-rated transaction with
PAGCOR
○ Doctrine: It can claim a refund on the basis of erroneously paid taxes.
○ The indirect tax of VAT can be shifted or passed to the buyer, transferee, or
lessee of the goods, properties, or services subject to VAT. Thus, by
extending the tax exemption to entities or individuals dealing with
PAGCOR in casino operations, it is exempting PAGCOR from being liable to
indirect taxes. As to Acesite, the latter is not liable for the payment of it as
it is exempt in this particular transaction by operation of law to pay the
indirect tax.

Tax on Persons Exempt from VAT (R.R. 4-2021)

SEC.4-116. Tax on Persons Exempt from VAT. -
Any person whose sales or receipts are exempt under Section 109(1)(CC) of the Tax Code
from the payment of VAT and who is not a VAT-registered person shall pay a tax equivalent
to three percent (3%) of his gross quarterly sales or receipts: Provided, however, that the
following shall be exempt from the payment of three percent (3%) percentage tax:
1. Cooperatives; and
2. Self-employed individuals and professionals availing of the 8% tax on gross sales
and/or receipts and other non-operating income, under Sections 24(A)(2)(b) and
24(A)(2)(c)(2)(a) of the Tax Code.
Provided, further, that effective July 1, 2020 until June 30, 2023, the rate shall be one
percent (1%).
● Qualified self-employed individuals and professionals availing of the 8% income
tax on gross sales and/or receipts are exempt from 12% VAT. (R.R. 13-2018)
TAX 2 INGLES - WRAP IT B4 U TAP IT
5. Input VAT
Section 110 (as amended by TRAIN)
SEC. 110. Tax Credits. -
A. Creditable Input Tax. –
1. Any input tax evidenced by a VAT invoice or official receipt issued in accordance
with Section 113 hereof on the following transactions shall be creditable against the
output tax:
a. Purchase or importation of goods:
i. For sale; or
ii. For conversion into or intended to form part of a finished product for
sale including packaging materials; or
iii. For use as supplies in the course of business; or
iv. For use as materials supplied in the sale of service; or
v. For use in trade or business for which deduction for depreciation or
amortization is allowed under this Code.
b. Purchase of services on which a value-added tax has been actually paid.
2. The input tax on domestic purchase or importation of goods or properties by a
VAT-registered person shall be creditable:
a. To the purchaser upon consummation of sale and on importation of goods or
properties; and
b. To the importer upon payment of the value-added tax prior to the release of
the goods from the custody of the Bureau of Customs.
Provided, that the input tax on goods purchased or imported in a calendar
month for use in trade or business for which deduction for depreciation is
allowed under this Code shall be spread evenly over the a month of
acquisition and the fifty-nine (59) succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT component thereof,
exceeds One million pesos (P1,000,000):
Provided, however, That if the estimated useful life of the capital good is less
than five (5) years, as used for depreciation purposes, then the input VAT shall
be spread over such a shorter period:
Provided, further, That the amortization of the input VAT shall only be allowed
until December 31, 2021 after which taxpayers with unutilized input VAT on
capital goods purchased or imported shall be allowed to apply the same as
scheduled until fully utilized: [108] Provided, finally, That in the case of
purchase of services, lease or use of properties, the input tax shall be
creditable to the purchaser, lessee or licensee upon payment of the
compensation, rental, royalty or free.
3. A VAT-registered person who is also engaged in transactions not subject to the
value-added tax shall be allowed tax credit as follows:
a. Total input tax which can be directly attributed to transactions subject to
value-added tax; and
b. A ratable portion of any input tax which cannot be directly attributed to either
activity.
The term “input tax” means the value-added tax due from or paid by a VAT-registered
person in the course of his trade or business on importation of goods or local purchase of
goods or services, including lease or use of property, from a VAT-registered person. It shall
also include the transitional input tax determined in accordance with Section 111 of this
Code.
The term “output tax” means the value-added tax due on the sale or lease of taxable
goods or properties or services by any person registered or required to register under
Section 236 of this Code.
Output tax
● Output tax – the VAT due on the sale or lease of taxable goods/properties/services
by any person registered or required to register under the VAT system.
● Output tax is what the taxpayer-seller passes on to the purchaser.
● What is output tax for the seller is input tax to the purchaser.
Input tax
● Input tax – the VAT due from or paid by a VAT-registered person on importation of
goods or local purchases of goods, properties, or services, including lease or use of
properties, from a VAT-registered person, in the course of his trade or business.
● It also includes:
1. Transitional input tax;
2. Presumptive input tax;
3. Input taxes which can be directly attributed to transactions subject to VAT
plus a ratable portion of any input tax which cannot be directly attributed
to either the taxable or exempt activity
● R.R. 16-2005: Any input tax on the ff transactions evidenced by a VAT invoice or
official receipt by a VAT-registered person in accordance with Secs. 113 and 237
Tax Code shall be CREDITABLE against the output tax:
1. Purchase or importation of goods:
a. For sale, or
b. For conversion into or intended to form part of a finished
product for sale, including packaging materials, or
c. For use as supplies in the course of business, or
d. For use as raw materials supplied in the sale of services, or
TAX 2 INGLES - WRAP IT B4 U TAP IT
e. For use in trade or business for which deduction for depreciation
or amortization is allowed under the Tax Code
● GR: No depreciation shall be allowed for yachts,
helicopters, airplanes, and land vehicles (cars) is
allowed, if the value exceeds P2.4M
● XPN: Unless taxpayer's line of business is transport
operations or lease of transportation equipment and
vehicles purchased are used in said operations.
● Hence, input taxes on non-depreciable vehicles (i.e.
those which exceed threshold amount) and all input
taxes on the maintenance incurred thereon are NOT
allowed for tax purposes. (R.R. 12-2012)
2. Purchase of real properties for which a VAT has actually been paid,
3. Purchase of services in which a VAT has actually been paid,
4. Transactions "deemed sale"
■ 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;
■ Distribution or transfer of inventory to shareholders or investors
as share in the profits of the VAT-registered persons; (Property
Dividends)
■ Distribution or transfer of inventory to creditors in payment of
debt;
■ Consignment of goods if actual sale is not made within 60 days
following the date such goods were consigned; and
■ Retirement from or cessation of business, with respect to
inventories of taxable goods existing as of such retirement or
cessation, (includes capital goods)
5. Transitional input tax
6. Presumptive input tax
● Input tax is what is passed on to the purchaser/taxpayer by the seller.
● If the purchaser is a VAT-registered person, then he can use the input tax as credit
to the output taxes that he is liable to remit to the BIR.
● The input tax credit on importation of goods or local purchases of goods,
properties or services by a VAT-registered person shall be creditable:
1. To the importer upon payment of VAT prior to the release of goods from
customs custody;
2. To the purchaser of the domestic goods or properties upon consummation
of the sale; or
3. To the purchaser of services or the lessee or licensee upon payment of the
compensation, rental, royalty or fee. (R.R. 16-2005)
● MAQS EXAMPLE:
■ A → B (Importer) → C (local purchaser)
■ When B purchases the good, he pays P100k as input tax on
importation.
■ B resells the good to C a domestic purchaser. C pays output tax
of P200k.
■ B only has to remit P100k (P200k - P100k) as the VAT on the local
purchase.
● CIR v. Sony Philippines, Inc. (2010)
○ Doctrine: Sony PH incurred advertising expenses using money given to it
by its affiliate. As long as the invoices from the suppliers are Issued in the
name of the taxpayer and expenses were actually incurred by the taxpayer,
then the input tax pertaining to such expenses must be credited to the
taxpayer. Where the money came from to pay these expenses is another
matter altogether but it does not change the fact that input tax has been
incurred
● Ingles Notes
○ If you’re not VAT registered you cannot avail for input tax credits. So you
need to be VAT registered and show VAT invoice or official receipts.
○ In re: RR 12-2012 on depreciation of land vehicles - Normally if you’re a
company you can give company cars or buy these for your executives.
These used in the business will be subject to depreciation and subject to
input VAT. Now there’s a limit of P2.4M. If it’s past P2.4M, it’s not subject to
depreciation. If it’s not subject to depreciation, you can’t get input VAT
from it.
Rule on capital goods
Sec. 110
xxx (2) The input tax on domestic purchase or importation of goods or properties by a
VAT-registered person shall be creditable:
a. To the purchaser upon consummation of sale and on importation of goods or
properties; and
b. To the importer upon payment of the value-added tax prior to the release of the
goods from the custody of the Bureau of Customs.
Provided, that the input tax on goods purchased or imported in a calendar month for
use in trade or business for which deduction for depreciation is allowed under this
Code shall be spread evenly over the a month of acquisition and the fifty-nine (59)
succeeding months if the aggregate acquisition cost for such goods, excluding the VAT
component thereof, exceeds One million pesos (P1,000,000):
TAX 2 INGLES - WRAP IT B4 U TAP IT

○ The unamortized input tax will be closed against the output taxes on the
Provided, however, That if the estimated useful life of the capital good is less than five
taxable period in which it is retired.
(5) years, as used for depreciation purposes, then the input VAT shall be spread over such
● Starting 2022, the amortization of input VAT for capital goods shall no longer be
a shorter period:
allowed
○ Taxpayers with unutilized input VAT on capital goods purchased or
Provided, further, That the amortization of the input VAT shall only be allowed until
imported shall be allowed to apply the same as scheduled until fully
December 31, 2021 after which taxpayers with unutilized input VAT on capital goods
utilized. (R.R. 13-2018)
purchased or imported shall be allowed to apply the same as scheduled until fully utilized:
● Ingles Notes
○ TRAIN says amortization is only until Dec 31, 2021
Provided, finally, That in the case of purchase of services, lease or use of properties, the
input tax shall be creditable to the purchaser, lessee or licensee upon payment of the
Input tax allocation and mixed transactions
compensation, rental, royalty or free. xxx
Sec. 110 xxx (3) A VAT-registered person who is also engaged in transactions not subject to
● Capital goods or properties – refer to goods or properties:
the value-added tax shall be allowed tax credit as follows:
1. with estimated useful life of more than 1 year and
a. Total input tax which can be directly attributed to transactions subject to
2. which are treated as depreciable under the income tax law,
value-added tax; and
3. used directly or indirectly, in the production or sale of taxable goods or
b. A ratable portion of any input tax which cannot be directly attributed to either
services.
activity. xxx
● In crediting input tax, you have to look at 2 things:
Cost of acquisition on capital Input tax
1. Those which CAN be directly attributed to transactions subject to VAT, and
goods
2. Those which CANNOT be directly attributed to either a VAT taxable or
VAT-exempt transaction.
If aggregate acquisition cost on Input tax will be allowed in the month of purchase
■ For these cases, input tax shall be prorated to the VAT taxable
capital goods purchased or
and VAT exempt transactions. Only the ratable portion pertaining
imported in a calendar month
to transactions subject to VAT may be recognized for input tax
does NOT exceed P1M
credit.
● R.R. 16-2005 states:
If aggregate acquisition cost of If the estimated life is 5 years or MORE → input tax
1. All the input taxes that can be directly attributed to transactions subject to
such goods in a calendar will be evenly spread over the month of acquisition and
VAT may be recognized for input tax credit
month, excluding the VAT, the 59 succeeding months.
■ Provided, that input taxes that can be directly attributable to VAT
exceeds P1M
taxable sales of goods and services to the government (or any of
If the estimated life is LESS than 5 years → input tax
its political subdivisions, etc.) shall NOT be credited against
will be spread evenly on a monthly basis by dividing the
output taxes arising from sales to non-Government entities
input tax by the actual number of months comprising
2. If any input tax CANNOT be directly attributed to either a VAT taxable or
the estimated useful life of the asset.
VAT-exempt transaction:
Assets acquired in installment Will be subject to the amortization of input tax despite ■ The input tax shall be prorated to the VAT taxable and
for an acquisition cost of more the fact that the monthly payments or installments may VAT-exempt transactions.
than P1M, excluding the VAT not exceed P1M. ■ Only the ratable portion pertaining to transactions subject to VAT
may be recognized for input tax credit.
● When an asset with an unamortized input tax is retired from business: ● The input tax attributable to VAT-exempt sales shall not be allowed as credit
against the output tax but should be treated as part of cost or expense.
TAX 2 INGLES - WRAP IT B4 U TAP IT
● For persons engaged in both zero-rated sales of services and non-zero rated sales,
the aggregate input taxes shall be allocated ratably between the zero-rated sale of
services and the non-zero rated sale.
Ingles Notes
● You have a business. It has a zero-rated transaction because it exports shoes, but it
also sells to the local market, which will be subject to the 12% VAT. You have input
VAT from purchases of raw materials, which you then convert into shoes. How do
you know which input VAT will be refunded because it will be attributed to your
zero-rated transaction or how do you know which input VAT will be subtracted from
your output VAT because they are subject to VAT-able transactions?
● If you have multiple business streams, if you can say that the raw materials that you
purchased are only for local sales (VAT-able transactions), then you directly attribute
it to that. If you can prove that it is used for export sales, then you attribute it to that.
But if you can’t prove it, just do a pro-rata.
● Imagine a situation when you have export sales (paid in dollars) and domestic sales
(paid in pesos). You have to look at what input can be directly attributed to a VAT
taxable transaction. What happens to the rest of it that can’t be identified? Prorated
according to sales made whether it’s VAT exempt or VATAble
● Give an example of input VAT which you can’t allocate to just a zero rated
transaction, which you have to prorate?
○ Advertising expenses
○ Overhead expenses (e.g. paying rent for office, you can’t pinpoint that it’s
just for zero rated sales but because of that you prorate it )
MAQS EXAMPLE
● A sells raw materials to B for the production of shoes. B uses 50% of the raw
materials for the production and export to C1 and the other 50% for the production
and local sale to C2.
● B pays an input tax of P100k to A..
● C1 pays 0 output tax to B because the B-C1 transaction is ZERO-RATED. C2 pays an
output tax of P200k because the B-C2 transaction is VATABLE
● How do you credit the input tax of P100k?
○ It should be prorated to the VAT taxable and zero-rated transaction.
○ VATABLE Transaction – 50% of 100k
■ B should remit 200k - 50k = P150k
○ ZERO-RATED – 50% of 100k
■ B can ask for a tax refund of 50k
○ If the transaction between B and C1 was VAT-EXEMPT:
■ B cannot get a refund of 50k.
Excess output or input tax
Sec. 110 (xxx)
(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax
exceeds the input tax, the excess shall be paid by the Vat-registered person. If the input
tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or
quarters. Provided, however, That any input tax attributable to zero-rated sales by a
VAT-registered person may at his option be refunded or credited against other internal
revenue taxes, subject to the provisions of Section 112.
(C) Determination of Creditable Input Tax. - The sum of the excess input tax carried over
from the preceding month or quarter and the input tax creditable to a VAT-registered
person during the taxable month or quarter shall be reduced by the amount of claim for
refund or tax credit for value-added tax and other adjustments, such as purchase returns or
allowances and input tax attributable to exempt sale.
The claim for tax credit referred to in the foregoing paragraph shall include not only those
filed with the Bureau of Internal Revenue but also those filed with other government
agencies, such as the Board of Investments and the Bureau of Customs.
● If at the end of any taxable quarter the output tax exceeds the input tax:
○ The excess shall be paid by the VAT-registered person (aka the net VAT
payable)
● If the input tax inclusive of input tax carried over from the previous quarter
exceeds the output tax:
○ GR: excess input tax shall be carried over to the succeeding quarter or
quarters
○ XPN: Any input tax attributable to zero-rated sales by a VAT-registered
person may at his option:
■ be refunded or
■ applied for a tax credit certificate which may be used in the
payment of internal revenue taxes, (this is where you can get
input tax credit or refunds)
■ Ingles Notes: Right now it’s just a refund. I don't think they give
tax credit certificates anymore.
● In other words, any input tax attributable to zero-rated sales may be:
1. Refunded, or
2. Credited against other internal revenue taxes of the VAT taxpayer.
● Unutilized creditable input taxes attributable to zero-rated sales → can only be
recovered through a refund or tax credit.
● Unapplied input taxes → cannot be treated as deductible expense for income tax
purposes. (RMC 57-2013)
TAX 2 INGLES - WRAP IT B4 U TAP IT
6. Withholding, Presumptive, Transitional Input VAT
Transitional and Presumptive Input Tax Credits: Sec. 111 (as amended by TRAIN)
Transitional Input Tax Credits
Sec. 111. Transitional/Presumptive Input Tax Credits. —
(A) Transitional Input Tax Credits. — A person who becomes liable to value-added tax or
any person who elects to be a VAT registered person shall, subject to the filing of an
inventory according to rules and regulations prescribed by the Secretary of finance, upon
recommendation of the Commissioner, be allowed input tax on his beginning inventory
of goods, materials and supplies equivalent to two percent (2%) 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.
● Taxpayers who are entitled to transitional input tax credits:
1. Taxpayers who become VAT-registered persons upon exceeding the
minimum turnover of P3M in any 12-month period; OR
2. Taxpayers who voluntarily register even if they do not reach the threshold
● Entitled to a transitional input tax on the inventory on hand as of the effectivity
of their VAT registration, on the following:
1. Goods purchased for resale in their present condition;
2. Materials purchased for further processing, but which have not yet
undergone processing;
3. Goods which have been manufactured by the taxpayer;
4. Goods in process for sale; or
5. Goods and supplies for use in the course of the taxpayer's trade or
business as a VAT-registered person. (R.R. 162005)
● Transitional input tax shall be whichever is HIGHER:
○ 2% of the value of the beginning inventory on hand, OR
○ Actual VAT paid on such goods, materials and supplies
● Fort Bonifacio Development Corporation v. CIR (2014)
○ Transitional Input VAT applies to entire real property, not only
improvements. From these amendments to Section 100 by the EVAT law,
there is no differentiated VAT treatment on real properties or real estate
dealers that would justify the suggested limitations on the application of
the transitional input tax on them It is clear that those regularly engaged
in the real estate business are accorded the same treatment as the
merchants of other goods or properties available in the market.
○ Prior payment of taxes is not required for a taxpayer to avail of the 8%
transitional input tax credit in Sec. 105, old NIRC: Petitioner is entitled
to it, despite the fact that it acquired the Global City property under a
tax-free transaction
○ Transitional input tax credit operates to benefit newly VAT registered
persons, whether or not they previously paid taxes (such as VAT) in the
acquisition of their beginning inventory of goods, materials and
supplies. During that period of transition from non-VAT to VAT status, the
transitional input tax credit serves to alleviate the impact of the VAT on the
taxpayer. At the very beginning, the VAT-registered taxpayer is obliged to
remit a significant portion of the income it derived from its sales as output
VAT. The transitional input tax credit mitigates this initial diminution of the
taxpayer's income by affording the opportunity to offset the losses
incurred through the remittance of the output VAT at a stage when the
person is yet unable to credit input VAT payments.
○ Ingles Notes:
■ You’re looking at 2 transactions. Fort Bonifacio bought property
from the government, then Fort Bonifacio sold these properties
to different purchasers. Fort Bonifacio is just the developer.
When it bought the properties from the government, it was NOT
subject to VAT. When it sold the properties to other people, it
became subject to VAT. It has a transitional input VAT.
■ Transitional input VAT is allowed here because before they were
not subject to VAT; but once they became subject to VAT,
transitional input VAT was allowed to lessen the impact of VAT to
them.
■ Fort Bonifacio did not pay VAT when it bought the properties
from the government because there was no VAT at that time. But
the Tax Code says that if you are a newly-registered VAT taxpayer,
whatever is in your inventory, you can claim as your transitional
input VAT (2%). But if you actually paid VAT, then you can use
that (VAT actually paid) as your transitional input VAT.
■ This is an important case because it allowed a huge cashflow of
savings for Fort Bonifacio.
■ Why is there transitional input VAT in the first place? Transitional
input VAT is given to newly registered VAT tax payers. Because
imagine before they registered, they already bought goods
subject to VAT. So they have a ton of input VAT waiting to be
relieved. Now they have transitioned, it’s only fair that they can
offset the input VAT they have already incurred. So it’s a benefit
of registration.
■ What was the inventory? Real properties that they were building
in Fort Bonifacio which is a lot in terms of pesos.
TAX 2 INGLES - WRAP IT B4 U TAP IT
■ If you were Fort Bonifacio, would you like to claim a part of the
value of those properties as VAT?
● Student: Yes because as Fort Bonifacio I already paid
for construction properties from the gov’t were subject
to VAT so it would benefit if I could get what I paid back
upon registering with the BR.
● Ingles: Remember they bought the properties from the
government and it wasn’t subject to VAT so the CIR
argued that they weren’t entitled to transitional input
VAT because they didn’t pay prior. But the Court said
you didn’t need to have made prior payment. If they
sell property, imagine 12% of 100M property. With this
transitional vat, whatever they remit to the
government will be less.
Presumptive Input Tax Credits
(B) Presumptive Input Tax Credits. —
(1) Persons or firms engaged in the processing of sardines, mackerel and milk, and in
manufacturing refined sugar and cooking oil and packed noodle-based instant meals, shall
be allowed a presumptive input tax, creditable against the output tax, 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.
As used in this Subsection, the term "processing" shall mean pasteurization, canning and
activities which through physical or chemical process alter the exterior texture or form or
inner substance of a product in such manner as to prepare it for special use to which it
could not have been put in its original form or condition.
● Presumptive input tax credits – Given for those engaged:
1. In the processing of sardines, mackerel, and milk; and
■ Processing – means 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 its
original form or condition.
2. In manufacturing refined sugar, cooking oil, and packed noodle-based
instant meals
● Rate is 4% of the gross value in money
● They are given this 4% presumptive input tax because the goods used in the said
enumeration are VAT-exempt.
Withholding of creditable value-added tax Section 114 (as amended by TRAIN)
Sec. 114. (C) Withholding of Value-added Tax. — The Government or any of its political
subdivisions, instrumentalities or agencies, including government-owned -or-controlled
corporations (GOCCs) shall, before making payment on account of each purchase of goods
and services which are subject to the value-added tax imposed in Sections 106 and 108 of
this Code, deduct and withhold 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 a creditable system:
Provided, further, That the payment for lease or use of properties or property rights to
nonresident owners shall be subject to twelve percent (12%) withholding tax at the time of
payment: Provided, finally, That payments for purchases of goods and services arising from
projects funded by Official Development Assistance (ODA) as defined under Republic Act
No. 8182, otherwise known as the 'Official Development Assistance Act of 1996/ as
amended, shall not be subject to the final withholding tax system as imposed in this
Subsection. For purposes of this Section, the payor or person in control of the payment
shall be considered as the withholding agent. (As amended by TRAIN)
VAT is withheld in 2 instances:
1. In sales of goods and services to the Government withheld by the government →
5% withheld by the government
2. In payment for lease or use of properties to nonresident owners and other
services rendered by the nonresidents → 12% withheld by the lessee
Transactions with the government
● Before 2021, transactions with the government were subject to 5% final
withholding VAT.
○ Final withholding VAT represented the net VAT payable for seller.
○ Rremaining 7% accounts for the standard input VAT for sales of goods or
services to the government or any of its political subdivisions, in lieu of the
actual input VAT directly attributable or ratably apportioned to such sales.
○ Should actual input VAT attributable to sales to government exceed 7% of
gross payments, the excess may form part of the sellers' expense or cost.
○ If actual input VAT attributable to sale to government is less than 7%, the
difference should be counted as income.
○ Example: Kaka sells to the PH Gov’t his services as a master for P100. VAT
is P12. The P5 is withheld by the gov’t, so the gov’t only pays him P107. In
this scheme, the gov’t assumes that your input VAT will be 7%. If it is 7%,
then all is well. But if the input VAT is higher than 7% (in Kaka's case, for
TAX 2 INGLES - WRAP IT B4 U TAP IT

example it was P10), then the excess of P3 will be treated as an expense. It ● In the eyes of the government, they want that money. If
will form part of the expense column in the income statement. But if Input that money goes out to a non-resident owner
VAT is smaller than 7% (for example, Kaka only spent P5), then there is (vacationing for 3 yrs in Scotland), the government
income on Kaka's side, this will form part of his income. In both instances, won't be able to get that VAT back. Therefore it’s up to
Kaka will lose or be benefited only by 30% (rate of income tax) because it the LESSEE who is renting in the PH to withhold the
will form part of his income and subject to income tax. money and give it to the BIR.
● Beginning 2021, the VAT withholding system for transactions with the government
shall shift from final to a creditable system. (So it'll all depend when you're reading LVM Construction Corporation v. Sanchez (2011) – NOT DISCUSSED
this if the VAT withheld by the gov’t is final or creditable!) ● LVM, as Contractor for the Project, was liable for the 8.5% VAT which was withheld by
● While government payments are subject to 5% VAT withholding, the purchase of the DPWH from its payments, pursuant to Sec. 114 (C), NIRC.
goods and services arising from projects funded by the Official Development ● Absent any agreement to that effect, LVM cannot deduct the amounts thus withheld
Assistance will not be subject to final or creditable withholding taxes. (R.R. 13-2018) from the sums it still owed the Joint Venture which, as Sub-Contractor of 30% of the
● Ingles Notes Project, had its own liability for 10% VAT insofar as the sums paid for the
○ When you’re dealing with the government, the government is the client. sub-contracted works were concerned.
Instead of giving you the P12 in a P100 transaction, P5 is withheld by the ● Although the burden to pay an indirect tax like VAT can, admittedly, be passed on to
government and the P7 is paid by the government. (1st instance of the purchaser of the goods or services, it bears emphasizing that the liability to pay
withholding of VAT). the same remains with the manufacturer or seller like LVM and the Joint Venture.
○ For sale of service to government, the money already comes from the ● In the same manner that LVM is liable for the VAT due on the payments made by the
government so it might as well keep the 5% (as tax) and I’ll give you the DPWH pursuant to the contract on the Project, the Joint Venture is, consequently,
7%. liable for the VAT due on the payments made by LVM pursuant to the parties'
Sub-Contract.
In transactions with NONRESIDENTS
● 12% will be withheld with respect to the following payments:
1. Lease or use of properties or property rights owned by nonresidents, and
2. Other services rendered in the Philippines by nonresidents. (R.R. 16-2005)
● The one who remits the 12% to the government, when he files his return, can state
that he/she is entitled to an input tax credit.
● Ingles Notes
○ When you’re dealing with non-residents owners, the non-residents are
your suppliers. (2nd instance of withholding of VAT)
○ Why would you have to withhold VAT for lease of property owned by
nonresidents? Why is withholding done as a principal under Tax1?
■ Withholding is a manner to ease administrative feasibility.
○ Example: An owner leases out a condo in Rockwell for P5M a year.
■ Is that VATable? Yes.
■ In the normal scheme of things, if you are the lessee, you are the
one shouldering the VAT on the 5M. You pay it to the lessor and
he remits to the gov’t (12%) .
■ What happens if the lessor is a nonresident owner (e.g. a Filipino
who is not here in the PH)?
TAX 2 INGLES - WRAP IT B4 U TAP IT
7. VAT refunds or Tax Credits
Section 112 (as amended by TRAIN)
SEC. 112. Refunds or Tax Credits of Input Tax. -
(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales
are zero-rated or effectively zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit certificate
or refund of creditable input tax due or paid attributable to such sales, except transitional
input tax, to the extent that such input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2)
and (b) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds
thereof had been duly accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in
zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of
properties or services, and the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of sales. Provided, finally, That for a person
making sales that are zero-rated under Section 108(B) (6), the input taxes shall be allocated
ratably between his zero-rated and non-zero-rated sales.
(B) Cancellation of VAT Registration. - A person whose registration has been canceled due
to retirement from or cessation of business, or due to changes in or cessation of status
under Section 106(C) of this Code may, within two (2) years from the date of cancellation,
apply for the issuance of a tax credit certificate for any unused input tax which may be used
in payment of his other internal revenue taxes.
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper
cases, the Commissioner shall grant a refund for creditable input taxes within ninety (90)
days from the date of submission of the official receipts or invoices and other documents
[110] in support of the application filed in accordance with Subsections (A) and (B) hereof:
Provided, That should the Commissioner find that the grant of refund is not proper, the
Commissioner must state in writing the legal and factual basis for the denial.
In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying the claim, appeal the decision with
the Court of Tax Appeals: Provided, however, That failure on the part of any official, agent,
or employee of the BIR to act on the application within ninety (90) days period shall be
punishable under Section 269 of this Code.
(D) Manner of Giving Refund. - Refunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized representative without the necessity of being
countersigned by the Chairman, Commission on audit, the provisions of the Administrative
Code of 1987 to the contrary notwithstanding: Provided, That refunds under this paragraph
shall be subject to post audit by the Commission on Audit.
There are 3 instances where one can avail of a VAT refund:
1. Zero-rated and effectively zero-rated sales
2. Cessation of business or
3. Cessation of VAT-status
Zero rated transactions and effectively zero-rated sales:
● For zero-rated transactions
○ Taxpayer CANNOT apply for the issuance of a refund for transitional input
tax.
● For zero-rated & effectively zero-rated sales of goods, properties or services
○ Application should be filed within 2 years after the close of the taxable
quarter when such sales were made
● CIR v. Mirant Pagbilao Corporation (2008)
○ Doctrine: The 2-year period is reckoned from the close of the taxable
quarter when the relevant sales were made pertaining to the input VAT
regardless when the input tax was paid.
○ Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the
pertinent transaction, said taxpayer only has a year to file a claim for
refund or tax credit of the unutilized creditable input VAT.
○ Given that the last creditable input VAT due for the period covering the
progress billing of Sept. 6, 1996 is the 3rd quarter of 1996 ending on Sept.
30, 1996, any claim for unutilized creditable input VAT refund or tax credit
for said quarter prescribed 2 years after Sept. 30, 1996 or, to be precise, on
Sept. 30, 1998. Consequently, Mirant’s claim for refund or tax credit filed on
Dec. 10, 1999 already prescribed.
○ Ingles Notes:
■ Mitsubishi was providing services to Mirant. Mirant was providing
services to NAPOCOR.
● Mitsubishi → Mirant (subject to input VAT)
● Mirant → NAPOCOR (zero-rated)
■ Did Mirant charge any VAT to NAPOCOR?
● No it was charged by Mitsubishi.
● So Mirant is trying to get back its input VAT with its
transaction with Mitsubishi.
TAX 2 INGLES - WRAP IT B4 U TAP IT
■ What was the problem?
● Mirant tried to claim for refund, but SC said they did it
beyond the 2 yr prescriptive period so they were not
entitled to a refund.
■ Sir: SC said the proper doctrine, but they applied it wrong
because they counted it from the time the purchases were made
(Mitsubishi to Mirant), not from the time when the zero rated
sales were made (Mirant to NAPOCOR).
● When we’re talking about the close of the taxable
quarter when the sales were made, we’re talking about
the ZERO RATED SALES. Not the sales of the supplier
to the VAT registered person. Not a purchase by the
supplier. Not the purchase by the VAT registered
person.
● You only know if you’ll get refund input vat when you
make a zero rated sale
● There’s no rule that says once you get supplies, you
need to sell them in a certain period.
● E.g. I purchased supplies from a supplier in the year
2000. Then my zero-rated sales which used the inputs
of my supplier only happened in 2008. Can I still get an
administrative claim? Yes, the reckoning period is
when the zero-rated sales used the inputs.
CIR v. Mindanao II Geothermal Partnership (2014) – Summary of rules regarding the
two-year prescriptive period for input VAT refunds
● The case summarized the rules from Atlas Consolidated Mining and Development
Corporation v. CIR; CIR v. Aichi Forging Company of Asia, Inc; and CIR v. San Roque
Power Corporation.
○ Those cases talk about the 120-day period.
○ TRAIN has made the period 90 days, so the notes under administrative
claim reflect this change.
● Administrative claim (2-year period)
○ GR: Administrative claim must be filed within the 2-year prescriptive
period.
■ Reckoning date of the prescriptive period is the close of the
taxable quarter when the relevant sales were made.
○ XPN: Except for the period June 8, 2007 to September 12, 2008
■ Follows the Atlas Consolidated Mining and Development
Corporation v. CIR doctrine that the reckoning date is the filing of
the VAT return and the payment of the tax.
○ Mandatory period for the CIR to process the refund is now 90 days
(compared to the pre-TRAIN 120-day period).
■ If BIR does not act on the application within 90 days, then the
relevant official, agent, or employee shall be liable under Sec.
269
● Judicial claim (90+30 day period)
○ The taxpayer can appeal in 2 ways:
1. File the judicial claim within 30 days after the CIR DENIES the
claim within the 90-day period; OR
2. File the judicial claim within 30 days from the expiration of the
90-day period if the CIR DOES NOT ACT within the 90- day period.
○ The 30-day period always applies, whether there is denial or inaction on
the part of the CIR.
■ GR: 30-day period to appeal is both mandatory and
jurisdictional, i.e., if you do not follow the 30-day period, your
claim for refund will be dismissed by the CTA.
■ XPN: Except for premature judicial filings made between Dec.
10, 2003 and Oct. 5, 2010
● This was when BIR Ruling No. DA 489-03 was still in
force. BIR Ruling No. DA-489-03 provides that the
taxpayer-claimant NEED NOT WAIT for the lapse of the
120-day period before it could seek judicial relief with
the CTA by way of Petition for review
● Ingles: No longer applies now because we’re so far
removed from this exception but just know it.
○ Late judicial filing is absolutely prohibited.
● IMPORTANT: These rules only apply to claims for credit or refund of input tax. Why
not to refunds in general?
○ San Roque distinguished between Sec. 112 & Sec. 229 (1997 Tax Code):
■ Sec. 112: Any VAT-registered person, whose sales are zero-rated
or effectively zero-rated may, within 2 years after the close of the
taxable quarter when the sales were made, apply for the
issuance of a tax credit certificate or refund of creditable input
tax due or paid attributable to such sales
TAX 2 INGLES - WRAP IT B4 U TAP IT
■ Sec. 229: The prescriptive period for filing a judicial claim for
refund is 2 years from the date of payment of the tax
erroneously, illegally, excessively or in any manner wrongfully
collected."
○ Rules under Secs. 204(C) and 229 as cross-referred to Sec. 112 do NOT
apply as Sec. 229 only covers erroneous payments or illegal collections of
taxes. This not the case for refund of unutilized input VAT. Unutilized
input VAT are not taxes paid erroneously or collected illegally.
Ingles Notes:
● GR: When it comes to BIR Rulings, only the taxpayer who sought out that ruling will
be bound by it.
○ XPN: BIR Ruling No. DA-489-03 was issued on the behest of the DoF,
therefore making it a general interpretative rule, which all taxpayers can
find solace in.
● Filing of the administrative claim is 2 years from the close of the quarter of the
zero-rated sale.
● CIR has 90 days to approve or deny the claim.
○ If the CIR FAILS TO ACT within 90 days → taxpayer has 30 days from
expiration of the 90-day period to file a judicial claim with the CTA.
○ If the CIR DENIES the claim → taxpayer has 30 days from denial of the
claim to go to the CTA.
● What happens if the 90–day period does not lapse but you’re so agit so you go
straight to the CTA?
○ This is premature filing. Claim denied.
● What if the 90 day lapsed and you filed on the 32nd day because you were on
vacation - what would the CTA do?
○ CTA will deny the claim because it’s late filing.
○ You really only have a 30 day period.
● How would you describe the 90+30 day period?
○ Mandatory and jurisdictional. So if you don’t make it in that (90+ 30 day
period) sure LOSE. CTA will junk your petition.
● Can the judicial claim be beyond the 2 year period?
○ YES. 30-day period may go beyond the 2-year period. Only the
administrative claim must be filed within the 2-year prescriptive period.
○ This question has confused a lot of taxpayers.
○ Before, people tried to claim a refund for zero rated within the same
period following Sec 229 (Under 229, you have to file an administrative
claim AND a judicial claim 2 years after the erroneous payment). But this is
only applicable to illegally erroneously collected tax, reckoned from
payment of tax.
○ The Aichi case is what gave birth to our current doctrine re: mandatory
jurisdictional period. Aichi said you can't do that because refunding input
VAT is not a refund of erroneously or illegally collected taxes. So we follow
Sec 112. If you’re refunding input VAT pertaining to zero rated sales, admin
claims must be filed within 2 year period, with the reckoning point from
the end of the taxable quarter when sales were made.
○ But SC said in this case that they allowed premature judicial filings for a
certain date because of the RR before. When we reach powers of the BIR
we need to read this case.
○ Mindanao Geothermal - VERY IMPT CASE
Supporting documents
● Application for VAT refund/tax credit must be accompanied by complete supporting
documents (the BIR provides a checklist for this).
● Taxpayer must likewise attach a statement under oath attesting to the completeness
of the submitted documents.
● No other documents shall be accepted from the taxpayer in the course of the
refund/tax credit evaluation.
● Without the COMPLETE supporting documents, the application will be DENIED.
(RMC 54- 2014)
● Pilipinas Total Gas, Inc. v. CIR (2015) - supporting documents must be
COMPLETE
○ Doctrine: Because of RMC 54-2014, all claims must be filed with complete
supporting documents.
○ Under the current rule, the reckoning of the 120-day period has been
withdrawn from the taxpayer by RMC 54-2014, since it requires him at the
time he files his claim to complete his supporting documents and attest
that he will no longer submit any other document to prove his claim.
Further, the taxpayer is barred from submitting additional documents
after he has filed his administrative claim. However, the reason why the
new rule has not been applied in this case is that the foregoing issuance
cannot be applied retroactively since it imposes new obligations upon
taxpayers in order to perfect their administrative claim.
○ Ingles Notes: Right now, once you submit your claim for refund, you have
to submit EVERYTHING. That simplifies everything.
● 90-day period begins from the date of submission of the official receipts or
invoices and other documents in support of the refund application.
○ The application is considered to have been filed only upon submission of
these supporting documents. (R.R. 26-2018)
Invoicing and accounting requirements
TAX 2 INGLES - WRAP IT B4 U TAP IT
● Taxpayer claiming the refund must comply with the invoicing and accounting
requirements mandated by the Tax Code, as well as the revenue regulations
implementing them.
● Bonifacio Water Corporation v. CIR (2013) - official receipts not in the registered
name of taxpayer → cannot claim refund
○ Doctrine: When the official receipts presented as evidence to prove input
tax is not in the name of the taxpayer, the input tax pertaining to such
official receipts CANNOT be given as a refund or credit.
○ The requisite that the receipt be issued showing the name, business style,
if any, and address of the purchaser, customer or client is precise so that
when the books of accounts are subjected to a tax credit examination, all
entries therein could be shown as adequately supported and proven as
legitimate business transactions.
○ The absence of official receipts issued in the taxpayer’s name is
tantamount to non-compliance with the substantiation requirements
provided by law.
○ Ingles Notes:
■ BWC was claiming for a refund. It is engaged in zero-rated
transactions. It presented receipts issued to it by the
contractors.
■ What was wrong with the OR issued to BWC by the contractors?
They had a different name from the registered name. Receipts
were under a different name “Bonifacio GDE Corporation,” which
were not approved by the SEC. So, they were not allowed to
claim refunds because substantiation requirements have to be
complied with strictly.
■ When you file a claim for refund, you have to submit your
documents, along with documents that you paid the input VAT.
Your evidence is the OR named to YOU as taxpayer claiming the
refund. At least in this case, they don't care about the receipts
you get from your customers because you're trying to evidence
the input VAT you paid.
■ When you buy shoes, who issues the receipts? The seller. Do
they know who you are? Whether it’s an OR or not, you don’t sign
the receipt. What's happening here is that it is the taxpayer who
now has the burden to tell his or her suppliers to write my proper
name, TIN, address because if those aren’t in the receipt, the BIR
will reject it. So you see the issue? Now the taxpayer now has to
write their names in the receipt/invoices given by the supplier
which is hard for big businesses. Cos if it’s not they won’t get a
refund.
● Western Mindanao Power Corporation v. CIR (2012) → official receipt were not
stamped with “zero-rated” → cannot claim refund
○ Doctrine: When the official receipts issued by the taxpayer engaged in
zero-rated sales do not have "zero-rated" stamped or printed on its official
receipts, then the taxpayer CANNOT claim for input tax pertaining to such
sales.
○ In a claim for tax refund or tax credit, the applicant must prove not only
the entitlement to the grant of the claim under substantive law. It must
also show satisfaction of all the documentary and evidentiary
requirements for an administrative claim for a refund or tax credit.
○ Ingles Notes: We’re talking about which receipts here? Receipts received
by the taxpayer or the ones issued by the taxpayer?
■ This case → issued BY taxpayer
■ BWC case → issued TO taxpayer (received by taxpayer)
● Team Energy v. CIR (2018) - VAT invoice was not presented for zero rated
transaction → cannot claim refund
○ Doctrine: VAT receipts and invoices are not interchangeable. If a taxpayer
interchanges them and files for a refund, this will be rejected for not
complying with the invoicing requirements.
○ RMC No. 42-03 91:
■ Invoice: supporting document for the claim of input tax on
purchase of goods
■ Official receipt: supporting document for the claim of input tax
on purchase of services
○ Thus, to claim a refund of unutilized or excess input VAT, purchase of
goods or properties must be supported by VAT invoices while purchase
of services must be supported by VAT official receipts.
○ Noncompliance will result to the disallowance of the claim for input tax. If
we are to use sales invoice in the sale of services, an absurd situation will
arise when the purchaser of the service can claim tax credit representing
input VAT even before there is payment of the output VAT by the seller on
the sale pertaining to the same transaction. As a matter of fact, if the seller
is not paid on the transaction, the seller of service would legally not have
to pay output tax while the purchaser may legally claim input tax credit
thereon. The government ends up refunding a tax which has not been paid
at all. Hence, to avoid this, VAT official receipt for the sale of services is an
absolute requirement
○ The output or input tax on the sale or purchase of goods is determined by
the total amount indicated in the VAT invoice
○ The output or input tax on the sale or purchase of services is determined
by the total amount indicated in the VAT official receipt.
TAX 2 INGLES - WRAP IT B4 U TAP IT

○ Thus, the CTA properly disallowed the input VAT for Team Energy's failure ● The goods or properties will not be considered sold,
to comply with the invoicing requirements. bartered, etc.
○ Ingles Notes 2. Change in the trade or corporate name of the business.
■ NPC's electricity purchases from independent power producers, 3. Merger or consolidation of corporations.
such as Team Energy, were zero rated. ● The unused input tax of the dissolved corporation shall
■ What do restaurants give? Official Receipts (OR) be absorbed by the surviving or new corporation.
■ Even if you eat the goods? You’re paying for the service ● Ingles Notes
■ What if it’s bad service? Still a service ○ We don’t really have cases for input VAT when you retire your business.
Normally, closing a business is hassle because you have to get audited
Cessation of business or cessation of status again. So you tell your client to just let his accountants handle it.
● For cessation of business, a VAT-registered person whose registration has been
canceled (1) due to retirement from or cessation of business, or (2) due to changes in
or cessation of status under Sec. 106(C), may:
○ Within 2 years from the date of cancellation, apply for the issuance of a
tax credit certificate for any unused input tax which he may use in
payment of his other internal revenue taxes.
○ He shall be entitled to a refund if he has no internal revenue tax liabilities
against which the tax credit certificate may be utilized.
● Date of cancellation is the date of the issuance of the tax clearance by the BIR, after
full settlement of all tax liabilities relating to the cessation of the business or the
change of status of the taxpayer. (R.R. 13-2018)
● Filing of the claim shall be made only after:
1. Completion of the mandatory audit of internal revenue liabilities covering
the immediately preceding taxable year and the short period return; and
2. Issuance of the applicable tax clearance by the BIR. (R.R. 13-2018)
● More on cessation of business or change of status as VAT-registered person (R.R.
16-2005):
○ Subject to output tax
■ Properties originally intended for sale or use in business
■ Capital goods existing at the time of the following:
1. Change of business activity from VAT taxable to VAT
exempt status.
2. Approval of a request for cancellation of registration
due to reversion to exempt status.
3. Approval of a request for cancellation of registration
due to reversion to exempt status for persons who
voluntarily registered to be VAT taxpayers.
○ NOT subject to output tax:
1. Change of control of a corporation by the acquisition of the
controlling interest of such corporation by another stockholder
or group of stockholders.
TAX 2 INGLES - WRAP IT B4 U TAP IT
8. VAT on real properties
The sales of the following real properties are subject to VAT:
1. Those held for sale to customers in the ordinary course of trade or business;
a. E.g. Real estate
2. Those held for lease in the ordinary course of trade or business; and
3. Those used in the trade or business of the seller (as it is incidental to the taxpayer's
main business) (R.R. 4-2007)
VAT on Sales
● Sales of real property (cash sale)
○ R.R. 8-2021: Beginning Jan. 1, 2021, VAT exemptions 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
RA No. 7279, as amended, and, sale of house and lot; and
■ Other residential dwellings with selling price of not more than
P2M, as adjusted to P3,199,200.00 in 2011 using the 2010
Consumer Price Index values:
■ Every 3 years thereafter, the amount stated shall be adjusted to
its present value using the Consumer Price Index as published by
the Philippine Statistics Authority
● Sale on installment of real property by a real estate dealer
○ Subject to 12% VAT on installment payments, including interest and
penalties, actually and/or constructively received by the dealer.
○ Real estate dealer – any person engaged in the business of buying,
developing, selling, exchanging real property as principal and holding
himself out as a full or part-time dealer of real estate. (R.R. 16-2005)
○ Sale of real property on installments – means sales by a real estate
dealer, the initial payments of which in the year of sale do not exceed 25%
of the gross selling price.
○ If initial payments exceed 25% of the selling price, the transaction shall be
considered a cash sale with a VAT at the time of the sale. This is a sale on a
deferred payment basis.
■ VAT will be recognized outright in full at the time of sale as
though the sale was a cash sale.
● Initial payments – These are:
1. Payments which the seller received before and upon the execution of the
instrument of sale, and
2. Payments which he expects or is scheduled to receive in cash or property
(other than evidence of indebtedness of the purchaser) during the
taxable year of the sale or disposition.
■ It will include more than the down payment in the year of sale.
■ It will not include the amount of mortgage on the real property
sold which was already there at the time of sale and which was
assumed by the buyer
● EXCEPT when such mortgage exceeds the cost or other
basis of the property to the seller, in which case the
excess shall form part of the initial payments.
○ Example: Mortgage assumed by buyer was P600K, and cost to seller was
just P500K. P100K excess will be included as "initial payment."
○ Initial payment – first payment that seller receives
● The gross selling price is whichever is highest of the:
1. Consideration in the deed of sale;
2. Zonal value, per CIR; and
3. FMV per real property declaration with the provincial or city assessor.
● Things to note:
○ It is the agreed consideration that is used to determine the initial
payments
○ It is the highest among the consideration, zonal value and FMV which is
used for the computation of the VAT.
Ingles Notes
● Why is it important to know if it’s a sale on installments or a cash sale?
○ VAT base would be different.
○ Also, you will know when you should pay the VAT.
○ Cash sale – amount of VAT would be based on the amount of sale at the
time of the transaction
■ Meaning if initial payments exceed 25% of the gross selling price
or the consideration.
■ Tax base: entire consideration at the time of the transaction.
■ Entire VAT liability attaches to the initial payment.
○ Installment basis – VAT liability would be based on the amount of the
installment.
■ Meaning if initial payments do not exceed 25% of the gross
selling price or the consideration.
■ Tax base: amount per year.
■ Important because if the amount of VAT that you will be passing
to your buyer will be based on the installment price, it would be
lower than that of the entire gross selling price, which would be
higher.
● What if the 2nd installment is within the same taxable year as the 1st installment? Do
you count the 2nd installment as initial payment?
TAX 2 INGLES - WRAP IT B4 U TAP IT
○ Yes, initial payments are ALL the payments you made to the seller in the
first taxable year. It’s not just the 1st installment since it includes any
payment within the same taxable year.
● Example: Client wants to buy a 100M house. 1st installment is 20M. You might think
that it is an installment sale but in the deed it provides that after 6 months of the 1st
installment, the client needs to pay 30M. Initial payments will be 50M out of 100M or
50% of the gross selling price or consideration, therefore it will be treated as a cash
sale. 12M VAT liability (12% of 100M) will be paid once you pay the 20M because it is
considered a cash sale, and VAT liability attaches upon the first payment.
● I’m leasing my condo. I’m a real estate LESSOR of condos. I decided to sell it. Subject
to VAT?
○ Yes, because it’s a sale of property held in lease in the ordinary course of
business will be subject to VAT.
● You are a corporation in the business of selling water bottles.. You own your office in
a condo unit and use it for your business. You decide to sell. Subject to VAT?
○ Those used in the trade or business of the seller (as it is incidental to the
taxpayer's main business) (R.R. 4-2007)
○ Because the other provision is those properties incidental to trade or
business. SO office building - even if not directly related, it’s incidental.
● What if you sell your house?
○ You don’t have tax when you sell your house because it’s not in line with
your ordinary trade or business. It will be subject to CGT.
○ Capital asset – subject to CGT (6%) because a capital asset is an asset not
used in ordinary trade or business
○ Ordinary asset – not subject to CGT but it’s subject to VAT
○ SWhen faced with a real property transaction, first thing you ask: is that a
capital or ordinary asset?
● CREATE said after 2021, there’s a whole new regime
○ Threshold now: P3,199,200
○ If your business is BELOW that threshold → VAT exempt
○ If your business is ABOVE that threshold → subject to VAT
● What if I say you pay me downpayment now, then pay me another amount next
month. Is next month’s payment considered an initial payment?
○ Yes as long as it’s within the taxable year.
○ Initial payment is not just downpayment it includes any other payment
made to the seller within the taxable year.
○ If your deed of sale says pay me let’s say 20% now, it kinda looks like an
installment so u dont pay VAT yet but if you say in the deed you need to
pay 10% additional purchase price, it becomes a cash sale and you need to
pay the entire VAT.
● You're selling a house for 100M. Initial payment is 30M. Cash sale?
○ Yes cos it exceeds 25% of 100M. Since it’s a cash sale, you remit 12% of the
entire 100M. So you remit 12M.
○ Buyer will be like why do I have to pay 12M akala ko installment? It's cos
not an installment sale. So buyer’s not gonna wanna pay you cos they dont
have that 12M yet so you lose your buyer.
VAT on Lease (study on your own)
● GR: All forms of property for lease, whether real or personal, are liable to VAT
● XPN: When the gross annual sales do not exceed P3M in which case they will be
exempt.
○ (See discussion on VAT-exempt transactions)
● Lease of property shall be subject to VAT regardless of the place where the contract
of lease or licensing agreement was executed if the property leased or used is
located in the Philippines.
● See also rules just mentioned when the lessor is a nonresident.
● In a lease contract, the advance payment by the lessee may be:
1. A loan to the lessor from the lessee
○ Not subject to VAT
2. Option money for the property
○ Not subject to VAT
3. Security deposit to insure the faithful performance of certain obligations of
the lessee to the lessor, or
○ GR: Not subject to VAT
○ XPN: But if security deposit is applied to rental, then it shall be
subject to VAT at the time of its application. (R.R. 16-2005)
4. Prepaid rental
○ Such payment is taxable to the lessor in the month when it was
received, irrespective of the accounting method employed by
the lessor.
Revenue Regulations 10-11 (July 1, 2011)
SEC. 4.106-8. Change or Cessation of Status as VAT-Registered Person. - xxx
(b) Not subject to output tax. –
The VAT shall not apply to goods or properties which are originally intended for sale or for
use in the course of business existing as of the occurrence of the following:
(1) Change of control of a corporation by acquisition of the controlling interest of such
corporation by another stockholder (individual or corporate) or group of stockholders. The
goods or properties used in business (including those held for lease) or those comprising
the stock in trade of the corporation having a change in corporate control will not be
considered sold, bartered, or exchanged despite the change in the ownership interest in
TAX 2 INGLES - WRAP IT B4 U TAP IT
the said corporation.
However, the exchange of goods or properties including the real estate properties used in
business or held for sale or for lease by the transferor, for shares of stocks, whether
resulting in corporate control or not, is subject to VAT.
9. Administrative provisions
Sec. 113-115, Secs. 236 (G) and (H) (as amended by TRAIN)
VAT Registration
● Every taxpayer subject to the VAT must:
1. Register with the BIR as a VAT taxpayer and
2. Pay an annual registration fee of P500 for every separate and distinct
establishment, including facility types where the business is conducted.
● Every taxpayer NOT subject to VAT but subject to the excise tax or percentage
tax must:
1. Register with the BIR and
2. Pay an annual registration fee of P500 for every separate and distinct
establishment where the business is conducted.
● VAT exempt persons under Section 109 who did not opt to be registered as VAT
taxpayers must register as non-VAT taxpayers.
Mandatory registration
SEC. 236. Registration Requirements. -
(G) Persons Required to Register for Value-Added Tax. —
1. Any person who, in the course of trade or business, sells, barters or exchanges
goods or properties, or engages in the sale or exchange of services, shall be liable
to register for value-added tax if:
a. His gross sales or receipts for the past twelve (12) months, other than
those that are exempt under Section 109(A) to (BB),[206] have exceeded
Three million pesos (P3,000,000);[207] or
b. There are reasonable grounds to believe that his gross sales or receipts
for the next twelve (12) months, other than those that are exempt under
Section 109(A) to (BB), will exceed Three million pesos
(P3,000,000).[207]
2. Every person who becomes liable to be registered under paragraph (1) of this
Subsection shall register with the Revenue District Office which has jurisdiction
over the head office or branch of that person, and shall pay the annual
registration fee prescribed in Subsection (B) hereof. If he fails to register, he shall
be liable to pay the tax under Title IV as if he were a VAT-registered person, but
without the benefit of input tax credits for the period in which he was not
properly registered.
● Any person who, in the course of trade or business, sells, barters or exchanges
goods or properties, or engages in the sale or exchange of services shall be
liable to register for VAT if:
1. His gross sales or receipts for the past 12 months have exceeded P3M; or
○ Other than those exempt under Sec. 109(A) to (BB)
2. There are reasonable grounds to believe that his gross sales or receipts for
the next 12 months will exceed P3M
○ Other than those exempt under Sec. 109(A) to (BB)
○ NOTE: Those exempt under Sec. 109(A) to (BB) refer to VAT exempt
transactions
● If a person who is mandated to register does not, he shall:
○ Be liable to pay the tax as if he were a VAT-registered person; and
○ Without the benefit of input tax credits.
Optional registration
SEC. 236. Registration Requirements. -
(H) Optional Registration for Value-Added Tax of Exempt Person.
1. Any person who is not required to register for value-added tax under Subsection
(G) hereof may elect to register for value-added tax by registering with the
Revenue District Office that has a jurisdiction over the head office of that person,
and paying the annual registration fee in Subsection (B) hereof.
2. Any person who elects to register under this Subsection shall not be entitled to
cancel his registration under Subsection (F)(2) for the next three (3) years.
Provided, That any person taxed under Section 24(A)(2)(b) and 24(A)(2)(c)(2)(a) of the NIRC
who elected to pay the eight percent (8%) tax on gross sales or receipts shall not be
allowed to avail of this option.[205]
For purposes of Title IV of this code, any person who has registered value-added tax as a
tax type in accordance with the provisions of Subsection (C) hereof shall be referred to as a
“VAT-registered person” who shall be assigned only one Taxpayer Identification Number
(TIN).
● Any person who is NOT required to register as a VAT taxpayer may register for the
VAT.
● He or she, however, cannot cancel his or her registration for the next 3 years.
● However, if an individual has elected to pay the 8% income tax on gross
receipts/sales, then that person may NOT register.
TAX 2 INGLES - WRAP IT B4 U TAP IT

Cancellation of VAT registration

information shall be indicated in the VAT invoice or VAT official receipt:
SEC. 236. Registration Requirements. - 1. A statement that the seller is a VAT-registered person, followed by his Taxpayer's
(F) Cancellation of Registration. – Identification Number (TIN); and
1. General Rule. - The registration of any person who ceases to be liable to a tax 2. The total amount which the purchaser pays or is obligated to pay to the seller
type shall be canceled upon filing with the Revenue District Office where he is with the indication that such amount includes the value-added tax. Provided,
registered an application for registration information update in a form prescribed That:
therefor. a. The amount of the tax shall be known as a separate item in the invoice
2. Cancellation of Value-Added Tax Registration. – A VAT- registered person may or receipt;
cancel his registration for VAT if: b. If the sale is exempt from value-added tax, the term VAT-exempt sale:
a. He makes written application and can demonstrate to the shall be written or printed prominently on the invoice or receipt;
Commissioner’s satisfaction that his gross sales or receipts for the c. If the sale is subject to zero percent (0%) value-added tax, the term
following twelve (12) months, other than those that are exempt under “zero-rated sale” shall be written or printed prominently on the invoice
Section 109 (A) to (U) (sic), will not exceed One million five hundred or receipt.
thousand pesos (P1,500,000) or d. If the sale involved goods, properties or services some of which are
b. He has ceased to carry on his trade or business, and does not expect to subject to and some of which are VAT zero-rated or Vat exempt, the
recommence any trade or business within the next (12) months. invoice or receipt shall clearly indicate the break-down of the sale price
The cancellation of registration will be effective from the first day of the following month. between its taxable, exempt and zero-rated components, and the
calculation of the value-added tax on each portion of the sale shall be
● Registration of any person who ceases to be liable to a tax type shall be canceled
known on the invoice or receipt: Provided, That the seller may issue
upon filing with the RDO where he is registered an application for registration
separate invoices or receipts for the taxable, exempt, and zero-rated
information update in a form prescribed therefor.
components of the sale.
● A VAT- registered person may cancel his registration for VAT if:
3. The date of transaction, quantity, unit cost and description of the goods or
1. He makes written application and can demonstrate to the Commissioner’s
properties or nature of the service; and
satisfaction that his gross sales or receipts for the following 12 months
4. In the case of sales in the amount of One thousand pesos (P1,000) or more where
[other than those that are exempt under Sec. 109 (A) to (U)] will not exceed
the sale or transfer is made to a VAT-registered person, the name, business style,
3M; or
if any, address and Taxpayer Identification Number (TIN) of the purchaser,
2. He has ceased to carry on his trade or business, and does not expect to
customer or client. [112]
recommence any trade or business within the next 12 months.
● TRAIN did not amend this provision.
(C) Accounting Requirements. - Notwithstanding the provisions of Section 233, all
○ However, it should be read to reflect the P3M VAT threshold (and not the
persons subject to the value-added tax under Sections 106 and 108 shall, in addition to the
P1,500,000 written in the codal).
regular accounting records required, maintain a subsidiary sales journal and subsidiary
purchase journal on which the daily sales and purchases are recorded. The subsidiary
Compliance Requirements
journals shall contain such information as may be required by the Secretary of Finance.
SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. - (A)
● A VAT-registered person shall issue:
Invoicing Requirements. - A VAT-registered person shall issue:
● VAT invoice – for every sale, barter, or exchange of goods or properties;
1. A VAT invoice for every sale, barter or exchange of goods or properties; and
and
2. A VAT official receipt for every lease of goods or properties, and for every sale,
● VAT official receipt – for every lease of goods or properties, and for every
barter or exchange of services.
sale, barter or exchange of services
● Ingles Notes
(B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following
● For sale/barter/exchange of goods and properties – VAT invoices
TAX 2 INGLES - WRAP IT B4 U TAP IT

● For lease of goods and properties – VAT receipts ■ In addition to the regular books of accounts
● For services – VAT receipts.
Issuing erroneous VAT invoice or VAT official receipt
Applicable VAT Requirements for the invoice/receipt SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. - (D)
Consequence of Issuing Erroneous VAT Invoice or VAT Official Receipt.-
If sale is exempt from The term "VAT-exempt sale" shall be written or printed 1. If a person who is not a VAT-registered person issues an invoice or receipt
VAT prominently on the invoice or receipt showing his Taxpayer Identification Number (TIN), followed by the word “VAT”;
a. The issuer shall, in addition to any liability to other percentage taxes, be
If sale is subject to 0% The term "zero-rated sale" shall be written or printed liable to:
prominently on the invoice or receipt i. The tax imposed in Section 106 or 108 without the benefit of
any input tax credit; and
If sale involves some The invoice or receipt shall clearly indicate the breakdown of ii. A 50% surcharge under Section 248(B) of this Code; [55]
which are subject to the sale price between the taxable, exempt and zero-rated b. The VAT shall, if the other requisite information required under
VAT and some which components Subsection (B) hereof is shown on the invoice or receipt, be recognized
are zero-rated or as an input tax credit to the purchaser under Section 110 of this Code.
VAT-exempt Calculation of the VAT on each portion of the sale shall be 2. If a VAT-registered person issues a VAT invoice or VAT official receipt for a
shown on the invoice or receipt. VAT-exempt transaction, but fails to display prominently on the invoice or receipt
the term ‘VAT exempt sale,’ the issuer shall be liable to account for the tax
But seller may issue separate invoices or receipts for the imposed in section 106 or 108 as if Section 109 did not apply. [55]
taxable, exempt and zero-rated components of the sale.
(E) Transitional Period. – Notwithstanding Subsection (B) hereof, taxpayers may continue
When the sale is P1,000 Name, business style, address and TIN of the purchaser, to issue VAT invoices and VAT official receipt for the period July 1, 2005 to December 31,
or more to a customer, or client must also be placed in the receipt or 2005 in accordance with Bureau of Internal Revenue administrative practices that existed
VAT-registered person invoice. as of December 31, 2004.
● What must be contained in the VAT receipt? ● If a person who is NOT a VAT-registered person issues an invoice or receipt
1. Statement that seller is a VAT-registered person, followed by his TIN showing his TIN followed by the word "VAT," the issuer shall be:
2. Total consideration indicating that such amount includes the VAT, which ● Liable for the percentage tax due on his transaction
tax shall be shown as a separate item ● Liable for the VAT, without credit for any input tax, and
3. If VAT-exempt or zero-rated, must also be indicated as either "VAT-EXEMPT ● Subject to a 50% surcharge.
SALE" or "ZERO-RATED SALE" ■ VAT shall be recognized as an input tax credit to the purchaser
4. Clear breakdown of VAT, VAT-zero rated or VAT-exempt where applicable, or under Sec. 110, provided the requisite information required in
separate invoices or receipts for the same invoices or receipts are shown on the invoices or receipts.
5. Date of the transaction, quantity, unit cost, and description of the goods or ● If a VAT-registered person issues a VAT invoice or official receipt for a
properties or nature of the service VAT-exempt transaction, but fails to display prominently on the invoice or
6. In case of sales of P1,000 or more where the sale or transfer is made to a receipt the term "VAT exempt sale”
VAT-Registered person, the name, business style if any, address and TIN of ○ He shall be subject to the VAT, as if Sec. 109 on exempt transactions did not
the purchaser, customer, or client shall be indicated apply. Meaning, he has to pay VAT.
● VAT-liable taxpayers must have:
1. Subsidiary sales journal, and
2. Subsidiary purchases journal
TAX 2 INGLES - WRAP IT B4 U TAP IT
● Northern Mindanao Power Corporation v. CIR (2015) - failure to print
“zero-rated” → cannot claim refund
○ Doctrine: For zero-rated transactions, the failure to print the word "zero
rated" on the VAT invoices or official receipts is FATAL to claims for a refund
or credit of unutilized input VAT on the zero-rated sales
● If the VAT is erroneously billed in the invoice:
○ The total invoice amount shall be presumed to be comprised of the gross
selling price/gross receipts plus the correct amount of the VAT.
● The output tax shall be computed by multiplying the total amount in the invoice by
a fraction using the rate of VAT as the numerator and 100% plus the rate of the VAT as
the denominator.
○ Total amount of invoice x (rate of vat/100%+rate of VAT) = output tax
● R.R. 8-1999 states the penalties for violation of the requirement that output tax on
sale of goods and services should not be separately indicated in the sales invoice or
official receipt.
○ Amount appearing in the sales invoices/receipts is thus deemed inclusive
of the VAT due thereon.
○ Penalty for violation of the said requirement is a fine of not less than
P1,000 but not more than P50,000, and imprisonment of not less than 2
years but not more than 4 years.
● CIR v. Euro-Philippines (2018) - failure to print “zero-rated” on OR does not
render the zero-rate transaction as VATable → not liable for deficiency
assessment
○ Euro-Phil is VAT registered. The services rendered by Euro-Phil was to a
person engaged in international air-transport operations. Thus, by
application, Sec. 108 of the NIRC of 1997 subjects the services of Euro-Phil
to British Airways PLC, to the rate of zero percent VAT.
○ As dictated by Sec. 113 on the said provisions on the "Consequences of
Issuing Erroneous VAT Invoice of VAT Official Receipt, nowhere therein is a
presumption created by law that the non-imprintment of the word "zero
rated" deems the transaction subject to 12 % VAT.
○ In addition, Sec. 4. 113-4 of RR 16-2005, Consolidated Value-Added Tax
Regulations of 2005, also does not state that the non-imprintment of the
word "zero rated" deems the transaction subject to 12% VAT.
○ Thus, in this case, failure to comply with invoicing requirements as
mandated by law does NOT deem the transaction subject to 12% VAT
○ Ingles Notes:
■ Who won in this case? Europhil won. They were rendering
services in international air operations. So they’re zero rated.
They issued receipts. It did not say that the transactions were
zero rated which is the issue.
■ Issue of BIR with Europhil is that there were deficiency taxes in
VAT. They should be paying VAT because they were not putting
zero rated in the receipts. SC said that just because “zero rated”
was not imprinted does not mean they were automatically
subject to 12% VAT under the law.
■ The thing you have to remember is that this is NOT a refund case
like the Northern Mindanao case where they were saying they
engaged in zero rated sales therefore give us refund, in which
case SC said they’re not entitled because they did not imprint
zero rated.
■ Europhil is an ASSESSMENT case where BIR is telling Europhil to
pay VAT since they did not put zero rated. SC said it doesn't
mean it will be automatically VATable just because you put zero
rated in the transaction.
■ They seem contradictory but they’re not.
Rule and Payment of VAT
SEC. 114. Return and Payment of Value-Added Tax. –
(A) In General. - Every person liable to pay the value-added tax imposed under this Title
shall file a quarterly return of the amount of his gross sales or receipts within twenty-five
(25) days following the close of each taxable quarter prescribed for each taxpayer:
Provided, however, That VAT-registered persons shall pay the value-added tax on a
monthly basis: Provided, finally, That beginning January 1, 2023, the filing and payment
required under this Subsection shall be done within twenty-five (25) days following the
close of each taxable quarter.
Any person, whose registration has been canceled in accordance with Section 236, shall file
a return and pay the tax due thereon within twenty-five (25) days from the date of
cancellation of registration: Provided, That only one consolidated return shall be filed by
the taxpayer for his principal place of business or head office and all branches.
(B) Where to File the Return and Pay the Tax. - Except as the Commissioner otherwise
permits, the return shall be filed with and the tax paid to an authorized agent bank,
Revenue Collection Officer or duly authorized city or municipal Treasurer in the Philippines
located within the revenue district where the taxpayer is registered or required to register.
● Every person liable to pay VAT shall file:
○ A quarterly return of the amount of his quarterly gross sales or receipts
○ Within 25 days following the close of the taxable quarter using the latest
version of Quarterly VAT Return.
● VAT-registered persons shall pay the VAT on a monthly basis.
TAX 2 INGLES - WRAP IT B4 U TAP IT

● Starting 2023, the filing and payment of VAT shall be done within 25 days following
the close of each taxable quarter

Power of the Commissioner

SEC. 115. Power of the Commissioner to Suspend the Business Operations of a
Taxpayer. - The Commissioner or his authorized representative is hereby empowered to
suspend the business operations and temporarily close the business establishment of any
person for any of the following violations:
a. In the case of a VAT-registered Person. –
1. Failure to issue receipts or invoices;
2. Failure to file a value-added tax return as required under Section 114; or
3. Understatement of taxable sales or receipts by thirty percent (30%) or
more of his correct taxable sales or receipts for the taxable quarter.
b. Failure of any Person to Register as Required under Section 236.

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

Ingles Notes
● What happens if you don’t file VAT receipts, can the BIR close you down?
○ CIR can shut down your operations temporarily for misdeclaration.
● Can they shut you down without prior hearing and notice?
○ They can do it automatically even without prior notice or hearing.
○ Remember CONSTI? Prior notice and hearing can be ?