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OCTOBER 12, 2018

VAT ZERO-RATED SALE OF SERVICE (LABOR ASPECT)


-SUBJECT TO 12 PERCENT VAT ONCE THE ENHANCED VAT REFUND SYSTEM IS IMPLEMENTED. (1 and 5)

1.Processing, manufacturing, or repacking of goods for other persons doing business outside the Philippines which
goods are subsequently exported

-This is the labor aspect of Sale of raw material or packaging material delivered here in the Philippines. Service was
rendered here in the Philippines. No actual export of services. Currently zero percent but they are moving it to subject
it to 12 percent vat.

2.Services rendered to a person engaged in business conducted outside the Philippines or to a non-resident person
not engaged in business who is outside the Philippines when the services are performed and condition is that it must
be paid in a duly accepted foreign currency duly accounted in the rules of BSP.

-Not covered under the 12 percent VAT once implemented. ZERO RATED STILL! This is deemed as Export sale of
service since the customer is located outside of the country- you are rendering service to that particular entity. The
payment must be in an accepted foreign currency.

-For it to be subject to 0%, payment must also be in acceptable foreign currency. But who is your client? Somebody
who is outside the jurisdiction of the country.

3.Transport of passengers and cargo by domestic air or sea vessels to a foreign country

-It must be a direct trip from the Philippines going abroad. It must not stop here in the local ports. This is on the
transportation service.
-Same atong GSFE to international shipping or air transport; must not have any stop-over within the country

4.Services rendered to persons engaged in international shipping or international air transport operations
-The labor portion of the 5th type of sale of goods
-Like Harbor Pilot, Tugging services, Docking services and Ferry services.
-Subject to Zero Percent provided the one rendering service is VAT registered entity or person.

5.Services performed by subcontractors in processing, converting or manufacturing goods for an enterprise whose
export sales exceed 70& of total annual production

This is the labor aspect of third transaction – the sale of raw material or packaging to export orienteated enterprise.
Same reasoning since the service is rendered here in the Phil. And the zero rating is provided under the law so we can
take it away without violating the cross border doctrine. Hence under train subject to 12 perecent, once the enhanced
vat refund system.

6.Services rendered to persons or entities whose exemptions under special laws or international agreements to which
the Phil is a signatory effectively subjects the supply of such service to zero percent.

-More of special agreements or treaties to which the Phil enters into.


-Services rendered to PEZ companies or to foreign corporations where the country has a treaty with the Philippines

7.Sale of power or fuel generated through renewable source of energy

-If it s renewable source of energy like hydro power, geothermal and you register for VAT purposes then considered as
subject to zero percent VAT.
-We want to encourage renewable sources of energy

¬For 1-3- services are rendered outside the country and must be in acceptable foreign currency

¬For 1 & 5, will be subject to 12% VAT upon implementation of enhanced VAT refund system
TAKE NOTE:

No need to memorize. Since application ang questions. In previous BAR exams, there is a question between those transactions
which are automatically zero rated or effectively zero rated.

Difference?

If automatic zero rating- this refers to actual export sale. From the Philippines, it must go out in the country. Automatic because no
need to get a ruling or certificate from the BIR because of the fact that it went out of the country.
The seller here will not charge VAT because subject to Zero Percent VAT but the seller can claim for refund or credit of Input Vat for
the VAT previously charged by the supplier.

Effectively zero rated- Effective meaning the Zero rating is granted under the law. This refers to sale of goods or services to persons
or entities whose exemption is under special law or international agreement to which a Philippines is a signatory. Same effect since
zero rated. So ang I charge kay zero percent vat but vat sale invoice or OR but didto lng sa vat zero rated sale ibutang not under
VATable sale and the seller can still ask for credit or refund for the input vat portion.

This is more related to Constructive Exports – those exports nga here na happen in the Philippines. Customs territory to an
economic zone. Sale happening within the economic zone.

If lawyer nia VAT-registered then engaged in #2, for services rendered to a person engaged in business conducted outside the
Philippines
-can be subject to 0% VAT.
-More on tax and corporate matter.

DISTINCTION BETWEEN ZERO RATED FROM EFFECTIVELY ZERO-RATED TRANSACTION

Zero-rated Effectively zero-rated


Refers to export sale of Refer to sale of goods or
goods or services serices to persons or
entities whose exemption
Tax is at 0% under special laws or
international agreements
The seller charges no to which the Philippines is
ouput tax, but can claim a signatory
a refund of or tax credit
certificate for the VAT The seller who charges
previously charged by zero output tax on such
suppliers transactions can also
claim a refund or tax
credit certificate for the
VAT previously charged
by suppliers
Applies to INDIRECT or
CONSTRUCTIVE export
sales i.e sale to export-
oriented enterprise

Difference is in the compliance aspect. Prove that there is this law and prove that you are registered under this law and
that you have complied with its requriements.

ENHANCED VAT REFUND

- New in TRAIN law where government will grant refund of creditable input tax within 90 days from the filing of the
VAT refund application with the BIR.
- In sec 112, actually, although 120 days, that’s up to the decision of the CIR to accept or deny. However, it can go
for more than 1 year because pa balik-balik with the requirements
- But with the 90 days, mao nang enhanced, if the BIR officer cannot grant your refund within 90 days from the
submission of complete documents, that BIR official can be held liable administratively. You can file a suit against
him.
Approval “in case of partial/full
denial, CIR must state in
Within 2 years after decision denial writing the legal and
actual basis for denial”
close of taxable quarter

(within 90 days) (within 30 days) Taxpayer may


VAT refund appeal denial to
CTA
Application

The DOF shall establish a VAT refund center in the BIR and BOC that will handle the processing and granting of cash refunds of creditable input tax

All pending VAT refund claims as of December 31, 2017 shall be fully paid in cash by December 31, 2019.

ENHANCED VAT REFUND

-We look at Section 112 as amended by TRAIN. This tells us that refunds of creditable input tax will now be made within 90
days from the filing of the VAT refund application with the BIR.
-Before TRAIN there is concept of refund but the period of refunding the excess input tax is not 90 days but 120 days. So it
was reduced.
-When we say excess input, the input vat is higher than your output vat.
-When does it happen? If you are a VAT registered person engaged in a VAT zero rated transactions. (MAO NI IMU FIRST
IPROVE!!)
-Before train, you can get refund sa excess input over output if you file for refund within 2 years after the close of the
taxable quarter when the sales transaction happen. There will be 120 days for the CIR to decided on that claim for refund. But in
reality it can go to 1-3 year to the point that they assign or sell their rights to claim for the tax credit certificated / refund.
Decision could be approval or denial. Problem here is inaction on the part of CIR so deemed denial. So you must appeal to the
CTA but denied jpun because na lapse na ang 120 days period. The 2-year period that cover only the admin action. This is
under sec 112 – refund of excess input. This is not erroneous tax.
-The other section is Sec 229 of NIRC. It talks of refund of excess TAX not necessarily Input tax but this presupposes
erroneous collection of tax. Example: Your liability is 1M but BIR collected 1.5M so parefund kas .5M under sec 229.
-Both periods the refund must be filed within a period of 2 years. Difference is that in Sec. 112, 2 years covers only the
Admin part up to the BIR. In sec 229, it covers both admin and judicial or actions before the CTA.
-Sec 112- no error since nilapas ra ang input over output. Sec 229 error on the part of BIR.
-So 120 days but madugay within 30 days because CIR not compelled to render a decision. That’s why there is an enhanced
vat refund system. Same lng 2 years within taxable quarter but the difference is from the filing of VAT refund application, 90
days nlng ang waiting time for there to have decision on the part of CIR. In the previous provision, pwde ra dili I ACT or no
decision in CIR just wait to lapse the 120 day period but now under ehanced VAT refund system the CIR thru auhroized agenst
must render a decision whether to approve or deny not just implied denial. It must be express denial. If denied partial or full.
But such case msut state in wrting the legal and factual basis for the denial.
-In the Enhance Vat refund system, if mag pa refund go to the RDO because they will establish a refund center in every
RDO. No more going to the Central Office. Not yet applicable now.
-What if he cant render a decision within 90 days from complete submission? – In the train law, the inaction of the
agent or employees is punishable by admin action.
-Also the DOF shall establish a VAT refund center in the BIR and BOC that will handle the processing and granting of cash
refunds of creditable input tax. Again it presupposes it is not erroneous. So they wanted to be LIKE SINGAPORE!! Awat2 ngee.
Problem is taas ang checklist to comply for BIR.
-Also BIR promised that all pending VAT refund claims as of December 31, 2017 shall be fully paid in cash by Dec 31, 2019.

Illustration: Example: DANIEL is Peza Registed selling raw materials/packaging material. Then SIR is export orientated
enterprise- the BUYER. If gibaligyaan ni Dan si Sir, under the present situation Zero percent Vat supposedly provided VAT
registered. Now if the enhanced vat refund system is implemented mupatong na si Daniel ug 12 percent Vat to his goods.
Example price is 1M then 12 percent is 1, 120,000. Sir the Buyer will pay an additional of 120,000. So who we will claim the
refund? – Si Sir the BUYER. It’s like giving 120,000 to the Government and he will just wait 90 days for him to get back the
120,000. So siya pa nahasol.
The within 2 years is the time within which to file a claim of refund. Not necessary after the sales muclaim dayon ug refund
since BUYER is BUSY.
On the side of BIR, additional collection can be used to other uses.

-In sec 112, actually, although 120 days, that’s up to the decision of the CIR to accept or deny. However, it can go for more
than 1 year because pa balik-balik with the requirements
-But with the 90 days, mao nang enhanced, if the BIR officer cannot grant your refund within 90 days from the submission
of complete documents, that BIR official can be held liable administratively. You can file a suit against him.

VAT EXEMPT TRANSACTIONS or PERSONS

-Good provision. This simply means that you are not subjected to VALUE ADDED TAX.
-Two things, if vat exempt transaction– it is the goods or properties not subject to VAT. But if vat exempt persons- it is the
entity, selling the goods or properties who is exempted.
-Not automatic nga vat exempt goods – automatice exempt na dayun because you also have to check the entity or person
selling it. Because If they voluntary registered under the Vat system then subject to 12 percent.
-Example of Vat exempt persons, non stock non profit educational institutions or government.

So you can answer if vatable or not, remember the 3 VATable transactions. If they belong, determine if they exceed threshold. And
then, ascertain if mu sud sa zero-rated or vat-exempt.

Even if exempt ang goods (like fish in original state) but the one selling it (like Rustans) is VATable, that is VATable.

DIFFERENCE OF ZERO RATED AND VAT EXEMPT


0% Transaction VAT EXEMPT
Registration Yes (Primary No
requirement)
Pass on/shifting No (no output No (No VAT to
vat, since 0 % speak of)
vat imu ipass
on)
Claim for input Yes (you can No (No input)
VAT claim the entire
input vat passed
on to you by
your supplier)
Relief on Total (Since Partial (Since
taxpayer Input will be we use the cost
deducted from deduction
the output) If method) Tax
Input is greater savings/benefit
than out put is only up to
then refund. extent of tax
(We use the tax liability of tax
credit method) rate. Like 30
percent.

Illustration

ABC Corporation, a VAT-registered entity sold fuel to DEF Corp, a corp engaged in international shipping but not VAT-
registered.

Inadvertently, ABC Corp shifted 12% VAT to DEF which was paid by the latter. Thereafter, ABC remitted the 12% VAT
collected to the BIR. May DEF Corp claim for VAT input refund on the 12% VAT passed to it considering that it is a VAT
exempt entity?
-ANSWER: Since no specification on the basis of refund, two sections, it could be under Sec 112- this is refund of excess
input VAT over output; Natural, the excess of input, ipa refund nimo and Sec 229- “excess” refers to erroneous collection.
ERROR.
-In both basis of refund, DEF corporation does no have the personality to claim for the refund of the input vat since 1) NOT
VAT REGISTERED, Because in Sec 112, it must be vat registered entity and you are engaged in zero rated transactions, 2)
Under 229 even if error, still cannot claim because this is VAT. And vat is an indirect tax, so who is the statutory tax payer? – it is
the seller. So whats the use of identifying the statutory tax payer? – For us to know kinsay pa refund if there is erroneous
payement to the BIR.
-In this case, even if DEF bears the burden of paying the Vat, he is not the taxpayer, so no personality. So proper way is
ABC corp will claim the refund, and ABC will refund it to DEF Corporation.

Features of VAT Exempt Transaction


1.Not included in ascertaining the general threshold
-Threshold is 3M.
-Example, tax payer nay business of jeepney, so during the year or taxi. He has gross receipts of 1M and the same tax payer
is into restruarant business. Gross receipt in the business is 2M then into consultancy pajud so 1M.
-To ascertain whether ni exceed sya sa threshold, are we going to include the gross receipt from taxi operations? No.
Because this is an exempt transaction, subject to OPT. So atu kwentahan when it comes to 3M threshold is only the restaurant
and consultancy.
-So in this case did not meet the threshold.

1.Not liable for VAT or 3% OPT


-However, there are transcations nga dili subject to VAT but 3 percent OPT. But as a rule, no business tax if an exemp
transaction.

1.No billing of output tax on every VAT exempt transaction


-Walay 12% vat na ipasa.

(A) Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind
generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor.

"Products classified under this paragraph shall be considered in their original state even if they have undergone the simple
processes of preparation or preservation for the market, such as:

a. freezing, - frozen meat or brisket (although gihiwa still simple process considered in its orig. state.)
b. drying, - dried fish (orig state) but if dried mango or fruit (no longer simple process) BIR rule that antixodiants or
preservatives are added then no longer simple process. Chemical process na.
c. salting, - salte fish (ginamos)
d. broiling, - not boiling. High heat for short time. (Source of the heat is also round, up and bottom)
e. roasting, - Lower heat for a long time. (Source of the heat is at the bottom)
f. smoking – smoked ham, tinapa. Bacon.
g. stripping (ex: deboned bangus) Dressed Chicken

TAKE NOTE:

Wrapping does not affect the original state of it. So long as did not under go chemical processes, it is exempt. Like for
vegetables which are shrink-wrapped or vacuum-wrapped.

The exemption also includes the services as provided under Sec. 109.

Sec 109 (F) services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane
into raw sugar.

Examples:
 EGGS: exempt whether red-egg or salted egg. Salting does not deviate the food product from its original form
 ROASTED CHICKEN: Exempt
 COFFEE BEANS: Exempt
 DRIED FISH: Exempt
 COTTON or COTTON SEEDS: VATable even in its original State
 COPRA: Exempt
 PETROLEUM PRODUCTS: VATable
 ELECTRICITY: VATable
 DRIED MANGOES: VATable
 SUGAR: Only Raw cane Sugar is VAT exempt. Refined sugar is already VATable

Salient points

a.White/refined sugar – VAT; only raw cane, sugar, molasses are exempt;
 Rice is exempt in whatever form (Either it is palay, riceor cultured rice)
 FDBRS3
 Dried fish, copra – exempt

Illustration

Berna imported bores Butakal and swine (Anay) for breeding purposes. She also imported horses (thoroughbred broodmares)
for sports/racing. Are the improtations subject to VAT?
Boars and swines importation- exempt from VAT; the importation of horses is taxable because such animals are not generally used
as or yielding or producing food for human consumption.

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