Vat

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TAX 2
VAT
INTRODUCTION
A"y. Terence Conrad H. Bello 2
A. Features of VAT A. Features of VAT
1. Essen?al Features of VAT: 2. Method of collec?ng VAT through the tax credit
method
a. Tax on consump?on
Input tax is credited against output tax to arrive at
b. It is an indirect tax net VAT payable (net VAT payable is eec?vely the
tax on the value added)
c. Limited to value added
Illustra(on: tax credit method and tax on value
added
Assume there are four rms (1) a logging
concessionaire who also manufactures lumber, (2) a
furniture manufacturer, (3) a furniture wholesaler,
and (4) a furniture retailer who sells furniture to the
end consumer, which is the household
A"y. Terence Conrad H. Bello Slide No. 3 A"y. Terence Conrad H. Bello Slide No. 4
A. Features of VAT A. Features of VAT
3. Output and Input

Taxpayer Sales Value Output Input VAT a. The VAT on the concessionaires sale of lumber is known as
Price Added Tax Tax Payable output tax
Concessionaire 10.00 10.00 1.00 - 1.00 b. The output tax, when it is passed on the purchaser who
manufactures the lumber into furniture, becomes the
Manufacturer 25.00 15.00 2.50 1.00 1.50 manufacturers input tax
c. The sale of furniture by the manufacturer to the wholesaler
Wholesaler 40.00 15.00 4.00 2.50 1.50 is likewise subject to VAT (output tax); however, he is
en?tled to deduct from such output tax, the input tax which
Retailer 50.00 10.00 5.00 4.00 1.00 is shiYed to him by the concessionaire
4. Basic formula:
Household: purchase price (P50) + VAT (P5) = P55 5.00
Output tax (12% or 0%)
Less: input tax_______
* For illustra,on purposes only, the VAT rate used in the example is 10% VAT Payable
(the rate now is 12%)
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A. In General
1. Taxable transac?ons covered:

a. Sale of goods or proper?es (in the course of T or
B)
b. Importa?on of goods (W/N in the course of T or
B)
c. Sale of services (in the course of T or B)
2. General requirements (sale of goods and services)
I. TAXABLE TRANSACTIONS a. There is a sale (of goods or services); AND
b. The sale is made in the course of trade or
business
A"y. Terence Conrad H. Bello 7 A"y. Terence Conrad H. Bello Slide No. 8
A. In General; 1st Requirement; There is a Sale A. In General; 1st Requirement; There is a Sale
1. In order for a transac?on to be subjected to VAT, it is essen?al 2. Illustra?ve cases

that there is a sale of goods or services
See also Tourist Trade and Travel Corp. v. CIR
2. Illustra?ve cases
wherein reimbursements received by a mall owner
VAT Rul. No. 26-97
for advances it had made for the payment of electric,
TP shares the same building with 2 or more subsidiaries
Being the nominal party-lessee (i.e., lessee-of-record), TP water, and telephone bills and for the janitorial
advances the payment of rent to the lessor, then seeks services provided were held to be not subject to VAT
reimbursement from its co-lessees (the subs) for their since the TP was not engaged in the business of
propor?onate share of the rent, without mark-up or prot
element (i.e., reimbursement-of-cost basis)
providing electricity, water, security and janitorial
Same treatment for other expenses such as security, building services to the lessees
maintenance and u?li?es (TP advances the expenses then Court reasoned that it is not TP who directly supplied
seeks reimbursement from the subs)
electricity, water and similar other goods to the
Ruling: reimbursements not subject to VAT since TP does not
sell, barter, exchange or lease goods or property or renders lessees, neither did it render security and janitorial
services services
A. In General; 1st Requirement; There is a Sale A. In General; 2nd Requirement; Sale is in the Course of Trade or Business
2. Illustra?ve cases 1. An important requirement for imposi?on of VAT is that

See, however, VAT Rul. 18-98, wherein an HMO was the sale or transac?on has been entered into in the
considered as engaged in business as a service course of any business carried on by the TP
contractor and was held liable to pay VAT although 2. The phrase in the course of trade or business means:
the actual health care services were rendered by the regular conduct or pursuit of a commercial or an
independent health care providers economic ac?vity
including transac?ons incidental thereto
In Tourist Trade, the TP therein was neither selling
electricity, water, etc. nor rendering janitorial and regardless of W/N the person engaged therein is a
security services non-stock, non-prot private organiza?on
(irrespec?ve of the disposi?on of its net income and
In VAT Rul. 18-98, the TP therein sold health care whether or not it sells exclusively to members or
services through independent third par?es who their guests), or government en?ty ( 105)
actually performed the service on the TPs behalf
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A. In General; 2nd Requirement; Sale is in the Course of Trade or Business A. In General; 2nd Requirement; Sale is in the Course of Trade or Business
3. Thus the phrase in the course of trade or business connotes 5. Is prot mo?ve/element essen?al for taxability?
REGULARITY No. Thus, a company that intends to establish a consumer
Thus, a non-stock corpora?on whose primary purpose is to store for the benet of its employees where there will be no
engage in research ac?vi?es and to provide services (for a fee) value added to the goods sold because they will be sold at cost
in community organiza?on, development planning and was held liable to VAT. The absence of prot and value added
to the goods sold does not make a person opera?ng a
development livelihood, development communica?on and consumer store selling basic commodi?es at cost exempt from
rural resource management was held subject to VAT. BIR Rul. VAT. VAT Rul. No. 444-88, Sept. 13, 1988
1-94, Jan. 4, 1994 In BIR Rul. 10-98, Feb. 5, 1998, the BIR ruled that a TP whose
On the other hand, the factor of regularity was absent in BIR primary purpose as set forth in its AOI is to provide technical,
Rul. 98-97, Aug. 28, 1997, which involved a manufacturer and research, management and personnel assistance to aliates
exporter of goods that received a considera?on for agreeing on a reimbursement-of-cost basis (i.e., no mark-up or prot
to pre-terminate its lease contract and to cancel its purchase element) is subject to VAT
op?on over the leased premises. The BIR ruled that the lease the phrase sale or exchange of services includes, among
pre-termina?on and cancella?on of purchase op?on does not others, the supply of technical service, assistance or
cons?tute a sale, barter or exchange of goods or proper?es in services rendered in connec?on with technical mgt or
administra?on of any scien?c, industrial or commercial
the course of trade or business of TP which is engaged in the undertaking, project or scheme
manufacture and expor?ng of goods
A. In General; 2nd Requirement; Sale is in the Course of Trade or Business A. In General; 2nd Requirement; Sale is in the Course of Trade or Business
5. Is prot mo?ve/element essen?al for taxability? No 5. Is prot mo?ve/element essen?al for taxability? No
CIR v. Commonwealth Mgt. & Services Corp. CIR v. Commonwealth Mgt. & Services Corp.
TP is an aliate of Philamlife organized by the la"er to Issue: Whether TP was engaged in the sale of service, thus
perform collec?on, consulta?ve and other technical liable for VAT
services, including func?oning as an internal auditor of
Philamlife and its other aliates Held: Liable for VAT
TP assessed by the BIR for deciency VAT Even a non-stock, non-prot organiza?on or government en?ty
Conten?ons of TP: is liable to pay VAT on the sale of goods or services
It was not engaged in the business of providing services VAT is a tax on transac?ons, imposed at every stage of the
to its aliates since the services were on a no prot, distribu?on process on the sale, barter, exchange of goods or
reimbursement-of-cost basis only; not prot oriented property, and on the performance of services, even in the
= not engaged in business absence of prot a"ributable thereto
In fact it did not generate prot but suered a net loss The term in the course of trade or business requires the
during the tax year at issue regular conduct or pursuit of a commercial or an economic
In the course of T or B requires that the business is ac?vity, regardless of whether or not the en?ty is prot-
carried on with a view to prot or livelihood oriented
A. In General; 2nd Requirement; Sale is in the Course of Trade or Business; Incidental

A. In General; 2nd Requirement; Sale is in the Course of Trade or Business
Transac?on vs. Isolated Transac?on
5. Is prot mo?ve/element essen?al for taxability? No 1. By express provision of law ( 105), incidental transac?ons are
CIR v. Commonwealth Mgt. & Services Corp. considered as undertaken in the course of business
Hence, it is immaterial whether the primary purpose of a Incidental means depending upon or appertaining to
corpora?on indicates that it receives payments for something else as primary; something necessary,
appertaining to, or depending upon another which is termed
services rendered to its aliates on a reimbursement-on-
the principal
cost basis only, without realizing prot, for purposes of
Hence, the sale by a garments manufacturer of a motor
determining liability for VAT on services rendered
vehicle assigned to its GM is subject to VAT
As long as the en?ty provides service for a fee, The sale of the motor vehicle is an incidental transac?on
remunera?on or considera?on, then the service rendered because the vehicle was purchased and used in
is subject to VAT furtherance of the TPs business. CS Garments v. CIR,
The services of TP do not fall within the 109 CTA Case 6520, Jan. 4, 2007
enumera?on of exempt transac?ons Posi?on adopted by BIR in RMO 15-2011 when it
revoked rulings exemp?ng sale of company car from VAT
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A. In General; 2nd Requirement; Sale is in the Course of Trade or Business; Incidental A. In General; 2nd Requirement; Sale is in the Course of Trade or Business; Incidental
Transac?on vs. Isolated Transac?on Transac?on vs. Isolated Transac?on
2. However, the BIR (and even the courts) in certain See also Magsaysay Lines, Inc. v. CIR, CTA Case No. 4353, April
instances exempted from VAT the sale of property used 27, 1992, a. in G.R. No. 146984, July 28, 2006, where the
court held that the sale by a property lessor, a GOCC, of its
in business supposedly because the sale was an isolated vessels held out for lease in line with the governments
transac?on priva?za?on program is not subject to VAT
See BIR Rul. 113-98, where the BIR ruled that the Court held that the sale was an isolated transac?on; the
sale by a telecom company of its microwave sale which was involuntary and made pursuant to the
backbone transmission network to another wireless declared policy of government for priva?za?on could no
communica?ons carrier is not in the course of the longer be repeated or carried on with regularity; it should
be emphasized that the normal VAT-registered ac?vity of
TPs trade or business of selling telecommunica?on the TP is leasing personal property; the sale of the vessels
services as such are not necessary to carry out the TPs primary
The BIR explained that the sale is not subject to func?on of leasing personal proper?es
VAT because it is an isolated transac?on; and Without analysis, the court held that the sale was not
that the transac?on does not necessarily follow incidental to the TPs normal business of leasing property
([t]he act of selling capital assets does not necessarily
the primary func?on of selling telecom services follow the act of leasing these assets)
A. In General; 2nd Requirement; Sale is in the Course of Trade or Business; Incidental A. In General; 2nd Requirement; Sale is in the Course of Trade or Business; Incidental
Transac?on vs. Isolated Transac?on Transac?on vs. Isolated Transac?on
Lapanday Food Corp. v. CIR Mindanao II Geothermal Partnership v. CIR

However, it does not follow that an isolated transac?on
Interest income derived by a parent company cannot be an incidental transac?on for purposes of VAT
from intercompany loans to aliates, as a form liability
A reading of Sec?on 105 of the 1997 Tax Code would show
of nancial assistance, is considered services that a transac?on in the course of trade or business
incidental to the parents business and, thus, includes transac?ons incidental thereto
Mindanao IIs business is to convert the steam supplied to it
subject to VAT 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 IIs property, plant, and
equipment. Therefore, the sale of the Nissan Patrol is an
incidental transac?on made in the course of Mindanao IIs
business which should be liable for VAT
A. In General; 2nd Requirement; Sale is in the Course of Trade or Business; Incidental

B. Sale of Goods or Proper?es
Transac?on vs. Isolated Transac?on
3. The mere fact that a transac?on is isolated will not 1. Sec. 106: there shall be levied, assessed and
necessarily disqualify it from being made incidentally in collected on every sale, barter or exchange of goods
the course of trade or business or proper?es, a value-added tax equivalent to 12%
4. Thus, an isolated transac?on -- if at the same ?me is of the gross selling price
an incidental transac?on -- will be characterized as 2. What are the taxable transac?ons covered by
entered into in the course of trade or business, 106?
hence, subject to VAT
a. Actual sales
b. Deemed sale transac?ons
c. Changes in or cessa?on of status of a VAT-
registered person
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B. Sale of Goods or Proper?es: Actual Sale B. Sale of Goods or Proper?es: Deemed Sale Transac?ons
1. A sale is a transfer of goods to another either (a) for 1. VAT on goods and proper?es not limited to actual sales; also
covers certain transac?ons which the law deems as if it was an
cash or on credit, or (b) partly for cash and partly for
actual sale, hence, subject to VAT
credit
2. What are the deemed sale transac?ons?
2. Covers sales, barters and exchanges a. Transfer, use or consump?on not in the course of business of
3. VAT accrues upon consumma?on of the sale, goods or proper?es originally intended for sale or use in the
regardless of the terms of payment between the course of business
b. Distribu?on or transfer to (i) shareholders or investors as
contrac?ng par?es (implicit in the deni?on of gross
share in the prots of the VAT-registered TP; or (ii) creditors in
selling price, which includes money or money payment of debt
equivalent which the purchaser is obligated to pay); c. Consignment of goods if actual sale is not made within 60 days
unlike sale of services wherein VAT accrues only upon d. Re?rement from or cessa?on of business with respect to
payment of considera?on (when the gross receipts inventories of taxable goods exis?ng as of such re?rement or
are actually or construc?vely received by the seller) cessa?on ( 106(B))
B. Sale of Goods or Proper?es: Deemed Sale Transac?ons B. Sale of Goods or Proper?es: Deemed Sale Transac?ons
3. Ra?onale for taxing deemed sale 4. Illustra?on of input tax recapture:

TP bought merchandise (say 10 t-shirts) for P1,000; VAT
transac?ons: of P100 was passed on to him by the store that sold him
To recapture/recoup claimed input tax the t-shirts (total purchase price therefore is P1,100); TP
a"ributable to the taxable goods withdrawn for intends to sell the t-shirts @ P220 each for a total of
P2,200 (VAT inclusive). For the sale of the t-shirts, TP has
personal or non-business use a VAT payable of P100 (P200 output less P100 input)
Instead of selling everything, TP withdraws for his
personal use 3 t-shirts and sold the remaining 7 t-shirts;
without the deemed sale provisions, TP has a VAT
payable only of P40 (output of P140 less input of P100)
Without deemed sale provisions, government foregoes
P60 of VAT revenue
With the deemed sale provisions, government is
restored to P100 VAT posi?on
B. Sale of Goods or Proper?es: Deemed Sale Transac?ons B. Sale of Goods or Proper?es: Changes in or Cessa?on of Status of VAT-Registered TP
5. Examples of deemed sale transac?ons: 1. VAT also applies to goods disposed of or exis?ng under certain
106(B)(1) Mr. K sells household furniture; he removes from circumstances
his store a living room set for use in his residen?al house Example: change of business ac?vity from VAT-taxable
106(B)(2)(a) J Co. declared a property dividend out of status to VAT-exempt status
inventory
Illustra?on: VAT-registered person engaged in a taxable
106(B)(2)(b) M Co. is indebted to N Co. for raw materials;
when M Co. could not pay in money, N Co. agreed to a dacion ac?vity like wholesaler or retailer who decides to
of the nished goods in payment of the indebtedness discon?nue such ac?vity and engages instead in life
106(B)(3) TP sold goods on consignment to A, with ?tle to insurance business or in any other business not subject
the goods passing only upon sale to a buyer; 65 days aYer to VAT
consignment, goods s?ll unsold by A Goods exis?ng as of the change in status from VATable
106(B)(4) - P & Co. was a taxable partnership; P & Co. was to VAT-exempt become subject to VAT even in the
dissolved and Q & Co. was formed to con?nue the business of absence of an actual sale
P & Co; at the ?me that P & Co. was dissolved, its books of
accounts showed a merchandise inventory of P100,000; the Ra,onale: same as deemed sale transac?ons (input tax
inventory is deemed sold by P & Co. upon dissolu?on recapture)
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B. Sale of Goods or Proper?es: Taxable Base; Gross Selling Price B. Sale of Goods or Proper?es: Taxable Base; Gross Selling Price
1. Taxable base means the amount or the value on which 2. Timing issues; when VAT accrues computa?on of
the VAT rate will be applied in compu?ng the output tax taxable base for sales of goods or proper?es is
For a taxable person who sells goods or proper?es, dierent from that of supply of services
the taxable base is the gross selling price Sale of goods or proper?es generally requires the
Gross selling price means the total amount of use of the accrual method on the basis of the
money or its equivalent which the purchaser pays or statutory deni?on of gross selling price (total
is obligated to pay to the seller in considera?on of amount of money or its equivalent that the
the sale, barter or exchange of the goods or purchaser pays or is obligated to pay to the seller)
proper?es, excluding VAT. The excise tax, if any, on Sale of services cash method of accoun?ng,
such goods or proper?es shall form part of the gross which means the considera?on is taxable only
selling price. upon actual or construc?ve receipt, regardless of
Special rules for sale of real property (FMV or zonal W/N the service has been rendered (see statutory
value, whichever is higher; taxable base for VAT may deni?on of gross receipts)
be accounted for under the instalment method)
B. Sale of Goods or Proper?es: Taxable Base; Gross Selling Price; Sales Discount, B. Sale of Goods or Proper?es: Taxable Base; Deemed Sales, Re?rement and
Returns, & Allowance Cessa?on, Below Market GSP
1. Sales discounts and returns and allowances as allowable deduc?ons from 1. Transac?ons deemed sale - output tax shall be based on
gross selling price
the market value of the goods deemed sold as of the
a. For sales discounts discount must be indicated in the invoice at the
?me of sale, the grant of which is not dependent upon the happening of
?me of the occurrence of the deemed sale transac?ons
a future event enumerated in Sec. 4.106-7(a)(1),(2), and (3)
Illustra,on: TP grants discounts to ice cream houses in the form of 2. Re?rement or cessa?on of business - tax base shall be
rebates for mee?ng monthly sales quota; rebates are determined only the acquisi?on cost or the current market price of the
at the end of the month
goods or proper?es, whichever is lower
Answer: Deduc?on not allowed. Discounts condi?oned upon the
subsequent happening of an event or fulllment of certain condi?ons, 3. Sale where the gross selling price is unreasonably lower
such as prompt payment or a"ainment of sales goals, shall not be than FMV - the actual market value shall be the tax base
allowed as deduc?ons. Only discounts granted and determined at the
?me of sale which are indicated in the invoice are allowed as
Meaning of unreasonably lower - if GSP is lower by
deduc?ons from the gross selling price. BIR Rul. No. 204-90 more than 30% of the actual market value of the
b. For sales returns and allowances proper credit or refund was made same goods of the same quan?ty and quality sold in
during the month or quarter to the buyer for sales previously recorded the immediate locality on or nearest the date of sale
as taxable sales
C. Importa?on of Goods C. Importa?on of Goods
1. In general - VAT is imposed on goods brought into the 4. Importa?on of 109(1) exempt goods no VAT
Philippines, whether for use in business or not 5. Time for payment prior to release from customs
2. Tax base VAT is based on the total value used by the custody
BOC in determining tari and customs du?es, plus
customs du?es, excise tax, if any, and other charges,
such as postage, commission, and similar charges, prior
to the release of the goods from customs custody
3. If du?es based on volume or quan?ty - landed cost shall
be the basis for compu?ng VAT. Landed cost consists of
the invoice amount, customs du?es, freight, insurance
and other charges. If the goods imported are subject to
excise tax, the excise tax shall form part of the tax base
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D. Sale of Services; Meaning of Sale or Exchange of Services D. Sale of Services; Requirements for Taxability
1. Sale or exchange of services - means the What are the requirements for the taxability of sale of
performance of: services?
all kinds of services The service must be in the course of trade or
in the Philippines business;
for others for a fee, remunera?on or
considera?on, whether in kind or in cash
Note: services rendered in the Philippines by non-
resident foreign persons are considered as having
including those performed or rendered by certain
persons and those involving certain transac?ons been rendered in the course of trade or business
enumerated under the law (see enumera?on; The service must be performed in the Philippines;
enumera?on is not exclusive; see Lhuiller v. CIR) and
and similar services regardless of whether or not The considera?on is actually or construc?vely
the performance thereof calls for the exercise or received
use of the physical or mental facul?es
D. Sale of Services; Requirements for Taxability; Place of Performance Rule D. Sale of Services; Requirements for Taxability; Place of Performance Rule
1. As a statutory principle, all kinds of services performed in Legal services performed by a U.K. law rm in
the Philippines are subject to VAT at the rate of 12% or 0% the U.K. and in the U.S. for the Republic of the
2. Services performed outside the Philippines, even if Philippines in an arbitra?on case in Washington,
undertaken in the course of business, are beyond the DC not subject to VAT. ITAD Rul. 154-02
scope of VAT, therefore, not subject to VAT
The place where the service is performed determines
the jurisdic?on to impose VAT (place of payment is
immaterial since the situs of the service is determined
by the place where the service is performed)
Thus, marke?ng ac?vi?es of a realty broker in the U.S.
to en?ce OFWs to buy condo units in the Philippines
held not subject to VAT since services were rendered
outside the Philippines. BIR Rul. 110-97
D. Sale of Services; Taxable Base; Gross Receipts Actually & Construc?vely Received D. Sale of Services; Taxable Base; Gross Receipts Actually & Construc?vely Received
1. Deni?on of gross receipts 2. Although taxable transac?on is past, present, or future

performance of service tax accrues upon actual or
refers to the total amount of money or its equivalent construc?ve receipt
represen?ng the contract price, compensa?on, 3. Tax accoun?ng cash method (not accrual method)
service fee, rental or royalty, 4. Construc?ve receipt occurs when the money
including the amount charged for materials supplied considera?on or its equivalent is placed at the control of
with the services and deposits applied as payments the person who rendered the service without
restric?ons by the payor. Examples:
for services rendered and advance payments
Deposit in banks which are made available to the
actually or construc?vely received during the taxable seller of services without restric?ons;
period Issuance by the debtor of a no?ce to oset any debt
for the services performed or to be performed for or obliga?on and acceptance thereof by the seller as
payment for services rendered; and
another person,
Transfer of the amounts retained by the payor to the
excluding VAT account of the contractor
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D. Sale of Services; Taxable Base; Gross Receipts Actually & Construc?vely Received; D. Sale of Services; Taxable Base; Gross Receipts Actually & Construc?vely Received;
Inclusions and Exclusions Inclusions and Exclusions
1. Includes: 4. Excludes, however, receivables (i.e., por?on of the

Contract price, compensa?on, service fee, rentals or contract price not yet actually or construc?vely
royal?es received). BIR Rul. No. 195-89
Amount charged for materials supplied with the services 5. Also excludes amounts earmarked for payment to third
par?es as well as reimbursement of out-of-pocket
Deposits and advance payments expenses (under certain condi?ons)
2. Thus, gross receipts includes amounts billed to clients Thus, amounts received by a local travel agent from
intended to recover costs and expenses (e.g., salaries and foreign tourist agencies which formed part of the
wages due to employees, due the government, deprecia?on package fee paid by the tourists but were intended
of equipment, supplies, overhead, etc.) as well as the prot or earmarked for hotel room accommoda?ons and
mark-up. VAT Rul. No. 111-88 accordingly paid by the local travel agency to the
3. Includes management fee (based on prots of managed hotels not subject to VAT
company), expenses incurred in connec?on with services Gross receipts do not include monies or receipts
rendered, and reimbursement by managed company of entrusted to the TP which do not belong to them
salaries and fringe benets of seconded employee. VAT Rul. and do not redound to the TPs benet. CIR v. Tours
No. 205-90 Specialists, Inc.
A. Zero Ra?ng vs. Exemp?on
1. Basic principle: a seller who is directly and legally liable

for the payment of VAT on goods and services is not
necessarily the person who ul?mately bears the burden
of the tax
It is the nal purchaser or consumer of such goods
and services who ul?mately bears the burden of the
VAT (VAT being an indirect tax)
2. From the perspec?ve of the nal consumer, VAT zero-
ra?ng and VAT exemp?on both oer some relief from
the burden of taxa?on, but the degree or extent of
II. RELIEF FROM VAT relief is dierent
3. VAT exemp?on oers par?al relief from the VAT
incidence, while VAT zero-ra?ng oers total relief from
the VAT incidence (see CIR v. Seagate Tech.)
A. Zero Ra?ng vs. Exemp?on A. Zero Ra?ng vs. Exemp?on
4. Why is the degree of relief dierent? EXEMPT ZERO-RATED

a. VAT exemp?on (par?al relief)
the transac?on is not subject to VAT (output tax) VAT on selling price 0 VAT on selling price 0
but the seller is not allowed any tax credit of VAT
(input tax) on purchases Purchase Price 100 Purchase Price 100
b. VAT zero-ra?ng (total relief)
the zero-rated sale of goods or services (by a VAT passed on 12 VAT passed on 12
VAT-registered person) is a taxable transac?on
for VAT purposes, but shall not result in any Total amt. charged 112 Total amt. charged 112
output tax (because the output tax rate is 0%)
However, the input tax on purchases of goods, Refund (12)
proper?es or services related to such zero-rated
sale shall be available as tax credit or refund Net amount 100
5. Illustra?on: assume there are 3 sellers A, B, C and a nal
purchaser, D
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B. Zero-Rated Transac?ons B. Zero-Rated Transac?ons
Objec?ve of zero-ra?ng: to make exporters Automa?c zero-ra?ng:

compe??ve interna?onally through VAT relief
Supplier Exporter Customer
Two ways to grant relief: Selling Price 100 VAT on sale to 0 Purchase price 200
Exporters sale is subject to 0% rate and is Customer
allowed a refund or credit of input tax passed VAT 12 Purchase price 100 VAT passed on 0
on to exporter by his supplier (automa?c Total amt. charged

to exporter
112 VAT passed on 12 Total amt. charged
by exporter
200
zero ra?ng) Total amt. charged 112

Supplier of exporter is eec?vely zero-rated by supplier
where his sale to the exporter is subject to Refund (12)
0% rate Net amount 100

Eec?ve zero-ra?ng: Sale of Goods:

1. Actual export sale ( 106(A)(2)(a)(1)) considera?on in
Supplier Exporter Customer
FX, accounted for in accordance with BSP rules and regs.
Selling Price 100 VAT on sale to 0 Purchase price 200
Customer 2. Sale of raw materials or packaging materials to a
VAT 0 Purchase price 100 VAT passed on 0
nonresident buyer for delivery to a resident local
export-oriented enterprise ( 106(A)(2)(a)(2))
Total amt. charged 100 VAT passed on 0 Total amt. charged 200 considera?on in FX, accounted for in accordance with
to exporter by exporter
BSP rules and regs.
Total amt. charged 100
by supplier 3. Sale of raw/packaging materials to export-oriented
Refund -
enterprises ( 106(A)(2)(a)(3)) export sales must
exceed 70% of total annual prodn
Eec?vely, the privilege of zero-ra?ng is extended to 4. Sale of gold to BSP ( 106(A)(2)(a)(4))
suppliers of the exporter 5. Those considered export sales under the Omnibus
Investments Code ( 106(A)(2)(a)(5))
Sale of Goods: Sale of Services:

6. Sale of goods, supplies, equipment and fuel to 1. Processing, mfg. or repacking goods for other persons doing
interna?onal vessels or air carriers ( 106(A)(2)(a)(6)) business outside the Philippines which goods are
7. Foreign currency denominated sale ( 106(A)(2)(b)) subsequently exported ( 108(B)(1)) - considera?on in FX,
accounted for in accordance with BSP rules and regs.
Sale of goods assembled or manufactured in the Phil. For
delivery to a Phil. resident 2. Services other than those men?oned in no. 1 rendered to
e.g., sale of locally manufactured car to OFWs for nonresidents ( 108(B)(2)) - considera?on in FX, accounted
delivery to Philippine residents (e.g., family of OFWs in for in accordance with BSP rules and regs.
the Phils.) CIR v. AMEX
8. Sales to persons or en??es whose exemp?on under CIR v. Burmeister & Wain Scandinavian
special laws or intl agreements eec?vely subjects
such sales to 0% rate ( 106(A)(2)(c)) (e.g., SMBA, 3. Services rendered to persons or en??es whose exemp?on
PEZA, ADB, IRRI) under special laws or intl agreements eec?vely subjects
such services to 0% rate ( 108(B)(3))
9
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B. Zero-Rated Transac?ons C. Exempt Transac?ons
Sale of Services: 1. See enumera?on under 109(1) (memorize!)

4. Services rendered to interna?onal vessels or air carriers, Sale or importa?on of marine or food products in their
original state
including leases of property ( 108(B)(4)) Sale or importa?on of fer?lizers; seeds, seedlings and
5. Services performed by contractors or subcontractors in ngerlings; etc.
Importa?on of personal and household eects of returning
processing, conver?ng, or manufacturing goods for residents
export-oriented enterprises ( 108(B)(5)) - export sales Services subject to percentage tax
must exceed 70% of total annual prodn Medical, dental, hospital and veterinary services, except
those rendered by professionals (e.g., doctors, den?sts, vet,
6. Transport of passengers and cargo by interna?onal etc.)
carriers ( 108(B)(6)) Educa?onal services rendered by private educa?onal
7. Sale of power or fuel generated through renewable ins?tu?ons
Services rendered by RHQ
sources of energy ( 108(B)(7))
Transac?ons exempt under special law
Sale of low cost housing, etc.
C. Exempt Transac?ons C. Exempt Transac?ons
2. What is the coverage of the exemp?on? 2. What is the coverage of the exemp?on?
a. General rule: b. Excep?ons:
Exemp?on covers only taxes for which party favored When the law itself provides for exemp?on
by the exemp?on is directly liable; exemp?on does
not extend to indirect taxes like VAT
from indirect taxes. CIR v. John Gotamco &
Sons, Inc. (involving the exemp?on of the WHO
Being an indirect tax, once VAT is shiYed to the
buyer, it is no longer a tax but an addi?onal cost
from indirect taxes)
which becomes a part of the amount of the contract When the history of statutes clearly indicates
price to be paid by the buyer. Phil. Acetylene Co., Inc. the grant of indirect tax exemp?on. Maceda v.
v. CIR; Phil. Natl Police Mul(-Purpose Coopera(ve, Macaraig, Jr. (conrming NPCs exemp?on
Inc. v. CIR; BIR Rul. No. 155-98; BIR Rul. No. 47-99 from direct and indirect taxes following an
examina?on of the evolu?on of NPCs charter)
A. Input Tax Credit
1. What is input tax?

Means the VAT due on or paid by a VAT-registered
person on importa?on of goods or local purchases of
goods, proper?es, or services, including lease or use of
proper?es, in the course of his trade or business.
Also includes the transi?onal input tax and the
presump?ve input tax determined in accordance with
Sec. 111 of the Tax Code
Must be evidenced by a VAT invoice or VAT O/R issued by
a VAT-registered person
IV. TAX CREDITS AND REFUNDS 2. Who can avail of input tax credit?
VAT-registered importer of goods
VAT-registered purchaser of local goods or proper?es
VAT-registered purchaser of services or lessee or licensee
10
25/11/16
A. Input Tax Credit A. Input Tax Credit; Excess Output Tax or Input Tax
3. What types of input tax are creditable? 1. Basic formula:

a. Purchase or importa?on of goods: Output tax (12% or 0%)
for sale Less: input tax_______
for conversion into or intended to form part of a nished VAT Payable
product for sale, including packaging materials 2. Per 110(B), if at the end of the taxable quarter, output tax
for use as supplies in the course of business exceeds input tax VAT-registered person pays the excess
for use as raw materials supplied in the sale of services 3. On the other hand, if input tax exceeds output tax:
for use in trade or business for which deduc?on for a. General rule: carry-over excess input to the succeeding
deprecia?on or amor?za?on is allowed quarter or quarters
b. Purchase of real proper?es for which a VAT has actually been b. Excep?on: if the unu?lized input is a"ributable to zero-
paid rated sales, the VAT-registered TP has 3 op?ons:
c. Purchase of services for which a VAT has actually been paid Carry-over excess input tax
d. Transac?ons deemed sale Refund unu?lized input tax
Credit unu?lized input tax vs. other internal revenue
e. Transi?onal input tax taxes (i.e., TCC)
f. Presump?ve input tax
A. Input Tax Credit; Amor?za?on of Input Tax on Capital Goods B. Transi?onal Input Tax
1. Input tax on purchase or importa?on of depreciable goods 1. Who is en?tled to the transi?onal input tax?
must be spread evenly over the month of acquisi?on and the A person who becomes liable to VAT or any
59 succeeding months if the aggregate acquisi?on cost, person who elects to be a VAT-registered person
excluding the VAT component, exceeds P1M
(e.g., TPs who exceed the P1.5 M threshold or
2. If the es?mated useful life of the capital good is less than 5 TPs who elect VAT coverage even if their
years, the input VAT shall be spread over such shorter period turnover does not exceed P1.5 M)
3. The aggregate acquisi?on cost of a depreciable asset in any
2. How much is the transi?onal input tax?
calendar month refers to the total price agreed upon for one
or more assets acquired and not on the payments actually Transi?onal input tax credit is 2% of the value of
made during the calendar month. Thus, an asset acquired on the beginning inventory on hand as of the
installment for an acquisi?on cost of more than P1M will be eec?vity of the VAT-registra?on, or the actual
subject to the amor?za?on of input tax despite the fact that VAT paid, whichever is higher
the monthly payment/installment does not exceed P1M
C. Presump?ve Input Tax D. Final Withholding VAT
1. Who is en?tled to the presump?ve input tax? 1. When does it apply?

The 5% nal withholding VAT applies to sales of goods or
Persons or rms engaged in the processing of services to the government or to GOCCs
s a r d i n e s , m a c k e r e l , a n d m i l k , a n d i n 2. When does the obliga?on to withhold arise?
manufacturing rened sugar, cooking oil and Before making payment on account of the purchase, the
government en?ty or the GOCC shall deduct and
packed noodle-based instant meals withhold the 5% nal VAT based on the gross payment
2. How much is the presump?ve input tax? thereof
3. What does the 5% nal withholding VAT represent?
4% of the gross value in money of the TPs It represents the net VAT payable of the seller
purchases of primary agricultural products which 4. What is the eect of the 5% nal withholding VAT on the
are used as inputs to their produc?on sellers input tax a"ributable to the sale to the government
or the GOCC?
It essen?ally limits the amount of input VAT that the
seller may credit against the 12% output tax to only 7%
(12% output - 5% net VAT payable = 7% standard input)
11
25/11/16
E. Claims for Refund or Tax Credit E. Claims for Refund or Tax Credit
2. What is the period within which the CIR should act on the claim?
1. When can a VAT-registered TP claim a refund Within 120 days from submission of complete documents in
or tax credit for unu?lized input VAT? support of the applica?on
3. What is the prescrip?ve period for ling the claim for refund or TCC?
In only 2 instances: a. In the case of zero-rated sales:
Zero-rated or eec?vely zero-rated sales ( Administra?ve claim must be made within 2 years from from
112(A)) unu?lized input VAT must be the close of the taxable quarter when the relevant sales were
made (CIR v. Mirant Pagbilao Corp., GR 172129, Sept. 12,
a"ributable to the zero-rated sales (i.e., either 2008)
directly a"ributable or allocable to zero-rated Judicial claim
sales) Within 30 days from denial of claim or from the lapse of
the 120 day period without any ac?on from the BIR (
Cancella?on of VAT registra?on ( 112(B)) - due 112(A)) (CIR v. Aichi Forging, GR 184823, Oct. 6, 2010)
to re?rement from or cessa?on of business, or CIR v. San Roque Power Corp., GR 187485, Feb. 12, 2013
due to changes in or cessa?on of status under Upon the lapse of the 120-day period, may TP await
instead for an actual denial? Rohm Apollo Semiconductor
106(C) Phil. v. CIR
E. Claims for Refund or Tax Credit
3. What is the prescrip?ve period for ling the claim

for refund or TCC?
b. In the case of cancella?on of VAT registra?on:
Administra?ve claim must be made within 2
years from the date of cancella?on
Judicial claim same
V. COMPLIANCE REQUIREMENTS
A"y. Terence Conrad H. Bello Slide No. 69 A"y. Terence Conrad H. Bello 70
A. BIR Registra?on A. BIR Registra?on
1. Mandatory registra?on generally, any person 2. Op?onal registra?on TP may elect to register as a
whose sale of goods and services are subject to VAT VAT taxpayer in the following instances:
is required to register as a VAT taxpayer with the TPs annual gross sales or receipts do not exceed
appropriate RDO (and pay annual registra?on fee of P1,919,500
P500). VAT registra?on is mandatory if: TP with mixed transac?ons (taxable and
TPs gross sales or receipts for the past 12 mos. exempt), may elect that exempt transac?ons be
(other than exempt sales) exceed P1,919,500 subject to VAT
TP has reasonable grounds to believe that his Franchise grantees of radio and TV broadcas?ng
gross sales or receipts for the next 12 mos. whose annual gross receipts of the preceding
(other than exempt sales) will exceed P1,919,500 year do not exceed P10M
12
25/11/16
A. BIR Registra?on A. BIR Registra?on
3. Consequences of non-registra?on 4. Cancella?on of VAT registra?on

TP liable for VAT TP is previously VAT-registered but whose annual
But disqualied to claim input VAT credits gross sales or receipts fall below P1,919,500
Re?rement from business subject to VAT
B. Record Keeping Requirement C. Invoices and Receipts
Requirement to keep subsidiary sales journal Issue VAT invoice for sale of goods
and subsidiary purchase journal Issue VAT O/R for sale of services
Informa?on contained in VAT invoice/OR
TIN-V
Total amount due (inclusive of VAT)
VAT as a separate item
Zero-rated sale wri"en or printed prominently
Break down for mixed transac?ons
Date, quan?ty, unit cost and descrip?on/nature
If sale is P1,000 or more, indicate name, address
and TIN of VAT-registered buyer
C. Invoices and Receipts
Consequence or erroneous issuance of VAT invoice/OR

If TP is not VAT-registered and issues invoice/OR
indica?ng TIN-V:
Liable for VAT in addi?on to percentage tax
Disqualied from input VAT credit a"ributable to
the sale
50% surcharge
Purchaser, however, eligible to claim input VAT
Break down for mixed transac?ons
If TP is VAT-registered and issues VAT invoice/OR for
exempt transac?on liable for VAT as if not exempt
A"y. Terence Conrad H. Bello Slide No. 77
13

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25/11/16

A"y. Terence Conrad H. Bello 2

A. Features of VAT A. Features of VAT

A. Features of VAT A. Features of VAT

3. Output and Input

1. Taxable transac?ons covered:

1. In order for a transac?on to be subjected to VAT, it is essen?al 2. Illustra?ve cases

2. Illustra?ve cases 1. An important requirement for imposi?on of VAT is that

A. In General; 2nd Requirement; Sale is in the Course of Trade or Business; Incidental

Lapanday Food Corp. v. CIR Mindanao II Geothermal Partnership v. CIR

A. In General; 2nd Requirement; Sale is in the Course of Trade or Business; Incidental

3. Ra?onale for taxing deemed sale 4. Illustra?on of input tax recapture:

C. Importa?on of Goods C. Importa?on of Goods

1. Deni?on of gross receipts 2. Although taxable transac?on is past, present, or future

1. Includes: 4. Excludes, however, receivables (i.e., por?on of the

A. Zero Ra?ng vs. Exemp?on

1. Basic principle: a seller who is directly and legally liable

A. Zero Ra?ng vs. Exemp?on A. Zero Ra?ng vs. Exemp?on

4. Why is the degree of relief dierent? EXEMPT ZERO-RATED

B. Zero-Rated Transac?ons B. Zero-Rated Transac?ons

Objec?ve of zero-ra?ng: to make exporters Automa?c zero-ra?ng:

on to exporter by his supplier (automa?c Total amt. charged

zero ra?ng) Total amt. charged 112

B. Zero-Rated Transac?ons B. Zero-Rated Transac?ons

Eec?ve zero-ra?ng: Sale of Goods:

B. Zero-Rated Transac?ons B. Zero-Rated Transac?ons

Sale of Goods: Sale of Services:

B. Zero-Rated Transac?ons C. Exempt Transac?ons

Sale of Services: 1. See enumera?on under 109(1) (memorize!)

C. Exempt Transac?ons C. Exempt Transac?ons

A. Input Tax Credit

1. What is input tax?

3. What types of input tax are creditable? 1. Basic formula:

C. Presump?ve Input Tax D. Final Withholding VAT

1. Who is en?tled to the presump?ve input tax? 1. When does it apply?

E. Claims for Refund or Tax Credit

3. What is the prescrip?ve period for ling the claim

A. BIR Registra?on A. BIR Registra?on

A. BIR Registra?on A. BIR Registra?on

3. Consequences of non-registra?on 4. Cancella?on of VAT registra?on

B. Record Keeping Requirement C. Invoices and Receipts

C. Invoices and Receipts

Consequence or erroneous issuance of VAT invoice/OR

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