TAXATION II PART III VALUE-ADDED TAX Sections 105-115 of the NIRC, amended by RA No. !!" Im#$emented by RR No.

1%-05 as amended by RR No. &-0" I. PRELIMINARY MATTERS a. Nat'(e and cha(acte(istic of )AT in *ene(a$ Sec. &.105.-+ of RR No. 1%-05 SECTION 4.105-2. Nature and Characteristics 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 on importation of goods into the Philippines. 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, 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 RA No. 9337. However, in the case of importation, the importer is the one liable for the VAT. CASES: CIR vs. Magsaysay Lines GR No. 1 !"# $a%e$ &'(y )#* )++! Pursuant to a government program of privatization, NDC, a VAT-registered entity created for the purpose of selling real property, decided to sell to private enterprise all of its shares in its wholly-owned subsidiary the National Marine Corporation (NMC). The NDC decided to sell in one lot its NMC shares and five (5) of its ships, which are 3,700 DWT Tween-Decker, "Kloeckner" type vessels. The vessels were constructed for the NDC between 1981 and 1984, then initially leased to Luzon Stevedoring Company, also its wholly-owned subsidiary. Subsequently, the vessels were transferred and leased, on a bareboat basis, to the NMC. The NMC shares and the vessels were offered for public bidding. Among the stipulated terms and conditions for the public auction was that the winning bidder was to pay "a value added tax of 10% on the value of the vessels." Magsaysay Lines, Inc., offered to buy the shares and the vessels for P168,000,000.00. The bid was made by Magsaysay Lines, purportedly for a new company still to be formed composed of itself, Baliwag Navigation, Inc., and FIM Limited of the Marden Group based in Hongkong . The bid was approved by the Committee on Privatization, and a Notice of Award was issued to Magsaysay Lines. VAT is ultimately a tax on consumption, even though it is assessed on many levels of transactions on the basis of a fixed percentage.It is the end user of consumer goods or services which ultimately shoulders the tax, as the liability therefrom is passed on to the end users by the providers of these goods or services who in turn may credit their own VAT liability (or input VAT) from the VAT payments they receive from the final consumer (or output VAT).The final purchase by the end consumer represents the final link in a production chain that itself involves several transactions and several acts of consumption. 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. CIR vs. Seaga%e Te,-no(ogy .P-i(s/ GR No. 101#!! 2e34'a4y 11* )++0 The VAT is a uniform tax ranging, at present, from 0 percent to 10 percent levied on every importation of goods, whether or not in the course of trade or business, or imposed on each sale, barter, exchange or lease of goods or properties or on each rendition of services in the course of trade or business as they pass along the production and distribution chain, the tax being limited only to the value added to such goods, properties or services by the seller, transferor or lessor.It is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. As such, it should be understood not in the context of the person or entity that is primarily, directly and legally liable for its payment, but in terms of its nature as a tax on consumption. b. )AT as an indi(ect ta, CASE: Con%e5 vs. CIR GR No. 101110 $a%e$ &'(y )* )++ VAT is an indirect tax. As such, the amount of tax paid on the goods, properties or services bought, transferred, or leased may be shifted or passed on by the seller, transferor, or lessor to the buyer, transferee or lessee. Unlike a direct tax, such as the income tax, which primarily taxes an individuals ability to pay based on his income or net wealth, an indirect tax, such as the VAT, is a tax on consumption of goods, services, or certain transactions involving the same. The VAT, thus, forms a substantial portion of consumer expenditures. Further, in indirect taxation, there is a need to distinguish between the liability for the tax and the burden of the tax. As earlier pointed out, the amount of tax paid may be shifted or passed on by the seller to the buyer. What is transferred in such instances is not the liability for the tax, but the tax burden. In adding or including the VAT due to the selling price, the seller remains the person primarily and legally liable for the payment of the tax. What is shifted only to the intermediate buyer and ultimately to the final purchaser is the burden of the tax. Stated differently, a seller who is directly and legally liable for payment of an indirect tax, such as the VAT on goods or services is not necessarily the person who ultimately bears the burden of the same tax. It is the final purchaser or consumer of

R-)I-.-R TAX +- /01I 1

s'ch *oods o( se(2ices 3ho, a$tho'*h not di(ect$y and $e*a$$y $iab$e fo( the #ayment the(eof, '$timate$y bea(s the b'(den of the ta,. ,. Pe4sons Lia3(e .Se,. 1+0/ Persons Liable. - Any person who, in the course of trade or business, sells barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code. 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. i. Pe4sons (ia3(e in gene4a( CASE: CIR vs. CA an$ Co66on7ea(%- Manage6en% Se4vi,es Commonwealth Management and Services Corporation (COMASERCO, for brevity), is a corporation duly organized and existing under the laws of the Philippines. It is an affiliate of Philippine American Life Insurance Co. (Philamlife), organized by the letter to perform collection, consultative and other technical services, including functioning as an internal auditor, of Philamlife and its other affiliates. On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private respondent COMASERCO for deficiency value-added tax (VAT). COMASERCO's annual corporate income tax return ending December 31, 1988 indicated a net loss in its operations. COMASERCO asserted that the services it rendered to Philamlife and its affiliates, relating to collections, consultative and other technical assistance, including functioning as an internal auditor, were on a "no-profit, reimbursement-of-cost-only" basis. It averred that it was not engaged id the business of providing services to Philamlife and its affiliates. COMASERCO was established to ensure operational orderliness and administrative efficiency of Philamlife and its affiliates, and not in the sale of services. COMASERCO stressed that it was not profit-motivated, thus not engaged in business. In fact, it did not generate profit but suffered a net loss in taxable year 1988. COMASERCO averred that since it was not engaged in business, it was not liable to pay VAT. ii. .ho a(e (e4'i(ed to (e*iste( fo( )AT 5Sec. +!% 67 8Sec. .+!%-1 of RR No. 1%-059 Se,. )1! .G/ Any person, who expects to realize gross sales or receipts subject to value- added tax in excess of the amount prescribed under Section 109(z) of this Code for the next 12-month period from the commencement of the business, shall register with the Revenue District Office which has jurisdiction over the head office or branch and shall pay the annual registration fee prescribed in Subsection (B) hereof. Se,. ".)1!-1 o8 RR No. 1!-+0 (a) In general. Any person who, in the course of trade or business, sells, barters, exchanges goods or properties, or engages in the sale of services subject to VAT imposed in Secs. 106 and 108 of the Tax Code shall register with the appropriate RDO using the appropriate BIR forms and pay an annual registration fee in the amount of Five Hundred Pesos (P500) using BIR Form No. 0605 for every separate or distinct establishment or place of business (save a warehouse without sale transactions) before the start of such business and every year thereafter on or before the 31st day of January. Any person who maintains a head or main office and branches in different places shall register with the RDO which has jurisdiction over the place wherein the main or head office or branch is located. However, the registration fee shall be paid to any accredited bank in the Revenue District where the head office or branch is registered provided that in areas where there are no accredited banks, the same shall be paid to the RDO, collection agent, or duly authorized treasurer of the municipality where each place of business or branch is situated. -ach )AT-(e*iste(ed #e(son sha$$ be assi*ned on$y one TIN. The b(anch sha$$ 'se the -di*it TIN of the :ead Office #$'s a !-di*it ;(anch Code. 5b7 1andato(y< 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 if: i. His gross sales or receipts for the past twelve (12) months, other than those that are exempt under Sec. 109 (1)(A) to (U) of the Tax Code, have exceeded One million five hundred thousand pesos (P1,500,000.00); or ii. 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 Sec. 109 (1)(A) to (U) of the Tax Code, will exceed One million five hundred thousand pesos (P1,500,000.00).

Every person who becomes liable to be registered under paragraph (1) of this subsection shall register with the RDO which has jurisdiction over the head office or branch of that person, and shall pay the annual registration fee prescribed in subsection 9.236-1(a) hereof. If he fails to register, he shall be liable to pay the output tax under Secs. 106 and/or 108 of the Tax Code 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. Moreover, franchise grantees of radio and television broadcasting, whose gross annual receipt for the preceding calendar year exceeded P10,000,000.00, shall register within thirty (30) days from the end of the calendar year. iii. O#tiona$ )AT Re*ist(ation 5Sec. +!% :7 8Sec. .+!%-1 of RR No. 1%-059 5c7 O#tiona$ )AT Re*ist(ation. = (1) Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) not required to register for VAT may, in relation to Sec. 4.109-2, elect to be VATregistered by registering with the RDO that has jurisdiction over the head office of that person, and pay the annual registration fee of P500.00 for every separate and distinct establishment. (2) Any person who is VAT-registered but enters into transactions which are exempt from VAT (mixed transactions) may opt that the VAT apply to his transactions which would have been exempt under Section 109(1) of the Tax Code, as amended. [Sec. 109(2)] (3) Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed ten million pesos (P10,000,000.00) derived from the business covered by the law granting the franchise may opt for VAT registration. This option, once exercised, shall be irrevocable. (Sec. 119, Tax Code) Any #e(son 3ho e$ects to (e*iste( 'nde( this s'bsections 517 and 5+7 abo2e sha$$ not be a$$o3ed to cance$ his (e*ist(ation fo( the ne,t th(ee 5!7 yea(s. The above-stated taxpayers may apply for VAT registration not later than ten (10) days before the beginning of the calendar quarter and shall pay the registration fee prescribed under sub-paragraph (a) of this Section, unless they have already paid at the beginning of the year. In any case, the Commissioner of Internal Revenue may, for administrative reason deny any application for registration. Once registered as a VAT person, the taxpayer shall be liable to output tax and be entitled to input tax credit beginning on the first day of the month following registration. $. Meaning o8 %-e 9-4ase :in %-e ,o'4se o8 %4a$e o8 3'siness; .Se,. 1+0/ Sec. 4.105-3 of RR No. 16-05 - Meaning of "In the Course of Trade or Business". The term "in the course of trade or business" means the regular conduct or pursuit of a commercial or economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. Non-resident persons who perform services in the Philippines are deemed to be making sales in the course of trade or business, even if the performance of services is not regular. CASE: CIR vs. Magsaysay Lines GR No. 1 !"# $a%e$ &'(y )#* )++! Interpretation of the term In the Course of Trade or Business. VAT is not a singular-minded tax on every transactional level. Its assessment bears direct relevance to the taxpayers role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code and its subsequent incarnations, the tax is levied only on the sale, barter or exchange of goods or services by persons who engage in such activities, in the course of trade or business. These 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. Is the sale subject to VAT ? No. The sa$e is not s'b>ect to )AT. "course of business" or "doing business" connotes regularity of activity. 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. It should be emphasized that the normal VAT-registered activity of NDC is leasing personal property. This finding is confirmed by the Revised Charter of the NDC which bears no indication that the NDC was created for the primary purpose of selling real property.